This is how City analysts reacted to RSA’s bumper results

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RSA was pretty chipper this morning about its annual results.

Beating consensus expectations, the FTSE 100's share price was one of the index leaders on what was otherwise subdued early trading – it was up over five per cent minutes after the open.

RSA 2016 results (£m unless stated)

Expectation

Actual
Net written premiums 6,337 6,408
Underwriting result 361 380
Investment result 282 298
Operating result 626 655
Combined ratio 94.2% 93.8%
Earnings per share 36.4p 39.5p
Dividend per share 15.1p 16.0p

Read more: RSA smashes expectations as chief exec Hester says turnaround is complete

On the face of it the market reaction was made sense.

But while RSA boss chief executive Stephen Hester warned of future "banana skins" on a conference call this morning, some City analysts have not got quite so carried away. Here are two of their key concerns.

[stockChart code="RSA" date="2017-02-23 09:25"]

Value baked in?

If you'd bought shares in RSA a year ago, you'd be a pretty happy bunny right now. Trading around 40 per cent higher than 12 months ago, they are also a considerable premium to the reported value Zurich ascribed to the firm in 2015.

Zurich abandoned its 550p per share takeover attempt in September. This morning the owner of More Than was trading at over 600p per share.

But, Barrie Cornes, an analyst at Panmure Gordon exercised caution about this morning's further jump. He said:

We like what Stephen Hester is doing at RSA… but, in our view, this good news is now all in the share price.

The sentiment was shared by Eamonn Flanagan of Shore Capital. We said that "despite the positive noises… we view the shares as significantly overvalued".

Read more: Stephen Hester sees positives from Brexit vote for RSA

Both Flanagan and Cornes warned RSA's shares were trading a over two times the value of the firm's net tangible assets.

Solvency

RSA said its Solvency II ratio – the proportion of capital it has set aside to underwriting, investment and operational risks – had increased year-on-year, from 143 per cent to 158 per cent. 

Flanagan stressed this was at the top end of its targeted range of between 130 per cent and 160 per cent.

However, the sale of its UK legacy liabilities to Enstar – announced a few weeks ago – is likely to improve the ratio considerably by 17 to 20 per cent.