With a commitment to Canada and positive financial results, Royal & SunAlliance Canada is “open for business,” states a confident Rowan Saunders, the new president of the company. The property and casualty insurer is leaving its catastrophic underwriting losses in the distant horizon, and has a positive outlook for 2004.
“Last year, Royal & SunAlliance (RSA) was completing a turnaround and we were returning the business to profitability. And after a lot of hard work, we have been successful in repositioning the business and returning to profitability,” says Mr. Saunders.
When The Insurance Journal sat down last year with RSA’s past president, Larry Simmons, the insurer had disappointing year-end financial results. In the results, published by French reinsurer SCOR, RSA posted staggering underwriting losses of $106,145 million in 2001 and $187,096 in 2002.
Focus on underwriting
However, it managed to cut its losses by more than half in 2003, with a loss of $57,669 million compared to $187,096 million in 2002.
Furthermore, while the top insurers’ expense ratios tended to rise, RSA decreased its expense ratio from 30.52% in 2002 to 28.79% in 2003, a change of 5.67%.
As well, it decreased its loss ratio by 9.78% from 84.25% in 2002 to 76.01% in 2003, which topped the industry’s average of 6.17% decrease.
Mr. Saunders attributes the underwriting losses of previous years to unprofitable lines of business, which the insurer has now exited. “They were highly capital intensive lines of business. As well, we reduced our share in unprofitable territories and product lines. We also focused very heavily on moving to the appropriate territories and product lines. We invested heavily in underwriting expertise and training and we changed our operating processes and generally put much more focus on solid underwriting and claims practices and procedures.”
Focus on profit
The results helped its overall net after tax income to return to black ink. In 2002, it had an after tax loss of $55,418, but jumped to a positive $71,196 in 2003, a difference of $126,614 million. In comparison, ING Canada – the top P&C insurer in 2003 – increased its net profit by $142,029 million, but ING had almost $2 billion more in direct premiums written (see table).
RSA also has plans to improve its return on equity (ROE). The insurer’s goal last year was to reach 15% ROE by the end of 2004. Mr. Saunders explains it currently stands at 7.9%, and its goal is 12.5% in the upcoming years. Though Mr. Saunders could not comment on the amount of premiums he would like to obtain in 2004, he says that RSA expects to produce an underwriting profit.
“There is a significant year-over-year improvement and we are on the right track,” highlights Mr. Saunders.
Lines the insurer exited include long-haul trucking, exposure in the Ontario and Atlantic Canada automobile market and the personal lines market in Quebec.
“The personal lines in Quebec (sold to Aviva Canada) was a small portfolio that had expense challenges and our view on the marketplace is that it was a highly concentrated market that would have taken a big investment on our behalf.”
He adds, “There are no immediate plans to return to personal lines in Quebec; our focus in that province is developing our thriving commercial insurance. We’ve been spending time building market share and expertise particularly in construction and manufacturing distribution areas.”
Focus on commercial
The insurer is also concentrating on commercial insurance on a national scope. “For 2004, one of our objectives is to adjust the balance of the portfolio and to increase the commercial lines percentage of the overall portfolio,” stresses Mr. Saunders.
This year, RSA plans to concentrate on three specific business units in commercial lines, small business, middle market (custom risks) and specialty markets. “We have been communicating a very clear underwriting appetite within those segments and that is really what we are rolling out this year in achieving growth in those areas,” emphasises Mr. Saunders.
He highlights, “It is clearly our view to be a market leader in our chosen segments. I think that is one of the main differences of RSA of the past and RSA going forward is that [RSA is] no longer an undifferentiated generalist. We have reshaped the business and we will be focusing on being a non-generalist insurer, especially specializing in certain segments.” These segments include construction and manufacturing, marine business, and boiler and machinery.
Focus on Canada
RSA also has plans to concentrate on the Canadian market. Last year, Canada made up six per cent of the total group’s business. Mr. Saunders explains that it has now entered into the low double digits of the group’s global business.
“In September 2003, our group announced a reshaping of the organization and they announced that we will be an international player. We will be focusing in on three territories. They include; the United Kingdom, Scandinavia and Canada.”
He adds, “Not only is it a big component of our overall total, but we have been making some major investments in the Canadian marketplace as we complete our transition.”
Mr. Saunders states that RSA has a strong franchise in the Canadian marketplace. “We are a well recognized brand, we have a great distribution channel, and it is also our belief that the Canadian marketplace is an attractive place to do business. In the last years, we had challenges particularly around the automobile product, but we are optimistic about the future of the regulated automobile industry and feel that in a highly fragmented marketplace like Canada, our business model will allow us to generate profitable returns.”
Focus on returns
RSA is also working very closely with the government to make reforms to the automobile segment. Mr. Saunders recently joined the Insurance Bureau of Canada’s board of directors. He explains that it will give him the opportunity to influence automobile reforms.
“The current Liberal government has recently passed several initiatives to address that issue, but we still believe that there needs to be some typing around the bodily injury definitions and that it is important to slow the claims inflation trend in Ontario. Very recently – in the first quarter of this year we have adjusted our rates and have reflected the cost-savings.”
In Alberta, the insurer is still in intensive negotiations with the government to refine an appropriate insurance product and system.