Royal & Sun Alliance Insurance Group plc - Company Profile, Information, Business Description, History, Background Information on Royal & Sun Alliance Insurance Group plc

30 Berkeley Square
London W1J 6EW
United Kingdom

Company Perspectives:

Our business purpose: to help our customers around the world protect themselves against the risks they face in their businesses and daily lives by providing insurance and investment related solutions to meet their individual needs as we have done for nearly 300 years.

History of Royal & Sun Alliance Insurance Group plc

Royal & Sun Alliance Insurance Group plc (RSA) is one of the largest insurance companies based in the United Kingdom. The group concentrates primarily on property and casualty insurance (including automobile and homeowner's insurance) for both individuals and businesses, a sector in which the group holds one of the top positions worldwide. Other RSA operations include risk management and claims administration services, life insurance, pension products, annuities, and mutual funds. Approximately 40 percent of the group's 2002 premium income was generated in the United Kingdom; 31 percent in the Americas; 19 percent in Europe, the Middle East, and Africa; and 10 percent in the Asia-Pacific region. Royal & Sun Alliance is the product of the 1996 merger of Royal Insurance Holdings plc and Sun Alliance Group plc, both of which were themselves the creations of previous amalgamations.

Sun Alliance Group: The Sun

Of the 1996 merger partners, the one with the deeper history was Sun Alliance Group. It represented the amalgamation of four separate British insurance operations, three of them companies and one a chartered corporation. All of them were prominent in the development of the British insurance industry. The most senior of the four, the Sun Insurance Office, retained its separate identity for almost 250 years until its 1959 merger with the most junior, the Alliance Assurance Company, founded in 1824. The other two members of the combination, the London Assurance Corporation and the Phoenix Assurance Company, date from 1720 and 1782, respectively.

The Sun Fire Office, as it was originally known, was founded in 1710. Its founder was the eccentric Charles Povey, whose interest in astronomy may have influenced his choice of name. Financial considerations caused Povey to sell his interests in the concern to the 24 members of the Company of London Insurers in 1710. Thereafter Povey exercised no official control over the infant Sun Fire Office.

The Sun's first decade gave little intimation of its future size and significance. A disparate and shifting body of managers, in the main lacking significant City connections (the City being the London equivalent of Wall Street), coupled with a limited number of staff and types of transactions, held back development. From about 1720, however, there occurred a series of events that were to help set the Sun firmly in the forefront of London's fire offices: a complete reorganization of the firm's capital structure; the appointment of the first of a series of able and honest men to the two principal positions of treasurer and secretary--Colonel Robert Dalzell and Thomas Watts; and a restructuring of the Sun's management.

Control of the Sun's affairs had originally been confined to two bodies--the general meeting of managers and, of more practical importance, the Committee of Management appointed from among them. From about 1720, the latter body took the important step of appointing subcommittees to conduct and report on particular aspects of the office's business. By about 1730 there were four of these, each controlled by a manager and staffed by clerks. These subcommittees were the ancestors of the Sun's modern departmental system.

The Sun's managers were powerful, as shareholders exercised no control over their activities and were not permitted to see accounts, a state of affairs then typical of most British insurance companies and not remedied until the end of the 19th century.

The managers themselves underwent transformation during the decades after 1720. From this date we find them to be men of education, real ability, and social distinction, linked with Parliament, the City, the landed aristocracy, and, later in the century, with those entrepreneurs and magnates who engineered the world's first industrial revolution. One such Sun official, William Hamilton--manager from 1809 to 1859, treasurer from 1846 to 1852--recovered the Rosetta Stone from the French in 1801, and in the next year saved the Elgin Marbles from shipwreck.

The period from 1720 to 1790 was one of rapid expansion. By 1786 the Sun had a private firefighting force and over 120 agents in the provinces. By 1790 it could claim a dominant position among the nation's insurance companies, with a gross premium income of over £100,000, much larger than that of its rivals, the Phoenix and Royal Exchange. The four decades that followed, however, were a time of stagnation. By the 1780s, risks had grown extremely complex, actual rates of loss had soared, and established offices, such as the Sun and the London, considered it necessary to raise premium levels again and again, especially on the extremely high-risk mills and distilleries that lined the River Thames in London and had begun to spring up across the land.

This situation was exploited fully by the numerous new insurance ventures that had been founded in response to the country's growing need for insurance services and that now began to offer discounted rates. This led to a destructive rate war, which put many offices out of business altogether and depressed the industry until the 1830s. One such new company, the Phoenix Assurance, set up in 1782 and soon to become an important rival, was acquired by the Sun much later, in 1984.

The Sun survived by entering new types of business and expanding into new geographical areas. Thus 1810 saw the establishment of Sun Life Assurance, and 1836, the creation of a special foreign department to handle foreign business.

The Sun's first foreign ventures were into Europe, initially the Baltic seaboard cities of Germany, later into France and Spain. The experiment met with mixed results--hostility from local insurance companies and the obstructive actions of governmental bureaucracies proved almost as damaging as the disastrous Hamburg fire of 1842 that cost the Sun £117,000 and almost succeeded in driving it from the Continent entirely.

The Sun turned instead to the more promising territories of the British Empire, and over the next 60 years set up agencies in virtually every British colony or dominion. The massive U.S. market was successfully penetrated when the Sun acquired the Watertown Insurance Company of New Jersey in 1882. The Chicago and Boston fires of 1871 and 1872, but more especially the San Francisco disaster of 1906--which cost the Sun £333,000--enabled the Sun to display its solidity and trustworthiness to an admiring American public.

Perhaps because of the cautious nature of its management the Sun had lagged behind its rivals, notably the Phoenix, in establishing foreign operations. It led the way, however, in organizing the major British fire offices in the 1840s into the Association of Tariff Offices, whose function was to prevent a repetition of the rate wars of previous decades.

One perhaps unintended result of the Sun's foreign exposure was its recognition of the need for formal statutes and publicly accessible accounts. These were achieved, in 1891, by the passing of the Sun Insurance Office Act, by which name the Sun Fire Office became known until its merger with the Alliance Assurance Company in 1959.

In 1907 the Sun set up an accident department, reflecting the growth of this type of insurance in the dawning age of mass transport and machines. The department grew rapidly in size, particularly after 1945 when a far greater general level of affluence significantly increased the number of vehicles on British roads.

