The Investment Column: CU is not really such a laggard

It is unfortunate for Commercial Union that all the insurers announce their results at once. CU's interim figures, released yesterday, prompted some unfavourable comparisons with rival General Accident. CU announced a paltry 3 per cent rise in pre tax operating profits to pounds 358m for the nine months to September, compared with the 23 per cent record jump in profits announced by GA on Tuesday.

So is CU really such a laggard? The answer is no, at least not in the longer term. CU's international expansion is partly to blame for the dire numbers. The advantage of being far flung means CU is less exposed to the highly competitive UK market, but it does mean that the company is vulnerable to the vagaries of sterling.

If constant, rather than prevailing, exchange rates are used, CU's profit growth over the last nine months is a far more respectable 15 per cent. Prudent accounting policies also make CU's figures look worse than some of its competitors.

Finally, although GA's performance in UK underwriting looks far superior to that of CU - GA turned in a tidy pounds 5m profit over the last nine months, whilst CU lost pounds 85m - the underwriting business depends on uncontrollable factors like the weather. There is no real reason why GA's and CU's respective positions could not reverse next year.

Just because CU doesn't look so bad, that doesn't necessarily make it look particularly attractive. Quite the reverse. Buoyed by recent takeover speculation, CU's shares currently look overvalued.

In a falling market, the group's share price fell by 7 per cent to 745p yesterday, also because the group's net asset value per share figure fell below City expectations. But, given the difficult insurance climate - competition is fierce and the insurance cycle is in a downswing - CU's share price will probably come under further downward pressure. Forecasts for 1998/9 put CU on an expensive 19 times earnings. Avoid.