Royal profits triple on overseas improvement

Royal Insurance reported yesterday a tripling of first-quarter pre-tax profits to £97m from £32m in the same period of 1994.

Analysts said the company, one of Britain's big composite insurers, looks on target to achieve 1995 pre-tax profits of between £430m and £460m, up from £401m last year.

Richard Gamble, chief executive, said insurance premium rates appeared to be stabilising following recent declines as a result of bitter competition. "We are not moving into the downcycle, nor are we seeing any price war at present," he said.

He described the first-quarter performance as representing "encouraging progress", relfecting an underlying improvement in Royal's overseas business, which accounts for about half of the total.

But the relaxed picture painted by Royal of a domestic market holding off from a significant drop while international performance, notably in North America, bolsters overall results, met with scepticism among some analysts.

"Royal remains too heavily dependent on the UK, which is teetering on the downturn," said Steven Bird of Smith New Court. "While it has the international spread, the return on capital in mature markets like North America is limited, and certainly not enough to replace the declining domestic performance over the next 12 to 24 months. Royal needs to look more at Europe and Asia." Smith New Court is keeping Royal Insurance on its sell list.

This contrasts with the view of Peter Constable, an analyst at Fleming, who described Royal as one of the strongest insurance buys. He said the company's current price/earnings ratio at about 5:6 was attractive and future dividend growth looked well-supported. He estimated Royal's net asset value to be about 350p a share. Royal closed unchanged yesterday at 327p.

Mr Gamble said the first three months of 1995 benefited considerably from the much milder weather compared with early 1994, when there was a harsh winter, and also the Los Angeles earthquake. The improved conditions contributed £41m to the £65m increase in pre-tax profits.

Royal said it was on target with its three-year plan to trim the UK payroll by 10 per cent. About 500 jobs have been shed, mainly in back offices and estate agencies, since the first quarter of 1994. The UK head count is now 12,000 of a worldwide workforce of 23,000. Royal said group expenses were lower than a year ago.