3 Months 2000 Results - Pt.1
CGU PLC
10 May 2000
Part 1
UNAUDITED RESULTS - 3 MONTHS ENDED 31 MARCH 2000
A strong start to the year
* The Group made a strong start to the year with the pre-tax operating
profit significantly higher at £396m (1999 £255m), including life achieved
operating profits. On a modified statutory basis, pre-tax operating profits
also increased to £234m (1999 £190m).
* Life achieved operating profits increased to £289m (1999 £181m). Total
life new business of £1.9bn included life and pensions sales up 19%. New
business value up 40%.
* General insurance profits up 46% to £165m, with rates firming in most
businesses.
* CGNU merger on schedule to be completed around the end of May 2000, making
the combined Group one of the leading European insurers.
3 months
3 months 1999
2000 Restated
Unaudited Unaudited
Premiums & investment sales: life & savings £2,487m £2,437m
: health insurance £229m £44m
: general insurance £2,404m £2,294m
Pre-tax operating profit (i) £396m £255m
Operating earnings per ordinary share (i) 21.0p 13.2p
Profit attributable to
ordinary shareholders (ii) £230m £119m
Shareholders' funds £9,853m £9,567m
(31 Dec 1999)
(i) Operating profits/earnings shown above include achieved life operating
profits and exclude goodwill amortisation of £5m (1999 £4m) and
exceptional items of £20m in 1999 (2000 nil).
(ii)Using modified statutory life profits and including short-term
fluctuations in investment values.
Enquiries:
Bob Scott, Group Chief Executive Telephone: 020 7662 2003
Peter Foster, Group Finance Director Telephone: 020 7662 2007
BOB SCOTT, GROUP CHIEF EXECUTIVE, COMMENTED:
'The Group made a strong start to the year with the pre-tax operating
profit increasing by £141m to £396m, including life achieved operating
profits, and operating earnings per share were up 59%. Our life, asset
management and general insurance businesses all achieved better results,
helped by the inclusion of acquisitions.
The strong development of our life and savings business continued with
sales reaching £1.9bn, including a 19% increase in life and pensions new
business. The pre-tax value of new business increased by 40% to £66m.
Good growth continued in the UK with life and pension sales up 24% with
similar product margins. In France, one of our largest life businesses,
new business grew by 64% and in Poland we continued to benefit from our
success in the new pensions market. Achieved life operating profits were up
68% to £289m, benefiting from changes in economic assumptions, growth in
new business contribution and an increased roll up from a higher embedded
value than at the start of last year. On a modified statutory basis, life
profits increased to £127m from £116m last year, which now includes the
results of Your Move, the UK estate agency chain.
We have significantly increased the distribution power of our UK life and
savings businesses through deals with The Royal Bank of Scotland and Tesco.
The Royal Bank of Scotland, when combined with NatWest, provides
opportunities to sell through a network of some 2,000 branches and to 9
million current account customers. We also became the exclusive provider
of life and pension products to Tesco Personal Finance, with its 1.4m
customers. Discussions are continuing with Societe Generale with a view to
strengthening our position in the French long term savings market - we are
also seeking other bancassurance distribution arrangements in Europe.
General insurance profits rose 46% to £165m, with improved underwriting
results in the United Kingdom and United States, although increased
estimates of claims from the December storms and large losses impacted
results in Continental Europe. The longer term investment return was £62m
higher at £362m, reflecting higher investment returns and acquisitions.
General insurance premiums were up 7% to £2,404m, with rate increases being
significant. Rating and underwriting actions continued to be taken in all
our principal businesses with rates continuing to firm in most markets,
including the United Kingdom. Our cost savings programme has produced one
of the lowest administration expense ratios of the major players in the
United Kingdom, with a reduction to 11% from 13% in the first quarter.
The group has a number of e-commerce and new technology initiatives
underway. In March, we started selling life policies on the internet in
the United Kingdom, and motor policies in France through Eurofil, the 2nd
largest tele-direct writer. In a separate announcement today, we advised
of the launch of 'asserta home', a major e-commerce initiative for home
buyers. This is the first strand of our wealth management project using
internet technology, further announcements on which will be made at the
time of the interim results.
