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

 Encouraging start to 2013 with reported premium growth of 7% in three months
                                to March 2013

           Net asset value^1 up 5% in the quarter to 112p per share

 Continued confidence in delivering a combined operating ratio of better than
                 95% and return on equity of 10-12% for 2013

  *Trading in the first quarter of 2013 has been good.
  *Net written premiums up 5%^2 to £2.3bn:

       *Scandinavia flat^2 at £694m;
       *Canada up 18%^2 to £359m;
       *Emerging Markets up 16%^2 to £325m;
       *UK & Western Europe up 1%^2 at £952m.

  *IGD surplus is strong at £1.3bn; coverage remains at 1.9 times. Economic
    capital surplus of £1.2bn at 99.5% calibration.
  *Net asset value (excluding IAS 19 pension deficit) up 5% to 112p per share
    (31 December 2012: 107p).

Simon Lee, Group Chief Executive of RSA, commented:

“We entered 2013 with good momentum. It has been an encouraging start to the
year for the Group with reported premium growth of 7%. We believe there are
significant opportunities to drive further value across the Group.

“The growth in net written premiums reflected good customer retention together
with continued robust rating action. Growth has been led by Canada which has
benefited from the 2012 acquisition of L’Union Canadienne but has also
delivered strong organic growth of 7%. Emerging Markets grew by 16%
benefitting from the acquisitions in Argentina in 2012 and good performances
across Asia, Central and Eastern Europe and the Middle East. Scandinavian
premiums were flat while the UK & Western Europe grew 1% as we continue to
focus on improving performance in the UK and in Italy.

I remain confident in our ability to achieve our targets for 2013 of good
premium growth, a combined ratio of better than 95%, and return on equity of
10-12%.”

^1 Excluding IAS 19 pension deficit

^2 At constant exchange rates

Net Written Premiums

               Personal    Commercial    Global       3         3         Change      Change        
                                                                  Months       Months
                                                  Specialty       2013         2012         as             constant
                                                  Lines                                     reported       fx
                                                                                                                                
                  £m             £m               £m              £m           £m           %              %
                                                                                                                                
Scandinavia       315            295              84              694          667          4              -
Canada            241            66               52              359          303          18             18
Emerging          151            129              45              325          281          16             16
Markets
UK &
Western           426            293              233             952          937          2              1
Europe
Group Re       -           10            -            10        8         25          25
Total Group    1,133       793           414          2,340     2,196     7           5
Associates                                         86        78        10          12
Total Group
(incl.                                             2,426     2,274     7           5
associates)

The Group has delivered good growth in Q1 with net written premiums up by 5%
at constant exchange. There was strong growth in Canada and Emerging Markets
with lower growth in the UK & Western Europe reflecting continued active
management of the portfolio. Our Global Specialty Lines business has grown by
4% at constant exchange to £414m with good growth in Risk Managed and
Construction & Engineering.

2013 outlook

We remain focused on the ongoing active management of the portfolio. Ten years
ago the Group operated in around 50 countries. Since then, the Group’s focus
has narrowed and RSA now operates a well diversified portfolio in 31
countries.

Where we do not see a route to achieve target returns on capital, we take the
necessary action. As a result, we exited the Czech Republic in 2012 and
completed the sale of our business in the Dutch Caribbean in April 2013.

We continue to expect the business to grow both organically and through
selective bolt-on acquisitions. In 2013 we are focused on the integration of
the acquisitions we made in 2012 in Canada and Argentina.

Our guidance for 2013 remains unchanged and we are confident in delivering
good premium growth on a constant exchange rate basis, a combined operating
ratio of better than 95%, investment income of around £470m and return on
equity of 10-12% for the full year 2013. All of our businesses are on track to
achieve performance in line with the expectations laid out at our 2012
preliminary results in February.

We are committed to a series of investor briefings for 2013 and 2014 to
provide more detail to the market on the significant opportunities we see
across RSA. The first of these briefings will take place on 12 June 2013 and
will cover our Canadian business.

Scandinavia: A solid quarter; continue to expect low single digit growth in
line with local GDP

Premiums in Scandinavia of £694m up 4% on a reported basis but flat at
constant exchange.

