Royal provides surprise for City: Third composite joins week's insurance party with record pounds 191m interim profit

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The Independent Online
ROYAL Insurance became the third composite insurer this week to announce interim profits far in excess of City expectations. Profits before tax were a record pounds 191m in the six months to 30 June, compared with pounds 52m last time.

The dividend is lifted from 2.5p to 4p. Richard Gamble, chief executive, said a further increase could be expected at the end of the year. The shares closed 6p higher at 265p.

Royal recorded the best UK profit in its history. Higher premium rates - up 3 per cent on average - a lower frequency of claims, and cost controls made for an underwriting profit of pounds 78m, compared with a halfway loss of pounds 68m in 1993. The group also reduced its losses on mortgage indemnities, from pounds 50m to pounds 27m, and reinsurance, from pounds 45m to pounds 12m.

Mr Gamble said UK conditions remained favourable, with commercial rate increases continuing. In personal lines such as motor and household insurance the market was becoming more competitive. Royal is trying to refine its risk assessment for individuals and exploit its two direct sales subsidiaries.

The group made an increased loss in the US, up from pounds 101m to pounds 124m, due to severe storms and the Los Angeles earthquake in the first quarter. The earthquake, which cost the insurance industry as a whole dollars 8bn ( pounds 5.3bn), had led Royal to raise premiums and limit cover for earthquake protection.

Royal's premium income declined to pounds 1.8bn from pounds 1.9bn in the first half of 1993. The group is making a strategic withdrawal from reinsurance and other unprofitable areas. Mr Gamble said: 'If we cannot make a profit on it, we'll let somebody else write the business. We're not obsessed with growth.'

Brian Shea, insurance analyst at Salomon Brothers, said: 'The dividend statement shows the management's confidence in Royal's recovery. This is the peak year in the insurance cycle in Britain, but next year looks good too.'