Struggling commercial market forces insurer to cut jobs
Royal & SunAlliance (R&SA) will continue to withdraw capacity from sectors of the commercial market if market conditions do not improve, its UK chief executive has warned.
The insurer said it would slash capacity where “rates, terms and conditions did not meet our underwriting criteria”.
The insurer has already withdrawn £50m capacity from the fleet market because of the impact of fierce competition on rates.
UK chief executive Bridget McIntyre told Insurance Times: “We hope we won’t have to reduce capacity in other classes. We have a retention target to meet of 80%.”
She stressed the company would not write business “below the technical price”.
R&SA’s fleet book saw underwriting profits fall over 40% to £11m in the first half of 2007 from £19m in 2006. Net written premiums dropped to £230m from £260m.
The comments came as R&SA announced forecast beating results for the first half of 2007.
The group reported net written premiums up 8% to £3bn and an operating profit of £403m in the half.
It also said that the total cost of the recent floods to be £120m, revealing a £65m cost loss from the July floods.
Underwriting profit for the half fell from £171m to £144m. The combined ratio was 93.3%.
Andy Haste, group chief executive, said the company still expected to deliver a combined operating ratio for the full year of 96%.
The insurer announced 700 job cuts, including 500 positions in the UK, in a bid to reduce costs by £70m.
The cuts are in addition to 1,500 job losses announced last year, which were aimed at saving £130m.
The company would not comment on which parts of the business the latest job cuts would affect. Most are expected to be role reductions rather than redundancies.
Royal & SunAlliance reported UK underwriting profits of £51m for the half, down 45% on the same period last year.
Despite losses from the June floods, the insurer achieved a UK combined ratio for the half year of 96.1%. This compared to 91.5% in the same period in 2006.
Net written premiums were up 7% to £1.4bn, driven by growth from affinity partnerships and specialist commercial lines.
Personal lines saw a 28% growth in net written premiums, while commercial lines saw premiums fall 4%, although professional and financial lines and marine divisions saw premiums grow 10% and 14% respectively.
The insurer’s private motor book broke into the black reporting an underwriting profit of £15m in the half, compared to a £7m loss in 2006.
McIntyre said: “These are good results in difficult market conditions. In personal lines, the focus on affinity is paying off. In commercial, the competition is tough but we have held rates in liability and property.”
The insurer achieved mid-single point rate increases in personal lines and increased commercial motor rates by 4%.
Analysts said the group’s results were ahead of expectations.
Analyst Numis said: “The group sounds confident of being able to sustain current profitability, no doubt helped by further potential cost savings.”
It added: “R&SA’s operating performance is proving better than expected as reserve releases and cost savings mitigate the impact of rate reductions.”
Investor service Hargreaves Lansdown highlighted “prudent underwriting and continued cost cutting” had mitigated the impact of the floods.
Merrill Lynch described the results as “solid”.
As Insurance Times went to press, R&SA’s shares were trading at 133.2p.