RSA could be bid target as shares fall

RSA chief executive Simon Lee has come under pressure after a series of 'mishaps'. Picture: Getty
RSA chief executive Simon Lee has come under pressure after a series of 'mishaps'. Picture: Getty
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THE chief executive of the UK’s largest general insurer RSA came under increasing pressure yesterday as shares tumbled as much as 17 per cent over an investigation into losses at its Irish unit.

The company behind the More Than brand is looking into issues stretching back at least two years after an internal audit of the business triggered the group’s second profit warning in a week.

Analysts questioned whether the company’s dividend may be under threat and also suggested it could become a takeover target.

The problem, and suspension of three senior executives, had been announced after the market closed on Friday but shares fell sharply when trading began yesterday.

Although they recovered some of the losses, they still closed down 10.5 per cent, or 12.7p, at 108.1p.

The issue – on top of a profit warning earlier last week due to severe weather in Europe and Canada – saw the company, and chief executive Simon Lee, come under attack and raised questions over the RSA’s future.

One institutional shareholder, who asked not to be named, said RSA’s run of mishaps have made it vulnerable to a takeover attempt by rivals.

“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.

Euan Stirling, investment director at Standard Life Investments, which is RSA’s fifth-biggest shareholder with a 4 per cent holding, said:“It’s really difficult for [the chief executive] because he took over at a time when the shares were riding high and since then there have been a series of disappointments.”

Although RSA sought to reassure investors that its dividend was safe, Barrie Cornes of Panmure Gordon said he believed the payout was under threat.

Lee said he was “extremely disappointed with the issues which have been identified and their financial impact on the group”.

“While the investigation is ongoing, I am confident that these issues are isolated to the Irish business,” he said. “Our capital position remains robust and we remain committed to our dividend policy which is aligned with market expectations for the full year final 2013 dividend.”

“No policyholders have been affected and all our Irish businesses continue to operate as normal.”

RSA said on Friday it had suspended the Irish unit’s chief executive Philip Smith, chief financial officer Rory O’Connor and claims director Peter Burke pending the outcome of the review.

It has since appointed auditor PwC to review the Irish operation’s financial and regulatory processes and controls and group oversight of the division. “No findings have been made against any individuals at this time,” RSA stressed.

The problems at the Irish unit mean that RSA’s 2013 operating result will be £70 million lower than current market expectations.

Ireland accounts for a relatively small part of RSA, making up just 4 per cent of group premiums last year.

“Mercifully, although extremely damaging for the group’s reputation and credibility in Ireland, these issues are unlikely to topple the group,” said Eamonn Flanagan of Shore Capital Stockbrokers.