Royal & Sun asbestos payouts

1999: �23m 2000: �20m 2001: �36m (est)

And it warned of payouts of up to �371m to a rising tide of claimants who have contracted diseases related to asbestos exposure.

The claims provision, including the Enron figure, will wipe out profits for 2001, Royal & Sun Alliance warned.

But the firm, which earned �476m in 2000, predicted that surging demand for insurance after the 11 September attacks and a string of natural disasters, plus higher policy prices and tighter claim conditions, would support future prosperity.

"Improvements in rate and terms and conditions... continue to be very strong," the firm said.

Shares in the firm stood 2p higher at 319p in lunchtime trade on Tuesday.

Payout threat

Royal & Sun warned of a "marked increase" in the number of asbestos claims lodged last year.

Although claims relate primarily to exposure decades ago - between the 1940s and 1980s in the US - the length of time asbestos-related diseases can take to appear will see claims continuing to arise for many years, Royal & Sun warned.

"The great majority of the provision is for claims which have not yet been notified, but which are expected to arise in future years from previous exposure to asbestos," Tuesday's statement said.

Mesothelioma, one disease caused by asbestos exposure, has a latent period of up to 40 years, the firm said.

'Baggage' discarded

But chief executive Bob Mendelsohn urged investors to credit Royal & Sun for coming clean over the asbestos risk.

"We have carried a significant amount of 'baggage' from the past, which hurt our reported earnings.

"Our actions today will reduce much of that burden and will enable us to move forward on a stronger footing."

Analysts at Credit Lyonnais, raising their rating on Royal & Sun shares, said: "There must be an element of relief that it is now all out in the open."

Perception change

Royal & Sun also told of a "fundamental" change in customers' views of risk following the 11 September attacks, and the storms which have beset much of the world in recent years.

The events have "strengthened their perceptions of the need for and value of insurance cover", the firm said.

"This in turn is leading to increased demand for our products."

With insurers keen to bolster claims provisions after recent disasters, Royal & Sun doubted an "early return to an era of extreme price competition".