View from City Road: GA finds its strength at home

To get some idea of just how strongly the UK insurance industry is recovering, it is worth looking at General Accident's underwriting results. UK insurers have traditionally run their business at an underwriting loss, making their money from the investment income they earn on premiums. Only once since 1980 has the industry managed to meet their claims and expenses from premium income alone.

Yet just two years on from the depths of the insurance crisis, General Accident has made a pounds 3.5m first- half underwriting profit in the UK. Two years ago its UK underwriting loss was pounds 178.4m. The picture on personal lines is better still, with a pounds 16.8m profit on the household account, though this was offset by pounds 14.3m of losses on commercial property and liability insurances.

The full benefit of the last year of premium rate rises is still feeding through. GA looks well placed in the second half to match the pounds 70m pre- tax profits improvement it achieved in each of the first two quarters. It is not hard to see why the shares have had such a strong run.

The company has yet to bring about the same turnaround elsewhere in the world. It made an underwriting loss of pounds 74.1m in the US, where it writes nearly a third of its premium income of about pounds 4bn a year. General Accident is seeing some signs of improvement in the US but doubts remain about the quality of the business.

The management of General Accident is regarded almost as well as Commercial Union's, and some believe it has been more canny in avoiding unprofitable business as it resumes premium growth. The company was quicker than most to tackle its problems, and is enjoying the benefits sooner.

But most of the good news is already in the share price, which fell 9p to 683p yesterday on disappointment about the lack of a dividend increase. With General Accident heading for record profits of perhaps pounds 300m, a dividend increase may look on the cards. But having been slow to cut its payout in the face of appalling losses, GA may feel it wise to be cautious about more than a nominal increase.