Insurance rates crisis hits profits at Sedgwick Group

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INSURERS are being forced to take losses just to hang on to business, Sedgwick Group said yesterday as it announced a 19 per cent drop in first- quarter profits.

The country's biggest broker said conditions in the London market for general insurance were hitting a nadir as underwriters struggled to keep their clients on board.

Stuart Tarrant, finance director, said: "The London market is in an absolutely parlous state as far as rates are concerned. That is where the problem is. As at the moment the rates are so bad that if they don't turn around by the end of the year then the London market will have problems - and we know the problems it has had."

Sedgwick disappointed the City with a worse-than-expected fall in pre- tax profits to pounds 35.3m before exceptionals, compared with pounds 43.5m in the same period last year.

Sedgwick Ltd, the group's general insurance broking arm, saw revenues fall by 5 per cent in the teeth of tough market conditions. A disposal of its Netherlands business at the end of the first quarter last year depressed income, while a joint venture in Italy has yet to produce its full benefits.

The group saw profits hit by pounds 2.5m because of the effect of the strong pound on its overseas operations. Without the impact of sterling, the group's broking income would have increased by 3 per cent to pounds 231.5m.

Sax Riley, chairman of Sedgwick, said: "These results are in line with our expectations which took account of the continuing decline of insurance rates in the international markets. We remain confident about the group's underlying trading performance for 1998 as a whole."

But Rob White-Cooper, chief executive, admitted the group would be affected by heated competition in London market insurance rates. "We are still seeing very material reductions coming through in classes like aviation, energy and marine for the second, third year in a row."

Sedgwick has increasingly shifted towards fee income rather than commissions, which have dwindled as insurers have struggled to undercut each other. Sedgwick Noble Lowndes, its employee benefits consultancy, now brings in 25 per cent of its income.

However, SNL is also set to incur a hefty pounds 35m charge for the second stage of the pension mis-selling review. SNL has warned that this figure could be exceeded.

Sedgwick shares slid by 3.5p yesterday to close at 154p, valuing the group at pounds 872m.

In a separate development, Lloyd's of London renewed its call for a "fundamental reappraisal" of the way the market works. Max Taylor, chairman, said the market needed to simplify its structures in a bid to boost competitiveness.