R&SA Posts $156M Q1 Group Operating Profit

May 22, 2003

The U.K.’s Royal and Sun Alliance announced a first quarter group operating profit of £95 million ($156 million), calculated on the basis of revised investment assumptions introduced at the beginning of this year. Net profit attributable to shareholders was £2 million ($3.28 million), compared to a £64 million ($105 million) loss in Q1 2002.

The bulletin went on to explain that the Group operating result, based on the old investment return assumptions was £175 million ($287 million), compared to £160 million ($262 million) in the same period last year. “There were three major features of this result,” said the announcement. “Firstly, the improvement of £96m [$157.6 million] in the general business underwriting result for the Group. Secondly, the reduction in the longer term investment return following the changes in investment return assumptions that were introduced at the beginning of the year, and that would have reduced the 2002 comparative by £41m [67.3 million] if applied then. Finally, there is an £18m [$29.5 million] reduction in the life contribution.” Details on these points appear throughout the report.

R&SA also indicated that its combined ratio for the quarter dropped to 99 percent, compared to 104.2 percent in Q1 2002, reflecting “the improving performance of the Group worldwide.” It added, “Excluding the results of Promina and UK healthcare the Q1 combined ratio would have been 99.6%.”

Andy Haste, Group Chief Executive, commented, “The improvement in performance that can be seen in most areas of these results is encouraging. However, we cannot look at one good quarter in isolation, particularly when it has also benefited from strong results from operations that we have already disposed of in 2003 and from operations such as RSUI that we are in the course of disposing. Our challenge is to produce sustained performance improvements from our ongoing businesses over a number of quarters and across the insurance cycle.

“The rating increases that have been achieved over the year have helped to turn around our underwriting performance and we have also benefited from particularly benign weather in the UK and Europe. As a prudent measure we have set up a £30m [$49.26 million) contingent weather reserve in the UK to cover future losses.”

Haste observed that the US market has remained strong but sees evidence that “rating is beginning to moderate.” R&SA’s results in the US were “driven by the strong performance of the commercial business, particularly the excellent results from RSUI, while personal was impacted by the East Coast winter storms.” He also indicated that the company’s US units had reduced personnel “by over 800 and the majority of our planned office closures are now complete.”

Haste said that so far the group had achieved £22 million ($36 million) in cost savings, out of a planned £350 million ($575 million) reduction announced last November, to be accomplished “through a combination of disposals, outsourcing and redundancies.” Paring nearly 12,000 positions reduced the group’s staff numbers to 38,000. “Obviously, it is still early days,” he continued, “but, together with the successful IPO of Promina and the sale of our UK healthcare & assistance business, which returned our risk based capital position to equilibrium, it is a good start towards achieving our November objectives.”

Haste plans to continue along the same course. “I am establishing a rigorous review process to assess plans and progress in view of changing business and market conditions, he stated. “I’ve made a number of changes to the management team, in the key areas of performance and change management. We will also be progressively changing our structure over the next few months to reflect the new geographic focus of the Group. I have hired a business leader for the new International region that will be created and will include all operations outside our primary markets of UK, USA, Canada and Scandinavia. One of his first jobs will be to review the performance, value and strategic fit of all of our smaller operations.

“I am a strong believer in instilling a performance culture into any organisation that I’m involved with and my approach to Royal & SunAlliance will be no different. I am setting challenging targets, measuring performance and making people accountable for the consequences of their actions. I recognise that there is much still to be done but I also believe that the Group can emerge from this period of change with a better, more sustainable business.”

The entire report is available on the company’s Web site at: www.royalsunalliance.com.

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