Commercial Union pegs motor rates: Pre-tax profits increase accelerates

Click to follow
The Independent Online
COMMERCIAL UNION said yesterday that it had decided not to raise motor insurance premiums on 1 November, the regular review date, because of increasing competition in the market place.

The good news for motorists that insurance rates have peaked came as the company announced profits before tax of pounds 144m in the first nine months compared with pounds 6.1m a year earlier. The improvement accelerated in the third quarter, when CU made pounds 75m before tax compared with pounds 49m in the second quarter and pounds 16m in the first.

The decision to hold motor rates came after an increase of 12 per cent over the past year, including 5 per cent in June. The company said: 'We would not expect a rate increase in the next 12 months.'

Like other big insurers CU has been hit by competition from the direct-selling underwriters such as the Royal Bank subsidiary Direct Line, which is expected to report soaring profits next Thursday.

Household insurance premium increases have also moderated, although there were selective rises of 5-10 per cent in the third quarter. CU said most private business rates were 'quite flat', although not yet as competitive as motor insurance.

Commercial insurance, where increases began later than in personal insurance, is still showing double- digit premium increases, and in the London marine market premiums are rising at 15-40 per cent. The CU results were in line with City expectations, although the shares rose 10p to 606p on the back of a strong market.

Tony Brend, chief executive, said market conditions were improving, particularly in the UK. 'Further actions to improve profitability continue to be taken in all territories, with significant reorganisations in the Netherlands and Canada,' he added.

Insurance underwriting produced a group profit of pounds 215m compared with a loss of pounds 302m a year earlier, before the effect of premium rises came through. This included the second-quarter cost of pounds 25m of bomb damage in the City.

Big-ticket business in the London commercial markets continued to be a problem, producing an underwriting loss of pounds 71m - compared with a loss of pounds 63m in the same period a year earlier - as heavy claims continued to roll in.

CU said there were substantial premium rises in the London market but the benefit was partly deferred because of the three-year accounting basis for marine business.

Shareholders' funds rose to pounds 2.3bn from pounds 1.5bn at the end of December, including the proceeds of a rights issue of pounds 428m. Life assurance profits improved to pounds 86.4m.