Esure warned yesterday that motorists’ premiums would soar, as tumbling profits wiped nearly £40m off founder Peter Wood’s stake.
Mr Wood, who owns nearly 31 per cent of the insurer, took the hit on his holding which was worth £341m before the company revealed a dividend cut and tumbling profits.
Esure has struggled since listing on the London Stock Exchange more than two years ago. At its initial public offering, its shares were valued at 290p but yesterday they stood at 240p after its latest results disappointed the City.
Underlying pre-tax profits fell 21.3 per cent to £46.5m on the back of “challenging market conditions” while its combined ratio – an industry calculation used to measure underwriting profitability – deteriorated, rising 4.9 per cent to 95.8 per cent. A figure above 100 per cent effectively means an insurer is taking in less money than it is paying out in claims and costs.
Chief executive Stuart Vann said: “Lawyers and accident management firms have found ways to operate around the reforms introduced by the Government to curb whiplash claims. As I’ve said before, we’ve seen new tactics like psychiatric claims coming through.”
He added: “The economic recovery and the cost of fuel falling has also meant that about three million more miles have been driven on the roads in the last few months. This will lead to more accidents.”
Mr Vann said Esure had increased premiums by about 5 per cent during the first half of the year, compared with an industry average of about 3.6 per cent, and said they would rise further in the second half. Its interim dividend was cut from 5.1p to 4.2p.
As well as claims inflation, consumers are set to be hit by the Chancellor’s decision to increase the insurance premium tax from 6 per cent to 9.5 per cent in November, a move that experts called a “stealth tax” that would hit millions of ordinary households.
The news was not all bad for Esure, which spent £95m last year buying the remaining 50 per cent of Gocompare.com it did not own. Pre-tax profits at the comparison site were up 25.2 per cent to £13.4m on revenues of £59.6m.Reuse content