CGNU profits fall 22% as storm damage takes toll

CGNU, the giant insurer created in May from the merger of CGU and Norwich Union, yesterday reported a 22 per cent fall in pre-tax profits to £738m for the first half, due to French storms and one-off costs.

CGNU, the giant insurer created in May from the merger of CGU and Norwich Union, yesterday reported a 22 per cent fall in pre-tax profits to £738m for the first half, due to French storms and one-off costs.

Shares in CGNU fell as much as 9 per cent on the news, before ending down 67p at 1,000p. Analysts had predicted profits would be between £900m and £1bn.

The group, which is now the UK's largest insurer and number three in Europe, was hit by £90m in costs arising from claims for damage from December storms in France and £110m of investment in development of the business, including the company's online financial services site that will be rolled out this autumn.

Craig Bourke, an analyst at Credit Suisse First Boston, downgraded CGNU from "buy" to "hold" following the results.

Worldwide life and savings sales for the six months to 30 June were up 18 per cent to £6.1bn - with the UK showing a 24 per cent rise. In contrast, general insurance operating profit was down 13 per cent to £327m.

Bob Scott, CGNU chief executive, admitted the general insurance results were "disappointing".

Reports on the progress of the merger between CGU and Norwich Union were more positive, with the estimate of annual savings from the deal upgraded by £25m to £275m. However, the cost of the rationalisation was revised up by £75m to £425m.

The company said it will pick the best known of the former Norwich Union and CGU brands in each market and will relaunch them in October. In the UK the Norwich Union brand will be used. This will also be the name for the company's Net offering, which will see £250m investment over the next two years. Royal Bank of Scotland is expected to provide the banking facilities for the site.