R&SA Posts $835 Million 9-Month Operating Result; U.S. Liabilities Still a Problem

The U.K.’s Royal & Sun Alliance exceeded analysts’ forecasts with a nine-month earnings report that included an operating result of £453 million ($835 million), compared to a restated operating result of just $27 million ($50 million) in the same period of 2003.

The group’s combined operating ratio (COR) was down to 100.9 percent, compared 108.1 percent in 2003. As expected general business net premiums written decreased substantially – from £5.125 billion ($9.45 billion) in the first nine months of 2003 to £3.783 billion ($6.97 billion) in the first three quarters of 2004 – as result of the closing of much of R&SA’s U.S. business and the sell off of most of its life units and other “non-core” holdings.

Group CEO Andy Haste commented: “This has been another strong quarter for the Group with all of our ongoing businesses delivering results that are ahead of our cross cycle combined ratio target. The actions we’ve taken over the last 18 months to improve our operational performance are now clearly benefiting our results. Management continue to focus on delivering the remainder of our change programme and the maintenance of our disciplined approach to underwriting, claims and expense management.”

Addressing the ongoing problem of R&SA’s U.S. business, Haste said that the “transition continues on track but the result remains challenging.” How challenging is still an open question. Haste assured investors that, with the tight controls in place and the commitment to restructuring, the group was on the right track and was investigating “all possible future options for our U.S. business.”

But he also indicated that “as part of the Q3 results process, we’ve identified the potential for some further future prior year adverse claims development, which will continue to be assessed during Q4.” That sour note apparently disturbed the investment community, which, in spite of the good earnings report, sent R&SA’s shares down more than 5 percent.

R&SA’s withdrawal from the U.S. market was in other ways well timed. “Following our restructuring actions the Group’s exposure to the recent hurricanes was much more limited, amounting to around £14 million [$25.8 million],” Haste stated. “Prior to the restructuring our estimated exposure across the Group would have been around £150 million [$276.5 million].”

Now, if there’s no further adverse development in U.S. claims (mainly from asbestos), R&SA may have finally turned the corner after a difficult two years.

The full earnings report and the CEO’s comments may be obtained on the company’s Website at: http://www.royalsunalliance.com.