Net Written       3          3 Months           Movement      Movement      
Premiums (£m)        Months
                     2013          2012                  as               at constant
                                                         reported         exchange
                     £m            £m                    %                %
Personal
Household            101           95                    6                3
Motor                130           127                   2                (2)
Personal
Accident and      84         77                 9             4
Other
Total             315        299                5             1
Personal
                                                                                           
Commercial
Property             128           123                   4                1
Liability            71            68                    4                1
Motor                88            87                    1                (2)
Marine and        92         90                 2             (2)
other
Total             379        368                3             (1)
Commercial
                                                          
Total             694        667                4             -
Scandinavia
                                                                                           
Sweden               300           282                   6                -
Denmark              319           320                   -                (2)
Norway            75         65                 15            10
Total             694        667                4             -
Scandinavia
                                    
Rate
Increases  Personal                   Commercial
(%)^1
            Household    Motor             Property     Liability    Motor
                                                                                           
Mar 13 vs   9               3                    3               4               4
Mar 12
Dec 12 vs   12              3                    1               4               5
Dec 11
Sept 12
vs Sept     12              2                    6               -               4
11
Jun 12 vs   7               2                    1               4               4
Jun 11
Mar 12 vs  6            2                 4            5            5
Mar 11

Personal lines premiums of £315m were up by 1% at constant exchange, with good
growth in Household and Personal Accident (PA). In Sweden, Personal premiums
were up 2% driven by continued solid growth of 3% in Household and 5% in PA.
In Norway, growth of 5% in Personal was driven by a solid performance in both
Motor and Household. In Denmark, premiums were down 1% as we continue to focus
on improving profitability.

In Commercial lines, premiums of £379m were down 1% at constant exchange rates
with strong growth in Norway more than offset by falls in Sweden and Denmark.
Norway Commercial grew 16% driven by strong rate and retention in Care.
Commercial premiums were down 2% in both Sweden and Denmark. In Sweden we have
seen an increase in lapses in Commercial Motor as we continue to maintain our
rating discipline, whilst Denmark has been affected by the timing of Marine
renewals which are now expected to conclude later in 2013.

^1Rating increases reflect rate movements achieved for risks renewing in the
month versus comparable risks renewing in the same month the previous year

Canada – Premiums up 18% with strong growth across the business. Quebec
integration on track.

Premiums in Canada grew strongly by 18% at constant exchange to £359m.
Underlying growth excluding the acquisition of L’Union Canadienne (UC) was 7%
with good rate and strong retention. The integration of UC is on track and
delivered premiums of £32m in the quarter which was in line with our
expectations.

Net Written       3          3 Months           Movement      Movement      
Premiums (£m)        Months
                     2013          2012                  as               at constant
                                                         reported         exchange
                     £m            £m                    %                %
Personal
Household            89            70                    27               25
Motor             152        136                12            11
Total             241        206                17            16
Personal
                                                                                           
Commercial
Property             52            43                    21               21
Liability            32            27                    19               19
Motor                23            19                    21               21
Marine and        11         8                  38            38
other
Total             118        97                 22            22
Commercial
                                                          
Total Canada      359        303                18            18
                                    
Rate
Increases  Personal                   Commercial
(%)^1
            Household    Motor             Property     Liability    Motor
                                                                                           
Mar 13 vs   7               1                    4               2               2
Mar 12
Dec 12 vs   11              3                    4               2               2
Dec 11
Sept 12
vs Sept     12              2                    3               1               -
11
Jun 12 vs   11              3                    3               1               1
Jun 11
Mar 12 vs  12           5                 3            1            1
Mar 11

In Personal, premiums of £241m were up by 16% at constant exchange (up 5%
excluding UC). Growth was driven by Household (up by 14% excluding UC) with
continued strong rates albeit slightly lower than the double digit rate
increases experienced in 2012. In Personal Motor, premiums were flat excluding
UC, with the Ontario Auto Reforms continuing to result in lower rate
increases. The Ontario Auto market remains attractive, although we are seeing
some political pressure for further reform. Personal Broker delivered strong
growth of 30% (7% excluding UC) whilst Johnson premiums were up 4%.

