Stephen Hester says he is a year ahead of his three-year plan to remake RSA Insurance Group Plc (RSA), as he considers more asset sales in Europe to shore up the balance sheet and recover from an accounting scandal.
“This has been a far flung company that for a number of years was living a little bit too close to the edge,” Hester, who was named chief executive officer in February, said in an interview in London. “Our half-term report card will be saying that we are feeling cheerful about our strategic focus. We are ahead of schedule and are going better than we had hoped.”
Since taking over from Simon Lee, who quit in December in the wake of three profit warnings and an accounting scandal in Ireland, the former CEO of Royal Bank of Scotland Group Plc has overseen a 775 million-pound ($1.3 billion) rights issue and raised more than 600 million pounds from asset sales in eastern Europe, Canada and China, double what was targeted by year-end.
Hester, 53, will report half-year results on Aug. 7 and will discuss more cost cutting, including job reductions, and further “tidy up” charges related to his turnaround plan, he said. RSA shares have risen 8 percent since Hester was hired on Feb. 4, in line with gains for a broader index of non-life insurance stocks. About 1.3 billion pounds was wiped off the value of the company in 2013.
The stock erased losses in London trading today, rebounding as much as 2.5 percent. It closed down 0.5 percent at 461.2 pence.
The former banker is seeking to reverse a decade of acquisitions that saw London-based RSA expand in more than 30 countries. The company is still 12 months from completing the sales of all unwanted businesses, which may include assets in RSA’s primary markets of the U.K., Ireland, Scandinavia, Latin America and Canada, Hester said.
“I would be surprised if we didn’t sell a bit more of Europe,” he said, declining to comment on a report by Insurance Insider, an industry publication, that the German business had been put up for sale. “I expect us to remain in Europe, but I also expect us to do some more trimming than we have already.”
RSA operates in France, Belgium, Germany, Italy, the Netherlands, Spain, the U.K. and Ireland after selling its eastern European and Polish assets to PZU SA in April. It also owns four businesses in the Middle East as well as companies in India, Singapore and Hong Kong that may also be sold.
Hester’s sales mirror those of other insurers, including London-based Aviva Plc (AV/) and Australia’s QBE Insurance Ltd. (QBE), that have sold assets to bolster capital. Direct Line Insurance Group Plc is also looking to sell its operations in Italy and Germany, Reuters reported on July 11.
“I am feeling good about the progress of capital,” said Hester, who may be paid as much as 5.6 million pounds in his first year on the job. “We set targets that were designed to be reached by end of 2016. Is it possible that we reach those targets earlier? I think it is.”
James Shuck, an analyst for UBS AG, this week downgraded the insurer to sell, saying it was “vulnerable to disappointing on restructuring targets” and the shares are expensive. The stock has climbed 14 percent this year, making it the third-best performing insurance stock behind Admiral Group Plc and Direct Line.
Hester said the turnaround plan was also about improving the quality of the businesses that remain on the balance sheet. This has involved RSA either repricing or withdrawing from less profitable lines of business such as parts of the motor insurance market in the U.K. or property insurance in Canada.
The company is also awaiting action by the Irish regulator that will probably result in a fine after a probe found that former executives in Dublin had reported inaccurate and potentially misleading financial results.
Hester said acquisitions are off the table for the next two to three years at least. “Acquisitions should be done from a position of strength, not a thing you do to try and get out of a position of weakness,” he said. “Once we get the confidence, acquisitions is an option as is giving money back to shareholders.”
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