RSA share price: Company accused of using Irish-subsidiary reserves to cover group finances

on Mar 10, 2015
Updated: Oct 21, 2019

RSA Insurance Group’s (LON:RSA) share price has dropped over two percent since the opening bell today amid allegations that it used a surplus generated in its Irish division to shore up losses across the group. The claims were made by former chief executive of the subsidiary Philip Smith during a constructive dismissal hearing in front of the Employment Appeals Tribunal in Dublin yesterday.
Smith was quoted in reports across the media as saying that RSA’s Irish offshoot was directed to release about €255 million (£182 million) in reserves to boost the results of its UK-based parent group between 2007 and 2011. The former RSE Ireland chief executive claimed that this left the finances of the Irish unit in a “parlous state”. Smith explained that RSA Ireland’s parent company considered its reserves as “treasure in the Irish caves to be used as the group saw fit”.

According to him, the policy of tapping into the Irish unit’s reserves meant it did not have the financial leverage needed when problems were uncovered in 2013. In his view, no reserve margin had been built up “such that when problems arose, there was absolutely no contingency”.
Smith is also doubting the process followed by RSA in the run-up to his suspension in November 2013 amid the accounting scandal which uncovered a £200 million black hole in the insurer’s books. Smith has previously claimed he had been made the “fall guy” for RSA’s crisis in Ireland, which forced the insurer to inject emergency capital into the division in order to strengthen its finances.
RSA is still under investigation by the Central Bank of Ireland into the control failures at the insurer’s subsidiary, with the results of its probe expected later this year. As of 11:57 GMT, RSA’s share price had plummeted 2.6 percent to 401.60p. The insurer’s stock value has dropped 5.2 percent since the turn of the year.
According to the Financial Times, as of 09 March, 2015, the consensus forecast amongst 29 polled investment analysts covering RSA Insurance Group plc has it that investors should hold their position in the company. The median target price of the 15 analysts offering 12 month projections for the company’s stock is 605.00p with a low estimate of 475.00p and a high estimate of 660.00p.
As of 13:06 GMT, Tuesday, 10 March, RSA Insurance Group plc share price is 401.25p.