RSA: RSA Insurance Group Plc: Half-yearly Report

  RSA: RSA Insurance Group Plc: Half-yearly Report

UK Regulatory Announcement

LONDON

2013 HALF YEAR RESULTS

                                                                 1 August 2013

    RSA DELIVERS 24% EARNINGS GROWTH TO £190M, AND COMBINED RATIO OF 94.2%

Strong operational delivery as a result of management actions

  *Encouraging progress in UK Commercial and Italy
  *Strong underlying performances in Canada and Scandinavia despite adverse
    weather and large losses
  *Operating leverage continues in Emerging Markets
  *Net written premiums up 7% on constant exchange rate basis to £4.7bn
  *Underwriting result up 26% at £188m (H1 2012 restated^1: £149m)
  *Post tax earnings up 24% to £190m (H1 2012 restated^1: £153m)
  *Annualised ROE 10.0% (H1 2012 restated^1: 8.0%)
  *Interim dividend of 2.28p per share (2012: 3.41p)

Balance Sheet remains strong on all measures

  *IGD surplus of £0.9bn; covering capital requirement 1.7 times
  *Economic capital surplus of £1.3bn on a 1 in 200 year calibration covering
    the capital requirement 1.6 times
  *S&P A+ (negative outlook) rating reaffirmed in June
  *Net asset value per share excluding pension deficit of 103p (H1 2012:
    104p)

On track to meet guidance in 2013

  *Continued growth in premiums as business expands in Emerging Markets,
    Canada and Global Specialty Lines
  *Better than 95% combined ratio expected despite material adverse weather
    in Canada
  *Investment income of around £470m for full year 2013
  *Return on equity of between 10% and 12% expected in 2013
  *Confident in prospects for further improvements to ROE and COR in medium
    term

Simon Lee, Group Chief Executive of RSA, commented:

“These are a good set of results demonstrating continued progress and the
benefits of our diversified business model. We've achieved growth of 7% in
premiums to £4.7bn. Despite the £48m impact of extreme weather in Alberta we
have delivered a COR of 94.2% and remain on track to meet our full year
expectations of a COR of better than 95% and ROE of 10-12%.

“We are continuing to deliver strong organic growth in Emerging Markets and
Canada. The acquisitions we executed in 2012 are delivering good results.
Scandinavian performance remains strong and we are making good progress in the
turnaround of performance in UK and Western Europe. The reduction in earnings
from lower interest rates is beginning to slow down. The outlook for earnings
is positive.

“Net assets have contracted at 30 June 2013 due to the increase in interest
rates at the end of June. All our capital measures remain strong and we are
confident in our ability to deliver balance sheet growth in the medium term.

“We are well placed to deliver improved shareholder value through growth in
earnings, an attractive dividend and improving return on equity”

                                                       
FINANCIAL HIGHLIGHTS          6 Months    6 Months        Movement
                                 2013           2012               at reported
                                                                   FX
                                                (restated^1)
                                                                   
Net written premiums             £4,652m        £4,276m            9%
Underwriting result              £188m          £149m              26%
Combined operating ratio         94.2%          95.4%              1.2pts
Operating result                 £339m          £305m              11%
Profit before tax                £250m          £219m              14%
Profit after tax                 £190m          £153m              24%
Basic earnings per share         5.0p           4.1p               22%
Interim dividend per             2.28p          3.41p              (33)%
ordinary share
Annualised return on             10.0%          8.0%               25%
equity
Net asset value per share     103p        104p            (1)%
(excl IAS 19 deficit)
                                                                   

^1 H1 2012 restated for changes to IAS 19 “Employee Benefits”, see page 18 for
further details

Enquiries:                               
                                           
Analysts & Investors                       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                          Jon Sellors
Investor Relations Manager                 Head of Media Relations
Tel: +44 (0) 20 7111 7140                  Tel: +44 (0) 20 7111 7327
Email: rupert.taylorrea@gcc.rsagroup.com   Email: jon.sellors@gcc.rsagroup.com
                                           

FURTHER INFORMATION

The full text of the above is available online at www.rsagroup.com. A live
webcast of the analyst presentation, including the question and answer
session, will be broadcast on the website at 10:00am today and is available
via a listen only conference call by dialling UK Freephone 0800 358 5256 or
International dial in: + 44 (0) 208 515 2313. Participants should quote
conference ID 4629597. An indexed version of the webcast will be available on
the website by the end of the day. Copies of the slides to be presented at the
analyst meeting will be available on the site from 9.30am today. Scanning the
QR code opposite will download details of the conference call to a smart
phone.

MANAGEMENT BASIS OF REPORTING

The analysis on pages 16, 18 and 20 to 22 has been prepared on a non statutory
basis as management believe that this is the most appropriate method of
assessing the financial performance of the Group. The management basis
reflects the way management monitor the business. The underwriting result
includes insurance premiums, claims and commissions and underwriting expenses.
In addition, the management basis also discloses a number of items separately
such as investment result, interest costs, reorganisation costs and other
activities. Estimation techniques, risks, uncertainties and contingencies are
included on pages 23 to 26. Financial information on a statutory basis is
included on pages 28 to36.

IMPORTANT DISCLAIMER

Visit www.rsagroup.com for more information.

This press release has been prepared in accordance with the requirements of
English company law and the liabilities of the directors in connection with
this press release shall be subject to the limitations and restrictions
provided by such law. This press release 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 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 (including changes
related to capital and solvency requirements), 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. 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 should be construed as a profit
forecast.

INTERIM MANAGEMENT REPORT - KEY FINANCIAL PERFORMANCE DATA

              H1 2013                                 H1     H1 2012
                                                            2013
               £m                                           £m      £m
                                       Global
Net written
premiums       Personal  Commercial  Specialty            Total   Total

                                       Lines
Scandinavia    563        417          138                  1,118   1,056
Canada         568        162          136                  866     743
Emerging       317        276          93                   686     585
Markets
UK & Western   846        645          455                  1,946   1,882
Europe
Group Re      -         36          -               36     10
Total net
written       2,294     1,536       822             4,652  4,276
premiums
                                                                    
               Combined operating ratio (%)                 H1      H1 2012
                                                            2013
                          H1 2013      H1 2012                      (restated)
Underwriting                           (restated)           £m      £m
performance
Scandinavia               87.7         83.1                 98      130
Canada                    98.7         91.7                 15      62
Emerging                  97.8         99.8                 12      7
Markets
UK & Western              95.4         101.8                50      (41)
Europe
Group Re               -           -               13     (9)
Total
underwriting           94.2        95.4            188    149
performance
                                                      
Investment
result
Investment                                                  256     267
income
Unwind of                                        (50)   (42)
discount
Total
investment                                       206    225
result
                                                      
Insurance                                        394    374
result
                                                      
Other                                                       (55)    (69)
activities
Operating                                        339    305
result
                                                      
Profit                                                      250     219
before tax
Profit after                                     190    153
tax
                                                    
Earnings per
share –                                                     5.0     4.1
basic
(pence)
Earnings per
share –                                          4.9    4.1
diluted
(pence)
                                                      
Interim
dividend per                                     2.28   3.41
share
(pence)
                                                      
Net asset value per share – incl                            96      102
IAS19 pension deficit (pence)
Net asset value per share – excl                            103     104
IAS19 pension deficit (pence)
Tangible Net asset value per share – incl IAS19             54      63
pension deficit (pence)
Tangible Net asset value per share – excl IAS19        61     65
pension deficit (pence)
                                                      
Annualised
return on                                                   10.0    8.0
equity (%)
Annualised return on tangible equity                 16.9   12.6
(%)
                                                      
IGD Surplus                                                 0.9     1.2
(£bn)
IGD Coverage
ratio                                            1.7    1.9
(times)
                                                      
ECA Surplus (1 in 200 year                                  1.3     0.8
calibration) (£bn)
ECA Surplus (1 in 1,250 year                         0.8    0.4
calibration) (£bn)
                                                                    

INTERIM MANAGEMENT REPORT – HALF YEAR 2013 REVIEW

6 months ended 30 June 2013
                                     Emerg-    UK &                          Group
                  Scandi-                                Central     Group
                          Canada  ing      Western                    H1’12
                  navia                                  Functions   H1‘13
                                     Markets   Europe                        (restated)
                  £m        £m       £m        £m        £m          £m      £m
                                                                             
Net written      1,118    866     686      1,946    36         4,652  4,276
premiums
                                                                             
Underwriting      98        15       12        50        13          188     149
result
Investment        62        36       28        124       6           256     267
income
Unwind of        (20)     (1)     (5)      (17)     (7)        (50)   (42)
discount
Investment       42       35      23       107      (1)        206    225
result
Insurance         140       50       35        157       12          394     374
result
Other            (3)      (3)     (12)     (3)      (34)       (55)   (69)
activities
Operating
result           137      47      23       154      (22)       339    305
(management
basis)
Realised                                                             22      37
gains/(losses)
Unrealised
(losses)/gains,
impairments and                                                      (4)     (3)
foreign
exchange
Interest costs                                                       (59)    (58)
Amortisation of
intangible                                                           (21)    (20)
assets
Pension net                                                          (4)     (3)
interest costs
Solvency II                                                          (10)    (16)
costs
Reorganisation                                                       (4)     (19)
costs
Acquisitions                                              (9)    (4)
and disposals
Profit before
tax

(per condensed                                            250    219
consolidated
income
statement)
Profit after
tax

(per condensed                                            190    153
consolidated
income
statement)
Combined
operating ratio  87.7     98.7    97.8     95.4     -          94.2   95.4
(%)
                                                                             

In the first half of 2013, net written premiums were up 7% at constant
exchange rates (9% as reported) to £4,652m (H1 2012: £4,276m as reported;
£4,360m at constant exchange). Premium growth comprised 3% from rate increases
on renewed business, 1% of increased volumes and 3% from inorganic activity
with a further 2% increase from foreign exchange effects. On a reported basis,
premiums grew by 17% in Emerging Markets and Canada, whilst Scandinavia was up
6% due to FX effects. Premiums were up 3% in UK and Western Europe. Our Global
Specialty Lines (GSL) business grew 8% at constant FX to £822m with a combined
ratio of 100.5% (H1 2012: 90.9%) due to heavy weather and large losses in
Canada, Scandinavia and Europe.