The outbreak of World War I in 1914 had comparatively little direct influence on the financial position of the Sun because it, in common with most other British insurers, excepted war risks from its coverage. This did not mean it escaped the war years unscathed--naturally a large number of its staff served in the nation's armed services, and a fire at Salonika, Greece, in 1917 caused losses amounting to nearly £300,000. The straitened years of the Depression caused the Sun--and the British insurance industry in general--a reduction in the growth of premium income and an increase in the rate of default on policies, indicating the financial difficulties facing both private individuals and commercial enterprises.

The Sun had entered the field of marine insurance in 1921 and sought, both by its 1931 acquisition of the Elder's Insurance Company of Liverpool and its 1938 agreement with the Royal Exchange to operate a joint marine underwriting account, to establish itself in a field still dominated by the London.

The coming of World War II in 1939 posed no serious financial threat to the Sun, although once again the company lost a large number of its staff to the armed services. Nevertheless, the exigencies of total war demanded, as they had not in World War I, the temporary removal of the Sun's operations from London to the greater safety of the countryside.

In the 1920s, the Sun had several times reorganized its U.S. operations and this process continued in the 1950s, finally resulting in 1958 in a common management structure in the United States for its own operations and for those of the Royal Exchange Assurance and the Atlas Assurance Company.

Sun Alliance Group: The London

The expansion of British trade in the first decades of the 18th century revealed inherent weaknesses in the extant system of maritime insurance in London. In 1719 a wealthy City merchant named Sir James Lambert, goldsmith and banker Stephen Ram, and broker Philip Helbut, floated the idea of a new marine insurance operation.

A subscription was opened for what was initially known as Ram's Insurance and under the patronage of Lord Chetwynd a petition was presented to King George I arguing that Case Billingsley's concurrent petition for an exclusive charter for maritime business represented an unfair attempt to monopolize marine insurance. Billingsley, a solicitor, had been instrumental in the founding of Lord Onslow's Insurance in 1718, subsequently to become the Royal Exchange Assurance Corporation.

At the same time Lambert and Ram--Helbut by this time having dropped out--persuaded James Colebrook, who had also established a subscription for an insurance company, to unite with them, and all three repetitioned the king. The attorney general decided that neither petition should be rewarded with a charter, and there matters might have rested had not the government made known its requirement for £600,000 for the Civil List--a public fund to support the royal household--whereupon Lambert and Ram each offered £300,000 for a charter. In June 1720 Lord Chetwynd's Insurance was incorporated under the name of the London Assurance Corporation. The transaction of marine insurance was made exclusive to it and to its slightly senior rival, the Royal Exchange Assurance Corporation.

Business began in a City coffeehouse under a governor, two deputies, and a court of directors. The London became associated in the public mind with those numerous ludicrous or fraudulent enterprises that together constituted the notorious South Sea Bubble of 1720, the collapse of which in the autumn of that year ruined thousands of speculators.

The London, distancing itself as best it could from official suspicion, realized that in the chaotic circumstances following the crash it could not keep to the original schedule of payments for its charter, and boldly--and successfully--sought 50 percent remission of the sum. Thus the London survived the perilous days of its infancy. By the end of that tumultuous year marine underwriting was in full swing.

Until the acts of 1806 and 1811 prohibiting the insurance of slave ships and their cargoes, it was a matter of course for those operating in the notorious triangle trade between Britain, West Africa, and the Americas to insure their vessels with City insurers, and the London became heavily involved in this business. As well as covering against shipwreck and "insurrection of negroes," the London also offered insurance against loss due to piracy. Claims for the latter were frequent in the 18th century because of Britain's almost continuous state of war with one or another of the European powers. Between 1744 and 1746 the London hosted the Commission for the Distribution of Reprizals, a body that sought to reimburse shipowners who had genuinely suffered loss at the hands of French or Spanish warships. Despite such circumstances, the London also insured large numbers of foreign vessels, principally Spanish and Portuguese.

The fortunes of the London were not exclusively anchored to the success of maritime business. From the beginning, Lord Chetwynd and the directors had envisaged the London's engagement in the fire insurance business, no doubt stimulated by the example of the Sun Fire Office, set up barely ten years before. Consequently the directors sought and secured another charter in 1721 that empowered the London to underwrite fire business. Almost immediately agents were appointed in all parts of the kingdom. The London followed the Sun in setting up its own corps of firefighters. Curiously, the London set up no agencies for marine business in the major ports until 1829 when its Liverpool agent was instructed to handle this business too.

Like the Sun, the London arrived relatively late in the appointment of foreign representation, partly because business in the core area of marine insurance tended to gravitate toward the City. Not until 1853 were overseas agents appointed, but in that year alone, ten appeared in the Far East, India, and at the Cape of Good Hope. In the next three decades representation spread to South America, Japan, and Australasia. The first U.S. agency for fire business was set up in 1872, followed by a marine operation four years later. By 1881, the London had reached San Francisco and six years later Chicago. This process of foreign expansion had been initiated by J.C. Powell during his governorship, between 1822 and 1846. Powell also carried out a reform of the corporation's internal structure in the 1830s. Powell had a distinguished predecessor in Alexander Aubert, governor from 1787 to 1805, a fellow of the Royal Society, and a noted astronomer.

One of the earliest major losses involving the London was the destruction of its own premises in Cornhill Street in 1748. Losses exceeded premium income threefold and the years to the end of the century were ones of slow recovery. A steady rise in premiums during the 19th century was once again offset by the San Francisco disaster of 1906, which cost the London the then huge sum of £966,750.

The London was also notable during the late 18th and early 19th centuries for the size and frequency of donations it considered patriotic. It voted £200 towards the cost of suppressing the 1797 mutiny in the fleet and £500 toward the relief of dependents of British casualties of the 1815 Waterloo campaign.

In 1824 the Alliance Assurance Company succeeded in having the act of 1720, limiting the transaction of marine insurance to the London and Royal Exchange, repealed despite very considerable opposition from the two corporations. The next ten years were a period of declining profitability for the London. One of its responses was to consolidate its position by a series of mergers and acquisitions, beginning with the Commercial & General Life Assurance Company in 1853 and followed by the Asylum Life Assurance Company four years later. The year 1853 also saw the amalgamation of the Ship and Fire charters by special act of Parliament.

