RSA: RSA Insurance Group Plc: Interim Management Statement

  RSA: RSA Insurance Group Plc: Interim Management Statement

UK Regulatory Announcement

LONDON

                           RSA Insurance Group PLC
                         Interim Management Statement

           Premium growth^1 in nine months to September 2012 of 4%.
    Confirming guidance of combined operating ratio of better than 96% and
                 investment income of around £500m for 2012.

  *Net written premium of £6.2bn representing growth of 4%^1

       *Scandinavia up 2%^1 to £1,403m
       *Canada up 6%^1 to £1,179m
       *UK & Western Europe flat^1 at £2,728m
       *Emerging Markets up 15%^1 to £887m

  *IGD surplus remains strong at £1.2bn; coverage remains at 1.9 times.
    Economic capital surplus of £0.3bn
  *Net asset value (excluding IAS 19 pension deficit) up 1% to 105p per share

Simon Lee, Group CEO of RSA, commented:

“Our business continues to make progress despite ongoing economic and market
uncertainty. Our unique geographic footprint gives us exposure to some of the
most attractive insurance markets in the world. In many of these territories,
we have achieved a leading market position which enables economies of scale
and distribution strength. In other markets, we have opportunities to grow
both organically and through selective bolt-on acquisitions. Furthermore, all
of our businesses benefit from being part of a leading global insurer, which
provides them with competitive advantage over local operators.

“In the first nine months of 2012, 4% growth^1 in net written premiums result
from determined rating action, strong customer retention across all businesses
and good new business volumes, together with the impact of repositioning
activity in the UK and Italy. Growth has been led by Emerging Markets, which
has again been driven by a robust performance in Latin America. We have also
seen good performances in Personal lines in Canada and Scandinavia. The UK
market remains challenging but we have delivered growth across all business
lines except Motor. The integration of recent acquisitions in Canada and
Argentina is progressing well.

“Our expectations for the full year remain unchanged. We continue to expect to
deliver good premium growth on a constant exchange rate basis, a combined
operating ratio of better than 96% and investment income of around £500m in
2012.”

^1All growth at constant exchange rates

Net Written Premiums

                     9 Months  9 Months  Movement  Movement
                      2012       2011       as         at constant
                                            reported   exchange
                                                       
                      £m         £m         %          %
                                                       
Scandinavia           1,403      1,439      (3    )    2
Canada                1,179      1,108      6          6
UK & Western Europe   2,728      2,763      (1    )    -
Emerging Markets      887        800        11         15
Group Re             16        22        (27   )   (27     )
Total Group          6,213     6,132     1        4       

The Group has continued to grow with net written premiums up by 4% at constant
exchange. Growth in Emerging Markets, Scandinavia and Canada more than offset
actively managed reductions in UK Personal Motor and Italy. Across the Group,
we continue to focus on Specialty lines, with premiums up by 6% at constant
exchange to £1,029m driven by Canada and the UK.

Shareholders’ Funds

           Shareholders’  Pension  Shareholders’  Shareholders’  Shareholders’
            funds           deficit   funds           funds           funds
            ex. IAS 19                                ex. IAS 19
            £m              £m        £m              per share       per share
                                                                      
30 June     3,801           (71)      3,730           104p            102p
2012
                                                                      
30
September   3,842           (150)     3,692           105p            101p
2012

During the third quarter of 2012, shareholders’ funds excluding the pension
scheme deficit increased by 1% to £3,842m reflecting profits generated in the
period and fair value gains partly offset by the interim dividend accrual.

The deficit on the pension schemes as at 30 September 2012 is £150m compared
with £71m at 30 June 2012. The movement primarily reflects return on assets,
the reduction in the discount rate for liabilities by 30bps to reflect the
reduction in bond yields seen over the period and a 16bps fall in the assumed
pension inflation rate.

Shareholders’ funds including the pension scheme deficit were £3,692m, a
decrease of 1% over the quarter.

Scandinavia: Another solid quarter, net written premiums up 2%

RSA is the third largest P&C insurer in Sweden and Denmark with a growing
presence in Norway. In all three countries we offer a range of products across
Personal and Commercial lines with particular strengths in Swedish Personal
Accident, Swedish Personal Motor and Danish Renewable Energy.

