Towergate Insurance, the UK insurance intermediary, reported a before tax loss of £58 million ($88.8 million) during the first half, compared with a £15 million ($23 million) before tax profit in the same period of 2014.
The company reported income of £184 million ($281.6 million) during the first half, a 10 percent drop from £204 million ($312.2 million) reported for the same period in 2014. Operating earnings for the first half were £39 million ($59.7 million), down 40 percent from £65 million ($99.5 million) reported for the same period last year.
Towergate has been struggling with a debt burden of £1 billion ($1.5 billion), which accumulated after years of debt-funded acquisitions, according to industry sources. In February, Towergate was taken over by a group of creditors, led by Highbridge Capital Management, the alternative investments arm of JPMorgan.
“The context for our performance is well known, but what is important is that in Q2 we began to see the first signs of improvement as the rate of year on year decline in our organic income improved,” said Scott Egan, interim group CEO, who is leaving Towergate on September 14 to become group chief financial officer of RSA Insurance Group plc. (At that time, Adrian Brown will become interim CEO, subject to regulatory approval, for a six-week period until David Ross joins the company to take over the reins as CEO.)
“Our expense ratio remains high at 79 percent but this should reduce as the organic income improvement gathers momentum and the business starts to grow back into its cost base,” Egan added. “We will manage our expenses appropriately, but we do not want to take short term actions that could impact on the recovery of our income.”
The performance of the business is not where it should be, he acknowledged, noting that there are encouraging signs of improvement “only three months after the completion of our financial restructuring.”
Turning to the question of the company’s people, Egan said: “We’ve retained talent while also beginning to attract talent again to the business. The imminent arrival of the remaining members of the executive team will help drive confidence and momentum moving into the second half of 2015 and into 2016. I wish them every success as I pass the baton across to them and I believe the business can look forward with stability and growing optimism.”
“The group has renewed confidence in its strategy to lead in the specialist insurance and underwriting markets,” said John Tiner, Towergate chairman.
“The recapitalization of the business has reinforced Towergate’s position as a formidable presence in UK insurance, re-emerging more determined than ever in its ambition to be a leading UK insurance broker,” Tiner continued.
“There has been an influx of talent in every part of the business and I am delighted to be part of the Towergate story as it moves into a new chapter. I am encouraged by the more recent small improvements in some of our key performance measures and look forward to working with the leadership team in tackling the challenges and opportunities which lie ahead.”
Additional business performance highlights for Towergate include:
- Half year performance continues to be affected by the group financial restructuring which completed in April
- 10 percent decline in income year on year but with an improving trend in Q2 for organic income (1.6 points better than Q1)
- Current expense ratio at 79 percent is expected to stabilize at a lower level in the longer term as organic income recovers and operational efficiencies are identified
- Reduction in profit before tax primarily relates to group financial restructuring costs and reduced operating earnings
- Decline in operating cash flow driven largely by the reduction in operating earnings
- Long term strategic deals with LV and Allianz signed in May and June, respectively
- Several insurer deals delayed from 2014 are now completed
- The financial restructuring of the group is now complete with the final few top companies being placed into liquidation.
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