The underwriting result was up 26% to £188m (H1 2012 restated: £149m) with
current year profit up 161% to £94m (H1 2012 restated: £36m) and a prior year
result of £94m (H1 2012: £113m). The Group combined operating ratio (COR) was
94.2% (H1 2012 restated: 95.4%). The severe flooding in Alberta, Canada,
affected Group COR by 1.1%. Despite this, overall weather losses for the Group
were within expectations at 2.1% (H1 2012: 2.7%). Large losses contributed
7.2% to the COR (H1 2012: 7.3%), which is broadly in line with long term
averages and expectations for 2013, although large losses in H1 2013 were
concentrated in Scandinavia and Western Europe leading to depressed
underwriting results in these territories. Prior year releases benefited the
COR by 3.3% (H1 2012: 3.3%). We have maintained our prudent reserving policy
and anticipate positive prior year development to continue to be a significant
contributor to profit in the future.

The investment result is down 8% to £206m (H1 2012: £225m) due to the
continued effect of low bond yields on investment income. Investment income of
£256m (H1 2012: £267m), is comfortably in line with full year guidance of
£470m.

Other operating activities were £55m (H1 2012: £69m) and comprise £29m central
expenses (H1 2012: £35m), £14m of investment expenses (H1 2012: £16m) and £12m
of other operating activities (H1 2012: £18m). Other operating activities
include the ongoing investment in our associates in India and Thailand as well
as our direct operations in Central and Eastern Europe. In H1 2013 the
start-up charge for our Central and Eastern Europe operations reduced from
£12m in H1 2012 to £6m. We expect a similar charge in H2 2013 after which we
expect these costs will fall to zero.

At 30 June 2013, NAV per share excluding the IAS19 pension deficit was 103p
(30 June 2012: 104p) reflecting the impact of retained profits less dividends
paid in the period, being more than offset by mark-to-market asset movements
and foreign exchange effects. Tangible NAV per share excluding IAS 19 at 30
June 2013 was 61p (30 June 2012: 65p).

The Group’s capital position remains healthy with an IGD surplus of £0.9bn (31
December 2012: £1.2bn) covering the capital requirement 1.7 times (31 December
2012: 1.9 times) and economic capital of £1.3bn (31 December 2012: £1.2bn) (on
a 1 in 200 year calibration) giving coverage over the economic capital
requirement of 1.6 times.

Outlook and Financial Targets

We are delivering on our plans and remain on track to meet the guidance we
issued in February, despite the impact of adverse weather in Canada, which has
continued into the second half with severe flooding in Toronto in July. The
2013 Canadian results will be affected by this extreme weather but Canada
remains a highly attractive market for the Group. We are making good progress
on the turnaround in both UK Commercial and Italy. The Scandinavian markets
remain attractive and, while the first half results were impacted by an
unusual level of Commercial large losses, Scandinavia will remain a
significant profit contributor to the Group going forward. In Emerging Markets
we are delivering on our objectives of growth in premiums and improving
profitability through operating leverage.

Assuming a normal pattern of weather losses in the second half, we remain on
track to meet our full year expectations of a combined ratio of better than
95% and return on equity of 10-12%.

The Group’s balance sheet will be affected by short term volatility in
financial markets. Over the medium term, we expect retained earnings to more
than offset the “pull to par” effects in our bond portfolio, leading to medium
term balance sheet growth. Cash generation is good and highly fungible; a
significant proportion of cash generated is remitted to the centre to fund
growth and dividends.

Dividend

In line with our preliminary results announcement of 20 February 2013, the
Board has agreed an ordinary interim dividend of 2.28 pence per share (2012
ordinary interim dividend: 3.41 pence per share). Going forward, it is the
Board’s intention to grow the dividend in line with the anticipated underlying
growth in earnings.

Simon Lee
Group Chief Executive

BUSINESS REVIEW - SCANDINAVIA

                  Net written premiums  Change^1         Underwriting
                                                             result
                   H1 2013     H1 2012   %                  H1 2013    H1
                                                                         2012
                   £m           £m                           £m          £m
Personal
Household          172          162       1                  11          8
Motor              232          224       (2)                57          45
Personal
Accident and      159         143      4               55         47
Other
Total
Scandinavia       563         529      1               123        100
Personal
                                                                         
Commercial
Property           198          184       3                  (37)        1
Liability          92           87        1                  8           31
Motor              144          137       -                  (2)         (3)
Marine and Other  121         119      (3)             6          1
Total
Scandinavia       555         527      -               (25)       30
Commercial
Total             1,118       1,056    -               98         130
Scandinavia
                                                                         
Split by country
Sweden             573          522       2                  62          74
Denmark            435          439       (4)                31          54
Norway            110         95       12              5          2
Total             1,118       1,056    -               98         130
Scandinavia
                                                                         
Investment                                          42         48
result
Scandinavia                                         140        178
insurance result
                                                             
Operating Ratios   Claims                 Expenses           Combined
(%)
                   H1 2013      H1 2012   H1 2013    H1      H1 2013     H1
                                                     2012                2012
Personal
Household                                                    92.3        95.0
Motor                                                        71.1        75.6
Personal
Accident and                                                 63.6        66.0
Other
Total
Scandinavia        60.5         63.7      14.8       15.0    75.3        78.7
Personal
                                                                         
Commercial
Property                                                     119.6       96.1
Liability                                                    81.6        45.1
Motor                                                        99.1        99.0
Marine and Other                                             89.8        92.5
Total
Scandinavia        84.9         71.5      17.4       16.7    102.3       88.2
Commercial
Total             71.6        67.3     16.1      15.8   87.7       83.1
Scandinavia
                                                                       
Rate Increases^2   Personal               Commercial
(%)
Scandinavia        Household    Motor     Property   Liability         Motor
                                                                       
Jun 13 vs Jun 12   8            3         3          4                 4
Mar 13 vs Mar 12   9            3         3          4                 4
Dec 12 vs Dec 11   12           3         1          4                 5
Sept 12 vs Sept   12          2        6         -                 4
11
                                                                       

^1 at constant exchange rate
^2 Rating increases reflect rate movements achieved for risks renewing in the
month versus comparable risks renewing in the same month the previous year

SCANDINAVIA – CONTINUED PROFITABILITY DESPITE ADVERSE LARGE LOSSES

Net written premiums of £1,118m in Scandinavia were flat at constant exchange
(H1 2012: £1,056m as reported; £1,113m at constant exchange) with good growth
in Swedish Personal and Norway offset by falls in Denmark where we continue to
focus on improving profitability. Growth in Sweden of 2% was driven by
Household (up 5%) and Personal Accident & Other (up 5%) whilst Personal Motor
and Commercial were flat. Growth in Norway of 12% was driven by strong growth
in Care, as well as good growth of 8% in Personal driven by both Household and
Motor. In Denmark we are continuing to prioritise profitability and during the
first half we have targeted rate increases whilst maintaining our discipline
in risk selection, particularly in Personal Lines. As a result premiums in
Denmark were 4% lower at constant exchange.

The Scandinavian underwriting result of £98m (H1 2012: £130m) was
significantly affected by an unusual level of large Commercial losses (£44m
higher than H1 2012) particularly in Swedish Property and Renewable Energy
and, as a result, the combined ratio was 87.7% (H1 2012: 83.1%). After
including investment returns of £42m (H1 2012: £48m), the insurance result was
£140m (H1 2012: £178m).

In Scandinavian Personal Lines, profitability was strong with an underwriting
result of £123m, up 15% at constant exchange. This reflects an improving
performance in Danish Personal with relatively benign weather losses and a
better underlying claims ratio. Sweden Personal continues to perform strongly
with a 6% increase in the underwriting result.

Scandinavia Commercial made an underwriting loss of £25m in the first half.
This was driven by an unusual number of large losses particularly in Renewable
Energy and Swedish Property, as well as one significant Marine large loss. In
Property we have seen a series of unrelated large fire losses whilst Renewable
Energy has been impacted by several offshore wind losses. At this stage we
haven’t identified any obvious trends in these large losses. Many of the
affected customers have been with us for some years. We continue to focus on
risk selection, assessment and controls. As a result of these losses, the
Scandinavian Commercial COR was 102.3%.

Scandinavia – Outlook

We continue to expect the Scandinavian P&C markets to grow in line with local
GDP growth, and we expect to grow in line with the market in Sweden and
Denmark, whilst deploying group capabilities to build market share in Norway.
We’re making good progress in improving the balance of profitability across
the region. Our focus is on continued strong profitability in Sweden,
improving profitability in Denmark whilst focusing on profitable growth in
Norway.

