Insurer says action will wipe out 2001 group operating profit

Royal & SunAlliance (R&SA) ended a week of speculation by increasing its reserves for asbestos.

The UK's second biggest general insurer is reserving £371m for asbestos claims and £145m for other claims.

It said the total net loss for the 11 September attacks amounted to £215m so far.

It warned the action would wipe out the group operating profit for 2001. Analysts had expected the company to show operating profits of £487m. The profit for 2000 was £476m.

The company announced £200m of the asbestos reserves would be for UK policies and £171m for its US operations.

Chief executive Bob Mendelsohn said: "The reserving actions announced today are tough, but should reduce a significant element of uncertainty in our future results."

The company had spent four years reshaping for the future.

He said: "Throughout that period of change we have carried a significant amount of baggage from the past, which hurt our reported earnings. Our actions today will reduce much of that burden and will enable us to move forward."

The company dismissed talk of a rights issue, saying it could fund growth without going to the capital markets.

The announcement came after R&SA's stock had been sliding amid a flurry of speculation about the company's strategy. It became the biggest blue chip loser last week when, on 1 February, it dropped 14.75p to 319p, ending the week down 38.5p.

The decline continued this week following concerns over its asbestos exposure in Swiss engineering group ABB.

One report said R&SA was preparing for a rights issue to cover payments.

R&SA looked into the possibility late last year and is understood to have decided against it because market opinion was split over the wisdom of the move.

In another report, the company was said to have called investment bank Lehman Brothers to sell off its offshore investment arm. Selling the Isle of Man-based business could release £40m, it is believed. The operation has about £1bn under management. R&SA refused to confirm or deny any sell-off.