PracticeConsultingCGU #200m profit boost

CGU #200m profit boost

New accounting rule boosts insurers, but sets no precedent for pension reform.

New insurance industry accounting rules have boosted profits at CGU by #200m, according to its annual results, due to be published yesterday.

The company was the first to release its results under the new SORP from the Association of British Insurers, which requires companies to include long-term investment returns in their profit and loss accounts in order to show investment gains as well as income.

Analysts expect the other leading UK insurance company, Royal & SunAlliance, to tell the City that the SORP also boosted its profits by around #200m when it announces its figures on 4 March.

But pension funds hoping to take similar advantage of stock market rallies will be disappointed. This week, the Accounting Standards Board said it was unlikely to use its review of pensions financial reporting standards to require funds to take actuarial gains and losses to the p&l account.

Instead, the ASB is more likely to include the gains and losses in an expanded performance statement to be set out in the FRS 3 review.

The ASB has made it clear it intends to move towards using market values for pension fund assets and the issue will be revived by the board’s next two publications. These are likely to be an exposure draft of proposed amendments to FRS 3 ‘Financial Reporting’ and an exposure draft on pension costs in financial statements.

‘Simply introducing market values without considering the potential impact on the profit and loss account would be irresponsible,’ said ASB chairman Sir David Tweedie.

CGU’s 1998 profits were expected to be around #500m, significantly less than the 1997 pro-forma figure of almost #900m for the then General Accident and CU. Claims arising from worldwide catastrophes depressed profits and finance director Peter Foster was expected to announce an exceptional provision to cover the bulk of the #320m costs arising from last year’s merger.

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