Royal & Sun misses profit target as claims mount

Royal & Sun Alliance, the struggling insurer, yesterday admitted that it failed to hit a key profitability target and announced a fall in operating profit in the first three months of the year.

Bob Mendelsohn, chief executive of RSA, set a target three years ago of achieving a combined operating ratio of 103 per cent by the turn of the year. But the insurer only managed 104.2 per cent in the first quarter and 104.7 per cent for last year, after World Trade Centre losses are stripped out. RSA shares fell 3 per cent to 289p.

Mr Mendelsohn, who has come under fire for the way RSA has been managed, said: "The target of 103 per cent is still unchanged." The combined ratio is a key indicator for insurers because it measures premiums against liabilities, and must be below 100 per cent to signify profitability from underwriting.

RSA said it fell short because of heavy payouts from bad weather in January and February in the UK and northern Europe in general. It said claims were £30m higher this year than at the same time last year.

It also pointed out that the first quarter is traditionally a time when general insurers face particularly high liabilities due to bad weather. Compared to previous quarters, RSA's combined ratio has improved from 105.7 per cent last year and 108 per cent in 2000.

RSA also reported £160m of operating profit, down from £163m in the first three months of last year. The company had to restate its profits for 2001 because it dramatically increased its assessment of liabilities from asbestos claims. Profits before the restatement were £168m for the first quarter last year. RSA's general insurance division produced profits of £120m in the first quarter, compared with £143m in 2000.

Analysts believe RSA will hit 103 per cent this year. Roman Cizdyn, an analyst at Commerzbank, said: "Things look OK and the management appears to be delivering, but they did this this time last year and then things went wrong so we will have to wait and see."

RSA recently sold its asset management arm to Friends Ivory & Sime for £240m but there was disappointment that the insurer has not made more progress in its plan to raise £800m by disposing of portions of the business.