General insurer RSA (RSA) reports disappointing full year results due to claims for storm damage and weakness in its commercial business.
Operating profit for 2018 fell 19% to £517m which was well below the £561m the market was expecting. That alone might have been enough to spark investor share sales, but the fact that underlying return on tangible equity dropped to 12.6%, compared with 15.5% the previous year (and below its own target range of 13% to 17%) lend extra weight to the drag effect.
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Shares in the £5.5bn insurer slumped 4% to 505p, compounding a pretty miserable nine months. In July 2018 the stock was changing hands at 680p levels.
CATASTROPHE VOLATILITY
Insurers around the world have reported heavy 2018 losses from wildfires and hurricanes in the US and typhoons in Asia, with French firms Axa and Scor both revealing a big drop in profits earlier this month.
Even recent positive figures from Hiscox (HSX) failed to find support.
Higher natural catastrophe costs and what it calls ‘challenging’ commercial lines meant that RSA was exposed to more volatility than it expected, and its underlying results showed the first drop since 2013.
‘This was most intense in the London Market business which accounted for substantially all our underperformance in the second half’ lamented chief executive Stephen Hester.
While volatility is ‘an inescapable part of the insurance industry’, the results show that RSA has ‘too much exposure’ added Hester.
STREAMLINING THE BUSINESS
The firm has already announced that it will exit several business lines and will reduce its ‘under-writing appetite’ in specialty and wholesale insurance by half compared with 2017 while it looks for further portfolio exits.
Hester is confident that once the business is streamlined, management changes have been made and prices have been raised RSA will bounce back this year.
‘Our performance ambitions for RSA are high, and unchanged. We recognise the need to demonstrate resumed progress against them.’
