RSA sells Baltics and Polish units for £300m

Stephen Hester has sealed his first of several expected deals to sell RSA businesses, agreeing to dispose of its operations in the Baltics and Poland for £300m as part of a sweeping overhaul of the insurer.

Just a week after completing an emergency rights issue as it tries to recover from accounting irregularities at its Irish arm, the new chief executive said RSA would sell the assets to its rival in the region, the Polish insurer PZU.

The proceeds - equivalent to an estimated 18 times forecast earnings - are higher than some analysts had pencilled in. They mean RSA has already reached a target to raise cash from asset sales this year.

Shares in the FTSE 100 company rose 2.7 per cent to 95.1p in early London trading.

Thomas Seidl, analyst at Bernstein, argued it showed RSA had been "overly cautious" by asking shareholders to stump up so much cash themselves.

The £775m rights issue had a 96 per cent take-up rate, indicating shareholders are supportive of Mr Hester's strategy.

The sales to PZU - already the biggest insurer in eastern Europe by market capitalisation - are subject to regulatory approval in several countries.

The businesses have sizeable market shares within their respective markets, writing several lines of non-life insurance including home, motor and commercial.

Shares in PZU rose 2.9 per cent to 426.7 zloty in Warsaw. The deal is the latest push by the state-backed financial services group to expand outside Poland.

For RSA, the disposals should help Mr Hester achieve his aim of raising about the same sum as the equity raising through other measures, as he tries to soften the blow to investors of tapping them for cash.

The RSA chief is set to undertake a cost-cutting drive and disposals to focus on "core businesses" in its main markets.

More deals are expected this year. The agreement announced on Thursday excludes RSA's business in Russia, Intouch, which some analysts expect will also be sold.

The insurer is also looking at shedding its brokerage operation in Canada, Noraxis, and operations in Asia. Dorner Thomas, analyst at Citi, estimates these could fetch about £200m and £50m, respectively.

RSA said it would raise about £225m for three businesses in the Baltics - Lithuania, Latvia and Estonia - and about £75m for the Polish arm.

The assets in the Baltics and Poland are relatively small in the context of RSA. Combined, they wrote £241m of premiums, of a group total of £8.7bn, and produced pre-tax profits of £19m.

In a statement, Mr Hester - the former Royal Bank of Scotland chief drafted in earlier this year to turn around RSA - said the transaction was a "good deal for our shareholders, customers and employees".

RSA said the disposals were likely to complete in the second half of this year.

The deal comes just a day after the latest in a series of senior management changes at RSA. Adrian Brown, head of RSA's operations in the UK and western Europe, is leaving after 25 years.

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