26 February 2015 Insurance

Remediation costs drag on results for RSA

Insurer RSA returned to profit in 2014, despite the cost of remediation proving greater than hoped by the company.

Its profits hiked to £76 million for the year ended December 31, 2014, after a tax charge that included a deferred tax asset write down of £92 million, compared with a loss of £338 million in 2013.

RSA’s operating profit increased to £365 million in 2014, compared with £349 million in 2013, with core business operating profit of £367 million up 17 percent in 2014, compared with £315 million in 2013.

RSA’s combined ratio improved slightly to 98.8 percent for 2014, compared with 99.4 percent in 2013.

Total underwriting profit was £90 million for 2014, compared with £57 million for 2013. The insurer said the figure was depressed by significant reserve strengthening which impacted prior year profits and an Irish underwriting loss of £107 million.

Stephen Hester, RSA group chief executive, said: “I joined RSA in February 2014 with a mandate to lead the Company in three urgent tasks. These were: to thoroughly identify the sources of RSA's performance weaknesses; to devise plans to fix these and address internal and external challenges to realising RSA's potential; and then to implement those plans.

“The first two tasks are largely done. The third is well in hand, but with much tough and disciplined work ahead to follow through.

“As so often in corporate turnarounds, the cost of remediation has proven greater than we hoped, especially in the form of reserving and non-cash charges. But we have been able to pay for this through outperformance in divestment proceeds. We have refocused RSA on its most important businesses, with a well executed divestment programme already substantially completed.

He explained that 2014 had been an important year for RSA and that the company could now look forward with much sounder strategic and financial foundations.

“RSA returned to profit in 2014 and to paying a dividend. Our customer franchises proved resilient. Current year underwriting profit (ex-Ireland) was improved to record levels. Successful disposals realised strong gains,” he said.

“Costs were cut and savings targets increased. However, the clean-up of past weaknesses was also expensive; and market headwinds, especially from exchange rate changes and low interest rates, are a drag on results.

“RSA is much better positioned than before to make continued good progress. We are determined to do just that in 2015 and beyond.”

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