R&SA Restructuring Reduces Revenues, But Strengthens Overall Financial Condition

May 13, 2004

The U.K.’s Royal & Sun Alliance announced first quarter figures that broadly reflect its ongoing restructuring efforts. Under the direction of Andy Haste, who took charge of Britain’s second largest general insurer last year, the company has continued to exit the U.S. market, and now concentrates on key markets in the U.K., Canada and Scandinavia.

R&SA announced that the group’s operating result fell to £148 million ($259 million) in the first quarter of 2004, compared to £175 million ($306 million) in the same period of 2003 (as restated). The group, however, announced after tax profits of £66 million ($115.5 million) compared to a £9 million ($15.75 million) loss in the first quarter of 2003.

The costs of exiting the U.S. business lines and the reserves the company has had to strengthen continue to weigh on earnings. “The US result, as anticipated, is challenging,” said R&SA’s announcement. While it noted “a strong result from our non standard auto business (COR 90.9%),” it also said that the “planned reduction in premiums and expenses elsewhere in the business has adversely impacted the result in Q1 and will continue to do so in the short term.”

Other developments were more positive. R&SA announced that it has reached an agreement with Britain’s Financial Services Authority over charges of mis-selling life and annuity products. The potential liability had weighed on the company’s prospects, but it said that, “Following constructive discussions, we have reached agreement with the FSA on a number of substantial issues relating to the UK Life company, which provide certainty on the risks outlined at the time of the rights issue.”

In further details concerning the arrangement R&SA indicated that the FSA had agreed to its plan to repay holders of two closed life funds. The amount involved is around £114 million ($200 million), but most importantly the agreement removes a potential £500 million ($875 million) charge on the company’s capital, replacing it with debt obligations.

R&SA also noted that it “continues on track” in its efforts to reduce costs, having realized annualized cost savings of £270 million ($472.5 million). The company has closed many offices in the U.K. and has significantly reduced its workforce, which now numbers around 29,000. It expects to continue the cost cutting efforts, which it indicated are “now running at £156 million ($273 million)” on an annualized basis.

“Our performance in the quarter has been good, with the best news coming from the performance of our ongoing businesses and the continued progress we’ve made with our business transformation programme,” Haste stated in the earnings report. “The good result reflects the actions we have taken and we now have a cleaner portfolio of businesses from which to exploit selective opportunities for profitable growth.

“We continue to restructure and rebuild the business but more remains to be done. While the process will continue to be challenging, we now have the right team and the right strategy. We’re focussed on what we have to do to derisk and improve the operational performance of the business,” he concluded.

The full version of the report is available on the R&SA Website at: www.royalsunalliance.com.

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