We announced in February of this year the planned disposal of our US
general insurance business, in preference to investing the substantial sums
required to reach a leading market position. An information memorandum has
been circulated to interested parties.
Our planned merger with Norwich Union to create CGNU, the United Kingdom's
largest insurer, is on schedule for completion around the end of May. The
merger received strong support from shareholders and good progress is being
made on regulatory approvals around the world, including approval from the
European Commission. Both companies have the management expertise and
experience to successfully integrate these large businesses.'
OTHER HIGHLIGHTS:
Acquisitions
The completed acquisitions of the Hibernian Group, NUTS OHRA and GAN Canada
benefited the first quarter results. In total, they added £69m to life
premiums, £179m to health premiums, £77m to general insurance premiums and
£18m to pre-tax operating profits, including achieved life profits.
CGU merger integration and cost savings
Integration and cost savings from the CGU merger were largely completed at
the end of 1999, with the annualised cost savings target of £325m achieved
six months ahead of schedule.Total cost savings of £81m are reflected in the
first quarter results, of which £47m are included in general insurance
administrative expenses, £22m in claims handling expenses and £12m in life,
asset management and unallocated expenses.
E-commerce
In a separate release today, the group announced the launch of 'asserta
home', a major new home-moving portal. The new initiative provides access to
the largest on-line homes database with some 180,000 homes for sale,
representing in the region of 50% of the market.
'asserta home' will be the first in the UK to offer a personalised and
comprehensive on-line home-moving service, following extensive research to
determine customer's needs during the house-buying process. Users can
receive immediate updates of newly available homes via e-mail or mobile
phone text messaging, search and rank properties on 16 different criteria,
access photographs on-line, and organise home moves over the net 365 days
a year, 24 hours a day.
The UK home-moving market generates fees and associated expenditure of over
£9 billion per annum, and is an important entry point to the mortgage and
insurance market. 'asserta home' aims to build its revenues from commissions
from mortgages, life protection products and from general insurance, in
addition to advertising revenues and other transactional fees. The business
is expected to be profitable during its third year and the investment to be
made by CGU is estimated at £40m over 3 years. A major press and TV
advertising campaign around the country will support the launch with TV
advertising starting on 15 May. It is anticipated that the equity in
'asserta home' will be owned as follows: 30% partner Estate Agents, 56% with
CGU, and 14% for 'asserta home' management and staff.
Shareholders' funds
Shareholders' funds amounted to £9,853m (31 Dec 1999 £9,567m) after
deducting the equalisation provision of £132m (31 Dec 1999 £134m).
Net assets per ordinary share at 31 March 2000 were 735p (31 Dec 1999 714p)
after deducting the equalisation provision. Adding back the equalisation
provision, they were 745p (31 Dec 1999 724p). At 5 May 2000, net assets per
ordinary share were estimated at 731p (741p adding back the equalisation
provision).
The solvency margin (excluding life) was 49% (31 Dec 1999 49%).
The Group decided to reduce its strategic holding in Munich Re from 5.0% to
3.5%, which it completed by the end of April. The Group regards its current
holding as a key element of its long standing relationship with Munich Re.
Return on equity (ROE)
The group's 'normalised' after tax return on equity for the 12 months to
31 March 2000 was 9% (5 year average 14%). The normalised return is based
on the after tax operating profits including life achieved operating profits,
before exceptional items and goodwill amortisation, and the opening equity
capital. The total return on equity, including all investment and currency
movements over the 12 months to 31 March 2000, amounted to 13%.
