RSA Insurance Group plc Cancels Dividend On £244m Loss

RSA Insurance Group plc (LON: RSA) also announces rights issue to solve capital problem.

Mark Stones

Mark Stones (TMFMumbojumbones) joined The Motley Fool in 2014 and initially worked as a writer for Fool.co.uk, before joining the Fool’s analyst programme. Mark earned a BA in English from Loughborough University. Although he spends more time reading annual reports than Russian literature these days, he still appreciates a novelist’s antipathy toward the accepted view, which is a useful attitude when trying to sniff out hidden gems on the stock market. His approach to investing has been largely influenced by the principles of Warren Buffett and Peter Lynch. He also takes a special interest in the work of healthcare companies. Outside of investing, Mark plays guitar, enjoys good writing and has a guilty passion for combat sports.

Published 27 February, 2014 11:36 am GMT

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The share price of RSA (LSE: RSA) (NASDAQOTH: RSANY.US) declined 2% to 100p during early trade this morning after the group unveiled a £244m loss for 2013, with weather-related losses along with the £200m corruption in Ireland weighing heavily. 2013 wasn’t a banner year for the insurance company — shares have slumped 17% over the previous 12 months.

The FTSE 100 member, which owns the More Than brand, has proposed a rights issue with an aim of raising £775m. This was a decision reached “reluctantly” by the group, out of necessity to reach a stronger capital position, and thus protect value for shareholders.

In addition, to repair capital weaknesses, selected business disposals are already underway to raise a target £300m. This is expected to impact premium growth in 2014 with a 10% decline expected. But while performance in the UK is lagging, the firm is confident its businesses in Canada, Scandinavia and Latin America offer potential for premium growth and good returns.

The new chief executive, Simon Hester, had the following comments:

“RSA’s 2013 results are poor and we need to grasp the nettles of both underperformance and undercapitalisation. As part of this we intend to launch a rights issue to help ensure we have the appropriate level of capital behind the Group. Together with a series of significant ‘self-help’ measures, we believe this will put the Group’s capital in the right place for the future. It will give us the necessary platform to focus aggressively on tightening strategy, improving customer service in core businesses and delivering operational improvements; and from these actions deliver attractive returns on a stronger tangible equity base.

“Serve customers well. Operate with capital strength. Focus on driving shareholder value. This is our agenda.”

The impact of today’s results means that RSA cannot justify a final dividend. In the medium term, having previously paid out dividends that were high relative to profits, there is a goal of paying out 40-50% of earnings in dividends.

Of course, the pace that dividend payouts will reach this target depends on the rate of the firm’s recovery, while any interim dividend “is likely to be modest”.

The decision to ‘buy’ depends on the faith you have in the group’s turnaround potential, while if you’re an income investor, today’s decision on dividends will likely be significant.