By Simon Jessop
LONDON (Reuters) - British insurer RSA (L:RSA) swung back to half-year profit on Thursday and said it had made progress with its restructuring plan although it would take more charges and up its reserves to bolster its balance sheet further.
Under new Chief Executive Stephen Hester, who was appointed in February, the company has raised fresh capital and is selling non-core units and restructuring its business.
Weather-related losses and accounting problems at its Irish arm hit its finances last year and prompted a series of profit warnings.
While Hester's efforts have put the firm on a firmer footing, extra charges and a cost-savings target that fell short of some analysts' hopes caused early weakness in the share price, before it recovered to trade up in a weaker FTSE 100 (FTSE:).
"RSA reported yet another 'dirty' set of figures with lots of exceptionals, write-offs and one-offs. Stripping these back for a second, and acknowledging the danger of ignoring the bad stuff, the underlying performance isn't too bad," said Shore Capital analyst Eamonn Flanagan in a note to clients.
Reserves, the amount of money held to cover potential claims, were increased by 68 million pounds in the UK, largely to cover historic claims in its professional and financial services unit and deafness claims in its commercial business.
RSA believes that such deafness-related claims were largely driven by fraudulent activity, a spokesperson for the insurer said, adding that 65 percent of such claims were settled at nil.
Ireland, the source of much of its 2013 woe, needed an extra 29 million pounds set aside to cover old business that was in many cases priced too low, as well as future business. A spokesperson said RSA could not speculate on why the previous management had priced its Irish business "too low".
In Scandinavia, meanwhile, the company said it had boosted its Swedish reserves by 19 million pounds ahead of a regulatory review of industry longevity assumptions.
As well as the boost to its reserves, the company's bottom line was also helped by a series of one-off items, including a 28 million pound gain on disposals, largely in Latvia, and a 90 million pound gain on its investments.
But RSA also posted a writedown of 66 million pounds of goodwill and other intangibles, 39 million on restructuring costs and 14 million pounds on costs associated with Solvency II regulation.
"The other key thing people have been looking for is the cost-saving target. They put out a number of 180 million pounds by 2016 ..., the market was looking for slightly more, around 200 million," said Kamran Hossain, analyst at RBC Capital Markets.
Berenberg analysts Sami Taipalus and Trevor Moss called the results "roughly in line with market expectations", but added the cost savings target "barely offsets 2014 volume reductions", after a series of asset disposals.
They have included most recently its China business, sold in July for 71 million pounds to Swiss Re (VX:SRENH), and its April deal to sell the bulk of its east European businesses to Polish insurer PZU (WA:PZU), with more to come, said Hester.
The decision to move out of less profitable areas and focus on its core markets in the UK, Ireland, Scandinavia, Canada and Latin America meant that RSA wrote fewer premiums in the period, down 9 percent to 3.9 billion pounds.
But RSA managed to chalk up an interim pretax profit of 69 million pounds after posting a 494 million pounds loss in the second half of 2013.
"RSA's Action Plan is going well. Since announcing it five months ago, we have made strong progress improving strategic focus and capital health. Good work is also underway on cost, portfolio actions and the management line-up to drive future performance," Hester said in a statement.
That improved performance would likely also allow the company to restart its dividend at the full-year results, Hester said. RSA paid 39 pence as a final dividend at the end of last year.
(Editing by Richa Naidu and Shadia Nasralla)