BUSINESS REVIEW - CANADA

             Net written premiums         Change^1                Underwriting result
              H1 2013       H1 2012        %                         H1      H1 2012
                                                                      2013
                                                                               (restated^2)
              £m             £m                                       £m       £m
Personal
Household     200            154            28                        17       20
Motor        368           331           10                     30      18
Total
Canada       568           485           16                     47      38
Personal
                                                                               
Commercial
Property      131            111            17                        (51)     5
Liability     79             72             8                         8        10
Motor         59             49             18                        8        7
Marine and   29            26            12                     3       2
other
Total
Canada       298           258           14                     (32)    24
Commercial
Total        866           743           15                     15      62
Canada
                                                                               
Investment                                                   35      31
result
Canada
insurance                                                    50      93
result
                                                                      
                                                                
Operating     Claims                        Expenses                  Combined
Ratios (%)
              H1 2013        H1 2012        H1 2013    H1 2012        H1       H1 2012
                                                                      2013
                             (restated^2)              (restated^2)            (restated^2)
Personal
Household                                                             94.5     90.3
Motor                                                                 92.1     94.5
Total
Canada        67.2           67.7           25.6       25.0           92.8     92.7
Personal
                                                                               
Commercial
Property                                                              139.3    93.3
Liability                                                             89.6     82.5
Motor                                                                 84.0     82.9
Marine and                                                            90.4     94.2
other
Total
Canada        77.1           54.2           33.8       34.2           110.9    88.4
Commercial
Total        70.4          63.5          28.3      28.2          98.7    91.7
Canada
                                                                       
                                                                     
Rate
Increases^3   Personal                      Commercial
(%)
Canada        Household  Motor             Property   Liability         Motor
                                                                         
Jun 13 vs     7           -                 4          3                 3
Jun 12
Mar 13 vs     7           1                 4          2                 2
Mar 12
Dec 12 vs     11          3                 4          2                 2
Dec 11
Sept 12 vs   12         2                3         1                -
Sept 11
                                                                         

^1 at constant exchange rate
^2 H1 2012 restated for changes to IAS 19 “Employee Benefits”, see page 18 for
further details
^3 Rating increases reflect rate movements achieved for risks renewing in the
month versus comparable risks renewing in the same month the previous year

CANADA – STRONG UNDERLYING PERFORMANCE; PROFITABILITY IMPACTED BY ALBERTA
FLOODS

Net written premiums in Canada were up 15% on a constant exchange rate basis
to £866m (H1 2012: £743m as reported; £752m at constant exchange) with 4%
organic growth and the 2012 acquisition of L’Union Canadienne (UC) accounting
for 11% of growth.

Underwriting profit was £15m (H1 2012 restated: £62m) with profitability
severely affected by the June floods in Alberta. As a result, the combined
ratio was 98.7% (H1 2012 restated: 91.7%). As we announced on 3 July, major
flooding in Calgary and the surrounding areas of Southern Alberta commenced on
19 June following heavy rainfall. Our priority has been to provide care and
support to our customers, brokers and impacted local employees. The floods
will be one of Canada’s costliest natural catastrophes on record and our gross
claims will be significantly above our retention of £48m, leading to the net
loss of £48m.

Excluding the floods, the Canadian combined ratio was 93.3% reflecting a
continued strong underlying performance and an improving operating expense
ratio (down from 15.0% in H1 2012 to 13.8% in H1 2013) as we realise synergies
from the ongoing integration of UC. The growth in brokered business, led to a
1.3 point increase in the commission ratio. After including investment returns
of £35m (H1 2012: £31m), the insurance result was £50m (H1 2012 restated:
£93m).

Personal premiums were up 16% at constant exchange to £568m (H1 2012: £485m as
reported; £491m at constant exchange). Growth was 5% excluding the impact of
the acquisition of UC. Personal Household premiums were up 28% to £200m (H1
2012: £154m as reported; £156m at constant exchange) with strong growth in
Personal Broker of 38%, driven by the Pacific region and solid retention
across the book, and in Johnson where Household premiums grew 11%.
Underwriting profit was £17m (H1 2012 restated: £20m).

In Personal Motor, premiums grew by 10% driven by growth of 28% in Personal
Broker, although Johnson premiums were flat due to our focus on managing the
portfolio for profitability, particularly in the Ontario market. Underwriting
profit in Personal Motor was £30m (H1 2012: £18m) resulting from improved
profitability in Johnson. Following the reserve strengthening in Ontario Auto
in 2012, this portfolio has been stable during the first half of 2013. The
Personal Motor combined ratio of 92.1% was 2.4 points better than H1 2012
(94.5%).

In Commercial lines, premiums were up 14% to £298m (H1 2012: £258m as
reported; £261m at constant exchange) with strong growth of 17% in Property
and 18% in Motor. Excluding the acquisition of UC, growth was 4% across the
Commercial portfolio with good growth in Global Specialty Lines where premiums
were up 11% driven mainly by Property. We have seen improving retention across
Commercial during the first half and in the second half our focus will be on
further rate increases, particularly in our Property portfolio. Overall,
Commercial made a first half underwriting loss of £32m (H1 2012 restated: £24m
profit) and was heavily impacted by the Alberta floods.

Canada – Outlook

Following heavy rainfall on 8 July, Toronto and the surrounding areas
experienced severe flooding. Although it is still early, our initial estimate
of the net loss for RSA is £25m to £40m, which will particularly affect our
Personal lines portfolio. The severe weather in Alberta and Toronto will have
a material impact on the Canadian combined ratio for 2013. However, we expect
the pricing environment to respond positively, returning to COR in the low to
mid 90s by 2014.

BUSINESS REVIEW – EMERGING MARKETS

                      Net written     Change^1           Underwriting
                       premiums                              result
                       H1      H1      %                    H1 2013   H1
                       2013     2012                                    2012
                     £m      £m                      £m        £m
Latin America          399      343     17                   3          1
CEEME                  209      180     13                   6          4
Asia                  78      62     20                3         2
Total Emerging        686     585    16                12        7
Markets
                                                                        
Asian Associates^2    171     152    11                         
Asia (incl            249     214    14                         
Associates)
Emerging Markets      857     737    15                         
(incl Associates)
                                                             
                                                                    
Investment result                                   23        24
Emerging Markets insurance result (as                   35        31
reported)
EM start up costs (reported in other                    (6)       (12)
activities)
Emerging Markets insurance result                       29        19
(fully loaded for costs)
                                                                        
                                                            
Operating Ratios (%)   Claims           Expenses             Combined
                       H1       H1      H1 2013    H1 2012   H1 2013    H1
                       2013     2012                                    2012
Latin America                                                99.0       101.1
CEEME                                                        96.4       97.9
Asia                                                         96.6       98.9
Total Emerging        57.1    56.8   40.7      43.0     97.8      99.8
Markets
                                                                        

^1 at constant exchange rate
^2 Asian Associates includes 100% of the premiums of our associates in India
and Thailand

EMERGING MARKETS – CONTINUED GROWTH AND OPERATING LEVERAGE

Our Emerging Markets business has delivered good premium growth and improving
profitability, with continued operating leverage. We remain focused on active
management of the Emerging Markets portfolio; during the first half we
completed the sale of our business in the Dutch Caribbean, whilst the
integration of our 2012 acquisitions in Argentina remains on track.

Emerging Markets premiums grew 16% at constant exchange to £686m (H1 2012:
£585m as reported; £590m at constant exchange). Including non-consolidated
associates in India and Thailand, premiums were up 15% at constant exchange to
£857m (H1 2012: £737m as reported; £744m at constant exchange).

The underwriting result of £12m was up £5m from H1 2012 (£7m) with profit
growth coming from all three regions. The combined ratio of 97.8% was 2 points
better than H1 2012 with the improvement driven by continued operating
leverage on expenses and a lower commission ratio. The operating expense ratio
of 21.8% was 1.2 points lower (H1 2012: 23.0%) with improvements across all
regions, whilst the commission ratio was lower than H1 2012 due to the
non-renewal of some large, low margin, commercial contracts in Latin America
that attracted high commission ratios. We expect this commission ratio benefit
will partly reverse during the second half.

Emerging Markets delivered an investment result of £23m (H1 2012: £24m)
leading to an insurance result of £35m which was up 13% from H1 2012. Start-up
costs in the first half were £6m (H1 2012: £12m). We expect a similar charge
in the second half and that these costs will fall to zero in 2014.

In Latin America, premiums were up 17% at constant exchange to £399m (H1 2012:
£343m as reported; £340m at constant exchange), including £51m from the
acquisitions in Argentina which completed on 31 July 2012. In addition to the
2012 acquisitions, there was organic growth of 4% across the region.
Underwriting profits were £3m (H1 2012: £1m).

In Central and Eastern Europe and the Middle East (CEEME), premiums were up
13% at constant exchange to £209m (H1 2012: £180m as reported, £185m at
constant exchange). Excluding the impact of the exit of our Czech business,
CEEME premiums were up 16% at constant exchange. There was strong growth in
all countries but particularly Oman (up 26%), Poland (up 12%), and Lithuania
(up 9%). The underwriting result of £6m reflected good performance in
Lithuania, Poland, UAE and Oman. The combined ratio of 96.4% represented an
improvement of 1.5 points on H1 2012.

In Asia, premiums were up 20% at constant exchange to £78m (H1 2012: £62m as
reported, £65m at constant exchange) with strong double-digit growth across
all operations, particularly Hong Kong (up 26%) and Singapore (up 13%). Our
associates in Thailand and India grew 11% at constant exchange. Underwriting
profit in Asia was £3m (H1 2012: £2m).

Emerging Markets Outlook

We remain on track to meet our target of £2.2bn of Emerging Markets premiums
(including our associates) in 2015. We also expect further improvements in
profitability. Notwithstanding the good performance in the first half, the
seasonality in our Emerging Markets business typically produces stronger
underwriting profits during the second half of the year. We also expect that
operating leverage will continue to develop in the expense line.

