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Advent shares slide as cat losses bite

Lloyd’s (re)insurer Advent Capital Holdings plc share price fell by over 5 percent in early trading today after revealing the extent of the year’s heavy catastrophe claims.

Advent reported a £5.1mn slump in profits for the first six months of 2008 to £1.6mn, compared to £7.6mn for the prior-year period.

However, the performance was better than had been predicted by Shore Capital’s Eamonn Flanagan, who had forecast a £5mn loss for the period.

Indeed, the picture for the first six months improved considerably as second quarter pre-tax profits of £7.1mn helped reverse the company’s £5.5mn first quarter loss that was driven by losses from large single-event industrial losses.

Brian Caudle, Advent chairman, said it was difficult to predict how the company would be affected by the US hurricane season.

“We are now entering the US windstorm season with experts predicting greater than normal levels of hurricane activity,” he said.

“During the last two years, we have experienced attritional catastrophe activity but no major catastrophe events. There are no guarantees that these relatively benign catastrophe conditions will continue.”

Reserve releases increased to £0.7mn in the first half of 2008 compared to the prior-year period.

Advent also saw net premiums earned more than double in the first half of 2008 to £85mn from £43mn reported in the insurer’s 2007 interim results.

Caudle said the (re)insurer was “well positioned” in the competitive environment currently facing the industry.

He added: “We continue to maintain our focus on underwriting profitability while remaining alert to the changing business environment that our Lloyd’s and Bermuda operations may have to contend with.”

The (re)insurer also reported better than expected investment income of £5.1mn compared to £6.1mn for the prior-year period, despite the challenging investment environment, which Advent put down to limited exposure to residential mortgage-backed securities and asset-backed securities.

Keith Thompson, Advent COO, said that it had maintained a “cautious” strategy when approaching investments, limiting the adverse impact on income seen by other insurers.

He said: “Our investment strategy is very cautious, very conservative. We don’t invest in equities or asset-backed securities.”

Flanagan said the firm had forecast a loss for the insurer following “record” catastrophe losses in the first half of 2008.

“A better than expected result this morning with pre-tax profits of £1.6m (H1 2007: £6.7m), we had forecast a loss of £5m due to record cat losses in the first half of the year,” he said.

“The group reported a £7.1m profit in Q2 2008 reflecting the lower level of cat losses it experienced compared to Q1 when it reported a £5.5m loss.”

“We reiterate our HOLD recommendation, with many other stocks in the sector offering better upside potential,” Flanagan added.

Advent shares were trading down 5.71 percent to 165p at the time of writing.

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