THE INVESTMENT COLUMN

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The Independent Online
Lloyd's funds stay buoyant

The recent news from Lloyd's of London has not been guaranteed to gladden the hearts of investors in Lloyd's funds, the investment trusts set up to allow limited- liability investment in the insurance market. In recent months Lloyd's has not only lost its head of regulation, Rosalind Gilmore, but its chief executive, Peter Middleton, as well. Meanwhile, concerns are mounting over the continuing slippage of plans to establish Equitas, the reinsurance "dustbin" into which it is intended that all the problems of the past be swept.

Despite all this gloom, shares in the Lloyd's funds seem to have maintained the buoyancy the Independent identified last August. The index compiled by the broker UBS in our illustration, which covers the original businesses floated in 1993, is standing at levels not seen for a year. Yet the discount to net assets, at 8.8 per cent, has seldom been wider, suggesting now may be a good time to dive in.

The problem for would-be investors in Lloyd's funds is the lack of up- to-date information. Yesterday's figures from Abtrust Lloyd's Insurance Trust illustrate the point. While the company recorded a rise in profits from pounds 606,000 to pounds 689,000 in the six months to September, almost all of that surplus comes from the investment of the proceeds of its flotation at 100p in November 1993.

Much more important will be the underwriting results derived from the syndicates in which Abtrust has invested. The 1994 figures will not be known until 1997 under Lloyd's three-year accounting rule. But returns made by the syndicates' managing agents suggest that gross underwriting profits will be between 8.3 and 13.3 per cent of Abtrust's pounds 38.3m premium business written or "capacity" in 1994.

With UBS forecasting a 1994 result of 12.4 per cent, Abtrust looks on course to produce one of the better results in the sector. Even so, unchanged at 80p, the shares are not necessarily the best value in the sector. Taking account of three potential outcomes, ranging from Lloyd's going bust to it again achieving long-term gross returns of 10 per cent, UBS tips Angerstein, CLM, HCG and Limit as being particularly undervalued.

Before investors jump, however, they should beware. Apart from the specific problems of Lloyd's, insurance rates have peaked and 1995 results are likely to show a fall on the pounds 1bn expected for 1994. Meanwhile, capacity at Lloyd's is forecast to be down only around 3 per cent to pounds 9.9bn in 1996, putting further pressure on rates.

Resolving the

generator riddle

More than a million investors in last year's pounds 4bn share issue by the generators National Power and PowerGen are making up their mind whether to send off the second of three instalments or cut their losses on what has been a dismal investment.

PowerGen's partly-paid shares are currently trading at 200p compared with the 180p first instalment. National Power, at 141p, is 29p below the 170p shareholders put up last year.

The basic payment for the second slice is 170p for National Power shares and 185p for PowerGen. Anyone who opted for discounted shares at the time of the first instalment will pay 160p on the first 480 National Power shares and 175p on the first 320 PowerGen.

So what should they do? There are three options: pay up, sell the part- paid shares in the market or do nothing. The last of these is not recommended as the Treasury will simply take back your shares, sell them in the market at a possibly unfavourable price and charge you the costs of doing so.

Whether you put more money into either company depends on the view you take of their cloudy prospects. Their future performance depends largely on continuing MMC inquiries into their stalled bids for Midlands Electricity (PowerGen) and Southern Electric (NP). The result will not be known until March so to a large extent this is a blind investment.

That said, a favourable MMC result would be good news for the shares. A compromise solution is to sell enough in the market to fund the call on the rest. That way you maintain an exposure without committing any more money.

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