Performance highlights including life achieved profits
3 months
3 months 3 months 1999
2000 2000 Restated
Unaudited Unaudited Unaudited
Euro m £m £m
Revenues
3,797 Life premiums 2,315 2,149
282 Investment sales 172 288
376 Health premiums 229 44
----- ----- -----
4,455 2,716 2,481
3,943 General insurance premiums 2,404 2,294
----- ----- -----
8,398 Total 5,120 4,775
----- ----- -----
Operating profit
473 Life achieved operating profits 289 181
15 Health 9 7
271 General insurance 165 113
2 Associated undertakings 1 6
41 Asset management 25 13
----- ----- -----
802 489 320
Unallocated expenses and
(153) interest charges (93) (65)
----- ----- -----
Pre-tax operating profit before goodwill
649 amortisation and exceptional items 396 255
(198) Taxation, minorities and preference
dividends (121) (82)
----- ----- -----
Operating profit before goodwill
amortisation and exceptional items,
after taxation, attributable to
451 equity shareholders 275 173
----- ------------------------------------- ----- -----
34.4c Per share (ii) 21.0p 13.2p
----- ------------------------------------- ----- -----
Reconciliation to modified statutory operating profit
3 months
3 months 3 months 1999
2000 2000 Restated
Unaudited Unaudited Unaudited
Euro m £m £m
Pre-tax operating profit, including
life achieved profits, before goodwill
649 amortisation and exceptional items 396 255
(473) Deduct life achieved profits 289 (181)
208 Add modified statutory life profits 127 116
----- ----- -----
Pre-tax operating profit, including modified
statutory life profits, before goodwill
384 amortisation and exceptional items 234 190
(8) Goodwill amortisation (5) (4)
----- ----- -----
376 Pre-tax operating profit before 229 186
exceptional items
- Exceptional items - (20)
----- ----- -----
376 Operating profit before taxation 229 166
===== ===== =====
Notes
(i) Unaudited financial statements follow on page 18.
(ii) Per share workings on page 17.
NOTES TO EDITORS
* On 21 February 2000, CGU and Norwich Union announced a proposed merger
of the two groups. This was approved by both CGU and Norwich Union
shareholders at Extraordinary General Meetings on 31 March 2000 and the
proposed merger is on schedule to be completed around the end of
May 2000.
* CGNU will be the largest insurance group in the UK with worldwide
premium income and retail investment sales of £26bn and will be a top 5
European life insurer based on premium income.
* CGNU will be the second largest UK based fund manager with worldwide
assets and additional funds under management in excess of £200bn.
* The distribution of CGU's total premiums and investment sales of £18.5
billion for the 12 months to 31 March 2000 is shown below. Life
premiums, investment sales and health premiums accounted for 54% of the
group's total business:
Life,
investment
sales General Total
and health
% % %
UK 24 14 38
France 12 3 15
Netherlands 6 2 8
Other Europe 10 3 13
United States 2 14 16
Canada - 5 5
Australia & NZ - 3 3
Rest of World - 2 2
* All growth rates are quoted in local currency.
* Overseas currency results are translated at average exchange rates.
* CGU's corporate press releases and results presentations are available
on the Internet: www.cgugroup.com/group
A review of CGU's business performance follows
BUSINESS REVIEW
LIFE
ACHIEVED LIFE PROFITS
Life achieved operating profits increased by 68% to £289m.
The new business contribution increased by 40% at constant rates of
exchange to £66m, boosted by strong first quarter sales, broadly maintained
margins and the benefit of higher long term interest rates.
The expected return increased considerably as the benefits of higher
interest rates on a strongly growing embedded value came through. In
addition, there was a one-off uplift of £66m, following the alignment of
economic assumptions for achieved profits between CGU and Norwich Union, in
line with the pro-forma analysis provided in the merger press release of 21
February 2000. The £66m benefit was split as follows: UK £24m, France £7m,
and £35m in the Netherlands. The changes mainly reflect property investment
margin assumptions.
Achieved operating profits
3 months 3 months
2000 1999
£m £m
New business contribution 66 49
Expected return 167 123
Effect of experience (3) 7
Alignment of economic assumptions 66 -
--- ---
Achieved operating profit before tax 296 179
Other life and savings activities (7) 2
--- ---
Life operating profit before tax 289 181
--- ---
A more detailed analysis of life profits is given below. In view of the
sizeable movement in interest rates, the 1999 new business contribution has
also been shown using the same economic assumptions as have been applied in
2000, to allow a better underlying comparison between 2000 and 1999.
