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RSA's restructuring shines through

But profits in the UK are hit by changes to the Odgen discount rate
August 3, 2017

The benefits of last year’s restructuring, which saw RSA Insurance (RSA) dispose of more than a dozen overseas operations, really shone through in the six months to June, with the combined ratio (of claims and other costs as a proportion income) improving to a record 93.2 per cent.

IC TIP: Hold at 644p

A more disciplined and flexible approach saw group underwriting profits jump from £174m to £222m, while the underlying return on tangible equity rose from 12.8 per cent to 16.6 per cent. Finances remained extremely robust, with the Solvency II coverage ratio of 163 per cent exceeding the 130-160 per cent target range.

RSA now has four operational areas; Scandinavia, Canada, Ireland and the UK. Scandinavia provided the outstanding performance with a 56 per cent constant-currency jump in underwriting profits to £162m, while the combined operating ratio improved from 88.5 per cent to 81.9 per cent. Higher large losses and lower prior year releases affected trading in Canada, but there was still an underwriting profit of £40m.

Trading was toughest in the UK where, despite a 5 per cent rise in net written premiums, underwriting profits slid from £76m to £17m as a result of a change in the Ogden discount rate used to calculate damages awards (£56m excluding the Ogden effect). The drop in profits also reflected larger weather and large claim losses.

Investment income was down 9 per cent from a year earlier, partly reflecting the impact of the disposal of the Latin America and UK legacy businesses. Analysts at Panmure Gordon are forecasting net tangible assets for the year to December 2017 of 307p, from 281p a year earlier.

RSA INSURANCE (RSA)   
ORD PRICE:644pMARKET VALUE:£ 6.59bn
TOUCH:644-644.5p12-MONTH HIGH:660pLOW: 489p
DIVIDEND YIELD:2.7%PE RATIO:NA
NET ASSET VALUE:357p*COMBINED RATIO:93.2%
Half-year to 30 JunGross premiums (£bn)Pre-tax profit (£m)Investment return (£m)Dividend per share (p)
20163.731611875.0
20174.032631716.6
% change+8+63-9+32
Ex-div:07 Sep   
Payment:13 Oct   
*Including intangible assets of £737m, or 72p a share