27th Feb 2014 16:27
LONDON (Alliance News) - RSA Insurance Group PLC Thursday reported a pretax loss and unveiled a plan to shore up its balance sheet and reduce its exposures through the combination of an underwritten equity raising, business and investment disposals, and a reinsurance contract with Warren Buffett's Berkshire Hathaway Inc, amongst other measures.
Chief Executive Stephen Hester, who joined the FTSE 100 insurer in early February, unveiled a GBP775 million underwritten rights issue, representing about 20% of its market value the day before earnings were published, as part of a wider "strategic action plan" that also includes a target to raise GBP300 million from business disposals in 2014, with potential for further such disposals in the coming years.
Hester told journalists the pricing of the underwritten rights issue is likely for "later in March", while two business disposals are already underway. He suggested it was "improbable" that the core businesses, UK & Ireland, Scandinavia, Canada and Latin America, would be sold off and declined to name the businesses that are up for sale to avoid disruption to them and their clients.
RSA said it has already sold the bulk of equities in its investment portfolio, worth some GBP460 million. RSA also scrapped its final dividend and said any dividend at the half-year would be "modest".
RSA reported a swing to a GBP244 million pretax loss for 2013, from a GBP448 million pretax profit in 2012. The insurer has been badly affected by a surge of weather-related claims because of severe flooding in parts of southern and south-west England, bad weather across Europe, and losses from an accounting scandal at its Irish business.
In response, RSA said Thursday it has taken out a reinsurance policy underwritten by Berkshire Hathaway that provides it with GBP550 million of cover.
RSA said the adverse development cover contract covers insurance liabilities in existence as recorded on the last day of 2012, with RSA retaining 20% of exposure to the liabilities. In January, RSA also agreed to sell and leaseback its Swedish headquarters, expecting to realise a GBP30 million profit from the transaction which is due to complete on March 31.
"RSA?s 2013 results are poor and we need to grasp the nettles of both underperformance and undercapitalisation. As part of this we intend to launch a rights issue to help ensure we have the appropriate level of capital behind the group. Together with a series of significant ?self-help? measures, we believe this will put the group?s capital in the right place for the future," Hester said in a statement.
But even though RSA has been hit by a number of setbacks recently, as well as increased regulatory capital requirements, Hester said the insurer's "inadequate capital position" had developed over time.
"It also reflects a business that over some years has become gradually undercapitalised and overleveraged," Hester said in a statement. "In the future, we intend to maintain stronger capital metrics targeting at least median comparable industry levels."
Hester, formerly the chief executive at Royal Bank of Scotland Group PLC, was recruited to succeed ex-boss Simon Lee, who resigned in December in the wake of the problems in Ireland and increasing claims pressures.
The Irish business required a GBP200 million capital injection after the accounting irregularities were uncovered there in a routine check last year.
A review by accountants PwC in January found that the shortcomings in Ireland were isolated, while the 2013 earnings announcement
"Serve customers well. Operate with capital strength. Focus on driving shareholder value. This is our agenda," Hester added.
RSA shares were late Thursday quoted at 98.25 pence, down 3.95 pence, or 3.9%.
By Samuel Agini; [email protected]; @samuelagini
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*Analysts Had Expected RSA FY Pretax Profit GBP174M
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