RSA Insurance & Low Interest Rates

RSA Insurance provides risk cover against its high quality assets.

Formerly known as Royal & Sun Alliance, a FTSE-100 member, is a major global insurance business. Its business is relatively straight forward, it takes in insurance premiums, and pay-outs if disaster hits. It does this, by simply taking on risk from the premium payer (insurance holder) and accepts that risk against the assets the RSA holds.

A simple way to understand the insurance business is to know the “operating ratio.” That is the insurance pay-out (losses it has to pay to holders) against the income it receives.
For RSA that number is 95%

Thus makes a profit, (takes in £100 in premium income, and pays out £95)

The 2012 premiums income was £8,353 Million (£8.352 Billion). The assets that RSA holds to secure itself against losses have to high quality and liquid assets to meet any claim.

RSA holds a £14.3bn asset portfolio (£14,300,000,000) that is made up of government bonds, high quality corporate bonds, cash, equities and property.

Bonds   = 82%
Cash      = 9%
Shares  = 4%
Property= 2%
Others  = 3%

Total = 100%      
A very salient facts from the annual report [http://www.rsagroup.com/rsagroup/en/investor-relations/investor-kit].

Page 3: Due to low interest rates, it only managed to have investment income of £515m impacted by the continued low yield environment. (An effect of low interest rates).

A very sobering fact, with £14.3bn of investment assets it is only making a return of £515m. (3.5% return) This shows that insurance companies are struggling to make money in this climate, which in the UK will last at least for 3 years according to the Bank of England.

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