Hurricane blows hole in Royal & Sun profits

BOB MENDELSOHN, the chief executive of Royal & Sun Alliance, said yesterday that the insurance group is to step up efforts to cut costs after seeing profits slump 84 per cent in the third quarter because of a surge in claims due to bad weather and Hurricane Georges.

Operating profits were down to pounds 37m from pounds 237m in the same period of 1997 while revenues were flat for the nine months at pounds 5,112m. The disappointing figures caught the City by surprise especially after the strong nine-month numbers from rival CGU last week. Royal & Sun Alliance shares fell by nearly 10 per cent to 494.5p yesterday.

The big profits hits include: - pounds 60m for Hurricane Georges, which hit the Caribbean and southern United States; that was out of an increase of pounds 164m in weather-related losses for the nine months;

- pounds 16m for the gas explosion in Victoria, Australia, out of an pounds 85m increase in large losses;

- a pounds 15m loss to cover claims from the fire which destroyed the South Mimms service station on the M1 in the UK;

- a pounds 71m fall in investment income as a result of the September market crash.

Mr Mendelsohn said that while some of the problems were clearly exceptional, the losses had come against a backdrop of intense competitive pressure that is weighing heavily on prices.

Britain's second largest insurance group was also hit by the tough line it was taking with customers about year 2000 risks which, Mr Mendelsohn admitted, was leading to a loss of business.

The review, the results of which will be announced early next year, could mean job cuts and withdrawals from businesses unlikely to meet new profitability targets.