For Immediate Release |
19th December 2014 |
LSL Property Services plc
("LSL")
Surveying & Valuation Division Professional Indemnity (PI) Provision
LSL, a leading provider of residential property services incorporating estate agency and surveying businesses, today announced the following update on its professional indemnity (PI) provision in relation to its valuation services.
LSL's Annual Report & Accounts 2013 (AR&A 2013) included an additional professional indemnity (PI) provision of £12.0m (£9.2m after tax) due to the deterioration in claims experience relating to the 2004 to 2008 high risk lending period. High levels of claims relating to this period have continued to be an industry wide problem. The additional provision included an increase in the 'Incurred But Not Reported' (IBNR) provision required for notifications and claims estimated to be received in the future for the 2004 to 2008 period. The primary statutory limitation for this period has now ended. It was noted in the AR&A 2013 that this was the Board's best estimate of future claims but that the process of resolving open claims and estimating future claims was on-going. It was also noted that the conclusions on the appropriate level of IBNR provision were sensitive to small changes in assumptions and were therefore highly subjective.
As part of the 2014 year end process, LSL is undertaking a detailed review on a case by case basis of all notifications and claims relating to the 2004 to 2008 period and a number of material issues have been identified. This review has included an assessment of the notifications and claims by specialist PI lawyers. The review identified that a greater proportion of existing notifications are deteriorating into claims, and the average cost per claim is greater than anticipated due to higher legal costs and a number of larger notifications/claims.
In addition, in the November 2013 IMS, LSL stated that it assumed that the run rate of new notifications and claims relating to the high risk lending period would significantly reduce during 2014 and would not be material by the end of the year. Despite the end of the primary limitation period and the fact that the run rate of new notifications has reduced significantly, LSL now expects to receive new notifications and claims relating to the high risk period in 2015 and beyond.
Taking into account current trends and the factors arising from the case by case review, the Board has concluded that further provisions are required. This is currently expected to result in an additional exceptional charge in LSL's financial accounts for the year ending 31st December 2014 in the range of £20m to £25m (£15.7m to £19.6m after tax) to increase the overall PI provision. The final number is subject to further review as well as external audit and will be disclosed with the 2014 full year results. The additional provision will represent the Board's current best estimate of likely claims costs and will include a new Incurred But Not Reported (IBNR) provision for notifications and claims yet to be received for the 2004 to 2008 high risk lending period. The review has been conducted with the overall aim of ensuring a high degree of confidence that the total PI provision will be adequate to cover the remaining risk relating to the 2004 to 2008 high risk lending period.
The underlying business remains extremely cash generative and balance sheet leverage remains at modest levels, and as a result the Board remains confident in its current dividend policy.
For further information, please contact:
Ian Crabb, Group Chief Executive Officer
LSL Property Services plc 0207 382 0360
Richard Darby, Sophie McNulty and Sophie Cowles
Buchanan 0207 466 5000
Notes to Editors:
For further information, please visit our website: www.lslps.co.uk.