Life insurance for the London, although it had begun as far back as 1721, remained quiescent until the early decades of the 19th century, in contrast to the energetic efforts being made at the Pelican Life Assurance. One reason for this was the London's tardiness in applying the principles of actuarial science to its operations. Consequently, it was not until after 1945 that life premiums exceeded £1 million.

The opening decade of the 20th century was one of slow growth for the London, but World War I stimulated its marine business enormously, with premium income reaching a peak in 1917. The extremely conservative nature of the corporation was modified during the war by its having to employ women on the staff for the first time. The fast rate of expansion in the interwar period--characterized especially by the acquisition or establishment of several large operations in Australasia and the United States--produced a general restructuring of the London's management system that split responsibility for home and foreign business and resulted in 1932 in the appointment of the corporation's first general manager.

The Depression, which had begun three years earlier, naturally reduced the rate of growth of premium income and this remained at a comparatively low level until the outbreak of World War II in 1939. The London's directors appear to have regarded the Munich crisis of 1938 as clear warning of the imminence of war and they decided to evacuate the majority of the corporation's staff from London to the greater safety of Somerset and Buckinghamshire, where they remained for the duration of the war and indeed for two years afterward. Once again, under the stimulus of wartime conditions, the London saw its marine business grow rapidly, reaching a high in 1942 at over £2.5 million in premium income, although by this time its fire business had outstripped marine business in size. Although damaged during the blitz of 1940, the London's City headquarters remained structurally intact, so the corporation faced few of the housing difficulties experienced by other less fortunate firms.

Despite an 1891 act of Parliament granting the London the right to conduct accident insurance, it did not, like the other major insurance companies, seriously consider the subject until the passing of the Workmen's Compensation Act of 1906. This stimulated the London, as it did the others, to enter the field in 1907. In the next 50 years accident business grew rapidly, outstripping life in premium income by the 1950s, to rank third behind marine and fire.

Sun Alliance Group: The Phoenix

The punishing premiums levied by the Sun, the London, and the Royal Exchange on the mills and distilleries in the last decades of the 18th century caused a group of "sugarbakers," or distillers, led by the forceful and influential Nathaniel Jarman, to set up its own fire office in 1782, simply and appropriately called the New Fire Office until 1813, when it became the Phoenix Assurance Company.

The New Fire Office provided the first serious competition in the fire business for the veteran offices. Significantly the Sun, most affected by the arrival of this new competitor, early on decided on a policy of limited cooperation with the Phoenix, an unusual measure testifying to the success of the Phoenix's policy of offering discounted premiums if the insured also took out further insurances with the company.

The Phoenix's survival and growth depended at least as much upon the energy and intelligence of its senior management. Notable in this respect were George Griffin Stone-Street, secretary from 1786 to 1802, and his successor Jenkin Jones, secretary from 1802 to 1837. Under their guidance the Phoenix weathered the depression in the insurance industry in the late 18th century and early decades of the 19th century. By 1815 the Phoenix had overtaken the Sun in premium income.

This period also saw the Phoenix establish the Pelican Life Assurance in 1797, acquire several large provincial operations, set up agencies across Britain, and, perhaps most importantly, penetrate the European market from the Baltic Sea to the Iberian Peninsula. Simultaneously the Phoenix established itself in Canada--in Montreal in 1804--although the War of 1812 and the burning of Washington, D.C., by British troops put an end to its first operation in the United States.

These early foreign ventures are indicative of the Phoenix's foremost place in the overseas expansion of British insurance companies. The middle decades of the 19th century were costly for the Phoenix. In the Hamburg fire of 1842 it lost £250,000, more than twice as much as its rival, the Sun, a loss that hit it nearly as hard as did the disastrous 1807 fire at St. Thomas in the Virgin Islands.

The directors of the Phoenix, viewing their widely spread foreign risks, might have used such disasters as good reason for contracting or closing down some of the numerous foreign liabilities. Instead, largely through the farsighted advocacy of Jenkin Jones, they chose to reaffirm their commitment to the foreign enterprises. The wisdom of retaining foreign risks became apparent two generations later when, by the early years of the 20th century, foreign business began to outstrip home earnings.

These decades and the three that followed saw the establishment of agencies in the Far East, the Cape of Good Hope, Australasia, Eastern Europe, and the eastern Mediterranean. In 1879 a New York operation was once again set up, replacing the reinsurance work that the Phoenix had undertaken for other British offices up to that point. The San Francisco disaster of 1906 affected the Phoenix particularly badly--initially, there were doubts about its capacity to survive its liabilities--but, like the other Sun Group companies, the Phoenix settled with an alacrity and generosity that impressed the Americans. Although business in the last two decades of the 19th century was relatively stagnant, legally the era was one of significance for the Phoenix. The 1895 Phoenix Assurance Company Act enabled the Phoenix to add life and accident business to its operations--a provision it chose not to exploit until 1907--and placed the company on a modern footing by requiring it to publish its accounts. In 1901 the Phoenix became a limited liability company.

Until 1907 the Phoenix dealt solely with fire insurance, although it enlarged itself periodically by the acquisition of smaller fire insurance companies. In that year the Phoenix reabsorbed its own offspring, Pelican Life Assurance, at that time known as the Pelican and British Empire Life Office, and thus began its career as a composite insurer. Life business further expanded with the 1909 acquisition of the highly respected Law Life Assurance Society. In 1910 the Phoenix entered marine insurance with the purchase of the Union Marine.

Although the 1906 Workmen's Compensation Act had persuaded the Phoenix to move tentatively into accident insurance, it was not until the 1922 acquisition of the important London Guarantee and Accident Company, with its U.S. interests, that the Phoenix fully established itself in this type of business.

