City File: GRE cuts interim dividend

GUARDIAN Royal Exchange will this Wednesday cut its interim dividend, even though it is not involved in the disastrous mortgage indemnity market, which has hammered the profits of so many other insurers. The payout will drop from 4.4p last time to around 2.0p this time.

The insurance composite's losses are partly the result of recession - higher theft and fire related claims, for example, which always rise when times are bad. The interim results will show slightly lower losses of around pounds 60m compared with pounds 88m last year.

But all is not gloom. GRE has done badly because it is so heavily exposed to the UK insurance market. As premium rates have already started to rise quite sharply, that should become a positive factor. Its lack of exposure to the over- competitive US market is also a plus point.

With a relatively healthy balance sheet and the smallest market capitalisation in the sector, it is also the most likely takeover target for, say, a continental insurer. So although this year's performance is not likely to be sparkling, GRE could be one of the best-performing shares among the composites in the foreseeable future.