May 2010 Financial News

‘Painful’ loss for GHL

May 06, 2010

Guardian Holdings Limited recorded a loss of $821 million for the 2009 financial year, the biggest in the history of the company.

In a joint statement published in the group’s annual report, chairman Arthur Lok Jack and chief executive officer Jeffrey Mack said the loss was “self-inflicted” and was related directly to the sale of Zenith Insurance Group, its motor insurance subsidiary in the United Kingdom.

The 2009 annual report was published online, ahead of the Annual General Meeting on May 12, in the group’s effort to reduce its carbon footprint and expense.

“Any loss is unacceptable, and a loss of this size is just plain painful. Over the last six years GHL’s results have been marked by volatility, some of it inflicted by the financial markets, some of it inflicted by the international accounting standards’ prescribed method of reporting our financial asset movements through our Income Statement, and some of it self-inflicted.

“This year’s loss is self-inflicted and stems directly from the Zenith Insurance Group with trading losses of $355 million and non-cash accounting losses of $592 million related to the write-off of Goodwill and Translation losses,” GHL heads explained.

According to the report, the group bought Zenith in 2005 and sought to integrate it with Link Insurance Group, its other UK based insurance subsidiary bought in 2003 to increase profits and to become a leader in the entire insurance industry.

“With the benefit of hindsight, we got this acquisition very wrong. At the time of these acquisitions, we went through a very rigorous process of evaluation and concluded that these investments would add value for you, our shareholders,” GHL said. They noted however that they did not foresee the shift from buying motor insurance policies from brokers to buying them online.

Explaining that presently almost half of all policies are bought directly from the internet, GHL said, “This change has affected all underwriters of private motor insurance, not just Zenith. In fact, the UK motor insurance sector as a whole lost money writing this business both in 2008 and 2009 and we take full responsibility. After analysing and evaluating our various alternatives, your Board decided to cut our losses and dispose of this business.

“We fully recognised that the sale of this company would generate huge, non-cash accounting losses and would shrink our balance sheet. However the alternative was to stay with a business that we believed had little to no prospect of turning a profit, let alone delivering our required return on capital.”

Despite this event, GHL’s regional and international expansion provided positive results. Removing non-recurring items like the loss due to Zenith, from its 2008 and 2009 financial statements, GHL profit after tax from continuing operations amounted to $371 million.

This is the group’s best performance since 2004 and was achieved with a relatively small amount of fair value, non-cash gains.

GHL’s operating profit, before fair value gains, finance charges and tax, of $532 million. On the revenue side, total net insurance premium income from continuing operations amounted to $3.3 billion, an increase of one percent which was due to life, health and pension business and asset management business.

Guardian Life of the Caribbean added $228 million in new business with Guardian Life in Jamaica added J$923 million in new business.

Revenue in Asset Management business grew to $157 million, a 70% increase over last year. Asset Management business in Trinidad and Tobago exceeded over $1 billion in third-party assets under management.

Guardian General’s profits in Property and Casualty amounted to $134 million, an 85 percent increase over 2008.


Source:
Newsday
Thursday May 6, 2010

http://www.newsday.co.tt/business/0,120268.html