Boosting marketing and promotional activity to attract and retain subscribers pushed down profits at Bradford-based health care cash plan provider Sovereign Healthcare last year as it paid out a record level of claims.

The mutual business, based in Manningham Lane, saw profits dip from £1.48m to £1.2m in 2012 and boss Russ Piper said he expected lower future surpluses as Sovereign updated its IT systems and remained pro-active in driving up membership, currently at just over 70,000.

He said: “We need to make our operations more flexible and to increase services to members through interactive systems. Although upgrading IT involves a major capital investment, it is necessary to ensure the business is where it needs to be. We’ll also continue to invest in attracting new members and retaining existing ones. I would expect to see lower surpluses as a result but the investment will underpin the underlying strength of the business.”

Although the number of subscribers fell by about 500 last year following the first increase in subscription charges for five years, this compared to a drop of around 5,000 after a previous price hike. Mr Piper said Sovereign had recruited another 2,000 new members since the start of 2013.

In 2012 Sovereign paid out more than £6.7m to claimants – the most paid out in a single year since it was founded as the Hospital Fund of Bradford in 1873. In 2011 payouts totalled £6.2m.

Mr Piper said: “With the ongoing squeeze on individual finances and the increasing cost of health treatment, there is strong evidence that our range of cash plans continue to support our customers in affording their daily health care needs.

“Outside our control, the wider economy continues to bump along and each day seems to present another bad news story. Therefore, it is important we stay true to our values of providing useable health care cash plans for our customers.

“This is demonstrated in the way we made a number of changes to our cash plan including adding a prescription charges benefit and providing access to a 24-hour confidential telephone helpline to support customers managing the stresses and strains of life.”

Sovereign Health Care reinvests surpluses in the business or donates funds to its charitable trust, which last year increased its support for good causes, mainly in Bradford and the surrounding area, by 20 per cent to £900,000 – equivalent to nine per cent of the company’s turnover. Sovereign plans to make extra donations this year to mark its 140th anniversary, Mr Piper said: “Financial services in general have endured lots of negative publicity, but I believe in what Sovereign does, and our desire to benefit customers and the communities we support and hope to continue to do so for another 140 years.”