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Investment: CGU profits slump but shares jump

SHARES IN CGU, the insurance giant, jumped by 6 per cent yesterday in spite of a 38 per cent fall in profits in 1998, one of the toughest years in recent memory for the insurance business.

Profits from general insurance halved to pounds 504m as CGU was battered by escalating personal injury claims, severe-weather payouts and a slow- down in general insurance business.

The City was consoled by a marked improvement in the life and savings side of the business, where profits jumped by 21 per cent to pounds 498m, a record figure. Shares were up yesterday from 929p to 983.5p, valuing the company at pounds 12.16bn.

Bob Scott, chief executive, said CGU would push through increases in premiums in order to restore margins, which have shrunk to loss-making levels in the past two years. Motor insurance premiums would rise by an average of 10 per cent while employers' liability insurance would rise by 5 per cent.

Mr Scott predicted that the insurance cycle would begin to turn up by the end of the year, as rivals were forced by mounting claims and modest investment income to follow CGU's example. "There will be an upturn. It may not return to its previous level but it should happen towards the end of 1999," he said.

Like its rivals, CGU suffered heavy underwriting losses in 1998 because of ballooning claims on general policies.

A House of Lords decision last year boosted the cost of personal injury claims by changing the way they are calculated in favour of the victims. According to estimates, the cost to the insurance industry is likely to come to pounds 450m a year. Mr Scott said the growing cost of personal injury claims mirrored the litigious culture in the US, where some classes of business have become almost uninsurable.

CGU, formed early last year from the merger of Commercial Union and General Accident, has so far shed nearly 1,800 of the 6,000 jobs it intends to cut following the merger.

Mr Scott also said he was "actively considering opportunities for [acquisitions]", hinting that the next target was likely to be a European insurer.