The Investment Column: Norwich Union

INSURANCE COMPANIES never tire of telling their customers to pay out more money now to guarantee a healthy income later in life and Norwich Union takes its own advice.

The group paid out pounds 600m to buy London & Edinburgh, the general insurer, last year. Half-year operating profits consequently grew 5 per cent to pounds 380m as the money could not be used to earn interest. The group says that without that deal profits would have risen by 10 per cent.

The shares ticked up just 5p to 412.5p, still 20 per cent lower than their level a year ago. But Norwich Union is worth the pounds 5 tag it carried back in 1998.

In a consolidating market, rumours of a merger are never far away and with NatWest Bank saying it wants to buy a life company, Norwich Union's name is bound to be on people's lips. Norwich, however, insists its future is as an independent.

That's justified. Worldwide new business grew 37 per cent last year and UK business grew by 40 per cent growth, something few of its rivals can boast. Margins have held at just below 30 per cent and Norwich is confident of maintaining them. On the general insurance side, premiums are rising at around 14 per cent.

Following the acquisition of L&E, Norwich is in the top three motor, household and property insurers. L&E, which made a loss of pounds 10m a year ago, has now shown a pounds 3m profit.

Meanwhile, Norwich is eyeing further acquisitions abroad. Its move into Poland's deregulated market has given it a 5 per cent market share; analysts believe the full-year result from Poland will show a strong contribution to profits.

Norwich's share price contains no premium for a takeover. But the market's lack of faith in Norwich as a merger candidate is no worry. Norwich is holding margins in an ever tougher environment, and investors who received their shares upon demutualisation should expect them to go higher while those who missed out have another chance to get on board. Buy - up to pounds 5