Net Written        9 Months                  9 Months  Movement  Movement
Premiums (£m)
                    2012                       2011       as         at
                                                                     constant
                                                          reported   exchange
                    £m                         £m         %          %
Personal
Household           228                        238        (4    )    1
Motor               313                        315        (1    )    4
Other              208                       202       3        7     
Total Personal     749                       755       (1    )   4     
                                                                     
Commercial
Property            235                        263        (11   )    (6    )
Liability           102                        105        (3    )    4
Motor               175                        182        (4    )    1
Other              142                       134       6        11    
Total Commercial   654                       684       (4    )   1     
                                                             
Total Scandinavia  1,403                     1,439     (3    )   2     
                                     
Rate Increases      Personal           Commercial
Scandinavia          Motor  Household   Motor       Liability    Property
                     %       %           %            %            %
                                                                   
Sept 12 vs Sept      2       12          4            -            6
11^1
Sept 11 vs Sept     2      7          5           4           3       
10^2

In the first nine months of 2012, Scandinavia delivered net written premium
growth of 2% at constant exchange to £1,403m.

Personal lines premiums of £749m were up by 4% at constant exchange, with
growth in all countries driven by strong new business flows, retention and
continued rating action. In Sweden, premiums were up 4% driven by another
strong performance in Personal Accident and, in Norway, growth of 16% was
driven by the success of our distribution partnership with the Norwegian
Automobile Federation (NAF). In Denmark, premiums were flat at constant
exchange with strong rate impacting retention as we take action to improve
profitability.

In Commercial lines, premiums of £654m were up 1% at constant exchange rates
with good growth in Sweden, particularly in Marine, and Norway. This growth
was offset by continued weakness in the Danish Commercial market, notably in
Construction & Engineering where we continue to see delays in construction
projects due to continuing challenging economic conditions. We expect these
large contracts to re-commence in 2013 but the timing of when they will be
written is unpredictable.

^1Rating increases reflect rate movements achieved for risks renewing in
September 2012 versus comparable risks renewing in September 2011 and; ^2rate
movements achieved for risks renewing in September 2011 versus comparable
risks renewing in September 2010

Canada – Premiums up 6% with growth across all sectors. UC acquisition on
track.

RSA is the third largest P&C insurer in Canada, comprising a leading Personal
and Commercial broker business and Johnson, our direct business.

Net Written Premiums     9 Months    9 Months   Movement      Movement
(£m)
                          2012         2011        as             at constant
                                                   reported       Exchange
                          £m           £m          %              %
Personal
Household                 282          257         10             10
Motor                    520         506        3             3
Total Personal           802         763        5             5
                                                                  
Commercial
Property                  162          148         9              9
Liability                 102          92          11             11
Motor                     72           67          7              7
Other                    41          38         8             8
Total Commercial         377         345        9             9
                                                          
Total Canada             1,179       1,108      6             6
                                       
Rate Increases -    Personal             Commercial
Canada
                     Motor      Household   Motor      Liability  Property
                     %           %            %           %           %
                                                                      
Sept 12 vs Sept      2           12           -           1           3
11^1
Sept 11 vs Sept     4          11          3          1          2
10^2

Canada has delivered good growth, with premiums of £1,179m up by 6% at
constant exchange, led by rate increases and growth in new business volumes.
Retention remains strong.

In Personal, premiums of £802m were up by 5% with a strong performance from
Personal Broker. Growth was driven by Household (up by 10%) while in Personal
Motor, the Ontario Auto Reforms have led to a reduction in rating activity,
which has slowed premium growth to 3%. Johnson continued to deliver good
growth, with premiums up by 6% due to a combination of retention, rate and new
business.

Commercial lines net written premiums of £377m are up by 9%. Growth is driven
by our Large Commercial and Specialty lines business, where we are benefitting
from the acquisition in 2010 of GCAN with strong new business across the
energy, utility and financial services sectors.

Our acquisition of L’Union Canadienne (UC) completed on 1 October. UC will
give RSA improved penetration in the attractive Quebec market. UC is the third
largest intermediated Motor and Property insurer in Quebec and has
historically written c.70% of its business in Personal lines and c.30% in
Commercial lines. In 2011 net written premiums were around £170m. Integration
plans are on track and RSA’s full year results will include three months’
trading from this acquisition.

