Cover-More looks to grow even as profits slide
A falling Australian dollar is blamed for a blow to Cover-More’s bottom line as the Aussie travel insurer’s shares fell more than 27 per cent in mid-February. This came after a warning that earnings in the first half will be down 16.4 per cent to $24.4 million. To reduce the impact of currency volatility, the company plans to work with its underwriting partner, Munich Re, to adjust its pricing model. "The impact on the business of the devaluation of the Australian dollar has continued… and we're continuing to reprice the book of business to maintain margins," Cover-More’s group chief executive Peter Edwards said. "We're going to do that in a way that's sensitive to maintaining volumes. We will be very hopeful of having the pricing model resolved within this current half," he said. The sentiment is backed by CLSA insurance analyst Jan van der Schalk who expected Cover-More's earnings to even out when the Australian dollar settled. "When the currency stabilises, this lag will unwind and CVO should generate higher margins than previously," he said. The company reported a net profit of AU$8.2 million for the second half of 2015, a decline of 31 per cent over the prior interim result of $11.9 million. Revenues declined 7.9 per cent during the same period. As well as the falling Aussie dollar, other factors that are cited as contributing to the loss of earnings are: increased underwriting premiums related to higher claim costs; the impact of the Bali ash cloud in the medical assistance business; lower medical assistance volumes and one-off costs on legal settlements. Overheads and increased costs due to investments in international expansion grew in the same period. Edwards said that expansion was on track following ‘strong revenue growth and market outperformance in the travel insurance business’. Despite the fall in profits, Cover-More saw a 6.6-per-cent jump of group sales growth, with sales in Asia remaining strong. The company said that its business model ‘remains resilient’ and has recently announced that it had secured a partnership with Flight Centre USA to sell travel insurance products in North America, and signed a deal with Zurich Insurance to deploy its direct business model, while tapping the Swiss insurer's global reach. "We're starting to ensure that all of our Asian territories are going well, and that the partnership in the US goes live on the point of date," said Edwards. The group hopes to enter the US travel market by April 2016.
A falling Australian dollar is blamed for a blow to Cover-More’s bottom line as the Aussie travel insurer’s shares fell more than 27 per cent in mid-February. This came after a warning that earnings in the first half will be down 16.4 per cent to $24.4 million.
To reduce the impact of currency volatility, the company plans to work with its underwriting partner, Munich Re, to adjust its pricing model. "The impact on the business of the devaluation of the Australian dollar has continued… and we're continuing to reprice the book of business to maintain margins," Cover-More’s group chief executive Peter Edwards said. "We're going to do that in a way that's sensitive to maintaining volumes. We will be very hopeful of having the pricing model resolved within this current half," he said. The sentiment is backed by CLSA insurance analyst Jan van der Schalk who expected Cover-More's earnings to even out when the Australian dollar settled. "When the currency stabilises, this lag will unwind and CVO should generate higher margins than previously," he said.
The company reported a net profit of AU$8.2 million for the second half of 2015, a decline of 31 per cent over the prior interim result of $11.9 million. Revenues declined 7.9 per cent during the same period. As well as the falling Aussie dollar, other factors that are cited as contributing to the loss of earnings are: increased underwriting premiums related to higher claim costs; the impact of the Bali ash cloud in the medical assistance business; lower medical assistance volumes and one-off costs on legal settlements. Overheads and increased costs due to investments in international expansion grew in the same period.
Edwards said that expansion was on track following ‘strong revenue growth and market outperformance in the travel insurance business’. Despite the fall in profits, Cover-More saw a 6.6-per-cent jump of group sales growth, with sales in Asia remaining strong.
The company said that its business model ‘remains resilient’ and has recently announced that it had secured a partnership with Flight Centre USA to sell travel insurance products in North America, and signed a deal with Zurich Insurance to deploy its direct business model, while tapping the Swiss insurer's global reach. "We're starting to ensure that all of our Asian territories are going well, and that the partnership in the US goes live on the point of date," said Edwards. The group hopes to enter the US travel market by April 2016.