GENERAL insurer Royal Sun Alliance (RSA) warned yesterday that exceptional losses from bad weather had left it with a bill £142m more than it had expected.
Prolonged freezing conditions and snowy weather across Europe in November and December, combined with exposure to hurricane Tomas in the Caribbean, caused it to reduce its forecast for 2010 operating profit to between £600m and £630m.
Analysts had previously forecast a consensus £734m operating profit for the year.
Insured losses from weather over the whole year have cost the group £255m more than normal, it said in a trading update ahead of its full-year results presentation on 24 February.
UK claims made up the bulk of the losses, reaching £110m after it experienced “the coldest December in the UK for 100 years,” RSA chief executive Andy Haste said.
About 8,000 households claimed an average £6,700 for burst pipes from RSA since November. It also handled 19,000 home emergency claims, around 5,500 snow claims and almost 5,700 other weather related claims in the two months, it said.
However, RSA played down the extent of the impact on the group, emphasising that additional losses would not affect its full-year dividend, and that it had grown premiums income by 11 per cent over the year.
“Given the extreme weather in 2010, this is a strong result and reflects the diversity of the portfolio and the resilience of the group’s underlying profitability,” said the UK’s second largest general insurer.
Analysts took the news in their stride, viewing the profit warning as a hiccup in RSA’s overall performance.
Numis analyst Nick Johnson revised RSA’s 2010 earnings per share down by 20 per cent to 9.5p from 11.9p and its full-year profit before tax down to £464m from £575m. However, he raised 2011 earnings forecasts on expectations of higher investment income.
Citi analyst James Quin said it was “not a surprise” that weather losses were higher than expected, but the loss was “perhaps at the top end of what might have been ‘pencilled in’.”
“The market’s reaction, marking the shares down 2.6 per cent, is rational in that this is the net cost of the higher weather losses,” Quin said.
Analysts were also heartened by RSA’s careful wording change around its combined ratio, a measure of its profitability. RSA said it was no longer targeting a combined ratio of “around” 95 per cent, instead saying it expected to deliver “a combined operating ratio of better than 95 per cent.” Quin said the more positive language was “an important and encouraging message” about the company’s future performance.