RSA Insurance’s Irish Woes Seen Prompting Dividend Cut

RSA Insurance Group Plc (RSA)’s third warning on profit in less than six weeks will lead the company to cut its dividend and sell assets in either Asia or Latin America to boost capital, according to analysts.

Chairman Martin Scicluna told investors today the number one priority is to return the capital base back to “comfortable levels.” RSA said it injected an extra 135 million pounds ($220 million) into its Irish unit and took a 25 million-pound hit from last week’s storms in Europe.

The British insurer is in talks with regulators and ratings companies regarding the health of its balance sheet, according to Scicluna, who said the firm has no plans to raise capital from shareholders. RSA initiated a group-wide review into its operations, which span 32 countries across Europe, Asia, Latin America and Canada, after making more than 60 acquisitions in eight years amid an accounting probe into the Irish unit.

“The group is in a position to rectify the situation through a sale of one or more of its attractive insurance assets,” said Sami Taipalus, a London-based analyst at Berenberg Bank, with a hold recommendation on the shares. “The biggest risk from here is that it does not take sufficiently resolute action. At least 500 million pounds of capital is needed.”

Rights Issue?

Taipalus said the focus should be on RSA’s emerging-markets assets, including in Latin America and the Middle East. Barrie Cornes, a London-based analyst at Panmure Gordon & Co., also said the company may sell assets in emerging markets, while Sanford Bernstein & Co.’s Thomas Seidl said a sale of the “highly fragmented” Asia businesses could generate as much as 200 million pounds.

All three analysts expect the company to cut its dividend when it reports full-year earnings on Feb. 20. RSA had the fourth-highest dividend yield among Britain’s biggest 100 companies at Nov. 29, according to data compiled by Bloomberg.

“We now believe that the group will likely pass on its 2013 dividend,” Greig N. Paterson, a London-based analyst at Keefe, Bruyette & Woods Ltd., said in a note to clients. It “may even contemplate a rights issue to shore up its capital base if potential asset disposals don’t materialize.”

RSA Chief Executive Officer Simon Lee, 52, resigned today, with the insurer saying it now expects a “mid-single digit” return on equity for 2013. Lee succeeded Andy Haste as CEO in 2011 after running RSA’s international unit, which became the biggest division by revenue after acquisitions in Ireland and Scandinavia.

The stock tumbled as much 22 percent in London trading, the most since at least 1988 and closed down 7.2 percent to 92.5 pence. The stock has lost 26 percent this year, wiping more than 1.2 billion pounds off the company’s market value.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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