Insurer bounces back to profit

London - British insurer RSA swung back to half-year profit on Thursday and said it had made progress with its restructuring plan although it would take more charges and up its reserves to bolster its balance sheet further.

Under new chief executive Stephen Hester, who was appointed in February, the company has raised fresh capital and is selling non-core units and restructuring its business.

Weather-related losses and accounting problems at its Irish arm hit its finances last year and prompted a series of profit warnings.

Underlying performance

While Hester's efforts have put the firm on a firmer footing, extra charges and a cost-savings target that fell short of some analysts' hopes caused early weakness in the share price, before it recovered to trade up in a weaker FTSE 100.

"RSA reported yet another 'dirty' set of figures with lots of exceptional, write-offs and one-offs. Stripping these back for a second, and acknowledging the danger of ignoring the bad stuff, the underlying performance isn't too bad," said Shore Capital analyst Eamonn Flanagan in a note to clients.

Reserves, the amount of money held to cover potential claims, were increased by £68m in the UK, largely to cover historic claims in its professional and financial services unit and deafness claims in its commercial business.

RSA believes that such deafness-related claims were largely driven by fraudulent activity, a spokesperson for the insurer said, adding that 65% of such claims were settled at nil.

Ireland, the source of much of its 2013 woe, needed an extra £29m set aside to cover old business that was in many cases priced too low, as well as future business.

Restructuring costs

A spokesperson said RSA could not speculate on why the previous management had priced its Irish business "too low".

In Scandinavia, meanwhile, the company said it had boosted its Swedish reserves by £19m ahead of a regulatory review of industry longevity assumptions.

As well as the boost to its reserves, the company's bottom line was also helped by a series of one-off items, including a £28m gain on disposals, largely in Latvia, and a £90m gain on its investments.

But RSA also posted a write down of £66m of goodwill and other intangibles, £39m on restructuring costs and £14m on costs associated with Solvency II regulation.