Embattled RSA chief executive Simon Lee fell on his sword today as the insurer issued its third profit alert in recent weeks and warned of a possible hit to its dividend as it tackles a black hole in its Irish division’s finances.
Shares in the group, which owns the More Than brand, dropped almost 20 per cent at one point as it announced plans to pump more money into its Irish business, and analysts said the firm could be the target of an “opportunistic” takeover bid.
Lee, who replaced previous boss Andy Haste two years ago after heading up the insurer’s international operations, left with immediate effect after deciding it was in the company’s “best interests”. He will receive £824,000 in lieu of notice and retain shares worth about £150,000, but has lost out on long-term share awards and options worth more than £4.4 million.
His departure follows the resignation last month of RSA Ireland chief Philip Smith, who claimed he has been made the “fall guy” after a routine internal audit uncovered issues that led to a £70m hit to its profits.
Accountant PwC is currently carrying out a review of the Irish business and is expected to file its report next month.
RSA chairman Martin Scicluna, who will become executive chair during the search for a new boss, said a further £135m will have to be pumped into the Irish business, while the firm is facing a £25m claims bill from this month’s storms in the UK and Scandinavia.
Scicluna said: “Simon felt it was in the best interests of the group that he step down to enable a change in leadership. He has offered to help in any way that he can to ensure a smooth transition.”
He also hinted at a further hit to the company’s dividend, which was slashed by a third at the half-year stage, and promised a full review of the group’s businesses, with an update due alongside its annual results in the spring.
“The significant reserve strengthening in Ireland represents a further negative event and places additional strain on the capital metrics of the group,” Scicluna said.
“The impact of this reserve strengthening, alongside the extreme weather in 2013 and the effect of financial irregularities in Ireland will be taken into consideration in the board’s dividend decision in February.”
RSA issued two profit warnings in November – the first reflecting the impact of severe weather in Europe and Canada and the second related to the issues at its Irish arm.
Shares in the group, which were hammered last month as it revealed the extent of its problems in Ireland, came under more pressure today and ended the session down 7.2 per cent at 92.5p.
Shore Capital analyst Eamonn Flanagan slashed his pre-tax profit forecast for this year to about £243m, down from a previous prediction of £368m, but said the price slide could be kept in check thanks to the “decisive action” taken by the insurer’s board and the quality of its assets around the globe.
However, he warned: “Too strong a negative reaction is likely to deliver an opportunistic bid for the group.”
Barrie Cornes, an insurance sector analyst at Panmure Gordon Stockbrokers, also believed that RSA could now appear on the radar screens of rivals looking to acquire some of its better-performing businesses.
He added: “We would highlight the emerging markets business as being one which RSA might be ‘forced’ to sell but we suspect that the Canadian and Scandinavian businesses are the parts that competitors would be particularly interested in.”