CU pays out in shares: Insurer offers enhanced scrip dividend after returning to interim profit

COMMERCIAL Union is seeking to support the continuing rapid growth of its UK business by issuing up to pounds 81.2m of shares instead of a cash dividend.

The move comes less than six months after the insurer raised pounds 428m in a rights issue.

Commercial Union is the latest company to offer its shareholders an enhanced scrip dividend, a device pioneered by BAT Industries. Companies with substantial overseas activities are able to save advance corporation tax by paying dividends in shares instead of cash.

To maximise the tax benefits, Commercial Union has declared an interim dividend of 15.1p a share, the same amount as it paid last year as a final dividend. The interim - traditionally the smaller payout - was only 8.95p last year. A full take-up would save CU pounds 23.6m of ACT.

Shareholders who opt for the enhanced scrip will receive shares worth 50 per cent extra, or 22.65p a share. Barclays de Zoete Wedd is prepared to buy the scrip shares at 22.197p a share from those investors who want cash.

CU's premium income from general insurance grew by more than 20 per cent to pounds 895.9m in the first half of the year. Total premium income grew to more than pounds 3bn, representing underlying growth of 9.7 per cent net of exchange differences.

The company's underwriting results continue to improve on the back of increased premiums. CU made underwriting profits totalling pounds 21m on its personal motor and household accounts, and its commercial motor account also turned in a profit.

The reduction in total UK underwriting losses from pounds 95.9m to pounds 56.6m enabled the non-life business to make a pounds 37m turnaround and contribute profits of pounds 25.1m. This was the main improvement contributing to interim pre-tax profits of pounds 65.5m, a recovery from an pounds 18.1m loss a year earlier.

John Carter, the director who will succeed Tony Brend as chief executive next year, said the group 'anticipates a better peak to this (insurance) cycle than we saw in the 1980s and we expect a longer peak'.

CU's UK recovery is blemished by an increased underwriting loss of pounds 45.9m ( pounds 37.5m) in its London market business. Peter Ward, UK managing director, said CU was imposing very strong rate increases, but the three-year accounting of marine business means the benefits will be felt slowly.

CU's large life insurance business increased profits from pounds 50.7m to pounds 57.6m, with a pounds 22.8m improvement from the UK. It also enjoyed a boost from investment income, which rose from pounds 129.4m to pounds 168.9m with the benefits of the rights proceeds and exchange rate movements. The new capital raised shareholders' funds from pounds 1.5bn to nearly pounds 2bn.

Steven Bird of Smith New Court is forecasting full-year profits of pounds 207m. He expects the final dividend to increase the total by 5 per cent to 24.75p.

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