RSA chief sees recovery signs

INSURER Royal & SunAlliance revealed today its profit was flat in the first quarter of this year and key efficiency targets were still being missed, ensuring chief executive Bob Mendelsohn will remain under intense pressure from shareholders over the insurer's lacklustre performance.

But its bid to recapture investor confidence was helped by early signs of a recovery in its general insurance business, leaving the stock trading only 1p lower at 297p in a flat market.

RSA's underlying profit, which was in line with market expectations, slipped to £160m in the three months from £163m at the same time last year despite reaping the benefits of soaring premiums on its underwriting business.

Its combined operating ratio on general business, the closely watched indicator that measures premiums against claims, came in at 104.2%, barely changed from last year's overall figure and still missing its 103% target.

However, it has fallen from 108% in the first quarter of 2001, overcoming an increase of more than £30m in British weather-related claims and a £20m underwriting loss on its Canadian motor insurance business.

Mendelsohn said the results were 'encouraging', particularly given the first quarter is traditionally the toughest for general insurance claims. 'The first quarter has been consistently improving in the past few years,' he said.

The result also carried the scars of the ongoing share market malaise, forcing RSA to book a £182m charge relating to short-term fluctuations in the value of its investment portfolio. This policy, which generated a £408m charge in the previous corresponding period, left RSA with a £72m pre-tax loss compared with a £311m deficit previously.

Mendelsohn said RSA was getting a 'pretty good' response from institutional shareholders to its plan to change the performance hurdles in its executive bonus scheme. He said the changes, which he hoped would be put to a vote at next year's annual meeting, were aimed at rewarding executives if they hit targets for two and three years in succession.

Mendelsohn said RSA was not worried by investors' rejection earlier this week of a new bonus plan for fellow insurer Prudential, saying RSA shareholders would be 'very happy' if the new targets were met.