Insurance giant RSA has defended a cautious approach to shareholder payouts that disappointed investors.
The firm today reported record half-year results and hiked its interim dividend by 32 per cent to 6.6p per share.
“We’ve always said: earnings first, dividends second,” RSA finance chief Scott Egan told City A.M..
We remain focused on a progressive and sensible dividend policy.
Egan explained RSA had grown its top line across all its regions. But the UK’s underwriting result fell 78 per cent to £17m after absorbing a £42m additional charge for the government’s decision to change the calculation of personal injury payouts in February.
Motor insurers have been hit hardest by such a decision. RSA sells car insurance through its More Than brand, but Egan highlighted: “We are not a key UK motor player.” Over half of RSA’s operating profit is generated overseas, with Scandinavia its main geographical area.
Hargreaves Lansdown equity analyst Nicholas Hyett said: “The problem facing RSA is that for all its recent progress, it’s 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. RSA is aware of that danger, with a commitment to maintaining underwriting discipline and a focus on reducing costs. Unfortunately, that can only take you so far.
Egan said cost reduction was only one of three levers it was pulling to improve performance. The other two were the delivery of better customer service and increased underwriting discipline.