Choker for Royal & Sun profits

Paul Armstrong12 April 2012

FEARS of an explosion in asbestos-related sickness insurance claims has led Royal & SunAlliance to more than double its compensation kitty for the diseases to £689m. The increase caused the insurer to warn that its operating result for 2001 would be no better than break-even, from a £476m profit in 2000.

RSA also revealed a rise in other provisions, including £145m to fund claims on insurance businesses which it is running down, a further £15m for World Trade Centre losses, and £15m to cover its exposure to failed US energy group Enron.

But chief executive Bob Mendelsohn rejected market speculation that RSA was about to make a substantial share placing, saying the company believed it would raise £800m from asset sales this year.

He said the insurance industry's forecast losses stemming from asbestos claims had changed 'dramatically' in the past year following estimates compiled by ratings agencies and actuaries. Mendelsohn blamed much of this on legal practices in the US, where compensation claims by people who have been exposed to the deadly fibres but have no signs of disease are bundled together with claims by those who have developed the symptoms.

Many of the companies that mined the asbestos have gone broke and lawsuits were now aimed at others in the supply chain such as distributors and transporters, some of which RSA has insured.

Of the extra £371m RSA has set aside, £200m relates to business written by its British operations and the rest by its US arm. But Mendelsohn said much of the business written in Britain covered activities in the US.

Mendelsohn said only a 'very, very small' amount of the £36m RSA paid in asbestos claims last year stemmed from British cases. However, asbestos was withdrawn from sale far later in Britain, meaning claims could peak later in this country.

The total amount of the extra provision will be discounted over 40 years, meaning RSA's full-year results, which will be released on 28 February, will include a £239m charge in relation to the affair.

RSA's total estimated net loss from the World Trade Centre collapse now stands at £215m. Mendelsohn declined to reveal the nature of the group's exposure to Enron.

But RSA said premium rates for property and liability insurance had shown a further 'material increase' in the fourth quarter.

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