RSA Insurance boosted by Barclays upgrade

Barclays said RSA’s full-year 2015 underlying results were “very strong”, beating company collected underlying earnings per share consensus by 20%.

Most impressive was the speed at which the loss ratio has started to improve, the bank said.

It noted RSA’s plans to close the gap to the best in class players in each of its core markets, UK, Scandinavia and Canada by 2018.

“While we acknowledge that it is rare for a mid of the pack insurer to become a ‘best in class’ insurer, we do believe RSA has set out a realistic plan to get there,” it said.

RSA is aiming to have a combined ratio of 94% or lower in the UK and Canada, and 85% or below in Scandinavia.

Barclays reckons there is significant upside even if the company is only partially successful, and its new price target is based on RSA getting halfway to its targets. The bank’s base case assumes RSA gets halfway to its targets, with 2018 earnings per share of 48p and a combined ratio of 92.8%.

“In the short term, restructuring costs, pension contributions and the impact of the pull to par will restrain dividends, but we expect special dividends to start by 2018, with a yield of 6.6% in 2018, increasing to 8.1% in 2019,” Barclays said.

At 0905 BST, RSA shares were up 2.9% to 472.40p.