17 February 2011

Continuing progress at Groupama UK

Revenues up and improved profitability at Groupama Insurances
Another good performance from GUK Broking Services

"Tough trading conditions in the UK's general insurance market and some of the coldest weather for over 100 years meant that 2010 was very challenging. However, at Groupama Insurances we managed to deliver profitable growth and our UK broking subsidiaries also combined to produce another good performance. Overall this was a very satisfactory outcome, especially given the poor economic environment.

I am encouraged that we have continued to make progress in such volatile conditions and with the underwriting cycle at its lowest point. This demonstrates the value of our strong underwriting discipline and our clear focus on the bottom line. This bodes well for the future."

François-Xavier Boisseau – CEO

Business highlights

Revenues

Total revenues at Groupama Insurances were up 4.6% to £470.9 million (2009: £450.3 million) as premium rates in the company's core private car portfolio continued to rise as the market took further steps to improve profitability. There was also controlled growth in the company's household business although revenues in the Commercial Division remained under pressure.

At the company's private medical insurance (PMI) business also grew as brokers responded to the company's award winning service proposition.
Combined revenues in the Group's broking businesses were down marginally at £60.5 million (2009: £62.4million) as a result of the UK's recessionary business climate and the continuing pressure on premium rates.

Profitability

Profits in Groupama's combined UK operations increased almost 70% to £23.7 million (2009: £14.1million) before tax and amortization.

At Groupama Insurances profits rose as the result of another solid performance from the Commercial Lines Division. There was an improvement in Personal Lines as private car rates increased substantially over the year.

Although the household account broke even it was impacted by significant severe weather events in the first and final quarters of the year. The company's ongoing efforts to streamline its expense base also continued to feed through to the bottom line.

Another good performance from GUK Broking Services, Groupama's combined UK broking operations saw profits rise despite some restructuring at the ChoiceQuote subsidiary.

Personal Lines Division

Personal lines revenues at Groupama Insurances rose 8.3% to £289.0 million (2009: £266.7 million).

The company's household business grew 6.6% and continued to develop with the acquisition of a number of new scheme opportunities as did the motor cycle portfolio where Groupama Insurances continued to enjoy success as a leading market player.

Like the rest of the UK market the Household account was again affected severely by the extreme weather conditions experienced in the UK confirming once again that premium rates will need to rise substantially to price adequately for these recurring weather events.

Volumes in the core private car portfolio declined as the company continued to apply double digit rating increases and tough underwriting action to improve profitability. Such strong measures will need to continue to improve the technical result that is still being impacted by the rising cost of fraud, credit hire and claims farming.

Commercial Lines Division (including fleet, commercial vehicle and schemes)

Total commercial lines revenues were down slightly at £131.8 million (2009: £136.3 million).

Trading conditions were extremely challenging and competition in the open market for commercial motor and liability business was especially fierce. Rating levels in the SME arena remain wholly inadequate with competitors still prepared to chase volume rather than profitability.

The Commercial Division continued its strong focus on the bottom line and profitability remained satisfactory although supported by reserve releases from prior years.

Over 2010 Groupama continued to build its commercial product offering. The introduction of a new liability contract for small businesses (Optima Liability), the availability of a variable commission option across the commercial product range and the launch of an innovative online Professional Indemnity product (Optima PI) continued to strengthen the company's SME proposition for partner brokers.

Healthcare Division –

The improving trend in new business activity at that began in 2009 continued with the market seeing evidence of some rate strengthening in the SME area where the company is active. Total PMI revenues lifted 6% as brokers responded positively to Groupama's award winning product and its market leading customer service proposition.

GUK Broking Services – Groupama's UK broking operations

The weak economic and business environment continued in 2010 and still shows few signs of immediate improvement.

Against this challenging background Groupama's combined broking operations delivered another robust performance. Although revenues dipped marginally, profits rose following significant efforts to identify synergies, boost efficiency and keep operating costs low.

Commentary

François-Xavier Boisseau, CEO, Groupama Insurances:
"Our performance over 2010 has been encouraging and we have made some promising progress in terms of beginning to return our private car book to profitability. However, we still have a way to go and although market pricing has increased markedly, this will need to continue in 2011 if the market has aspirations to move back into the black. Sadly, there is little evidence of such sanity in the commercial lines arena. At best, rates remain rooted at the bottom of the cycle and we are still seeing a fight for volume among major players who are offering enhanced commission and adopting dual pricing to attract business. I am sad to say that the bad old days are definitely back."

"The double digit rate increases that we have seen in private car are very welcome and are a sign that the market is intent on returning pricing to a level where it might return to profit. However, the challenges presented by claims farming, credit hire and fraud are very real and the market will need to keep increasing rates in 2011 to help balance the books. Claims inflation and fraud are also issues in Commercial Lines and Healthcare and these markets need to take the necessary pricing and underwriting actions to deliver the necessary corrections."

" enjoyed another award winning year with its product and service offerings being recognised again with two further industry awards. This continues to set us apart from the competition and to win us new friends and new business from the competition. However, a continuing rise in claims inflation means that we must retain a clear focus on bottom line profitability and to step up underwriting action where necessary."
"Household business remains under-priced by the market which is still not accounting for significant weather events and the costs of the associated escape of water. In Q4 of 2010 alone Groupama met over £7 million of claims following the coldest weather for 100 years and this followed events earlier in the year and during 2009. The market cannot continue to absorb these losses within current rating levels and premium rates need to rise to reflect the cost of such recurring weather events."

"Our focus on the bottom line has again served us well during 2010 and it is pleasing that we have returned to profitable growth even though this has been influenced by some reserve releases in our commercial lines business. We have also maintained our investment in technology and into innovative new on-line products and this will continue over 2011 to help us stay ahead of the competition. Our disciplined approach to underwriting will also continue meaning we are very well positioned to ensure the increasing profitability of our business in the years ahead."