RSA: RSA Insurance Group Plc: Interim Management Statement

  RSA: RSA Insurance Group Plc: Interim Management Statement

UK Regulatory Announcement


                                                               5 November 2013

                           RSA Insurance Group plc
                         Interim Management Statement

 Severe weather events in 2013 continue; expect 2013 full year weather losses
                 to be materially above planning assumptions

  Year to date premium growth^1 of 7% and net asset value^2 of 99p per share

                 Expect 2013 return on equity to be below 10%

  *Severe European windstorm and continuing adverse weather in Canada mean
    that we now expect 2013 return on equity to be below 10%.
  *Net written premiums up 7%^1 to £6.7bn:

       *Scandinavia flat^1 at £1,484m;
       *Canada up 14%^1 to £1,340m;
       *Emerging Markets up 17%^1 to £1,033m;
       *UK & Western Europe up 3%^1 at £2,838m.

  *Economic capital surplus of £1.3bn at 99.5% calibration, covering the
    capital requirement 1.6 times. IGD surplus of £0.8bn; covering capital
    requirement 1.5 times.
  *Net asset value (excluding IAS 19 pension deficit) of 99p per share (30
    June 2013: 103p).

Simon Lee, Group Chief Executive of RSA, commented:

“Premiums have grown 7% over the first three quarters. This was led by Canada,
up 14%, which continued to benefit from the 2012 acquisition of L’Union
Canadienne. Emerging Markets grew by 17% driven by the acquisitions in
Argentina in 2012 and good performances across Asia, Central and Eastern
Europe and the Middle East. Scandinavian premiums were flat while the UK &
Western Europe grew 3% as we continue to focus on improving performance in the
UK and in Italy.

“2013 is proving to be an exceptionally tough year for weather events for the
Group. Over the summer we saw the worst and the third worst natural
catastrophe insurance events on record in Canada, followed by continued
adverse weather across the country during the third quarter. More recently,
Northern Europe suffered a severe windstorm on 27 and 28 October. Our priority
has been to provide the support our customers need to get back on track as
quickly as possible.

“Assuming no further major weather events in 2013, we now expect the impact of
adverse weather across the Group to be around 1.5% points above our planning
assumption. We now anticipate 2013 return on equity to be below 10%.”

^1 At constant exchange rates
^2 Excluding IAS 19 pension deficit

Net Written Premiums

             Personal  Commercial  Global     9       9       Change    Change
                                                  Months   Months
                                      Specialty   2013     2012     as         constant
                                      Lines                         reported   fx
              £m         £m           £m          £m       £m       %          %
Scandinavia   802        518          164         1,484    1,403    6          -
Canada        918        227          195         1,340    1,179    14         14
Emerging      478        411          144         1,033    887      16         17
UK &
Western       1,275      957          606         2,838    2,728    4          3
Group Re     -         46          -          46      16               
Total Group  3,473     2,159       1,109      6,741   6,213   8         7
Associates                                 242     218     11        11
Total Group
(incl.                                     6,983   6,431   9         7

The Group has delivered growth of 7% at constant exchange over the first three
quarters. There was strong growth in Canada and Emerging Markets with lower
growth in the UK & Western Europe reflecting continued active management of
the portfolio. Our Global Specialty Lines business has grown by 7% at constant
exchange to £1.1bn with solid growth in Risk Managed and Construction &

2013 update and outlook

We are confident in continuing to deliver good premium growth on a constant
exchange rate basis.

The Group’s underwriting profit has been affected by extreme weather events in
2013. As discussed at our interim results in August, our Canadian business was
affected by the worst Canadian natural catastrophe on record in June, in
Alberta (RSA net loss: £46m), and the third worst on record in July, in
Toronto and the surrounding areas (RSA net loss: £37m).

On 27 and 28 October, a severe windstorm affected Northern Europe, including
the UK, Scandinavia and the Baltics. The majority of the UK was affected by
peak wind speeds of 60mph or less, with the most extreme conditions apparent
in relatively unpopulated areas. Less severe rainfall and the short duration
of the storm in the UK mean that, to date, there have been relatively limited

Scandinavia, in contrast, experienced very strong winds in several heavily
populated areas. The storm increased in strength over the North Sea and over
Denmark, with wind speeds hitting more than 110mph, the highest ever measured
in Denmark. This was reflected in the level of building damage with an
exceptionally high level of roof damage. In addition, the storm tracked
directly over the heavily insured areas of Aarhus and Copenhagen in Denmark,
and Malmo and Gothenburg in Sweden. The average wind speed was 88mph and the
damage was primarily caused by wind damage with minimal impact from rainfall.

