Royal & SunAlliance (R&SA) will raise its house and contents rates by 7% over worries that catastrophe (CAT) reinsurance rates will rocket by 75%, according to R&SA UK managing director for personal lines, Steve Broughton.

He said insurers had made little or no money in the household market for some years and the market was heading for a correction.

Broughton said: "Household rates will go up and we expect ours to go up 7%. The household market has been static for some time now. Insurers really are not making money from household and contents insurance - the only people making money are the reinsurers. God looks after reinsurers - He looks down and says, `seven-day cancellation clause, that'll do nicely'."

He blamed the World Trade Centre and increasing pressures of climatic change for reinsurers' hardening rates.

Last year, R&SA handled claims for flooding and storm damage worth roughly £80m and the company's "retention was higher than most", according to Broughton. But reinsurers argued the damages were more than one event, forcing insurers to look for "low-level reinsurance which they paid high prices for" - a situation that will continue this year.

Broughton said: "The reinsurers lost an absolute packet through the World Trade Centre tragedy and they are not fussed how they get the money back. They are going to take a huge hike in premiums even if there are no claims. The likes of Munich Re are not going to be specific when looking at the UK household market - it will push rates up anyway.

"CAT reinsurance will go up not less than 60% - conceivably 100%. My personal view is 75%. For us that is £15m in extra costs."

Premium increases across the personal lines business will take place this year.

Broughton predicts a highly competitive motor sector will descend into a price war with the new start-ups, e-sure and Bluesure, slogging it out. But R&SA will sit back, watch and wait before it takes action.

"We intend to compete in the motor market, now highly competitive after the introduction of e-sure and Bluesure, but we are not going to be drawn into a price war. If there is going to be one, it will be short and bloody - our numbers would dip and then come back up again."

He said R&SA was preparing for a 6% rate rise in the motor market this year.