The cost of implementing the merger of Commercial Union and General Accident has edged up from pounds 300m to pounds 320m, mainly because a further 1,000 job losses have been identified outside the UK. But prospective savings from the merger have soared from pounds 225m to pounds 275m a year, said the group chief executive, Bob Scott.
Other favourable factors include: premium increases are starting to stick; UK motorists will be paying an average 10 per cent more by year- end; the life assurance business is booming; and a unified marketing group will be launched on 1 October. Mr Scott said second-half results would be much better.
The net effect on profits in the first six months was a 55 per cent fall from pounds 503m to pounds 280m, toward the lower end City forecasts, of which pounds 129m could be blamed on an increase in severe weather claims, including the January winds and April floods in the UK, and ice storms in North America.
Mr Scott said it would act to tighten up underwriting further on the non-life side, which still accounts for over half of group business.
"There's nothing we can do about the weather but there's a lot we can do about the underlying underwriting capability of our business," said Mr Scott.
Mr Scott said he still aimed to expand the non-life business, but on a selective basis, which could see CGU pulling out of some areas and products.The effects of the strong pound on overseas profits cost a further pounds 18m, and a further pounds 26m was charged to the continuing costs of coping with the Year 2000 computer bug and the euro. Total costs of these last two items have now reached pounds 67m, about a third of the probable total expenditure.
Premium income from general insurance edged up 5 per cent to pounds 4.6bn, while life premium income including sales of investment products rose 16 per cent to pounds 3.4bn and is set to continue growing substantially faster than general insurance.
New life assurance and savings sales rose 28 per cent and operating profits from life assurance were up 15 per cent at pounds 226m. However, general insurance profits plunged 60 per cent to pounds 150m, while the costs of the merger swallowed pounds 70m. UK underwriting losses grew from pounds 36m to pounds 158m and UK profits fell from pounds 153m to pounds 37m.
The full cost of the Year 2000 bug will reach pounds 100m and the costs of adjusting to EMU will reach pounds 110m.
The results were in line with expectations, but the shares shed 15p to 1,030p as analysts focused on signs of an underlying rise in claims costs and a continued fall in rates, which drew analysts' attention.
"We're pretty neutral on the composite sector. It's hard to find a reason to buy them," said Michael Lindsay, analyst at merchant bank Lehman Brothers.
Top of the list of key corporate goals was the expansion of CGU's "retirement and savings business internationally, particularly in Europe where we've got a good footprint," Mr Scott said.
Asset management would also expand, building on growth in the first half of the year when funds under management rose to pounds 111bn from pounds 104bn previously.
Mr Scott said the merger processs was progressing well and would deliver the promised cost savings of pounds 270m a year.
"We are looking at every single aspect of the business. We've taken a clean sheet of paper." said Scott, adding that this applied to all top management posts.Reuse content