Although this was a pounds 131m improvement on last year, Royal's shares fell by 11p to 333p. The stock market was disappointed by higher than expected reinsurance losses and was looking for something more, having seen Royal's shares almost treble since last September.
Last year's US hurricanes have pushed Royal's underwriting losses on reinsurance up to pounds 45m, doubling the pre-tax loss to pounds 35m. Royal is running off its reinsurance business after failing to find a buyer.
Analysts believe Royal may choose to strengthen reserves at Royal Re in the second half. Kevin Phillips at Kleinwort Benson said: 'It would not surprise me if there's a reinsurance underwriting loss of just under pounds 100m (at the year end).'
Royal owes its turnaround to its UK business, which reduced underwriting losses from pounds 172m to pounds 22m, and moved from a pounds 73m interim loss last year to a pounds 79m profit.
Losses from guaranteeing domestic mortgages to lenders halved to pounds 50m, helped by falling repossessions. Royal's large share of this business caused many of its recent difficulties. The company expects another pounds 40m loss in the second half.
Higher premiums enabled Royal to achieve underwriting profits in its household, private and commercial motor, and commercial property accounts. The April bombing of the City of London cost pounds 5m net of reinsurance.
Royal said it was not planning any further across-the-board premium increases on personal business, though commercial customers would be asked to pay 'modest increases'. The higher premiums already implemented lifted UK general insurance premium income by 9 per cent to pounds 836m.
The US business was held back by heavy weather losses, which amounted to pounds 36m against pounds 14m last year. Underwriting losses increased to pounds 102m ( pounds 83m), all but cancelling out US investment income of pounds 103m.
Royal has cut its estate agency network back to 489 branches and reduced first-half losses by a third to pounds 6m. Richard Gamble, group chief executive, said only a small uplift in the housing market would bring the estate agencies back into profit. He said they still provided Royal with an enormous opportunity to distribute its life insurance products.
Life insurance profits leapt from pounds 14m to pounds 25m, as Royal eliminated the losses in the overseas operations.
The interim divided was increased from 2p to 2.5p a share, as Royal promised in its recent rights issue. It said it would pay a total this year of at least 6.5p.
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