Commercial premiums were up 22% to £118m, with growth of 12% excluding UC.
Growth is driven by our Large Commercial and Specialty lines business which
was up 15% excluding UC, with strong performances in our Property and
Liability lines. Overall, we’ve seen good rate increases, in particular across
some of our smaller Commercial lines.

^1Rating increases reflect rate movements achieved for risks renewing in the
month versus comparable risks renewing in the same month the previous year

Emerging Markets – Continued strong growth; integration of 2012 acquisitions
in Argentina on track

Emerging Markets has continued to deliver strong growth with net written
premiums of £325m up by 16% at constant exchange. Total premiums, including
our associates in India and Thailand, are £411m representing growth of 15% at
constant exchange.

In April 2013 we completed the sale of our business in the Dutch Caribbean
which we announced in December 2012.

Net Written      3          3          Movement    Movement   
Premiums (£m)       Months        Months
                    2013          2012          as             at
                                                               constant
                                                reported       exchange
                    £m            £m            %              %
                                                                             
Latin America       187           163           15             17
CEE & ME            97            85            14             13
Asia             41         33         24          21
Total
Emerging         325        281        16          16
Markets
Associates       86         78         10          12
Total
Emerging         411        359        14          15
Markets (incl
Associates)

In Latin America, premiums were up by 17% at constant exchange to £187m.
Growth has been driven by the acquisitions made in 2012 in Argentina and also
by continued strong growth in our affinity channel. During the first quarter
we signed eight new affinity deals across the region.

In Central and Eastern Europe, premiums are up by 9% at constant exchange to
£59m. Adjusting for the exit of the Czech Republic in June 2012, underlying
growth is 16%, driven primarily by Lithuania following strong Commercial
renewals. In the Middle East, premiums of £38m are up 19% at constant exchange
with strong growth in Oman and Saudi Arabia.

We have seen good growth in Asia with premiums of £41m up by 21% at constant
exchange driven by strong performances in our retail businesses across the
region, particularly in Hong Kong.

Our associates delivered continued growth, with premiums of £86m up by 12% at
constant exchange.

We remain confident of meeting our target of £2.2bn of premiums (including our
associates) by 2015. We are also confident that the business will continue to
deliver operating leverage in 2013, leading to better combined ratios and
improved return on capital.

UK and Western Europe – Premiums up 1% as we continue our active management of
the portfolio

Net
Written        3            3            Movement       Movement     
Premiums             Months             Months
(£m)
                     2013               2012               as                   at
                                                                                constant
                     £m                 £m                 reported             exchange
                                                           %                    %
UK                   726                725                -                    -
Western        226          212          7              5
Europe
Total UK
&              952          937          2              1
Western
Europe

UK and Western Europe premiums were up 1% at constant exchange as we 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 focus on underwriting profit over volume

Net Written       3          3 Months           Movement      Movement      
Premiums (£m)        Months
                     2013          2012                  as               at constant
                                                         reported         exchange
                     £m            £m                    %                %
Personal
Household            161           159                   1                1
Motor                107           112                   (4)              (4)
Pet               62         59                 5             5
Total             330        330                -             -
Personal
                                                                                           
Commercial
Property             120           122                   (2)              (2)
Liability            56            58                    (3)              (3)
Motor                143           133                   8                8
Marine            77         82                 (6)           (6)
Total             396        395                -             -
Commercial
                                                          
Total UK          726        725                -             -
                                    
Rate
Increases  Personal                   Commercial
(%)^1
            Household    Motor             Property     Liability    Motor
                                                                                           
Mar 13 vs   2               (4)                  4               3               4
Mar 12
Dec 12 vs   3               (2)                  4               6               10
Dec 11
Sept 12
vs Sept     4               1                    4               4               9
11
Jun 12 vs   5               4                    3               6               9
Jun 11
Mar 12 vs  7            8                 3            2            9
Mar 11

In UK Personal, premiums were flat at £330m. Growth of 1% in Household, and 5%
in Pet was offset by a reduction of 4% in Motor. In Household, positive but
lower rate and competitive market conditions have resulted in broadly flat
volumes. In July we will commence offering Household products through our new
affinity partner, John Lewis. Pet premiums were up 5% as growth trends towards
more normal levels following the new affinity deals in 2012. Motor contraction
has slowed to 4% as volumes begin to stabilise, although we are still seeing
aggressive rate reduction in the market.

