The company, which already has extensive interests in Europe, said the trend towards direct telesales that has grown apace in the UK in the past few years was bound to translate to the Continent.
Roger Taylor, chief executive, said the group had set up a direct retail division to explore the possibilities throughout Europe, where it already has annual premium income of £1bn.
Mr Taylor's comments came as the group reported 1994 pre-tax profits of £316m, at the top end of analysts' expectations. The result, which compares with £222m in 1993, would have been £100m higher but for a provision against losses on mortgage indemnity insurance.
Sun Alliance announced a month ago that it would change the basis on which it recognised such losses, leading to the £100m provision. This is aimed at drawing a line under the group's problems in this business, caused by the collapse of the housing market in the early 1990s.
The group also made a £19m provision in yesterday's accounts to pay for the continuing reorganisation of its Swinton retail insurance arm.
The company has been rationalising Swinton's 500-strong branch structure and is opening a new tele-marketing centre at Stockport. But Mr Taylor said there was still customer demand for face-to-face service, so the branch network would remain despite the trend towards direct sales.
Highlights in the results included commercial business in the UK, which recovered strongly and produced an underwriting profit, Mr Taylor said. "This was supported by the personal lines business, which, excluding the mortgage indemnity account, achieved a further good underwriting profit, due in part to the absence of bad weather."
Mr Taylor said he doubted that motor insurance rates would decline much further after the fall of about 10 per cent seen across the market last year, largely as a result of the increasing competition from the industry- wide trend towards direct sales.
He added that household insurance rates had fallen last year because insurers were reacting to a diminishing level of claims and were introducing no-claims bonuses to attract better risks.
In common with other general insurers, Sun Alliance's net assets declined last year - from just over £2bn to £1.75bn - as a result of the fall in bond and equity markets.
The dividend is raised 6.8 per cent to 15.75p.