NU profits break £1000m profit barrier despite drop in UK GI premiums

Norwich Union Insurance this morning reported record profits of £1,075 million (2005: £970 million) and a COR of 95%, despite a small reduction in general insurance net written premiums to £5,583 million (2005: £5,832 million).
The insurer admitted the result had been achieved against a “”backdrop of increasingly tough market conditions” and includes a benefit of £75 million from better than expected weather (2005: neutral), together with savings on prior year claims that have arisen as a result of “management action to control claims costs and improve processes”.
In commercial lines NU said this “intense competition” had led to a reduction in rates of around 3% (2005: 1% decrease) in commercial property. In commercial motor the reduction of rates was 2% (2005: 1% decrease), although the insurer added: “We are seeing the first indications that the sector is hardening”.
In contrast NU said personal lines homeowner rates have increased by 3% (2005: 6%). In personal motor market NU’s full year COR of 104%, was 1% lower than at the half year while rates have increased by 5% on average throughout the year (2005: 4%).
In its full year statement NU added: “We are satisfied with the extent of the corrective action taken and are seeing encouraging signs that others in the market are following our lead. Following the opening of a dedicated retention centre in November, personal motor retention rates are improving.
“Distribution costs have risen in 2006, with our expense ratio increasing to 13.9% (2005: 10.9%), as we have invested to secure future profitability. As flagged at the half year, the investments have been in brand presence and technology to provide better service to our brokers and to enable personal lines transactions to be performed on-line and in one place.
“The expense ratio has also been impacted by a full year of expenses associated with RAC Rescue, whose model includes higher costs of acquiring and administering business. In September, we announced details of our UK Cost & Efficiency programme which will deliver cost savings and enhanced cost flexibility. Following the successful completion of the integration, RAC has made an overall contribution of £160 million to Group operating profit. Of this, £115 million is recognised within general insurance and the remainder in the results of our non-insurance operations. Specifically, we have delivered cost savings of £100 million and we remain on track to meet the target profit of £220 million in 2008.”
Speaking about the group GI result worldwide Richard Harvey, group chief executive, added: “Our general insurance businesses delivered a strong performance, with a combined operating ratio of 94%, comfortably ahead of our target to meet or beat a COR of 98%. Operating profit has increased to £1.7 billion, 8% ahead of last year.
“This was achieved through a combination of improved underwriting disciplines and lower than average weatherrelated claims of £91 million. The result includes exceptional releases in the UK of approximately £200 million. In the UK, we have taken the lead in tackling reduced profitability in the motor insurance market and we have already seen an improvement in our motor COR as a result. We continue to increase our distribution reach in our international businesses in order to capture profitable growth.
“The RAC business delivered a good performance growing operating profit to £160million in 2006. We expect to deliver cost savings of £130 million and operating profits of £220 million per annum by 2008, giving a run rate return on capital of 18.8%. We remain on track to meet our target of increasing the customer base by 1.4 million customers by the end of 2008.”