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RSA Insurance Group PLC  -  RSA   

Half-year Results

Released 07:00 02-Aug-2017

RNS Number : 8118M
RSA Insurance Group PLC
02 August 2017
 

RSA Insurance Group plc 

2 August 2017

                                                               

2017 INTERIM RESULTS

 

RSA announces strong first half results.

Underlying earnings per share up 31%; Interim dividend up 32%.

Return on Tangible Equity1 16.6%.

 

 

Stephen Hester, RSA Group Chief Executive, commented:

"RSA did well in the first half.  We delivered outperformance, showing record underwriting results, attractive earnings and dividend growth with strong return on capital.  Pleasingly, customers are also growing business volumes with us.

Across the Group the focus is on making progress towards our best-in-class ambitions.  And while RSA is now measuring against higher performance standards, there is much more that can be done to improve."

Trading results

·     Group operating profit £360m up 15% (H1 2016: £312m): Scandinavia £202m; Canada £71m; UK & International £151m2.

·     Group underwriting profit of £222m, up 28% (H1 2016: £174m). 

-    Record1 Group combined ratio of 93.2% (H1 2016: 94.7%).  Scandinavia 81.9%; Canada 94.8%; and UK & International 95.4%2.

-    Group attritional loss ratio of 54.9%, 0.3pts better than last year3; weather and large losses 0.2pts worse. 

-    Group prior year underwriting profit of £79m (H1 2016: £55m).

·     Group premiums of £3.4bn up 11% at reported fx, and up 3% at constant fx.  Volumes accounted for 1% and rate increases 2%.

·     Investment income of £171m (H1 2016: £187m) down 9% versus the same period last year reflecting the impact of disposals and ongoing reinvestment at lower yields.

·     Below the operating result there were lower interest costs following our debt restructuring, with other non-operating items largely as flagged.

·     Pre-tax profit of £263m, up 78% (H1 2016: £148m).

·     Underlying earnings per share (EPS) 23.3p up 31% (H1 2016: 17.8p). Stated EPS up 133% to 18.4p.

·     Interim dividend of 6.6p/ordinary share declared, up 32% (H1 2016: 5.0p).

 

1 Underlying measure, please refer to pages 21-23 for further information.

2 Excluding Ogden impact.

3 At constant exchange, ex disposals

 

Capital & balance sheet

·     Solvency II coverage ratio of 163% after dividend accrual (31 December 2016: 158%), slightly above 130-160% target range.

·     Reserve margin returned to 5.0% target (31 December 2016: 5.5%) after release for Ogden rate change.

·     Tangible equity £2.8bn (31 December 2016: £2.9bn), 273p per share.

·     Underlying return on opening tangible equity of 16.6% annualised (H1 2016: 12.8%).

Strategic update

·     Restructuring now complete.  2017 actions comprised the disposal of UK legacy liabilities (announced in February); the issuance of c.£300m of restricted tier 1 notes in Scandinavia and retirement of c.£600m of existing high coupon debt.  These actions reduced risk, improved capital resilience, and lowered interest costs.

·     The Group's entire focus is now on the drive for outperformance.  In that context, our many performance improvement initiatives continue to deliver progress, targeted at customer service, underwriting capabilities, and costs. 

·     The improved premium trends we report for the first half reflect the service and capability enhancements we have been implementing.  Pleasingly they are reflected in every region.

·     Underwriting capabilities continue to be refined across the Group.  These include more sophisticated and agile pricing models, underwriter training and heightened discipline, and technology driven insights.  Progress on loss ratios can be volatile but is on track overall with a couple of business line exceptions.

·     Group written controllable costs for H1 2017 were down 6% year-on-year at constant exchange to £723m (comprising 8% cost reductions, offset by 2% inflation).  Group headcount down 8% versus H1 2016.  Overall we remain on track to deliver >£400m gross annualised savings by 2018 (c.£330m achieved to date).

 

Alternative performance measures:

The Group uses alternative performance measures, including certain underlying measures, to help explain business performance and financial position.  Where not defined in the body of this announcement, further information is set out in the appendix on pages 21-23.

 

MANAGEMENT REPORT - KEY FINANCIAL PERFORMANCE DATA

Management basis

 

£m (unless stated)

H1 2017

H1 2016

Profit and loss

 

 

Group net written premiums

3,449

3,247

Group net written premiums ex disposals

 

3,121

Underwriting profit

222

174

Combined operating ratio

93.2%

94.7%

Investment result

148

150

Operating result

360

312

Profit before tax

263

148

Underlying profit before tax

327

258

Net attributable profit

188

80

 

 

 

Metrics

 

 

Stated earnings / share (pence)

18.4p

7.9p

Underlying earnings / share (pence)

23.3p

17.8p

Interim dividend / ordinary share (pence)

6.6p

5.0p

Underlying return on tangible equity, annualised (%)

16.6%

12.8%

 

 

 

 

 

 

 

30 June 2017

31 Dec

2016

Balance sheet

 

 

Net asset value (£m)

3,651

3,715

Tangible net asset value (£m)

2,790

2,862

Net asset value per share

345p

352p

Tangible net asset value per share

273p

281p

 

 

 

Capital

 

 

Solvency II surplus (£bn)

1.1

1.1

Solvency II coverage ratio

163%

158%

 

CHIEF EXECUTIVE'S STATEMENT

RSA is pleased to report another half year of outperformance.  But we are not relaxing.  There is much more we aim to improve - for both customers and shareholders.  Competitive markets and our own raised ambitions will demand no less.

 

Across RSA's markets, conditions are essentially unchanged versus 2016 though with many variations by business line and geography.  We are carefully watching inflation trends, notably in the UK.  Testing competition and, occasionally, volatile loss trends create underwriting challenges which we must continue to address more crisply as capabilities improve.

 

RSA's restructuring efforts were completed by the £834m sale of UK legacy liabilities announced in February, and the subsequent repurchase and refinancing of capital instruments.  Taken together these actions reduced risk, boosted capital resilience and increased future earnings.  They leave us with undiluted focus on the pursuit of high performance in our continuing businesses.

 

Our best-in-class ambitions are being pursued through companywide efforts to improve customer service and underwriting skills, and to reduce operating costs.

 

Net written premiums grew 11% in the period, with higher retention and new business adding to pricing and FX gains.  Although top line growth is not our highest priority, it is nevertheless pleasing that customers are responding to the improved capabilities we are deploying.

 

While underwriting results will always be 'noisy' over short periods, we are pleased with continuing progress, and a combined ratio of 93.2% is our best on record.  In terms of volatile items, better than planned weather costs were offset by higher than usual large losses.  Attritional loss ratio improvement continued with an H1 ratio of 54.9% vs 55.2% for H1 2016 at constant FX.

 

Cost efficiency remains crucial for all businesses in our industry.  RSA continues to track ahead of our plans in this regard, with gross cost reductions of 8% (CFX) vs prior year.

 

The strength of our regional line-up also showed well in the period.  Our Scandinavian business contributed a majority of underwriting profits with strong underlying advances and above trend prior year profits.  Canada did well also, despite higher large losses.  Our Irish business returned to profit.  Our UK business had the toughest time with Ogden costs, above plan large losses and challenges in household loss ratios. But, excluding Ogden, results were in-line with our plan even here.

 

Across RSA improvement programmes are continuing to deliver.  Our digital capabilities are improving, with notable advances in digital claims and policy servicing.  New, more sophisticated underwriting and pricing models continue to roll out.  Cost programmes around automation, site consolidation, lean methodology, outsourcing and zero-based budgeting are all progressing.

 

Overall, RSA is in good health.  We have much to do.  We will fall short in areas.  But we nevertheless expect to make continued good progress in pursuit of sustained outperformance.

 

Stephen Hester

Group Chief Executive

1 August 2017

 

 

MANAGEMENT REPORT

SEGMENTAL INCOME STATEMENT

 

Management basis - 6 months ended 30 June 2017

 

 

Scandinavia

Canada

UK & International

Central functions

Group

H1 2017

Group

ex disposals

H1 2016

Group

H1 2016

 

£m

£m

£m

£m

£m

£m

£m

Net Written Premiums

1,064

728

1,628

29

3,449

3,121

3,247

Net Earned Premiums

896

777

1,586

(8)

3,251

3,083

3,271

Net Incurred Claims

(575)

(511)

(1,014)

(2)

(2,102)

(2,009)

(2,108)

Commissions

(24)

(105)

(312)

-

(441)

(425)

(480)

Operating expenses

(135)

(121)

(228)

(2)

(486)

(470)

(509)

Underwriting result

162

40

32

(12)

222

179

174

Investment income

54

34

83

-

171

161

187

Investment expenses

(2)

(1)

(3)

-

(6)

(5)

(6)

Unwind of discount

(12)

(2)

(3)

-

(17)

(15)

(31)

Investment result

40

31

77

-

148

141

150

Central expenses

-

-

-

(10)

(10)

(12)

(12)

Operating result

202

71

109

(22)

360

308

312

Interest

 

 

 

 

(30)

 

(54)

Other non-operating charges

 

 

 

 

(67)

 

(110)

Profit before tax

 

 

 

 

263

 

148

Tax

 

 

 

 

(57)

 

(57)

Profit after tax

 

 

 

 

206

 

91

 

 

 

 

 

 

 

 

Non-controlling interest

 

 

 

 

(10)

 

(6)

Other equity costs1

 

 

 

 

(8)

 

(5)

Net attributable profit

 

 

 

 

188

 

80

 

 

 

 

 

 

 

 

Underlying profit before tax

 

 

 

 

327

 

258

 

 

 

 

 

 

 

 

Loss ratio (%)

64.2

65.8

64.0

-

64.7

65.1

64.5

Weather loss ratio

0.0

2.7

1.1

-

1.2

3.5

3.3

Large loss ratio

5.8

8.2

15.3

-

11.4

8.9

8.4

Current year attritional loss ratio

63.1

57.9

48.9

-

54.9

55.0

54.7

Prior year effect on loss ratio

(4.7)

(3.0)

(1.3)

-

(2.8)

(2.3)

(1.9)

Commission ratio (%)

2.7

13.4

19.6

-

13.6

13.9

14.6

Expense ratio (%)

15.0

15.6

14.4

-

14.9

15.2

15.6

Combined ratio (%)

81.9

94.8

98.0

 -

93.2

94.2

94.7

 

 

 

 

 

 

 

                         

Note:

UK & International comprises the UK (and European branches), Ireland and the Middle East

Please refer to appendix for H1 2016 comparatives

 

1 Preference dividends of £5m and coupons of £3m paid on 2017 issued restricted tier 1 securities.

 

Premiums

First half 2017 Group net written premiums of £3.4bn were up 11% at reported FX and up 3% at constant fx (excluding the impact of disposals).

Foreign exchange provided an 8% benefit to first half premiums.  At current exchange rate levels, this benefit will moderate by around half for full year 2017.

 

 

Scandinavia

Canada

UK & Int'l

Central

Total

Net Written Premiums (£m)

1,064

728

1,628

29

3,449

 

% changes in NWP

 

 

 

 

 

Volume change (including reinsurance effects)

(1)

4

1

-

1

Rate increases

2

1

2

-

2

Foreign exchange

9

15

4

-

8

Total Group H1 2017 movt. (ex disposals)

10

20

7

-

11

 

 

We are pleased to report positive topline performance in the first half.  Growth of 3% (at constant exchange) included 1% volume growth and 2% rate increases. 

We have seen a strengthening of underlying customer activity as capability improvements take effect.  Customer retention trends are improving and satisfaction levels remain good.  Overall Group retention improved slightly to 81%.

Our goal is to serve customers well but profitably.

Regional trends for H1 2017 include:

·      Scandinavian premiums up 10% at reported fx, and up 1% at constant fx, with growth in Sweden and Norway partly offset by reductions in Denmark;

·      Canadian premiums up 20%, and up 5% at constant fx with Personal up 5% and Commercial also up 5%, reflecting good growth in the broker channel; 

·      UK & International premiums were up 7%, and up 3% at constant fx.  UK premiums were up 5% (at CFX) with Personal up 12% and Commercial up 1%.  Premiums in Ireland were down 8%, whilst Middle East premiums were up 9%.

