General Accident, the Irish general insurance subsidiary of CGU, recorded a drop in pre-tax profit from £4 million sterling (€5.88 million) in 1997 to £1 million (€1.47 million) in 1998.
This decline was due to a rise in the underwriting losses and a fall in investment income, Mr Peter Foster, CGU's finance director, told The Irish Times. He said the results were also hit by storm claims in December and a slight increase in large claims. General Accident saw some growth in its motor insurance business. This was helped by increased business through brokers.
Overall, total general insurance premiums in the Republic grew by 11 per cent to £74 million sterling (€109 million), he said. General Accident moved into the life business last year.
CGU, Britain's largest composite insurer, also has a 28 per cent stake in Hibernian, which this week announced a 31 per cent rise in pre-tax profit to €72 million (£57 million) in 1998. Although CGU is expected eventually to make a bid for the remaining equity, Hibernian stated it had not received any approach.
CGU said its operating profit had almost halved last year but met the lower end of analysts' expectations after a difficult weather-hit year was saved by a record life insurance profit.
Excluding £266 million sterling (€391 million) of long-term investment gains, included in British insurers' operating results for the first time, CGU reported pre-tax profit of £502 million (€738 million), well down from the £962 million (€1.4 billion) pro-forma profit reported last time by Commercial Union and General Accident, which merged in June last year to form CGU.
Analysts expected profits of between £500 million and £582 million (€735E856 million) for 1998, but were satisfied with the strong performance in life insurance - up 21 per cent to £498 million (€732 million) - and said the poor non-life result - halved to £504 million (€741 million) - had already been accounted for.
CGU chief executive Mr Bob Scott said the life result, which would have reached £1 billion on an "achieved profits" basis, which gives a better measure of the profitability, set the group up well for upcoming government-led changes to the British pensions market.
He said that 1998 was a difficult year for non-life business, marked by low rates, over-capitalisation and competition, but emphasised that CGU would not abandon non-life business: "People forget the very good non-life profits we made from 1994 to 1997. Non-life business is cyclical and there is ample room for improvement."
Mr Scott said rate rises had been implemented in British motor and liability business and in some US homeowner business, but said on the whole that the non-life market was still soft, due to the excess of capital in the market.
The poor non-life result was aggravated by £350 million in additional claims provisions in 1998, mostly due to old US asbestos and pollution claims, but analysts said the one-off charge meant "biting the bullet", which should boost future profits.
Mr Charles Landa, insurance analyst at Societe Generale, said the progress of bringing the group together was still ahead of schedule. He said the £260 million exceptional charge taken by CGU in the results accounted for most of the expected total of £320 million. Savings from the merger were now up to £72 million per year, which he said was on target for the £270 million per year CGU said it would save by June 2000.
