Royal & Sun says £300m less needed to cover claims

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The Independent Online

Royal & SunAlliance, the troubled insurance group, yesterday posted disappointing nine-month results, but said it would only need to use half of the £1bn it raised last month to cover claims.

The group, which banked £1bn in a heavily discounted rights issue to plug a gap in its reserving levels, said it would only have to put aside £500m of the £800m it previously said was needed.

"We have taken steps to address the legacy issues of the past but we recognise there is still a lot of work to do," said Andy Haste, chief executive of RSA.

"We still have residual issues that are pulling down the group."

RSA posted a nine-month operating loss of £212m. After the £500m charge, the company had an operating result (which includes investment returns and underwriting results) of £27m, at the bottom end of expectations.

The reserve strengthening of £500m led to a combined operating ratio for the group of 108 per cent.

This means RSA paid out 8 per cent more in claims than it collected in premiums, which Mr Haste said was "not an adequate level of performance".

Investors were relieved, however, that RSA now has a cushion of capital over its reserving requirements, having had to witness multiple reserving boosts in the past few years. There were fears that the £800m it had identified might not be enough to cover its liabilities.

The shares leapt nearly 5 per cent before closing down nearly 2 per cent after fears over the Turkey bomb blasts took hold.

Analysts are concerned that RSA is still facing a number of uncertainties. There was some bad news for its UK business from the rapid rise in subsidence claims this year, due to the unusual hot weather in Britain. RSA estimates that subsidence claims on household policies will be about £120m, compared with about £50m in a normal year.

"The company is still exposed to the US, which would have been good to get rid of, and who knows what will happen with subsidence claims. They could continue to go up," Roman Cizdyn, analyst at Commerzbank, said yesterday. "There are lots of problems in the company that still need to be sorted out - it is still a bit of a mess and there are many questions over what its future holds."

RSA yesterday said net written premiums in the third quarter fell 23 per cent to £1.47bn, mainly due to its cutback in US business. UK premiums were flat at £776m. Mr Haste yesterday said rates were still increasing across the board. Following record losses at the group, management has had to cut nearly 12,000 jobs worldwide.