 

Underwriting result

Group underwriting profit of £222m was up 28% year-on-year.

 

Total UW result

 

Current Year UW

 

Prior Year UW

£m

H1'17

H1'16

 

H1'17

H1'16

 

H1'17

H1'16

Scandinavia

162

96

 

120

94

 

42

2

Canada

40

37

 

19

(2)

 

21

39

UK & International

32

82

 

22

54

 

10

28

Of which: UK

17

76

 

9

41

 

8

35

Group Re

(12)

(36)

 

(18)

(26)

 

6

(10)

Total Group ex. disposals

222

179

 

143

120

 

79

59

 

 

 

 

 

 

 

 

 

Disposals

-

(5)

 

-

(1)

 

-

(4)

Total Group

222

174

 

143

119

 

79

55

 

Current year profit of £143m (H1 2016: £119m):

·      The Group attritional loss ratio was 54.9% which showed a 0.3 point improvement from H1 2016 at constant exchange.  Scandinavia was 1.4 points better.  Canada was 0.2 points better after adjusting for the c.1 point of benign 'indirect' weather that we flagged in H1 2016.  The UK & International was slightly better than a year ago and included good improvements in UK Commercial, Ireland and the Middle East, offset by a higher UK Personal attritional loss ratio driven by Household.

·      Total Group weather costs were £38m or 1.2% of net earned premiums (H1 2016: 3.5% ex disposals; five year average: 3.2%), with experience benign in the UK and Scandinavia. 

·      Total Group large losses were £370m or 11.4% of net earned premiums (H1 2016: 8.9% ex-disposals; five year average: 8.6%).  This elevated large loss experience was driven by higher than trend levels in the UK, Ireland and Canada.  Our expectation is it will revert to normal patterns, but we are watching trends carefully.

Prior year profit was £79m, with prior year development providing a 2.8 point benefit to the Group combined ratio.  This included positive development from each region.

As previously flagged, the Group booked a £42m net charge (after release of FY16 margin build) relating to the change in Ogden discount rate in the UK.  £39m related to our UK business and £3m to Ireland.

Our assessment of the margin in reserves for the Group (the difference between our actuarial indication and the booked reserves in the financial statements) is 5% of booked claims reserves per our target.  This follows the release of the additional 0.5% that was built at FY16 in anticipation of the Ogden discount rate change.

Underwriting operating expenses

The Group underwriting expense ratio of 14.9% was 0.3 points better than a year ago (H1 2016: 15.2% ex disposals).  There were improvements of 0.6 points in Scandinavia and 1.5 points in Canada, whilst the UK reported ratio was 0.4 points higher (though UK total controllable costs and cost ratio improved).  We continue to work towards further improvements in the expense ratio in the coming years.

Commissions

The Group commission ratio in H1 2017 of 13.6% compared to 13.9% (ex disposals) in H1 2016.  We expect the Group's commission ratio to be broadly similar in the second half of 2017.

Investment result

The investment result was £148m (H1 2016: £150m) with investment income of £171m (H1 2016: £187m), investment expenses of £6m (H1 2016: £6m) and the liability discount unwind of £17m (H1 2016: £31m). 

Investment income was down 9% on prior year, primarily reflecting the impact of the disposal of Latin America and the UK Legacy business together with ongoing reinvestment at lower yields.  The average book yield across our major bond portfolios was down slightly to 2.4% (H1 2016: 2.6%).

At current market forward rates, we expect investment income of c.£315m for the full year 2017. 

Total controllable costs

As at the end of the first half of 2017 our cost reduction programme has delivered total gross annualised cost reductions of around £330m.  Overall we remain on track to deliver >£400m gross annualised savings by 2018.

Group written total controllable costs were down 6% (ex disposals) year-on-year at constant exchange to £723m, and comprised 8% cost reductions, offset by 2% inflation.

Scandinavia delivered year-on-year 'real' cost reductions of 7%, with 12% in Canada and 7% in the UK.

Group FTE1 is down 20% (ex disposals) since the start of 2014 to 13,200 at June 2017, and is down 8% H1 2017 v H1 2016.

Non-operating items

Interest costs:

·      Interest costs in H1 2017 were £30m (£33m including the new tier 1 issuance - see below), down from £54m a year ago.  The reduction reflects debt restructuring actions over the past 12 months.

·      In the first half of 2017 the Group issued c.£300m of restricted tier 1 notes in Scandinavia; and retired c.£600m of existing high coupon debt.  These actions supplemented the £200m debt retirement completed in July 2016.

·      Coupon costs for the new Scandinavian issuance are reflected at the bottom of the management P&L as 'other equity costs', as per accounting rules. The first half cost was £3m, with an annualised interest cost for this instrument of £14m.

1 Full time equivalent employees.

 

Other non-operating charges:

 

£m

H1 2017

H1 2016

Net gains/losses/exchange

44

(19)

Debt buyback premium

(59)

-

Restructuring costs

(41)

(70)

Amortisation

(8)

(7)

Pension net interest cost

(3)

(2)

Other1

-

(12)

Total

(67)

(110)

 

·      Net gains of £44m included a £66m gain relating to the Legacy disposal (mainly mark-to-market of the assets transferred to the buyer) and a £22m charge relating to the commutation of the Group's adverse development reinsurance cover, both as previously flagged at FY 2016.

·      There was a charge, as flagged at Q1 2017, of £59m relating to the premium paid on the debt buybacks completed at the end of March.

·      Restructuring costs were £41m in the first half and included £20m in respect of redundancy.  2017 is expected to be the last year of our restructuring costs and we continue to anticipate a full year charge of c.£100m.

Tax

The Group has reported a tax charge of £57m for H1 2017, giving an effective tax rate (ETR) of 21.6% (H1 2016: 39%).  This charge largely comprises tax payable on Scandinavian and Canadian profits (at local statutory tax rates).  We continue to expect the full year 2017 ETR to be in line with statutory tax rates in our local territories.

The Group underlying tax rate in the first half was 22.4% (H1 2016: 24%).  Given the scale of unrecognised UK tax assets (which given expected changes in UK legislation are likely to last well over 10 years) this may trend towards 20% over the next few years.

The carrying value of the Group's net deferred tax asset at 30 June 2017 was £206m (of which £202m is in the UK).  At current tax rates, a further c.£200m of deferred tax assets remain available for use but not recognised on balance sheet; these are predominantly in the UK and Ireland.

Dividend

We are pleased to declare an interim dividend of 6.6p per ordinary share, up 32% year-on-year (H1 2016: 5.0p).

Our medium term policy of between 40-50% ordinary dividend payouts remains, with additional distributions where justified. 

1 In H1 2016 'other' included Solvency II costs of £6m and a cost of £6m relating to a discount rate change on Danish claims liabilities.

 

BALANCE SHEET

Movement in Net Assets

 

 

Share-holders' funds1

Non controlling interests

 

Tier 1 notes

 

Total equity

 

Loan

capital

Equity &

loan capital

 

 

TNAV

 

£m

£m

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

 

Balance at 1 January 2017

3,715

132

-

3,847

1,068

4,915

2,862

Profit/(loss) after tax

196

10

-

206

-

206

196

Exchange gains/(losses) net of tax

(3)

(6)

-

(9)

-

(9)

(3)

Fair value gains/(losses) net of tax

(144)

-

-

(144)

-

(144)

(144)

Pension fund gains/(losses) net of tax

(5)

-

-

(5)

-

(5)

(5)

Repayment & amortisation of loan capital

-

-

-

-

(627)

(627)

-

Issue of Tier 1 notes

-

-

297

297

-

297

-

Share issue

4

-

-

4

-

4

4

Share based payments

8

-

-

8

-

8

8

Prior year final dividend

(112)

(4)

-

(116)

-

(116)

(112)

Other equity costs2

(8)

-

-

(8)

-

(8)

(8)

Goodwill and intangible additions

-

-

-

-

-

-

(8)

Balance at 30 June 2017

3,651

132

297

4,080

441

4,521

2,790

 

 

 

 

 

 

 

 

Per share (pence)

 

 

 

 

 

 

 

At 1 January 2017

352

 

 

 

 

 

281

At 30 June 2017

345

 

 

 

 

 

273

 

Tangible net assets3 decreased by 3% to £2.8bn in the first half of 2017.  Profits in the period were more than offset by fair value mark-to-market movements (partly reflecting the transfer of Legacy assets for which a corresponding gain was included within profit) and the payment of the 2016 final dividend.  IAS 19 pension movements (excluding deficit funding contributions) were largely neutral (see page 25 for further detail).

1 Ordinary shareholders' funds including preference share capital of £125m.

2 Includes preference dividends of £5m and coupons of £3m paid on 2017 issued restricted tier 1 securities.

 

CAPITAL POSITION

 

Solvency II position1:

Requirement (SCR)

Eligible Own Funds

Surplus

Coverage

 

£bn

£bn

£bn

%

 

 

 

 

 

30 June 2017

1.8

2.9

1.1

163%

31 December 2016

1.8

2.9

1.1

158%

 

The Solvency II coverage ratio1 increased to 163% in the first half (31 December 2016: 158%), with the key drivers as follows:

·      Underlying capital generation added 14 points of coverage;

·      Restructuring costs, net capital investments and other non-operating items reduced the ratio by 3 points;

·      Pull-to-par on unrealised bond gains accounted for a 4 point reduction;

·      18 points of benefit from the disposal of UK legacy liabilities, announced in February;

·      10 point reduction due to the debt restructuring actions taken in the first half of 2017;

·      Market movements, fx and IAS 19 were a small negative, reflecting the impact of narrower AA corporate bond spreads on IAS 19 pension accounting, offset mainly by a positive impact from equities.  There was also a 3 point reduction due to the Ogden rate change;

·      2017 dividend accruals2 reduced the coverage ratio by 6 points.

Please refer to Appendix (page 24) for further Solvency II details (including sensitivities).

 

OUTLOOK

In the second half of 2017, our priorities are unchanged: the drive for further performance gains.

We aim for premium growth, however the priority is to maintain underwriting discipline. 

We target a lower attritional loss ratio, and we expect further cost reduction and efficiency gains.  Volatile items (weather, large losses and PYD) will remain just that.

In summary, we target attractive full year 2017 performance as we continue to build from the quality performance base now established.

1 The Solvency II capital position at 30 June 2017 is estimated.

2 Reflects 6 months accrual of a 'notional' dividend amount for the year.  This 'notional' amount should not be considered in any way to be an indication of actual dividend amounts for 2017.

 

REGIONAL REVIEW - SCANDINAVIA

Management basis

 

   Net written premiums

    Change (%)

        Underwriting result

 

 H1 2017

£m

H1 2016

£m

RFX

CFX

 H1 2017

£m

H1 2016

£m

Split by country

 

 

 

 

 

 

Sweden

563

520

8

1

123

76

Denmark

409

371

10

-

45

17

Norway

92

74

24

8

(6)

3

Total Scandinavia

1,064

965

10

1

162

96

Split by class

 

 

 

 

 

 

Household

183

166

10

1

25

19

Personal Motor

188

176

7

(2)

41

49

Personal Accident & Other

179

158

13

5

58

7

Total Scandinavia Personal

550

500

10

1

124

75

 

 

 

 

 

 

 

Property

210

183

15

5

23

1

Liability

99

90

10

(1)

11

10

Commercial Motor

135

124

9

-

3

7

Other

70

68

3

(5)

1

3

Total Scandinavia Commercial

514

465

11

1

38

21

 

 

 

 

 

 

 

Total Scandinavia

1,064

965

10

1

162

96

Investment result

 

 

 

 

40

35

Scandinavia operating result

 

 

 

 

202

131

 

 

 

 

 

 

 

Operating Ratios (%)

Claims

Commission

Op Expenses

Combined

 

H1'17

H1'16

H1'17

H1'16

H1'17

H1'16

H1'17

H1'16

Household

 

 

 

 

 

 

85.7

87.4

Personal Motor

 

 

 

 

 

 

75.9

69.5

Personal Accident & Other

 

 

 

 

 

 

64.9

95.6

Total Scandinavia Personal

59.5

68.2

3.0

2.8

13.1

13.0

75.6

84.0

Property

 

 

 

 

 

 

85.7

99.7

Liability

 

 

 

 

 

 

85.5

84.7

Commercial Motor

 

 

 

 

 

 

96.8

93.0

Other

 

 

 

 

 

 

98.2

93.1

Total Scandinavia Commercial

70.2

72.3

2.3

3.0

17.6

19.0

90.1

94.3

 

 

 

 

 

 

 

 

 

Total Scandinavia

64.2

70.0

2.7

2.9

15.0

15.6

81.9

88.5

Of which:

 

 

5yr ave

 

 

 

 

 

Weather loss ratio

0.0

0.3

1.0

 

 

 

 

 

Large loss ratio

5.8

5.4

5.5

 

 

 

 

 

Current year attritional loss ratio

63.1

64.5

 

 

 

 

 

 

Prior year effect on loss ratio

(4.7)

(0.2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

YTD rate changes1 (%)

At June 2017

At Dec 2016

 

 

Personal Household

1

4

 

 

Personal Motor

1

2

 

 

Commercial Property

-

3

 

 

Commercial Liability

2

3

 

 

Commercial Motor

1

3

 

 

                       

 

1 Rate changes reflect changes for risks renewing in the year-to-date versus comparable risks renewing in the same period the previous year

 

SCANDINAVIA

In H1 2017, Scandinavia delivered an excellent underwriting profit of £162m, up 56% (at constant fx) versus a year ago, with both strong current and prior year profitability.

