Royal back on form at £401m

Royal Insurance has entered its 150th year in business with a fair tail wind after chalking up record profits of £401m before tax in 1994, a rise of 165 per cent. The result, although in line with market forecasts, confirms the composite insurer's return to health after a troubled time in the early 1990s.

But the group, like other general insurers, admitted it still faced pressure on margins from increased competition, led by telephone sales insurers such as Royal Bank of Scotland's Direct Line subsidiary.

Richard Gamble, chief executive, said motor premiums had fallen 6 per cent on average last year, with domestic insurance premiums slipping 3 per cent. But he added that the declines reflected a better risk profile, with motorists driving more carefully and making use of better anti-theft security. "Home-owners, too, are beginning to realise that they can make significant savings on insurance costs by making their properties more secure." He confirmed that Royal was considering selling some life products through its direct operation.

Mr Gamble singled out an "outstanding performance" from the British general insurance business, where profits leapt to £321m from £97m, helped by underwriting operations returning to profits of £115m in 1994 from losses of £122m the previous year. The shares rose 9p to 281p. Mr Gamble said the results "provide us with a strong base from which we can achieve continuing success".

Royal surprised some analysts by not following Legal and General and Sun Alliance in using the upturn in general insurance results to make a big provision against losses from mortgage indemnity business. Mr Gamble said the company was already recognising the losses on the same basis as the other companies and had adequate headroom in its reserves to cover them.

Overall, premium income rose 7 per cent to £4.8bn. Investment income fell £30m to £481m, but the total underwriting loss was reduced to £91m from £364m in 1993.

Profits in the general insurance operations in Canada rose £6m to £29m, while the international division's results rose to £53m from £41m. The dividend jumps to 12p from 7.5p, while earnings per share rose to 52.7p from 23p.

In the United States, profits from general insurance operations fell from £15m to £9m.