RSA Insurance Group’s capital commitment to its Irish business, which was subject to an accounting scandal in 2013, has since grown to in excess of €500 million.
In March, the London-based group made €90 million available to the Irish business, if needed, to bolster its balance sheet under new insurance capital rules, known as Solvency II, which came into effect this year.
“This represents a new form of off-balance sheet capital that was enabled by Solvency II and is an efficient way of managing capital in a group context,” a spokeswoman for RSA Ireland said. “No cash was transferred to Ireland as a consequence of it.”
The move follows RSA’s injection of €423 million of cash into the Irish business between 2013 and 2015 after the country’s once-largest insurer was thrown into crisis when it emerged it had a large hole in its balance sheet. This was mainly the result of the business having found at the time to have put too little money in reserve to cover large claims.
This prompted the suspension of three executives, including then Irish chief executive Philip Smith, who subsequently quit and won €1.25 million in an unfair dismissal case. A legal dispute over the award was settled earlier this year.
The transaction in March – which involved the Irish unit issuing share capital to its parent which wasn’t paid for but can be called upon if needed – is allowable under the new insurance rules as capital as long as it is in excess of the minimum regulatory requirements. The move have been similarly employed in the past year by other European insurers that have a number of units in different countries, according to sources.
Price hikes
Separately, RSA revealed in a trading update to the London stock market that its Irish unit delivered a rebound in insurance premiums in the first three months of the year, as companies across the loss-making industry continued to hike pricing.
The group has previously said it expects the Irish business to return to profit this year for the first time since the accounting irregularities emerged.
The company commented on Irish premium growth only briefly in its update, without giving figures. It said that premiums across the UK and Irish business rose 2 per cent in the first quarter to £635 million, year-on-year.
The Irish performance "contrasts with full-year 2015 when Irish premiums fell by 4 per cent on a constant currency basis to £261 million as the insurer continued to make strong progress in remediation," according to Emer Lang, an analyst with Davy.
Irish motor insurance costs rose almost 4 per cent on the month in March and over 32 per cent compared with the same period last year, according to the latest figures from the Central Statistics Office. Home insurance rates rose by an annual 9.5 per cent in the same month.
FBD, Ireland’s only publicly-quoted insurer, said last week that increases in Irish insurance costs so far this year are necessary to return the beleaguered industry to profit. The country’s insurance industry has been in difficulty of late as companies failed to raise enough money from selling policies to cover rising claims and expenses.
Industry players, including FBD, have called for reforms in Ireland to tackle rising court awards for injury claims, which are affecting the affordability of insurance for households and businesses alike.
