Goshawk shares halve on reserves warning
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Your support makes all the difference.Goshawk, the insurer swamped by claims from the Columbia space shuttle disaster and The Accident Group (TAG), yesterday admitted that its troubles were worse than first anticipated, warning that it needs a "material increase" in its reserves that may cause it to breach its banking covenants.
Shares in the Lloyd's of London insurer collapsed, falling more than 50 per cent to close at 36p. This is the second profits warning from the company in three months. It is one of the main insurers of the Columbia, which crashed earlier this year. Goshawk also provided insurance to cover TAG customers' legal expenses, but has hit problems following TAG's move into administration earlier this year.
These factors led Goshawk in effect to put itself up for sale in July, when it issued a profits warning and said it was exploring all options. It also employed KPMG to conduct a thorough review of the reserves in its Syndicate 102. With this actuarial review now all but complete, a statement from the company yesterday said that a "material increase in reserves is required". This means that its results for the first half of the year will be "materially below market expectations".
Goshawk said it was in talks with its banks to secure their continued support. Numis Securities lowered its expectations for Goshawk by £20m, believing the insurer will make a £21.5m loss in the first half of the year.
The insurer also said it was failing to recover the cost of claims from reinsurers, which was also putting pressure on reserves. The company's chairman, David Hooker, last month agreed to resign.
Analysts yesterday said, however, that the business was unlikely to go bust as it has a successful reinsurance division based in Bermuda. The company said this unit was performing well.
The news of Goshawk's troubles came as Nick Prettejohn, chief executive of Lloyd's of London, urged reform in the 315-year-old market. Speaking at the Chartered Insurance Institute's annual conference in London, Mr Prettejohn said companies in Lloyd's had been operating in an "unchanging, forgotten and inefficient backwater". Insurer have been struggling to overcome huge claims from hurricanes, floods and the September 11 attacks, but Mr Prettejohn said the Lloyd's market was now financially strong.
Goshawk's fortunes contrast sharply with that of other insurers. Following the World Trade Centre attacks, most general insurers have been enjoying record results this year as premium rates have soared. Cox Insurance, the UK's largest motorcycle insurer, yesterday reported that profits for the first half of the year had more than doubled and it would return to paying dividends this year. Kiln, another Lloyd's insurer, also said its first-half profits had more than trebled as it reaped higher premium rates. It said the market continued to be robust.
Mr Prettejohn warned, however, that insurers could become "slaves to history" if they were not strict with the risks they take on board.
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