^1Rating increases reflect rate movements achieved for risks renewing in the
month versus comparable risks renewing in the same month the previous year

We’re confident in the progress we’re making in UK Commercial. Premiums were
flat at £396m reflecting the actions we took in 2012 to respond to the
challenges in the UK Commercial Market and our continued underwriting
discipline in 2013. Motor was up 8% driven by rate, although excluding the
single large long-term motor contract we have referenced previously, premiums
were down 10%. This reflects our exit from a number of Commercial Motor
segments in 2012, including Risk Managed Motor and Motor Trade. We are making
good progress in finalising the details of new arrangements for the single
large contract, which will be effective from October 2013.

Property and Liability were down 2% and 3% respectively, reflecting a
continued focus on profitability over volume. Marine premiums were down 6%
following a particularly strong first quarter in 2012 which included some
one-off premiums. We expect modest growth in targeted areas in Marine during
the remainder of 2013 reflecting soft market conditions and our increased
focus on profitability. In UK Commercial overall, we continue to expect
profitability to improve as our actions take effect.

Western Europe – Strong growth in European Specialty lines; Italian
remediation on track

Net
Written        3             3             Movement        Movement      
Premiums            Months               Months
(£m)
                    2013                 2012                 as                     at
                                                                                     constant
                                                              reported               exchange
                    £m                   £m                   %                      %
                                                                                                          
European
Specialty           80                   71                   13                     10
lines
Ireland             99                   95                   4                      3
Italy          47            46            2               -
Total
Western        226           212           7               5
Europe

In Western Europe, European Specialty premiums of £80m were up by 10% driven
by targeted growth in France and the Netherlands. In Ireland, premiums grew by
3% to £99m, driven by good growth in 123.ie where premiums were up 8%. Italian
premiums of £47m were flat at constant exchange as the premium base stabilises
following the actions we have taken to return the business to profitability.
We remain on track to be trading on a break even basis in Italy by the end of
the year.

Investment Portfolio

The investment portfolio totalled £14.9bn at 31 March 2013, representing an
increase of 4% on the position at 31 December 2012 caused primarily by foreign
exchange movements of £529m. There were significant foreign exchange benefits
across our portfolio but most notably within our Danish Krone, Swedish Krona,
Canadian Dollar and Euro holdings as these currencies strengthened against
Sterling during the quarter.

                                                                                    
                                                 
                 Value         Foreign        Mark to                       Value
                                                   Other        31 Mar
                 31 Dec        Exchange       Market        Movements       2013
                 2012
                 £m            £m             £m            £m              £m
                                                                                       
Government       4,207         174            (16)          (8)             4,357
Bonds
Non
Government       7,517         274            (21)          (91)            7,679
Bonds
Cash             1,329         49             -             (2)             1,376
Equities         553           17             38            49              657
Property         340           2              (3)           (3)             336
Prefs &          286           10             14            13              323
CIVs
Other         97         3           -          63           163
Total         14,329     529         12         21           14,891
                                                                                       
Split by
currency:
Sterling         3,855                                                      3,742
Danish           1,353                                                      1,401
Krone
Swedish          2,680                                                      2,865
Krona
Canadian         3,110                                                      3,262
Dollar
Euro             1,500                                                      1,560
Other         1,831                                       2,061
Total         14,329                                      14,891

The portfolio remains invested in widely diversified fixed income securities,
with 4% in equities, 9% in cash and 2% in property.

Average duration is unchanged at 3.8 years (31 December 2012: 3.8 years; 31
March 2012: 3.6 years). The proportion of our bond portfolio held in
non-government bonds has also remained unchanged at 64% (31 December 2012:
64%).

The quality of the bond portfolio remains very high with 98% investment grade
and 69% rated AA or above. We are well diversified by sector and geography.

At 31 March 2013, balance sheet unrealised gains of £765m (31 December 2012:
£730m) primarily relate to unrealised gains on the bond portfolio which we
expect to reduce over time as our bond holdings reach maturity. Balance sheet
unrealised equity gains amounted to £127m (31 December 2012: £86m).

