4th Aug 2016 09:43
LONDON (Alliance News) - RSA Insurance Group PLC delivered a big rise in underwriting profit in the first half of 2016 and hiked its dividend, though it also booked larger-than-expected losses related to flooding in Europe and the wildfires which hit Alberta, Canada in May.
RSA shares were up 1.4% to 505.00 pence on Thursday, among the best blue-chip performers.
Improving underwriting profit has been a key component of the turnaround strategy for RSA under Chief Executive Stephen Hester, who was parachuted into the insurer in 2014 to return it to health after a black hole in its Irish accounts was found at the end of 2013. Hester is the former CEO of Royal Bank of Scotland Group PLC, the UK government-owned bank, and was in charge of RBS as it undertook an even-larger restructuring following its state bailout.
At RSA, Hester has pursued a series of asset disposals, but RSA said on Thursday that this process is now complete, with GBP1.20 billion in proceeds from the sales since 2014. This has included selling stakes in joint ventures in Russia and India and the sale of RSA's Latin American operations.
The other major push was to improve RSA's underwriting performance, and the insurer delivered on this in the first half of 2016. Underwriting profit for the first half increased to GBP119.0 million from GBP73.0 million, a 63% increase. This was driven by a 3.1 percentage point improvement in RSA's attritional loss ratio to 54.8% from 57.9%.
RSA's combined operating ratio, a key measure of underwriting profitability, was 94.3% at the end of June, compared to 96.4% a year earlier. A lower ratio means more profitable underwriting.
RSA said pretax profit for the half-year to the end of June was GBP148.0 million, just more than half the GBP288.0 million reported a year earlier, a period that had benefited from one-off disposal gains. Operating profit for the first half of 2016 rose 20% year-on-year to GBP312.0 million, however.
RSA declared an interim dividend of 5.0 pence per share, up 43% from 3.5p a year prior.
But RSA said it recorded a worse-than-expected GBP59.0 million in weather and large losses in the half, including claims related to the Alberta wildfire in Canada and for flooding in the UK and Europe in June. RSA said its reinsurance protection helped to limit the losses and will provide good downside protection for the second half.
The losses from the Alberta wildfire and flooding in Europe were in line with losses reported by blue-chip rival Aviva PLC on Thursday. These issues drove profit in Aviva's general insurance arm down 17% in the first half of 2016.
"In tough, competitive insurance markets and with significant financial market volatility, our results are even more satisfying. Particularly pleasing is the track record we are building of setting out plans and then achieving them in a high quality way," RSA's Hester said.
"We are not complacent. The external environment is tough. Brexit brings challenges yet to be fully clear. And our own ambitions call for substantial further performance improvements. One way or another we will have setbacks," Hester added.
However, Hester said RSA can continue to make excellent progress through keeping its focus on cutting costs and improving its underwriting performance. He said RSA is a "self-help" story and the insurer is "building credentials" in achieving this.
RSA said its Solvency II coverage ratio was 158% at the end of June compared to 143% at the end of December 2015. This is towards the upper end of RSA's 130% to 160% guidance and includes benefits from the sale of the Latin American business and pension de-risking by the company.
By Sam Unsted; [email protected]; @SamUAtAlliance
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