The solvency margin of Royal's loss-making general insurance subsidiary rises to 40 per cent. Without the restructuring, the weakness of the UK stock market would have pushed this key measure of its financial strength down to about 27 per cent.
The change was announced alongside interim pre-tax losses of pounds 79m and the expected dividend cut, from 11.25p to 2p a share. The loss was kept stubbornly high by home repossessions, which led to a pounds 100m underwriting loss on providing domestic mortgage guarantee insurance to lenders.
Although it is essentially a cosmetic change, Richard Gamble, Royal's chief executive, said the group's new structure 'will help our shareholders to understand our figures a lot better than they have in the past'. He said it would enable shareholders and commentators to make more balanced judgements about performance and corporate solvency.
The previous structure prevented Royal from including a value for its profitable UK life business when calculating the solvency margin of the general insurance arm.
The restructuring leaves Royal Insurance Holdings, the parent company, owning two main operating subsidiaries, Royal Insurance and Royal Life Holdings. Royal intends to show separate balance sheets for the two arms in its accounts.
The pounds 79m loss represents an pounds 18m improvement on last year. Like its rivals, Royal is enjoying the benefits of much higher premium rates, cost-cutting and other measures. However, the company is held back by its huge exposure to the depressed housing market.
The pounds 100m loss on mortgage guarantee business was up from pounds 22m last year. In the past 18 months, Royal has paid pounds 90m of claims and set aside a further pounds 325m of reserves. Yet Mr Gamble said he expected pounds 150m of further losses for the next 18 months.
UK general insurance was responsible for the bulk of the group's problems with a loss of pounds 73m ( pounds 104m). Royal's reinsurance operation also suffered a larger loss of pounds 17m ( pounds 5m) and its estate agencies lost another pounds 9m ( pounds 8m).Reuse content