World War I proved financially costly for the company. The Treaty of Versailles failed to provide for the return of the Phoenix's German interests confiscated at the outbreak of hostilities. At a stroke, the Phoenix lost about 7 percent of its total fire premiums. Compounding this loss was the abrupt disappearance of its Russian business as the newly created U.S.S.R. canceled all foreign undertakings in the former Russian Empire. Similarly, the aftereffects of the collapse of the Ottoman Empire and the destruction wrought by the Greco-Turkish War of 1922 destroyed the Phoenix's position in Turkey. The Phoenix's entry into the expanding aviation insurance market in 1931 helped to offset the effects of the Depression, although it was not until the arrival of jet airliners in the 1950s that the Phoenix appointed its first full-time aviation underwriter. The interwar years were also characterized by the setting-up of branch offices to replace the numerous agencies established during the previous century. E.B. Fergusson, managing director from 1939 to 1957, used the years of World War II as an opportunity to make a series of worldwide journeys, setting up new operations in territories hitherto unexplored by the Phoenix, for example in Ethiopia, Persia--now Iran--and Palestine. The two decades after 1945 were sometimes frustrating for the Phoenix, as newly independent countries either nationalized the Phoenix's operations or, by bureaucratic obfuscation and corruption, rendered them unprofitable. In the home market, in North America, and in Australasia, however, the Phoenix recorded high levels of growth in this period, particularly through the successful marketing of new multiperil property insurance policies that began to replace the straight fire policies common until then.

In 1959 a major rearrangement of the company's capital base took place, increasing authorized capital to £5 million. Nine years later the Continental Insurance Company of New York, the second largest insurance company in the United States, bought one and a half million Phoenix shares, and the two companies pooled senior management and U.S. operations. By this move, the Phoenix sought to increase its capital yet again for expansion into other areas of insurance. Continental benefited from the Phoenix's long established representation in the Commonwealth and the Far East.

The next decade and a half were years of comparative hardships for Britain and for the Phoenix. By the early 1980s senior management had become disillusioned with the performance of the Continental pool, and in 1984 the Phoenix disposed of its 6.25 percent share. Continental simultaneously sold its 24.3 percent shareholding in the Phoenix to the Sun Alliance.

Sun Alliance Group: The Alliance

Despite the depressed conditions in the British insurance industry in the first 30 years of the 19th century, in 1824 two prominent City financiers, Sir Moses Montefiore and Nathan Mayer Rothschild, decided to set up a new insurance company distinguished by a larger share capital and a more influential board than any existing operation. They invited three other men eminent in the spheres of commerce and finance to become copresidents--Samuel Guerney, member of Parliament John Irving, and Francis Baring of the powerful Baring banking family. The subscribed capital was huge by the standards of the time--£5 million divided into 50,000 shares--a measure of the reputation of the founders. The new firm, called the Alliance Assurance Company, was endowed from its inception with a range of contacts and influence in financial and political affairs as well as a capitalization that made it the equal of the already veteran Sun, the London, and the Royal Exchange. The Alliance's first actuary was Benjamin Gompertz, a fellow of the Royal Society, writer of important works on statistical analysis, and a founder of the Institute of Actuaries.

Without delay, the directors proceeded to the appointment of provincial and foreign agents and by 1825 the Alliance had representation in New York, Quebec, Montreal, and the Indian subcontinent. The Alliance's North American ventures proved unsuccessful. It closed its U.S. operation in 1826 and, after a series of fires in Quebec and Montreal, withdrew from Canada in 1850. Not until the final decades of the century did the Alliance reestablish itself in North America.

The checkered history of the Alliance's North American operations was shared by the majority of British insurance companies that tried to enter that lucrative but risky market. The Alliance, however, was unusual in the speed and ruthlessness with which it shut down agencies. After the San Francisco earthquake and fire, which cost it £690,000, the Alliance decided to withdraw from the Pacific coast altogether. This readiness to close, open, and close again was explained by the Alliance's directors as a policy of concentration on quality rather than on quantity of representation.

The Alliance was principally notable for its expansion through the acquisition of established London, provincial, and dominion insurance companies. This process of acquisition began in the 1840s and continued unabated into the first decades of the 20th century, chiefly under the capable leadership of Robert Lewis, managing director from 1912 to 1917, who had begun his insurance career with the Provincial Insurance Company in 1853. The Provincial Insurance Company soon afterward was acquired by the Alliance. Until its 1959 merger with the Sun Insurance Office, the most significant acquisitions were those of the Imperial Fire and Imperial Life companies in 1902.

Already a composite insurance company in that it offered both fire and life insurance from its founding, the Alliance nevertheless had great trouble entering the field of marine insurance. In 1824, on behalf of the Alliance, member of Parliament William Huskisson--a former Sun manager--proposed a bill for the repeal of the 1720 Act which restricted the underwriting of marine business to the Royal Exchange and the London. Huskisson, who later achieved the melancholy distinction of being the first person ever killed by a railway engine, pushed the bill successfully through Parliament, but an Alliance shareholder countered by obtaining an injunction restraining the Alliance from taking on marine business. The Alliance's way out of this impasse was to set up a separate new company, the Alliance Marine, whose shares it finally managed to acquire in 1905.

In common with the other Sun Alliance companies, the Alliance entered the accident business in 1907. It managed to do this, unusually, without needing to acquire an already established accident operation.

Creation of the Sun Alliance Group: 1959-89

The conjunction of these four insurance bodies into the Sun Alliance Insurance Ltd. and the London Insurance Company, predecessor to the Sun Alliance Group, was essentially a result of the post-World War II trend toward the formation of ever larger units in industry and commerce. The Alliance was the first to merge with the Sun Insurance Office, in 1959. The new holding company, called the Sun Alliance Insurance, acquired all the shares in the two operations.

A larger merger, with the London, followed six years later, creating a new group called the Sun Alliance and London Insurance plc. In January 1989 the group changed its name to Sun Alliance Group plc. The years immediately following the London merger were dominated by the process of integrating the diverse operations of the new group, and by the formation of a central head office administration. The introduction of new types of fire and life coverage and the elimination of unprofitable businesses helped offset the losses that inflation, gathering pace in Britain in the 1970s, the stock market crash of 1974, and the severe drought of 1976, inflicted on the group.

Sun Alliance entered the 1980s with a comfortable asset base, a very high solvency margin--125 percent in 1984--and the ambition to become one of the strongest composite insurance companies in the United Kingdom. All this seemed to point to the Sun Alliance's expansion through a major acquisition. Still, the announcement in July 1984 of its £400 million bid for the remaining equity of the Phoenix Assurance--a price that many analysts considered low, perhaps reflecting the Phoenix's troubled financial state in the preceding years--took the British insurance industry by surprise. Other analysts saw the move as an attempt to make the Sun Alliance safe from foreign predators, expressing surprise that it had not gone for a major U.S. acquisition, to build up its presence in the world's largest insurance market and to forestall any aggressive moves by a U.S. company.

