2 Exceptional Reasons To Pile Into RSA Insurance Group plc

In recent days I have looked at why I believe RSA Insurance Group (LSE: RSA) (NASDAQOTH: RSANY.US) is a hugely risky selection (the original article can be viewed here).

But, of course, the world of investing is never a black and white business — it take a variety of views to make a market, and the actual stock price is the only indisputable factor. With this in mind I have laid out the key factors which could, in fact, make RSA Insurance Group a shrewd investment.

Foreign business continues to surge

Shares in RSA Insurance Group have steadily marched lower in recent months, and have shed more than a quarter since the beginning of November when news of troubles in Ireland emerged. News of massive reserve shortfalls at its Irish unit, subsequent boardroom resignations, RSAand profit warnings due to higher-than-expected, weather-related claims has severely dented confidence in the firm.

And these issues resulted in the firm reporting a £244m pre-tax loss for 2013. Still, news that new business continued to flow through the doors should provide reason for cheer. The company reported a 3% increase in net written premiums at constant exchange rates, to £8.67bn, during 2013.

Although new business in its core UK and Ireland markets came under significant pressure, difficulties in these regions were more than offset by strength overseas. Inflows from Scandinavia — the firm’s second-largest market — rose 4% to £1.86bn last year, while in Canada these advanced 8.7% to £1.76bn. And in emerging markets business surged 13.4% to £1.4bn in 2013.

Recent price collapse creates stunning value

Despite RSA Insurance Group’s travails of the past year, City brokers reckon the insurance giant is set to bounce back with aplomb this year and next. Indeed, forecasters expect the firm to recover from last year’s 10% earnings fall with a 17% advance in 2014. An additional 2% advance is predicted in the following 12-month period.

These projections leave RSA Insurance Group changing hands on P/E multiples of 10.9 and 10.7 for 2014 and 2015 respectively, just above the value benchmark of 10 times prospective earnings and outstripping a forward average of 12.9 for the entire non-life insurance sector. Should the firm’s turnaround strategy work out then RSA Insurance Group could prove a clever contrarian selection.

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Royston does not own shares in RSA Insurance Group.