This has been estimated at pounds 10bn.Low interest rates also tend to mean slower asset growth and narrower margins. A financial storm, in the shape of lower interest rates, threatens to rain all over their balance sheets.For life insurers, a fall in long-term interest rates means a jump in the value of liabilities. Salomon Smith Barney points out there is still huge overcapacity in the market - too much capital and not enough custom.Weak economic growth and lower interest rates will continue putting downward pressure on premiums, and therefore margins.Those insurers who rely more on life insurance and long-term business are not necessarily safer. Forecasts for CGU in 1999 have dropped from pounds 675m to pounds 630m.The market could shrug this off if it was clear that profit margins would recover in core insurance lines such as household and motor. The big insurers are still making strenuous efforts to raise premiums and have had some success in motor insurance.But counting on an upturn amounts to wishful thinking. It also downgraded its 1998 profit forecast for Royal & SunAlliance, from pounds 400m to pounds 375m.Shareholders might think the international nature of the businesses would offset the impact of bad weather at home But it seems the weather, too, has gone global. Large parts of North America are in the grip of one of the coldest winter freezes in years, sharply increasing the projected cost of cold weather claims.
Bush fires in Australia, hurricanes in Florida - the list was relentless.This year the same weather nightmare is already recurring. At the end of last week, Warburg Dillon Read slashed its full-year earnings estimates for CGU by more than 10 per cent, from pounds 560m to pounds 500m, in the light of high winds in northern Ireland and flooding in Scotland since its last forecast. Meanwhile Ken Hydon, Vodafone's finance director, has returned from New York, where he met senior AirTouch executives to discuss the offer. AirTouch is expected to respond to the proposed merger within the next two weeks. However, Morgan Stanley Dean Witter, the investment bank advising AirTouch, is still trying to solicit higher bids.Bell Atlantic is considering whether to raise its original $43bn offer, but it is unclear whether the former Baby Bell could justify matching Vodafone's offer.
MCI WorldCom has ruled itself out of the running.City sources were yesterday playing down reports that British Telecom might enter the fray. BT - which will probably be overtaken by Vodafone in terms of market capitalisation if the merger goes ahead - has agreed not to compete with AT&T, its international partner, in its home market. AT&T currently operates the only national mobile phone network in the US.. FOR THE second year in a row the insurance industry has been battered by severe weather which could lead to an equally stormy outlook for the sector's performance on the stock market. In the early months of 1998 storms in the UK hit profits and a particularly nasty ice storm in Canada put dark clouds on the horizon for insurers with big exposure there, notably General Accident and, to a lesser extent, Commercial Union. The subsequent merger of the two insurers was spectacularly well-received But the underwriting woes of the sector persisted. Mr Gent yesterday flew back from New Zealand, where he had been at a board meeting after watching Australia defeat England in the fifth Test match. They are not expected to be ready in time for this week's jobs market data..
