Shareholders’ equity halves as Capita firm goes into red

Capita Insurance Services Ltd (CISL), part of the insurance and investor services division of outsourcing firm Capita, saw its shareholders’ equity almost halve in 2009 after it moved from profit to loss. The company also decided to exit service provision for technical loss adjusting.

CISL made a loss of £6.8m for the year to 31 December 2009, compared with a £6.1m profit in 2008. Administrative expenses of £79.3m exceeded the £72.5m the company’s 2009 turnover, leading to an operating loss of £6.9m. Included in the administrative expenses was a £2.4m impairment of intangible fixed assets.

As a result of the loss, shareholders’ funds fell 49% to £7m as at 31 December 2009 from £13.8m on the same date in 2008. The company elected not to pay a dividend in 2009, having paid out £3m in 2008.

Capita said that the difference between the 2008 and 2009 performances was caused by the closure of its assistance business, the ending of a contract with Principle Insurance Holdings and central costs such as IT, divisional overheads and property.

However, the company stressed that the results of Capita Insurance Services Ltd exclude contributions made by the insurance distribution, London market and specialist insurance services businesses. Capita Group’s insurance services division as a whole made an underlying operating profit of £28.4m in 2009, according to the company’s annual report, down from £31.1m in 2008.

CISL wrote down the value of investments in holdings by £20m during 2009. Some £18.5m was for HFR Holdings, the holding company for Lancaster Insurance Services. This was because the shares in Lancaster were transferred to CISL from HFR as part of a restructuring. “The value has not been ‘lost’, it has just been included in the group’s balance sheet,” the company said.

In relation to this reorganisation, HFR paid CISL a dividend of £18.5m in 2009, which shows up as investment income in the company’s profit and loss account.

The remaining £1.5m of the £20m relates to the write-down of the entire value of CISL’s holding in insurance services company Repair Management Services Holdings. The company’s results filing said this was due to a permanent diminution in the subsidiary’s value.

CISL made the decision to exit service provision in technical loss adjusting because of “sustained losses” in the business area. “It was decided to focus resources elsewhere within our insurance service area,” the company said.

Capita said that the company’s core insurance operations had performed to plan so far in 2010, but added: “The results reported in CISL only reflect a small part of the overall insurance division profit.”