Strong life growth cushions CU

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The Independent Online
Strong performances from its large life business and overseas operations helped Commercial Union offset many of the harsh winter conditions in the first quarter of this year. Pre-tax operating profit, which excludes gains and losses in the investment portfolio, dropped 19 per cent to pounds 83m.

This was far less than the 51 per cent cut in earnings reported on Tuesday by its composite insurance rival, General Accident, underlining CU's strength in diversification.

The market sent the insurer's shares 6p higher yesterday to 629p, encouraged by signs that the European business is delivering strong growth.

Peter Foster, finance director, said he expected the British market to continue heading into the downturn of the general insurance cycle.

"One is clearly seeing that competition is continuing. Generally in most classes of businesses there is a continual downward move in terms of rating," he said.

GA is less exposed to this increased competition, however, as over 80 per cent of the group's business comes from outside the UK non-life sector.

The life insurance business showed improvements both at home and abroad, with profits up by 13 per cent in the first quarter to pounds 58m, helped by a 15 per cent rise in premiums.

Life premium income, up 11 per cent at pounds 1.1bn, represents 43 per cent of the insurer's total premium income.

"It is our intention to continue to expand that business," Mr Foster said, pointing to Asia as the principal focus of the group's growth plans at the moment.

But he played down expections of a big acquisition, especially in the UK, in the light of the recently announced link-up between Sun Alliance and Royal Insurance.

"Our practice in the past has been primarily to grow by organic growth. One always keeps an open eye on what is happening and if it fits strategically, at a sensible price, we would always look at something."

John Carter, chief executive, pointed up strong contributions from CU's operations in France and The Netherlands, where the market is benefiting from firmer premiums and lower claims.

Net profits at Dutch-based Delta Lloyd grew 50 per cent. CU's French operation, dominated by Groupe Victoire, which it acquired in 1994, saw the general insurance result improve to an pounds 11m profit from a pounds 7m loss. "The best feature was the French result. I hope it's a change to better levels of profitability," said Trevor May of Salomon Brothers.

Mr Foster dismissed any notion that CU might make a share buy-back, and also appeared to rule out a distribution of the orphan assets or surplus life insurance funds, which he said were about the same amount as the pounds 1bn recently revealed by General Accident.

Within general insurance, CU experienced a 13 per cent downturn in its overall premiums to pounds 361m.

Within the UK general insurance market, private motor premiums "are still bumping along the bottom", commercial motors are stable, and private household and commercial property remain "competitive" with rates having fallen by around 10 and 5 per cent respectively over the last year, Mr Foster said.

CU's operating earnings per share fell to 7.2p from 10.6p a year earlier. Net asset value per share as of 31 March was 577p, down from 582p.

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