BUSINESS REVIEW – UK & WESTERN EUROPE

             Net written premiums      Change^1                Underwriting result
              H1 2013    H1 2012        %                         H1     H1 2012
                                                                   2013
                          (restated^2)                                     (restated^2)
UK Personal   £m          £m                                       £m      £m
Household     334         324            3                         47      2
Motor         215         224            (4)                       (2)     5
Pet          104        113           (8)                    3      2
Total UK     653        661           (1)                    48     9
Personal
UK
Commercial
Property      258         266            (3)                       28      9
Liability     140         137            2                         (2)     (5)
Motor         310         278            12                        (7)     (28)
Marine       176        155           14                     6      5
Total UK     884        836           6                      25     (19)
Commercial
Total UK     1,537      1,497         3                      73     (10)
Western
Europe
Ireland       197         183            5                         10      14
Italy         104         102            (2)                       (5)     (39)
European
Specialty    108        100           4                      (28)   (6)
Lines
Total UK &
Western      1,946      1,882         3                      50     (41)
Europe
                                                                           
Investment                                                107    117
result
UK & WE
insurance                                                 157           76
result
                                                               
Operating     Claims                     Expenses                  Combined
Ratios (%)
Personal      H1 2013     H1 2012        H1 2013    H1 2012        H1      H1 2012
                                                                   2013
                          (restated^2)              (restated^2)           (restated^2)
Household                                                          86.7    99.7
Motor                                                              101.2   100.3
Pet                                                                98.1    99.9
Total UK      55.5        63.9           37.5       36.1           93.0    100.0
Personal
Commercial
Property                                                           85.0    91.6
Liability                                                          98.9    102.7
Motor                                                              101.0   110.5
Marine                                                             90.4    98.9
Total UK      65.1        72.2           28.4       29.1           93.5    101.3
Commercial
Total UK      60.8        68.4           32.3       32.2           93.1    100.6
Western
Europe
Ireland                                                            94.8    92.7
Italy                                                              105.2   134.2
European
Specialty                                                          134.9   101.1
Lines
Total UK &
Western      64.4       71.0          31.0      30.8          95.4   101.8
Europe
                                     
Rate
Increases^3   Personal                   Commercial
(%)
UK            Household   Motor          Property   Liability      Motor
                                                                   
Jun 13 vs     1           (3)            4          5              3
Jun 12
Mar 13 vs     2           (4)            4          3              4
Mar 12
Dec 12 vs     3           (2)            4          6              10
Dec 11
Sept 12 vs   4          1             4         4             9
Sept 11
                                                                   

^1 at constant exchange rate
^2 H1 2012 restated for (i) changes to IAS 19 “Employee Benefits”, see page 18
for further details; and (ii) class of business changes in UK Commercial, ESL
and Italy, see page 19 for further details
^3 Rating increases reflect rate movements achieved for risks renewing in the
month versus comparable risks renewing in the same month the previous year

UK & WESTERN EUROPE – ENCOURAGING PROGRESS FROM MANAGEMENT ACTIONS

UK & Western Europe premiums increased by 3% in the first half to £1,946m (H1
2012: £1,882m as reported; £1,895m at constant exchange), with an underwriting
profit of £50m (H1 2012 restated: £41m loss). The investment result of £107m
(H1 2012: £117m) led to an insurance result of £157m (H1 2012 restated: £76m).
We have made good progress on our strategy to refocus the business and reduce
exposure to less attractive segments whilst continuing to grow in areas where
we believe we can deliver shareholder value.

UK premiums of £1,537m were up 3% (H1 2012: £1,497m) with growth of 6% in
Commercial, partly offset by Personal which was 1% lower. Underwriting profits
of £73m were up £83m reflecting the impact of our ongoing actions to improve
profitability as well as the adverse weather in H1 2012. The COR of 93.1% was
7.5 points better than H1 2012.

UK Personal premiums were down 1% to £653m (H1 2012: £661m), with underwriting
profits up £39m to £48m. This mainly reflects relatively benign weather in H1
2013 which was better than the prior year, and was around £10m better than our
expectations. Household continued to grow steadily (up 3%). Pet declined (down
8%) due to an adjustment to pipeline premium. Underlying growth in Pet was
good and there was no impact on the underwriting result from the premium
adjustment. In Personal Motor we continue to take a disciplined approach to
pricing.

In UK Commercial we are making encouraging progress. Premiums were up 6% to
£884m driven mainly by rate rather than volume. Growth in Motor reflects
significant rate increases in Motability partly offset by the core Motor book
shrinking by 11% resulting from a disciplined approach to pricing and targeted
exits. Following a change in the timing of the recognition of premiums, Marine
topline benefited by £25m, although this will unwind by the end of the year.
Underlying Marine premiums were slightly down as we focus on profitability.
Underwriting performance in Commercial has been good with profits of £25m (H1
2012 restated: £19m loss) reflecting a strong result in Property driven by
improvements in risk selection, a refined approach to reinsurance purchasing
and assisted by benign large loss and weather experience. In Commercial Motor
(£7m loss; £21m better than H1 2012) we are seeing the benefits of the actions
we took in 2012. In Liability, where we continue to take firm underwriting
actions, the result has shown a small improvement.

WESTERN EUROPE – GOOD PROGRESS IN ITALY; IRELAND CONTINUES TO DELIVER

In Italy, premiums of £104m were down 2% at constant exchange reflecting our
ongoing discipline around pricing and risk selection as we continue to make
good progress in remediating the business. The underwriting loss of £5m in the
first half represents a significant improvement of £34m on the prior year,
reflecting the underlying progress in the business but also the earthquakes in
2012. Premiums in Ireland of £197m (H1 2012: £183m as reported; £188m at
constant exchange) were up 5% in a contracting market, with 123.ie continuing
to deliver good growth of 8%. Irish underwriting profits were £10m (H1 2012:
£14m) and the combined ratio was 94.8% (H1 2012: 92.7%) impacted by increasing
Motor claims frequency experienced across the Irish market. We have taken
swift action, including rate increases, to address this. European Specialty
delivered 4% growth to £108m and an underwriting loss of £28m (H1 2012: £6m
loss) driven mainly by a single large loss in Germany.

UK and Western Europe outlook

In the UK, our focus will continue to be on underwriting profit over volume.
In UK Commercial we will focus on building on the momentum generated in the
first half, continuing to drive rate increases and cost reduction. By the end
of 2013 we expect to have reduced headcount supporting the UK business by over
11% since January 2012. In June we announced the renewal of our contract with
Motability, effective from 1 October 2013, which will further improve
profitability in the medium term. Old tranches from the Motability contract
will continue to have a negative impact on underwriting in the short term.
Under the new quota share arrangement RSA will write 20% of the overall
scheme, and we therefore expect premiums to fall significantly from current
levels of around £400m p.a. In UK Personal, we are actively responding to a
rapidly changing market. Whilst the outlook is still uncertain, we are
optimistic that the UK Motor reforms will lead to a more rational and
transparent market. Italy remains on track to be trading on a break even basis
by the end of 2013.

BUSINESS REVIEW – INVESTMENT RESULT                      
                                                                     
                                                                     
Investment Result                          6 Months      6 Months    Change
                                           2013          2012
                                           £m            £m          %
                                                                     
Bonds                                      194           207         (6)
Equities                                   27            36          (25)
Cash and cash equivalents                  7             6           17
Property                                   14            12          17
Other                                     14           6          133
Investment income                          256           267         (4)
Unwind of discount including ADC          (50)         (42)       (19)
Investment result                         206          225        (8)
                                                                     
Attributed to
Scandinavia                                42            48          (13)
Canada                                     35            31          13
Emerging Markets                           23            24          (4)
UK & Western Europe                        107           117         (9)
Central functions                          (1)           5
                                                               
Realised and Unrealised Gains
Realised gains                             22            37          (41)
Unrealised (losses)/gains, impairments    (4)          (3)        (33)
and foreign exchange
Total gains                               18           34         (47)
                                                               
Balance sheet unrealised gains             30 June       31 Dec      Change %
                                           2013          2012
                                                                     
Bonds                                      392           638         (39)
Equities                                   103           86          20
Other                                     5            6          (17)
Total                                     500          730        (32)
                                                                     
Portfolio         Value         Foreign    Mark to       Other       Value
Composition                                            Movements   30/6/2013
                  31/12/2012    Exchange   Market
                  £m            £m         £m            £m          £m
                                                                     
Government        4,207         104        (101)         (48)        4,162
bonds
Non government    7,517         189        (185)         (66)        7,455
bonds
Cash              1,329         32         -             (111)       1,250
Equities          553           7          31            27          618
Property          340           2          (5)           3           340
Preference
shares &          286           3          9             13          311
CIVs^1
Other            97           1         (5)          44         137
Total            14,329       338       (256)        (138)      14,273
                                                                     
Split by
currency:
Sterling          3,855                                              3,708
Danish Krone      1,353                                              1,411
Swedish Krona     2,680                                              2,368
Canadian          3,110                                              3,113
Dollar
Euro              1,500                                              1,644
Other            1,831                                       2,029
Total            14,329                                      14,273
                                                                     

^1 Collective investment vehicles

INVESTMENT RESULT – INCOME IN LINE WITH EXPECTATIONS

Investment income of £256m was down 4% (H1 2012: £267m) primarily reflecting
the continued low bond yield environment. After accounting for the unwind of
discount, the investment result was down 8% to £206m (H1 2012: £225m). The
movement in the unwind of discount partly reflects organic growth in Argentina
and the acquisitions made there in 2012. Our Motor reserves in Argentina are
discounted to reflect wider macro economic conditions. The Group continues to
execute a low risk investment strategy.

The average underlying yield on the portfolio was 3.6% (H1 2012: 3.7%).
Reinvestment rates in the Group’s bond portfolios at 30 June 2013 were around
120bps lower than the underlying portfolio yield.

Total gains of £18m (H1 2012: £34m) reflected realised gains from the sale of
equities and bonds during the first half of the year partly offset by a modest
decline in the value of investment properties and derivatives.

Balance sheet unrealised gains of £500m (31 December 2012: £730m) primarily
relate to unrealised gains on the bond portfolio. The 32% decline mainly
reflects a 39% reduction in unrealised bond gains following the sharp increase
in yields at the end of the first half of 2013. Balance sheet unrealised
equity gains amounted to £103m (31 December 2012: £86m).

The portfolio decreased marginally in value over the first half of the year
due to negative mark-to-market movements and some cash outflows in part
reflecting payment of the Group’s dividend and interest on debt. These
negative movements were partly offset by foreign exchange gains.

The portfolio remains invested in widely diversified fixed income securities
(81% of the portfolio), with 4% in equities, 9% in cash and 2% in property.
During 2013 average duration increased to 3.9 years (31 December 2012: 3.8
years). Following the purchase of increased levels of non-government bonds in
2012, levels have remained consistent in 2013 and non-government bonds
continue to make up 64% of the bond portfolio. The quality of the bond
portfolio remains very high with 98% investment grade and 68% rated AA or
above. We are well diversified by sector and geography. Peripheral European
sovereign debt amounts to less than 1% of the portfolio and is primarily
backing the liabilities of our insurance operations in Ireland and Italy.