^1Rating increases reflect rate movements achieved for risks renewing in
September 2012 versus comparable risks renewing in September 2011 and; ^2rate
movements achieved for risks renewing in September 2011 versus comparable
risks renewing in September 2010

UK and Western Europe – Premiums flat as we continue to refocus the business

Net Written Premiums (£m)  9 Months  9 Months  Movement  Movement
                            2012       2011       as         at constant
                            £m         £m         reported   exchange
                                                  %          %
UK                          2,213      2,203      -          -
Western Europe             515       560       (8   )    (2     )
Total UK & Western Europe  2,728     2,763     (1   )    -      

UK and Western Europe premiums were flat on 2011 as we continue to deliver on
our strategy to refocus the business, reduce exposure to less attractive
segments and continue to grow in areas where we believe we can deliver
shareholder value.

UK – Continuing portfolio management; growth in attractive markets, reduction
in less attractive segments

In the UK we are a leading Commercial insurer and a top five Personal lines
insurer. In Commercial we offer a full suite of products across Property,
Liability, Motor and Marine and distribute predominantly through insurance
brokers. In Personal we provide Household, Motor and Pet insurance through
insurance brokers and affinity partners as well as MORE TH>N and eChoice, our
direct businesses.

Net Written Premiums       9 Months    9 Months   Movement     Movement
(£m)
                            2012         2011        as            at constant
                                                     reported      exchange
                            £m           £m          %             %
Personal
Household                   497          479         4             4
Motor                       326          404         (19     )     (19     )
Pet                        179         153        17          17      
Total Personal             1,002       1,036      (3      )    (3      )
                                                                   
Commercial
Property                    358          324         10            10
Liability                   201          200         1             1
Motor                       416          424         (2      )     (2      )
Marine                     236         219        8           8       
Total Commercial           1,211       1,167      4           4       
                                                           
Total UK                   2,213       2,203      -           -       
                                         
Rate Increases - UK   Personal             Commercial
                       Motor      Household   Motor    Liability  Property
                       %           %            %         %           %
                                                                      
Sept 12 vs Sept        1           4            9         4           4
11^1
Sept 11 vs Sept       19         6           14       2          5    
10^2

In UK Personal, premiums are down by 3% to £1,002m, with growth across all
business lines except Motor. Growth of 4% in Household, and 17% in Pet were
offset by a reduction of 19% in Motor, where we have continued to push rate
and actively reduce volumes in less attractive sectors. Household growth is
driven by last year’s acquisition of Oak Underwriting, our distribution deal
with OIM Underwriting, good growth in Personal Broker and continued positive
momentum with affinity partners.

^1Rating increases reflect rate movements achieved for risks renewing in
September 2012 versus comparable risks renewing in September 2011 and; ^2rate
movements achieved for risks renewing in September 2011 versus comparable
risks renewing in September 2010

Across UK Commercial lines, premiums of £1,211m are up by 4%. We continue to
focus on Specialty lines, with Marine up by 8% to £236m and good growth in UK
Risk Managed and the SME sector. Commercial Motor is down by 2% to £416m due
to continued management action to exit from unprofitable schemes.

Western Europe – Good growth in Ireland; progress in Italian remediation

In Western Europe we have three businesses. European Specialty Lines offers a
range of specialist Commercial insurance to pan-European clients. In Ireland
we have a Commercial and Personal broker business as well as a leading direct
insurer, 123.ie. In Italy we are predominantly a Motor player operating mainly
in the north of Italy.

Net Written Premiums (£m)  9 Months  9 Months  Movement  Movement
                            2012       2011       as         at constant
                                                  reported   exchange
                            £m         £m         %          %
                                                             
European Specialty lines    119        115        3          11
Ireland                     265        270        (2    )    5
Italy                      131       175       (25   )   (20     )
Total Western Europe       515       560       (8    )   (2      )

In Western Europe, European Specialty is up by 11% to £119m with good growth
in Power & Engineering. In Ireland, premiums grew by 5% to £265m, driven by
continued strong growth in 123.ie where premiums were up 19%. Italian net
written premiums of £131m are down by 20% at constant exchange as we continue
to take action to return the business to profitability.

