Business Overview
RSA Insurance Group Plc (LON: RSA) is a British-based general insurer, offering insurance to individuals and businesses ranging from small businesses to large corporations.

Financial Highlights – Financial Year 2019
In 2019, the company delivered a strong result, with underlying earnings per share increased to 44.5 pence (ex. exits) and the total dividend was up by 10%. Net written premiums of £6,417 million were decreased by 1% in the period at constant FX. Underlying premiums reduced by 2% when adjusted for reinsurance changes but broadly flat excluding the exit portfolios. The personal lines businesses have premiums of 57% with a combined ratio of 88.5% for 2019. On 31st December 2019, the Solvency II coverage ratio of 168%, higher than the previous target. Excluding exits, the underlying return on tangible equity of 16%, in the upper part of 13-17% target range.

Share Price Performance

Daily Chart as on 18^thMarch 2020, before the market closed (Source: Thomson Reuters)

On March 18, 2020, at the time of writing (before the market close, at 12:31 PM GMT), RSA Insurance Group Plc shares were trading at GBX 338, down by 8.45 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 736.84/GBX 334.60. 

From the technical standpoint, 14 days-Relative Strength Index of the stock is hovering near the oversold zone, which is strengthening the upside move.

Valuation Methodology


Growth Catalyst
The Group focused on driving towards best-in-class capabilities and performance. In Scandinavia, the mid-single-digit rates and robust retention of 85 per cent contributed. Premium growth in most profitable lines such as Sweden up 2% and Johnson up 13%. Johnson continues to demonstrate robust growth, profitability and excellent customer retention. Personal Lines growth in Canada and Sweden, and Commercial Lines growth in Scandinavia.

Conclusion
The company is aiming for further progress in 2020. Based on existing forward bond yields and FX rates, investment income is projected to be in the range of £255-£270 million in 2020, and existing FX rates imply a 2 per cent headwind in pounds terms on operating profits against 2019. The group anticipate Net Written Premiums to be same in 2020 as compared with 2019 at constant FX, and Net Earned Premiums marginally lower reflecting residual earn through of 2019 actions. RSA is witnessing growth in its underwriting profit overall and from each region. The profits are increasing, return on tangible equity is very good, and the dividends are up. This growth is driven by enhanced underwriting. The change in management and growth in the UK & International division are showing good progress. The company focuses on underwriting enhancement with robust cost control which could lead the business of the Group. There are some challenges, but the company are capable enough to tackle them.

Based on the decent prospects which are supported by valuation done using the above method, we have given a “Buy” recommendation at the current price of GBX 336.90 (as on 18th March 2020 at 12:13 PM GMT) with lower double-digit upside potential based 8.45x NTM Price/Earnings Value (approx.) on FY20E earnings per share (approx.).
 
 
*All forecasted figures have been taken from Thomson Reuters.

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