Friday 20 April 2018

Second profit warning leaves RSA open to 'potential predators'

File photo dated 09/08/13 of the RSA logo as the insurance group has suspended the chief executive of its Irish business and two other senior staff after a routine internal audit uncovered
File photo dated 09/08/13 of the RSA logo as the insurance group has suspended the chief executive of its Irish business and two other senior staff after a routine internal audit uncovered "issues" that it says will result in a £70 million profits hit. PRESS ASSOCIATION Photo. Issue date: Friday November 8, 2013. The company, which owns the More Than brand, said it was now cooperating with the Central Bank of Ireland in an investigation into "issues in the Irish claims and finance functions". It announced that RSA Insurance Ireland had suspended chief executive Philip Smith, chief financial officer Rory O'Connor and claims director Peter Burke pending the outcome of the probe. See PA story CITY RSA. Photo credit should read: Philip Toscano/PA Wire
Donal O'Donovan

Donal O'Donovan

A second profit warning in a week from insurer RSA could leave the group vulnerable to a takeover, according to a shareholder.

The former Royal & Sun Alliance was forced to issue the second profit warning after diverting €100m to support the balance sheet of its Irish subsidiary following the discovery of "issues" uncovered as a result of an internal audit.

Yesterday, an institutional shareholder in RSA, who asked not to be named, told Reuters that the run of bad news for RSA could leave the business vulnerable to a takeover bid.

"To have one profit warning could be seen as unfortunate. To have two in a week begins to look like carelessness . . . some potential predators might dust down their files with RSA very much on the back foot," the investor said.

Hundreds of millions was wiped off the value of RSA on the markets yesterday, as investors reacted to the news at the Irish unit, which first emerged late on Friday.

The problems being investigated go back over at least two years, one of the most senior executives at its British parent said yesterday.

The financial shortfall at the unit here is understood to be linked to so-called provisioning – how money is set aside to cope with potential insurance claims.

Group chief financial officer Richard Houghton indicated that the hole in the Irish accounts dated back at least two years.

RSA is examining "the booking of large losses within claims and the timing of the recognition of earned premiums", Mr Houghton said.

The chief executive officer of RSA, Simon Lee, told investors and analysts that dividends would not be affected, even after the huge problems in Ireland.

The company has now hired accountants PricewaterhouseCoopers to prepare a report on oversight and controls at the Irish unit. That report is due by the end of the year.

The Central Bank's director of Credit Institutions and Insurance Supervision Fiona Muldoon said regulators would have a role in deciding on the terms and conditions for the probe being carried out into financial irregularities at RSA Insurance Ireland.

She added that she was happy with the actions taken by the company so far.

The insurer has suspended three top executives and pumped €100m into the reserves of the company.

Yesterday, investors got their first chance to react to the news, and promptly battered RSA. Shares in the London-listed insurer plunged as much as 17pc in early trading and ending the session down 10.5pc. With a "market capitalisation" of around £4bn, a 10.5pc price drop means more than €400m effectively wiped off the value of the business. (Additional reporting Reuters)

Irish Independent

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