UPDATE 2-Insurance broker JLT cautious as rates decline, pound gains

Tue Jul 29, 2014 4:39am EDT

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(Adds analyst, CEO comments; updates share movement)

July 29 (Reuters) - Insurance and reinsurance broker Jardine Lloyd Thompson Group Plc reported a 15 percent rise in underlying pretax profit, but said it was cautious for the rest of the year due to a marked decline in rates and a stronger pound.

JLT shares fell as much as 3 percent to 1023 pence on Tuesday morning.

"The recent steepening in reinsurance rate decreases looks likely to moderate near-term profit growth," Numis Securities analyst Nick Johnson said in a note.

The company said underlying pretax profit rose to 107.4 million pounds ($182.4 million) in the six months ended June 30 from 93.1 million pounds a year earlier, helped by its Towers Re unit.

Total revenue rose 15 percent to 559.6 million pounds. Revenue from the Towers Re unit came in at 110 million pounds.

Numis cut its earnings-per-share forecast for the company by 5 percent for this year citing the cautious outlook.

JLT, which negotiates insurance cover on behalf of corporate clients around the world, bought Towers Watson's reinsurance brokerage last year for $250 million to expand its footprint in the United States.

The company warned that full-year margin in the unit was expected to be broadly flat due mainly to the sharp decline in reinsurance rates as the business earns a much higher proportion of commission income than the rest of the company.

"There is a fair degree of undisciplined underwriting going on where people are targeting return on capital at levels that perhaps don't necessarily reflect the volatility and the catastrophe risk that's out there," Chief Executive Dominic Burke told Reuters.

A further strengthening of pound is also likely to impact the unit as it did not have a hedging programme in place at the time of the acquisition, JLT added.

The pound rose 12.4 percent against the dollar in the year to June 30.

The company, which advises mainly on risk management and employee benefits insurance from Sweden to Peru, raised its interim dividend to 10.6 pence per share from 10.1 pence a year earlier.

JLT shares were down 1.3 percent at 1042 pence at 0831 GMT on the London Stock Exchange. ($1 = 0.5889 British Pounds) (Reporting by Roshni Menon and Richa Naidu in Bangalore; Editing by Gopakumar Warrier)

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