Profits halve as RSA takes flood and quake hits

City A.M. Reporter
RSA, Britain’s biggest commercial insurer, said yesterday its first-half profit fell by almost a quarter after heavy flooding in the UK and earthquakes in Italy triggered a surge of claims.

RSA, best known for its More Than home and motor insurance business, made an operating profit of £316m in the first six months of 2012, down 23 per cent compared with a year earlier, it said yesterday.

The decline was driven by an estimated £40m loss related to Britain’s floods, and a further £35m hit from earthquakes that struck Italy’s Emilia Romagna region in May.

“Economic conditions will undoubtedly remain tough in some of our markets,” chief executive Simon Lee said in a statement.

“Despite this we remain confident of delivering a good performance for the full year.”

RSA’s combined operating ratio – costs and claims as a percentage of revenues, a key profit indicator - will be lower than 96 per cent over the year as a whole, compared with 95.2 per cent in the first half.

The company is paying a dividend of 3.4 pence, an increase of two per cent.

RSA shares closed at 110p yesterday, valuing the company at about £3.9bn.

The stock is up five per cent since the start of the year, lagging a 14 per cent increase in the FTSE non-life insurance index.

“With investment income under strain and the UK and Italy remaining challenging it is critically important that the international operations continue to perform well ... and that RSA keeps its underwriting discipline very tight.” said Nic Clarke, analyst at Charles Stanley. “It appears in the first half that RSA has done pretty well achieving those goals.”

However, Espírito Santo Investment Bank maintained its “sell” recommendation on the stock after yesterday’s announcement, citing a lack of momentum on the firm’s earnings.