CU raises life profits with new accounting

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COMMERCIAL Union yesterday became the latest insurer to quote profits for its life insurance business on a new basis that produces a much higher result.

The company's application of so- called embedded accounting principles produces a life insurance profit for 1993 of pounds 280m, more than twice the pounds 119m it recently reported under the more conservative statutory basis.

Life insurers argue that statutory profits are a poor measure of underlying profitability. In particular, the statutory method fails to reflect the expected benefit derived from new business sales.

Commercial Union has opted for the embedded value approach taken by the bank-owned insurers rather than the alternative accruals method championed by Prudential, the UK's largest life insurer. Only BAT Industries has so far joined the Pru in using accruals profits.

The higher life profit would have meant CU's total pre-tax profits in 1993 were pounds 379m rather than pounds 218m. The shareholders' interest in the life fund is calculated at pounds 1.7bn rather than the balance sheet figure of pounds 713m. CU shares rose 7p to 582p.

Commercial Union has also gone beyond the requirements of the Cadbury code on corporate governance by disclosing the salaries and performance payments made to each of its executive directors. John Carter, the new chief executive, last year received pounds 295,370 including a performance payment of pounds 49,500. Tony Wyand received pounds 279,801 with pounds 47,250 for performance. Tony Brend, the retiring chief executive, received pounds 357,246 with a performance payment of pounds 59,625.

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