July floods cost R&SA a further £65mn
On reporting a £120mn combined flood loss for June and July, UK (re)insurer Royal & Sun Alliance (R&SA) revised its combined ratio expectation upwards to 96 percent for the full year.
But despite the losses, R&SA announced strong half-year results today, with net written premiums increasing 6 percent to £3bn and pre-tax profit firmly beating analysts’ expectations at £403mn.
The combined ratio for the six-month period was 93.3 percent, a deterioration of 1.6 points on the previous year period. Flood losses for June remained at £55mn while July cost the group £65mn.
Following a busy half-year, in which it disposed of its US operations, the group reported that it had reached its annual expense savings target of £130mn ahead of schedule.
It also announced a round of job losses as part of a further £70mn of expense savings bringing the total to £200mn by mid-2008. The cost savings will be achieved partly by “an overall reduction in headcount across the group by about 700, of which 500 are in the UK”, group CEO Andy Haste said today.
Nick Johnson, analyst at Numis Research maintained a positive outlook on the firm, he said: “R&SA’s operating performance is proving better than expected as reserve releases and cost savings mitigate the impact of rate reductions. We expect the shares to move to a higher rating to reflect stable pre-tax profit and upside potential from a turn in the cycle”.
The UK was flagged as R&SA’s most competitive market, but strong performance in affinity partnerships, high customer retention rates and action on rating helped the division increase net written premiums by 7 percent in the period.
The group’s emerging markets division increased written premiums by 15 percent, to £294mn. During the six months, R&SA received approval to create a wholly-owned subsidiary in China, which will enable it to expand outside of Shanghai.
Its new joint venture in Eastern Europe, signed in May, has made R&SA the number one direct writer in Poland. The joint venture has launched operations in the Czech Republic and plans to start writing direct business in Russia in 2008
Haste commented: “In challenging market conditions, we’ve had a good first half – we’re driving profitable growth in each of our regions and we’ve achieved a strong bottom line result. The results have been delivered against the backdrop of the UK floods in June, as well as adverse weather and increased large losses across the group, and clearly demonstrate the benefit of management actions and the strong and diversified portfolio.”
He continued: “With our strong portfolio and the actions we are taking, we are confident that in 2008 and beyond, we will continue to deliver the profitable performance that we have seen over the last few years. This is reflected in the 42 percent increase in the interim dividend to 2.48p (H1 2006: 1.75p).”
R&SA shares - which have been hit recently, and are down from a year-high of 176p - were up over 4 percent at 141.9p in early trading on the London Stock Exchange this morning (8 August).