The perversity of the market again: there is not a lot to complain about in the halfway figures from RSA Insurance. The restructuring that was carried out by Stephen Hester since he joined in 2014 is over, with the sale of the UK legacy closed funds achieved this year.
The core operating ratios in the three divisions are all in positive territory, the UK and international side on the right side of 100 per cent, even after taking out the hit from the cut in the Ogden discount rate used to calculate compensation to serious personal injury claimants, which affected the industry.
The Scandinavian business, more than half of RSA, came in with a ratio of 82 per cent, which is about as healthy as it gets for an insurer. The market is undeniably difficult but the company is seeing some improvement in premiums written, up 3 per cent excluding currency effects, reflecting 1 per cent volume growth and 2 per cent in pricing.
The Solvency II ratio, the difference between those funds that might be needed and the amount available and the main measure of insurers’ financial health, is 163 per cent and running ahead of RSA’s target of 130 to 160 per cent. The underwriting profit from the core insurance operation is at a record £222 million, up 28 per cent on last year.
Underlying earnings per share are ahead by 31 per cent. The interim dividend is likewise up 32 per cent. The shares, though, fell by 3p to 654p because of disappointment over that payment.
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That Solvency II ratio would suggest a return to investors is possible next year, in the form of a share buyback or special dividend, but Mr Hester is being cautious on the rate of increase in ordinary dividends. RSA has overpaid to investors in the past and was forced to cut the payment.
The fact is that the shares, at a low of well below £4 at the start of last year, look expensive on one measure — the premium to net tangible asset value of 2.4 times, while the forward dividend yield is only a little over 3 per cent. Investors might consider taking profits now, although further rises in the price longer term cannot be ruled out.