GA underlines strong recovery: Insurer sparks hope of record profits

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The Independent Online
GENERAL Accident yesterday reported surprisingly strong evidence of the recovery in the UK insurance market, prompting hopes of a return to the record levels of profits achieved in 1988.

In the first quarter in the UK, typically hit by bad weather claims, General Accident made an underwriting loss of only pounds 4.1m, an improvement of more than pounds 60m over last year. One analyst suggested the industry could be heading for only its second year of underwriting profits since 1980. Nelson Robertson, General Accident's chief general manager, agreed this was 'not beyond the grounds of possibility' for his company.

The figures triggered a round of upgraded profit forecasts and share price rises both for General Accident and its rivals. GA's shares rose 18p to 591p and this year's forecasts were lifted by pounds 60m- pounds 80m to pounds 230m- pounds 240m.

The Perth-based insurer made a quarterly pre-tax profit of pounds 41.9m, a pounds 70.9m improvement on last year. Although most of the gains came from the UK, General Accident also reported signs of recovery and premium rate rises in its large US business.

One analyst said the profit improvement was quite amazing: the extent of the recovery seemed to be a year ahead of schedule. The industry was 'going to have a shout' at achieving the record profits of 1988.

However, the strength of the improvement also raised concerns that the market would shortly see a return to fiercer competition that would eventually bring about the downward swing of the insurance cycle.

Mr Robertson played down these fears. He said his company was still achieving good rate rises - an average 5 per cent on motor, 20 per cent on contents and 15 per cent on commercial property. 'The market is not over-competitive yet,' he said.

Mr Robertson also tried to dispel persistent speculation that General Accident is planning a rights issue to raise new money to fund growth. The company's solvency ratio has improved by nearly 5 per cent to 46.1 per cent this year.

'I see no reason to be worried about the solvency level,' he said, adding: 'The only business we are prepared to take is profitable business which will add and not detract from solvency.'

UK premium income was up by more than 18 per cent to pounds 333.6m, though General Accident achieved a 50 per cent rise in its household business, helped by taking on the accounts of several building societies. The insurer has shed some motor fleet business.

The cost of last month's Bishopsgate bomb in the City of London is not expected to exceed pounds 10m.

US underwriting losses were slightly down at pounds 38.2m, as was premium income at dollars 491.1m. Mr Robertson said the company was achieving good rate rises in important areas such as Connecticut and New York.

Life insurance increased its contribution from pounds 7.8m to pounds 10.5m, despite significant development costs. However, new annual premiums in the UK were down from pounds 14.5m to pounds 12.1m despite its sales of low-cost endowments receiving a fillip from its market-leading policy payouts.

General Accident's estate agency arm is seeing a marked increase in inquiries but recorded another loss in the first quarter of pounds 3.7m.