Analysis of life
profits
Profit on
business
in force
and net New business
assets contribution Total
------------- ----------------------- ----------------------
3 mths 3 mths 3 mths 3 mths 3 mths 3 mths 3 mths 3 mths
2000 1999 2000 1999 1999 2000 1999 1999
(1) published (1)published
£m £m £m £m £m £m £m £m
Life operating
profit before
taxation
UK 91 44 39 31 27 130 75 71
France 39 26 9 8 7 48 34 33
Netherlands 78 43 3 3 - 81 46 43
Italy 4 3 1 10 10 5 13 13
Poland - life 9 12 3 7 6 12 19 18
Poland - pensions 3 (1) 11 - - 14 (1) (1)
Other Europe 2 (1) (1) (3) (3) 1 (4) (4)
Other life 4 4 1 2 2 5 6 6
businesses --- --- --- --- --- --- --- ---
230 130 66 58 49 296 188 179
--- --- --- --- ---
Other life (7) 2 2
& savings --- --- ---
activities (ii)
Life operating
profit before
taxation 289 190 181
Effect of changes
in interest rates
and investment
return
fluctuations 105 117
--- ---
Achieved profit
before taxation 394 298
Taxation (127) (89)
Achieved profit --- ---
after taxation 267 209
=== ===
Notes:
(i) New business contribution has been shown using 2000 economic
assumptions.
(ii) Profits of other life and savings activities, which include service
companies, have been calculated on a statutory basis. The result includes
a loss of £12m (1999 loss £4m) from Your Move, the UK estate agency
chain, previously included in other financial services.
Life profits reporting
Life profits are shown using the 'achieved' profits basis. We believe this
is a better measure of the performance of our life businesses than the
modified statutory basis, which is deliberately conservative and more
concerned with solvency protection and distributability than performance.
The modified statutory basis for life profits is used in the statutory
financial statements at the end of this report.
LIFE AND SAVINGS NEW BUSINESS
Our life and savings businesses made good progress in the first quarter, with
good growth in sales and profit contribution. Total sales of £1.9bn included
life and pensions new business of £1.7bn, up 19%. UK life and pension sales
were up 24%, France produced an excellent performance with sales up 64%, and
we continued to benefit from our success in Polish pensions, having captured
around 30% of pension funds under management in the privatised market.
New business sales
New single New annual Investment
premiums premiums sales (ii) Total
Local Local Local Local
3 mths currency 3 mths currency 3 mths currency currency
2000 growth 2000 growth 2000 growth growth
£m % £m % £m % %
UK 749 24 46 28 104 (60) -
France 466 64 4 29 64
Netherlands (iii) 109 32 15 (13) 25
Italy 59 (77) 1 (90) (77)
Poland - life 3 24 12 (24) (17)
Poland - pensions - n/a 77 n/a n/a
Germany 14 (69) 12 95 (49)
Other Europe (iv) 72 180 10 264 68 138 163
Rest of World 50 20 13 16 19
----- --- --- --- --- --- ---
TOTAL 1,522 14 190 79 172 (40) 9
----- --- --- --- --- --- ---
Notes:
(i) Premiums are gross of reassurance.
(ii) Includes ISAs, PEPs, unit trusts and UCITS (collective investments
sold throughout Europe and Asia).
(iii) Figures include £20m in single premiums and £0.4m in annual premiums
from NUTS OHRA.
(iv) Figures include £26m in single premiums and £6m in annual premiums
from Hibernian.
New business contribution
New annualised New business contribution
premiums (i)
3 mths 3 mths 3 mths 3 mths 3 mths
2000 1999 2000 1999 1999
at 2000 published
assumptions
(ii)
£m £m £m £m £m
UK 121 97 39 31 27
France 51 36 9 8 7
Netherlands 26 28 3 3 -
Italy 7 44 1 10 10
Poland - life 12 16 3 7 6
Poland - pensions 77 - 11 - -
Other Europe 30 18 (1) (3) (3)
Other life businesses 18 15 1 2 2
--- --- --- --- ---
Total 342 254 66 58 49
--- --- --- --- ---
Notes:
(i) Annualised premiums are annual premiums plus 10% of single premiums.
(ii) 1999 new business contribution has been shown using the application of
year 2000 economic assumptions.
UK : CGU Life is a top 3 life insurer for new business and has a market
share of around 5% . It is one of the UK's strongest life offices, with an
estate of some £5 billion in the with-profits funds, low unit costs and a
multi-distribution capability.
The profit from new business increased by 26% to £39m, with a strong
contribution from higher sales of with-profit bonds more than offsetting
lower endowment sales. Product margins were similar to those of 1999.
New life and pension sales were 24% higher at £795m with strong growth in
with-profit bonds, protection and pension products, where the option for a
penalty-free transfer into a new stakeholder pension has boosted sales.
