PIA row mars Royal & Sun results

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The Independent Online
Interim results from Royal & Sun Alliance yesterday marked the end of the first year of its merged operations but were overshadowed by a continuing row with the Personal Investment Authority over the insurance group's success in tackling pensions mis-selling cases.

The group, formed a year ago in a pounds 6bn deal, insisted it had met a deadline set for it despite a statement from the PIA that it had failed to do so. Roger Taylor, deputy chairman, said Royal & Sun had resolved 90 per cent of so-called priority one cases, which involve people who have already retired or who have since died.

He also said that Royal & Sun had increased its provision against the mis-selling of the late 1980s and early 1990s, although he refused to give figures. The company has nearly 15,000 cases to resolve.

The PIA said it would be talking again to Royal & Sun but refused to comment further. The problem appears to focus on what should constitute a completed case and which cases should be included in determining whether the group has met its target.

The dispute clouded otherwise strong figures showing an 11 per cent rise in trading profits to pounds 501m for the six months to June. The result was badly affected by the strength of sterling, without which profits would have shown an 18 per cent increase. The dividend was lifted 10 per cent to 21.7p per share.

Royal & Sun said it was on target to achieve promised savings worth pounds 175m a year. The group has already shed 3,000 of 5,000 targeted jobs and savings are running at an annualised rate of pounds 95m. The savings, and a rise in the net asset value from 399p to 433p, cheered the market, which marked the shares 23p higher to close at 545.5p.

In general insurance, profits rose pounds 22m to pounds 374m, helped by better performances in the US and Canada. The underwriting result improved by pounds 51m to a loss of pounds 81m.

According to Mr Taylor, premiums remain under pressure in the UK, where the underwriting loss widened from pounds 19m to pounds 37m. Even after better investment returns there was a fall in total profits from pounds 172m to pounds 165m. Premium volumes fell in most classes of business as Royal rejected unprofitable business.

In line with the rest of the industry, personal motor business suffered from an increase in the average cost of claims. Household insurance was hit by a pounds 19m increase in the cost of subsidence losses thanks to the dry weather at the start of the year.

Now one of the UK's top 10 life assurance suppliers, Royal & Sun Alliance restated its desire to be an important player in the sector but said it was cautious about acquisitions given the prices being commanded by companies.

Richard Gamble, chief executive, described European life companies as "extravagantly expensive" and said it was difficult to justify an acquisition as benefiting shareholders.

During the six months, worldwide life profits, which account for a fifth of the group total, rose 16 per cent to pounds 108m.

Royal sun re-confirmed its commitment to buying back up to 5 per cent of its shares. So far it has bought in just 32 million shares, at a cost of pounds 152m, about half the amount planned.