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You gotta hope so. Terrible results. £338m loss, tangible assets only 45p a share, rights issue of 47% of NTA, £200m writeoff of UK IT, poor value reinsurance with Berkshire Hathaway, unclear outcome on reserves, rebased lower dividend after pass this time and 10% reduction in premiums in 2014. This draws a line. But hard to see why shares should be higher than 1.5x NTA = 67.5p
I agree with most of your points (except the 10% "profit" in the fixed cost element - but never mind - you and I are bothered about much bigger issues than that !). The reality with which Hester is now dealing is that this company has £10bn of gross premiums, £14bn of liabilities and c. £1.7bn of net tangible assets. His peers have between 35-70% NTA to net premium - so at sub 20% he is WOEFULLY undercapitalised - and the NTA/debt ratio is now dangerously high. He therefore HAS to inject new capital/jettison business/pass dividend - and even then will be lightly capitalised compared to peers - giving him little wiggle room going forward. And, as you say, that assumes his reserves are solid. Let's remember, the only "drains up" on reserves has been in Ireland - the rest of the review which will go into Thursday's results announcement will be KPMGs review of management's own numbers - NOT a fully independent review against best estimate. THE test on reserves is does the company feel comfy enough with them to declare (by LoB/territory/some granularity) a reserve redundancy % (over best estimate) as some peers do ? If they don't - we should not NOT assume that all capital issues "are off the table" (as they claimed 9th Jan they were seeking to do. Assuming they survive the 27th (and if the £800m has credence - I suspect you should look to the stock c. 80-85p) - then the real work for Hester begins. I agree on the COO point - and they have the PERFECT candidate internally - Rowan Saunders - a proper insurance-athlete - Hester needs to be helped past the lazy self-promotion that the Browns of this world peddle. The reality here is that this is a mid-sized player (market cap <1/10th Allianz) which runs like a big-bloated company. Hester needs to identify the competitive strengths of each business quickly (agree your price taking weakness point re places like Italy - but is RSA any better in the UK - a heavily broked market - RSA is not niche enough to seek fleeting profits, but too big/bloated to avoid business - as it hits the fixed costs) - set clear return hurdles based upon FULLY BAKED economics (true reserves, fair reserving - not the gaming that Haste indulged in, fully-loaded costs etc) and challenge managers to deliver or leave. While conducting that review, he should not be afraid of concluding that the UK is "broken" and needs major downsizing or sale. There are potential owners out there who would take a no prisoners approach to the UK and carve a £300-400m per annum profit out of that business - unlike the current jobsworths.
The post bemoaning possible lack of understanding on Canadian disposal - and does Hester understand insurance sufficiently refers. The agency business, viewed from London is 1. readily disposable 2. non-core - therefore it is a no brainer to pursue. Further, the idea that Canada's PBT could be impacted negative 10m from say 50m reduction in GWP betrays the real lack of understanding. I think Hester has enough nous to do the maths himself here. Let's give him some breathing space in terms of strategic action.
Apols - should be clearer - I meant sit tight in terms of buying more (mentally attuned as I have sold all at 120p post first profit warning) - there is a big capital shortfall here - they either plug through franchise-undermining activity (sales etc.) or through new funding. That new funding will come at a minimum 25% discount IMO - hence I think it wise to get out now and back in later.
the share price rise is surprising - on fundamentals, this IS due for a correction. They need capital urgently - they are down c. £1.2bn in capital buffer since 2009 - since when they have grown the business 30%. The solution is either retrenchment/capital raising. There is no wiggle room on debt - they already have 50% debt to equity. A capital raise of c. £1bn (enough to carry on as-is; secure a decent CEO and then sell pieces off at leisure) will likely be at a deep discount (65-75p my guess). That's likely to become clearer as we move into February - as they will need to asses appetite well before 27th Feb results day.
Never read such tosh in my life !! There are a handful of insurance investors who could mobilise the likely £5.5bn inc debt purchase price of the Group as a whole (Allianz, Ace, Zurich, NKSJ and Berkshire). Gallaghers market cap is just over £3.5bn - they are a broker - who are interested in owning more of the underwriting margin - through MGAs and MGUs. Libero - sense this is not your specialist subject ?!
1. He's resigned as he feels that to cooperate with what he feels is a flawed enquiry will leave him as the fall guy 2. Presumably he must feel that what his team did was defensible and consistent with Group policy (I have seen this before with insurance - there is a matter of good judgment in the accounting treatment of premiums and large losses eg. would you reserve the Twin Towers as one event or two - the owner argued two and tried to get paid twice, the insurers - including RSA - reserved for one) 3. But if he's resigned to clear his name, seems to make little sense for him to sit back and await the report - as it'll reach conclusion with little chance for him to comment - so I would expect him to share his version of events with the media - which could be interesting if PwC are still looking to take another month.....I sense their report timescales have just nudged forward a lot !! Bottom line, this is either 1. Rogue activity - outwith the policies of the Group (a la Leeson) 2. Local interpretation of policy whose outcome the Group now feels it cannot support and wants to correct - it costs £70m of earnings to do so and someone has to pay - and they are determined it will not be Lee or Brown I think we'll know soon. If 1 - then management can fight on; if 2 and their central controls are deemed at fault for not detecting it.....time for change
Doesn't look good that the man in Ireland resigns so as to be able to clear his name. Might suggest the "offence" is not as cut and dried as the company have inferred
Guys - this is not a vanilla stock whose value relies solely on dividend yield - it's a risk-taking insurer, capital intensive and highly regulated - your decisions need to be informed by fundamentals. The Group enjoys an outsized premium to net tangible assets (both absolute and relative to sector) as a function of its relatively better than peer returns on NTA and in recognition of prior management's excellent job 03-11 turning the business from serially accident-prone to reliable earnings-wise and careful bolt-on growth. Current management have this year carelessly lost this premium performance halo (the bungled dividend cut, the assymetric storm losses precipitating a profit warning - when the rest of the industry is posting record profits - and now a control failure costing 20% of PAT. Worse, they will not know the outcome of the Irish bodily injury reserving exercise until year end results are published in February. Anyone who listened to the conference call this morning will also have heard that their line on dividend maintenance was a "stock answer" - not one informed by rigorous scenario modelling - it was that the dividend policy remains unchanged - which of course it will be until it IS changed. Dividend cover is low based upon expected profits today BEFORE any further profits hit from Irish bodily injury. I am certain that they will do all in their power to avoid another cut - as that probably spells the end for Simon Lee - but they alone do not take the decisions here - as we've seen recently with Barclays and the Co-op; the regulatory tone is to kick a man while he's down right now. At 110p, these now trade at 1.83x NTA - a considerable premium to any peers. It's difficult to see any rational basis for upside - unless this stumble encourages a bid. Generali has been mentioned - v unlikely - they are deleveraging right now. It looks more attractive as a breakup candidate - but hard to see anyone stumping up more than 120p to get the whole - which is unlikely to be attractive to the long-funds - even though they are p*ssed off with events. Cue resentful stalemate.