Royal Insurance Holdings plc

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Royal Insurance Holdings plc

1 Cornhill
London EC3V 3QR
United Kingdom
(071) 283-4300
Fax: (071) 623-5282

Public Company
Incorporated: 1988 as Trushelfco Plc
Employees: 20,000
Assets: £9.99 billion (US$16.13 billion)
Stock Exchange: London

The Royal Insurance Company—now Royal Insurance plc—was formed in the United Kingdom in 1845. With six principal operating companies, it is one of the world’s largest general and life insurance companies. The parent company of the group is Royal Insurance Holdings, which was formed in 1988 and controls 264 subsidiary and 27 associated companies. The operating companies, Royal UK, Royal USA, Royal International, Royal Canada, Royal Re, and Royal Life Holdings, have a major presence in the United Kingdom, United States, Canada, the Netherlands and elsewhere in Europe, Central America, South America, Africa, the Middle East, and the Pacific Rim. The Royal writes almost all classes of insurance, on everything from personal belongings to industrial complexes. At the end of 1989 the group’s capital and reserves had increased to £2.66 billion, and total premium income for the year had risen 19% to £4.74 billion.

In 1989 the most important of the operating companies in terms of net premium income were Royal USA and Royal UK. Royal USA has a wide presence in the United States and writes most types of property and casualty insurance. The commercial market provides the largest share of premium income. Royal UK is one of Britain’s leading general insurance companies in terms of premium income, with domestic insurance providing over one-third of all premium income. Royal Life Holdings was established in 1979. It is the specialist life and financial services arm of the group and has also expanded into estate agency, or real estate, and unit trust management. Royal International is responsible for the development of the group’s direct, non-life business throughout the world, other than in North America and the United Kingdom. In the late 1980s it decided to concentrate on pursuing opportunities in the Pacific Rim.

Royal Canada is based in Toronto and operates in all provinces via a network of local offices and independent insurance brokers. It specializes in personal motor insurance.

Royal Re, based in London, is owned partially by the German insurer Aachen & Munich. It is one of the largest professional reinsurance companies in the U.K., writing business in over 80 countries. It concentrates on reinsurance of property.

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 immediatley 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 have had 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.

An enduring characteristic of the Royal has 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% 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.

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 over-capacity 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% 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 market place, 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. In October 1987 the Royal became the first British insurance company to seek a full listing for its shares on the New York Stock Exchange but this did not materialize. In early 1989, the U.S. Maccabees Life Insurance Company was acquired by the group.

In 1987 the new managing director, Peter Duerden, instigated a new four-year reorganization program for Royal Insurance (UK) called Operation Staying Ahead. Company representatives and a team of management consultants completely overhauled the personal insurance, commercial insurance, organizational and personal resources, and electronic systems of the company, in order to make it more responsive to developments in the market, particularly those caused by the revolution prompted by the 1986 Financial Services Act. Changes involved the replacement of the old system of 60 administrative branches with 12 area branches, each accountable for its own profit figures. Product marketing was henceforth to be fused with product development. Increased training was to be made available to staff, after it had been reassessed. Finally, over £20 million was to be spent on computer systems.

Severe operating difficulties in the U.K. market in the early 1980s caused pretax profits to drop from £132 million in 1979 to £11 million in 1984. In that year the Royal announced a strategy to expand its long-term life and pensions operations, both overseas and in the U.K. To do this effectively the group acquired Lloyds Life Assurance in June 1985. The acquisition of this company, renamed Royal Heritage Life, put the Royal among the top-ten largest life companies in the U.K. Taking advantage of the changes in the market prompted by the 1986 Financial Services Act, the company moved from its core business into estate agencies and related services, and unit trusts. Interests in over 810 U.K. estate agencies were purchased from 1985, and three new unit trusts were set up in 1987, putting the Royal among the top 20 U.K. managers by the size of its funds.

Innovation continued on a different front. In 1987, the Royal announced an agreement to sponsor the Royal Shakespeare Company (RSC) by providing £1.1 million over three years. This would enable the RSC to undertake an annual tour of major U.K. cities. At that time this was the biggest single sum committed by a commercial company to an arts organization in the United Kingdom.

The creation of a single European market in 1992 will provide U.K. insurance companies with a major opportunity and a major challenge. Life insurance in the United Kingdom is substantially cheaper than in other EEC countries—commercial fire and theft insurance in Italy, for example, is 245% more expensive. In 1989 the group set up a small life company in Spain, and also signed an agreement with the Fondiaria Group of Italy to acquire a 90% stake in Lloyd Itálico, a company to be formed from a general insurance operating division within the Fondiaria Group, the remaining 10% being retained by Italia, a Fondiaria subsidiary. An agreement was also signed with Assurances Generales de France, the second-largest French insurer, for development of their respective businesses. The immediate challenge for all U.K. insurers is to establish distribution networks to take full advantage of the opportunities in continental Europe.