Groupama's French parent is to plough £135m into its UK subsidiary to support underwriting as it splits off its discontinued business into a separate company.

The UK operation is trying to wipe the slate clean and fight its way back to profitability by reorganising itself into two entities.

The company last week won high court approval to go ahead with plans to split into one company holding its continuing business - personal lines and small commercial lines - and another holding discontinued business.

Business generating about £650m of premiums will be transferred, said Paul Picknett, corporate services director of Groupama Insurances.

Risks to be moved to the company writing new business include motor, household, healthcare, finance, fleets, property, London accident and casualty.

The run-off company, to be known as Minster Insurance, will retain risks in classes including marine, aviation, treaty, UK property, engineering, multinational, international property, international casualty, onshore energy, US excess of loss and US medical expenses.

Groupama wrote to 5,000 brokers and a million policyholders saying it would have no effect on day-to-day business.

Accountant Ipe Jacob of Grant Thornton was engaged by Groupama as an independent expert to report on the plan. He examined the company's assets and liabilities to decide if the amount of money covering policyholders' risks would increase or decrease.

He found the position of policyholders represented by £93m of liabilities would deteriorate by 25% and that the position of policyholders represented by £1.2bn would be improved by 11%.

He added that the deterioration was not enough to suggest that policyholders would not be paid and that they were also protected by guarantees from the parent company.

Picknett said the £135m injection was a demonstration of the group's commitment to its UK subsidiary.

"It's an injection to give us sufficient capital to write business and support our plans," he said. "It's the most tangible demonstration of the group's commitment to the UK."

The economic affect of the transfer would be backdated to 1 January.

Groupama's UK operations achieved a 3.2% increase in premium income to €992m (£675m) for 2002, after seeing growth in its health and sickness protection business.