Royal and Sun faces £100m in storm damage

Storms could cost the insurance industry dearly

UK insurance group Royal and Sun Alliance says that storm damage in Europe could cost it £100m in claims.

Chief Executive Bob Mendelsohn said:
"Estimates are very preliminary and may vary significantly, upward or downward, as events develop.

"Clearly the weather events will have an impact in the fourth quarter."

Based on information available on 6 November, claims would be between £80m and £110m.

The company said it was too early to say how the claims would affect future premiums, but that it had reinsurance cover of up to £200m.

Royal and Sun said its overall profits rose to £502m for the nine months to September 30, compared to £430m in the previous period.

It said premium income rose 19% to £6.3bn, with strong growth and acquisitions in overseas markets in Scandinavia and the United States, while life insurance business was up 15% to £1.5bn.

Analysts said that the results were in line with expectations, but the news had already been priced into the company's shares.

"We still think the good news is discounted in the share price," said Charles Landa, analyst at SG Securities.

Royal & Sun shares have outperformed the wider UK market by about 13 percent this year.

Big losses for CGNU

Earlier, CGNU, the UK's largest general insurer says it expects to pay out less than £200m in insurance claims to victims of this autumn's storms.

CGNU, which sells policies under the Norwich Union brand, said on Monday the level of claims would prompt a revision of premiums.

The firm will also reassess the threats involved in insuring homes in areas prone to flooding, taking into account the willingness of local authorities and the government to shore up sea and river defences.

"We are still trying to understand what the risk is," said Mr Scott after announcing a group pre-tax loss of £603m for the nine months to the end of September.

Safety net

While total payouts to victims of recent gales and floods are unlikely to exceed £200m, this did not mean claims might not exceed that figure the company said.

When claims rise above £75m, a loss-covering mechanism kicks in to limit the size of potential losses, a CGNU spokeswoman told BBC News Online.

"It is still too early to say what claims will be," the spokeswoman said. "Many people have not even returned to their homes yet."

Mr Scott said: " We don't have any estimate of those losses. What we can say is that we assess net exposure after reinsurance will not exceed £200m."

But the firm has admitted that the floods "will impact" on profitability for the last three months of the year.