Has RSA Insurance Group plc’s Outlook Changed Now Hester Is At The Helm?

Stephen Hester is now in charge at RSA Insurance Group plc (LON:RSA) does this mean investors can trust the company again?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.



A few weeks ago, I wrote about RSA Insurance Group plc (LSE:RSA) (NASDAQOTH:RSAIF) and concluded that after a catalogue of disasters, stretching back as far as 1999, investors cannot rely on the company to pull itself out of its most recent accounting debacle.

However, now that Stephen Hester has taken the helm, I have had a slight change of thought on the company. Indeed, it would appear that the market is also pleased with the appointment, as after the news came out RSA’s shares rallied by around 10%. 

The right man for the job

Hester comes to RSA highly acclaimed, after spending several years successfully cleaning up RBS, which involved what was arguably one of the largest and most complex corporate restructurings in British history. Nevertheless, even with his experience at RBS behind him, Hester’s appointment has been criticized by some people because of his lack of experience within the insurance sector.

However, according to people with knowledge of the matter, as RSA is a non-specialist insurer, with its average insurance contract lasting  for a year or two, an in-depth knowledge of the industry is not essential. If RSA were a specialist insurer, writing risks that lasted for five or more years — like Catlin — Hester’s appointment might well be inappropriate. 

Getting to work right away

Still, Hester has no time to rest in his new role. No, RSA’s newest executive has got his work cut out if he plans to meet his own self-imposed deadline of putting a recovery plan together by the time the company reports its full-year 2013 results in a few weeks’ time. This is not going to be an easy job.

To nurse RSA back to health, Hester will need to boost RSA’s credit rating by finding cash to fill a hole in the insurer’s balance sheet. City analysts believe that Hester will need to find an additional £500m to £1bn in order to satisfy rating agencies — no small figure. 

Convincing the rating agencies that RSA has enough cash to remain in business is perhaps Hester’s most important job. Many of RSA’s clients require the company to have an investment grade credit rating in order to do business with it. At present, RSA’s credit rating is only just above the investment grade benchmark, so a cut could result in the company losing a significant portion of its business.

With such a large amount of cash needed to stabilize RSA, it is widely believed that the company will slash its dividend payout, saving the company around £120 million a year. But this won’t be enough, so investors should not rule out the use of other extreme measures to raise the cash, including a rights issue or the sale of overseas businesses.

Foolish takeaway

So, with Stephen Hester in the driving seat at RSA, the company’s outlook is a lot brighter than it was before. That being said, returning RSA to full health will not be easy and Hester has his work cut out, although I doubt there is a better man for the job.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Rupert does not own any share mentioned within this article. 

More on Investing Articles

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

Buying 8,617 Legal & General shares would give me a stunning income of £1,840 a year

Legal & General shares offer one of the highest dividend yields on the entire FTSE 100. Harvey Jones wants to…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

£25k to invest? Here’s how I’d try to turn that into a second income of £12,578 a year!

If Harvey Jones had a lump sum to invest today he'd go flat out buying top FTSE 100 second income…

Read more »

Union Jack flag in a castle shaped sandcastle on a beautiful beach in brilliant sunshine
Investing Articles

2 lesser-known dividend stocks to consider this summer

Summer is here and global markets could be heading for a period of subdued trading. But our writer thinks there…

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

Here’s how I’d aim to build a £50K SIPP into a £250K retirement fund

Our writer outlines the approach he would take to try and increase the value of his SIPP multiple times in…

Read more »

Investing Articles

9.4%+ yields! 3 proven FTSE 100 dividend payers I’d buy for my Stocks and Shares ISA

Our writer highlights a trio of FTSE 100 shares with yields close to 10%. He'd happily pop them into his…

Read more »

Mixed-race female couple enjoying themselves on a walk
Investing Articles

Are Raspberry Pi shares a once-in-a-lifetime chance to get rich?

With Raspberry Pi shares surging after a successful IPO, could this UK tech startup offer a long-term wealth creation opportunity…

Read more »

Newspaper and direction sign with investment options
Investing Articles

Huge gains and 9% yields: why now’s an amazing time to be a stock market investor

The stock market’s generating fantastic returns in 2024. Whether you're looking for gains or income, it’s a great time to…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

This steady dividend payer looks like one of the best bargain stocks in the FTSE 100

A yield of 4.7% and a consistent dividend record make this FTSE 100 company look like good value in an…

Read more »