Sun Alliance's initial equity holding in Phoenix had been 24.3 percent, bought from Continental as the price of Phoenix's withdrawal from Continental's pool. This deal marked the first step in a process of disengagement from Continental that ended in 1988 with the selling of Phoenix's Canadian subsidiaries to Continental in exchange for a 75 percent stake in the French Groupe Barthelmey. There followed a period of restructuring as the Sun Alliance digested its huge purchase, especially with regard to the Phoenix's wide foreign representation. A long-running inter-union dispute resulted, because Phoenix staff belonged to a different union than that of Sun Alliance's employees, and Sun Alliance wanted all its staff to belong to one union.

Despite the estimated £155 million that the group lost in the October 1987 hurricane, which devastated parts of southern England--the Sun Alliance still retained a very high share of the U.K. property insurance market--it nevertheless pursued a policy of expansion into new areas of insurance by the careful acquisition of operations already successfully established in the field, two such purchases being First Health, a leader in the area of medical expenses insurance, and Bradford Pennine, a specialist motor subsidiary. The later incorporation of the new holding company, Sun Alliance Group plc, in January 1989, enabling the group to move into non-insurance business, was firm evidence of the company's intention to expand further--by moving into financial services.

Pre-Merger Developments at Sun Alliance: 1989-96

In August 1989, Sun Alliance raised its shareholding in rival Commercial Union plc to 14.5 percent at a cost of £256 million. Sun Alliance explained this move as a defensive measure to prevent a large European insurer--rumored by some analysts to be Allianz of Germany--from gaining a major foothold in the U.K. insurance market. Other analysts, however, remembering Sun Alliance's methods during its successful 1984 bid for the Phoenix, chose to interpret this as a first step toward another protective acquisition and the creation of a giant U.K. composite capable of withstanding a hostile takeover attempt by any foreign predator. This did not prove to be the case, however, as Sun Alliance sold nearly all of its stake by September 1992, booking a profit of about £280 million in the process.

Sun Alliance's results for 1989 were impressive, despite a 14 percent fall in pretax profits from the 1988 figure. The Financial Times called it the United Kingdom's "highest quality financial company," and noted its continuing underlying asset strength and high solvency margin of 119 percent. This was the result of the Sun Alliance's determined defense of its money-making areas, for example U.K. property insurance, and its portfolio of high quality investments.

In the early 1990s, Sun Alliance's fortunes--along with those of the other large British insurers--took a turn for the worse. The global economic downturn, the severely depressed U.K. housing market, bad weather, and a cyclical downturn in the global insurance market coalesced to batter Sun Alliance and the other composite insurers (those that sell both property and casualty and life insurance). Sun Alliance suffered a further blow from its 25 percent share of the domestic mortgage insurance market, which was hit hard by high levels of home repossessions resulting from the poor economy. Sun Alliance posted pretax losses for each of the first three years of the decade--£180.9 million, £466.2 million, and £129.6 million, respectively.

To stem the losses, cost-cutting initiatives were launched, including the elimination of 400 jobs from the company's individual nonlife insurance operations in the United Kingdom in 1991 and another 800 job cuts the following year, along with the elimination of 39 smaller branch outlets. In addition to the sale of its stake in Commercial Union, Sun Alliance made further reductions in its portfolio of equity holdings in 1992: selling its 8 percent stake in London and Manchester, a life insurance group, and reducing its stake in U.S. property and insurance company Chubb Corporation from 9 percent to 5 percent (Chubb also simultaneously reduced its 9 percent cross-holding in Sun Alliance to about 3 percent).

Sun Alliance also completed a string of strategic moves during this period. In 1992 the company merged its nonlife insurance operations in Australia with those of Royal Insurance to form the fourth largest general insurer in Australia, in which Sun held a 60 percent stake. Sun Alliance paid £140 million in 1993 for the insurance and banking subsidiaries of Hafnia, a troubled Danish insurance firm. This deal, which was completed through Codan A/S, a subsidiary 71 percent owned by Sun Alliance, created the largest business-oriented general insurer in Denmark through the combined operations of Hafnia and Codan. Finally, in January 1994 Sun Alliance sold its Canadian property and casualty operations to Royal Insurance, which in turn sold its New Zealand fire and casualty business to Sun Alliance. The latter was the number three general insurance company in New Zealand.

Although continuing to suffer losses from its domestic mortgage insurance operation, Sun Alliance returned to the black in 1993, reporting a sharp turnaround to a pretax profit of £221.7 million. The company stayed profitable for the next two years, setting the stage for the merger with Royal Insurance. In the later months of 1995, Sun Alliance sold Wm. H. McGee & Co. Inc., a U.S.-based underwriting agency subsidiary.

Early History of the Royal

The Royal Insurance Company was established in the major commercial center of Liverpool on May 31, 1845, to provide insurance coverage "... against the risk of loss or damage by fire or by storm or by other casualty ..." on all types of property, and to provide life insurance and annuities. The capital of the company was £2 million, divided into 100,000 shares of £20. Under the leadership of Percy Dove, the first manager and actuary, who had joined the company from the Royal Exchange Assurance, the company immediately embarked on a policy of expansion, taking advantage at home of the fact that from 1853 life insurance premiums became permissible deductions from tax liabilities at all income levels. Overseas widespread industrialization brought with it an increase in the value of property worth insuring and in the income available to insure it.

In the United Kingdom, in marked contrast to its older rivals, the Royal undertook a deliberate policy of aggressive advertising, spending from £20,000 to £30,000 annually to place advertisements in magazines, reviews, railway stations, and public places. By way of contrast, the Pelican Insurance Company was at the same time spending £375 annually on 1,500 railway posters.

