RSA suspends its three top executives in Ireland over £70m losses
Second profits warning in a week piles pressure on chief executive Simon Lee to quit
Jim Armitage is the City editor of The Independent and London Evening Standard group of newspapers. He has been a reporter and editor for more than 20 years and was recently shortlisted for the Press Gazette financial journalist of the year and The Society of Editors financial journalist of the year awards. He contributes news, investigative reports and comment to the Independent titles plus a daily column in the Evening Standard.
Deputy Business Editor
Saturday 09 November 2013
The insurer RSA suspended its three top executives in Ireland last night pending an investigation into “issues” in its claims and finance divisions which will cost the group £70m. It was the second profits warning in a week and could pile pressure on the company’s under-fire chief executive, Simon Lee, to quit.
The announcement was made yesterday evening when most City employees had left their desks for the weekend, angering investors. RSA’s shares, already under great pressure following a turbulent year for the company, are likely to fall heavily on Monday morning when stock market trading resumes.
After taxes, the Irish crisis will strip some £50m from the expected £330m full-year profit for the group, which is valued at £4.4bn on the stock market.
Philip Smith, the chief executive of RSA Ireland, the chief finance officer Rory O’Connor and claims director Peter Burke were all suspended following a board meeting yesterday afternoon in Dublin. They have been ordered to stay at home during the investigation.
RSA has had to inject more capital into the Irish operations because of the affair. It said no customers would be affected.
The company had referred briefly to an ongoing review of “bodily injury claims” in Ireland when it issued its weather-related profit warning earlier in the week. But it said the three suspensions were not connected with that. However, it declined to comment on what it said was an ongoing investigation.
RSA conducts only general insurance in Ireland, mostly offering home and motor cover.
The latest crisis, particularly in its timing, will only damage the insurer’s reputation further among investors. Even before this eventful week, Mr Lee had been in danger of losing the confidence of shareholders after he slashed the dividend by a third in February.
A spokesman said the issues had been uncovered by the company’s own internal audit process. He said the relevant authorities had been informed in Ireland but would not comment on whether the police were involved.
During the inquiry, UK and Western Europe chief executive Adrian Brown and claims director David Pitt will take over the Irish operations, while Chris Rash, group chief accountant, will become acting chief finance officer.
The extent of RSA’s weather warning earlier in the week surprised investors because rival companies and the Association of British Insurers had played down the damage. However, Mr Lee said RSA was hit hard because it was a big player in Scandinavia, where weather damage was particularly bad. The company has warned it will probably have to increase its reserves to cover the weather damage. So far this year RSA’s shares have fallen 5 per cent despite the wider rise in the FTSE-100 Index.
RSA had a turnover of €429m (£358m) in its Irish division last year, representing 4 per cent of group revenues. The group’s other big markets are the UK, Italy, Scandinavia and Canada.
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