Lloyd's Novae Group reports loss in H1 ahead of AXIS acquisition

Lloyd’s insurer Novae Group reported a loss in the first half of 2017 following the announcement that the business will be  acquired by AXIS Capital Holdings.

The group reported a loss before tax of £14.0 million in the first half of 2017, compared to a profit of £65.3 million in the same period of 2016. The group's combined ratio was 101.6 percent in the first half, up 5.9 percentage points year-on-year, impacted by reserve deterioration in classes which the group exited or placed in run-off over the last 12-18 months, according to the company.

“Our strategy since 2015 has been to re-engineer our underwriting portfolio in the face of a deteriorating soft market which has tested even the largest industry players, and our result for H1 2017 should be seen in that context,” said CEO Matthew Fosh.

“It has only been by Novae focussing on niche classes where it could demonstrate a sustainable competitive advantage that the long-term prospects of the business could best be served.”

The group completed its underwriting transformation with the announcement of its withdrawal from certain casualty classes and the closure of its casualty division. The group’s cyber and US XS casualty units are now reported as part of the expanded marine, aviation, political risk and specialty division (MAPS). The UK general liability and medical malpractice units are now reported as part of the property division.

“These changes enable us to focus on those classes where market leading expertise and capabilities are differentiators,” Fosh said.

The aggregate combined ratio for the property and MAPS divisions was 94.7 percent (H1 2016 restated: 89.3 percent) compared to the exited division which reported a combined ratio of 128.4 percent (H1 2016 restated: 98.8 percent). The attritional loss ratio of 52.0 percent (H1 2016: 47.9 percent) deteriorated as rates remained under pressure in a number of classes, the company said.

Novae Group is being acquired by AXIS Capital for £468 million ($604 million) in an all-cash deal.

“Our specialist underwriting expertise is highly complementary with AXIS’ own successful specialty franchise and has resulted in their offer to acquire the business. The proposed transaction will provide us with the increased scale and financial resources to better compete in current markets," Fosh noted.

Overall, gross written premium for the first half of the year grew 16.7 percent to £598.8 million in the first six months, driven by property and MAPS divisions. This growth was offset by premium reductions from a number of poorer performing classes as the group continued to reallocate capital to business which offers attractive returns for shareholders, the company said. Gross written premium from exited classes reduced by 36.7 percent at constant rates of exchange, although the full impact of reductions will not be realised until 2018.

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