Expansion overseas began immediately, and by 1850 agencies had been established in Australia, Canada, Singapore, and South America. The company's operations in the United States, which would have a major effect on its financial position, began in 1851 when the first agency was opened in New York. Baltimore, Maryland; Philadelphia, Pennsylvania; Savannah, Georgia; and Charleston, South Carolina, each had an agency by the end of the year. By the time the company arrived in San Francisco in April 1853, agencies had been established in a total of ten U.S. cities. The U.S. insurance market expanded rapidly as new forms of insurance were devised to meet widening demands, particularly those of businesses. Employers' liability insurance was first introduced in 1885 and automobile liability in 1898. By 1915, blanket bonds of many kinds were being offered to provide comprehensive protection for business and financial institutions. By 1901, the Royal was the leading British company in the U.S. insurance market.

Although beaten to the West Coast of the United States by the Liverpool and London Fire and Life Insurance Company, the Royal was far more adventurous in its policy of overseas expansion than most of its rivals. In the 1850s, it was one of three British companies to establish agencies in Melbourne, Australia. Ten years later, the number of British offices in Australia had risen to ten. By 1863, the Royal and the Sun Fire Office were the only companies offering insurance in the commercial center of Smyrna, Turkey. By the early 1880s, 16 British and six foreign offices were represented there. Not all overseas expansion prospered, however. The company incurred heavy losses from fierce competition in Italy in the 1870s and political instability forced it to withdraw altogether from Spain in 1877. Despite these difficulties, by the end of the 19th century the Royal was one of Britain's greatest exporters of insurance.

Royal's Acquisition of Liverpool and London and Globe: Early 20th Century

An enduring characteristic of the Royal had been its growth through mergers and acquisitions. In 1891 the company absorbed the Queen Insurance Company by exchange of shares. The chairman of the Queen told shareholders that they were to be admitted into partnership with a company second to none in the world, which possessed a magnificent, safe, and progressive business. Ten years later, the Kent Fire, the United Kent Fire, and the Lancashire (fire and life) insurance companies had all been acquired. When the British and Foreign Marine and the British Engine companies were added a few years later, the Royal was in a position to write all classes of nonlife insurance and life insurance. The only exception to this was industrial life business, whereby premiums are collected by a representative of the insurance company, on a weekly, fortnightly, or monthly basis. In 1919, the biggest merger in British insurance history took place when the Royal acquired the enormously successful Liverpool and London and Globe Insurance Company. The latter was established in Liverpool in 1836 as the Liverpool Fire and Life Insurance Company and had risen to an eminent position principally through acquisition. In 1847 it purchased the business of the London, Edinburgh and Dublin Insurance Company and in 1864 it merged with the long-established Globe Insurance Company. The Royal and the Liverpool and London and Globe were the major provincial insurance companies of the late 19th century. The Liverpool had a greater share of the British and colonial markets than the Royal.

The merger of the Royal and the Liverpool was part of a wider trend that gathered pace in the early 20th century, toward the establishment of large composite insurance companies. A major impetus for this trend was provided by the Workmen's Compensation Act of 1906, which extended employers' liability to all workers and provided the opportunity for insurance companies to offer a wider range of services.

Throughout the next 40 years, the Royal expanded its operations both at home and overseas. The number of branches increased from 70 in 1920 to 217 in Britain and Ireland in 1960, 175 in the United States, and 94 branches and offices and an extensive network of agencies elsewhere. In 1951 the company celebrated the centenary of its involvement in the United States. Chairman Colonel Alan Todd remarked that the company had every reason to feel proud of the leading position it occupied in that country. Progress was maintained in all the leading insurance markets. Experience in China provided the only exception: in 1950, after over 100 years' presence, the Royal decided to withdraw.

A new wave of acquisitions began in 1961, when the Royal took over the London and Lancashire Insurance Company to achieve greater economy and efficiency of operations throughout the world. In Canada, two insurance companies, the Western Assurance Company and the British American Insurance Company, were acquired. By the end of the 1960s the Royal, with the greatest total fire and accident premium income, headed the "Big Four" insurance group, followed by Commercial Union, General Accident, and Guardian Royal Exchange.

The 1970s saw further expansion overseas. In 1975 the Royal became the first foreign company for 25 years to be licensed to write business in Japan, and in 1977 it acquired a 20 percent stake in the German insurer Aachen & Munich. Pretax profits continued to rise until 1979. The company identified a number of factors contributing to the fall: an abnormally high level of weather losses, particularly in the United Kingdom, the United States, and the Caribbean; rapid inflation; the strength of sterling against most of the world's currencies; and increases in burglary, vandalism, and arson.

Extensive Restructuring of the Royal: 1980s

The 1980s saw extensive corporate restructuring of the Royal Insurance group. In 1981, two divisions, the general overseas division and the life division, were incorporated as Royal Insurance (Int) Ltd. and Royal Life Insurance Ltd., respectively. Both were to operate as separate companies. The engineering, marine, and aviation businesses were integrated into the appropriate operating companies, and worldwide operations were divided into eight profit centers, all in the form of separately incorporated companies with their own capital and reserves.

Throughout the 1980s, fluctuations in the overseas insurance markets had serious repercussions on the Royal's financial position. In the early 1980s the industry as a whole complained of overcapacity at a time of worldwide economic recession. The Royal cut back its operations in Australia and Canada in 1983 after suffering severe losses, and in 1985 withdrew from workers' compensation in Australia after that business had been nationalized in some states. By 1988 Australia was producing excellent results both in terms of higher insurance profits and premium growth.

Expansion in the United States continued in 1982, when the group acquired the Milbank Insurance Company and a year later the Missouri-based Silvey Corporation and American Overseas Holdings. At this point the United States was the Royal's largest single market, representing 41 percent of its worldwide general insurance premiums. Soaring underwriting losses in 1984 due to severe competition caused the company to increase rates in the United States to restructure the organization to make it more responsive to the needs of the marketplace, and to cut back on expenditure by relocating the head office from New York to Charlotte, North Carolina. This remedial action proved successful as the group recorded a steady recovery in U.S. business from 1985 until 1989, when profits were hit by the effects of Hurricane Hugo, the San Francisco earthquake, and strong competition. A loss of £98 million in 1989 prompted a major strategy review by the company.

The Royal ended the 1980s by creating a new holding company, Royal Insurance Holdings plc, for the group's various operations. The holding company structure was designed to facilitate the moves into non-insurance sectors. The decade closed on a dismal note for the Royal, as pretax profits fell 43 percent as a result of Hurricane Hugo, earthquakes in San Francisco and Australia, and subsidence losses in the United Kingdom.

