RSA reassures corporate buyers amid plans to shrink international footprint

Last week RSA reported a pre-tax loss of £244m for 2013, reflecting a £220m loss at its Irish business, write-downs on investments and weather claims. The loss was flagged up in a profit warning in November, which was accompanied by the departure of then Chief Executive Simon Lee. The financial and claims irregularities in Ireland, together with the write-down of goodwill, has left RSA's capital strained. As a result, RSA's new CEO, Stephen Hester, has been quick to stabilise RSA's finances. Last week, Mr Hester unveiled a comprehensive package of measures aimed at restoring the insurer's financial strength, including raising fresh capital, asset sales, re-underwriting and steps to reduce risk on the balance sheet.hideThe group has already started de-risking, having sold £460m of equities, increased reinsurance purchasing and reduced retentions for 2014. This included the purchase of an adverse development cover from Berkshire Hathaway for 2014 that covers Irish reserves and asbestos reserves, among other exposures. The headline measure aimed at boosting capital will see RSA go cap in hand to investors through a £775m rights issue and the disposal of assets. Investors will also be £150m out of pocket after RSA decided to cancel its 2013 dividend. Another key plank of Mr Hester's recovery plan will see RSA sell overseas units and take action to improve underwriting and reduce expenses. RSA has already begun selling units to the tune of £300m, with further disposals expected in 2014. The insurer has admitted that its geographical spread will reduce considerably over the next few years while disposals will see premium contract by around £300m in 2014. The re-underwriting exercises will also see RSA exit underperforming business and take 'aggressive' rating actions where required. Mr Hester told analysis last week that RSA will now focus on the core markets of UK and Ireland, Scandinavia, Canada and Latin America. Operations in Europe, central and eastern Europe, the Middle East and Asia are now under review, said Mr Hester. Despite the big changes, RSA says that it should be business as usual for its large corporate clients, at least those in the core markets. "There really is no difference for our corporate/large commercial business in our core markets following last week's announcement," an RSA spokesman told CRE this week. "We will continue to take action on specific portfolios where we can't make sustainable returns, but this is business as usual and no different to the approach we have been taking over the last few years." The spokesman said that large corporate clients and brokers will hopefully be reassured by the measures announced last week to boost finances and the response of Standard & Poor's, which upgraded the financial strength rating of RSA to A with a stable outlook. "Together these should provide reassurance to our brokers and clients regarding the financial position of the group," the spokesman said. One area that will concern corporate clients, especially those with overseas interests, will be RSA's decision to reduce its global footprint, although the insurer does operate a global network with partner insurers. "We will work to ensure that any disposals do not have an impact on our multinational clients," the spokesman said. "We already have a large and successful network of global partners and where we do withdraw from a market we will ensure that our network is in place to support this area," he said. RSA's pre-tax loss of £244m in 2013 compared with a £427m profit in 2012. In addition to the well-publicised losses in RSA's Irish business, the 2013 result was also hit by impairment of goodwill charges of £110m for businesses in Poland and Argentina, as well as a £221m write-down on a UK software investment that failed to produce expected benefits. RSA also suffered above average weather losses in 2013. While catastrophe losses worldwide in 2013 were relatively low, weather claims for RSA at £293m were £52m above the long-term average of 2009-13. The insurer has since increased its weather loss assumptions in line with recent experience. The weather claims were mostly related to floods and windstorms in the UK and Canada. RSA reported a net loss of £44m from the floods in Alberta and £38m from floods in Toronto, while two European windstorms and UK floods in December cost the insurer £83m. Despite its difficulties, RSA said that its underlying business had performed well in 2013. Net written premiums increased 3% to £8.7bn in 2013 while its combined ratio was 99.6% in 2013. The insurer said that rates had increased by an average of 3% across the group, with 4% increases in Scandinavia, 3% in the UK, 2% in Canada and 1% in emerging markets. However, premium volume decreased 6% in the UK and 4% in Scandinavia as RSA took underwriting action to improve profit in these locations.

RSA reassures corporate buyers amid plans to shrink international footprint

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