RSA earnings soar but plan to cut dividend sinks shares
RSA Insurance, the firm previously known as Royal and Sun Alliance, yesterday posted a higher than expected profit for 2011 as cost cuts helped offset big catastrophe claims.
But shares in the insurer sunk 4.9 per cent to 107p, the biggest fall in the FTSE 100, after the firm announced plans to rein in its dividend payments.
Britain’s biggest commercial insurer announced an operating profit of £884m, up 38 per cent on 2010.
It said it would only raise its dividend by a “prudent” four per cent because low interest rates were eroding its investment returns.
“It’s a reflection of the reality of the situation,” RSA chief executive Simon Lee told reporters. “When the economic environment changes, we hope to be in a position to grow the dividend more quickly.
“We have delivered a good result in difficult conditions given record natural catastrophe losses, the challenging economic environment, and historically low yields.”
Investors are worried that natural disasters and Eurozone debt defaults may sap insurers’ ability to pay regular dividends while maintaining capital reserves.