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July 17, 2014 5:37 pm
Stephen Hester is preparing to cut almost a tenth of RSA’s £2bn annual costs as the insurer’s chief executive undertakes the next phase of his turnround plan.
Investors said the former Royal Bank of Scotland chief, who was this year drafted in to run RSA, was set to reduce the company’s expense base by about £150m over the next three years.
RSA has been widely expected to cut costs since the emergence late last year of past overstatement of profits in Ireland led to an emergency £775m cash call – but the scale of its planned savings has not been disclosed.
Meanwhile, RSA is facing a fine in the low tens of millions of pounds from regulators investigating the accounting scandal at the company’s Ireland business.
The FTSE 100 group is set to take hit for a penalty in its half-year results next month. The Central Bank of Ireland has the powers to fine RSA as much as £35m but the sum is likely to be considerably lower.
Cost-cutting of about £150m would fall short of more bullish investor expectations of £200m.
Cevian, which has become RSA’s second largest shareholder with a stake of 3.9 per cent, would like the insurance group to do more to exceed profitability targets, people familiar with the matter said.
However, the people added that relations between the activist shareholder group and Mr Hester were amicable.
Shares in RSA have been among the 12 best performing in the FTSE 100 since late March, rallying 12 per cent. Although his turnround plan is running ahead of schedule, Mr Hester is said to be keen to manage the City’s expectations.
The cost-cutting measures will lead to job losses at RSA, which employs about 22,000 people globally, although the company is unlikely to unveil specific targets for reducing staff numbers.
Commissions paid to insurance brokers and technology modernisation will also be important parts of RSA’s efficiency push, which will have a particular focus on the UK operation.
Mr Hester, who could be entitled to as much as £5.3m for his first year running RSA depending on performance, has already raised about £600m by making a series of disposals from Canada to China.
The former banker is set to sell more assets, including in Europe and Asia, over the next year but is more than half way through the disposal programme.
In spite of recent improvements in RSA’s capital position, the insurer – which scrapped its final dividend this year – is not due to make an interim payout.
Interim results are set to be marred by an goodwill writedown in Ireland of as much as £70m.
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