Jardine Lloyd Thompson, the country's biggest insurance broker, issued a swingeing profits warning yesterday and announced its chief executive had quit.
The company blamed plunging premium rates in the reinsurance market, which have collapsed this year on lower demand from big corporates. Its shares fell 20 per cent to 366p, wiping £190m off the group's valuation.
Steve McGill, who took over as chief executive from the current chairman in January 2002, resigned yesterday. Under the terms of his 12-month contract he is entitled to receive one year's salary plus benefits in compensation, which would hand him a windfall of up to £500,000. Last year he was paid £835,000, which included a basic salary of £400,000. He owns 1.25 million shares in JLT - worth £1.2m less after yesterday's warning.
Ken Carter, the chairman, will resume his former executive role while the company searches for a replacement for Mr McGill.
The move flouts the Higgs code of corporate governance, which recommends that companies split the chairman and chief executive role. Mr Carter, 61, set a two-year deadline for the search. He said: "The board has accepted the resignation of Steve McGill and would like to thank him for his hard work."
JLT said it expects profits before tax and exceptional items to be £92m for the year to 31 December. Its final dividend will not be affected.
The insurance industry has been cast into the spotlight by the New York attorney general, Eliot Spitzer, who last month launched an inquiry into insurance market commissions. Mr Spitzer is suing Marsh & McLennan, the world's biggest insurance broker, over allegations of bid rigging and improper commissions.
JLT has already warned twice this year that premium rates in the reinsurance market have plummeted, particularly for commercial insurance.
Yesterday it admitted that it had underestimated the rates of decline, saying the insurance market had "softened at a faster rate than had been anticipated earlier in the year".
The broker has also been hit by the full-year impact of lower reinsurance revenues in the UK and the US. It makes 48 per cent of its turnover in the US but its costs are in the UK. Last year it enjoyed record results, with profits up 10 per cent to £111m after insurance premiums rose to record levels.
Mr Carter said: "The board is of the view that the group profit before tax will be lower than market expectations."Reuse content