We continue to make good progress with our customer agenda as we aim to deliver an 'effortless' customer experience. Our improvement initiatives continue with the launch of a 'chat bot' service in Sweden and a new customer service portal in Denmark that enhances the customer journey and claims handling process.  Our overall retention rate improved slightly to 80%.

Net written premiums of £1,064m were up 10% at reported fx and up 1% at constant fx, driven by Norway and Sweden (H1 2016: £965m as reported).  Rates were up 2% whilst volumes were down 1%.

The underwriting result was £162m (H1 2016: £96m as reported; £104m at constant fx) with current year profit of £120m and prior year profit of £42m.

The current year attritional loss ratio of 63.1% was 1.4 points better than H1 2016 reflecting underwriting discipline, ongoing capability improvements and lower claims handling costs.  Benign weather experience (0.3 points better than last year) was offset by adverse large loss experience (0.4 points higher than last year).  The prior year effect on the loss ratio was unusually positive, producing a benefit of 4.7%.  The overall combined ratio was 81.9% (H1 2016: 88.5%).   

After including an investment result of £40m (H1 2016: £35m), the total operating profit was £202m, up 54%.

The Scandinavian performance improvement programme has continued to deliver well, with particular focus on operational efficiency, e.g. process redesign, robotics and automation.  We've also seen further site consolidation progress and IT cost reduction.

Total written controllable expenses were down 5% year-on-year, with 7% cost reductions offset by 2% inflation.  The earned controllable cost ratio of 24.2% showed a 1.2 point reduction year-on-year.  Headcount was down 10% in the first half of the year and is now down 18% since the end of 2013.

Scandinavia - Outlook

We continue to expect the Scandinavian P&C markets to grow in line with local GDP growth and we target medium-term growth broadly in line with the market, subject to maintaining underwriting discipline.

Our focus remains on further improving the underlying performance of the business, particularly customer volumes, attritional loss ratios and cost improvements.  Our COR ambition for Scandinavia is <85%.

 

REGIONAL REVIEW - CANADA

Management basis

 

     Net written premiums

   Change (%)

        Underwriting result

 

 H1 2017

£m

H1 2016

£m

RFX

CFX

 H1 2017

£m

H1 2016

£m

Household

201

168

20

6

28

21

Personal Motor

301

252

19

5

4

28

Total Canada Personal

502

420

20

5

32

49

 

 

 

 

 

 

 

Property

89

73

22

7

(2)

(16)

Liability

51

44

16

2

3

(2)

Commercial Motor

61

51

20

5

4

5

Marine & Other

25

21

19

4

3

1

Total Canada Commercial

226

189

20

5

8

(12)

 

 

 

 

 

 

 

Total Canada

728

609

20

5

40

37

 

 

 

 

 

 

 

Investment result

 

 

 

 

31

32

Canada operating result

 

 

 

 

71

69

 

Operating Ratios (%)

Claims

Commission

Op Expense

Combined

 

H1'17

H1'16

H1'17

H1'16

H1'17

H1'16

H1'17

H1'16

Household

 

 

 

 

 

 

88.3

90.1

Personal Motor

 

 

 

 

 

 

98.7

89.1

Total Canada Personal

67.3

61.5

11.2

11.4

15.5

16.6

94.0

89.5

Property

 

 

 

 

 

 

101.3

118.5

Liability

 

 

 

 

 

 

94.6

104.4

Commercial Motor

 

 

 

 

 

 

93.4

88.8

Marine & Other

 

 

 

 

 

 

89.2

95.5

Total Canada Commercial

62.5

69.7

18.4

18.0

15.7

18.2

96.6

105.9

 

 

 

 

 

 

 

 

 

Total Canada

65.8

64.0

13.4

13.4

15.6

17.1

94.8

94.5

Of which:

 

 

5yr ave

 

 

 

 

 

Weather loss ratio

2.7

6.6

4.8

 

 

 

 

 

Large loss ratio

8.2

6.3

4.1

 

 

 

 

 

Current year attritional loss ratio

57.9

57.1

 

 

 

 

 

 

Prior year effect on loss ratio

(3.0)

(6.0)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

YTD rate changes1 (%)

At June 2017

At Dec 2016

 

 

 

Personal Household

9

5

 

 

 

Personal Motor

(2)

(1)

 

 

 

Commercial Property

1

2

 

 

 

Commercial Liability

1

2

 

 

 

Commercial Motor

-

-

 

 

 

                   

 

1 Rate changes reflect changes for risks renewing in the year-to-date versus comparable risks renewing in the same period the previous year

 

CANADA

Canada delivered a first half underwriting profit of £40m despite higher large losses and lower prior year releases versus a year ago.

We continue to work hard to enhance our customer offering.  In Johnson we've made strong progress in digital capabilities, and customer scores have continued to improve and outperform benchmarks.  In our broker distributed businesses, faster response times and new digital tools enable brokers to service their clients anywhere, anytime, reducing the time to quote from hours to minutes.  Customer retention has improved to 86% (versus 84% a year ago).

Net written premiums of £728m were up 20% at reported fx and up 5% at constant fx (H1 2016: £609m as reported).  Growth comprised 2% from increased volumes, 1% from rate increases and 2% from lower reinsurance costs.  Growth was particularly good in the broker channel with Personal broker up 12% and Commercial up 5%.  Johnson, our Personal direct business, returned to volume growth in the second quarter.

The underwriting profit was £40m (H1 2016: £37m) with current year profit of £19m and prior year profit of £21m.  

The current year attritional loss ratio was 57.9%, versus 57.1% a year ago. However, H1 2016 was flattered by c.1pt due to benign indirect weather experience, as previously disclosed: excluding this the attritional loss ratio was c.0.2pts better than a year ago.  Favourable weather experience (3.9 points better than last year due to Fort McMurray losses in H1 2016) was partly offset by adverse large loss experience (1.9 points higher).  Prior year reserve releases, whilst still positive at 3.0%, were lower than last year (H1 2016: 6.0%).  The overall combined ratio was 94.8% (H1 2016: 94.5%).

After including an investment result of £31m (H1 2016: £32m), the total operating profit was £71m, up 3%.

Our business improvement programme in Canada has continued well during the first half of the year, delivering further enhancements to pricing sophistication, process simplification, site consolidation. and the implementation of the Guidewire claims system proceeding as planned.

Total written controllable expenses were down 10% year-on-year, with 12% cost reductions offset by 2% inflation.  The earned controllable cost ratio of 19.3% showed a 2.4 point reduction year-on-year.  Headcount was down 5% in the first half of the year and is now down 16% since the end of 2013.

Canada - Outlook

We target a continuation of the positive premium trends we have seen in the first half of 2017 and continued progress towards our combined ratio ambition of <94%.  Our focus is on customer delivery, operational improvement (in underwriting, claims, technology and process simplification) and cost reduction.

 

REGIONAL REVIEW - UK & INTERNATIONAL

Management basis

 

     Net written premiums

 Change (%)

       Underwriting result

 

 H1 2017

£m

H1 2016

£m

RFX

CFX

 H1 2017

£m

H1 2016

£m

Household

261

248

5

5

5

26

Personal Motor

149

110

35

35

1

(11)

Pet

144

138

4

4

1

(1)

Total UK Personal

554

496

12

12

7

14

Property

334

318

5

2

1

42

Liability

155

155

-

(1)

8

12

Commercial Motor

114

131

(13)

(13)

(6)

(2)

Marine & Other

207

175

18

9

7

10

Total UK Commercial

810

779

4

1

10

62

Total UK

1364

1,275

7

5

17

76

 

 

 

 

 

 

 

Ireland

152

151

1

(8)

2

(1)

Middle East

112

92

22

9

13

7

Total UK & International

1,628

1,518

7

3

32

82

 

 

 

 

 

 

 

Investment result

 

 

 

 

77

74

UK & International operating result

 

 

 

109

156

 

Operating Ratios (%)

 Claims

 Commission

 Op Expenses

 Combined

 

H1'17

H1'16

H1'17

H1'16

H1'17

H1'16

H1'17

H1'16

Household

 

 

 

 

 

 

98.0

91.0

Personal Motor

 

 

 

 

 

 

99.3

109.7

Pet

 

 

 

 

 

 

99.3

100.7

Total UK Personal

60.8

59.9

20.9

21.5

17.0

16.1

98.7

97.5

Property

 

 

 

 

 

 

99.5

86.8

Liability

 

 

 

 

 

 

95.1

91.8

Commercial Motor

 

 

 

 

 

 

105.1

101.6

Marine & Other

 

 

 

 

 

 

96.0

93.8

Total UK Commercial

65.9

59.8

20.5

20.1

12.3

12.3

98.7

92.2

Total UK

63.7

59.8

20.7

20.7

14.3

13.9

98.7

94.4

 

 

 

 

 

 

 

 

 

Ireland

74.5

76.8

11.6

11.4

12.7

12.5

98.8

100.7

Middle East

50.5

58.2

18.7

16.6

18.1

16.6

87.3

91.4

UK & International

64.0

61.3

19.6

19.6

14.4

13.9

98.0

94.8

Of which:

 

 

5yr ave

 

 

 

 

 

Weather loss ratio

1.1

3.8

3.8

 

 

 

 

 

Large loss ratio

15.3

10.8

11.9

 

 

 

 

 

Current year attritional loss ratio

48.9

49.0

 

 

 

 

 

 

Prior year effect on loss ratio

(1.3)

(2.3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

UK YTD rate changes1 (%)

At June 2017

At Dec 2016

 

 

 

Personal Household

2

1

 

 

 

Personal Motor

12

9

 

 

 

Commercial Property

(1)

(1)

 

 

 

Commercial Liability

1

-

 

 

 

Commercial Motor

12

5

 

 

 

                   

 

 

1 Rate changes reflect changes for risks renewing in the year-to-date versus comparable risks renewing in the same period the previous year

 

UK & INTERNATIONAL

In H1 2017 the UK & International delivered a combined ratio of 95.4% (excluding the impact of Ogden; 98.0% including Ogden) despite a competitive landscape. 

UK

In the UK our customer capabilities have continued to advance with improved satisfaction metrics for Personal Intermediated and Motability.  Motability improved on their NPS score, increasing 10 pts to +86 for the half year. 

First half net written premiums in the UK increased by 5% at constant exchange, with rate increases of 1% and volume increases of 4%.  UK Personal growth of 12% was underpinned by continued growth in our motor telematics proposition.  UK Commercial net written premiums grew by 1% at constant exchange.  Targeted growth in our Marine and Property portfolios helped offset shrinkage in Commercial Motor as a result of strong underwriting actions.

