United Assurance warned that it may not be able to meet strict deadlines set by the Treasury for compensation victims of the pension mis-selling scandal. Directors blamed delays on difficulties obtaining information from both occupational schemes and its own clients.
Group chief executive George Mack denied that the company had failed properly to estimate its own liability in the past.
He said the extra money was needed to meet liabilities in full in the wake of a tougher attitude on mis-selling from the Treasury. Budget changes to tax credits have also increased the cost of compensation.
Mr Mack also claimed that the cost of redress had risen because United is to offer mis-selling victims guarantees of redress in future - a more expensive method than compensation upfront.
However, the doubt cast on United's ability to meet the Treasury deadlines could damage future earnings. Government ministers have hinted that companies which do not meet the deadlines could be excluded from selling stakeholder pensions.
Stakeholder pensions, expected to be introduced in the next two years, will target low income savers - a key market for United, a home service company whose sales people collect premiums door to door.
Home service companies are particularly exposed to the mis-selling scandal. Prudential, which was once the largest player in this market before it quit the business, revealed a pounds 450m provision for mis-selling two months ago. It had previously set aside just pounds 250m.
In contrast to a Prudential decision to make policyholders pay 90 per cent of the compensation costs with shareholders paying only 10 per cent, United's shareholders will bear 80 per cent of the costs.
The announcement came as United struggled to appease shareholders, who have been frustrated by delays in getting DTI approval to restructure the group. It announced it had finally got approval for shareholders to reap most of the pounds 37m cost savings flowing from last October's merger.
The directors have also bowed to pressure from the market to ditch a loss-making direct-selling vehicle, United Friendly Financial Planning. This was sold to Friends Provident for a loss of pounds 2m. One analyst said this was a misguided venture upmarket which should have been ditched long ago. "It has taken them a very long time to do what is obvious," he said.
Mr Mack said the company had struggled to find qualified staff. "It is easy to look with twenty-twenty hindsight, which is all right in itself. But coming up against practical difficulties is quite different."
Mr Mack admits morale is low among United's staff as more than a third must leave or be made redundant. Of 6,400 staff, 900 have left after turning down the option of relocating from London to Wilmslow, the company's new headquarters in Cheshire.
But the company is currently selecting more staff for compulsory redundancy to bring numbers down to 4,200. Of 279 branches, 160 are to be shut.
United's operating profits nearly doubled to pounds 158m in the six months to June, excluding the provision for mis-selling. However, pounds 67.8m of this came from the investment return on more than pounds 800m of surplus assets. In the same period last year, United was blocked from attributing these surplus assets to shareholders.
The figure for operating profits also masks a 5 per cent drop in new premiums from January to June against the same six months last year. This contrasts sharply with close competitors such as Britannic Assurance, which has boosted sales after competitors such as Prudential withdrew from the market.
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