Royal & SunAlliance bounces back

INSURER Royal & SunAlliance has unveiled a massive surge in profits for 2004 after a large-scale restructuring the year before paid off. The company has slashed more than 2,000 jobs in recent years and sold off its with-profit policies.

RSA said that stripping out fluctuations in investment markets, operating profits were £456m, up from £140m in 2003, better than the City had been expecting.

The insurer set a total dividend for the year of 4.61p per share, up from 4.52p in 2003 - the first rise in five years.

The company, which is number two in the British general insurance market behind Aviva's Norwich Union, credited a strong performance from its UK and Scandinavian businesses, and also cited 'significant' progress in stabilising its US operations.

RSA stopped writing most new business in the US under chief executive Andy Haste in 2003, but he has set aside hefty reserves to meet possible future claims from policyholders there. It has been the group's Achilles heel for a number of years, due to possible compensation claims for asbestosis from the workers of some manufacturing companies it insured.

'Our strategy for the future is clear,' said Haste, 'to run general insurance businesses where we have strong market positions and where we can deliver sustainable profitable performance.'

The company has attempted to reposition itself as a pure provider of general insurance in recent years. Falling stock markets between 2000 and 2002 hit the life insurance arm hard.

In 2003, the company horrified investors by asking for £960m in a rights issue and last year it sold the sprawling UK life arm for £850m. Both moves were attempts to shore up the group's finances. The sell-off meant more than 2m bond, pension and endowment policies were transferred to Resolution Life Group, which has been set up specifically to vacuum up and manage closed funds.

In today's full year results, the group said its capital position had benefited from selling UK and Scandinavian life businesses. It said that at the beginning of the year, it had a surplus of approximately £600m above the regulatory requirement.

RSA also said its 2004 group combined operating ratio - a measure of profitability comparing claims against premiums - was 103.4%, an improvement on 108% the previous year. The ratio improved for the UK business - both businesses and individuals - to 92.5% from 94.8%. And the company began making money on personal customers in the UK - the ratio swung from 103.7% to 98.4%.

It put the recovery, in part, down to its More Than division where premiums grew by 3% 'against a background of a highly competitive market'. The company repeated its commitment to 'maintain rates'.

On the traditional measure operating profit was £188m, down from £196m. The company, however, factors in 'distortions' from investment markets, in which all insurers invest premiums, in line with a recommendation from the Association of British Insurers.

RSA shares, which have recovered from a 20-year low of 56p in 2003, were up 1p to 87p in early trading. The company, which now has 2m customers and employees 32,000 worldwide, was formed from the merger of Royal Insurance and Sun Alliance in 1996.