RSA Insurance Warns On FY13 Earnings, CEO Simon Lee Resigns; Stock Plunge

(RTTNews) - Shares of RSA Insurance Group Plc (RSA.L, RSANY.PK) plunged around 18 percent in the morning trade in London after the insurer said it expects a further reduction in anticipated 2013 earnings due to the impact of Irish reserve strengthening and the storms in Europe last week. The company also announced the resignation of Group Chief Executive Simon Lee with immediate effect. Martin Scicluna would become Executive Chairman, and the company's search for a new Group Chief Executive is underway.

In a statement, RSA noted that it has completed its review of Irish reserves referenced in its interim management statement on November 5. Following this, Irish reserves will need to be strengthened by 130 million pounds, the majority of which relates to bodily injury strengthening in motor and liability lines. The latest one adds to the 70 million pounds previously announced on November 8 relating to claims and finance issues in Ireland.

The company now projects mid-single digit Group return on equity in 2013. The impact of events in the last quarter will need to be taken into consideration when the Board determines the 2013 final dividend recommendation in February 2014.

The company also experienced further adverse weather in early December with storms in the UK and Scandinavia leading to net claims of 25 million pounds.

According to the firm, the review of its businesses commenced with the objectives of improving its performance and capital position.

RSA said it intends to inject 135 million pounds of capital into RSA Insurance Ireland to ensure that the solvency ratio of RSA Insurance Ireland is maintained above 200 percent.

The company further said the PwC review of the issues raised in Ireland is ongoing and PwC is expected to report back to the Board in January when its findings will be announced.

Scicluna said, "The significant reserve strengthening in Ireland represents a further negative event and places additional strain on the capital metrics of the Group. The impact of this reserve strengthening, alongside the extreme weather in 2013 and the effect of financial irregularities in Ireland will be taken into consideration in the Board's dividend decision in February. …. The Board and I are confident that RSA will re-emerge as a stronger group in 2014."

Regarding the management changes, the company said that Lee will stand down from the Board and leave the group with immediate effect, and will not receive any payment beyond his contractual entitlement.

Until a permanent replacement can be found the Board has asked Non-Executive Chairman Martin Scicluna to become Executive Chairman. RSA noted that it has started the recruitment process with the appointment of an executive search firm. It is expected to take a number of months, at the conclusion of which Martin will revert to the role of Non-Executive Chairman, the company said.

Scicluna further said that the company is initiating a full review of its businesses with the objectives of improving its capital strength, optimising the Group's business portfolio and delivering a sustainable dividend into the future. The company will update on the progress of this review at its full year results presentation.

In London, RSA shares are currently trading at 81.44 pence, down 18.26 pence or 18.31 percent.