Investment Income: Outlook

In the second half of 2013, we will continue to follow our high quality, low
risk strategy. We remain comfortably on track to meet full year investment
income guidance of around £470m in 2013.

BALANCE SHEET REVIEW

MOVEMENT IN NET ASSETS

                                          Non
                          Shareholders'                 Loan          Net
                         funds          controlling  capital      assets

                                          interests
                          £m              £m            £m            £m
                                                                      
Balance at 1 January      3,750           129           1,311         5,190
2013
                                                                      
Profit after tax          185             5             -             190
Exchange gains net of     63              5             1             69
tax
Fair value losses net     (188)           -             -             (188)
of tax
Pension fund actuarial    (99)            -             -             (99)
losses net of tax
Amortisation and
repayment of loan         -               -             (1)           (1)
capital
Share issue including     54              -             -             54
scrip
Changes in
shareholders’ interests   (1)             (1)           -             (2)
in subsidiaries
Share based payments      12              -             -             12
Prior year final          (140)           (7)           -             (147)
dividend
Preference dividend       (5)             -             -             (5)
                                                              
Balance at 30 June 2013  3,631          131          1,311        5,073
                                                                      
CAPITAL POSITION
                          30 June 2013    30 June 2013       31 December 2012
                          Coverage        Surplus             Surplus
                          (times)         £bn                 £bn
                                        
Insurance Groups          1.7             0.9                 1.2
Directive
Economic Capital (1in     1.6             1.3                 1.2
200 Calibration)
Economic Capital (1in     1.3             0.8                 0.7
1,250 Calibration)
                                                              

BALANCE SHEET – UNDERLYING PROGRESS MASKED BY MARKET EFFECTS

Shareholder funds fell by 3% in the period to £3,631m (31 December 2012:
£3,750m). Profit after tax of £185m (reported PAT of £190m less
non-controlling interests) was more than offset by the after tax impact of
mark-to-market falls in the value of the investment portfolio of £188m and
actuarial losses, after tax, on the IAS19 pension position of £99m.

Scrip dividend take up for the 2012 final dividend was 35% leading to a cash
dividend cost of £91m. Net asset value per share was 96p (31 December 2012:
101p per share).

Tangible net asset value was £1,987m at 30 June 2013 (31 December 2012:
£2,136m). Excluding the IAS19 pension deficit, net asset value was £3,756m or
103p per share at 30 June 2013 (31 December 2012: 107p per share) and tangible
net asset value was £2,237m or 61p at 30 June 2013 (31 December 2012: 65p per
share)

CAPITAL - COMFORTABLE ON ALL CAPITAL MEASURES

The IGD surplus at 30 June 2013 was £0.9bn (31 December 2012: £1.2bn) and
coverage over the IGD requirement 1.7 times (31 December 2012: 1.9 times). The
reduction in the surplus reflects economic capital generated which was more
than offset by the impact of the increase in bond yields at the end of H1
2013, the 2012 final dividend and the movement in the pension fund.

When calibrated to a risk tolerance consistent with the expected Solvency II
calibration, equivalent to a probability of insolvency over one year of 1 in
200, the ECA surplus was £1.3bn (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
£0.8bn (31 December 2012: £0.7bn). Profits generated and the impact of
increasing bond yields at the end of H1 2013 have been partly offset by the
final dividend for 2012.

In addition, for the half year we have disclosed economic capital coverage
ratios. These show the coverage over the economic capital requirement to be
1.6 times on a 1 in 200 calibration and 1.3 times on a 1 in 1,250 calibration.
Our economic capital model is a stochastic model centred around the Group’s
three year plan. The plan is stressed through an economic scenario generator
and insurance liability model which simulates a variety of business outcomes.
The economic capital requirement is the capital needed to meet the Group’s
obligations at the given probability level. Capital resources represent our
own view of the Group’s economic capital which comprises our IFRS capital base
adjusted to exclude items such as intangible assets and goodwill. We consider
the economic capital model to represent a prudent view of the capital
requirements for the Group.

Our financing and liquidity position remains strong. Capital generation is
good and highly fungible; a significant proportion of capital generated is
remitted to the centre to fund growth and dividends.

The Group has the option to call the £450m subordinated guaranteed perpetual
notes in December 2014 and its committed £500m senior facility continues to
remain undrawn.

The Group’s current Standard & Poor’s rating of A+ (negative outlook) was
reaffirmed in June. The Group is rated A2 by Moody’s.

PENSION FUND

The table below provides a reconciliation of the movement in the Group’s
pension fund position (net of tax) from 1 January 2013 to 30 June 2013.
                                                               
                                        UK              Other         Group
                                        £m              £m            £m
                                                                      
Pension fund at 1 January 2013          (111)           (96)          (207)
                                                                      
Actuarial (losses)/gains                (111)           12            (99)
Deficit funding                         50              -             50
Other movements                         3               2             5
                                                                
Pension fund at 30 June 2013           (169)          (82)         (251)
                                                                      

The UK pension fund position has deteriorated by £58m since 31 December 2012
to a deficit of £169m. This is driven by an increase in the inflation rate
partly offset by returns on assets and an increase in the discount rate.

Within actuarial assumptions, the inflation rate increased to 3.0% (31
December 2012: 2.6%) while the discount rate increased by a smaller amount to
4.5% (31 December 2012: 4.3%). Consequently the yield gap has decreased from
1.7% to 1.5%.

The overseas pension deficit has improved by £14m since 31 December 2012 to a
deficit of £82m principally due to an increase in the discount rate applied to
the Canadian pension scheme from 4.35% to 4.70%. This reflects increases in
the AA corporate bond yields in Canada.

IAS 19 RESTATEMENT

Following the issue of a revised IAS 19 “Employee Benefits” the group has made
changes to its accounting for employee benefits.

Under the revised standard, expected returns on plan assets will no longer be
recognised in profit or loss. Expected returns are replaced by recording
interest in the income statement, which is calculated using the discount rate
used to measure the pension obligations. The effect of this is to increase the
charge in the income statement, with a corresponding reduction in other
comprehensive income. There is no change to the statement of financial
position.

We have restated the comparative figures in the condensed consolidated Income
Statement and a corresponding opposite entry in the condensed consolidated
Statement of Comprehensive Income. The net income statement impact of these
changes on the H1 2012 comparatives is a £9m reduction to the underwriting
result, a 0.2pt increase in the combined ratio, an £11m reduction to the
operating result and an £11m reduction to profit after tax. A restatement of
the full year 2012 income statement is provided on page 20. Corresponding
ratios and other metrics have also been restated.

CONCLUSION OF PENSION SCHEME VALUATIONS

In July we announced that the Group had agreed, with the Trustees of our main
UK pension schemes, the pension deficit funding contributions following the
completion of the latest triennial actuarial valuations.

As at 31 March 2012, the main UK schemes, Royal Insurance Group Pension Scheme
(“RIGPS”) and the SAL Pension Scheme (“SALPS”) were c93% funded on the prudent
measure that the Trustees are required to use, with a combined deficit of
£442m. This compares to a combined deficit of £692m at 31 March 2009.

Guaranteed deficit funding contributions of c£61m p.a. will be paid in 2014,
2015 and 2016. This compares with deficit funding contributions of c£70m in
2012 and c£63m in 2013.

RATIOS, DEFINITIONS AND OTHER INFORMATION

Underlying return on equity

Underlying return on equity is 9.7% (H1 2012 restated: 7.5%) and is calculated
as the profit after tax attributable to ordinary shareholders from continuing
operations, excluding acquisitions, disposals, reorganisation costs and net
investment gains or losses, impairments and foreign exchange expressed in
relation to opening shareholders’ funds attributable to ordinary shareholders.

Combined operating ratio

The combined operating ratio represents the sum of expense and commission
costs expressed in relation to net written premiums and claim costs expressed
in relation to net earned premiums. The calculation of the COR of 94.2% is
based on net written premiums of £4,652m and net earned premiums of £4,298m.

Net asset value per share

Net asset value per share data at 30 June 2013 was based on total
shareholders’ funds of £3,631m, adjusted by £125m for preference shares.

Earnings per share

The earnings per share is calculated by reference to the result attributable
to the ordinary shareholders of the Parent Company and the weighted average
number of shares in issue during the period. On a basic and diluted basis
these were 3,607,475,744 and 3,648,295,336 respectively (excluding those held
in ESOP and SIP trusts). The number of shares in issue at 30 June 2013 was
3,650,296,860 (excluding those held in ESOP and SIP trusts).

Related party transactions

In 2013, there have been no related party transactions that have materially
affected the financial position of the Group.

Changes to management basis reporting

The prior half year and full year comparatives have been restated for changes
to IAS 19 “Employee Benefits”, see page 18 for further details.

In addition, two further changes impact the prior half year comparatives.
Firstly, in UK Commercial, there have been some small reclassifications
between Property and Motor in order to better reflect the composition of these
two classes. Secondly, Risk Solutions business written in Italy has now been
reclassified from European Specialty Lines to Italy in order to report both
parts of the Italian business in one place.

