Rating agency affirms insurer’s A rating despite £200m of losses and concerns about underwriting controls

RSA’s losses from accounting irregularities in its Irish business and recent storms are “manageable”, according to rating agency Fitch.

Fitch has affirmed RSA’s A financial strength rating with a stable outlook. However, the rating agency also said that the Irish problems had prompted to question its opinion of RSA’s underwriting controls.

Double whammy

RSA has hit the market with a double whammy in the past week. It warned in its interim management statement last Tuesday that storm losses in Europe and Canada would push its full-year return on equity below 10%.

Then, on Friday, the insurer announced that “issues” in the claims and finance functions of its Irish business would wipe £70m from its full-year operating profit.

Fitch said the combined storm losses and Ireland problems would cut RSA’s full-year profit by £200m.

The agency said: “If contained, Fitch views these losses as manageable, but notes that the expected reduction in earnings and desire to sustain the already rebased dividend will limit earnings retention within the company.

“While the full impact of the accounting irregularities discovered in the Irish business is as yet unclear, the size of the issue appears manageable.

“RSA has indicated that it expects the impact on profit should be around £70m and that losses relate solely to the Irish business and are not indicative of more systemic issues within the insurer.”

Underwriting control concerns

Depite this, Fitch added that the developments in Ireland “bring into question Fitch’s view of RSA’s solid underwriting controls, and consistently solid management of its operations”.

It added: “In the context of continued expansion abroad, RSA’s operations in overseas and emerging markets have been profitable but Fitch will continue to closely monitor corporate governance procedures to ensure the bolt-on acquisitions are being adequately integrated into the overall group.

“Fitch also takes some comfort from the fact RSA has stated that it will take a more cautious approach to any future acquisitions.”

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