by our stock market analyst Stewart Dalby dalbygray@cs.com

Bob Mendelsohn, chief executive of Royal & Sun Alliance, the UK's second largest general insurer, seems sanguine about recent storm and flood damages.

The company, which is partly based in Sussex, is thought to insure 16 per cent of British homes and Mendelsohn said the bad weather will cost the group between £80 and £100 million.

He is also reported to have said: "There is nothing like having your house washed away in a flood to make you want to buy insurance the next time around."

Perhaps he is relieved the damage will not be as great as the hurricane in 1987. It cost the group's predecessor companies £450 million.

Or may be he is secure in the knowledge that Royal & Sun, like all the other big direct insurers, will have arranged extensive reinsurance cover with the big European companies that limit their liabilities to around £75 million.

However, there will be some effect and this will affect RSA's recovery, which is already a slow business.

Results for the third quarter show that operating profits - the profit figure analysts look at for insurance - rose by nine per cent to £502 million in the nine months to September 30.

General insurance premiums rose by 19 per cent to £6.33 million. This was primarily due to acquisitions in the US and Scandinavia. Without these deals net-written premiums edged up by around one per cent.

According to Mendelsohn, there are signs of an upturn in the general insurance underwriting cycle.

There have been rate increases in all the group's main markets.

Mendelsohn said: "The strong and accelerating rate increases across the commercial lines we reported at the half year have continued.

"Year to date increases in the US are averaging more than 15 per cent and in Australia are running at around 20 per cent."

Like other insurance groups, RSA has a large war chest as the companies are cash generative and buoyant stock markets - until recently - have meant investment portfolios have done well.

The company has returned £750 million to shareholders, a special dividend and a share buy-back in the past year.

These moves are always popular and good for earnings per share. In an industry constantly consolidating, RSA has not discounted the possibility of further acquisitions.

On the other hand, one of its key indicators of recovery, the combined ratio - the industry measure of claims paid and costs as a percentage of premiums - is improving only marginally.

It was 107.2 per cent for the nine months to the end of September, compared to 108.2 per cent earlier in the year.

In the light of all the flood and storm damage, the target of 103 by next year, looks unlikely to be met.

The shares fell slightly on the results to 474p.