12th Feb 2007 07:01
Novae Group PLC12 February 2007 NEWS RELEASE 12 February 2007 For immediate release Novae Group plc Q4 2006 syndicate results and forecasts Novae Syndicates Limited, the Lloyd's managing agency owned by Novae Group plc,today announces syndicate results for the 2004 underwriting year (subject toaudit), as well as forecasts for the 2005 and 2006 underwriting years, and forthe 2002 and prior run off years. • 2004 year: results within or above forecast ranges • 2005 year: forecasts unchanged • 2002 run off years: remain open, performance encouraging • £5 million utilisation of the exceptional provision in Q4 2006 (Q4 2005: £21 million), making utilisation for the full year £14 million (2005: £40 million), and leaving £13 million to be carried forward into 2007 2004 Year of Account Syndicate Capacity Aligned Result on Latest £m % closure (%) forecast (%) 2147 286.4 100.0 7.5% 6.0% - 11.0% 1007 215.6 80.5 13.5% 7.5% - 12.5% Syndicate 2147, where the impact is felt from the 2004 windstorms and in partfrom the 2005 windstorms, has been closed within the forecast range with aprofit of 7.5%. The net incurred loss ratio at 36 months is 60% and this isprojected to an ultimate outcome of 78%. Syndicate 1007, which comprises predominantly medium tail classes, has beenclosed above the upper limit of the forecast range with a profit of 13.5%. Thenet incurred loss ratio at 36 months is 24%, projected to an ultimate outcome of46%. 2005 Year of Account Syndicate Capacity Aligned Current forecast Previous forecast £m % % % 2147 286.0 100.0 (12.5)% - (7.5)% (12.5)% - (7.5)% 1007 151.0 81.6 10.0% - 15.0% 10.0% - 15.0% The forecasts for Syndicate 2147 reflect the severity of windstorm losses in2005, as well as an effect from the transfer of some business from the Syndicateto Novae's new insurance company. Notwithstanding this, the forecast outcome isunchanged. The net incurred loss ratio after 24 months is 110% (2004: 47%; 2003:26%). Syndicate 1007 is currently enjoying another year of favourable loss experience,although the medium tail nature of this syndicate lends itself to a prudentapproach at this stage. The net incurred loss ratio after 24 months is 18%(2004: 16%; 2003: 6%) and the forecast outcome is unchanged. 2006 Year of Account Syndicate Capacity Aligned Initial forecast £m % % 2147 240.0 100.0 7.5% - 15.0% 1007 120.0 81.6 7.5% - 15.0% For the 2006 year Syndicate 2147 has to date enjoyed very benign claimsexperience, in sharp contrast with the two previous years. The net incurred lossratio after 12 months is 15% (2005: 116%; 2004: 33%). The medium tail nature of Syndicate 1007 means that experience at this earlystage provides only limited indication of the ultimate outcome: at 12 months thenet incurred loss ratio is 8% (2005: 2%; 2004: 3%). However, the terms on whichbusiness for the year was written provide encouragement that anothersatisfactory year of profitability is in prospect. 2002 Run Off Year of Account Position at Current Previous forecast Capacity Aligned 60 months forecast % Syndicate £m % % % 1007 150.8 55.4 (10.5)% (15.0)% - (5.0)% (20.0)% - (10.0)% 1241 168.9 99.7 (86.0)% (95.0)% - (80.0)% (95.0)% - (75.0)% To accommodate the residual uncertainty for both Syndicates these run off yearsremain open. The position for Syndicate 1007 has improved over the year, from (13.6)% at 48months to (10.5)% at 60 months, reflecting another year's investment return,with only modest reserve adjustments. With the Syndicate remaining open and afurther 12 months' investment return now in prospect, this prompts somefavourable revision to the ultimate forecast outcome For Syndicate 1241 the position at 60 months of (86.0)% represents somedeterioration from twelve months ago (80.1)%, although the pace of deteriorationhas slowed. In this context some narrowing of the range of the likely ultimateoutcome is justified. During Q4 utilisation of the £103 million exceptional provision established inJuly 2004 was £5 million (2005 Q4: £21 million, 2004 Q4: £28 million). Broadly,as much of the provision as was utilised in 2006 (£14 million) is available for2007 (£13 million). Current trading and prospects In July last year we commented on the length of time that the underwritingenvironment had remained favourable and we sounded a note of caution on rating,notwithstanding the Katrina / Rita / Wilma effect which was causing rates forsome windstorm-related classes to harden. A correct response to this is for underwriters steadily to pare back to theircore business, and for the Group as a whole to grow by attracting newunderwriters with their own core books. During the past nine months this hasbeen done by the recruitment of new teams of underwriters, and this incrementalbusiness has offset the deliberate and gradual reduction in underwriting of someof the Group's classes elsewhere. During 2007 we expect pressure on rates to continue, both in the Lloyd'sbusiness and in the insurance company. This does not mean that healthy levels ofprofitability need be foregone. On the contrary, the combination of theinsurance company formed last year and the larger Syndicates' business hasdelivered a better balance to the Group as a whole and helps attract new,profitable core books of business. The improved resilience and quality ofearnings that this structure delivers are key elements of the Group's emergingrecovery. For further information: Matthew Fosh - Novae Group plc 020 7903 7300Nick Miles - M:Communications 020 7153 1521 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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