Premium income falls 10% at CGU

CGU, the UK's biggest general insurer, yesterday admitted that its income from UK insurance premiums had fallen by 10 per cent in the first three months of the year as it sought to lead the industry away from offering rock-bottom rates.

CGU has been raising rates, hoping the rest of the industry will follow suit, at the cost of a temporary loss of market share.

Private motor insurance premiums have risen by 15 per cent on the first quarter last year, while commercial motor rates rose 18 per cent. Now household insurance is also rising, up by 6 per cent from last year.

CGU executives say they are confident rivals have also begun to raise rates, providing relief from the deep slump in the insurance cycle which has devastated insurers' profits for the past two years.

Bob Scott, CGU group chief executive, said: "There is quite a lot of evidence that we are hitting the bottom of the insurance cycle. There is a lot of capital that came into the market and has enjoyed good returns for years, which is now beginning to realise the market is under pressure."

The group has also taken action to limit its unquantifiable exposure to claims stemming from the year 2000 computer bug. Exclusion clauses have been introduced to annually-renewable policies, driving some customers to look elsewhere.

In spite of the loss of premium income, CGU's underwriting profits were sharply up in comparison to a stormy three months at the start of last year, when a Canadian ice storm and floods at home led to a dramatic rise in claims.

Operating profit before tax was up pounds 22m to pounds 188m before exceptionals, helped by a boom in demand for life and savings in the first quarter of the year.

Shares rose 2.7 per cent in a falling market yesterday to close at 913.5p. Investment boutique Fox-Pitt Kelton says that is a 37 per cent premium to the value of net assets, compared with a 20 per cent premium for rival Royal & SunAlliance. CGU looks comparatively undervalued; buy.