Fortis underwriting nosedives

Chris Wheal

Mar 10th 2010

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Fortis UK, which is changing its name to Ageas, announced this morning that its insurance profits fell to £29m from £76m last year and its combined ratio leapt from an excellent 92.2% in 2008 to a dangerously-close-to-loss-making 98.9%.

Add to this the fact that the insurer saw record gross written premiums up 6% to £805m from £760m and you have a classic case of an insurer chasing new business by underpricing.

Fortis made a big issue of the fact that it had seen a 35% growth in commercial lines business and said 85% of brokers now use four or more Fortis products. It seems to have won that business by charging less than was economically sensible. It is typical of the insurance industry to do this.

Things can only get better?

It may get worse for Fortis. It has tied up with Tesco to provide its insurance. It appears on these figure that will be "Value" brand policies not "Tesco Finest". It has also signed up with troubled car maker Toyota. Fortis has very different acceleration problems.

Barry Smith, chief executive (pictured), said: "Despite the challenging market conditions affecting the industry throughout 2009, we have delivered record levels of premium income and are encouraged by the progress we are making in the broker market.

"We have completed significant deals including the largest insurance partnership in the UK with Tesco Bank, which will accelerate our development in 2010 and beyond. We are now actively recruiting for approximately 600 new jobs to support our continued business growth.

Talk about the weather

Fortis blamed reduced profits on an increase in claims from severe weather events and escape of water damage. So despite its household portfolio growing in GWP by 22.7% to £208m (2008: £170m) claims, it seems grew faster still.

Private car GWP was reported at £414m (2008: £459m). Fortis insisted it is continuing to put corrective measures in place such as rate increases.

And, as it trumpeted, Fortis "delivered significant growth in its commercial lines business" with GWP increasing 35% to £102m (2008: £75m). This, it said, was as a result of its strategy to broaden both distribution and its product range within the market.

Underwriting discipline

None of this put the company under threat. It has plenty of capital - much more than the regulator requires. And I understand it feels the need to establish itself as an important UK player after the debacle over the Fortis bank collapse in Europe. But I'd like to see it underwrite more accurately.

I like Fortis (it once paid out on a claim I made without me having to send in the evidence of the damage I was claiming for). There are lots of things it does well. But it could do better.