The UK underwriting result of £56m excluding Ogden (£17m including the impact of the Ogden discount rate change) (H1 2016: £76m) was achieved despite difficult trading conditions.  Weather and large losses taken together were 1.6 points worse than last year.  The attritional loss ratio deteriorated mainly due to inflationary experience in Personal Household.  Prior year reserve releases were positive but lower than last year due to the impact of Ogden.

Our transformation agenda continues to deliver benefits with increased process simplification and enhanced data analytics capabilities.

Total written controllable expenses were down 5% year-on-year, with 7% cost reductions offset by 2% inflation.  The earned controllable cost ratio of 21.2% improved 0.6 points year-on-year.  Headcount was down 10% in the first half of the year and is now down 22% since the end of 2013.

Ireland

Ireland returned to underwriting profit delivering a first half profit of £2m and combined ratio of 98.8% (96.7% ex Ogden), underpinned by disciplined underwriting actions.  The attritional loss ratio of 60.9% was 4.4 points better than prior year.  The result also includes a £3m cost due to the Ogden discount rate change.  Net written premiums of £152m were down 8% at constant FX versus H1 2016 following targeted remediation activity.  

Middle East

The Middle East region delivered an underwriting result of £13m (H1 2016: £7m) and combined ratio of 87.3% (H1 2016: 91.4%) driven by a 4.5 point improvement in the attritional loss ratio following underwriting actions taken across the portfolio.  Premiums of £112m were up 9% at constant FX despite challenging trading conditions in Saudi Arabia. 

UK & International - Outlook

We expect underlying premium trends to continue into the second half.  Underwriting discipline and attritional loss ratios will be a key focus, resulting in some portfolio reductions coupled with targeted growth in stronger areas.  Our transformation plans target further underwriting improvements, cost reductions and capability uplifts.

In Ireland we continue to target a return to operating profit for the full year 2017, although the market remains challenging, in particular for claims inflation.  In the Middle East the medium term outlook remains positive and work is underway to further develop capabilities throughout the region including underwriting and pricing sophistication. 

 

INVESTMENT PERFORMANCE

Management basis

Investment result

 H1 2017

£m

H1 2016

£m

Change

%

Bonds

136

153

(11)

Equities

16

14

14

Cash and cash equivalents

3

6

(50)

Property

11

11

-

Other

5

3

67

Investment income

171

187

(9)

Investment expenses

(6)

(6)

-

Unwind of discount

(17)

(31)

45

Investment result

148

150

(1)

 

 

 

 

Balance sheet unrealised gains (pre-tax)

30 June 2017 (£m)

31 Dec 2016 (£m)

Change

%

Bonds

469

619

(24)

Equities

16

8

100

Other

2

2

-

Total

487

629

(23)

 

Investment portfolio

Value

31 Dec 2016

Foreign exchange

Mark to market

Other movements

Transfer from assets held for sale

Value

30 June 2017

 

£m

£m

£m

£m

£m

£m

Government bonds

3,713

12

(43)

161

-

3,843

Non-Government bonds

7,832

34

(54)

(672)

87

7,227

Cash

985

(12)

-

(215)

3

761

Equities

170

8

(3)

53

-

228

Property

333

-

2

1

-

336

Prefs & CIVs

522

(3)

13

10

-

542

Other

88

(1)

-

67

-

154

Total

13,643

38

(85)

(595)

90

13,091

 

 

 

 

 

 

 

Split by currency:

 

 

 

 

 

 

Sterling

3,994

 

 

 

 

3,582

Danish Krone

1,081

 

 

 

 

1,101

Swedish Krona

2,565

 

 

 

 

2,595

Canadian Dollar

3,232

 

 

 

 

3,071

Euro

1,345

 

 

 

 

1,407

Other

1,426

 

 

 

 

1,335

Total

13,643

 

 

 

 

13,091

Credit quality - bond portfolio

 

Non-government

 

 Government

 

 

 

30 June
2017

%

31 Dec
2016

%

 

30 June
2017

%

31 Dec
2016

%

 

AAA

 

38

35

 

67

65

 

AA

 

18

22

 

28

30

 

A

 

30

30

 

4

4

 

BBB

 

12

11

 

1

1

 

< BBB

 

2

2

 

-

-

 

Non rated

 

-

-

 

-

-

 

Total

 

100

100

 

100

100

 

                         

 

 

INVESTMENT PERFORMANCE

Investment income of £171m (H1 2016: £187m) was offset by investment expenses of £6m (H1 2016: £6m) and the liability discount unwind of £17m (H1 2016: £31m).  Investment income was down 9% on prior year, primarily reflecting the impact of the disposal of Latin America and the UK Legacy business together with ongoing reinvestment at lower yields.

The average book yield over the period on the total portfolio was 2.5% (H1 2016: 2.7%), with average yield on the bond portfolios of 2.4% (H1 2016: 2.6%).  Reinvestment rates in the Group's major bond portfolios over the first half was approximately 1.6%.

Average duration of the Group's bond portfolios is marginally lower at 3.6 years (31 December 2016: 3.7 years).

The investment portfolio decreased by 4% during the first half to £13.1bn.  The movement was driven primarily by cash outflows for corporate debt restructuring.

At 30 June 2017, high quality widely diversified fixed income securities represented 85% of the portfolio (31 December 2016: 85%).  Equities (largely REITs) represented 2% (31 December 2016: 1%) and cash 6% of the total portfolio (31 December 2016: 7%).

The quality of the bond portfolio remains very high with 98% investment grade and 71% rated AA or above.  We remain well diversified by sector and geography.

Unrealised bond gains and pull-to-par

Balance sheet unrealised gains of £487m (pre-tax) reduced by £142m or 23% during the first half, driven by realised gains from the UK Legacy disposal and bond pull-to-par. 

We anticipate that the remaining gains will largely unwind over the next 3.5 years, based on current forward yields.  We expect pull-to-par of c.£90m in H2 2017, c.£150m in 2018, and c.£110m in 2019.

Outlook

Based on current forward bond yields and foreign exchange rates it is estimated that investment income will be c.£315m for full year 2017.  This projected income number is, however, sensitive to changes in market conditions. We continue to expect a discount unwind on long-tail liabilities in the range £30-35m per annum.

 

APPENDIX

UNDERLYING AND ALTERNATIVE PERFORMANCE MEASURES

The Group uses alternative performance measures, including certain underlying measures, to help explain business performance and financial position.  Where not defined in the body of this announcement, further information is set out below.

Note 7 on pages 44-46 of the condensed consolidated financial statements presents a reconciliation of the management basis to statutory income statement.

Combined operating ratio

The Group's combined operating ratio (COR) is calculated on an 'earned' basis as follows:

COR = loss ratio + commission ratio + expense ratio

Where:

Loss ratio = net incurred claims / net earned premiums

Commission ratio = commissions / net earned premiums

Expense ratio = operating expenses / net earned premiums

Constant exchange (CFX)

Prior period comparative translated at current period exchange rates.

Controllable costs

Total controllable costs are stated on a 'written' basis, and include underwriting written controllable expenses of £520m, claims expenses of £187m (included within net incurred claims), investment expenses of £6m, and central expenses of £10m.  These items are included within total expenses in the condensed consolidated income statement.

Current year underwriting result

The profit or loss earned from business for which protection has been provided in the current financial period.

Interest costs

Interest costs as shown on a management basis (£30m) comprise coupon costs only.  On a statutory basis finance costs of £89m comprise coupon costs of £30m plus debt buyback costs of £59m.

Investment income

Investment income of £171m as shown in the management basis P&L compares to net investment return of £169m shown on a statutory basis.  The difference of £2m relates to certain realised and unrealised net losses that are shown within net investment return within the statutory income statement.

Operating profit

Operating profit is calculated as the underwriting result, plus the investment result, less central costs.  Note 7 on pages 44-46 of the condensed consolidated financial statements presents a reconciliation of operating profit to profit before tax.

Prior year underwriting result

The profit or loss arising from settling claims incurred in previous years at a better or worse level than the previous estimated costs.

'Record' underwriting performance

Record Group underwriting performance (combined ratio and/or underwriting profit) considers the periods for 2006-2017.  In order to compare on a 'like-for-like' basis, historical periods have been adjusted for central expense reallocation changes made in 2015, Scandinavian discount rate changes made in 2014, and IAS 19 pension net interest cost changes made in 2012.  In the case of the expense reallocations and IAS 19 changes, the restatement value applied in the year of change has been applied to all preceding years back to 2006.

Reported exchange (RFX)

Prior period comparative translated at the exchange rates reported at that time.

Tangible net asset value (TNAV)

Tangible net asset value of £2,790m at 30 June 2017 comprises shareholders' funds of £3,651m, less goodwill & intangible assets of £736m, less £125m preference share capital.

Underlying earnings per share (EPS)

Please refer to page 23 for calculation.

Underlying profit before tax

Underlying profit before tax is calculated as operating profit of £360m less interest costs of £30m less coupon costs of £3m on the 2017 issuance of restricted tier 1 securities (as shown in Note 9 of the condensed consolidated financial statements).

Reconciliation of underlying profit before tax to profit before tax:

 

H1 2017

H1 2016

Underlying profit before tax

327

258

Less non-operating charges

(67)

(110)

Add back coupon on 2017 issued tier 1 securities

3

-

Less profit before tax from discontinued operations

-

(7)

Add back loss before tax on sale of discontinued operations

-

20

Profit before tax (statutory basis)

263

161

 

Underlying profit after tax attributable to ordinary shareholders

Reconciliation of underlying profit after tax attributable to ordinary shareholders to profit after tax:

 

H1 2017

H1 2016

Underlying PAT attributable to ordinary shareholders

238

180

Add non-controlling interest

10

6

Add preference dividend

5

5

Less non-operating charges

(67)

(110)

Add back coupon on 2017 issued tier 1 securities

3

-

Add difference between underlying and statutory tax

17

10

Profit after tax (statutory basis)

206

91

 

Underlying return on tangible equity (ROTE)

Please refer to page 23 for calculation.

 

Underlying tax rate

The underlying Core Group tax rate mainly comprises the local statutory tax rates in our territories applied to underlying regional profits (operating profits less interest costs).

Underwriting result

Comprise net earned premiums less net incurred claims (including claims handling expenses), less underwriting expenses less commission expenses.

Net asset value (NAV) and tangible net asset value (TNAV) per share

Net asset value per share data at 30 June 2017 was based on total ordinary shareholders' funds of £3,651m, adjusted by £125m for preference shares.  Tangible net asset value per share was based on a tangible book value of £2,790m.

Return on equity and tangible equity, and earnings per share calculations

 

 

H1 2017

H1 2016

 

 

£m

£m

 

 

 

 

 

Profit after tax

206

91

 

Less: non-controlling interest

(10)

(6)

 

Less: coupon on 2017 issued restricted tier 1 instrument

(3)

-

 

Less: preference dividend

(5)

(5)

A

Profit attributable to ordinary shareholders

188

80

 

 

 

 

 

Operating profit before tax

360

312

 

Less: interest costs

(30)

(54)

 

Less: coupon on 2017 issued restricted tier 1 instrument

(3)

-

 

Underlying profit before tax

327

258

 

Less: underlying tax1

(74)

(67)

 

Less: non-controlling interest

(10)

(6)

 

Less: preference dividend

(5)

(5)

B

Underlying profit after tax attributable to ordinary shareholders

238

180

 

 

 

 

 

Opening shareholders' funds

3,715

3,642

 

Less: preference share capital

(125)

(125)

C

Opening ordinary shareholders' funds

3,590

3,517

 

 

 

 

 

Less: goodwill & intangibles

(728)

(679)

D

Opening tangible ordinary shareholders' funds

2,862

2,838

 

 

 

 

E

Weighted average no. shares issue during the period (un-diluted)

1,020.3k

1,017.5k

 

 

 

 

 

Return on equity  (annualised)

 

 

(2xA)/C

Reported

10.5%

4.6%

(2xB)/C

Underlying

13.3%

10.3%

 

 

 

 

 

Return on tangible equity (annualised)

 

 

(2xA)/D

Reported

13.1%

5.7%

(2xB)/D

Underlying

16.6%

12.8%

 

 

 

 

 

Earnings per share

 

 

A/E

Basic earnings per share

18.4p

7.9p

B/E

Underlying earnings per share

23.3p

17.8p

 

1 Using underlying assumed tax rate of 22.4% in H1 2017 (applied to operating profits of £360m less interest costs of £30m) and 26% in H1 2016

We expect the underlying assumed tax rate to continue to fall to a rate broadly in line with the statutory tax rates in our operating territories.  Given the scale of unrecognised UK tax assets it may trend towards 20% over the next few years.

