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Royal Sun Alliance (RSA), the UK's second-largest provider of commercial insurance, has reported a five per cent increase in its annual operating profit, exceeding forecasts at £780 million.

The insurance group said in a trading statement that the performance mirrored an improved underwriting result and lower central expenses, offset by a reduced investment result.

Net written premiums increased by three per cent to £5.5 billion over the year, while the group's underwriting result was up by 18 per cent to £310 million.

Nonetheless, RSA acknowledged that profits after tax from continuing operations were down from £635 million in 2005 to £479 million in the 12 months to December 31st, a figure which includes £216 million from the recent change to UK pension schemes and the disposal of Rothschild Investment, the group's former Japanese operation.

RSA also reported a loss following the sale of its US operation to Arrowpoint Capital, in a deal which was completed earlier this week.

The group said that the write down of the US and the trading loss for the year totalled £484 million before tax.

However, RSA chief executive Andy Haste, stressed that the completion of the US sale resolved the insurers' "last remaining legacy issue".

"Our portfolio of businesses is strong, we are growing profitably in our target trades and we are well positioned to continue delivering sustainable profitable performance," he said.

He added that the group expected to deliver a combined operating ratio, the benchmark used to measure costs and claims as a percentage of premiums, of less than 95 per cent for 2007, with anything below 100 per cent representing a profit for the group.

His comments came after RSA's operating ratio for 2006 improved slightly to 93.3 per cent, compared to 94.1 per cent in 2005.

Mr Haste said that as a reflection of RSA's confidence in the earnings of the group and its "capital strength", the insurer was announcing a 35 per cent increase in the final dividend to 4.12p, bringing the total dividend for the year to 5.87p – a rise of 24 per cent on last year.