Whilst it is still early, our initial estimate of the net loss across RSA’s
UK, Scandinavian and Baltics businesses is £45m-£65m with the significant
majority of this falling in Scandinavia.

We have also suffered from continued adverse weather in Canada during the
third quarter. We expect that this, together with the extreme weather events
noted above, will result in a full year 2013 weather loss ratio that is around
1.5% points above our planning assumption of 2.2%, assuming no further major
weather events.

In line with our understanding of developing trends across the motor market in
Ireland, we have seen the emergence of adverse bodily injury trends. As a
result of this, we are in the process of reviewing our Irish bodily injury
reserves. This review is continuing and it is too early at this stage to draw
any firm conclusions or to reliably estimate the likely financial impact.
Nevertheless, it is probable that we will need to strengthen our Irish bodily
injury reserves and this will also adversely impact the Group’s 2013

Whilst our medium term guidance is unchanged, we now expect 2013 return on
equity to be below 10%. Investment income remains comfortably on track for
around £470m.

We are continuing to deliver a series of investor briefings for 2013 and 2014
to provide more detail to the market on the significant opportunities we see
across RSA. The next of these briefings will take place on 12 November 2013
and will cover our Scandinavian business.


Analysts                                  Press
Matt Hotson                                 Louise Shield
Investor Relations Director                 Director of External
Tel: +44 (0) 20 7111 7212                   Tel: +44 (0) 20 7111 7047
Email:         Email:
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:                                      Email: 

Conference Call

A conference call for analysts and investors will be held at 8:30am on Tuesday
5 November to discuss the Q3 Interim Management Statement. Participants should
call 0800 358 5256 from the UK or +44 (0)20 8515 2301 from elsewhere quoting
reference “RSA Q3 2013 Interim Management Statement”. Scanning the QR code
opposite will download details of the conference call to a smart phone. A
webcast of the call will be available via the company website

About RSA

With a heritage of over 300 years, RSA is one of the world’s leading
multinational quoted insurance groups. RSA has major operations in the UK,
Scandinavia, Canada, Ireland, Latin America, Asia and the Middle East and
Central and Eastern Europe and has the capability to write business in around
140 countries. Focusing on general insurance, RSA has around 23,000 employees
and, in 2012, its net written premiums were £8.4 billion.

Important disclaimer

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

Scandinavia: Further progress in Denmark and robust rate increases across the

Premiums in Scandinavia of £1.5bn up 6% on a reported basis but flat at
constant exchange.

Net Written Premiums     9 Months  9 Months    Movement      Movement
                          2013       2012         as             at constant
                                                  reported       exchange
                          £m         £m           %              %
Household                 252        228          11             5
Motor                     321        313          3              (3)
Personal Accident and    229       208         10            4
Total Personal           802       749         7             1
Property                  243        235          3              (2)
Liability                 110        102          8              3
Motor                     184        175          5              (1)
Marine and other         145       142         2             (3)
Total Commercial         682       654         4             (1)
Total Scandinavia        1,484     1,403       6             -
Sweden                    798        734          9              2
Denmark                   541        542          -              (5)
Norway                   145       127         14            11
Total Scandinavia        1,484     1,403       6             -
Rate Increases   Personal             Commercial
                  Household     Motor    Property     Liability    Motor
Sep 13 vs Sep     6              2         4             5             5
Jun 13 vs Jun     8              3         3             4             4
Mar 13 vs Mar     9              3         3             4             4
Dec 12 vs Dec     12             3         1             4             5
Sep 12 vs Sep    12            2        6            -            4

Growth in Sweden of 2% has been driven by good new business in Household and
PA across all channels, including our relationship with SEB, together with a
small increase in Commercial Motor, offset by lower volumes in Marine. We’ve
continued to achieve rate increases across all major lines in Sweden.

In Denmark we continue to make progress in returning the business to stronger
profitability. In particular, we have continued to push hard on risk selection
and targeted rate increases and, as a result, we’ve seen volume reductions
across most lines, with premiums down 5%.

Norway grew 11% at constant exchange driven by strong volume increases
together with further rate rises. Growth has been particularly good in
Household, as we benefit from strong volumes coming through our agent
distribution network, as well as our relationship with SEB. We’ve also seen
growth of 31% in Care, emanating in part from our strategic partner, Vertikal.

Since the quarter end, the Scandinavian region was affected by a severe
windstorm on 28 October, with record wind speeds and high levels of building
damage. As a result, there have been a high level of claims notifications and,
whilst it is still early, we expect significant claims costs in Scandinavia.