In 2013, we continue to follow our high quality, low risk strategy. Given
current portfolio disposition and market levels further increases in bond
duration and non-government bond holdings are likely to be modest. We will
however continue to seek opportunities to enhance yield within our low risk
framework and we continue to expect income of around £470m in 2013.

Shareholders’ Funds

               Shareholders’       Pension       Shareholders’       Shareholders’       Shareholders’
            funds                       funds            funds            funds          
                                   deficit
               ex. IAS 19                                            ex. IAS 19
               £m                  £m            £m                  per share           per share
                                                                                                           
31
December       3,957               (207)         3,750               107p                101p
2012
                                                                                                           
31 March       4,161               (178)         3,983               112p                107p
2013

During the first quarter of 2013, shareholders’ funds excluding the pension
scheme deficit increased by 5% to £4,161m reflecting profits generated in the
period and foreign exchange gains following the depreciation of Sterling
against other Group currencies.

The deficit on the pension schemes as at 31 March 2013 is £178m compared with
£207m at 31 December 2012. The movement primarily reflects higher than
expected returns on pension plan assets partly offset by an increase in the
pension inflation rate to 3.1% (31 December 2012: 2.6%).

Shareholders’ funds including the pension scheme deficit were £3,983m, an
increase of 6% over the quarter.

Tangible net asset value (TNAV) per share at 31 March 2013 was 65p (31
December 2012: 60p). Excluding IAS 19, TNAV per share was 70p (31 December
2012: 65p).

Capital position

                                                                                           
                                               
                                                                                 31
                   31 March 2013                  31 March 2013                  December
                                                                                 2012
                   Coverage                       Surplus                        Surplus
                                                  £bn                            £bn
                                                                                              
Insurance
Groups             1.9x                           1.3                            1.2
Directive
Economic
Capital (1in                                      1.2                            1.2
200
Calibration)
Economic
Capital (1in                                      0.7                            0.7
1,250
Calibration)

The Group continues to maintain strong capital positions. The IGD surplus has
increased to £1.3bn (31 December 2012: £1.2bn) and coverage over the IGD
requirement remains strong at 1.9 times (31 December 2012: 1.9 times). The
increase in the surplus over the quarter mainly reflects profits and
investment gains.

When calibrated to a risk tolerance consistent with the expected Solvency II
calibration of 1 in 200 per annum, the ECA surplus was unchanged at £1.2bn (31
December 2012: £1.2bn). When calibrated to Standard & Poor’s long term A rated
bond default curve, equivalent to a probability of insolvency over one year of
1 in 1,250 the ECA surplus was also unchanged at £0.7bn (31 December 2012:
£0.7bn). Profits generated have been offset by the accrual of the final
dividend for 2012.

Foreign Exchange Rates

Foreign exchange rates used to translate the 2013 and 2012 consolidated
results included in this statement are as follows:

                                                                 
Local            Average                           Closing
currency/£
                 3            3                    31          31          31
                 Months       Months               March       December       March
                 2013         2012                 2013        2012           2012
                                                                                        
Canadian         1.56         1.57                 1.55        1.62           1.60
Dollar
Danish           8.77         8.91                 8.84        9.20           8.93
Krone
Swedish          10.00        10.61                9.92        10.57          10.61
Krona
Euro             1.18         1.20                 1.19        1.23           1.20

Forthcoming events

Annual General Meeting           15 May 2013
RSA Canada investor briefing         12 June 2013
Interim results                      1 August 2013
Further investor briefing            Autumn 2013
Q3 IMS                               7 November 2013

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:                                                  Email:
matt.hotson@gcc.rsagroup.com                            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:                                                  Email:
rupert.taylorrea@gcc.rsagroup.com                       bart.nash@gcc.rsagroup.com

Conference Call

A conference call for analysts and investors will be held at 11.30am on
Thursday 2 May to discuss the Q1 Interim Management Statement. Participants
should call 0800 358 5256 from the UK or +44 (0)20 8515 2336 from elsewhere
quoting reference “RSA Q1 2013 Interim Management Statement”.

About RSA

With a heritage of over 300 years, RSA is one of the world’s leading
multinational quoted insurance groups. RSA has major operations in the UK,
Scandinavia, Canada, Ireland, Latin America, Asia and the Middle East 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 2012, its net written premiums were £8.4 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
 
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