Shares in Sedgwick slid 8p to 129p yesterday after the insurance broker braced the market for lower-than-expected profits this year if dollar weakness and difficult market conditions continue.
Revealing a dip in interim profits, Sax Riley, chief executive, said the full-year figures "could be somewhat affected unless there is a strengthening of the US dollar and conditions in the industry improve".
Although analysts were busy downgrading profit forecasts to around pounds 90m yesterday, Mr Riley denied his statement amounted to a profit warning. Speaking later, he said he was merely sounding a "precautionary note" and reminding the market "that conditions in the second half may not mirror those in the first half".
The lower dollar wiped pounds 3.5m from profits in the first half to June, which slipped from pounds 63.4m to pounds 63.1m. Sedgwick estimates a further pounds 1m to pounds 2m could go if average rates prevailing in the second quarter continue.
Mr Riley said there had also been a general softening in insurance rates due to over-capacity. Rates charged to UK companies for insurance provided by the composite insurers - so-called retail business - had come off 20 per cent in the past couple of months, he said.
"There's a lot of good insurance business in the UK and there are a lot of continental insurance companies in this market endeavouring to get market share," Mr Riley claimed.
He also highlighted a 20 per cent fall in recent months in rates charged for workers' compensation, required in the US to cover workers for sickness, death and disability while at work.
Some analysts were left puzzled by Sedgwick's timing on highlighting the weakness of rates, which has been known about for some time. One suggested the real problems would come this year in the Sedgwick Payne London market operation and in Sedgwick Noble Lowndes, an employee benefit and pensions business which yesterday reported a fall in profits.
One observer said a merger of the Sedgwick Europe and Sedgwick Payne operations to create a unified European insurance intermediary, also announced yesterday, was likely to be the prelude for further rationalisation of the business.
Investment Column, page 18