Floods take toll on Royal results

ROYAL & SUNALLIANCE yesterday resisted pressure from shareholders to carry out a merger or acquisition as it posted a 39 per cent drop in first-half profits.

The insurer's results revealed the toll of April's floods and the ice storm in Canada, which contributed to a pounds 114m jump in underwriting losses. Operating profit slid from pounds 501m to pounds 305m - close to the bottom of City expectations.

Bob Mendelsohn, the chief executive, admitted that it had been a "very bad" first half. Stiff competition brought down rates on some commercial lines by 30 per cent. Premiums in the UK reduced by 2 per cent as volumes fell. Together with unusual underwriting losses, this had a heavy impact on earnings: earnings per share were down to 14.5p from 23.5p.

Royal & SunAlliance is under pressure from institutional shareholders to enter into a deal to solve its current growth problems. City analysts are still concerned that its focus is too much on organic growth.

Mr Mendelsohn said: "We are certainly looking at mergers and acquisitions but we are only going to do it on a very sensible basis. It is too soon to say whether the current stock market decline will bring prices back to a more sensible environment where we can get what we want. I don't feel any pressure to do a deal.

"We have turned away unprofitable business, and we have not completed acquisitions at uneconomic prices to achieve growth for its own sake."

The company is preparing to ditch the name Royal & SunAlliance in some of its businesses as part of its drive to improve its appeal overseas. "The brand is a great brand for commercial insurance and it's well-known in the English-speaking world. But the honest truth is that it is a terrible brand for personal lines in some parts of the world because it is unpronounceable," said Mr Mendelsohn. "Japanese and Chinese people can't pronounce it and if someone says: `Hi, this is Royal & SunAlliance, how can we help you?' it takes up too much time."

Mr Mendelsohn said he was seeking to improve the company's underwriting disciplines, but this would take time. "I'm a manager, not a miracle worker... there are underwriting actions that any insurance company can take to improve the positioning its book of business, but they take years, not months.

The insurer is also planning to dispose of some "non-core assets". It is already buying small "bolt-on" acquisitions in smaller markets such as New Zealand, Belgium and Peru.

The company last month backed the purchase by Kohlberg Kravis Roberts of Willis Corroon, the global insurance broker, in a deal worth pounds 851m. Royal & SunAlliance joined four other insurers and security companies in taking up a 19 per cent stake.

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