The higher weather-related claims and large one-off losses in commercial lines that forced RSA Insurance (RSA) to warn on profits in September continued during the final quarter of 2018. Operating profits – which were down a fifth on 2017 – missed market consensus expectations, while underlying profits contracted for the first time since 2013.
Underwriting profits fell by a third at constant currencies, with weather-related losses rising to 3.7 per cent of net earned premiums, above a five-year average of 3.1 per cent. This was “most intense” in the group’s London Markets business, which chief executive Stephen Hester said “accounted for substantially all our underperformance in the second half”. Large losses also rose to 11.6 per cent of net earned premiums, above a five-year average of 9.6 per cent.
Management is now focused on reducing volatility in its commercial lines business, after exiting half of its London Markets portfolios last year. That included supplementing existing reinsurance programmes, which cap accumulated losses over £10m, with aggregate cover for losses below £10m. If the latter had been in place last year, management estimated a £30m reduction to losses, £12m of which would have been on continuing portfolios.
Analysts at Peel Hunt forecast adjusted net tangible assets of 281p a share at the December 2019 year-end.
| RSA INSURANCE (RSA) | ||||
| ORD PRICE: | 505.4p | MARKET VALUE: | £5.19bn | |
| TOUCH: | 505-505.4p | 12-MONTH HIGH: | 683p | LOW: 490p |
| DIVIDEND YIELD: | 4.2% | PE RATIO: | 16 | |
| NET ASSET VALUE: | 369p | COMBINED RATIO: | 96.2% | |
| Year to 31 Dec | Gross premiums (£bn) | Pre-tax profit (£m) | Investment return (£m) | Dividend per share (p) |
| 2014 | 7.30 | 53 | 471 | 2 |
| 2015 | 6.86 | 106 | 381 | 10.5 |
| 2016 | 7.22 | 101 | 347 | 16 |
| 2017 | 7.60 | 448 | 350 | 19.6 |
| 2018 | 7.47 | 480 | 343 | 21 |
| % change | -2 | +7 | -2 | +7 |
| Ex-div: | 07 Mar | |||
| Payment: | 17 May |
