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RSA Insurance Group (RSA) Ordinary 100p

Sell:539.40p Buy:539.80p 0 Change: 9.00p (1.69%)
FTSE 100:0.58%
Market closed Prices as at close on 19 September 2019 Prices delayed by at least 15 minutes | Switch to live prices |
Ex-dividend
Sell:539.40p
Buy:539.80p
Change: 9.00p (1.69%)
Deal now Deal for just £11.95 per trade in a ISA, Lifetime ISA, SIPP or Fund & Share Account
Market closed Prices as at close on 19 September 2019 Prices delayed by at least 15 minutes | Switch to live prices |
Ex-dividend
Sell:539.40p
Buy:539.80p
Change: 9.00p (1.69%)
Market closed Prices as at close on 19 September 2019 Prices delayed by at least 15 minutes | Switch to live prices |
Ex-dividend
Deal now Deal for just £11.95 per trade in a ISA, Lifetime ISA, SIPP or Fund & Share Account
The selling price currently displayed is higher than the buying price. This can occur temporarily for a variety of reasons; shortly before the market opens, after the market closes or because of extraordinary price volatility during the trading day.

HL comment (1 August 2019)

Excluding the effect of business lines RSA either is exiting or has exited in the last year, net written premiums rose 0.5% in the first half to £3.2bn. An improved underwriting performance underpinned a 1.3% improvement in underlying operating profits to £308m.

The group announced an interim dividend of 7.5p, up 2.7%.

The shares had risen 2.6% by lunchtime.

Our view

A series of large losses and a spate of weather related claims upset the boat in 2018. Most of that was down to the commercial business, particularly in the London Market where RSA writes larger, more specialist insurance contracts.

The goal for 2019 is to make sure that doesn't happen again, and reinforce underwriting discipline. The London Market business is midway through a dramatic downsize, and the group's increasing its level of reinsurance. That might mean giving up some of the premiums, but should also make the business less lumpy.

Whether CEO Stephen Hester's most recent changes have solved the problem remains to be seen. But the fact RSA has managed to improve premiums, combined operating ratios and operating profits speaks volumes. Especially given the challenges facing the wider sector.

Nonetheless, a conservative approach to capital means the group decided not to pay a special dividend at the end of last year, despite the insurer's solvency ratio sitting above target. The stock currently offers a prospective yield of 5.3%.

Unfortunately it's now that the real work begins.

For all its progress, RSA is still in personal insurance, and that's a tough market in which to deliver knockout performances. Product differentiation is all but impossible except on price, and that can end up destroying margins. In an increasingly transparent world of price comparison websites, that challenge is all the greater.

We're impressed with the job Hester has done since he joined in 2014. The dramatic improvements in underwriting performance, RSA's bread and butter, should make investors sit up and take notice. Unfortunately, the other strand of the strategy, cost cutting, can't continue indefinitely without damaging the business. We still struggle to get excited about RSA's long term growth prospects.

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Half Year Results

Premium growth was driven by growth in Scandinavia, up 2%, and Canada, up 4%, while the UK saw net written premiums fall 2% excluding exit portfolios.

Lower claims and commissions along with broadly flat operating expenses, meant RSA reported an improved combined operating ratio of 94.3% excluding exit portfolios. As a result underwriting profits increased by 5.8% to £181m. While Scandinavia remains the main driver of underwriting profit, Canada also delivered a good result, posting a £19m profit after last year's £4m loss.

Investment profit fell 3.7% to £131m, as the group reinvested at lower yields.

The group's Solvency II ratio, a key measure of an insurer's capitalisation, remains above the 130%-160% target range at 167%.

The outlook for the full year remains unchanged.

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.


Previous RSA Insurance Group updates

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