RSA Reports Reduced Interim Profit Amid Hester-Led Restructuring
(Alliance News Via Acquire Media NewsEdge) LONDON (Alliance News) - RSA Insurance Group PLC Thursday reported a substantial drop in first half pretax profit as Chief Executive Stephen Hester continues to implement his turnaround plans at the embattled FTSE 100 insurer.
RSA said it won't pay an interim dividend but said it is targeting a restart to payments at the end of the year.
RSA turned to Hester in February after a rise in claims and an accounting scandal at its Ireland operation led to an exodus of executives and a number of profit warnings that culminated in the insurer reporting a swing to a GBP244.0 million pretax loss for 2013, the scrapping of its dividend, and the launch of a GBP773.0 million rights issue to shore up its balance sheet.
Since then, Hester has been selling off non-core business in order to tighten up its areas of focus, with GBP591.0 million lined up from the agreed disposals of operations in the Baltics, Poland, Canada and China, with further disposals targeted over the next 12-18 months.
In a statement, RSA said it made a GBP45.0 million pretax profit in the six months ended June 30, compared with GBP240.0 million in the corresponding period last year.
The fall came as income declined to GBP4.30 billion from GBP4.53 billion, driven by an 8.8% reduction in gross written premiums and more premiums ceded to reinsurers. However, RSA said that the strengthening of sterling during the first half drove reported premiums down 16%.
Expenses fell to GBP4.20 billion from GBP4.22 billion, and Hester said the insurer is targeting more than GBP180.0 million gross annualised cost reductions over the next 3 years excluding disposals.
"While first half profits are modest, they reflect further balance sheet and reserve clean-up as well as above-normal weather costs. Underlying business trends, together with the actions outlined, are supportive of achieving the medium-term customer, capital and shareholder targets we have set," Hester said in a statement.
RSA reiterated its guidance of up to a 10% reduction in premiums during 2014, but cautioned that the strengthening of sterling during the first half likely means that the reduction on a reported exchange rate basis is likely to be greater. In addition, the insurer said written premiums are likely to fall further, but more modestly, in 2015, following its string of business disposals.
Nevertheless, RSA said it expects underwriting profit to improve in the second half of 2014 driven by further improvements in the current year underlying loss ratio, together with the benefit of the cost saving actions already taken. RSA reported a GBP2.0 million headline underwriting profit in the first half.
The insurer also noted that there will be gains as its disposals complete during the second half, but warned of further charges as it continues to restructure.
Shares were Thursday quoted down 1.9% at 435.60 pence, making the third biggest faller in the FTSE 100 index.
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