Reporting and Dividend Timetable

9 August 2013       Record date for the second preference dividend for 2013
25 September 2013     Ex dividend date for the ordinary interim dividend for
                      2013
27 September 2013     Record date for the ordinary interim dividend for 2013
1 October 2013        Payment date for the second preference dividend for 2013
2 October 2013        Announcement of the scrip dividend price for the
                      ordinary interim dividend for 2013
25 October 2013       Deadline for the receipt of scrip dividend mandates
7 November 2013       Q3 2013 interim management statement
12 November 2013      Scandinavia investor and analyst briefing
22 November 2013      Payment of the ordinary interim dividend for 2013
                      

SUMMARY CONSOLIDATED INCOME STATEMENT

MANAGEMENT BASIS

                                     6 Months    6 Months       12 Months
                                     2013         2012            2012
                                                  (restated^1)    (restated^1)
                                     £m           £m              £m
                                                                  
                                                                  
Net written premiums                 4,652       4,276          8,353
                                                                  
Underwriting result                  188          149             358
                                                                
Investment income                    256          267             515
Unwind of discount including ADC     (50)         (42)            (84)
Investment result                    206         225            431
Insurance result                     394          374             789
Other activities                     (55)        (69)           (130)
Operating result                     339          305             659
                                                                  
Realised gains                       22           37              79
Unrealised gains/(losses),           (4)          (3)             (51)
impairments and foreign exchange
Interest costs                       (59)         (58)            (115)
Amortisation and impairment of       (21)         (20)            (42)
intangible assets
Pension net interest cost            (4)          (3)             (6)
Solvency II costs                    (10)         (16)            (32)
Reorganisation costs                 (4)          (19)            (24)
Acquisitions and disposals           (9)         (4)            (20)
Profit before tax                    250          219             448
Taxation                             (60)        (66)           (121)
Profit after tax                     190         153            327
                                                                  
                                                                  
Earnings per share on profit attributable to the ordinary
shareholders of the Parent Company:
Basic                                5.0p         4.1p            8.8p
Diluted                              4.9p         4.1p            8.7p
                                                                  
^1  Restated for the impact of changes to IAS 19 ‘Employee Benefits’
                                                                  

SUMMARY CONSOLIDATED STATEMENT OF FINANCIAL POSITION

MANAGEMENT BASIS

                                               30 June  30 June  31 December
                                               2013      2012      2012
                                               £m        £m        £m
Assets
Goodwill and other intangible assets           1,519     1,363     1,489
Property and equipment                         269       267       272
Associated undertakings                        45        32        40
Investments                                                      
Investment property                            340       350       340
Equity securities                              929       1,002     839
Debt and fixed income securities               11,617    11,237    11,724
Other                                          137       102       97
Total investments - management basis           13,023    12,691    13,000
Reinsurers' share of insurance contract        2,165     2,066     1,949
liabilities
Insurance and reinsurance debtors              3,861     3,512     3,592
Other debtors and other assets                 1,217     1,185     1,114
Cash and cash equivalents                      1,250    1,376    1,329
                                               23,349    22,492    22,785
Assets held for sale                           1        -        -
Total assets                                   23,350   22,492   22,785
                                                                   
Equity and liabilities
                                                                   
Equity
Shareholders' funds                            3,631     3,730     3,750
Non-controlling interests                      131      119      129
Total equity                                   3,762     3,849     3,879
Loan capital                                   1,311    1,312    1,311
Total equity and loan capital                  5,073    5,161    5,190
                                                                   
Liabilities (excluding loan capital)
Insurance contract liabilities                 15,662    14,830    14,854
Insurance and reinsurance liabilities          596       596       558
Borrowings                                     300       298       296
Provisions and other liabilities               1,719    1,607    1,887
Total liabilities (excluding loan capital)     18,277   17,331   17,595
Total equity and liabilities                   23,350   22,492   22,785
                                                                   

SUMMARY CONSOLIDATED STATEMENT OF CASHFLOWS

MANAGEMENT BASIS

                                        6 Months        6 Months
                                               2013                   2012
                                               £m                     £m
                                                                      
Operating cashflow                             392                    312
Tax paid                                       (100)                  (139)
Interest paid                                  (76)                   (75)
Pension deficit funding                 (66)            (59)
Cash generation                                150                    39
Group dividends                                (95)                   (202)
Dividend to non controlling                    (7)                    -
interests
Issue of share capital                         4                      7
Net movement of debt                           3                      (1)
Corporate activity                      (30)            (12)
Cash movement                           25              (169)
                                                                      
Represented by:
Movement in cash and cash                      (111)                  135
equivalents
Purchase/(sales) of other               136             (304)
investments
                                       25              (169)
                                                                      

ESTIMATION TECHNIQUES, RISKS, UNCERTAINTIES AND CONTINGENCIES

Introduction

One of the purposes of insurance is to enable policyholders to protect
themselves against uncertain future events. Insurance companies accept the
transfer of uncertainty from policyholders and seek to add value through the
aggregation and management of these risks.

The uncertainty inherent in insurance is inevitably reflected in the financial
statements of insurance companies. The uncertainty in the financial statements
principally arises in respect of the insurance contract liabilities of the
company.

The insurance contract liabilities of an insurance company include the
provision for unearned premiums and unexpired risks and the provision for
losses and loss adjustment expenses. Unearned premiums and unexpired risks
represent the amount of income set aside by the company to cover the cost of
claims that may arise during the unexpired period of risk of insurance
policies in force at the end of the reporting period. Outstanding claims
represent the company’s estimate of the cost of settlement of claims that have
occurred by the end of the reporting period but have not yet been finally
settled.

In addition to the inherent uncertainty of having to make provision for future
events, there is also considerable uncertainty as regards the eventual outcome
of the claims that have occurred by the end of the reporting period but remain
unsettled. This includes claims that may have occurred but have not yet been
notified to the company and those that are not yet apparent to the insured.

As a consequence of this uncertainty, the insurance company needs to apply
sophisticated estimation techniques to determine the appropriate provisions.

Estimation techniques

Claims and unexpired risks provisions are determined based upon previous
claims experience, knowledge of events and the terms and conditions of the
relevant policies and on interpretation of circumstances. Particularly
relevant is experience with similar cases and historical claims payment
trends. The approach also includes the consideration of the development of
loss payment trends, the potential longer term significance of large events,
the levels of unpaid claims, legislative changes, judicial decisions and
economic, political and regulatory conditions.

Where possible, the Group adopts multiple techniques to estimate the required
level of provisions. This assists in giving greater understanding of the
trends inherent in the data being projected. The Group’s estimates of losses
and loss expenses are reached after a review of several commonly accepted
actuarial projection methodologies and a number of different bases to
determine these provisions. These include methods based upon the following:

  *the development of previously settled claims, where payments to date are
    extrapolated for each prior year;
  *estimates based upon a projection of claims numbers and average cost;
  *notified claims development, where notified claims to date for each year
    are extrapolated based upon observed development of earlier years; and
  *expected loss ratios.

In addition, the Group uses other methods such as the Bornhuetter-Ferguson
method, which combines features of the above methods. The Group also uses
bespoke methods for specialist classes of business. In selecting its best
estimate, the Group considers the appropriateness of the methods and bases to
the individual circumstances of the provision class and underwriting year. The
process is designed to select the most appropriate best estimate.

Large claims impacting each relevant business class are generally assessed
separately, being measured either at the face value of the loss adjusters’
estimates or projected separately in order to allow for the future development
of largeclaims.

Provisions are calculated gross of any reinsurance recoveries. A separate
estimate is made of the amounts that will be recoverable from reinsurers based
upon the gross provisions and having due regard to collectability.

The provisions for losses and loss adjustment expenses are subject to close
scrutiny both within the Group’s business units and at Group Corporate Centre.
In addition, for major classes where the risks and uncertainties inherent in
the provisions are greatest, regular and ad hoc detailed reviews are
undertaken by advisers who are able to draw upon their specialist expertise
and a broader knowledge of current industry trends in claims development. As
an example, the Group’s exposure to asbestos and environmental pollution is
examined on this basis. The results of these reviews are considered when
establishing the appropriate levels of provisions for losses and loss
adjustment expenses and unexpired periods of risk.

It should be emphasised that the estimation techniques for the determination
of insurance contract liabilities involve obtaining corroborative evidence
from as wide a range of sources as possible and combining these to form the
overall estimate. This technique means that the estimate is inevitably
deterministic rather than stochastic.

The pension assets and pension and post retirement liabilities are calculated
in accordance with International Accounting Standard 19 (IAS 19). The assets,
liabilities and income statement charge, calculated in accordance with IAS 19,
are sensitive to the assumptions made from time to time, including inflation,
interest rate, investment return and mortality. IAS19 compares, at a given
date, the current market value of a pension fund’s assets with its long term
liabilities, which are calculated using a discount rate in line with yields on
‘AA’ rated bonds of suitable duration and currency. As such, the financial
position of a pension fund on this basis is highly sensitive to changes in
bond rates and will also be impacted by changes in equity markets.

Uncertainties and contingencies

The uncertainty arising under insurance contracts may be characterised under a
number of specific headings, such as:

  *uncertainty as to whether an event has occurred which would give rise to a
    policyholder suffering an insured loss;
  *uncertainty as to the extent of policy coverage and limits applicable;
  *uncertainty as to the amount of insured loss suffered by a policyholder as
    a result of the event occurring; and
  *uncertainty over the timing of a settlement to a policyholder for a loss
    suffered.

The degree of uncertainty will vary by policy class according to the
characteristics of the insured risks and the cost of a claim will be
determined by the actual loss suffered by the policyholder.

There may be significant reporting lags between the occurrence of the insured
event and the time it is actually reported to the Group. Following the
identification and notification of an insured loss, there may still be
uncertainty as to the magnitude and timing of the settlement of the claim.
There are many factors that will determine the level of uncertainty such as
inflation, inconsistent judicial interpretations and court judgments that
broaden policy coverage beyond the intent of the original insurance,
legislative changes and claims handling procedures.

The establishment of insurance contract liabilities is an inherently uncertain
process and, as a consequence of this uncertainty, the eventual cost of
settlement of outstanding claims and unexpired risks can vary substantially
from the initial estimates, particularly for the Group’s long tail lines of
business. The Group seeks to provide appropriate levels of provisions for
losses and loss adjustment expenses and provision for unexpired risks taking
the known facts and experience into account.

The Group has exposures to risks in each class of business within each
operating segment that may develop and that could have a material impact upon
the Group’s financial position. The geographic and insurance risk diversity
within the Group’s portfolio of issued insurance policies mean it is not
possible to predict whether material development will occur and, if it does
occur, the location and the timing of such an occurrence. The estimation of
insurance contract liabilities involves the use of judgments and assumptions
that are specific to the insurance risks within each territory and the
particular type of insurance risk covered. The diversity of the insurance
risks results in it not being possible to identify individual judgments and
assumptions that are more likely than others to have a material impact on the
future development of the insurance contractliabilities.

