RSA returns to the black under new Boss Stephen Hester but shares drop as dividend disappoints: Insurer RSA heralded a return to profit under new Chief Executive Stephen Hester, by announcing it will pay a final dividend to shareholders after a year of restructuring, cost savings and disposals - in addition to putting its Middle East and Russian businesses on the block.
Stephen Hester’s spring clean at RSA is approaching its second spring, and the cobwebs are taking longer than expected to remove in many corners of the insurance business. The company formerly known as Royal & Sun Alliance returned to profit in 2014, after a loss and a whopping accounting hole in 2013, yet the value of new premiums written and investment returns were weak. RSA’s combined ratio came in at 98.8%, meaning the firm is only just squeezing out money from the insurance policies it writes, once claims have been paid and other expenses taken care of. While this is an improvement on 2013’s ratio of 99.4%, and suggests that the price war in U.K. insurance is becoming slightly less punishing on the companies involved, it means RSA is nevertheless a couple of good thunderstorms away from a loss in its core car and home insurance units. In forecasts published in December, analysts at Nomura said RSA was much more dependent on investment income than other general insurers, with 68% of its expected 2015 income coming from its portfolio rather than its premiums. Mr Hester is targeting returns on equity of between 12% and 15%, but for 2014 the reported figure was just 3.6%, and the target appears to have slipped into at least next year, along with meaningful dividend growth. However, there are signs of renewal within the business. RSA’s international businesses that remained after a slew of asset sales are performing well, with premiums in Scandinavia up 3% once currency movements are excluded. Last summer, Questor moved to a sell rating as Mr Hester’s balance sheet surgery delivered sluggish results. ‘s token dividend is not enough to tempt us back into the fray, not while the turnaround plan has so many hurdles still to clear. RSA at 429.1p. Questor says “Sell”.
I look at the developments since Hester took over and wonder about his end game. On the one hand he is cleaning up many issues such as capital and the cost base. On the other hand he is creating a sub scale international insurer with four distinct and largely unrelated operations (UK/Ireland, Scandi, Canada, Latin America). Unfortunately only Scandi looks to have the one feature which can overcome lack of scale, superior underwriting skills. To this can be added some remaining problems hinted at in the results, most specifically questions about the strength of reserves. A statement that they retain a 5% margin is barely consistent with 2014 movements and setting a future expectation of 1% prior year releases in future. At best it suggest reserves are just adequate but not comparable in strength with major competitors.
So what else can he do? The obvious way of realising shareholder value would be to put the core businesses on the block and break up RSA. Scandi would fetch a decent price as a major player in a consistently profitable market. The UK and Canada would be attractive to other majors looking to build scale in those markets and Latin America is flavour of the month for the likes of Allianz.
I would not hesitate to get into RSA if I thought Hester was open to all options to maximise shareholder value. At the moment I lack that confidence. He seems to believe you can be a sub scale player long term.
How very very nice to hear from my favourite Scottish wee prickly thing, long time no speak. Hope all is well and that you portfolio is positively blooming now that the FTSE has decided to reach record highs and test 7,000 after being in the doldrums for 15 years!!!!! ATB.
my 'waiting for a miracle' drawer has collapsed under the weight! lol.that many lost count, feels more like dead and buried The drop brought me here! But after reading your post not for me at this time. ATB
I feel your pain. This has been a poorly performing share over the years but as I own so few they have been consigned to my 'waiting for a miracle' drawer. Doubt they will ever return to their all-time of 628p in 03/99 - which with the 1 for 5 consolidation would now be £31.40!!!! But with a return to profit and the re-instatement of a 2p Final div you may be back in profit one day soon. ATB.
Feb 22 (Reuters) - RSA Insurance Group Chief Executive Stephen Hester is set to unveil a deeper cost-cutting plan at the London-based general insurance provider as it works to turn around its business, the Financial Times reported.
RSA, which according to the report had earlier set a cost-saving target in excess of 180 million pounds ($277.09 million), will be updating the market on its progress on Thursday, RSA spokeswoman Louise Shield said in an emailed statement.
Hester is likely to unveil a more explicit, increased expense reduction target when he presents RSA's full-year results this week, the Financial Times report said, citing people familiar with the matter. (http://on.ft.com/1B3bOoX)
The company has hired consultants at McKinsey as its adviser for its cost-cutting initiatives, the report added.
RSA, best known for its More Than home and motor insurance brand, has been undergoing a series of restructuring initiatives after the firm was hit weather-related claims and an accounting scandal at its Irish unit in 2013.
Under the former Royal Bank of Scotland boss Hester, who was appointed in February 2014, the company has raised fresh capital and is selling non-core units and restructuring its business.
The firm's sell-off has included businesses in Asia, central Europe and Italy, with future disposals focusing on emerging markets other than Latin America.
Last week, the company said it had sold its 26 percent holding in Indian insurer Royal Sundaram Alliance Insurance Company for 46 million pounds in cash to its joint venture partner Sundaram Finance. ($1 = 0.6496 pounds) (Reporting by Zara Mascarenhas in Bengaluru; Editing by Tom Brown)
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