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What Should RSA Insurance Group plc Shareholders Look For On Thursday?

RSA Insurance Group (LSE: RSA) (NASDAQOTH: RSANY.US) shareholders have seen the value of their shares fall by 20% over the last six months, but the firm’s current crisis may reach a conclusion on Thursday this week, when RSA will release the findings of a review by accountants PwC into RSA’s Irish business.

Markets are expecting PwC to conclude that the Irish problem was an isolated incident, and RSA’s share price has already bounced up by 7.5% to 98p this week, so what should shareholders be looking for on Thursday?

Ireland — more problems?

Although RSA’s recent profit warnings have mostly been due to adverse weather losses and are excusable, its Irish accounting fiasco is unacceptable.

Shareholders will need to pay close attention to PwC’s findings regarding RSA Ireland; were appropriate processes and controls in place, and if so, how were they breached?

RSA has already injected £200m of emergency capital into its Irish business, and if PwC uncovers any issues that could require asset write-downs or further injections of cash, the cost could become a serious problem.

Fundraising?

Martin Scicluna, RSA’s chairman, has already admitted that the events in Ireland have placed “additional strain on the capital metrics of the group”. The firm’s credit rating was cut to A- by Standard & Poor in December, and placed on a 90-day watch.

Translated, this means that RSA probably needs to raise some cash, as a further cut to its credit rating would mean that some of the brokers who sell its products could no longer recommend them.

Unless shareholders are willing to support a rights issue, the only way for RSA to raise money would be by selling or reinsuring some of its overseas assets, even though these represent the firm’s main source of growth.

Dividend prospects

RSA cut its dividend last year, and it now looks likely to do so again this year.

Mr Scicluna has said that the cost of the Irish fiasco “will be taken into consideration in the Board’s dividend decision in February”, and analysts have already cut the consensus estimate for this year’s payout to 4p, down from the previously expected payout of around 6.3p.

Is RSA a buy?

I recently recommended RSA as a buy at 92p, but this week’s 7.5% rise to 98p has made me cautious, as it could be violently reversed if the markets aren’t impressed by Thursday’s news. I’d hold for now.

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> Roland does not own shares in RSA Insurance Group.