The Investment Column: General Accident may face squeeze

The sun has been shining on General Accident in the last nine months. Literally, in fact, because underwriting profits were boosted by the absence of the usual, hefty claims caused by severe weather in the US. Since January, this has allowed the insurance giant to narrow a gaping underwriting deficit by 30 per cent to pounds 111m.

Business is also bright at two other GA business. In Canada and Australia, underwriting profit targets have been met or beaten. GA plans further penetration of the Canadian market, following its pounds 268m acquisition of Canadian General Insurance. This should realise savings of at least pounds 75m a year.

Second, GA is performing well in the life insurance sector, where new premiums have leapt 31 per cent. This is due to two canny moves. GA bought Provident Mutual two years ago, when prices for life insurance companies were yet to rocket.

It has also sharply boosted the value it gives on its pension contract when policyholders stop paying in the early years: a vital selling point for the financial advisers who distribute its products. A further move into Irish life insurance should also reap rewards.

On the most sensible measure, operating profits before tax, GA has met expectations for the nine months to September with a 23 per cent rise from pounds 311m to pounds 384m. But it has sounded at least two notes of caution.

The group finance director, Philip Twyman, concedes that a 31 per cent growth in life insurance sales cannot be sustained. Second, competition in general insurance is driving premiums down. Unless unpredictables like the weather stay on GA's side, it may, with the rest of the sector, face a squeeze.

The shares fell 13p to 972p yesterday. But, on over 20 times 1999 forecasts, that is not enough to reflect GA's bearish tone. Sell.