Rates on the way up, says CU

Commercial Union yesterday added its voice to those suggesting UK insurance rates were set to turn up. Peter Foster, finance director, said they had yet to push through any rating increases, but had not reduced rates by as much as other insurers when prices were falling. The next move from CU on rates would probably be upward, he forecast.

The group is also sanguine about the effects of the announcement on Tuesday that AXA and UAP of France are to merge to create the world's second-biggest insurance group. Tony Wyand, director in charge of European operations, said: "We see [the union] in a fairly positive light." AXA would help make the market more focused on shareholder return, which would benefit Commercial Union, he said.

The comments came as the life and general insurer announced that operating profits had slid from pounds 384m to pounds 348m in the nine months to September. The figures continued to be dragged lower by weather-related claims from the first half, which rose by pounds 62m and more than offset stronger results from the life insurance business.

UK profits slumped from pounds 244m to pounds 161m in the period. First-quarter winter storms and claims from terrorist bombings compounded domestic problems caused by competition. CU had to fork out pounds 17m in weather claims, pounds 7m following the IRA bombing in Manchester's city centre and pounds 2m for the bomb in London's Docklands.

General insurance premium income fell 2 per cent, but there are now glimmers of hope in the UK. CU said: "The rating environment remains competitive, although there are signs of competition reducing in the motor classes."

Life profit rose 11 per cent to pounds 178m, boosted by CU's French operations and a reorganised Dutch business. Life premiums climbed 6.4 per cent to pounds 2.8bn, with Poland more than doubling its premium income and Italy posting a 37.5 per cent increase. Insurance premiums from the life business now provide 43 per cent of the group's total premium income.

"The results show the virtue of having a good spread of businesses," said Trevor May, an analyst at Salomon Brothers. "In the UK, the premium income line is still weak. They're deliberately losing exposure and becoming an increasingly smaller operation."

The shares rose 6p to 645p.