R&SA 2005 Operating Profits Soar 171% to $1.215 Billion

March 10, 2006

The restructuring efforts at the U.K.’s Royal & SunAlliance paid off handsomely in 2005. The Group reported a 171 percent increase in operating profits to £698 million ($1.215 billion), compared to £258 million ($449 million) in 2004.

Other highlights cited in the earnings report included:
— Net written premiums of £5.4 billion [$9.4 billion] (2004: £5.1billion [$8.87 billion])
— Ongoing business combined operating ratio (COR) of 93.8 percent (2004: 93.8 percent)
— Profit before tax of £865 million [$1.5 billion] (2004: £38 million [$66 million])
— Profit after tax of £605 million [$1.05 billion] up £685 million ([$1.19 billion] on 2004 (2004: £80 million [$139 million] loss)

“It has been a very good year for the Group,” commented Group Chief Executive Andy Haste. “The Core Group has performed strongly and we have made further progress in derisking the US. We are delivering against our strategic objectives and I am confident that with our focus on operational excellence, execution and the strength of our operations we will continue to deliver sustainable profitable performance. As we see it today, we would expect the Core Group to deliver a combined operating ratio of around 95 percent in 2006.”

Haste has headed R&SA since April 2003 and has succeeded in restructuring the Group and cutting losses. His main initiatives included an almost total withdrawal from the U.S. market, where R&SA had been hemorrhaging cash, targeted cost cutting, which did result in job losses, and a strong emphasis on strict underwriting discipline. They’ve paid off.

R&SA said it has achieved “Sub 100 CORs from all Core regions. Core Group – COR of 94.1 percent (2004: 96.1 percent).” In addition the report cited the following acccomplishments:
— Targeted growth in key markets and segments
— Operational improvement program has delivered £240m of annualized savings
— Further simplification of US regulatory structure
— Disposal of non core assets – transactions completed: Rothschilds, Nonstandard Auto and Japan

Commenting on the Status of R&SA’s remaining U.S. operations, Haste stated: “We have continued to derisk the US business and have reduced the insurance loss from £372 million [$647 million] in 2004 to £29 million [$50.4 million] in 2005, with the fourth quarter insurance result achieving broadly break even.

“In November, we announced the completion of the sale of Nonstandard Auto increasing our RBC ratio to 2.2 times at the year end. In January 2006, we further strengthened the US Board through the appointment of Edward Muhl and in February we received regulatory approval to reduce the number of domiciliary states from four to two and insurance entities from seven to four. We continue to focus on driving down claims and expenses and actively explore opportunities to accelerate coming off risk. Our objective is to bring certainty and finality to the US exposure. The execution of this is complex, will take time and will not be a totally smooth ride.”

The entire report and further comments can be obtained on the Group’s Website at: http://www.royalsunalliance.com in PDF format.

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