British insurer Royal & Sun Alliance relieved investors on Thursday with first-half profits slightly ahead of forecast, a confident capital outlook and the absence of any nasty surprises.
Shares in Britain's second-largest general insurer leaped more than 5 percent, making it the UK's top blue chip performer, as it signalled that funding woes were now behind it after two years of disposals and cash raising.
"This has been a very important and productive six months for the group. The surgery has been done," Chief Executive Andy Haste told reporters on a conference call. "We go into the second half with a much stronger position."
RSA's operating result fell 14 percent to 301 million pounds ($550 million), reflecting lower investment returns, a falling contribution from life businesses and expense overruns in the United States.
But on an underlying basis, RSA reported a strong performance in its core UK, Scandinavian and Canadian operations. Overall, RSA said its underlying combined ratio, a key measure of profitability, was 93.6 percent. A figure under 100 percent represents a profit.
Haste said he expected insurance rates to continue to plateau off their recent highs after three years of rises.
Analysts had expected an operating result, which includes underwriting profit as well as long-term investment returns, of around 296 million pounds, according to the median estimate of nine analysts surveyed by Reuters. Forecasts ranged from 266 million to 316 million pounds.
Investors said there was relief that RSA did not have to increase provisions for claims from the United States like Swiss insurer Converium.
"This was a very solid set of results without the usual hidden nasties," said Philip Graves, fund manager at Britannic Asset Management. "Given the bad news from the likes of Converium there was always the possibility that there could have been some nasty surprises."
Analysts welcomed the group's underlying performance.
"The group has demonstrated a healthy underwriting profit on the ongoing book of business, although the negative impact of the US run off business, affects the overall result as forecast," Cazenove wrote in a note.
By 1330 GMT, RSA shares were up 2.9 percent at 70 pence. The stock has fallen more than 10 percent in the past six sessions.
Royal & Sun said it would retain its 71.7 percent stake in Danish financial services firm Codan after receiving approaches in April.
But in Copenhagen, Codan's Chief Executive Jens Erik Christensen said RSA may lower its stake in order to accommodate the need for more flow in the stock.
"RSA has decided that a majority holding in such a constellation is not a necessity," Christensen said.
Once a group with global ambitions, RSA has shrunk its business radically over the past two years to concentrate on general insurance, cutting around 20,000 jobs and issuing new shares to shore up its balance sheet in the face of tighter funding rules in Britain, mounting claims in the United States and the recent stock market slump.
Over the past 18 months, RSA has raised around 3.5 billion pounds via a rights issue and disposals and Haste said the company was confident of complying with the new UK funding rules set to be introduced next year.
Haste said the disposal programme, including the recent sale of its British life operation in July for 850 million pounds, was now largely complete.
He said the costly restructuring of RSA's US business would continue into 2006.
Royal & Sun said that, under its internally developed risk-based capital model, it had a surplus of 530 million pounds compared to nearly 700 million at the end of the first quarter but said disposals and debt raising since June would bring that figure up to 1.6 billion pounds.
The model is meant to closely mirror new UK funding requirements set to be introduced next year.
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