RSA falls sharply as it probes ‘large’ losses at Irish unit

RSA Insurance Group, the UK’s biggest non-life insurer, tumbled after suspending its Irish unit’s management, probing losses and warning it will miss targets for the second time in a week.

The stock fell 10% and yesterday slumped as much as 16%, the steepest intraday drop since Mar 2004. RSA told analysts on a conference call that it was investigating “large” losses booked in its Irish claims business and the timing of when premiums were reported over at least the previous two years.

RSA said after trading closed last week that full-year operating profit will be £70m (€83.5m), lower than analysts’ estimates, after it had to inject additional capital into the Irish unit.

The three suspended managers include Philip Smith, who had been the chief executive of the Irish division since 2007.

A woman who answered the door at Mr Smith’s home in Cabinteely, Dublin, said he didn’t have a comment.

Simon Lee, who became chief executive two years ago, told analysts that RSA’s capital position remained “robust” and that the dividend policy for the year was unchanged, though with a “tighter” ability to cover the payments.

Mr Lee, 52, said the company’s Irish unit first uncovered the irregularities in mid-October, before the insurer reported its third-quarter earnings the following month.

RSA chose not to disclose the probe in the Nov 5 results announcement because executives didn’t initially expect it would have a material impact on earnings. It was not until the second half of last week that the financial implications from the investigation became “serious,” Mr Lee said.

The insurer made the announcement last Friday after RSA injected an additional €100m of capital into the unit to keep its solvency ratio above 200%.

The company has also hired PricewaterhouseCoopers to report on oversight and controls at the unit by the year-end.

“These are very serious and disappointing events,” Mr Lee said. “We are very confident that these issues are isolated to the Irish business, and do not believe that they are indicative of any problems in our group’s wider processes. 2013 is proving to be a very difficult year.”

RSA Insurance Ireland is the biggest non-life insurer in the country.

The division, which sells products through a network of brokers and the 123.ie website, reported profit of £25m last year.

RSA named Mr Smith, 45, a director of the Irish unit in Sept 2006 and made him CEO the following year.

He helped the insurer boost its share of the Irish market in terms of premium income to 15% in 2011, up from 10% two years earlier, according to the most recent central bank data. The insurer bought 123.ie for €65m in 2010.

RSA has also suspended Rory O’Connor, RSA Ireland’s chief financial officer, and the unit’s claims director, Peter Burke.

The company said in its statement that it hasn’t made findings against any individuals.

No one answered at Mr O’Connor’s apartment in Dundrum. A spokesman for RSA to declined to elaborate on the reasons for the suspensions citing the investigation.

Bloomberg


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