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M&A a 'low priority' for RSA, says CEO

Making acquisitions is "a tool of low priority" for RSA Insurance Group PLC despite the chatter in the market about potential deals, CEO Stephen Hester told journalists May 10.

Speaking alongside the CEO about RSA's first-quarter trading update, CFO Scott Egan revealed that the company had incurred a pretax claims bill of £40 million from winter storm Emma, which hit the U.K. in early March.

Limited M&A appetite

When asked what role RSA would play in M&A, Hester said: "The greatest gains we can make, both for our customers and our shareholders, come from improving our own business. I think we are establishing quite a good track record of being able to do that, and we see there being lots more we can do."

RSA's to-do list includes making changes to ensure the company can serve its customers better, using modern tools to be better underwriters and to become more efficient, the CEO said, adding: "We regard M&A as a tool of low priority for RSA because of the scale of organic opportunities we see in front of us."

Yet RSA is not averse to M&A, the CEO said, noting that it had bought personal-lines broker Deeks in Canada in the first quarter. However, he cautioned: "That's the kind of limited appetite we have given the organic opportunities in our business."

While acknowledging that insurance M&A was in the news, Hester said there had been "limited activity," adding that it had been mainly confined to the wholesale part of the market, such as Axa's pending acquisition of XL Group Ltd.

"There hasn't been a lot of activity in the retail and commercial markets that we play in," he said. "But obviously there is always a trade-off between the economies of scale you get in relatively mature markets like insurance versus the disruption of getting it."

Weather hit

At group level, RSA took a hit from winter storms. While it did not provide profit figures in the trading update, RSA said its underlying pretax profit for the first quarter was lower than in the same period of 2017 because "elevated winter weather costs" had masked other improvements the company had made.

Weather-related claims costs were equivalent to 5.1% of net earned premiums in the first quarter, compared with 2% a year earlier and a five-year average of 3.2%. Other than the £40 million bill for storm Emma, the company declined to give a breakdown of weather claims for the quarter.

"Our weather costs seem better than, or in line with, those of our regional competitors that have reported," Egan said.

Fellow U.K. insurer Direct Line Insurance Group Plc said in its first-quarter trading update that it had paid £50 million after tax for U.K. winter weather claims and that the claims bill on a pretax basis had almost entirely used up its annual weather claims budget of £75 million.

Despite the weather hit, the stock market responded well to RSA's trading update, which Panmure Gordon analyst Barrie Cornes described as "solid." RSA's share price was up 2.30% to 650.00 pence at 10.30 a.m. London time May 10.