DISPOSALS

H1 2016 net written premiums of £3,247m included £126m in respect of businesses now disposed (Latin America and Russia).  The underwriting profit of £174m for the same period included a loss of £5m in respect of these disposed businesses.  See page 26 for further detail.

 

CAPITAL

Solvency II sensitivities

H1 2017 coverage ratio

163%

 

 

 

 

Sensitivities (change in coverage ratio):

Incl. pensions

Excl. pensions

Interest rates: +1% non-parallel1 shift

+13%

+5%

Interest rates: -1% non-parallel1 shift

-12%

-5%

Equities: -15%

-8%

-2%

Foreign exchange:  GBP +10% vs all currencies

-3%

-3%

Cat loss of £75m net

-4%

-4%

Credit spreads: +0.25% parallel shift

+4%

-4%

Credit spreads: -0.25% parallel shift

-13%

+4%

 

The above sensitivities have been considered in isolation.  The impact of a combination of sensitivities may be different to the individual outcomes stated above.

 

Reconciliation of IFRS total capital to Eligible Own Funds

 

 

30 June 2017

 

£bn

Shareholders' funds (incl. preference shares)

3.7

Loan capital

0.7

Non-controlling interests

0.1

Total IFRS capital

4.5

 

 

Less: goodwill & intangibles

(0.7)

Adjust technical provisions to SII basis

(0.4)

Basic Own Funds

3.4

Tiering & availability restrictions

(0.4)

Forseeable dividends

(0.1)

Eligible Own Funds

2.9

 

1 The interest rate sensitivity assumes a non-parallel shift in the yield curve.  This is to reflect that the long end of the yield curve is typically more stable than the short end.

 

PENSIONS

The table below provides a reconciliation of the movement in the Group's pension fund position under IAS 19 (net of tax) from 1 January 2017 to 30 June 2017.

 

 

UK

non-UK

Group

 

 

£m

£m

£m

 

 

 

 

 

Pension fund surplus/(deficit) at 1 January 2017

(113)

(84)

(197)

 

 

 

 

Actuarial gains/(losses)1

2

(7)

(5)

Deficit funding

54

-

54

Other movements2

3

2

5

 

 

 

 

 

Pension fund surplus/(deficit) at 30 June 2017

(54)

(89)

(143)

 

 

At an aggregate level the pension fund position under IAS 19 improved during the first half from a £197m deficit to a £143m deficit.  This was driven by deficit funding contributions (£65m pre-tax).  Market movements, in aggregate, were largely neutral.

1 Actuarial gains/(losses) include pension investment expenses, variance against expected returns, change in actuarial assumptions and experience losses.

2 Other movements include regular contributions, service/administration costs, expected returns and interest costs.

 

SEGMENTAL ANALYSIS

Management basis - 6 months ended 30 June 2016 (re-presented onto current segmental split)

 

Scandinavia

Canada

UK & International

Central functions

Group ex. disposals

Disposals1

Group

H1 2016

 

£m

£m

£m

£m

£m

£m

£m

Net Written Premiums

965

609

1,518

29

3,121

126

3,247

Net Earned Premiums

832

682

1,584

(15)

3,083

188

3,271

Net Incurred Claims

(582)

(437)

(971)

(19)

(2,009)

(99)

(2,108)

Commissions

(24)

(91)

(310)

-

(425)

(55)

(480)

Operating expenses

(130)

(117)

(221)

(2)

(470)

(39)

(509)

Underwriting result

96

37

82

(36)

179

(5)

174

Investment income

48

34

79

-

161

26

187

Investment expenses

(1)

(1)

(3)

-

(5)

(1)

(6)

Unwind of discount

(12)

(1)

(2)

-

(15)

(16)

(31)

Investment result

35

32

74

-

141

9

150

Central expenses

-

-

-

(12)

(12)

-

(12)

Operating result

131

69

156

(48)

308

4

312

Interest

 

 

 

 

 

 

(54)

Other non-operating charges

 

 

 

 

 

 

(110)

Profit before tax

 

 

 

 

 

 

148

Tax

 

 

 

 

 

 

(57)

Profit after tax

 

 

 

 

 

 

91

 

 

 

 

 

 

 

 

Underlying profit before tax

 

 

 

 

 

 

258

 

 

 

 

 

 

 

 

Loss ratio (%)

70.0

64.0

61.3

-

65.1

-

64.5

Weather loss ratio

0.3

6.6

3.8

-

3.5

-

3.3

Large loss ratio

5.4

6.3

10.8

-

8.9

-

8.4

Current year attritional loss ratio

64.5

57.1

49.0

-

55.0

-

54.7

Prior year effect on loss ratio

(0.2)

(6.0)

(2.3)

-

(2.3)

-

(1.9)

Commission ratio (%)

2.9

13.4

19.6

-

13.9

-

14.6

Expense ratio (%)

15.6

17.1

13.9

-

15.2

-

15.6

Combined ratio (%)

88.5

94.5

94.8

-

94.2

-

94.7

 

1 Disposals comprise Latin America and Russia, both completed during H1 2016.

 

COMBINED RATIO DETAIL 

Group ex. disposals

£m unless stated

Current

year

Prior

year

H1 2017

total

 

Current

year

Prior

year

H1 2016

total

Net Written Premiums

1

3,430

7

19

13

3,449

 

 

3,118

3

3,121

Net Earned Premiums

2

3,236

8

15

14

3,251

 

3,094

(11)

3,083

Net Incurred Claims

3

(2,186)

9

84

15

(2,102)

 

(2,085)

76

(2,009)

Commissions

4

(424)

10

(17)

16

(441)

 

(422)

(3)

(425)

Operating expenses

5

(483)

11

(3)

17

(486)

 

(467)

(3)

(470)

Underwriting result

6

143

12

79

18

222

 

120

59

179

 

 

 

 

 

 

 

 

 

 

 

CY attritional claims

19

(1,778)

 

 

 

 

 

(1,700)

 

 

Weather claims

20

(38)

 

 

 

 

 

(109)

 

 

Large losses

21

(370)

 

 

 

 

 

(276)

 

 

Net incurred claims

22

(2,186)

 

 

 

 

 

(2,085)

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss ratio (%)

 

 

=15 / 14

23

64.7

 

 

 

65.1

Weather loss ratio

 

 

=20 / 2

24

1.2

 

 

 

3.5

Large loss ratio

 

 

=21 / 2

25

11.4

 

 

 

8.9

Current year attritional loss ratio

 

 

=19 / 2

26

54.9

 

 

 

55.0

Prior year effect on loss ratio

 

 

=23 - 24 - 25 - 26

27

(2.8)

 

 

 

(2.3)

Commission ratio (%)

 

 

=16 / 14

28

13.6

 

 

 

13.9

Expense ratio (%)

 

 

=17 / 14

29

14.9

 

 

 

15.2

Combined ratio (%)

 

 

=23 + 28 + 29

30

93.2

 

 

 

94.2

                         

 

Scandinavia

£m unless stated

Current

year

Prior

year

H1 2017

total

 

Current

year

Prior

year

H1 2016

total

Net Written Premiums

1,066

(2)

1,064

 

965

-

965

Net Earned Premiums

896

0

896

 

832

-

832

Net Incurred Claims

(617)

42

(575)

 

(584)

2

(582)

Commissions

(24)

0

(24)

 

(24)

-

(24)

Operating expenses

(135)

0

(135)

 

(130)

-

(130)

Underwriting result

120

42

162

 

94

2

96

 

 

 

 

 

 

 

 

CY attritional claims

(565)

 

 

 

(537)

 

 

Weather claims

0

 

 

 

(2)

 

 

Large losses

(52)

 

 

 

(45)

 

 

Net incurred claims

(617)

 

 

 

(584)

 

 

 

 

 

 

 

 

 

 

Loss ratio (%)

 

 

64.2

 

 

 

70.0

Weather loss ratio

 

 

 

-

 

 

 

0.3

Large loss ratio

 

 

5.8

 

 

 

5.4

Current year attritional loss ratio

 

 

63.1

 

 

 

64.5

Prior year effect on loss ratio

 

 

(4.7)

 

 

 

(0.2)

Commission ratio (%)

 

 

2.7

 

 

 

2.9

Expense ratio (%)

 

 

15.0

 

 

 

15.6

Combined ratio (%)

 

 

81.9

 

 

 

88.5

 

Canada

£m unless stated

Current

Year

Prior

year

H1 2017

total

 

Current

year

Prior

year

H1 2016

total

Net Written Premiums

728

-

728

 

612

(3)

609

Net Earned Premiums

777

-

777

 

685

(3)

682

Net Incurred Claims

(535)

24

(511)

 

(479)

42

(437)

Commissions

(105)

-

(105)

 

(94)

3

(91)

Operating expenses

(118)

(3)

(121)

 

(114)

(3)

(117)

Underwriting result

19

21

40

 

(2)

39

37

 

 

 

 

 

 

 

 

CY attritional claims

(450)

 

 

 

(391)

 

 

Weather claims

(21)

 

 

 

(45)

 

 

Large losses

(64)

 

 

 

(43)

 

 

Net incurred claims

(535)

 

 

 

(479)

 

 

 

 

 

 

 

 

 

 

Loss ratio (%)

 

 

65.8

 

 

 

64.0

Weather loss ratio

 

 

2.7

 

 

 

6.6

Large loss ratio

 

 

8.2

 

 

 

6.3

Current year attritional loss ratio

 

 

57.9

 

 

 

57.1

Prior year effect on loss ratio

 

 

(3.0)

 

 

 

(6.0)

Commission ratio (%)

 

 

13.4

 

 

 

13.4

Expense ratio (%)

 

 

15.6

 

 

 

17.1

Combined ratio (%)

 

 

94.8

 

 

 

94.5

 

Total UK

£m unless stated

Current

year

Prior

year

H1 2017

total

 

Current

year

Prior

year

H1 2016

total

Net Written Premiums

1,343

21

1,364

 

1,269

6

1,275

Net Earned Premiums

1,317

13

1,330

 

1,348

(1)

1,347

Net Incurred Claims

(858)

10

(848)

 

(849)

43

(806)

Commissions

(260)

(15)

(275)

 

(271)

(7)

(278)

Operating expenses

(190)

0

(190)

 

(187)

-

(187)

Underwriting result

9

8

17

 

41

35

76

 

 

 

 

 

 

 

 

CY attritional claims

(621)

 

 

 

(627)

 

 

Weather claims

(17)

 

 

 

(58)

 

 

Large losses

(220)

 

 

 

(164)

 

 

Net incurred claims

(858)

 

 

 

(849)

 

 

 

 

 

 

 

 

 

 

Loss ratio (%)

 

 

63.7

 

 

 

59.8

Weather loss ratio

 

 

1.3

 

 

 

4.3

Large loss ratio

 

 

16.8

 

 

 

12.2

Current year attritional loss ratio

 

 

47.1

 

 

 

46.5

Prior year effect on loss ratio

 

 

(1.5)

 

 

 

(3.2)

Commission ratio (%)

 

 

20.7

 

 

 

20.7

Expense ratio (%)

 

 

14.3

 

 

 

13.9

Combined ratio (%)

 

 

98.7

 

 

 

94.4

 

UK Personal

£m unless stated

Current

year

Prior

year

H1 2017

total

 

Current

year

Prior

year

H1 2016

total

Net Written Premiums

549

5

554

 

496

-

496

Net Earned Premiums

549

9

558

 

553

-

553

Net Incurred Claims

(329)

(10)

(339)

 

(334)

3

(331)

Commissions

(116)

(1)

(117)

 

(119)

-

(119)

