RSA Insurance Ireland's operating loss widened by 62 per cent last year after the country's once-largest provider of motor and property coverage was forced to set aside £50 million (€59.1 million) of reserves to cover the costs of accidents in 2014 and 2015.
The local subsidiary of London-listed RSA Group posted a £42 million full-year loss compared with a £26 million loss for 2015. The performance was described by the parent as “disappointing”, especially as it had returned last year to writing new business on a profitable basis, as it and the wider industry hiked rates.
Insurers in the Republic have increased motor rates by almost 60 per cent over the past three years, according to Central Statistics Office data, in an effort to return to profitability as they struggle with rising claims, attributed to more cars on our roads in a recovering economy and spiralling court awards.
RSA Insurance Ireland has suffered more than most, as it was embroiled in an accounting scandal in 2013, when it emerged the company had not been setting aside enough reserves to cover large claims.
RSA said it is targeting a return to operating profitability for the Irish unit this year “through continued underwriting improvement, portfolio remediation and cost reduction”. However, it warned that the unit may face “additional reserve volatility” this year as a result of claims inflation on the back of the Personal Injuries Assessment board recently updating its so-called “book of quantum” – the guidelines for injury awards and judicial reviews.
As a result of the additional amount of money RSA Insurance Ireland had to set aside to cover higher expected costs from accidents in 2014 and 2015, its combined ratio – a keenly followed figure that measures insurance losses and expenses against premiums earned – rose to 116.2 per cent from 113.4 per cent year-on-year. A combined ratio off less than 100 per cent indicates an insurer is writing insurance on a profitable basis.
“The prior year loss is predominantly in the Republic of Ireland commercial and motor portfolios, where a combination of higher-than-expected claims and the distortion of our reserving patterns following the events of 2013 have resulted in further strengthening of reserves during 2016,” the company said.
“The issues have been amplified by a challenging Irish market, characterised by aggressive claims inflation and increasing litigation mitigated by a very hard rating environment.”
The bulk of the additional provisioning appeared to be in RSA’s commercial insurance business rather than its personal line, comparing the full-year results with its interim figures that were published in August.
RSA said premiums in Ireland were up 6 per cent last year to £306 million from a year earlier. This was largely driven by continued rating actions. Net written personal premiums rose 2 per cent to £185 million with commercial premiums increasing 12 per cent to £121 million.
Insurers have been less able to rely in recent years on investment income to cushion the blow from underwriting losses, as they grapple with low global bond yields. RSA Insurance Ireland’s investment profit fell to £7 million last year from £9 million in 2015.
The latest results come a day after three former RSA Insurance Ireland staff Rory O'Connor, Martin Ryan and Gerard Bradley were fined a combined £182,000 (€206,090) under sanctions tied to an investigation by a UK accounting watchdog into financial irregularities at the firm in 2012.
The Dublin-based insurer’s London-listed parent RSA Insurance Group injected €423 million of cash between 2013 and 2015 after the country’s once-largest insurer was thrown into crisis when it emerged it had a large hole in its balance sheet. This was mainly the result of the business having been found at the time to have set aside too little money in reserve to cover large claims.
RSA Group made a further €90 million available to the Irish division, if needed, last March to bolster its balance sheet under new insurance capital rules, known as Solvency II.
The continuing woes of the Irish business contrast with a 25 per cent surge in operating profits delivered by the broader RSA Group last year, to £655 million. The group, which has been undergoing a restructuring programme under ex-RBS boss Stephen Hester, raised its target for return on tangible equity to 13-17 per cent from a previous range of 12-15 per cent on Thursday, and said it hoped to "perform in the upper part of this range".
RSA said its cost-reduction programme was ahead of original targets and it was upgrading that target for a third time to more than £400 million sterling of gross annualised savings by 2018, from a previous target of more than £350 million.
The insurer said it would pay a final dividend of 11 pence per share and total dividend of 16 pence, up 52 per cent from a year earlier and above a forecast 15.1 pence.
- Additional reporting: Reuters