Daily Telegraph27 Feb 2015 07:46
Sell RSA as the spring cleaning continues:
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”.
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