Benfield shares fall as it warns on 2005 profits
Reinsurance broker Benfield Group has warned that 2005 profits will be lower than last years because of an increasing cost base.
Shares in the group fell by 10% from 276.75p to 250p in early trading on the London stock exchange, despite the firm insisting that it is investing now to reap the rewards in the longer term.
The broker pointed to "unprecedented changes in the insurance industry...[which are] providing strategic opportunities for Benfield to invest in its reinsurance production and marketing capabilities".
As a consequence, the broking group will experience a 6 percent increase in its underlying cost base, while recruitment costs are likely to add approximately £12mn to expenses in the year, warned the firm.
"For 2005 the group anticipates a lower trading result than in 2004. Group revenues on a sterling basis are expected to be flat, although higher in constant currency terms," the company said in a statement.
It plans to develop a primary energy, marine and power business - centred around former Marsh executive John Lapsley - will also incur additional investment costs of £8mn in 2005, Benfield explained.
In addition to the growing cost base, the broker also warned that its US revenues have fallen because of the "various regulatory investigations of the insurance industry which commenced in 2004". It added, however, that it sees these developments as offering "long term opportunities".
The reinsurance specialist also confirmed that it has promoted Paul Karon, formerly the president and chief executive of the broker's US arm Benfield Inc, to become chief executive. He succeeds Rod Fox, who took a sudden long-term leave of absence following developments in his private life last year. A spokesman for the broker, however, explained that Fox remains a Benfield employee and a member of the board.
Rob Bredahl and Ralph Flum have been appointed president and chief operating officer of the Division respectively.