Operating expenses

(95)

0

(95)

 

(89)

-

(89)

Underwriting result

9

(2)

7

 

11

3

14

 

 

 

 

 

 

 

 

CY attritional claims

(298)

 

 

 

(282)

 

 

Weather claims

(13)

 

 

 

(33)

 

 

Large losses

(18)

 

 

 

(19)

 

 

Net incurred claims

(329)

 

 

 

(334)

 

 

 

 

 

 

 

 

 

 

Loss ratio (%)

 

 

60.8

 

 

 

59.9

Weather loss ratio

 

 

2.4

 

 

 

6.1

Large loss ratio

 

 

3.3

 

 

 

3.5

Current year attritional loss ratio

 

 

54.3

 

 

 

50.8

Prior year effect on loss ratio

 

 

0.8

 

 

 

(0.5)

Commission ratio (%)

 

 

20.9

 

 

 

21.5

Expense ratio (%)

 

 

17.0

 

 

 

16.1

Combined ratio (%)

 

 

98.7

 

 

 

97.5

 

UK Commercial

£m unless stated

Current

year

Prior

year

H1 2017

total

 

Current

year

Prior

year

H1 2016

total

Net Written Premiums

794

16

810

 

773

6

779

Net Earned Premiums

768

4

772

 

795

(1)

794

Net Incurred Claims

(529)

20

(509)

 

(515)

40

(475)

Commissions

(144)

(14)

(158)

 

(152)

(7)

(159)

Operating expenses

(95)

0

(95)

 

(98)

-

(98)

Underwriting result

-

10

10

 

30

32

62

 

 

 

 

 

 

 

 

CY attritional claims

(323)

 

 

 

(345)

 

 

Weather claims

(4)

 

 

 

(25)

 

 

Large losses

(202)

 

 

 

(145)

 

 

Net incurred claims

(529)

 

 

 

(515)

 

 

 

 

 

 

 

 

 

 

Loss ratio (%)

 

 

65.9

 

 

 

59.8

Weather loss ratio

 

 

0.5

 

 

 

3.0

Large loss ratio

 

 

26.4

 

 

 

18.2

Current year attritional loss ratio

 

 

42.0

 

 

 

43.6

Prior year effect on loss ratio

 

 

(3.0)

 

 

 

(5.0)

Commission ratio (%)

 

 

20.5

 

 

 

20.1

Expense ratio (%)

 

 

12.3

 

 

 

12.3

Combined ratio (%)

 

 

98.7

 

 

 

92.2

 

 

REPORTING AND DIVIDEND TIMETABLE

 

Reporting:

 

Q3 2017 trading update

2 November 2017

 

 

Dividend:

 

Interim ordinary dividend for the period ended 30 June 2017

 

Announcement date

2 August 2017

Ex-dividend date

7 September 2017

Record date

8 September 2017

Dividend payment date

13 October 2017

 

 

2nd Preference Dividend

 

Announcement date

2 August 2017

Ex-dividend date

10 August 2017

Record date

11 August 2017

Dividend payment date

2 October 2017

 

Note: a scrip dividend alternative is not being offered for the 2017 interim ordinary dividend payment.

Note: the interim ordinary dividend is conditional upon the directors being satisfied, in their absolute discretion, that the payment of the interim ordinary dividend would not breach any legal or regulatory requirements, including Solvency II regulatory capital requirements.

 

DISCLOSURE CHANGE

To better align with reporting practice across the European insurance sector, we intend to continue the provision of class of business premium information and performance trend commentary in our disclosures, but to report combined ratios at total Personal and total Commercial level only for each region.

Our intention is that this will apply for full year 2017 disclosures and reporting periods thereafter.

 

Enquiries:

 

Investors & analysts

Press

Rupert Taylor Rea

Alice Hunt

Director of Investor Relations

Director of External Communications

Tel: +44 (0) 20 7111 7140

Tel: +44 (0) 20 7111 7305

Email: rupert.taylorrea@gcc.rsagroup.com

Email: alice.hunt@gcc.rsagroup.com

 

 

Laura de Mergelina

Eilis Murphy & Robin Wrench

Investor Relations Manager

Brunswick Group

Tel: +44 (0) 20 7111 7243

Tel: +44 (0) 20 7404 5959

Email: laura.demergelina@gcc.rsagroup.com

Email: emurphy@brunswickgroup.com

 

                         

 

Further information

A live webcast of the analyst presentation, including the question and answer session, will be broadcast on the website at 09:00am on 2 August 2017.  A webcast and transcript of the presentation will be available via the company website (www.rsagroup.com).

           

Important disclaimer           
This press release and the associated conference call may contain 'forward-looking statements' with respect to certain of the Group's plans and its current goals and expectations relating to its future financial condition, performance, results, strategic initiatives and objectives. Generally, words such as "may", "could", "will", "expect", "intend", "estimate", "anticipate", "aim", "outlook", "believe", "plan", "seek", "continue" or similar expressions identify forward-looking statements. These forward-looking statements are not guarantees of future performance. By their nature, all forward-looking statements are inherently predictive and speculative and involve risk and uncertainty because they relate to future events and circumstances which are beyond the Group's control, including amongst other things, UK domestic and global economic business conditions, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities, the impact of competition, inflation, deflation, the timing impact and other uncertainties of future acquisitions or combinations within relevant industries, as well as the impact of tax and other legislation or regulations in the jurisdictions in which the Group and its affiliates operate. As a result, the Group's actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in the Group's forward-looking statements. Forward-looking statements in this press release are current only as of the date on which such statements are made. The Group undertakes no obligation to update any forward-looking statements, save in respect of any requirement under applicable law or regulation. Nothing in this press release shall be construed as a profit forecast.

 

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Table of contents

 

Primary Statements

 

Basis of Preparation and Significant Accounting Policies

 

1.     Basis of  preparation

 

2.     Adoption of new and revised standards

 

3.     Recently issued accounting pronouncements

 

Risk Management

 

4.     Risk management

 

Significant Transactions and Events

 

5.     Discontinued operations and disposals

 

6.     Reorganisation costs

 

Notes to the Condensed Consolidated Income Statement and Condensed Consolidated Statement of Other Comprehensive Income

 

7.     Operating segments

 

8.     Earnings per share

 

9.     Distributions paid and declared

 

Notes to the Condensed Consolidated Statement of Financial Position

 

10.  Goodwill and intangible assets

 

11.  Financial assets and fair value measurements

 

12.  Cash and cash equivalents

 

13.  Share capital

 

14.  Tier 1 notes

 

15.  Loan capital

 

16.  Insurance contract liabilities

 

17.  Retirement benefit obligations

 

18.  Related party transactions

 

19.  Results for the year 2016

 

Appendix

 

A.     Exchange rates

 

Responsibility Statement of the Directors in respect of the half-yearly financial report

 

Independent Review Report to RSA Insurance Group plc

 

 

CONDENSED CONSOLIDATED INCOME STATEMENT

STATUTORY BASIS

for the 6 month period ended 30 June 2017

 

 

 

 

(Reviewed)

(Reviewed)

 

 

 

 

6 months

6 months

 

 

 

 

30 June 2017

30 June 2016

 

 

 

Note

£m

£m

Income

 

 

 

 

Gross written premiums

 

 

4,026

3,726

Less: reinsurance premiums

 

 

(577)

(647)

Net written premiums

 

7

3,449

3,079

 

Change in the gross provision for unearned premiums

 

 

(295)

(169)

 

Less: change in provision for unearned reinsurance premiums

 

 

97

174

Change in provision for unearned premiums

 

 

(198)

5

Net earned premiums

 

 

3,251

3,084

Net investment return

 

 

169

144

Other operating income

 

 

76

61

Total income

 

 

3,496

3,289

Expenses

 

 

 

 

 

Gross claims incurred

 

 

(2,584)

(2,420)

 

Less: claims recoveries from reinsurers

 

 

482

408

Net claims

 

 

(2,102)

(2,012)

Underwriting and policy acquisition costs

 

 

(1,002)

(961)

Unwind of discount

 

 

(17)

(32)

Other operating expenses

 

 

(76)

(69)

Total expenses

 

 

(3,197)

(3,074)

 

 

 

 

 

Finance costs

 

15

(89)

(54)

Net gains related to business disposals

 

5d

52

-

Net share of profit after tax of associates

 

 

1

-

Profit before tax

 

7

263

161

Income tax expense

 

 

(57)

(36)

Profit after tax from continuing operations

 

 

206

125

Loss from discontinued operations, net of tax

 

5a

-

(34)

Profit for the period

 

 

206

91

 

 

 

 

 

 

Attributable to:

 

 

 

 

Equity holders of the Parent Company

 

 

196

85

Non-controlling interests

 

 

10

6

 

 

 

206

91

 

 

 

 

 

 

Earnings per share on profit attributable to the ordinary shareholders of the Parent Company:

Basic

 

 

 

 

From continuing operations

 

8

18.4p

11.2p

From discontinued operations

 

8

 -

 (3.3)p

 

 

 

18.4p

7.9p

Diluted

 

 

 

 

From continuing operations

 

8

17.9p

11.1p

From discontinued operations

 

8

-

(3.3)p

 

 

 

17.9p

7.8p

Ordinary dividend

 

 

 

 

Final paid in respect of prior year

 

9

11.0p

7.0p

Interim proposed/paid in respect of current year

 

9

6.6p

5.0p

 

The following explanatory notes form an integral part of these condensed consolidated financial statements.

 

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

STATUTORY BASIS

 

 

 

 

for the 6 month period ended 30 June 2017

 

 

 

 

 

 

 

 

(Reviewed)

(Reviewed)

 

 

 

 

6 months

6 months

 

 

 

 

30 June 2017

30 June 2016

 

 

 

 

£m

£m

 

 

 

Note

 

(Re-presented1)

Profit for the period

 

 

206

91

 

 

 

 

 

 

Items from continuing operations that may be reclassified to the income statement:

 

 

 

 

 

Exchange (losses)/gains net of tax on translation of foreign operations

 

 

(9)

179

 

Fair value (losses)/gains on available for sale financial assets net of tax

 

 

(144)

215

 

 

 

 

(153)

394

Items from continuing operations that will not be reclassified to the income statement:

 

 

 

 

 

Pension - remeasurement of net defined benefit liability net of tax

 

 

(5)

(22)

 

 

 

 

(5)

(22)

Other comprehensive (expense)/income for the period from continuing operations

 

 

(158)

372

Other comprehensive income for the period from discontinued operations

 

5a

-

122

Total other comprehensive (expense)/income for the period

 

 

(158)

494

Total comprehensive income for the period from continuing operations

 

 

48

497

Total comprehensive expense for the period from discontinued operations

 

5a

-

88

Total comprehensive income for the period

 

 

48

585

 

 

 

 

 

 

Attributable to:

 

 

 

 

Equity holders of the Parent Company

 

 

 

 

From continuing operations

 

 

44

  478

From discontinued operations

 

 

-

91

 

 

 

 

44

569

Non-controlling interests

 

 

 

 

From continuing operations

 

 

4

19

From discontinued operations

 

 

-

(3)

 

 

 

 

4

16

 

 

 

 

48

585

 

 

 

 

 

 

1 On a basis consistent with FY 2016 the HY 2016 Other Comprehensive Income exchange gains and losses have been reclassified resulting in a total net impact of nil and a reclassification of £94m income from continuing to discontinued operations.

 

The following explanatory notes form an integral part of these condensed consolidated financial statements.