Difficulties for the Royal: Early 1990s

The Royal was battered in the early 1990s by a combination of forces: the global recession, the severely depressed U.K. housing market, bad weather, and a cyclical downturn in the global insurance market. The housing downturn wreaked havoc on the Royal's expansion into real estate agencies, and the Royal, like Sun Alliance, was a market leader in the domestic mortgage insurance sector, leading to heavy claims resulting from property repossessions. For the first time in its nearly 150-year history, the Royal fell into the red, posting a pretax loss of £187 million ($360.9 million) for 1990. The following year was even worse: a £373 million ($660 million) pretax loss; as part of a cost-saving initiative to improve the group's financial position, there was no final dividend payment that year. The Royal was in the red again in 1992 before returning to profitability.

During this bleak period, a number of steps were taken to cut costs and improve the balance sheet. As part of a broad reorganization, 600 jobs were eliminated from the group's U.K. life insurance operations in late 1991. A number of noncore assets were identified for disposal, including the group's 80 percent stake in the Royal Re reinsurance subsidiary. In April 1991 the Royal reached an agreement to sell the stake to General Re Corporation, but the deal fell apart a few months later. Instead, in February 1993 the Royal announced that it would begin winding down the operations of Royal Re. In December 1991 the Royal raised £249 million from the sale of its stake in Aachen & Munich. Early the following year another £110 million was gained from the sale of the Royal's Dutch operations to Epic, a newly formed joint venture in which the Royal owned a one-third share. In 1992 the Royal merged its nonlife insurance operations in Australia with those of Sun Alliance, taking a 40 percent stake in the newly formed company. Approximately £400 million in cash was raised through a rights issue completed in 1993. Early the following year, the Royal sold its New Zealand fire and casualty business to Sun Alliance. At the same time, the group acquired the Canadian property and casualty operations of Sun Alliance, marking the Royal's first overseas purchase in five years. Most of these moves were spearheaded by Richard Gamble, who had taken over as chief operating officer in early 1991 and then was named chief executive at the beginning of 1992.

Emergence of Royal & Sun Alliance in Late 1990s

In July 1996 the U.K. insurance industry was rocked by the merger of Sun Alliance Group plc and Royal Insurance Holdings plc, a merger that created Royal & Sun Alliance Insurance Group plc (RSA). The new group started off as the largest composite insurance company in the United Kingdom, with a market share of about 16 percent. RSA was also the seventh largest U.K. life insurer. Based on combined 1995 figures, RSA had worldwide premium income of £9.39 billion ($14.1 billion) and pretax profits of £1.03 billion ($1.5 billion). The merger was anticipated to result in savings of £175 million ($262.5 million) per year by 1998 from cost cutting and consolidation, including the dismissal of about 5,000 employees from the initial combined workforce of 45,000. A similar amount, however, would be spent on merger and reorganization expenses. Gamble was named chief executive of the new group, while Roger Taylor, who had been Sun Alliance's chief executive, became executive deputy chairman. The chairman of Sun Alliance, Christopher Benson, initially took the position of nonexecutive chairman, but he was succeeded by Patrick Gillam in March 1997. Gillam, former managing director of the British Petroleum Company plc, was also chairman of Standard Chartered PLC, a U.K. bank.

One of the main rationales behind the merger was that the combined group would be better positioned to pursue overseas growth opportunities. In fact, from its formation, RSA focused on transforming itself "from a U.K. insurer with overseas operations into a global enterprise headquartered in the United Kingdom." An acquisition spree was soon launched, leading in late 1996 and 1997, to the completion of several deals, the largest helping to bolster the group's fairly small presence in continental Europe. In mid-1997 RSA bought the Italian life insurance and pensions business of Prudential Corporation plc for £46 million. Royal & Sun also purchased the Johnson Corporation, a Canadian life and health insurance company, and paid £75 million in November 1997 for a 40 percent stake in Compañia de Seguros de Vida La Construcción, a Chilean life insurer (two years later, the stake was increased to 51 percent). Late in 1997 RSA announced a shake-up of its boardroom structure, which some analysts had criticized as being cumbersome and confusing. Gamble left the company, while Taylor relinquished his executive responsibilities but stayed onboard as nonexecutive deputy chairman. Robert Mendelsohn, a U.S. citizen who had been in charge of RSA's American operations--and before that had been credited with turning around the fortunes of the Royal's U.S. unit--was named sole chief executive.

During 1998 Royal & Sun became one of the top life insurers in New Zealand through two additional acquisitions: the New Zealand life insurance and investment business of Norwich Union, bought for £53.7 million, and the New Zealand life operation of Guardian Royal Exchange Plc, purchased for £97.6 million. Early the following year, RSA entered into the bidding for the entirety of Guardian Royal, a U.K. composite insurer, but the takeover battle was won by French insurance giant AXA. Also in 1998, RSA became the first British insurer to return to China when it was awarded a potentially lucrative license to begin selling insurance in that huge and rapidly growing market.

Dramatically increasing its appetite, RSA spent a total of £1.82 billion ($2.64 billion) on acquisitions during 1999, completing three major purchases. In May the company acquired Tyndall Australia Limited, a provider of life insurance and retirement and money management services; the purchase made RSA the fourth largest insurance group in the Australasian region. In August the acquisition of the Swedish firm Trygg-Hansa Försäkrings AB, Publikt was completed through Royal & Sun's 72 percent-owned Danish subsidiary, Codan A/S. Trygg-Hansa held the number four position in Sweden in property and casualty insurance. The third major 1999 purchase--Orion Capital Corporation--came in the United States and was consummated in November. Acquired for about £900 million ($1.4 billion), Orion, based in Farmington, Connecticut, was a nonlife insurer focusing on specialty products such as nonstandard automobile insurance; professional liability insurance for engineers, architects, and environmental consultants; and workers' compensation insurance. These specialty areas were attractive because they generated higher margins than general property and casualty business. The deal doubled Royal & Sun's U.S. business to about $3 billion in premiums, making it one of the top 25 U.S. property and casualty insurers. The latter two deals highlighted a recent shift away from life insurance and toward nonlife insurance operations; with the purchase of Orion, nonlife insurance comprised more than three-quarters of RSA's total business.

