The scale of the challenge facing Stephen Hester in trying to revive the fortunes of insurer RSA was underscored yesterday when it moved to shore up the finances of its troublesome Ireland business once again.
The latest strengthening of reserves in Ireland by RSA, which hired the ex-banker as chief executive this year following an accounting scandal in the country, contributed to a 72 per cent slump in first-half pretax profits at the insurer.
The former Royal Bank of Scotland chief has already undertaken a £775 million rights issue and disposed of a number of assets as he tries to rebuild RSA’s balance sheet following a series of problems, notably a past overstatement of profits in Ireland.
The early stages of the turnaround have gone down well with investors but shares in the FTSE 100 insurer closed 3 per cent lower at 430.5p when it published half-year results yesterday.
Restructuring costs totalled £117 million, including a £57 million writedown in Ireland. This pushed pretax profits down from £250 million a year ago to £69 million.
Mr Hester said in a statement: “As so often in restructuring situations, the ‘clean-up’ costs are proving higher than initially expected, but these are outweighed by gains on disposals which are well ahead of plan.”
RSA strengthened its reserves in Ireland by another £22 million during the first half.
Underwriting loss
The underwriting loss in the State came to £64 million. RSA is facing a fine in the low tens of millions of pounds from regulators investigating the events that led to the financial difficulties in Ireland.
The insurer, which operates as More Than in the UK, also strengthened reserves in its domestic market by £30 million to meet expected claims for worker hearing loss and professional indemnity policies. The sell-off came even though Mr Hester set out plans to reduce RSA’s annual cost base by £180 million, slightly more than the £150 million target investors had expected. Thomas Dorner, insurance analyst at Citi, said in a note there were “a number of disappointing features” in the results. He was particularly concerned about the continued deterioration in Ireland “given the multiple assurances that issues in Ireland had been resolved”.
Mr Hester, who has hired Ken Norgrove, an executive from Zurich Insurance, to revive the fortunes of the Ireland operation, said RSA’s goal was to return the business to profitability next year.
Retreats from various lines of business meant the group wrote 16 per cent less in premiums than a year ago, at £3.9 billion. Ignoring the hit from the strong pound, it declined 9 per cent. – Copyright The Financial Times Limited 2014
