Bottom Line: Commercial Union looks greedy

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The Independent Online
APART from a failed bet on whether the IRA would attack again in the City, Commercial Union's performance confirms that its management made most of the right decisions during the recession. It remains the most impressive among the big insurers.

The bomb cost pounds 25m, a heavier burden than its rivals, after CU decided not to purchase run-off reinsurance cover.

In fact, the bulk of its exposure had expired by the time this cover was available from Pool Re, the specialist reinsurer set up this year with the backing of the Government.

Last year, CU started expanding its business aggressively, and this has continued with an overall 20 per cent rise in premium income, and as much as 31 per cent in domestic personal insurance.

The rate of increase in premiums is topping out - though not as fast as at General Accident - but it is hard to fault the way personal lines have been handled. (That cannot be said of London market business.)

The other side of the expansion equation is that even after raising pounds 428m six months ago, an unsated CU is still greedy for new equity. This time it has indulged in the device of an enhanced scrip dividend, to save advance corporation tax.

On the plus side, earnings per share will be improved by 4.2p. But that is little consolation to investors, who will be faced with dilution if they reject the bribe. If Commercial Union needed the extra capital that much, it should surely have increased the size of its rights issue.

After a good run the shares, up 12p to 661p, are beginning to look expensive.