MORE THAN £680m was wiped off RSA’s market capitalisation yesterday as investors took flight following the company’s decision to slash its dividend by a third.
Chief executive Simon Lee told City A.M. that the unexpected decision to cut investor payouts – which forced its share price down 14 per cent – was never going to be “the most popular decision in the short term”. But he insisted that consistently low investment returns meant RSA had to be more realistic about what it could offer shareholders.
“If we were going to pay out that level of earnings it would restrict capacity to grow in the future. Our share price is only down to where it was three or four months ago,” Lee explained.
“We have a robust balance sheet and growing premiums. It’s just that we’re operating a low interest rate environment and a conservative investment portfolio with 90 per cent in cash and bonds.”
Shares in other insurers, including Aviva, fell as investors feared their boards may now to be tempted to take similar action.
RSA also announced a decline in full-year operating profit to £684m, down from £727m, which the company partly blamed on payouts relating to UK floods and Italian earthquakes. Lee said the company intends to make up for flatlining performance in Europe by expanding into developing markets, where he hopes organic growth can increase premiums from £1.2bn to £2.2bn by 2015.
The company also used yesterday’s announcement to confirm it intends to change its auditor from Deloitte to KPMG.