 

 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

STATUTORY BASIS

 

for the 6 month period ended 30 June 2017

 

 

 

 

 

(Reviewed)

 

 

 

Ordinary share capital

Ordinary share premium

Own shares

Preference shares

Revaluation reserves

Capital redemption reserve

Foreign currency translation reserve

Retained earnings

Share- holders' equity

Tier 1 notes

Non-controlling interests

Total

equity

 

 

 

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

 

Balance at 1 January 2017

1,020

1,080

(1)

125

496

389

78

528

3,715

-

132

3,847

 

Total comprehensive income for the period

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the period

-

-

-

-

-

-

-

196

196

-

10

206

 

Other comprehensive expense

-

-

-

-

(141)

-

(7)

(4)

(152)

-

(6)

(158)

 

 

 

-

-

-

-

(141)

-

(7)

192

44

-

4

48

 

Transactions with owners of the Company

 

 

 

 

 

 

 

 

 

 

Contributions and distribution

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends (note 9)

-

-

-

-

-

-

-

(120)

(120)

-

(4)

(124)

 

 

Shares issued for cash

1

3

-

-

-

-

-

-

4

-

-

4

 

 

Share based payments

2

-

-

-

-

-

-

6

8

-

-

8

 

 

Issue of Tier 1 notes (note 14)

-

-

-

-

-

-

-

-

-

297

-

297

 

 

Other reserve transfer

-

-

-

-

(7)

-

-

7

-

-

-

-

 

 

Total transactions with owners of the Company

3

3

-

-

(7)

-

-

(107)

(108)

297

(4)

185

 

Balance at 30 June 2017

1,023

1,083

(1)

125

348

389

71

613

3,651

297

132

4,080

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2016

1,017

1,077

(1)

125

293

389

(221)

963

3,642

-

129

3,771

 

Total comprehensive income for the period

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the period

-

-

-

-

-

-

-

85

85

-

6

91

 

Other comprehensive income for the period

-

-

-

-

243

-

263

(22)

484

-

10

494

 

 

 

-

-

-

-

243

-

263

63

569

-

16

585

 

Transactions with owners of the Company

 

 

 

 

 

 

 

 

 

 

Contribution and distribution

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends (note 9)

-

-

-

-

-

-

-

(76)

(76)

-

(2)

(78)

 

 

Shares issued for cash

2

2

-

-

-

-

-

-

4

-

-

4

 

 

Share based payments

-

-

-

-

-

-

-

8

8

-

-

8

 

 

 

2

2

-

-

-

-

-

(68)

(64)

-

(2)

(66)

 

Changes in shareholders' interests in subsidiaries

-

-

-

-

(11)

-

-

-

(11)

-

(5)

(16)

 

Total transactions with owners of the Company

2

2

-

-

(11)

-

-

(68)

(75)

-

(7)

(82)

 

Balance at 30 June 2016

1,019

1,079

(1)

125

525

389

42

958

4,136

-

138

4,274

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The following explanatory notes form an integral part of these condensed consolidated financial statements.

 

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

STATUTORY BASIS

as at 30 June 2017

 

 

 

(Reviewed)

(Audited)

 

 

 

30 June 2017

31 December 2016

 

 

Note

£m

£m

Assets

 

 

 

Goodwill and other intangible assets

10

737

728

Property and equipment

 

105

109

 

Investment property

 

336

333

 

Investments in associates

 

13

12

 

Financial assets

11

11,994

12,325

Total investments

 

12,343

12,670

Reinsurers' share of insurance contract liabilities

16

2,454

2,252

Insurance and reinsurance debtors

 

3,112

2,823

 

Deferred tax assets

 

262

270

 

Current tax assets

 

37

65

 

Other debtors and other assets

 

567

430

Other assets

 

866

765

Cash and cash equivalents

12

761

985

 

 

 

20,378

20,332

Assets of operations classified as held for sale

5b

677

807

Total assets

 

21,055

21,139

 

 

 

 

 

Equity and liabilities

 

 

 

Equity

 

 

 

Shareholders' equity

13

3,651

3,715

Tier 1 notes

14

297

-

Non-controlling interests

 

132

132

Total equity

 

4,080

3,847

Liabilities

 

 

 

Loan capital

15

441

1,068

Insurance contract liabilities

16

13,032

12,676

Insurance and reinsurance liabilities

 

1,041

954

Borrowings

 

225

251

 

Deferred tax liabilities

 

56

54

 

Current tax liabilities

 

23

32

 

Provisions

 

390

420

 

Other liabilities

 

1,090

1,087

Provisions and other liabilities

 

1,559

1,593

 

 

 

16,298

16,542

Liabilities of operations classified as held for sale

5b

677

750

Total liabilities

 

16,975

17,292

Total equity and liabilities

 

21,055

21,139

 

 

 

 

 

The following explanatory notes form an integral part of these condensed consolidated financial statements.

 

 

 

 

 

The financial statements were approved on 1 August 2017 by the Board of Directors and are signed on its behalf by:

 

 

 

 

 

Scott Egan

Group Chief Financial Officer

 

 

 

CONDENSED CONSOLIDATED STATEMENT OF CASHFLOWS

STATUTORY BASIS

for the 6 month period ended 30 June 2017

 

 

 

(Reviewed)

(Reviewed)

 

 

 

6 months

6 months

 

 

 

30 June 2017

30 June 2016

 

 

 

 

(Re-presented1)

 

 

Note

£m

£m

Cashflows from operating activities

 

 

 

Net profit for the year before tax from continuing operations

 

263

161

Adjustments for non-cash movements in net profit for the period

 

 

 

Depreciation

 

11

10

Amortisation and impairment of intangible assets

 

45

40

Amortisation of available for sale investments

 

31

35

Fair value gains on disposal of financial assets

 

-

26

Impairment charge on available for sale financial assets

 

-

2

Share of profit of associates

 

(1)

-

Net gains related to business disposals

 

(52)

-

Foreign exchange loss/(gain)

 

9

(68)

Other non-cash movements1

 

16

17

Changes in operating assets/liabilities

 

 

 

Loss and loss adjustment expenses

 

(96)

(156)

Unearned premiums

 

182

(12)

Movement in working capital1

 

(326)

183

Reclassification of investment income and interest paid

 

(72)

(122)

Tax paid

 

(35)

(63)

Dividend income

 

16

15

Interest and other investment income

 

141

159

Dividends received from associates

 

14

1

Pension deficit funding

 

(65)

(65)

Net cashflows from operating activities - continuing operations

 

81

163

Net cashflows from operating activities - discontinued operations

 

-

(9)

Cashflows from investing activities

 

 

 

Proceeds/(cash outflows) from sales or maturities of:

 

 

 

 

Financial assets

 

1,992

2,085

 

Investment property

 

-

28

 

Disposals of businesses not classified as discontinued

 

(3)

2

 

Disposal of UK Legacy liabilities

 

(101)

-

Purchase of:

 

 

 

 

Financial assets

 

(1,654)

(2,081)

 

Property and equipment

 

(7)

(18)

 

Intangible assets

 

(54)

(45)

Net cashflows from investing activities - continuing operations

 

173

(29)

Net cashflows from investing activities - discontinued operations

 

-

333

Cashflows from financing activities

 

 

 

Proceeds from issue of share capital

 

4

4

Proceeds from issue of Tier 1  notes

 

297

-

Dividends paid to ordinary shareholders

 

(112)

(71)

Coupon payment on Tier 1 notes

 

(3)

-

Dividends paid to preference shareholders

 

(5)

(5)

Dividends paid to non-controlling interests

 

(4)

(2)

Redemption of long term borrowings

 

(607)

-

Movement in other borrowings

 

(39)

-

Interest paid

 

(110)

(80)

Net cashflows from financing activities - continuing operations

 

(579)

(154)

Net (decrease)/increase in cash and cash equivalents

 

(325)

304

Cash and cash equivalents at beginning of the period

 

1,087

902

Effect of exchange rate changes on cash and cash equivalents

 

(12)

75

Cash and cash equivalents at end of the period

12

750

1,281

1 Following a review of other non-cash movements, specific balances have been further analysed and classified as movements in working capital for HY 2016. These adjustments have no impact on the overall reported cash flow from operating activities in either year, or any other notes to the financial statements.

 

BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES

 

RSA Insurance Group plc (the 'Company') is a public limited company incorporated and domiciled in England and Wales.  The Company through its subsidiaries and associates (together the 'Group' or 'RSA') provides personal and commercial insurance products to its global customer base, principally in the UK, Ireland, Middle East (together 'UK & International'), Scandinavia and Canada.

 

1. BASIS OF PREPARATION

The annual financial statements are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The condensed consolidated financial information in this half yearly report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' (IAS 34), as adopted by the European Union, and the Disclosure and Transparency Rules of the Financial Conduct Authority.

The Board has reviewed the Group's ongoing commitments for the next twelve months and beyond. The Board's review included the Group's strategic plans and updated forecasts, capital position, liquidity and credit facilities and investment portfolio. Based on this review no material uncertainties that would require disclosure have been identified in relation to the ability of the Group to remain a going concern for at least the next twelve months, from both the date of the Condensed Statement of Financial Position and the approval of the Condensed Consolidated Financial Statements.

These Condensed Consolidated Financial Statements have been prepared by applying the accounting policies used in the Annual Report and Accounts 2016 (see note 4 and Appendix A).

 

2. ADOPTION OF NEW AND REVISED STANDARDS

There are only a small number of narrow scope amendments arising from annual improvement projects that are applicable to the Group for the first time in 2017, none of which have had a significant impact on the Condensed Consolidated Financial Statements.

 

3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'

The IASB published IFRS 17 'Insurance Contracts' on 18 May 2017 which will change the way in which insurance contracts are accounted for and presented. The latest adoption date for the new standard will be 2021 and it still has to be endorsed by the EU. Work has already commenced on assessing the impact of the new standard.

The Group plans to take advantage of the deferral approach available under IFRS 4 for adopting IFRS 9 'Financial Instruments', thereby adopting it from 1 January 2021, at the same time as IFRS 17.

 

IFRS 16 'Leases'

In January 2016, the IASB issued IFRS 16 'Leases' to replace the existing standard IAS 17, which will be effective from 1 January 2019 but with earlier adoption permitted. 

The main change under IFRS 16 is that it requires the recognition of all lease obligations, together with an asset representing the right to the use of the leased asset during the term of the lease.  Under IAS 17, for leases qualifying as operating leases, the lease obligations are not recognised in the Statement of Financial Position.

The Group has completed its initial assessment of the impact of IFRS 16 on the financial statements and is in the process of considering the options available on transition to the new standard.

IFRS 15 'Revenue Recognition'

IFRS 15 'Revenue Recognition' becomes effective from 1 January 2018. Revenue arising from insurance contracts and financial instruments is outside the scope of IFRS 15.  Work is progressing on preparing for the adoption of IFRS 15 which is not expected to have a significant impact for the Group.

Other pronouncements

There are a number of amendments to IFRS that have been issued by the IASB that become mandatory during 2017 or in a subsequent accounting period.  The Group has evaluated these changes and none are expected to have a significant impact on the consolidated financial statements.   

 

4.  RISK MANAGEMENT

The principal risks and uncertainties of the Group and the management of these risks have not materially changed since the year ended 31 December 2016. 

Details of the principal risks and uncertainties can be found in the Annual Report and Accounts 2016; Risk Management information in Note 5 on pages 120 to 126 and the estimation techniques and uncertainties in the specific disclosures to which they relate.

SIGNIFICANT TRANSACTIONS AND EVENTS

5. DISCONTINUED OPERATIONS AND DISPOSALS

a) Discontinued operations

During the six months to 30 June 2017, no operations have been classified as discontinued.

During 2016, the Group classified the following operations as discontinued on the basis that they represented a separate geographical area of operation. The sales all completed during 2016.

Operation

Date of disposal

Acquirer

Russia

29 January 2016

Joint Stock Insurance Company Blagosostoyanie

Brazil

29 February 2016

Suramericana S.A.

Colombia

31 March 2016

Suramericana S.A.

Chile

30 April 2016

Suramericana S.A.

Argentina

30 April 2016

Suramericana S.A.

Mexico

31 May 2016

Suramericana S.A.

Uruguay

30 June 2016

Suramericana S.A.

 

The revenue, expenses and related income tax expense in 2016 relating to these discontinued operations are set out in the comparatives below.

