Shares in GRE, the first of the leading composite insurers to report its results, fell by 16p to 218p. Commercial Union, General Accident, Royal Insurance and Sun Alliance also slid back.
Analysts have been warning of increasing competition in the insurance market for some months. Steven Bird, insurance analyst at Smith New Court, said: 'It comes as a shock to investors when the companies admit it. It's fine for analysts to theorise about it, but to hear (that) from companies themselves means we're into the downturn.'
John Sinclair, head of GRE's UK operations, said the company was seeing the large premium rate rises of recent years coming to an end. According to figures from the Association of British Insurers, rates for comprehensive motor insurance showed a slight decline in the final quarter of last year.
Mr Sinclair said some good rate rises were still being achieved on commercial insurances, although the property market was beginning to ease.
Mr Sinclair said GRE was sticking to its guns in turning down unprofitable business. Rather than compete solely on price, GRE is seeking to improve its service. It is offering loyalty discounts and charging less to customers who install security devices in their homes or cars.
GRE was reporting a pre-tax profit for 1993 of pounds 751m, up from pounds 150m in the previous year. Excluding investment gains profits were up from pounds 3m to pounds 183m.
The benefits from higher premium rates and favourable weather helped to increase UK profits from pounds 16m to pounds 220m.
General insurance was profitable in every significant territory. Albingia in Germany made pounds 14m after a pounds 17m loss, and Ireland jumped from a pounds 4m loss to an pounds 81m profit thanks to big gains on investments in Irish bonds.
Investment gains helped GRE's life business show its first increase in profits for some year. It made pounds 23m ( pounds 21m), although premium income fell from pounds 821m to pounds 758m.
Strong financial markets helped to lift GRE's shareholders' funds by 47 per cent to nearly pounds 1.7bn by the end of the year, representing net asset value of 193p a share. This gives the insurer a solvency ratio - shareholders' funds to general insurance premiums written - of 64 per cent, up from 51 per cent a year earlier.
Sid Hopkins, GRE's chief executive, is soon to be replaced by John Robins, who is joining from Willis Corroon, the leading insurance broker.
GRE is paying a final dividend of 4.95p, increasing the total by 8.6 per cent to 7.6p.
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