Emerging Markets – Continued strong growth

Our Emerging Markets division operates in 21 countries across Latin America,
Asia, the Middle East and Central and Eastern Europe.

In Latin America we are the number one P&C insurer in Chile, number one
private P&C insurer in Uruguay and a top five provider in Argentina. In
addition we have a leading Marine business in Brazil as well as smaller
businesses in Colombia and Mexico.

In Asia and the Middle East, RSA has a strong Specialty business with exposure
across the region. In addition we have retail businesses in China, Singapore
and Hong Kong and minority stakes in businesses in India and Thailand. In the
Middle East, we are the number one insurer in Oman and have businesses in UAE,
Bahrain and Saudi Arabia.

In Central and Eastern Europe we are the market leading insurer across the
Baltic states with number one positions in Latvia and Lithuania and number
four position in Estonia. In addition we have direct businesses in Poland and
Russia.

Net Written Premiums (£m)        9 Months  9 Months  Movement  Movement
                                  2012       2011       as         at constant
                                                        reported   exchange
                                  £m         £m         %          %
                                                                   
Latin America                     529        468        13         18
Asia & Middle East                189        169        12         10
Central & Eastern Europe         169       163       4         13
Total Emerging Markets           887       800       11        15
Associates                       225       217       4         12
Total Emerging Markets incl      1,112     1,017     9         15
Associates

Emerging Markets again delivered excellent growth with net written premiums of
£887m up by 15% at constant exchange. Total premiums, including our associates
in India and Thailand, are £1,112m representing growth of 15% at constant
exchange.

In Latin America, premiums of £529m were up by 18% and include strong double
digit growth in Chile, Argentina, Mexico and Uruguay. Included in these
numbers is £17m relating to the acquisition of El Comercio and ACG in
Argentina which completed on 31 July 2012.

We have also seen strong growth in Asia and the Middle East, with premiums of
£189m up by 10% led by Specialty (up 27%) and our retail operations in
Singapore and Oman. Our associates delivered excellent growth, with premiums
of £225m (up 12%) driven primarily by Motor.

In Central and Eastern Europe, premiums are up by 13% to £169m. We have
maintained our leading position across the Baltics with premiums up by 13% to
£104m. Our Direct businesses in Poland and Russia grew by 18%, generating
premiums of £59m.

Investment Portfolio

The investment portfolio totalled £14.3bn at 30 September 2012, representing
an increase of 2% on the position at 30 June 2012 due to mark to market
increases of £119m and net inflows of £142m.

                    Value     Foreign    Mark to
                                               Other Movements  Value 30
                    30 Jun    Exchange   Market                      Sep 2012
                    2012
                    £m        £m         £m        £m                £m
                                                                     
Government Bonds    4,340     10         19        (118       )      4,251
Non Government      6,897     5          85        261               7,248
Bonds
Cash                1,376     (12   )    -         95                1,459
Equities            683       4          19        (99        )      607
Property            350       -          (7    )   3                 346
Prefs & CIVs        319       -          3         (9         )      313
Other              102      (1    )   -       9               110
Total              14,067   6        119     142             14,334

At 30 September 2012, unrealised gains in the statement of financial position
were £733m (30 June 2012: £611m).

Our high quality, low risk strategy is unchanged. Of the total investment
portfolio, 90% remains invested in high quality fixed income and cash assets.
The fixed interest portfolio is concentrated on high quality short dated
assets, with 98% of the bond portfolio investment grade, and 71% rated AA or
above. The bond holdings are well diversified, with 75% invested in currencies
other than Sterling and 63% invested in non government bonds (31 December
2011: 60%).

The government bond portfolio of £4.3bn is high quality, with 79% rated AAA
and 91% rated A or above. The non government bond portfolio of £7.2bn
comprises £1.9bn of Scandinavian Mortgage Bonds, £3.4bn of other financials
and £1.9bn of non financials.

On peripheral Europe, our exposure to government bonds in Greece, Italy,
Ireland, Spain and Portugal remains limited at £139m or around 1% of the total
portfolio with the majority held to back the liabilities of our European
insurance operations, with £74m in Ireland and £51m in Italy.

