Key Insurance aims to keep pace with inflation
Published:Friday | October 25, 2019 | 12:14 AM
Loss-making general insurance company Key Insurance wants to generate sufficient profit in the medium term to at least grow in line with inflation.
Rising claims, however, continue to hold back the company, which has recorded losses for at least six consecutive quarters.
For the first half of 2019, the company recorded a net loss of $182 million, a deterioration of its performance in the comparative six months ending June 2018, when its losses topped $72.1 million. Key has been cutting risky motor policies to curtail the losses, which has led to reduced revenue, while claims also grew during the period.
The general insurer’s management, however, is telegraphing confidence that measures to address the fallout will lead to better results.
“We are confident that with the various measures put in place in line with our turnaround plan, we will stem the negative trajectory and spur the company to profitability,” said Managing Director Sandra Masterton in her address to shareholders at Key’s annual general meeting on Wednesday.
“By the third quarter we should see a decrease in our underwriting loss,” said Finance Director Jacqueline Johnson.
Key wants to raise its return on capital to levels higher than inflation, which is currently tracking at 3.4 per cent.
The return on capital indicates whether the business is generating enough profit to beat other forms of investments or even inflation. Key ended the 2018 financial year with a negative return on capital of 16.9 per cent and a six-year average return on capital of 0.9 per cent – 2012 to 2017 – with its best result at 4.04 per cent in 2017, according to data in its annual report.
“The rate of losses is considerably less than what used to be, and we should be seeing a positive and strong return on capital. We are looking to revising these numbers and by next year, we will be back in restoring ourselves to profitability,” said Director Dennis Brown.
To achieve higher return on capital, the company needs to reduce its claim expenses and judiciously invest its $1 billion in cash to grow its ‘other income’, say Key officials.
In year ending December 2018, the company recorded a $167.5 million net loss, erasing profit of $44.7 million achieved a year earlier. The downturn arose from one significant property claim related to a fire. It led to the company breaching a key solvency ratio, the minimum capital test, or MCT. Key’s MCT for that year was 112.5 per cent, less than half the required 250 per cent.
Johnson says that Key has made progress since then, with its MCT at 277 per cent in June.
The breach led the company to devise a turnaround plan that spans three years, under which Key started reducing its risky motor insurance policies, which led to a slump in revenue.
At the annual general meeting, management also introduced new general insurance products for travel, personal accident, rental insurance and cyber insurance that are meant to drive new business.
Key is a relatively small player with some three per cent of market share, management stated. Its assets are at about $3.15 billion in a general insurance market last valued at $84 billion, based on industry data from the Financial Services Commission for June 2018.