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RSA Insurance chief executive quits after third profit warning in six weeks RSA Insurance chief executive quits after third profit warning in six weeks
(about 9 hours later)
RSA Insurance's chief executive has quit after the company issued its third profit warning in six weeks and admitted its dividend was in question. RSA Insurance's chief executive has quit after the company issued its third profit warning in six weeks and admitted it was short of capital and its dividend was under review.
Simon Lee has left the general insurer with immediate effect. Chairman Martin Scicluna will run the company until a replacement can be found. Shares in RSA were down 20% at 80p in early trading – more than a third below their pre-profit warning value. Simon Lee has left the general insurer with immediate effect. Chairman Martin Scicluna will run the company until a replacement is found. Shares in RSA fell 20% on the news, although they later recovered to close down 7% at 92.5p.
RSA said it had been forced to strengthen reserves in Ireland by £130m to meet potential claims for bodily injuries at its motor insurance arm. The injection of funds is on top of £70m announced on 8 November and comes out of the group's annual profit. RSA said it had been forced to strengthen reserves in Ireland by £130m to meet potential claims for whiplash at its motor insurance arm. The injection of funds is on top of £70m announced on 8 November and comes out of the group's annual profit.
The group will also move £135m of capital into the Irish business to make sure it meets rules on solvency. RSA's problems in Ireland have already claimed the jobs of its top three Irish executives and are being probed by the country's regulators. The group will move £135m of capital into the Irish business to meet rules on solvency. RSA's problems in Ireland have already claimed the jobs of its top three Irish executives and are being investigated by the country's regulators.
RSA also said it had been hit by additional claims for £25m after the UK and Scandinavia were hit by storms in early December.RSA also said it had been hit by additional claims for £25m after the UK and Scandinavia were hit by storms in early December.
The result is that profits for 2013 will be reduced further following two profit warnings in a week the group was forced to issue early last month. The result is that profits for 2013 will be reduced further following two profit warnings in a week that the group issued early last month.
Scicluna said: "The significant reserve strengthening in Ireland represents a further negative event and places additional strain on the capital metrics of the group. Scicluna said: "After November we had less capital than we had before and now we have even less capital." He said options included selling businesses and raising money from shareholders in a rights issue but that a cash call was "not our current plan".
"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 said Lee, who started as chief executive two years ago, would be paid a year's salary of £824,000 according to his contract, but no bonus.
RSA said Lee, who started as chief executive two years ago, would be paid according to his contract.
His position has been under threat since financial trouble emerged in Ireland, where RSA is the biggest general insurer. He had already upset investors with his handling of a dividend cut in February.His position has been under threat since financial trouble emerged in Ireland, where RSA is the biggest general insurer. He had already upset investors with his handling of a dividend cut in February.
RSA blamed its first profit warning last month on claims caused by bad weather but then came back with a second alert raising problems found during a "routine audit" of its Irish business. Scicluna, the former chairman of accountants Deloitte in the UK, has no front-line insurance experience, he is also chairman of Great Portland Estates and has other interests away from RSA. He said he would do "whatever it takes" to get RSA through its troubles.
RSA has hired audit firm PwC to review its Irish business. The firm will report back to the board in January. RSA blamed its first profit warning in November after claims caused by bad weather but then came back with a second alert raising problems found during a "routine audit" of its Irish business.
The company found that potential claims in Ireland were not being recorded properly, leaving reserves too weak. It has hired auditor PwC to review all of its businesses and the firm will report next month ahead of RSA's annual results in February.
Analysts at Barclays said: "If group reserves were found to be deficient, the effect could be many times as severe as it has been for the Irish business."
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