New challenges ahead for RSA UK CEO

RSA has turned around the business in the UK and globally, but UK CEO Steve Lewis prepares for new challenges ahead.

The company which has been hit in the past by weather-related claims and an accounting scandal at its Irish unit sold businesses and repositioned others to improve its performance.

Group operating profit was up 25 percent in 2016 at £655 million. Underwriting profit was up 73 percent at £380 million, a record high, according to the company. The “Core Group” combined ratio was 93.8 percent, an improvement from the 96.0 percent recorded in the previous year.

RSA completed the disposals of its businesses in Latin America and Russia in the first half of 2016. However, the Irish unit which was hit by an accounting scandal has disappointed.

RSA had to inject around €400 million of cash between 2013 and 2015 into its Irish subsidiary after a hole in its balance sheet was detected as too little money had been set aside to cover large claims.

The former chief financial officer Rory O’Connor and two former actuaries of RSA Insurance Ireland have recently admitted misconduct and agreed to fines and other sanctions.

Operating losses in the Irish unit widened to £42 million in 2016 from £26 million in the previous year.

“It was disappointing that we had further adverse developments in prior year claims [in Ireland] which somehow overshadowed the result,” Lewis said during a Feb. 23 conference call.

A £1 million profit in 2016 in Ireland was offset by £50 million of prior year losses, which are tied up to historical issues at the unit, Matt Hotson, CFO of RSA UK explained.

“We absolutely think we got that right now,” Hotson said, adding that rate increases in personal motor were 35 percent in 2016 in Ireland. “We are putting substantial rate increases through the Irish portfolio partly because this is what market conditions require to get that business back to where we want it to be,” he said.

But for Lewis there are new challenges ahead in the UK. “The economic environment remains somewhat subdued, the pricing environment remains difficult across both personal and commercial lines. As we know, there is more regulatory change on the horizon,” he said.

Among new regulatory changes in the UK which are set to affect the insurance sector are a revision of the Ogden discount rate, another rise in insurance premium tax, a renewal transparency as well as the backdrop of Brexit and what that actually means, Lewis explained.

In 2016, the operating profit in the UK improved to £259 million from £147 million in 2015. Net written premiums shrank slightly to £2.59 billion from £2.61 over the period.

“The market remains highly competitive and challenging,” Lewis said.