THE UK's biggest insurer Norwich Union reported a squeeze on margins yesterday as a result of price cutting over the summer when new entrants tried to muscle their way into the market.

Norwich Union, which employs more than 5,000 people in York and Sheffield, said that margins had been squeezed from 3.2 per cent at the half year stage to 3 per cent at the end of September.

Updating the market on its performance during the first nine months of this year, parent company Aviva said new business sales of its life and pensions products in the UK were 3 per cent lower at £6.59bn.

This strategy led to third-quarter sales of individual pensions rising by 22 per cent on the previous three months, although the nine-month figure was behind last year at £1.87bn.

"The margin in the UK appears to be the weak spot, but the result in our view underlines the benefit of Aviva's regional diversification into Europe's mature markets," he said.

Nearly 60 per cent of Aviva's life insurance profits now come from its Continental European divisions and almost 45 per cent of its group profits come from general insurance.

In Continental Europe, Aviva saw the strongest growth in Italy where new business sales of life and pensions products rose by 49 per cent to £1.82bn during the nine months.

Sales in France were up by a third at £2.59bn in a market that expanded by 13 per cent to the end of August, although Aviva anticipates a slowdown in the market during the second half of this year and into 2006.

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