France : The profit contribution from new business was up 19% to £9m.
This reflects higher AFER sales, an increasing proportion of which are more
profitable unit-linked contracts. Margins on other savings products have
also improved, although margins were lower for protection products. CGU
France produced an excellent first quarter with single premium sales up 64%
to £466m. AFER's strong market position as the leading savings
organisation in France and its excellent investment return record helped
boost bond sales to £207m, up 39%. Unit-linked sales (including £89m in
unit-linked AFER sales) and other savings products more than doubled to
£223m.
Netherlands : The new business contribution of £3m was maintained. The
overall value of our Netherlands business continues to have strong upside
potential to benefit from higher investment returns, as it has over previous
years, than the long term assumptions used.
Delta Lloyd Nuts Ohra is the third largest life and pensions insurer in the
Netherlands, with a market share of around 6%. Single premium sales were up
32% at £109m, boosted by the inclusion of £20m from the acquisition of NUTS
OHRA and increased individual pensions sales. For annual premiums, sales of
Delta Life increased by 27% to £3m, and group pensions of £5m were 13%
higher. We reduced sales of less profitable protection products and
overall, new annual premiums of £15m were 13% lower.
Italy : Underlying margins were similar to last year, but lower new
business volumes have led to a reduction in new business contribution to £1m
(1999 £10m). Our bancassurance partnership with Banca delle Marche is
developing well, with £16m of single premium sales in the first quarter
(1999 nil). Banca Popolare di Lodi added £3m in single premiums and £1m in
new annual premiums. Overall, single and annual premiums were lower at £59m
and £1m respectively, following the ending of our bancassurance agreement
with Credito Italiano last year.
Poland : New business profits remain strong in Poland, reflecting an
excellent contribution from pensions business.
In Poland, we are the market leader for private pensions having captured
over 20% of the market by number of customers and around 30% by funds under
management. We now have a customer base in excess of 3 million, providing
future cross-selling opportunities.
New annual pension premiums of £77m were received in the first quarter.
Along with the £282m of annual pension premiums received in 1999, this
represents the processing of 2 million cases, with a further 300,000 cases
in the pipeline. In the first quarter, we attracted a further 26,000 non-
mandatory new pension cases, with the premiums to be processed in the second
quarter.
CU Polska increased its share of the life market to 20% in 1999, up from
18%. First quarter 2000 life sales were lower following the market's focus
on pension business last year with annual premiums at £12m. However, single
premiums were higher at £3m.
Other : In our 'other European' businesses, the overall value of new
business was higher, mainly reflecting the acquisition of Hibernian in
January 2000. The new business contribution also improved in Turkey
following the doubling of annual premium sales to £6m.
Profit on business in-force and net assets
Effect of
Expected Effect of inexperience
return changes in and other
using 1-1-2000 assumptions changes Total
assumptions
3 mths 3 mths 3 mths 3 mths 3 mths
2000 2000 2000 2000 1999
£m £m £m £m £m
UK 67 24 - 91 44
France 32 7 - 39 26
Netherlands 40 35 3 78 43
Italy 4 - - 4 3
Poland - life 9 - - 9 12
Poland - pensions 3 - - 3 (1)
Other Europe 4 - (2) 2 (1)
Other life businesses 8 - (4) 4 4
--- --- ---- --- ---
Total 167 66 (3) 230 130
--- --- ---- --- ---
Profit on business in force and net assets has been split into three
components.
(i) The 'Expected return' is the investment return we anticipated earning
on the start of year embedded value. It comprises earnings at the risk
discount rate on the start of the year value of in force business and
at the long term investment return on the net assets. The rates used
are those applicable at the beginning of 2000.
(ii) The 'Effect of changes in assumptions' reflects the alignment of CGU
economic assumptions in line with the CGNU proforma basis for
1999. These mainly relate to changes in the property investment
margin assumptions.
(iii) The 'Effect of experience and other changes' comprises any impact
from such items as changes in mortality, lapse and expense
assumptions, together with experience variations in 2000. These items
are fully reviewed on an annual basis, with the main impact in the
fourth quarter. Movements in the first three quarters will normally
be small.
