Last updated: February 24, 2011 11:20 pm

RSA seeks to double emerging markets volumes

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RSA aims to double the volume of business it writes in emerging markets by 2015 to more than £2bn, the UK-listed general insurer said as it confirmed a steep drop in profits due mainly to severe winter weather in the UK.

Simon Lee, chief executive of RSA’s international businesses, said the target for emerging markets was based on assumptions about the pace of growth RSA could achieve without acquisitions. He added that this growth would help all international businesses come to represent about 70 per cent of group premiums, from 60 per cent now.

RSA is talking up its international prospects as investors and analysts worry about poor prospects for growth in mature markets and following the group’s failed $5bn (£3.1bn) bid for Aviva’s UK, Canadian and Irish non-life businesses last summer.

Many countries in Europe are seen as markets where premium rates are drifting downwards at a time when investment returns remain poor and claims inflation continues.

However, the UK has seen significant rates increases in car insurance following a big jump in bodily injury claim costs in recent years and Andy Haste, chief executive, said the group had managed to push through some strong rate increases in other businesses in the UK, Ireland and Scandinavia.

“Overall, out of 11 per cent top-line growth about half [5 per cent] is from rate increases,” he said.

RSA warned in January that profits would be hit hard by the deep freeze
that gripped Britain late last year and cost the company more than £50m in claims related to burst water pipes alone. It said then that operating profits would be between £600m and £630m, which the group ultimately beat by a slender £6m.

The exceptional weather losses added 5 points to RSA’s UK combined ratio – a measure of costs and claims as a percentage of premiums – pushing it above 102 per cent. Mr Haste pledged to get the group ratio below 95 per cent this year.

Group pre-tax profits were £474m down 14 per cent from £554m for 2009, on net written premiums that rose 11 per cent from £6.74bn to £7.46bn.

The total dividend is lifted 7 per cent to 8.82p (8.25p) via a 5.7p final. Shares fell 0.8p to 138.9p.

FT Comment

RSA’s big issue is how to excite investors. It is almost universally regarded as
well run with good underwriting and tightly controlled costs. However, for growth, investors prefer Admiral or Prudential and when investment markets look healthy they prefer life assurers in general. The market has already forgiven the hiccup caused by last winter’s exceptional weather and at 1.76 times tangible net asset value per share, the stock is highly rated compared with Lloyd’s insurers. RSA has a recent history of hitting its growth and profit targets, but that is not enough reason to value the company more highly than where it is already.

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