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Fears for shares blowing in wind.

You may have noticed. It was a wet and breezy weekend and though yesterdays weather seemed all right for the time of year, the forecasters are vying with each other to discern something even worse heading this way.

Guesstimates of the losses facing insurance companies started at pounds 300 million, plainly with more to come.

On the basis of its market share, Royal & Sun Alliance looks like taking the hardest hit.

And what happened to its shares yesterday? They jumped 40p to an all-time record of 658p, on a day when the stock market stood more or less still and the Footsie sported minuses.

True, R&SA is a bit of a special case. The market has warmed to it ever since it brought in a single chief executive to replace the two who had together masterminded its 1996 merger.

Even so, the present fashion for the big composite insurers rests overwhelmingly on a sense that 1998 should be a fairly easy year for hefty investment institutions.

For that, in some City eyes, is what these insurance companies are.

There is an old half-joke about how they could double their share prices if only they would concentrate on the main job and stop messing around with insurance.

It really is only half a joke, too.

That is why R&SA was powering ahead on the stock market yesterday while the postbags bulging with West Country claim forms piling into the offices.

Well, why should it such an easy year?

The confidence rests on the proposition that world interest rates are heading down. So bond prices head up, and at the very least underpin equities hence the refusal of Wall Street and most western stock markets to lie down and die in face of the multiple Asian crisis, nor even possibility of a banking collapse in Japan.

In Britain, official interest rates may go up one more quarter-point only barely possibly today.

But the Banks Governor Eddie George is spreading the message that the British economy will probably simmer down on its own. It will be distinctly odd if his Monetary Committee now turns the gas down another notch.

On the Continent it is assumed interest rates will fall towards German levels in all the countries lining up to join the euro.

In Japan, they barely have any interest rates to cut, so the Government cuts taxes instead.

Interestingly, a Japanese investment house in London, Nikko, is challenging this comforting prospect.

Nikko warns of a "sharp rise in global interest rates". It sees many of the ingredients of the 1994 world bond market crash already in place.

US unemployment is lower than at any time since 1970. The move to dearer money has been delayed only by the Asian crisis.

On the continent, trust the Bundesbank to press for higher interest rates as Italys chances of getting into the euro improve. "Convergence" is more likely to be upwards than down.

And if rising interest rates give bonds a hard time, the risks for shares are worse.

I dont say the Nikko gloomsters are right. Only that when you get a consensus like that driving insurance shares, it has a way of being wrong.
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Author:Maunsell, Nevill Boyd
Publication:The Birmingham Post (England)
Date:Jan 7, 1998
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