Analysis of embedded value
Total
Net assets Valuation of Embedded
in-force value
3 mths 3 mths 3 mths 3 mths 3 mths 3 mths
2000 1999 2000 1999 2000 1999
£m £m £m £m £m £m
UK 87 116 2,175 1,820 2,262 1,936
France 465 463 466 366 931 829
Netherlands 850 756 965 765 1,815 1,521
Italy 60 64 63 46 123 110
Poland - life 43 27 93 69 136 96
Poland - pensions 15 20 53 - 68 20
Other Europe 39 30 136 65 175 95
Other life 199 176 41 46 240 222
businesses
----- ----- ----- ----- ----- -----
Total 1,758 1,652 3,992 3,177 5,750 4,829
----- ----- ----- ----- ----- -----
Analysis of movement in embedded value
3 months 3 months
2000 1999
£m £m
Opening balance 5,675 4,868
Achieved profits (excluding
other life and savings activities) 401 296
Embedded value of acquired businesses 57 -
Capital injections 8 2
Dividends (159) (104)
Tax (129) (88)
Exchange movements (103) (145)
Closing balance 5,750 4,829
An analysis of worldwide life premium income and investment sales is shown
below:
3 months 3 months
2000 1999
£m £m
Life
UK 1,020 859
France 507 439
Netherlands 298 274
Italy 98 322
Poland 139 50
Ireland 64 20
Other Europe 107 116
United States 59 51
Canada 18 16
Other life businesses 5 2
----- -----
2,315 2,149
----- -----
Investment sales
UK 104 259
Other Europe 68 29
----- -----
172 288
----- -----
Total 2,487 2,437
===== =====
MODIFIED STATUTORY LIFE PROFITS
Modified statutory profits of £127m were 15% higher at constant rates of
exchange. Your Move, the UK estate agency chain, has been included in the UK
life result. Following extensive advertising for the new brand name, which
has been charged fully to profits, there was a loss of £12m in the first
three months (1999 loss £4m).
Modified statutory profits
3 mths 3 mths
2000 1999
£m £m
UK 59 56
France 26 19
Netherlands 32 31
Italy 3 7
Poland - life 10 4
Poland - pensions (3) (1)
Other Europe (3) (2)
Other life businesses 3 2
--- ---
Total 127 116
--- ---
HEALTH
The Group sees opportunities in selected health markets, driven by ageing
populations and the resulting pressures on state funded health schemes. In
the Netherlands, we have a significant health business following the
acquisition of NUTS OHRA. Health business there is often sold through
employee packages, providing synergies with group pension sales where we
have a strong market position.
At the end of 1999, the Group began reporting health business separately.
For comparison purposes, premiums of £25m and £19m in respect of the first
quarter 1999 have been reclassified from the French and Netherlands general
insurance business into health. Operating profits for health business are
reported on a statutory basis and benefited from the acquisition of NUTS
OHRA. Rates were up by 13% in the sickness segment of the Dutch health
business.
Underwriting
Health profit result Premiums Local
3 mths 3 mths 3 mths 3 mths 3 mths 3 mths currency
2000 1999 2000 1999 2000 1999 growth
£m £m £m £m £m £m %
France 3 4 1 3 25 25 8
Netherlands 6 3 (6) (1) 204 19 1,138
--- --- --- --- --- --- -----
Total 9 7 (5) 2 229 44 479
--- --- --- --- --- --- -----
GENERAL INSURANCE
General insurance profits were up 46% to £165m, with better underwriting
results from our largest businesses in the United Kingdom and United States
and a strong increase in the longer term investment return. Weather claims
were also favourable in the first quarter at £60m (1999 £74m).
General insurance premiums rose 7% to £2,404m with rates continuing to firm
in most of our principal markets.
The longer term investment return ('LTIR'), applicable to general insurance
business, increased to £362m (1999 £300m). The improvement reflected higher
investment returns and acquisitions. Details of the principal assumptions
for calculating the LTIR are outlined on page 16.
The group combined operating ratio was 108% (1999 108%) and the general
insurance administration expense ratio reduced to 13.1% from 13.4%,
driven by an excellent performance in the UK.
