Buy-back offer softens slump in GRE profits

Guardian Royal Exchange softened the blow of worse-than-expected half-time trading profits yesterday with a promise it will consider handing up to pounds 700m of excess capital back to shareholders in six months time. Any share buy-back at the end of the year will only be proposed, however, if the company continues to fail in its search for acquisitions at the right price.

John Robins, chief executive of the composite insurance group, said GRE's preferred option was to continue making small infill purchases like last year's RAC motor book and a commercial property insurance business from Legal & General. But he admitted GRE had walked away from a number of deals in recent months, unable to justify the prices its rivals were prepared to pay.

GRE's first-half trading profits of pounds 105m disappointed analysts who had pencilled in around pounds 120m for the six months to June. Well down on last year's pounds 137m, the figures left the underperforming shares 5.5p lower at 289.5p. At that level they stand at a discount to GRE's underlying net asset value, making it the only large composite insurer not at a premium to shareholders' funds.

In the UK, which accounted for almost half of GRE's premium income during the period, subsidence and more frequent motor claims contributed to a more than doubled underwriting loss of pounds 33m. GRE said it had experienced some uplift in premium rates in motor policies, which account for 40 per cent of its general business, but saw little sign of improvement in other markets.

Sterling's recent strength accounted for pounds 9.5m of the trading profit shortfall. Including investment income, pre-tax profits actually rose sharply from pounds 231m to pounds 520m and the company's NAV increased 11 per cent to 311p. The interim dividend, which will be paid as a foreign income dividend, rose 15 per cent to 3.9p per share.

Investment column, page 20