U.K. reinsurance broker Benfield made a profit before tax of £53.8 million ($93.5 million) for 2005, down from £64 million in 2004. However, the broker made an after-tax profit of £34.9 million for 2005, a 12.2% increase over 2004's after-tax profit of £31.1 million. This was in part thanks to a decrease in its taxation charge to £18.9 million from £26.8 million in 2004.
The group's trading result fell to £63.3 million in 2005 from £86.3 million, and its trading margin reduced to 19.5% from 28.4%. Benfield's 6.8% increase in revenue was offset by a 20.1% increase in general and administrative expenses.
The fall in the group's trading result and profit before tax are no cause for concern, some believe. Although analysts and investors punished fellow broker Jardine Lloyd Thompson for lower than expected results, there are no such concerns with Benfield.
"We knew the profit would be down," says one analyst, who asked not to be named. Much of the extra costs were from setting up and staffing Benfield Corporate Risk, the broker's new unit that focuses on primary marine energy and power business.
Before the unit's launch, Benfield was predominantly a reinsurance broker. It decided to move into primary insurance because it expected risk managers to look for new brokers after New York attorney general Eliot Spitzer's investigation of large brokers.
The company also bolstered its existing reinsurance team with extra staff. Benfield says £23.6 million of the £35 million increase in staff costs was caused by hiring new people for Benfield Corporate Risk and the reinsurance business.
Benfield will have to make a good return on its investment in Benfield Corporate Risk if it is to continue to impress the market. "The question is to what extent that investment will come through," says the analyst. "The intention is to grab 5% of the marine, energy and power market within three years. We're now in year one. They expect to be at that level by 2008." He adds that he is optimistic given the signs seen so far.
Benfield's increase in revenues, although wiped out by the expense increases, were also a positive, the analyst believes. "The most important number for Benfield was revenue," he says. "There had been three consecutive years of flat revenues."
The analyst is also sanguine about Benfield's prospects for improved profits. "I am predicting strong earnings growth over the next three years," he says. "It is a very different story from what we expect at JLT."
It seems investors are equally impressed. Benfield's share price rose to £3.60 on March 9, the day the results were announced, from £3.44 on March 8.
The group's trading result fell to £63.3 million in 2005 from £86.3 million, and its trading margin reduced to 19.5% from 28.4%. Benfield's 6.8% increase in revenue was offset by a 20.1% increase in general and administrative expenses.
The fall in the group's trading result and profit before tax are no cause for concern, some believe. Although analysts and investors punished fellow broker Jardine Lloyd Thompson for lower than expected results, there are no such concerns with Benfield.
"We knew the profit would be down," says one analyst, who asked not to be named. Much of the extra costs were from setting up and staffing Benfield Corporate Risk, the broker's new unit that focuses on primary marine energy and power business.
Before the unit's launch, Benfield was predominantly a reinsurance broker. It decided to move into primary insurance because it expected risk managers to look for new brokers after New York attorney general Eliot Spitzer's investigation of large brokers.
The company also bolstered its existing reinsurance team with extra staff. Benfield says £23.6 million of the £35 million increase in staff costs was caused by hiring new people for Benfield Corporate Risk and the reinsurance business.
Benfield will have to make a good return on its investment in Benfield Corporate Risk if it is to continue to impress the market. "The question is to what extent that investment will come through," says the analyst. "The intention is to grab 5% of the marine, energy and power market within three years. We're now in year one. They expect to be at that level by 2008." He adds that he is optimistic given the signs seen so far.
Benfield's increase in revenues, although wiped out by the expense increases, were also a positive, the analyst believes. "The most important number for Benfield was revenue," he says. "There had been three consecutive years of flat revenues."
The analyst is also sanguine about Benfield's prospects for improved profits. "I am predicting strong earnings growth over the next three years," he says. "It is a very different story from what we expect at JLT."
It seems investors are equally impressed. Benfield's share price rose to £3.60 on March 9, the day the results were announced, from £3.44 on March 8.
