Insurers suffer from storms and policy uncertainty
Wednesday 06 November 2013
RSA Insurance shares tumbled 6 per cent yesterday after the insurer warned that severe weather in Europe and Canada is likely to hit its profits this year.
The company said damage from the St Jude's storm, which struck at the end of last month, was likely to cost it up to £65m, with most of the claims coming from Scandinavia and not the UK.
Flooding in Alberta and Toronto has also hit the insurer heavily and RSA now expects its return on equity to be below 10 per cent. Analysts reckon losses due to the weather could affect its full-year operating profits by about £55m.
Simon Lee, the chief executive, said 2013 had been "an exceptionally tough one for weather events for the group", although mounting bodily injury claims in Ireland have also had an impact on its reserves.
Shares in the company fell by 8.1p to 121p following the warning, despite it growing its premiums to £6.7bn during the first nine months of the year.
Eamonn Flanagan, an analyst at Shore Capital, said that RSA remained in a strong financial position despite the flurry of weather-related claims that have hit it.
He added: "The shares have performed well in recent weeks … we view today's weakness as a buying opportunity."
The profits warning rounds off a tough few months for RSA, which wrong-footed some investors earlier this year by slashing its dividend. At the time, it blamed the cut on weaker investment returns, although it did not lead to a major shareholder revolt as some people had predicted.
Meanwhile, Nigel Wilson, the head of the rival insurance group Legal & General used his company's latest update to urge policymakers to get "cracking on with fracking" to boost growth and lower energy bills across the UK.
The insurer has been in talks with the Coalition about using more of its money to invest in infrastructure but believes too much time is spent talking about high speed rail lines and airports in the Thames Estuary.
Mr Wilson, the chief executive, said: "It seems to have fallen off the agenda but the north of England needs fracking more than HS2 and so does the rest of the country as it will keep energy prices down. We need to see much less uncertainty around policy to make the UK more attractive to investors."
L&G beat City expectations in the first nine months after generating £740m of cash and attracting net inflows of £10.9bn.
The company said any cap on the management fees charged by pension providers should be lower than the 0.75 per cent of managed funds currently proposed by the Government.
Mr Wilson added: "LGIM, whose fees average just over 0.1 per cent and Cofunds, whose platform fees are less than 0.3 per cent, offer outstanding value. We have capped auto-enrolment charges at 50bps and believe nobody saving for a workplace pension in standard default funds should have to pay more than this."
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