R&SA Reports Strong 1st Half

August 12, 2005

Royal & Sun Alliance, the U.K.’s second largest commercial insurer, had a good first half of 2005. Operating results rose 79 percent to 329 million pounds ($594 million), compared to 184 million pounds ($332 million) for the first six months of 2004. After tax profits for the period rose 138 percent to 195 million pounds ($352 million), while net written premiums rose 16 percent to 2.866 billion ($5.17 billion). The group’s combined operating ratio (COR) dropped to 95.6 percent from 100.6 percent in the first half of 2004.

R&SA said the results showed a “sustained good performance from Core Group. It also cited progress in the following “key objectives:”
— Profitable growth in targeted segments.
— Major bancassurance agreement with F√∂reningsSparbanken in Sweden.
— Operational improvement programme has delivered 214 million pounds [$386 million] of annualised expense savings.
— Further derisking US business and strengthening US capital position; Nonstandard Auto sale announced in July.
— Action taken to reduce UK defined benefit pension scheme deficit.

A statement summarizing R&SA’s progress from CEO Andy Haste read as follows: “It has been a good six months for the Group, with strong performances from each of our Core businesses and further progress in the US. Net written premiums increased by 397 million pounds to 2.9 billion pounds, reflecting the recapture of the Munich Re quota share and profitable growth in Scandinavia, Canada, Latin America. The increase also included the benefit from a timing difference relating to the Munich Re portfolio transfer which reduced net written premiums in 2004 by 157 million pounds [$283 million]. Excluding the timing difference, underlying growth in net written premiums was 8 percent for the Core Group.”

Commenting on the situation in North American, where R&SA is in the process of withdrawing from most of the U.S. market, the CEO stated: “We continue to make progress in derisking the US business. In July we announced the sale of our Nonstandard Auto business, subject to regulatory approval, for approximately $200 million. The sale is in line with the disposal plans and timetable we outlined in March. The proceeds will be retained within the remaining US business, in accordance with the RBC plan approved in May by the US regulators. The disposal further reduces the Group’s US exposure, while providing additional capital support for the US operation. The overall capital benefit of the disposal will be approximately $230 million, which increases the US statutory RBC ratio of the remaining US business from 1.9 at 30 June 2005 to 2.3 on a pro forma basis. The profit on sale on an IFRS basis will be approximately $135 million post tax. The US operation remains exposed to a number of risks and uncertainties, but we are confident that management actions will continue to reduce the Group’s exposure.”

In a brief comment on the results A.M. Best Co. said “all ratings of Royal & Sun Alliance Insurance Group plc. (R&SA) (United Kingdom) and its main subsidiaries are unchanged by the 2005 half-year results. The outlook on all ratings remains negative.” Best also indicated that the results had been in line with its expectations, and said it “continues to monitor R&SA’s reserves development during 2005, in particular U.S. prior year business.”
T
he full report and additional comments may be obtained on the Group’s Website at: http://www.royalsunalliance.com.

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