RSA Insurance has posted a sharp drop in annual profits due to higher weather-related costs and challenges in its commercial insurance unit.
Operating profit declined 19% last year to £517 million and missed analysts’ forecasts.
It was dragged lower by a 33% fall in underwriting profit to £250 million due to large losses in its commercial insurance business, particularly the London market unit.
However, on a statutory basis, pre-tax profit increased 7% to £480 million.
Shares fell 3.4% on the news to 508.6p.
Chief executive Stephen Hester said: “In 2018 RSA increased headline profits and dividends with a still attractive return on capital. At an underlying level however, the results represent RSA’s first down year since 2013.
“Much went well in 2018, with excellent results in many of RSA’s personal lines businesses and good progress on expenses and other strategic initiatives. However, adverse weather costs and challenging commercial lines results exposed us to more volatility than expected.
“This was most intense in the London Market business, which accounted for substantially all our under-performance in the second half.”
He said the company is taking action to exit riskier business lines and has initiated major pricing and re-underwriting programmes which should ensure the company will bounce back in 2019.
“We have also made management changes and increased reinsurance coverage for 2019. Our performance ambitions for RSA are high, and unchanged. We recognise the need to demonstrate resumed progress against them,” Mr Hester added.
RSA also warned that it is taking longer to improve the profitability of its UK business than initially expected.
“Our UK business faces the toughest competition and is taking longer than hoped to achieve its targets.
“But we firmly believe these are possible and expect the portfolio changes and other measures outlined to improve results substantially in 2019 and beyond.”