Aug 2011 Financial News

Guardian profit shrinks as catastrophe losses climb

Aug 17, 2011

Guardian Holdings Limited returned six-month profit that was at half the levels reported a year ago, which is blamed mostly on an extraordinary period of big natural catastrophes around the world and lacklustre financial markets.

January to June 2011 was the "highest ever" loss period recorded in any one year and the events cost insurance companies US$60 billion — or nearly five times the average of the past decade, said Guardian, as it reported a 53 per cent drop in half-year profit from TT$217.22 million last year to TT$102.45 million at June 2011.

The Trinidad company said its own losses amounted to TT$27m (US$4.27m) in the half year.

"Most companies are reporting large after-tax losses due to these catastrophes," chairman Arthur Lok Jack said in a statement to shareholders. The Japanese earthquake in March was among the most notable catastrophes.

"The frequencies of the large catastrophe events affected our bottom line by TT$27 million. Instead of delivering a profit to our group, our Lloyds of London business produced the aforementioned loss," he said.

The Lloyds business is being sold for £35 million, or TT$359 million, to Ryan Specialty Group, a United Kingdom-based general underwriting agency specialising in financial products. Guardian has clarified that its share of the sale would amount to 39 per cent or TT$140 million, or 2.31 times the asset's book value.

The deal is expected to close in the September quarter.

Lok Jack says the Lloyd's business could continue to report losses up to two years after the deal closes.

"Due to the way Lloyds operates, we will continue to have residual, albeit diminishing, underwriting exposure through 2013. While we believe that our Lloyds portfolio is properly reserved, and those reserves are reflected in our figures, there exists the chance that these reserves will fluctuate, either negatively or positively," he said.

The insurance group has refined its reporting to distinguish insurance premiums from investment revenue - both of which were down at half year.

Net premiums dipped from TT$2 billion last year to TT$1.89 billion in the review period; investment income fell from TT$594 million to TT$459 million

"On top of the unusual and large catastrophes, the investment climate has been challenging as well. I'm sure you personally know all too well the difficulty in finding local and regional fixed income securities to invest in, as well as how the low interest rate environment has affected your overall returns," said Lok Jack.

"The poorer investment results particularly affected our life business which generates a lot of cash float. Given the gravity of appropriate investment securities, we were forced to sit on more cash than we would have liked," he said.

The company closed the quarter with TT$1.8 billion of cash and equivalents sitting on its balance sheet.


Source:
marcella.scarlett@gleanerjm.com
Jamaica Gleaner
Wednesday August 17, 2011

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