The sections below identify a number of specific risks relating to asbestos
and environmental claims. There may be other classes of risk which could
develop in the future and that could have a material impact on the Group’s
financial position.

The Group evaluates the concentration of exposures to individual and
cumulative insurance risk and establishes its reinsurance policy to reduce
such exposure to levels acceptable to the Group.

Asbestos and environmental claims

The estimation of the provisions for the ultimate cost of claims for asbestos
and environmental pollution is subject to a range of uncertainties that is
generally greater than those encountered for other classes of insurance
business. As a result it is not possible to determine the future development
of asbestos and environmental claims with the same degree of reliability as
with other types of claims, particularly in periods when theories of law are
in flux. Consequently, traditional techniques for estimating provisions for
losses and loss adjustment expenses cannot wholly be relied upon and the Group
employs specialised techniques to determine provisions using the extensive
knowledge of both internal asbestos and environmental pollution experts and
external legal and professional advisors.

Factors contributing to this higher degree of uncertainty include:

  *the long delay in reporting claims from the date of exposure (for example,
    cases of mesothelioma can have a latent period of up to 40 years). This
    makes estimating the ultimate number of claims the Group will receive
    particularly difficult;
  *issues of allocation of responsibility among potentially responsible
    parties and insurers;
  *emerging court decisions and the possibility of retrospective legislative
    changes increasing or decreasing insurer liability;
  *the tendency for social trends and factors to influence court awards;
  *developments pertaining to the Group’s ability to recover reinsurance for
    claims of this nature; and
  *for US liabilities from the Group’s London market business, developments
    in the tactics of US plaintiff lawyers and court decisions and awards.

Potential change in discount rate for lump sum damages awards

Legislative changes may affect the Group’s liability in respect of unsettled
claims in the use of predetermined factors used by courts to calculate
compensation claims. For example, in the UK, standard formulae are used as an
actuarial measure by the courts to assess lump sum damages awards for future
losses (typically loss of earnings arising from personal injuries and fatal
accidents). The calibration of these standard formulae can be updated by the
UK Government and the Lord Chancellor may review the methodology to be applied
in determining the discount rate to calculate the appropriate settlements, or
the discount rate itself, in due course. A reduction in the prescribed
discount rate would increase the value of future claims settlements.

Acquisitions and disposals

The Group makes acquisitions and disposals of businesses as part of its normal
operations. All acquisitions are made after due diligence, which will include,
amongst other matters, assessment of the adequacy of claims reserves,
assessment of the recoverability of reinsurance balances, inquiries with
regard to outstanding litigation and inquiries of local regulators and
taxation authorities. Consideration is also given to potential costs, risks
and issues in relation to the integration of any proposed acquisitions with
existing RSA operations. The Group will seek to receive the benefit of
appropriate contractual representations and warranties in connection with any
acquisition and, where necessary, additional indemnifications in relation to
specific risks although there can be no guarantee that these processes and any
such protection will be adequate in all circumstances. The Group may also
provide relevant representations, warranties and indemnities to counterparties
on any disposal. While such representations, warranties and indemnities are
essential components of many contractual relationships, they do not represent
the underlying purpose for the transaction.

These clauses are customary in such contracts and may from time to time lead
to the Group receiving claims from counterparties.

Contracts with third parties

The Group enters into joint ventures, outsourcing contracts and distribution
arrangements with third parties in the normal course of its business and is
reliant upon those third parties being willing and able to perform their
obligations in accordance with the terms and conditions of the contracts.

Litigation, disputes and investigations

The Group, in common with the insurance industry in general, is subject to
litigation, mediation and arbitration, and regulatory, governmental and other
sectoral inquiries and investigations in the normal course of its business. In
addition the Group is exposed to the risk of litigation in connection with its
former ownership of the US operation. The directors do not believe that any
current mediation, arbitration, regulatory, governmental or sectoral inquiries
and investigations and pending or threatened litigation or dispute will have a
material adverse effect on the Group’s financial position, although there can
be no assurance that losses or financial penalties resulting from any current
mediation, arbitration, regulatory, governmental or sectoral inquiries and
investigations and pending or threatened litigation or dispute will not
materially affect the Group’s financial position or cashflows for any period.

Reinsurance

The Group is exposed to disputes on, and defects in, contracts with its
reinsurers and the possibility of default by its reinsurers. The Group is also
exposed to the credit risk assumed in fronting arrangements and to potential
reinsurance capacity constraints. In selecting the reinsurers with whom the
Group conducts business its strategy is to seek reinsurers with the best
combination of financial strength, price and capacity. The Group Corporate
Centre publishes internally a list of authorised reinsurers who pass the
Group’s selection process and which its operations may use for new
transactions.

The Group monitors the financial strength of its reinsurers, including those
to whom risks are no longer ceded. Allowance is made in the financial position
for non recoverability due to reinsurer default by requiring operations to
provide, in line with Group standards, having regard to companies on the
Group’s ‘Watch List’. The ‘Watch List’ is the list of companies whom the
directors believe will not be able to pay amounts due to the Group in full.

Investment risk

The Group is exposed to market risk and credit risk on its invested assets.
Market risk includes the risk of potential losses from adverse movements in
market rates and prices including interest rates, equity prices, property
prices and foreign exchange rates. The Group’s exposure to market risks is
controlled by the setting of investment limits in line with the Group’s risk
appetite. From time to time the Group also makes use of derivative financial
instruments to reduce exposure to adverse fluctuations in foreign exchange
rates and equity markets. The Group has strict controls over the use of
derivative instruments.

Credit risk includes the non performance of contractual payment obligations on
invested assets and adverse changes in the credit worthiness of invested
assets including exposures to issuers or counterparties for bonds, equities,
deposits and derivatives. Limits are set at both a portfolio and counterparty
level based on likelihood of default to manage the Group’s overall credit
profile and specific concentrations within risk appetite. The Group’s
insurance investment portfolios are concentrated in listed securities with
very low levels of exposure to assets without quoted market prices. The Group
uses model based analysis to verify asset values when market values are not
readily available.

The current economic crisis adds further uncertainty and volatility to
underlying levels of market and credit risk in the Eurozone. The Group has,
however, very limited direct exposure via its investment portfolio to the
Eurozone and to the peripheral Eurozone countries in particular. As with all
other invested assets, limits are set in line with the Group's risk appetite.
The Group continues to monitor the situation closely and take action to manage
its exposure as required.

Rating environment

The ability of the Group to write certain types of insurance business is
dependent on the maintenance of the appropriate credit ratings from the rating
agencies. The Group has the objective of maintaining single ‘A’ ratings. At
the present time the ratings are ‘A+’ (negative outlook) from S&P and ‘A2’
(stable outlook) from Moody’s. A worsening in the ratings could have an
adverse impact on the ability of the Group to write certain types of general
insurance business.

In assessing credit risk in relation to reinsurance and investments, the Group
takes into account a variety of factors, including credit rating. If any such
rating changes, or is otherwise reassessed, this has potential implications
for the relatedexposures.

Foreign exchange risk

The Group publishes consolidated financial statements in Pounds Sterling.
Therefore, fluctuations in exchange rates used to translate other currencies,
particularly other European currencies and the Canadian Dollar, into Pounds
Sterling will impact the reported consolidated financial position, results of
operations and cashflows from period to period. These fluctuations in exchange
rates will also impact the Pound Sterling value of, and the return on, the
Group’s investments.

Income and expenses for each income statement item are translated at average
exchange rates. Assets and liabilities, as reported in the statement of
financial position, are translated at closing exchange rates at the end of the
reportingperiod.

Regulatory environment

The legal, regulatory and accounting environment is subject to significant
change in many of the jurisdictions in which the Group operates, including
developments in response to changes in the economic and political environment
and the recent financial crisis. The Group continues to monitor the
developments and react accordingly.

The new solvency framework for insurers being developed by the EU, referred to
as ‘Solvency II’, is intended in the medium term to achieve greater
harmonisation of approach across EU member states to assessing capital
resources and requirements. There remains continued uncertainty as delays in
agreeing the rules have caused the planned implementation date of 2014 to be
delayed. The Group is actively participating in shaping the outcome through
its involvement with European and UK regulators and industry bodies, whilst
appropriately progressing its implementation plans and the directors are
confident that the Group will continue to meet all future regulatory capital
requirements.

Condensed Consolidated Financial Statements

Condensed consolidated income statement                                 28
Condensed consolidated statement of comprehensive income                    29
Condensed consolidated statement of changes in equity                       29
Condensed consolidated statement of financial position                      30
Condensed consolidated statement of cashflows                               31
Explanatory notes to the condensed consolidated financial                   32
statements
                                                                            

CONDENSED CONSOLIDATED INCOME
STATEMENT

STATUTORY BASIS
                                       6 Months  6 Months      12 Months
                                        2013       2012           2012
                                                   (restated^1)   (restated^1)
                                        £m         £m             £m
                                                                  
                                                                  
Income
Gross written premiums                  5,208      4,880          9,397
Less: reinsurance premiums             (556)     (604)         (1,044)
Net written premiums                    4,652      4,276          8,353
Change in the gross provision for       (381)      (382)          (188)
unearned premiums
Less: change in provision for           27         88             2
unearned premiums, reinsurers' share
Change in provision for unearned       (354)     (294)         (186)
premiums
Net earned premiums                     4,298      3,982          8,167
Net investment return                   275        295            534
Other operating income                 77        68            141
Total income                           4,650     4,345         8,842
                                                                  
Expenses                                                        
Gross claims incurred                   (3,246)    (2,914)        (5,837)
Less: claims recoveries from            415        240            448
reinsurers
Net claims and benefits                 (2,831)    (2,674)        (5,389)
Underwriting and policy acquisition     (1,348)    (1,228)        (2,552)
costs
Unwind of discount including ADC        (50)       (42)           (84)
Other operating expenses               (104)     (116)         (242)
Total expenses                         (4,333)   (4,060)       (8,267)
                                                                  
                                                                  
Finance costs                           (63)       (61)           (121)
Acquisitions and disposals              (3)        (3)            -
Net share of loss after tax of         (1)       (2)           (6)
associates
Profit before tax                       250        219            448
Income tax expense                     (60)      (66)          (121)
Profit for the year                    190       153           327
                                                                  
                                                                  
Attributable to:
Equity holders of the Parent Company    185        151            320
Non controlling interests              5         2             7
                                      190       153           327
                                                                  
                                                                  
Earnings per share on profit
attributable to the ordinary
shareholders of the Parent Company:
Basic                                   5.0p       4.1p           8.8p
Diluted                                 4.9p       4.1p           8.7p
                                                                  

The attached notes are an integral part of these condensed consolidated
financial statements. For divi dend information refer to note 6.

