RSA under the weather as first-quarter profits plunge

ROYAL & SunAlliance, Britain's second biggest insurer, yesterday unveiled a 58 per cent plunge in first-quarter profits because of El Nino, ice storms, floods and fires.

Paul Spencer, the group finance director, said: "We have been battered from all sides. In Peru and Australia there's been the El Nino effect. But that's what our business is about and we shouldn't be frightened of it."

After two years of mild weather across the world, RSA will pay claims on pounds 97m for weather losses from 1 January to 31 March, up by 60 per cent on the same quarter last year. Pre-tax profits fell from pounds 209m to just pounds 89m.

The losses go beyond the January storms in the UK. In Canada, a pounds 14m profit was wiped out by Quebec's ice storm in January. Severe Australian storms and a giant fire in New Zealand pushed its international business into a similar loss.

Bob Mendelsohn, the group chief executive since December, said: "The weather has influenced our results in the first three months ... However, the underlying experience continues in line with our expectations."

RSA warned it would also be hit in the second quarter by claims for damages costing pounds 45m following floods and storm damage in early April. The strong pound in the first quarter had also cost pounds 16m.

Shares in the company have underperformed the market by 19 per cent over the past three months following a heavy restructuring in December.

The company's two most senior executives both resigned after rumours of a clash over corporate strategy. Roger Taylor, formerly of SunAlliance, and Richard Gamble, formerly of Royal Insurance, had shared leadership of RSA since those companies merged.

Mr Mendelsohn said the benefits of the merger were now finally coming through. "We are well on target to secure the pounds 235m of annualised cost savings."

RSA's savings and investment business thrived in the UK in the first quarter of 1998, where new business boomed by 34 per cent. Sales of savings products elsewhere were sluggish.

However, the company is beginning to opt out of a worldwide squeeze on insurance rates which has seen many insurers take losses in an effort to keep their customers.

RSA has adopted a survival strategy of protecting its margins even if it means losing market share. It has begun to edge up its rates on personal motor insurance and commercial property.

But it described other commercial insurance - such as commercial motor insurance - as "very unsatisfactory".

Some analysts downgraded the shares from buy to hold yesterday. One said a climate of lower interest rates would damage investment income in years to come. Shares rose by 15p yesterday to close at 654p.