At the same time that this acquisition spree was underway, Royal & Sun Alliance sought to offload loss-making businesses to shore up the group's finances and improve profits. During 1999, for example, the group sold its U.S. life insurance operations to Swiss Reinsurance Company and also divested its direct automobile insurance operations in France and Germany. Despite these and other disposals, operating profits fell 39 percent in 1998 and another 5.9 percent the next year.

Fighting for Survival in the Early 21st Century

The news from RSA grew even grimmer in the early 21st century. Operating profits fell another 17 percent in 2000 to £462 million. Still more disposals followed in 2001, including the bulk of the group's operations in Italy and Spain as well as its Canadian life insurance unit. Then the destruction of New York's World Trade Center on September 11, 2001, led to £215 million ($300 million) in losses for RSA. The firm also increased its provisions for losses by £371 million to cover potential asbestos-related claims. As a result, operating profits for 2001 plunged to £16 million, while volatility in global stock markets led to large losses from the group's investment portfolio and resulted in a net pretax loss of £1.25 billion.

The embattled Mendelsohn had to contend with a plunging share price and rampant rumors of an impending takeover in addition to the challenge of turning the group's fortunes around. He announced that several more businesses were being placed on the auction block, including the life insurance and asset management businesses in both the United Kingdom and Australia and New Zealand, in a renewed effort to improve the balance sheet. In July 2002 the U.K. asset management unit arm was sold to ISIS Asset Management for £240 million. That same month, Royal & Sun's Isle of Man-based life insurance subsidiary and its entire Benelux operation were also sold off. One month later, unable to sell its U.K. life insurance business, RSA announced that the unit would stop writing new policies and 1,200 jobs would be cut from its workforce. At the same time, Mendelsohn announced that the company was considering implementing a rights issue to garner itself the additional capital it needed; this news sent the company stock plunging 21 percent. Later in the month, the Financial Services Authority, regulator of the City, fined Royal & Sun a record £1.35 million for mis-selling pensions. With the group's troubles snowballing, the board of directors ousted Mendelsohn in September 2002. Bob Gunn, who had been group operating officer, was named acting chief executive.

In November 2002 RSA revealed a radical plan of action for survival. The group would eliminate more than 12,000 employees from the payroll and close down or sell off a number of businesses. Unable to find a buyer for the Australasian operations, RSA said that it would spin off that business through an IPO scheduled for 2003. Early in 2003, in advance of the planned IPO, the Australasian businesses were reorganized under the name Promina Group Limited. In December 2002 RSA completed the sale of the group's German subsidiary, Securitas, to Baloise, a Swiss insurance firm. Also that month, Andy Haste was named group chief executive, having previously been the head of AXA Sun Life, the U.K. life insurance arm of AXA. John Napier was named to succeed Gillam as chairman, an appointment that took effect in March 2003. Napier was simultaneously serving as chairman of Kelda Group Plc, a U.K. water group. It was now up to Haste and Napier to see the group's survival plan through.

Principal Subsidiaries: Royal International Holdings plc; Royal & Sun Alliance Insurance plc; British Aviation Insurance Company Ltd. (57.1%); FirstAssist Group Ltd.; The Globe Insurance Company Ltd.; Legal Protection Group Holdings Ltd.; The London Assurance; The Marine Insurance Company Ltd.; Phoenix Assurance plc; Royal International Insurance Holdings Ltd.; Royal & Sun Alliance Reinsurance Ltd.; Royal & Sun Alliance Property Services Ltd.; Royal & Sun Alliance Life & Pensions Ltd.; Royal & Sun Alliance Linked Insurances Ltd.; RSA E-Holdings Ltd.; Sun Alliance and London Insurance plc; Sun Alliance and London Assurance Company Ltd.; Royal & Sun Alliance Life Holdings Ltd.; Sun Insurance Office Ltd.; Royal & Sun Alliance Seguros (Argentina) SA; RSA Marketing (Latin America) SA (Argentina); Promina Group Limited (Australia); Royal & Sun Alliance Seguros (Brasil) SA (Brazil); Roins Financial Services Ltd. (Canada); Compagnie d'Assurance du Quebec (Canada; 99.8%); The Johnson Corporation (Canada); Royal & Sun Alliance Insurance Company of Canada; Western Assurance Company (Canada); Royal & Sun Alliance Seguros (Chile) SA (97.5%); Compañia de Seguros de Vida La Construcción (Chile; 51%); Royal & Sun Alliance Seguros (Colombia) SA (86.3%); Royal & Sun Alliance Seguros de Vida (Colombia) SA (86.3%); Codan A/S (Denmark; 71.7%); Codan Forsikring A/S (Denmark; 71.7%); A/S Forsikringsselskabet Codan Liv (Denmark, 71.7%); Insurance Corporation of Channel Islands Ltd. (Guernsey); Royal & Sun Alliance Insurance (Hong Kong) Ltd.; Royal & Sun Alliance Eurolife Ltd. (Ireland); Tower Insurance Company Ltd. (Isle of Man); Royal & Sun Alliance Seguros (Mexico) SA; Royal & Sun Alliance Insurance (Antilles) NV (Netherlands Antilles; 51%); Royal & Sun Alliance--Seguros Fenix (Peru; 64.9%); Royal & Sun Alliance Insurance (Puerto Rico) Inc. (94.3%); Royal & Sun Alliance Insurance (Middle East) Limited E.C. (Saudi Arabia; 50.01%); Royal & Sun Alliance Insurance (Singapore) Ltd.; Trygg-Hansa Försäkrings AB, Publikt (Sweden; 71.7%); Royal & Sun Alliance USA, Inc.; Royal Indemnity Company (U.S.A.); Royal Insurance Company of America (U.S.A.); Orion Capital Corporation (U.S.A.); Security Insurance Company of Hartford (U.S.A.); Guaranty National Insurance Company (U.S.A.); Royal & Sun Alliance Sequros (Uruguay) SA; Royal & Sun Alliance Seguros (Venezuela) SA (99.4%).

Principal Competitors: ING Groep N.V.; AXA; Allianz AG; AEGON N.V.; Aviva plc; Prudential plc; Assicurazioni Generali SpA; Zurich Financial Services; Legal & General Group Plc.


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