Sun Alliance pays dividend despite loss of 130m pounds

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A THIRD year of heavy losses and a hefty property write-down has virtually wiped out Sun Alliance's enormous financial advantage over its leading British rivals.

A 1992 pre-tax loss of pounds 129.6m takes the three-year total of losses to pounds 776.7m. The insurer's finances have been further damaged by its refusal to cut its dividend, costing it a further pounds 339.6m. It has also written pounds 150m off its pounds 1bn property portfolio.

The effect is to cut Sun Alliance's solvency margin - the ratio of its net assets to general insurance premium income - to 54 per cent, down from 69 per cent at the end of 1991. At the end of the 1980s, Sun Alliance's solvency peaked at 119 per cent.

Steven Bird, insurance analyst at Smith New Court, said that after Sun Alliance's recent acquisition of Hafnia, the Danish insurance company, its solvency had probably fallen beneath that of Guardian Royal Exchange, the smallest of the leading composite insurers.

'One can no longer see Sun Alliance as by far the premium stock in the sector,' said Mr Bird. 'They are now just one of the bunch.

'They are having to adjust to a very different environment. A company with a 100 per cent solvency margin does not have to make friends. A company with a 50 per cent solvency margin has to be more wary.'

Last year's loss was a substantial improvement on the pounds 466.2m the insurer lost in 1991. Sun Alliance has been dogged by its one-fifth share of the market in guaranteeing the mortgage loans made by building societies. Repossessions cost it pounds 320m in 1991 and a further pounds 186m last year.

A final dividend of 9p keeps the total unchanged at 14.25p a share.