Esure bid overshadows first-half weakness

The offer represents a premium of around 37 per cent on the closing price the day before the offer. The two largest shareholders – Sir Peter Wood (who will continue as chairman of esure following the completion of the offer) and Toscafund – who between them own nearly 48 per cent of the issued share capital, are in favour of the proposal, although a 75 per cent majority will be needed. The scheme document must be published within 28 days of the announcement. In light of the proposed acquisition, there will be no half-year dividend payment.

Gross premiums were up in the first half, and an increased market share means that there are now 2.45m in force motor policies, with a target of securing 3m by 2020. However, profits were hit by exceptional weather costs of £14m, while an £8m release from prior year reserves was down from £14.7m a year earlier. On top of this, the net investment return nearly halved to £3.2m or just 0.3 per cent, from 0.7 per cent a year earlier. Consequently, the combined ratio (of claims as a percentage of premium income) rose to a loss-making 100.9 per cent from 96.6 per cent, although assuming the weather behaves itself this is expected to improve to between 98 and 99 per cent for the full year.

The much smaller home insurance business saw gross written premiums flat at £41.9m, with in-force policy numbers down 8 per cent at 477,000. And with heavy snowfalls and flash flooding, the combined operating ratio ballooned to 130.1 per cent from 104.9 per cent a year earlier, and turned a previous first-half trading profit of £3.4m into a loss of £7.3m.

The group’s capital position remained strong, with reserves standing at 154 per cent of its statutory solvency capital requirement, which is designed to show that reserves are sufficient to cover a one-in-200-year event occurring in the next 12 months.