Omega reports full-year loss of $43m

Loss “ must not be repeated”, says new CEO Pexton

Lloyd’s insurer Omega has made a loss after tax of $42.8m for the full year of 2010 compared with a profit of $43.6m in 2009.

The firm’s combined ratio jumped to 114,4%, and the company has decided not to pay out a final dividend for 2010. It had already paid out 6 cents a share during the year.

The loss was caused by a series of catastrophe and large single-risk loss events, including the earthquakes in Chile and New Zealand, the Deepwater Horizon oil rig explosion, the Australian floods and the sinking of the Aban Pearl submersible, among others.

The company said the loss burden was exacerbated by price reductions putting pressure on margins, which was reflected by the increase in attritional loss reserves and the need to strengthen reserves in some areas.

“Clearly this is a disappointing result, and one that must not be repeated,” said Omega chief executive Richard Pexton, who took the reins from Richard Tolliday in March last year.

Omega chairman John Coldman said the new board of directors, which was appointed last year at the behest of shareholders, faced a baptism of fire, adding that 86% of Omega’s pre-tax loss was attributable to loss experience on 2009 and prior years.

No comment was made about the recent approach from rival Lloyd’s insurer Canopius.

While praising Omega’s “excellent” corporate structure, “solid” core book of underwriting and team of experienced underwriters, Pexton said that when he reviewed the insurer’s book on his arrival, he found it more volatile than he expected. The company had expanded more recently into classes of business with greater catastrophe exposure and larger insureds, such as retrocessional reinsurance and marine energy.

He added that some of Omega’s reinsurance programmes were less efficient and effective than he expected, and operationally the business was “behind the curve” in terms of risk management, modelling, data quality and analysis, and control.

Following Pexton’s review, the company has substantially cut its direct offshore energy business from September 2010 in order to reduce the overall volatility of the portfolio

Also, since the second quarter of 2010, it has significantly scaled back and refocused the international retrocessional reinsurance account which was impacted by the Chilean, Australian and New Zealand catastrophes. Gross written premium on this account has reduced from $16.4m in 2010 (of which $11.6m was written by 1 April 2010) to $4.2m in 2011.

Omega estimates that if 2010’s events repeated, the actions it has taken would have reduced the cost impact by 33%.

Omega 2010 highlights in $m (compared with 2009)