German losses hold back Lloyds Abbey

LLOYDS Abbey Life, the insurance group controlled by Lloyds Bank, has been hit by a pounds 14.1m loss at Trans Leben, the small German subsidiary that it is winding down.

Investment returns from German bonds and shares in the past 18 months have not been enough to support the current bonus levels that Trans Leben pays on its products. This has required the company to make a provision to maintain bonus levels until the end of the year.

Lloyds Abbey was also hit by the consequences of its decision last year to seek less business for Trans Leben, a move prompted by the heavy costs of funding a growing insurance company under German regulations.

Brokers that supplied Trans Leben's business have switched their clients to other insurers, causing an unusually high number of policy lapses.

These two facts led to a pounds 15.3m write-down in Trans Leben's embedded value. This led to a pounds 14.1m loss from the group's European operations after a pounds 7.5m profit in 1991.

The group as a whole turned in pre-tax profits of pounds 297.6m, a 3 per cent fall from the pounds 305.5m total previously reported for 1991. However, Lloyds Abbey restated the 1991 results pounds 20m lower - applying new accounting regulations to the goodwill write-off on the 1991 sale of its commercial estate agency business.

Black Horse Financial Services, the arm that sells life insurance to the customers of Lloyds Bank, made the best progress in the face of the recession. Its profits rose by 23 per cent to pounds 76.6m as its employed consultant sales force grew to more than 1,000.

Stephen Maran, Lloyds Abbey's chief executive, said the BHFS sales force accounted for nearly 40 per cent of the subsidiary's sales force against just over 25 per cent in 1991. The rest of the business is sold by Lloyds Bank staff who have other responsibilities besides giving advice on insurance.

Abbey Life, which operates through a self-employed sales force, found 1992 harder going but still edged profits ahead 2 per cent to pounds 99.9m. Sales force numbers dropped by 300 to 3,200 in anticipation of tougher training and competence regulations.

Lloyds Bowmaker, the lending arm, suffered a further pounds 100.5m of bad debts, only a modest improvement on 1991. About two-thirds of the problems arose on first and second mortgage lending. Profits on Bowmaker's pounds 2.9bn loan book slipped by 40 per cent to pounds 16.2m.

Lloyds Bank Insurance Services, the insurance advice arm, lifted profits by 8 per cent to pounds 58.8m.

Black Horse Agencies, the 390- branch estate agency business, halved its losses to pounds 10.6m, despite fewer house sales, by concentrating on repossessions, new homes and first-time buyers.

Lloyds Abbey is paying a final dividend of 11p to maintain the total at 17.3p a share. The group is constrained by a lack of distributable earnings.