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LONDON -- Britain's two biggest insurance companies, CGU P.L.C and Royal & Sun Alliance Insurance Group P.L.C., are turning away business rather than accept it at rates they think contribute to the soft market.

Both of the London-based companies made the announcements as they unveiled sharply lower first-half results.

Royal & Sun Alliance, which reported a 39% fall in first-half 1998 pretax operating profit (which excludes investment income) to L305 million ($508.6 million), said it is turning down unprofitable business and reviewing its operations with the goal of improving efficiency.

CGU, reporting its first figures since it was formed earlier this year through the merger of Commercial Union P.L.C. and General Accident P.L.C., disclosed that its pretax operating profit for the same period was L280 million ($467 million), 44% down from a pro forma L503 million ($837.2 million) in the first half of 1997.

Both insurers blamed fierce competition and sharply increased weather-related claims for the downturns. Royal & Sun Alliance said its weather claims increased by L114 million ($190.1 million) in the half year as a result mainly of ice storms in North America and flooding in the United Kingdom. CGU cited the same factors for a L129 million ($215.1 million) rise in its weather claims.

Royal & Sun Alliance Group Chief Executive Bob Mendelsohn said, "We maintained our underwriting standards in very competitive market conditions," with the company turning away business in all lines where it has been unprofitable, he said. Despite its desire for expansion, the company has also refused to pay unnecessarily high prices for acquisitions, he added.

Similarly, CGU Group Chief Executive Bob Scott said the company continues to focus on profitable market segments and is increasing premium rates wherever possible. The toughest action has been taken in the U.K. personal and commercial motor markets, but Mr. Scott said he also expects to see a rise in liability rates after a U.K. House of Lords ruling in July that will significantly increase court awards in personal injury claims (BI, July 27).

Mr. Scott also said estimates of future cost savings as a result of the merger have been raised to L270 million ($450.3 million) annually, starting in June 2000, against the estimate of L225 million ($375.3 million) made when the merger was announced.

Both companies also experienced poorer U.S. results.

Royal & Sun Alliance achieved an operating profit in the United States of L77 million ($128.4 million), down 16.3% from the same period last year. A rise in weather losses to L27 million ($45 million) from L16 million ($26.6 million) contributed to U.S. underwriting losses rising to L30 million ($50 million) from L14 million ($23.3 million).

In the United States, CGU's pretax profit on non-life insurance fell 78.7% to L13 million ($21.7 million), as underwriting losses increased to L141 million ($235.1 million) from L97 million ($161.4 million). U.S. weather-related losses more than doubled to L70 million ($116.7 million) from L28 million ($46.6 million).