The UK's two biggest insurers released financial results last week. At first sight CGNU turned in a good set of results and Royal & SunAlliance underperformed badly. But do they both share problems that could affect many others in the market? Jason Woolfe reports
The contrast is sharp. CGNU's operating profits jumped by 41% to £2.004bn while R&SA's crashed by 96% to a paltry £16m.
Norwich Union (NU), CGNU's non-life business, hit its combined ratio target of 102%, while R&SA missed its target hopelessly, with 112.6% instead of the desired 103%.
Not surprisingly, R&SA chief executive Bob Mendelsohn is the subject of sniping in the market - Commerzbank analyst Chris Hitchings says: "We are losing faith in Mr Mendelsohn."
But look beyond the headline figures and both companies share a potential problem. They could both run short of capital.
If CGNU's growth is to match its ambitious plans for overseas business, it needs to fund the expansion.
Analyst Chris Rathbone of Williams de Broë says the company is struggling for cash: "Look behind what they are talking about and here is a company that feels the need to retain capital because it feels it's going to grow so fast over the next few years," he says.
But Fitch, the insurance rating agency, calculates that after adjustments for life business CGNU has a war chest of about £6.1bn and needs only £4.1bn to achieve its aims - more than enough.
CGNU has cut its dividend in order to free capital for investment, expecting handsome rate increases to help fund more expansion.
While Fitch accepts the insurer's plans, others are not so sure this addition will be enough.
Critics say CGNU is focusing on lines with the lowest rate returns. Group chief executive Richard Harvey speaks of CGNU's "strategy of moving away from commercial lines". These are the lines enjoying the biggest rate increases.
And CGNU has to encourage new business while changing its name. This is a large drain on marketing resources - as well as being an administrative pain. NU chief executive Patrick Snowball told Insurance Times that the £1m spent on dreaming up the Aviva name is likely to be the tip of the iceberg.
R&SA, the country's second biggest general insurer, also needs every penny of capital in order to turn around the dismal performance revealed in its financial results.
R&SA finance director Julian Hance says the group needed £3.3bn of capital for 2002.
He argues the company is taking three types of action aimed at helping it meet its needs. These are:
Hance says the reinsurance deal effectively provides a flexible form of capital. "We believe we have the capacity, it's just a question of releasing it," he says.
The £800m sell-off is still on track for completion by the end of year, he says, with bids received for five out of the seven business units up for sale.
The company is also raising a lot of money on profitable commercial lines that are being shunned by NU.
R&SA claims it has achieved "very strong" rate rises in the recent renewal season, including increases of "well over 100%" in large risk commercial property. N
What is Aviva?
CGNU is hoping customers will be inspired by its proposed new name, Aviva.
But what if the public don't fall for the £1m faux-Latin moniker?
If the plan backfires, CGNU would join the ranks of companies that have bitterly regretted rebranding blunders.
Just two weeks ago, the boss of the rebranded Post Office gave his own damning indictment of the choice of new name.
Allan Leighton, interim chairman at Consignia, said: "Would I like to change the name? Yes I would."
He admitted the new name laid the company open to mockery and scorn.
He said: "It is almost like there is this other company called Consignia, which is going around attracting derision."
Facing this precedent, CGNU chief executive Richard Harvey set out his hopes for the Aviva name.
He said: "The Aviva name tested positive in consumer research around the world, bringing with it associations of life, vitality and living well. This matches the aspirations we have for our customers."
He hopes to replace 50 trading names worldwide with the Aviva tag.
Some strong brands will survive - Norwich Union (NU) included - but will carry the words "an Aviva company."
NU chief executive Patrick Snowball told Insurance Times the cost of changing over to the Aviva name would come largely out of existing marketing budgets.