Overseas boost for Sun Alliance

THE INVESTMENT COLUMN

Sun Alliance closed a better-than-expected insurance reporting season yesterday on a positive note, with 1995 operating profits up 59 per cent at pounds 480m. The market was particularly cheered by the 43 per cent increase in net asset value to 413p, which helped fund a dividend increase at the top end of the range to 17.25p.

Even though Sun Alliance turned an underwriting profit in its core British market, despite increased competition, the real bright spot in these results was the steady growth of overseas business, which now accounts for over 50 per cent of premium income compared with 23 per cent in 1988. Underwriting results in Europe and Australia outpaced expectations.

In 1995, Sun Alliance's life assurance premiums were almost flat at pounds 1.26bn, while shareholders' profits increased to pounds 94m from pounds 72m. The company believes the worst of the problems facing the industry in the UK are over, reflected in a year-on-year rise in both single and new annual premiums so far in 1996, after a good final quarter in 1995. On the general insurance side, premiums increased to pounds 3.6bn from pounds 3.4bn, and the underwriting result showed a much improved loss of pounds 31m compared with pounds 127m last time.

What sets Sun Alliance apart from other composites is its determined build-up of a sizeable war chest. The solvency margin was up to 82 per cent at the end of last year. The group is on the prowl in the Far East and Europe, possibly the US, and would not turn up its nose at a life mutual here at home.

Given its lack of premium income relative to its rivals, and the prospective loss of business from former partners the Halifax in the UK and Chubb in the US, pressure is growing to make an acquisition. There is certainly value in the shares, with a prospective yield of 5.8 per cent, but with an aquisition looming, and the UK underwriting cycle heading downwards, don't expect fireworks.