The U.K.’s Royal & SunAlliance (R&SA) reported strong earnings growth for the first quarter of 2005 with operating earnings of £160 million ($301 million) compared to £82 million ($155 million) in the first quarter of 2004, a 95 percent gain. R&SA also reported a 24 percent increase in net premiums written to £1.492 billion ($2.8 billion). Its combined ratio for the quarter improved to 94.8 percent, compared to 101 percent in the first quarter of 2004.
After a rocky two years, which saw the company drastically reduce its participation in the U.S. market, R&SA finally seems to have turned the corner. Its Q1 performance largely exceeded analysts expectations, as after tax profits rose 177 percent to £122 million ($230 million), compared to £44 million ($82.8 million) in Q1 2004.
Group Chief Executive Andy Haste, who is generally credited as being the main architect of the turnaround, commented: “It has been a strong start to the year. Our net written premiums, operating result and profit after tax have all increased significantly over the last year and we’ve delivered good performances from each of our core businesses. Our results reflect the quality of the portfolio, the benefits of our operational improvement program and our focus on maintaining underwriting and claims disciplines.”
In the earnings bulletin Haste noted: “In the US we continue to derisk the business. During the quarter we reduced open claims by 11 percent and collected a further $244 million of reinsurance. We also reached a settlement with PNC Bank in the ongoing Student Finance litigation, reducing our exposure by $129 million, and reduced our collateralised debt obligations (CDO) exposure by $437 million having now settled all but two of the CDOs. The sale process of our non standard auto business is proceeding as planned.”
A.M. Best Co. commented that all of R&SA’s ratings, along with those of its principle subsidiaries “are unchanged by the first quarter 2005 reported earnings as they were in line with A.M. Best’s expectations.”
Best indicated, however that the “outlook on all ratings remains negative.” After noting the earnings results, Best said: “This was achieved as a consequence of continuing focused underwriting and expense savings, in spite of the impact on results of the adverse weather conditions in the United Kingdom and Scandinavia during the period and the run-off of the discontinued business in the United States. A.M. Best continues to monitor R&SA’s reserves development during 2005, in particular U.S. prior year business.”
The full earnings report and additional commentary and explanatory notes may be obtained on the company’s Web site at: http://www.royalsunalliance.com.
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