Royal SunAlliance Canadian arm improves, but hampered by FA losses

With the release of Royal & SunAlliance Insurance Group’s results, the Canadian operations are posting improved operating results, however Facility Association (FA) losses are hampering the effect of prince increases and reduced exposures.Overall, the parent company is reporting a pre-tax loss of GBP 146 million (Cdn$348 million), down from a loss of GBP 953 million (Cdn$2.3 billion). Operating profit for 2003 was GBP 196 million (Cdn$468 million), versus a loss of GBP 655 million for 2002 (Cdn$1.6 billion). The group combined ratio came in at 108%, down from 109.4%, but the ratio for ongoing business was even lower at 96.8%.In Canada, 2003 produced a combined ratio of 102.9%, an almost 14-point improvement over the 116.4% reported for 2002. The claims ratio was driven down to 75.5% (2002: 86.4%), and the expense ratio was slightly lower at 27.4% (2002: 30%). In total, Hurricane Juan and the B.C. forest fires cost the company GBP 9 million (Cdn$21.5 million).Overall net written premiums for personal and commercial lines were $1.2 billion, down from $1.3 billion in 2002, based on the company’s decision to restructure its exposures including selling its withdrawal from long-haul trucking and reduced property exposure in the retail sector. The biggest drop was in commercial lines business, which fell 34% for net written premiums of $298 million last year, versus $454 million the year prior).The commercial lines segment produced an underwriting loss of $19 million in 2003, down from $90 million the year prior. The segment’s combined ratio also improved to 110.4% last year from 120.2% the year prior. In personal lines, net premiums written were down 2% to $865 million from $884 million in 2002. The segment produced an underwriting loss of $23 million on a combined ratio of 100.9% in 2003, improving on the underwriting loss of $118 million, on a combined ratio of 114.6% produced in 2002.Commenting on the results, the parent company’s annual report notes two issues which need to be addressed. The first, poor performance by the Western Assurance business, has resulted in members of the management team being replaced. The FA losses (exposure to a pool for high-risk drivers in which all auto insurers share losses) remain troublesome. Royal’s annual report notes, “during the fourth quarter [2003], the FA chose to increase reserves by a greater amount than they had previously been indicating and our share of this has hit our result in the quarter”. The combined ratio in the auto segment in the last quarter of 2003 is 116.4%, still a sharp improvement from the 143.9% posted in fourth quarter 2002.