Novae warns combined ratio could hit 100% in 2016
Novae Group, the specialist Lloyd’s insurance group, has warned that its combined ratio for the whole of 2016 will be high than anticipated because of the continued prevalence of larger individual risk and catastrophe losses.
In a pre-year end trading update, the company said its combined ratio is anticipated to be within a range of 98 percent to 100 percent – significantly higher than the figure of 90.8 percent it posted in 2015 and the 91 percent in posted in 2014. The last time its combined ratio increased over 95 percent was in 2011 when it reached 105.1 percent.
“Our trading experience in the second half has seen a continued prevalence of larger individual risk and catastrophe losses, as outlined at the half year and in the trading update for the period ended 30 September 2016,” the company said.
“Whilst the attritional loss ratio remains steady despite rating pressures, the impact of larger individual risk losses means that underwriting contribution for the year is likely to be lower than our prior expectations.
“Our overall combined ratio for FY 2016, assuming normal trading for the remainder of December and including the accounting adjustment outlined below, is anticipated to be within a range of 98 percent to 100 percent.”
It said its investment performance for the year to date remains strong. However, the recent significant bond market sell-off following the US elections has had a corresponding impact on its fixed income portfolio value, the company said.
In addition, following a pre year-end review of certain accounting policies, Novae said it has made changes to the accounting treatment of deferred acquisition costs.
“The impact of this review is expected to result in a write down of the deferred acquisition cost asset in the opening balance sheet by approximately £17 million and an increase in the deferred acquisition cost charge for 2016, included in the anticipated combined ratio above, of approximately £5 million. As this change in accounting treatment relates to non-cash items, it does not impact the group’s free cash flow.”