^1  Restated for the impact of changes to IAS 19 ‘Employee Benefits’

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

STATUTORY BASIS

                                                              
                                        6 Months   6 Months       12 Months
                                        2013       2012           2012
                                                   (restated^1)   (restated^1)
                                        £m         £m             £m
                                                                  
Profit after tax                        190        153            327
                                                                  
Items that may be reclassified to the                           
income statement:
Exchange gains/(losses), net of tax     68         (63)           (70)
Share of associates’ other              -          -              1
comprehensive income
Fair value (losses)/gains on
available for sale financial assets,    (188)      14             111
net of tax
                                        (120)      (49)           42
                                                                  
Items that will not be reclassified                             
to the income statement:
Pension fund actuarial                  (99)       12             (137)
(losses)/gains, net of tax
Movement in property revaluation        -          1              4
surplus, net of tax
                                        (99)       13             (133)
                                                                  
                                                            
Total comprehensive (expense)/income   (29)      117           236
for the period
                                                                  
Attributable to:
Equity holders of the Parent Company    (39)       116            232
Non controlling interests              10        1             4
                                      (29)      117           236

^1  Restated for the impact of changes to IAS 19 ‘Employee Benefits’



CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
                                  
STATUTORY BASIS

                                     Shareholders'  Non controlling  Total
                                      funds           interests         equity
                                      £m              £m                £m
                                                                        
Balance at 1 January 2013             3,750           129               3,879
Total comprehensive                   (39)            10                (29)
(expense)/income for the period
Share issue including scrip           54              -                 54
Changes in shareholders' interests    (1)             (1)               (2)
in subsidiaries
Share based payments                  12              -                 12
Prior year final dividend             (140)           (7)               (147)
Preference dividend                  (5)            -                (5)
Balance at 30 June 2013              3,631          131              3,762
                                                                        
Balance at 1 January 2012             3,801           114               3,915
Total comprehensive income for the    116             1                 117
period
Share issue including scrip           12              4                 16
Changes in shareholders' interests    (2)             -                 (2)
in subsidiaries
Share based payments                  14              -                 14
Prior year final dividend             (206)           -                 (206)
Preference dividend                  (5)            -                (5)
Balance at 30 June 2012              3,730          119              3,849
                                                                        

The attached notes are an integral part of these condensed consolidated
financial statements.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

STATUTORY BASIS

                                      30 June  30 June  31 December
                                               2013      2012      2012
                                                                   (audited)
                                               £m        £m        £m
Assets
Goodwill and other                             1,519     1,363     1,489
intangible assets
Property and equipment                         269       267       272
Investment property                            340       350       340
Investment in associates                       45        32        40
Financial assets                               12,683    12,341    12,660
Total investments                              13,068    12,723    13,040
Reinsurers' share of
insurance contract                             2,165     2,066     1,949
liabilities
Insurance and reinsurance                      3,861     3,512     3,592
debtors
Current tax assets                             94        44        76
Deferred tax assets                            334       261       285
Other debtors and other                        789       880       753
assets
                                               1,217     1,185     1,114
Cash and cash equivalents             1,250    1,376    1,329
                                               23,349    22,492    22,785
Assets held for sale                  1        -        -
Total assets                          23,350   22,492   22,785
                                                                   
Equity and liabilities
                                                                   
Equity
Shareholders' funds                            3,631     3,730     3,750
Non controlling interests             131      119      129
Total equity                          3,762    3,849    3,879
                                                                   
Liabilities
Loan capital                                   1,311     1,312     1,311
Insurance contract                             15,662    14,830    14,854
liabilities
Insurance and reinsurance                      596       596       558
liabilities
Borrowings                                     300       298       296
Current tax liabilities                        46        63        58
Deferred tax liabilities                       94        94        139
Provisions                                     489       370       487
Other liabilities                              1,090     1,080     1,203
Provisions and other                  1,719    1,607    1,887
liabilities
Total liabilities                     19,588   18,643   18,906
Total equity and liabilities          23,350   22,492   22,785
                                                                   

These condensed consolidated financial statements have been approved for issue
by the Board of Directors on 31 July2013.

The attached notes are an integral part of these condensed consolidated
financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CASHFLOWS

STATUTORY BASIS

                                                6 Months    6 Months
                                                       2013           2012
                                                       £m             £m
                                                                      
Cashflows from operations                              186            82
Tax paid                                               (100)          (139)
Investment income                                      266            284
Interest paid                                          (76)           (75)
Pension deficit funding                         (66)        (59)
Net cashflows from operating activities         210         93
Proceeds from sales or maturities of:
Financial assets                                       2,198          2,679
Investment property                                    2              -
Property and equipment                                 1              21
Investments in subsidiaries (net of cash               2              -
disposed of)
Purchase of:
Financial assets                                       (2,332)        (2,375)
Investment property                                    (5)            (1)
Property and equipment                                 (9)            (16)
Intangible assets                                      (68)           (58)
Investments in subsidiaries (net of cash               (11)           (12)
acquired)
Investments in associates                       (4)         -
Net cashflows from investing activities         (226)       238
Proceeds from issue of share capital                   4              7
Dividends paid to ordinary shareholders                (90)           (197)
Dividends paid to preference                           (5)            (5)
shareholders
Dividends paid to non controlling                      (7)            -
interests
Net movement in other borrowings                3           (1)
Net cashflows from financing activities         (95)        (196)
Net (decrease)/increase in cash and cash               (111)          135
equivalents
Cash and cash equivalents at beginning                 1,329          1,258
of the year
Effect of exchange rate changes on cash         32          (17)
and cash equivalents
Cash and cash equivalents at the end of         1,250       1,376
the period
                                                                      

The attached notes are an integral part of these condensed consolidated
financial statements.

EXPLANATORY NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Changes in significant accounting policies

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

These condensed financial statements have been prepared by applying the
accounting policies used in the 2012 Annual Report and Accounts (see note 11
below) except for the following changes which have been made by the group from
1 January 2013.

Following the issue of a revised IAS 19 “Employee Benefits” the group has made
changes to its accounting for employee benefits. The revised standard replaces
expected returns on plan assets by recording interest in the Income Statement,
which is calculated using the discount rate used to measure the pension
obligations. Any difference in the actual return is recognised in Other
Comprehensive Income. This has resulted in a restatement of the comparative
figures in the condensed consolidated Income Statement and corresponding
opposite entries in the condensed consolidated Statement of Comprehensive
Income. The impact of these restatements is to reduce profit after tax by £11m
for the 6 months ended 30 June 2012 and by £24m for the 12 months to 31
December 2012. There is no change to the condensed consolidated Statement of
Financial Position.

Following an amendment to IAS 1 “Presentation of Financial Statements” the
group has made a change to the disclosure of items in the condensed
consolidated Statement of Comprehensive Income by separately classifying those
items that will ultimately be recycled through the Income Statement and those
items that will remain in equity. The comparatives in the condensed
consolidated Statement of Comprehensive Income have been classified in
accordance with this new requirement.

Following the issue of IFRS 13 “Fair Value Measurement”, which establishes a
framework for measuring fair value and associated disclosures, the Group has
adopted the disclosure requirements in respect of financial instruments in the
notes to these condensed consolidated financial statements. Financial assets
and financial liabilities measured at fair value continue to be valued using
the techniques set out in the accounting policies used in the 2012 Annual
Report and Accounts.

The Board have reviewed the Group's ongoing financial commitments for the next
12 months and beyond. The Board's review included consideration of the Group's
underwriting plans, strong regulatory capital surplus, diverse insurance risk
profile, considerable undrawn financing facilities and highly liquid
investment portfolio. As a result of this review, the Directors have satisfied
themselves that it is appropriate to prepare these financial statements on a
going concern basis.

2. Operating segments

<td class="bwpadl0 bwnowrap bwpadr0 bwvertalignb *Story too large*
Six months
ended 30 June                                                      
2013
                                         UK &
                                                   Emerging   Central
                  Scandinavia   Canada   Western              Functions   Group
                                                   Markets
                                         Europe
                  £m            £m       £m        £m         £m          £m
                                                                          
Net written      1,118        866     1,946    686       36         4,652
premiums
                                                                          
Underwriting      98            15       50        12         13          188
result
Investment       42           35      107      23        (1)        206
result
Insurance         140           50       157       35         12          394
result
Other            (3)          (3)     (3)      (12)      (34)       (55)
activities
Operating
result            137           47       154       23         (22)        339
(management
basis)
Realised gains                                                            22
Unrealised
gains/(losses),
impairments and                                                           (4)
foreign
exchange
Interest costs                                                            (59)
Amortisation of
intangible                                                                (21)
assets
Pension net                                                               (4)
interest costs
Solvency II                                                               (10)
costs
Reorganisation                                                            (4)
costs
Acquisitions                                                   (9)
and disposals
Profit before
tax
(per condensed                                                 250
consolidated
income
statement)
Combined
operating ratio  87.7         98.7    95.4     97.8      -          94.2
(%)
                                                                          
Six months
ended 30 June
2012
                                         UK &
                                                   Emerging   Central
                  Scandinavia   Canada   Western              Functions   Group
                                                   Markets
                                         Europe
                  £m            £m       £m        £m         £m          £m
                                                                          
Net written      1,056        743     1,882    585       10         4,276
premiums
                                                                          
Underwriting      130           62       (41)      7          (9)
result

[TRUNCATED]