BusinessCompany NewsCGNU sell-off gamble pays off

CGNU sell-off gamble pays off

After being heavily criticised in 2000 for selling its US non-life insurance businesses and incurring a significant loss, CGNU is now breathing a sigh of relief as its competitors face difficulties following the atrocities of September 11.

The UK’s largest insurance company, created out of a merger between CGNU and Norwich Union, is looking healthy ahead of its results.

According to HSBC analyst James Quin, the US sale and the sale of part of its UK general commercial insurance, has given the company positive prospects.

He said: ‘On the life side, and along with Standard Life, they are seen as rock solid, and this has helped the company achieve good new business growth, particularly from independent financial advisers.’

The company is now attempting to dispose of its French business CGU and has been in talks with insurer Groupama since the beginning of the year. But not all of its sales were successful. CGNU’s attempts to sell its Pakistan subsidiary to Old Mutual fell through in December.

Like all insurance companies, CGNU will report its accounts using two methods, the conservative statutory basis of accounting and the achieved profits basis. And both sets of accounts look set to reflect the company’s forecast-busting figures.

Two reports are made because of the nature of life insurance. Quin said: ‘Life insurance policies are long term contracts, and on a statutory basis, profit recognition is highly conservative.’

Using two types of UK statutory regulations – including UK GAAP – enables the regulator to assess the solvency of the business and makes provisions for possible events, ensuring the insurance company can pay for future claims.

Quin added: ‘The achieved profits accounting methodology is based on the discounted future cash flows of contracts already written, and uses more realistic assumptions. ‘It’s a different way of looking at the performance of an insurance company, enabling you to assess current profitability more accurately.’

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