City insurance analysts believe Royal & SunAlliance could be on the verge of a brighter future despite reports of a downturn in its life business.
Returns made by RSA to the Financial Services Authority this week reveal the insurer was forced to set aside more than £1.2 billion for higher guaranteed annuities because of declining investment returns.
But Mark Williamson, of City analysts RZH, said RSA has already taken decisive steps to rationalise its life business which should ensure it achieves sustained profits in the future.
He said that on the life side, RSA has cut its previous 55 products to the 17 responsible for 90% of profits and shifted its sales focus from field agents to independent financial advisors.
And on the general insurance side, Williamson said, RSA has been helped by rising premium rates.
"This has put RSA's business in a fitter shape, although it remains an attractive takeover target particularly for a foreign insurer," he said.
Williamson, however, stressed the City's patience for RSA to make sufficient progress would not last forever.
"The markets are prepared to give RSA chairman Bob Mendelsohn another 18 months to make a sustained improvement in the business."
Another analyst, Ned Cazalet, director of Cazalet Financial Consulting, expressed concern over the deterioration in RSA's life business. But he added that it continued to generate substantial profits for the group.
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