Analyst Jefferies’ note estimates that insurer has £363m of redundant reserves to tap
RSA has been given a reserving clean bill of health by stockbroker Jefferies.
An analysis of the insurance giant’s FSA returns, carried out by insurance equity analyst James Shuck, has identified £363m worth of redundant UK reserves, concentrated in property.
And while motor reserves look modestly deficient, the note finds that the situation is manageable owing to RSA having raised rates much earlier than the bulk of its competitors, meaning the insurer will be able to continue ongoing releases in the UK.
Overall, Shuck forecasts an improvement in RSA’s accident year combined ratio from 100% in 2010 to 97% by 2013, with reserve releases broadly flat. This improvement is expected to be driven by fewer large losses, rate action and efficiency gains.
Meanwhile, it predicts that RSA will continue to grow internationally from a low base with an 8% rise in GWP over the next three years, despite the difficult market backdrop.
But, according to the note, RSA’s shares have underperformed the insurance sector as a whole over the last six months, despite limited financial market exposure and an absence of peripheral Eurozone sovereign debt.
The note concludes: “New business reserving continues to allow for future redundancy, in our view, and overall we expect further improvement in the combined ratio to be accompanied by continued top-line growth. Recent weakness is an opportunity.”
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