The reinsurance broker Benfield surprised the City with a profits warning yesterday, revealing that its full-year results are set to come in about £10m lower than expectations, due to the recent exodus of key personnel.
In a statement to the market, the group said it had begun legal proceedings against 20 staff from its Facultative Solutions arm, who are believed to be migrating to Benfield's rival, Aon. The £10m is expected to be spent on legal fees and the costs of trying to retain the remaining staff. "Following the resignation of certain senior members of its Facultative Solutions team, Benfield has found it necessary to commence a legal process in order to protect its business interests," the statement said. "Facultative reinsurance represents less than 6 per cent of the group's total revenue, but the fourth quarter is an important period for the Facultative placements and accounts for a significant proportion of annual Facultative revenue.
"Benfield is no longer confident of Facultative revenues previously anticipated in the final quarter of 2006."
The head of the Facultative Solutions team, Elliot Richardson, was the first to defect, and it is believed that the others are leaving to join him. Facultative reinsurance is a bespoke reinsurance which provides tailor-made cover for one-off risks.
Analysts at Keefe, Bruyette & Woods said they did not believe Mr Richardson had originally envisaged taking so many staff with him. "We sense that what was initially expected to be a friendly departure by a small number of senior facultative managers has turned into an attempt by a competitor to poach the whole team," they said.
Shares in the group fell 8 per cent on the back of the news, in spite of Benfield's insistence that the rest of the company was doing well. The shares closed at 347p, giving the group a market value of £811m. It was the biggest one-day fall in the shares for more than a year.
Neil Manser, an analyst at Fox Pitt Kelton, said he thought it was a shame that Benfield was struggling to hang on to its employees at a time when it should be taking advantage of the high rates in property catastrophe insurance.
However, he added that he did not believe the departures would have a long-term effect on the business. "While these limited departures are disappointing, they are confined only to one relatively small area of the business," he said.Reuse content