The insurer RSA, best known for its More Than brand, is set to enjoy a profit boost from the pound’s slide since the Brexit vote, while its pension fund has taken a hit.
RSA generates 70% of its business outside the UK, largely in Canada, Ireland and Scandinavia, and the pound has declined by an average of 14% against those countries’ currencies.
Chief executive Stephen Hester, who had campaigned for the UK to remain in the EU, said the weaker pound would boost earnings, but added: “It’s bad for the UK as a whole because we are poorer.”
The former Royal Bank of Scotland boss said: “Brexit provides us an attractive tailwind from overseas earnings translation, in the context of an otherwise challenging environment. While the fourth quarter can be a bumpy underwriting period, RSA is on track for strong operating earnings increases for 2016 overall.”
Like other companies, the firm’s pension fund has taken a hit due to low interest rates and the Bank England’s extended bond-buying programme, announced after the June referendum to help the economy cope with the fallout. This has pushed bond yields lower and increased UK pension scheme liabilities.
Hester said: “The widening of pension deficits has happened for all UK companies as a result of the Bank of England’s accelerated quantitative easing programme.”
RSA’s pension fund moved from a small surplus to a deficit of about £200m – “small potatoes” compared with other companies’ multibillion-pound shortfalls, Hester said.
The insurer posted a 5% drop in net written premiums to £4.8bn in the first nine months of the year after selling off operations in Brazil, Russia and Argentina. It is in the middle of a restructuring programme, with £250m cost savings targeted by the end of the year. The firm stepped up cost cutting after a failed £5.6bn takeover bid from Zurich Insurance last year.
With markets slow, Hester reiterated that RSA was relying on self-help. He took charge of the insurer two and a half years ago after a string of profit warnings and accounting irregularities at its Irish arm.
Weather-related claims amounted to £145m, following wildfires in Canada in May and flash floods in the UK, France and Germany in June.
RSA has a £1bn portfolio of old asbestos claims going back decades, which it hopes to reinsure or sell, and is “encouraged by the interest” in the portfolio, Hester said.
He boasted that the RSA’s share price was the best-performing insurance stock in the world this year.
Barrie Cornes, insurance analyst at Panmure Gordon, said this may not be such a good thing. “The share price has rallied well since we upgraded our recommendation to buy in the summer but on the downside we believe that in doing so it has materially reduced the possibility that the company will be bid for.”
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: “Progress on costs and underwriting suggests the bottom line continues to improve. That more or less sums up Stephen Hester’s vision for a slimmer more focused group.
“However, there’s a limit to how far costs can be cut. Eventually the group will need to start growing its gross written premiums, and in the highly competitive, price driven world of commercial and personal insurance, that could well prove a challenge.”