 

DISCONTINUED INCOME STATEMENT

for the period ended 30 June 2017

 

 

 

 

 

 

 

 

(Reviewed)

(Reviewed)

 

 

 

6 months

6 months

 

 

 

30 June 2017

30 June 2016

 

 

Note

£m

£m

Income

 

 

 

Gross written premiums

 

-

254

Less: reinsurance premiums

 

-

(86)

Net written premiums

7

-

168

 

Change in the gross provision for unearned premiums

 

-

38

 

Less: change in provision for unearned reinsurers' premiums

 

-

(19)

Change in provision for unearned premiums

 

-

19

Net earned premiums

 

-

187

Net investment return

 

-

16

Total income

 

-

203

Expenses

 

 

 

 

Gross claims incurred

 

-

(311)

 

Less: claims recoveries from reinsurers

 

-

215

Net claims

 

-

(96)

Underwriting and policy acquisition costs

 

-

(88)

Unwind of discount

 

-

(5)

Other operating expenses

 

-

(7)

Total expenses

 

-

(196)

Profit from discontinued operations before tax

 

-

7

Loss on disposal after tax

5c

-

(36)

Loss before tax

 

-

(29)

Income tax expense

 

-

(5)

Loss after tax

 

-

(34)

 

 

 

 

 

 

 

5. DISCONTINUED OPERATIONS AND DISPOSALS (CONTINUED)

DISCONTINUED STATEMENT OF COMPREHENSIVE INCOME

for the period ended 30 June 2017

 

 

 

(Reviewed)

(Reviewed)

 

 

 

6 months

6 months

 

 

 

30 June 2017

30 June 2016

 

 

 

£m

£m

 

 

 

 

(Re-presented1)

Loss for the period from discontinued operations net of tax

 

-

(34)

Items from discontinued operations that may be reclassified to the income statement:

 

 

 

 

Exchange gains recycled on disposal of discontinued operations net of tax

 

-

111

 

Exchange gains net of tax

 

-

7

 

 

-

118

 

Fair value losses recycled on disposal of discontinued operations net of tax

 

-

(1)

 

Fair value gains on available for sale financial assets net of tax

 

-

3

 

 

 

-

2

Items from discontinued operations that will not be reclassified to the income statement:

 

 

 

Movement in property revaluation, net of tax

 

-

2

Other comprehensive income for the year from discontinued operations

 

-

122

Total comprehensive expense for the year from discontinued operations

-

88

1 On a basis consistent with FY 2016 the HY 2016 Other Comprehensive Income exchange gains and losses have been reclassified resulting in a total net impact of £nil and a reclassification of £94m income from continuing to discontinued operations.

 

 

 

 

5. DISCONTINUED OPERATIONS AND DISPOSALS (CONTINUED)

 

b) Held for sale disposal groups

 

 

 

 

 

 

 

 

30 June 2017

31 December 2016

 

 

UK Legacy1

Total

UK Legacy1

Oman2

UK Other

Total

 

 

£m

£m

£m

£m

£m

£m

 

Assets classified as held for sale

 

 

 

 

 

 

 

Property and equipment

-

-

-

-

4

4

 

Investments

-

-

689

87

-

776

 

Reinsurers' share of insurance contract liabilities

677

677

90

6

-

96

 

Insurance and reinsurance debtors

-

-

-

15

-

15

 

Other debtors and other assets

-

-

9

6

1

16

 

Cash and cash equivalents

-

-

101

3

-

104

 

Total assets of disposal groups

677

677

889

117

5

1,011

 

Remeasurement of disposal groups to fair value less costs to sell

-

-

(204)

-

-

(204)

 

Assets of operations classified as held for sale

677

677

685

117

5

807

 

 

 

 

 

 

 

 

 

Liabilities directly associated with assets classified as held for sale

 

 

 

 

 

 

 

Insurance contract liabilities

677

677

685

50

-

735

 

Insurance and reinsurance liabilities

-

-

-

5

-

5

 

Provisions and other liabilities

-

-

-

10

-

10

 

Liabilities of disposal groups

677

677

685

65

-

750

 

Total net assets of disposal groups

-

-

-

52

5

57

 

 

 

 

 

 

 

 

 

1 The UK Legacy investments presented as held for sale at 31 December 2016 have been disposed of and the proceeds used to acquire reinsurance for the gross legacy liabilities pending completion of a subsequent legal transfer of the business.

 
 

2 It is no longer expected that RSA will lose control over its Oman business as a result of an initial public offering of its shares that is taking place during the third quarter of 2017 and as a consequence the assets and liabilities of this business were reclassified out of held for sale.

 

 

5. DISCONTINUED OPERATIONS AND DISPOSALS (CONTINUED)

 

 

 

 

 

 

 

c) Discontinued operations disposed of during the period

 

 

 

6 months

6 months

 

 

 

30 June 2017

30 June 2016

 

 

 

 

Total

Latin America

Russia

Total

 

 

 

 

£m

£m

£m

£m

 

 

Consideration received

 

-

432

5

437

 

 

Less: transaction costs

 

-

(20)

(1)

(21)

 

 

Net proceeds from sales

 

-

412

4

416

 

 

Less: carrying value of net assets disposed of1

 

-

(321)

(3)

(324)

 

 

Gains on sale before recycling of items from other comprehensive income

 

-

91

1

92

 

 

Recycle of items from other comprehensive income on disposals:

 

 

 

 

 

 

 

- Foreign currency translation reserve

 

-

(100)

(11)

(111)

 

 

- Unrealised loss on available for sale investments

 

-

(1)

-

(1)

 

 

Loss on sales of discontinued operations before tax

 

-

(10)

(10)

(20)

 

 

Tax on disposal

 

-

(16)

-

(16)

 

 

Loss on sales of discontinued operations after tax

 

-

(26)

(10)

(36)

 

 

Includes £nil (30 June 2016: £98m) of cash balances in the disposed businesses.

 

 
                           

 

 

d) Gain/(loss) related to business disposals not classified as discontinued 

In the six months to 30 June 2017 the net gain related to business disposals within continuing operations was £52m comprised of £66m mainly relating to the realised gain on the mark-to-market of the bonds transferred to the UK Legacy buyer, £(22)m on the commutation of the Group's Adverse Development Cover reinsurance protection that was bought in 2014 to partly protect the UK Legacy book and £8m from the sale of the UK Accident and Repair business.

At full year 2016, the assets and liabilities of the Oman and UK Legacy business were classified as held for sale. Upon classification as held for sale, the net assets were measured at the lower of carrying amount and fair value less costs to sell. The valuation adjustment resulted in a £234m loss which was recognised in the continuing income statement for full year 2016.

 

6. REORGANISATION COSTS

Reorganisation costs represent external and clearly identifiable internal costs that are necessarily incurred and directly attributable to the Group's restructuring programme. The aim of the restructuring programme is to both reduce operating costs and improve profitability.

In the six months to 30 June 2017, the reorganisation costs of £41m (30 June 2016: £70m) comprised of £20m (30 June 2016: £15m) of redundancy costs and £21m (30 June 2016: £55m) of other restructuring activities.

 

NOTES TO THE CONDENSED CONSOLIDATED INCOME STATEMENT AND CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME

 

7. OPERATING SEGMENTS

 

Group excluding disposals

 

The Group's primary operating segments comprise Scandinavia, Canada, UK & International and Central functions which is consistent with how the Group is managed. The primary operating segments are based on geography and are all engaged in providing personal and commercial general insurance services. Central functions include the Group's internal reinsurance function and Group Corporate Centre.

Each operating segment is managed by a member of the Group Executive Committee who is directly accountable to the Group Chief Executive and Board of Directors, who together form the central decision making function in respect of the operating activities of the Group. The UK is the Group's country of domicile and one of its principal markets.

During 2016, following a reorganisation change, the Middle East was combined with the UK and Ireland regions to form the 'UK & International' segment. Previously the Middle East operations were reported under 'non-core'. The 2016 half year segmental results have been re-presented accordingly.

Disposals

Disposals are categorised between disposals of continuing operations and discontinued operations:

Disposals of continuing operations

On 7 February 2017, the Group's UK Legacy liabilities were disposed of to Enstar Group Limited. The transaction initially takes the form of a reinsurance agreement, effective from 31 December 2016, which substantially effects economic transfer, to be followed by completion of a subsequent legal transfer of the business. The Group's UK Legacy business is managed as part of the UK operations. It is not presented as a discontinued operation as it is neither a separate geographical area nor a major line of business. 

Discontinued operations

 

During 2015, the Group classified the Latin American and Russian operations as discontinued as they were held for sale at 31 December 2015 and represented a separate geographical area of operation. The sale of these operations completed in the first six months of 2016 and they are therefore classified as discontinued at 30 June 2016 (see note 5 for further details).

During the six months to 30 June 2017, no further operations have been classified as discontinued and as such, the 2016 comparatives do not require re-presentation.

Assessing segment performance

The Group uses the following key measures to assess the performance of its operating segments:

·     Net written premiums;

·     Underwriting result;

·     Combined operating ratio ('COR');

·     Operating result.

 

Net written premiums is the key measure of revenue used in internal reporting.

 

Underwriting result, COR and Operating result are the key internal measures of profitability of the operating segments. The COR reflects the ratio of claims costs and expenses (including commission) to earned premiums, expressed as a percentage.

 

7. OPERATING SEGMENTS (CONTINUED)

 

 

 

 

 

 

 

 

 

 

 

Segment revenue and results

 

 

 

 

 

Period ended 30 June 2017

 

 

 

 

 

 

Scandinavia

Canada

UK & International

Central Functions

Total Group

 

£m

£m

£m

£m

£m

Net written premiums

1,064

728

1,628

29

3,449

Underwriting result

162

40

32

(12)

222

Investment result

40

31

77

-

148

Central costs and other activities

-

-

-

(10)

(10)

 

 

 

 

 

 

Operating result (management basis)

202

71

109

(22)

360

Realised gains

 

 

 

 

4

Unrealised losses, impairments and foreign exchange

 

 

 

 

(12)

Interest costs

 

 

 

 

(89)

Amortisation of intangible assets

 

 

 

 

(8)

Pension net interest and administration costs

 

 

 

 

(3)

Reorganisation costs

 

 

 

 

(41)

Net gains related to business disposals

 

 

 

 

52

Profit before tax

 

 

 

 

263

 

Tax on operations

 

 

 

 

(57)

Profit after tax

 

 

 

 

206

Combined operating ratio (%)

81.9%

94.8%

98.0%

 

93.2%

             

 

7. OPERATING SEGMENTS (CONTINUED)

 

 

 

 

 

 

 

 

 

 

 

 

Segment revenue and results

 

Period ended 30 June 2016 - Re-presented

 

 

 

Scandinavia

Canada

UK & International

Central Functions

Group excluding disposals

Disposals of continuing operations

Continuing operations per income statement

Discontinued operations

(note 5)

Total Group

 

 

£m

£m

£m

£m

£m

£m

£m

£m

£m

Net written premiums

965

609

1,518

29

3,121

(42)

3,079

168

3,247

Underwriting result

96

37

82

(36)

179

(8)

171

3

174

Investment result

35

32

74

-

141

-

141

9

150

Central costs and other activities

-

-

-

(12)

(12)

-

(12)

-

(12)

 

 

 

 

 

 

 

 

 

 

Operating result (management basis)

131

69

156

(48)

308

(8)

300

12

312

Realised gains

 

 

 

 

 

 

10

2

12

Unrealised losses, impairments and foreign exchange

 

 

 

 

 

 

(11)

-

(11)

Interest costs

 

 

 

 

 

 

(54)

-

(54)

Amortisation of intangible assets

 

 

 

 

 

 

(7)

-

(7)

Pension net interest and administration costs

 

 

 

 

 

 

(2)

-

(2)

Solvency II costs

 

 

 

 

 

 

(6)

-

(6)

Reorganisation costs

 

 

 

 

 

 

(63)

(7)

(70)

Economic assumption changes

 

 

 

 

 

 

(6)

-

(6)

Loss on disposal of businesses

 

 

 

 

 

 

-

(20)

(20)

Profit/(loss) before tax

 

 

 

 

 

 

161

(13)

148

 

Tax on operations

 

 

 

 

 

 

(36)

(5)

(41)

 

Tax on disposals of discontinued operations

 

 

 

 

 

 

-

(16)

(16)

Profit/(loss) after tax

 

 

 

 

 

 

125

(34)

91

Combined operating ratio (%)

88.5%

94.5%

94.8%

 

94.2%