Royal & SunAlliance
10/26/2006
 For sometime now the millstone around the neck of general insurer, Royal & SunAlliance (RSA) has been the business in the US. While going from strength to strength in Europe, Asia and the rest of the Americas, the lagging operation was slowly wound down. Therefore, the recent sale of the subsidiary was a welcome development.
As one of the world's leading insurance groups, RSA writes business in 130 countries to over 20 million customers. Broadly speaking a wide range of products are available for both personal and commercial customers covering things such as vehicles, travel, health and small businesses.
The outlook for earnings growth in RSA's core businesses and regions is excellent. Interim results highlighting the group's underlying combined operating ratio, which measures claims and expenses as a percentage of premiums, of 91.7 percent reinforces this view.
RSA concluded that US operations were not part of long-term plans back in September 2003. As it turns out, senior management in America are buying the business through an investment vehicle, Arrowpoint Capital (subject to shareholder and regulatory approval).
We are in full support of the decision despite RSA recognising a £443 million pre-tax loss on the sale. The transaction will in the words of CEO Andy Haste, "bring certainty and finality and delivers on our objective of a clean exit from the US." Focus on growth enhancing strategies in profitable lines of business will now benefit as a result in our opinion.
One such example is the reorganisation impacting the highly successful UK business. In order to support RSA's strategic initiative to improve customer service, the business is being restructured around three distinct customer types - broker, retail and affinity. The distinct requirements of these clients will as a result be addressed more competently and quickly thus improving new business sales and retention.
The purchase of Norwegian groups White Label Holding and Duborgh Skadeforsikring for NOK340 million (£28 million) further expands RSA's reach in Scandinavia. RSA expects the deal to be complete by year-end and earnings accretive in 2007.
We anticipate further deals such as this to continue as RSA expands selectively through acquisition and organic growth. We also believe that with the exit from the America, RSA has transformed itself into an attractive takeover target.
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