General
insurance Underwriting
profit result Premiums Local
3 months 3 months 3 months currency
2000 1999 2000 1999 2000 1999 growth
£m £m £m £m £m £m %
UK 47 17 (64) (78) 737 710 4
France (note) (13) (3) (37) (18) 218 241 2
Netherlands (note) 6 9 (10) (5) 103 95 22
Other Europe 6 - (18) (18) 216 183 32
United States 79 60 (26) (33) 680 655 2
Canada 12 11 (19) (17) 195 164 12
Australia & NZ 17 9 (6) (8) 133 129 3
Rest of World 8 5 (8) (7) 103 97 7
Group reinsurance 3 5 (9) (3) 19 20 (4)
--- --- ----- ----- ----- ----- ---
165 113 (197) (187) 2,404 2,294 7
--- --- ----- ----- ----- ----- ---
Note: Health business has been removed from France and the Netherlands
and reported separately.
UK: Underwriting results continued to respond to rate increases, portfolio
improvements and cost savings although a number of large claims impacted the
commercial property account in the first quarter. The administration expense
ratio reduced to 11% from 13%. Results continued to improve in the motor
classes where premium rates have risen over the last 12 months by 20% in
both private and commercial lines. The homeowners class, which accounts
for over 20% of UK business, made another good underwriting profit.
Liability rates are up 8% and will increase further during the year. CGU
led the market with rate increases and as the market up-rates to our
rating strength, our new business levels are improving. Trading conditions
are improving in the London marine market, with hull and energy classes
starting to firm. Revenue increased following additional capacity in our
Lloyds syndicates.
France: Underwriting results were affected by an increase of some £9m in the
estimated cost of last year's winter storm claims and by large claims in the
quarter. Rates in personal lines have hardened in the market following the
impact of the severe storms in December and single digit increases are being
achieved in motor and commercial property. Further growth was achieved at
Eurofil, the second largest direct writer in France, with the improvement
in underwriting largely reflecting a lower level of advertising spend
against the first quarter last year.
Netherlands: Motor results are responding to rate increases and a further 7%
has been implemented at the start of the year. A number of large claims
impacted the commercial fire and bourse business results. NUTS OHRA produced
a break-even underwriting result and contributed premiums of £12m.
Other Europe: The growth in premium income and stable underwriting results
followed inclusion of Hibernian which produced an underwriting loss of
£3m and contributed premiums of £50m. Other countries' results were broadly
in line with last year.
Rate increases continued to be applied for motor business in most countries,
reflecting the trend towards higher settlement claims. In Ireland, motor
rates were up 5%, with double digit increases in household and liability.
United States: There was a further underwriting improvement from our US
business to a combined statutory operating ratio of 101% in the first
quarter. Results benefited from favourable weather claims, which were £12m
lower than the first quarter last year.
Workers compensation produced a lower underwriting loss and carried an
average rate increase of 8.5% across the class. Rates were also 5.5% higher
in our agri business. In the market, commercial lines rates continued to
harden and were up by 6% across CGU's portfolio. Rate increases were applied
across most classes of CGU's business and actions continued to be taken on
underperforming segments.
Canada: Underwriting results at our market leading Canadian business were
at a similar level to last year, allowing for the acquisition of GAN
Canada, which also accounted for most of the premium growth. Favourable
weather conditions benefited property results, although large claims
affected the motor account, where we are carrying selective rate increases
of between 3-6%.
Australia: Underwriting results improved reflecting rate increases and
underwriting actions. The market has hardened with rate increases achieved
at CGU averaging 6% for motor classes, 14% in liability and significant
increases in workers' compensation.
ASSOCIATES
Profits from associates were lower at £1m (1999 £6m), which largely
reflected the consolidation of the Hibernian Group as a subsidiary
following its acquisition in January 2000.
ASSET MANAGEMENT
CGU managed assets of £140bn at 31 March 2000 (31 December 1999 £136bn),
making it one of the top 20 European fund managers. The group's strategy is
to grow in the third party fund management market and mandates for new
funds and other third party funds of £194m (1999 £130m) were received in
the first quarter.
Profits from asset management, which now excludes other financial services
results, increased to £25m (1999 £13m). The improvement reflected the
reclassification of other financial services businesses to life and general
insurance and the establishment of arms length fee arrangements as well as a
strong increase in profits to £11m from Delta Lloyd Nuts Ohra.
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