Insurer esure Group's first half profit hurt by UK floods in June

By Noor Zainab Hussain

(Reuters) - Esure Group Plc's first-half underlying pretax profit fell, hurt by adverse weather events, and the insurer said Britain's exit from the EU is expected to have limited impact on its operations.

Esure, which provides insurance products to drivers, home owners, pet owners and holiday makers across the UK, said gross written premiums rose 16.3 percent to 320.4 million pounds in the six months ended June 30, with an 18.2 percent increase in gross written motor premiums.

On the new European capital rules for insurers that came in January 2016, esure said its Solvency II capital ratio was 126 percent after dividends. The lower the ratio, the greater the chances of a company defaulting on its obligations.

Esure, which said in March it would retain capital to deliver stakeholder value, cut its interim dividend to 3 pence per share from 4.2 pence a year earlier.

"We remain concerned regarding the relative strength of esure's Solvency II balance sheet ... against some formidable and well-financed businesses such as Direct Line ... hence the cut to the dividend?" Shore Capital analyst Eamonn Flanagan wrote in a note.

Esure now expects 2016 gross written premiums to rise 13-18 percent, with in-force policy growth of 6 to 9 percent, if current market conditions in motor insurance prevailed.

Except a slump in the first quarter, premiums have been trending upwards due to rising costs of crash repairs for increasingly complex vehicles, high levels of false claims for whiplash injuries and a rise in uninsured driving.

Full-year combined operating ratio - the sum of loss, commission and expense ratios - is expected to be 98-99 percent, assuming normal weather for the rest of the year, esure said. A number below 100 percent indicates a profit.

Esure has now increased its 2016 combined ratio guidance from 97-98 percent level. This is expected to cause weakness in the share price on Friday, RBC Capital Markets analysts said.

"It is just reflecting the full-year guidance taking into account the weather from the first half of the year," esure Chief Executive Stuart Vann said.

He said the weather events related to flooding in the UK in June.

Vann declined to give details on an ongoing strategic review of its price comparison website, Gocompare.com.

Esure shares were down 4.1 percent at 268.5 pence at 0829 GMT, making them the top losers on the FTSE Midcap index.

(Reporting by Noor Zainab Hussain in Bengaluru; Editing by Sunil Nair and Gopakumar Warrier)