Fresh from leaving his post at RBS, Stephen Hester was parachuted into save struggling insurer RSA Insurance Group (LSE: RSA) (NASDAQOTH: RSANY.US) at the beginning of this year, and he has not wasted any time getting stuck in.
Indeed, fresh from the bloodbath at RBS, Hester put together a blueprint for RSA’s recovery within weeks of his arrival and so far, things appear to be going to plan.
But will Hester be able to save RSA before it’s too late?
Bolstering finances
Hester’s first job was to bolster RSA’s balance sheet. Specifically, at the end of last year RSA had a capital surplus of £200m, 10% more than required by regulators. However, many of RSA’s peers hold over £1bn in additional capital, making RSA look significantly under capitalised.
To solve RSA’s capital shortfall, Hester immediately revealed a £773m rights issue, designed to steady the ship. Actually, some analysts have stated that £773m is more than enough to bolster RSA’s balance sheet, so the extra capital should give investors piece of mind.
What’s more, Hester is planning to raise £800m in addition capital from the sale of some of RSA’s underperforming business units. The company is planning to raise £300m through asset sales this year.
With around £1.6bn in additional capital being raised, RSA should end up, if anything, overcapitalised — great news for investors worried about the company’s future.
With this in mind, it would appear as if RSA has plenty of potential to restart dividend payouts. In addition, Hester could also use RSA’s extra cash to acquire lucrative businesses within new markets, or buyback shares, reducing dilution from the rights issue.
New management
In addition to rebuilding RSA’s finances, Hester has also brought in a new manager for the company’s Irish division, the root cause of the insurer’s recent problems.
Ken Norgrove, formally of insurance giant Zurich, has been given the task of cleaning up RSA’s Irish operations and it would appear that Ken is the right man for the job. Indeed, Mr Norgrove was responsible for steering Zurich’s Irish division through the financial crisis and Irish economic collapse, so sorting out RSA should be relatively easy work.
Foolish summary
All in all, it would appear that as RSA’s new boss, Stephen Hester has made a great start and with around £1bn in fresh capital on the insurer’s balance sheet, the future looks bright.
