Shareholder greed drove R&SA into merger and acquisition madness, says
Recently, Sir Patrick Gillam, chairman of Royal & SunAlliance (R&SA), in a masterly understatement, said that the insurer's group results in recent years "have been disappointing".
This "disappointment" includes a planned £3.5bn cut in gross written premium, bad ratings, cutting personal lines UK business by a quarter and a failed rights issue. The UK alone will experience 900 job losses and £500m cut off the personal lines broker business. Yes, that could be described as "disappointing".
When the City blows you a raspberry, you know you have problems. R&SA got it wrong from the start, when Royal joined up with Sun Alliance, and the barmy decision was taken to have two men at the top.
Now R&SA is seeking to downsize by selling off its Australian operations and part of its US business. It is also, apparently, less keen to buy Danish insurer Codan. Some of its overseas life business may be sold.
Has the penny finally dropped at R&SA that it is not size that matters, but profitability? Insurers generally are realising the way to sound profits and consistent growth is through good underwriting, not going on a worldwide spending spree.
R&SA still has big employers' liability (EL) claims for asbestos sitting out in the darkness, but some light now seems to have come through the tunnel.
For instance, the "big is beautiful" bubble that drove the mergers and acquisitions madness of recent years is now much less attractive, and for R&SA, it has clearly bitten off More Th>n it can chew in its quest to become a global player.
Brokers, however, seem to be more comfortable with medium-sized insurers such as Groupama, St Paul and NIG. Somehow, these insurers seem to have a more personal touch. Whatever happened to that over-hyped management fetish of "customer relationship management" about which hundreds of largely useless seminars were held at great expense?
Unfortunately, shareholders, in their greed - particularly the big pension fund investors - were screaming for bigger markets. Insurance company directors fell over themselves to placate these stock market-led (but largely insurance-ignorant) big hitters to keep the share price up.
R&SA now has a major task in re-branding itself to the broker market. With premiums still high - and likely to go higher - it can now turn itself round. At least it has made a start in the right direction.
