Royal quits high street and cuts 1,300 jobs

Royal & Sun Alliance, the insurance group, is closing all but five of its 94 high-street branches as part of an efficiency drive that will cost 1,300 jobs. The branches have been made redundant by the shift in the insurance industry towards direct sales by telephone.

The reductions are the first in a programme expected to reduce the UK insurance workforce by 4,000 in the wake of the pounds 5.4bn merger just completed. Of the job cuts, 300 will be at the branches - by the end of this year - and 500 will occur in each of the head offices in Liverpool and Horsham, West Sussex, over the next 18 months.

Before their merger, the two companies, Royal Insurance and Sun Alliance, had separately decided that the roles of the branches were "diminishing and becoming uneconomic". But they said that compulsory redundancies would be "kept to a minimum".

Industry sources said that Guardian Royal Exchange, a rival company, is also likely to cut jobs. In a renewed efficiency programme, another 300 will go from its force of 6,000 UK staff. The company said it was not, however, planning involuntary redundancies.

Meanwhile, GRE expects to spend $500m (pounds 320m) on one - or more likely two - US acquisitions in the next six months, according to John Robins, the chief executive. The company has been in talks with several potential targets.

Mr Robins said: "I hope to have something in the next six months. We have turned down two to three that did not meet our criteria." GRE is looking for a specialist insurer of higher risk drivers to add to its existing subsidiary in the US, and an agency broker in property and casualty insurance. Mr Robins cheered the UK stock market by reporting signs of a rates recovery in premiums, especially in the motor market."I don't believe there is going to be a price-war in household rates," he said. Household premiums have fallen 8 per cent in a year.

Following the creation ofRoyal & Sun Alliance, GRE itself has become the target of widespread takeover speculation, but Mr Robins said: "I don't believe in that sort of merger. You have to be able to manage the inevitable culture-clashes of two companies that have been building similar businesses over 150 years, at a time of considerable industry strain and change." There had been no bid discussions over GRE, he added.

Meanwhile, Nationwide has switched its annual pounds 100m business in buildings and contents insurance from a group that included GRE, to a cheaper alternative from ITT London & Edinburgh.

Investment Column, page 20