The average duration across the portfolio has increased to 3.8 years (31
December 2011: 3.4 years) as we have continued to seek yield improvement and
improve asset and liability matching.

The foreign exchange movement primarily reflects the movement of Sterling
against the Danish Krone, Canadian Dollar and the Euro in the third quarter.

Looking forward, we will continue to follow our high quality, low risk
strategy. Within this we see the potential for a further modest increase in
high quality non government securities. We will also continue to take
advantage of opportunities to modestly increase our holdings in longer dated
securities.

Investment conditions remain challenging, with yields still at historically
low levels. However, our guidance is unchanged and we continue to expect
investment income to be around £500m for the full year 2012.

Capital

Insurance Groups Directive  Requirement  Surplus  Cover
                             £bn           £bn
                                                     
30 June 2012                 1.3           1.2       1.9x
                                                     
30 September 2012            1.3           1.2       1.9x

The Group continues to maintain strong capital positions. At 30 September
2012, the IGD surplus was unchanged from the half year at £1.2bn and coverage
was unchanged at 1.9 times the requirement. A 30% fall in the FTSE from
current levels of around 5,800 would reduce the IGD surplus by an estimated
£0.2bn.

The economic capital surplus was £0.3bn with the movement since the half year
reflecting underlying profits offset by the declaration of the 2012 interim
dividend and the impact of a further fall in bond yields, including lower
spreads on corporate bonds. Economic capital is our own assessment of capital
given the Group’s risk profile. Our model is calibrated to a risk tolerance
consistent with Standard & Poor’s long term A rated bond default curve,
equivalent to a probability of solvency over one year of 99.92% or a
probability of insolvency over one year of 1 in 1,250. This compares with the
1 in 200 calibration under the FSA’s ICA regime. Solvency II will also be
calibrated to a probability of insolvency over one year of 1 in 200.
Calibrating our economic capital model to a 1 in 200 probability per annum of
insolvency would increase our economic capital surplus by approximately
£0.4bn.

Foreign Exchange Rates

Foreign exchange rates used to translate the 2012 and 2011 consolidated
results included in this statement are as follows:

Local currency/£  Average              Closing
                   9 Months  9 Months   30 September  30 June  31 December
                   2012       2011       2012           2012      2011
                                                                  
Canadian Dollar    1.58       1.58       1.59           1.60      1.58
Danish Krone       9.16       8.56       9.36           9.19      8.90
Swedish Krona      10.75      10.35      10.59          10.83     10.65
Euro               1.23       1.15       1.26           1.24      1.20

2012 Outlook

Our guidance for 2012 year end results remains unchanged and we continue to
expect to deliver good premium growth on a constant exchange rate basis, a
combined operating ratio of better than 96% and investment income of around
£500m for the full year 2012.

Enquiries:                               
                                           
Analysts                                   Press
Matt Hotson                                Louise Shield
Investor Relations Director                Director of External Communications
Tel: +44 (0) 20 7111 7212                  Tel: +44 (0) 20 7111 7047
Email: matt.hotson@gcc.rsagroup.com        Email:
                                           louise.shield@gcc.rsagroup.com

Rupert Taylor Rea                          Bart Nash
Investor Relations Manager                 Head of Media Relations
Tel: +44 (0) 20 7111 7140                  Tel: +44 (0) 20 7111 7336
Email: rupert.taylorrea@gcc.rsagroup.com   Email: bart.nash@gcc.rsagroup.com

Conference Call

A conference call for analysts and investors will be held at 11.30am on
Thursday 8 November to discuss the Q3 Interim Management Statement.
Participants should call 0800 358 5271 from the UK or +44 (0)20 8515 2301 from
elsewhere quoting reference “RSA Q3 Interim Management Statement”. Scanning
the QR code opposite will download details of the conference call to a smart
phone.

About RSA

With a 300 year heritage, RSA is one of the world’s leading multinational
quoted insurance groups. RSA has major operations in the UK, Scandinavia,
Canada, Ireland, Asia and the Middle East, Latin America and Central and
Eastern Europe and has the capability to write business in around 140
countries. Focusing on general insurance, RSA has around 23,000 employees and,
in 2011, its net written premiums were £8.1 billion.

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.

Contact:

RSA Insurance Group Plc