Royal pulls out of reinsurance market
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Your support makes all the difference.ROYAL Insurance is withdrawing from reinsurance after suffering continuing losses from an 'unprecedented number' of natural catastrophes.
The move comes 18 months after Royal failed to agree terms to sell its reinsurance business to General Reinsurance Corporation of the US, one of the world's largest reinsurers. Roy Randall, Royal's spokesman, agreed that, in retrospect, Royal would have done better to have accepted the price offered by General Re. At the time, City analysts estimated Royal Re to be worth up to pounds 100m.
Royal's gradual withdrawal will leave Prudential as the only British insurer with a large involvement in reinsurance. Mercantile and General, Prudential's reinsurance company, has also suffered heavy losses on its general business, whose future remains open to question.
Reinsurance companies provide insurance to insurers. Royal Re employs about 250 people and writes about pounds 180m of premiums a year. Royal was unable to estimate how many redundancies will be necessary; it expects many staff to be offered jobs within the group.
During the January renewals period, Royal Re has reduced the number of its customers and has stopped writing certain property reinsurances, satellite and aviation business and US reinsurance based in London.
Kevin Ryan, insurance analyst at Panmure Gordon, said Royal had recognised over the last six months that it could not find a buyer for the reinsurance arm and had decided to wind it down slowly.
Mr Ryan said a gradual withdrawal will enable Royal to avoid immediately having to set aside substantial provisions to cover future run-off claims. He expects the financial impact of the withdrawal to be negligible.
To aid the withdrawal, Royal has bought the 20 per cent minority stake in Royal Re previously owned by Aachen Re.
Royal Global, the subsidiary that deals with multinational corporate customers, will be given the opportunity to 'cherry pick' the parts of Royal Re's book that it finds attractive.
Royal Re lost pounds 41m in the first nine months of last year. It has since suffered further losses arising from the hurricanes Andrew and Iniki and from the additional claims from earlier catastrophes. Mr Randall said that when it became clear how bad Royal Re's results were, '(Richard) Gamble, (Royal's chief executive,) said 'enough is enough'.
Royal shares fell 9p to 267p yesterday.
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