RSA Insurance Group Plc, the U.K.’s biggest non-life insurer by market value, cut its dividend by 33 percent after investment income fell for the fourth straight year. The shares dropped the most in almost nine years.
The company reduced its 2012 second-half payout to 3.9 pence a share from 5.82 pence a year earlier, London-based RSA said today in a statement. The stock declined as much as 15 percent and was down 13 percent to 118.8 pence at 8:42 a.m. in London trading, marking the biggest fall since March 2004.
The “surprise dividend cut leaves little support” for RSA’s valuation, Joy Ferneyhough, a London-based analyst at Espirito Santo Investment Bank with a sell rating on the stock, wrote in a note to clients. “Underlying earnings are likely to come under increasing pressure from investment-income headwinds and potentially dwindling reserve releases.”
RSA, which insures cars, homes and ships in the U.K., Scandinavia and emerging markets, said the decision to reduce its dividend followed a “prolonged low bond yield environment” that had cost it 200 million pounds ($308 million) in pretax earnings since 2008. The company’s underwriting profit in 2012 was eroded by claims related to wet weather in the U.K. that cost 60 million pounds more than usual and earthquakes in Italy that cost 30 million pounds.
RSA had the seventh-highest dividend yield in the FTSE 100 Index before today, data compiled by Bloomberg show.
“Had we carried on with the current dividend policy, the payout ratio would have been close to 100 percent in 2012,” Chief Executive Officer Simon Lee said on a conference call with reporters. “We felt that was an imbalanced approach and it would be more prudent to keep more of the capital within the business.”
RSA’s net income for 2012 dropped 18 percent to 351 million pounds, missing the 380 million-pound median estimate of 17 analysts surveyed by Bloomberg.
Investment returns dropped to 515 million pounds in 2012 from 579 million pounds in the previous year, RSA said in the statement. The dividend cut will save 100 million pounds in 2013, providing an opportunity to grow the business, Lee said.