End of an era: Co-operative Group set to sell-off General Insurance

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The Co-operative Group has announced its intention to withdraw from the manufacture of insurance products following a downturn in overall annual profits of almost £600 million.

Though, the Group will still continue to sell insurance products to members under the Co-operative Insurance brand, but these will be underwritten by an alternative organisation.

Earlier this week, the Co-operative Insurance life insurance and asset management business was sold to mutual Royal London for £200 million; and on Thursday Group Chief Executive Peter Marks revealed the society is selling the remaining general insurance part of the organisation to focus on banking.

Analysts predict the sale of general insurance will net the Group around £600m, which will help towards an estimated need of £1 billion of capital if the society is to go ahead with the purchase of more than 600 branches from Lloyds Banking Group.

According to the Financial Times, the Financial Services Authority is set to outline deficits across the finance industry following suggestions by the Bank of England’s Financial Policy Committee that the entire shortfall across the sector could be as high as £50bn.

Co-operative Insurance, formerly the Co-operative Insurance Society, has been in existence since 1867 and last year it reported a profit of £3m, which fell from £30m on the previous year. The entire banking division reported an operating loss of £257m for the year ended January 5th, compared to a profit of £176m the previous year.

In 2011, the Banking Group was split into two classifications, core and non-core. The core Banking Group, which made a profit of £120m (2011: £173m), represents assets in-line with the Group’s current strategy including retail and selected parts of corporate and business banking. While the non-core element, which reported a loss of £373m (2011: £3m profit), includes elements with the greatest risks and those parts of the business targeted for run down or exit — the majority of this was part of the Britannia acquisition.

Peter Marks said the Group’s decreased profits were attributed to losses sustained in banking, which included a £150m write-down of non-core activities and a £150m payout following payment protection insurance complaints.

Mr Marks said the Group’s statutory profit was “adversely impacted” by a number of factors within the Bank. He commented: “These included a realistically cautious approach to the impairment of corporate loans within the non-core business, further PPI provisioning and the write-down of IT assets, together totaling £650m.”

On the sale of both parts of Co-operative Insurance, Mr Marks added: “These moves are in line with our strategy of focusing on our relationship banking activities and will also strengthen our capital position.”

Barry Tootell, Chief Executive of the Co-operative Banking Group, said: “The Co-operative Insurance remains a strong, profitable business and has undergone a major transformation over recent years, with a thriving distribution strategy and a home product which in particular is delivering excellent underwriting profits.

“It’s on this basis that we will explore options for the sale of our GI business, whilst remaining absolutely committed to continuing to provide general insurance products to the Co-operative Group’s customers and members.”

Losses from banking impacted on the overall results for the Group, which reported profits in all other divisions.

In food, the operating profit fell to £288m, compared to £318m in the previous year, while total sales climbed to £7.44bn (2011: £7.34bn).

The specialist business division reported an increase in underlying operating profit of £107m, up from £99m in 2011. In the division, pharmacy’s operating profit fell 4.9 per cent to £28.2m due to ongoing cuts in government funding.

Funerals reported an increase in profit from £55m to £60m, with revenue up by 6.4 per cent. While legal services reported a 12.8 per cent revenue increase and turned a profit of £26,000, which is attributed to being in a startup phase and needing to absorb investment costs for growth.

• Read the full end of year financials for the Co-operative Group, below.

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About Anthony Murray

Executive Editor of Co-operative News