CGNU predicts it will be safe from downturn after 42% leap in profits

Click to follow
The Independent Online

The UK's largest insurer, CGNU, yesterday predicted it would be largely unaffected by the economy's downturn as the insurance industry is one of the most sheltered sectors from relatively short-term fluctuations.

Richard Harvey, chief executive of CGNU, said the limited impact of fears of a recession would be "people not putting as much into their pensions or savings policies. There would also be less return on those investments if the stock market's returns are negative."

But he predicted that the drop in business would have minimal effect because many forms of insurance are compulsory or relate to investments which last for as much as 30 years. There would be no negative effect on general or life insurance premiums, he said.

Mr Harvey's benign outlook came as he unveiled a 42 per cent leap in ongoing operating profit to £977m for the six months to 30 June, which was higher than most analysts' expectations. Shares in CGNU rose by 28p to 1,028p.

CGNU benefited from strong growth in general insurance, where profits more than doubled to £427m. The upturn was driven by far fewer pay-outs on storms compared to last year's level and increases in premiums. The company also completed the sale of its US general insurance arm.

Mr Harvey said: "In the last few years there was considerable pressure on claims on the general side, where they ran ahead of premiums due to changes like courts awarding much higher settlements for car injuries. This is the first year when we have benefited from a rise in premiums."

In the life business, operating profit rose by 12 per cent to £857m, lifted by a 13 per cent rise in life and pensions new business sales to £3.6bn. CGNU has embarked on a number of bancassurance relationships to distribute insurance through partners including Royal Bank of Scotland.

Mr Harvey said further acquisitions by CGNU were a possibility but that "bancassurance is the most effective way to grow our business".

The company said stakeholder pension sales were so far "encouraging", but refused to say how many company stakeholder schemes it had signed up. Many insurers who have entered the stakeholder market have been cagey about giving out sales figures yet because take-up has so far been slow.

CGNU joined Legal & General yesterday in saying the Government should consider making pension contributions compulsory – a move which would substantially boost stakeholder sales.

The company, which was formed last year from the merger of CGU and Norwich Union, said it was hopeful it would beat its target of saving £275m a year from the merger. It expects to make savings of £300m in 2001.

It also said it aimed to reduce its combined operation ratio – a key industry measure of claims and costs as a percentage of premiums – to 102 per cent from 103 per cent in the first six months.