Retail investment boom takes UK insurers higher

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TWO OF the UK's biggest insurers confirmed the boom in retail investments yesterday when they both recorded a jump in sales of around a quarter in the first three months of the year.

CGU Life, the investment arm of CGU, saw worldwide sales of life insurance, pensions and investments surge 29 per cent to pounds 1.8bn. Royal & SunAlliance, its smaller rival, recorded a 24 per cent jump.

CGU saw a near-trebling of sales of Personal Equity Plans and unit trusts as UK customers rushed to invest before the 5 April deadline. Savers, hit by low interest rates on deposit accounts, also poured money into the group's Portfolio Bond, a cautious stock market investment.

CGU has embarked on a European expansion, buying the German life insurer Berlinishe Lebensversicherung last year. After a difficult year for its French operations in 1998, the expansion is bearing fruit. The strategy has been proved in Poland, where the government has announced the gradual privatisation of pensions, with the state paying around 7 per cent of wages into a private pension for everyone under 30.

The move has led CGU into a massive recruitment drive, temporarily boosting its sales force from 6,000 to 27,000 people.

Royal & SunAlliance saw a 90 per cent jump in retail investments and healthy sales of lump-sum pension savings in the UK, but the group has a smaller exposure to Europe. It also derives a much smaller chunk of its profits from life insurance than CGU.

After a strong run, CGU's shares came off 5p to close at 978p. According to Tim Young of Teather & Greenwood this values the group at 1.3 times its embedded value, the industry's method of evaluating life insurers. RSA, up 1.5p to 527.5p, stands at 1.1 times.

On a bullish view of the sector, both valuations appear low. But Salomon Smith Barney warned that margins on pensions and savings are shrinking - at least in the UK. Hold.