RSA faces tough choices to protect credit ratingTuesday 17 December 2013 07.46
Troubled insurer RSA may have to sell its best assets, leaving it concentrated in slow-growing markets to raise up to £1 billion sterling and safeguard its credit ratings.
RSA said on Friday it needed to boost capital and may have to cut its dividend following three profit warnings and a move to strengthen reserves at its Irish business, where it suspects accounting irregularities.
Some analysts estimate Britain's biggest non-life insurer, which owns the More Than brand, may need to raise as much as £1 billion.
RSA Chairman Martin Scicluna is under pressure to outline a recovery plan to avoid downgrades to the company's credit ratings, a move that could deter insurance brokers from recommending its products such as car and home insurance.
Ratings agency Fitch put RSA's Insurer Financial Strength (IFS) rating of 'A' on Rating Watch Negative yesterday, indicating it is considering a downgrade.
Standard & Poor's lowered its credit ratings on the insurer and its core businesses to 'A-' from 'A' and revised its ratings to Credit Watch Developing from Negative.
RSA's chief financial officer Richard Houghton said S&P's decision would have no material impact on the insurer's operations, its customers or its ability to trade.
Selling trophy assets in overseas markets, where RSA makes two thirds of its revenue, could be its least worst option.
Investors who have seen their shares fall 28% since the start of this year look unlikely to back a rights issue and analysts say the company is worth less than the sum of its constituent businesses, making the prospect of a full takeover remote.
Scicluna, who has been running the insurer since chief executive Simon Lee quit on Friday, told Reuters any part of the business could be sold, but declined to say which were the most likely.
If RSA were forced to divest trophy assets such as businesses in Scandinavia, Canada or emerging markets in Asia or Latin America, this would amount to 'selling the family silver,"according to Shore Capital Stockbrokers.
RSA would be left with a rump of slow-growth western European assets such as its Irish business, where consultant PwC is due to report on suspected accounting problems in January, and Britain, where market conditions for insurance are tough.
Scicluna and his team are scheduled for a routine meeting this week with ratings agency analysts, the source said.
RSA has an implied rating of 'BBB', according to ThomsonReuters data, compared with an average of 'BB+' for its peer group of UK insurers that includes 'A' rated Aviva.