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

Canada – Premiums up 14%. Underlying growth supported by good rate increases
and strong retention

Premiums in Canada were up 14% at constant exchange to £1.3bn. Underlying
growth excluding the 2012 acquisition of L’Union Canadienne (UC) was 4% with
good rate and strong retention. UC contributed premiums of £114m at Q3 2013,
which was in line with our expectations.

Net Written Premiums     9 Months  9 Months    Movement      Movement
                          2013       2012         as             at constant
                                                  reported       exchange
                          £m         £m           %              %
Household                 348        282          23             23
Motor                    570       520         10            10
Total Personal           918       802         14            14
Property                  184        162          14             14
Liability                 110        102          8              8
Motor                     83         72           15             15
Marine and other         45        41          10            10
Total Commercial         422       377         12            12
Total Canada             1,340     1,179       14            14
Rate Increases    Personal            Commercial
                   Household    Motor    Property     Liability    Motor
Sep 13 vs Sep 12   7             -         5             2             2
Jun 13 vs Jun 12   7             -         4             3             3
Mar 13 vs Mar 12   7             1         4             2             2
Dec 12 vs Dec 11   11            3         4             2             2
Sep 12 vs Sep 11  12           2        3            1            -

In Personal, premiums of £918m were up 14% with UC contributing 10 points of
growth. Underlying growth of 4% was driven by volume and rate increases. Rate
increases were achieved across most major product lines and provinces, whilst
volume increases were mainly driven by Household where we saw good levels of
new business in the Pacific region.

Commercial premiums of £422m were up 12%, with UC contributing 8 points.
Underlying growth of 4% reflects continued robust rate increases. We continue
to see strong retention levels across our Commercial business and our focus in
Q4 and through into early 2014 will be on further rate increases and
underwriting actions in targeted segments.

Our estimate for the net loss to RSA from the flooding in Toronto and the
surrounding areas in July stands at £37m. Our estimate for the net loss from
the June floods in Alberta is £46m.

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

Emerging Markets – Continued strong growth across the region

Emerging Markets continues to deliver strong growth with net written premiums
of £1.0bn up by 17% at constant exchange. Total premiums, including our
non-consolidated associates in India and Thailand, are £1.3bn representing
growth of 16% at constant exchange.

Underlying growth, excluding the impact of our 2012 acquisitions in Argentina
and our exits of the Czech Republic and Dutch Caribbean, was 12%.

Net Written Premiums           9 Months  9 Months  Movement  Movement
                                2013       2012       as         at constant
                                                      reported   exchange
                                £m         £m         %          %
Latin America                   608        529        15         18
CEE & ME                        311        265        17         14
Asia                           114       93        23        20
Total Emerging Markets         1,033     887       16        17
Asian Associates               242       218       11        11
Asia (incl. Associates)        356       311       14        14
Total Emerging Markets (incl   1,275     1,105     15        16

In Latin America, premiums were up by 18% at constant exchange to £608m.
Growth has been driven by the acquisitions made in 2012 in Argentina and also
by continued strong growth in our affinity channel. During 2013 we have signed
14 new affinity deals across the region.

In Central and Eastern Europe and the Middle East, premiums were up by 14% at
constant exchange to £311m. Adjusting for the exit of the Czech Republic in
June 2012, underlying growth is 16%. There was strong growth in all countries,
in particular Oman, up 23%, Lithuania, up 11% and Poland, up 10%, supported by
continued increasing new business volumes across the region.

We have seen further good growth in Asia with premiums of £114m up by 20% at
constant exchange driven by strong performances in our retail businesses
across the region, particularly in Hong Kong.

Our associates delivered good growth, with premiums of £242m up by 11% at
constant exchange.

Consistent with our reporting at the half year, we remain confident that the
business will continue to deliver expense ratio improvements from operating
leverage during 2013.

UK and Western Europe – Premiums up 3% with further progress from management

Net Written Premiums       9 Months  9 Months  Movement  Movement
                            2013       2012       as         at constant
                            £m         £m         reported   exchange
                                                  %          %
UK                          2,278      2,213      3          3
Western Europe             560       515       9         4
Total UK & Western Europe  2,838     2,728     4         3

UK and Western Europe premiums were up 3% at constant exchange as we continue
to actively manage the portfolio and refocus the business. We’ve made further
progress in reducing exposure to less attractive segments and growing in areas
where we believe we can deliver shareholder value.

UK – Continuing focus on underwriting profit over volume

Net Written Premiums     9 Months  9 Months    Movement      Movement
                          2013       2012         as             at constant
                                                  reported       exchange
                          £m         £m           %              %
Household                 515        497          4              4
Motor                     307        326          (6)            (6)
Pet                      171       179         (4)           (4)
Total Personal           993       1,002       (1)           (1)
Property                  358        358          -              -
Liability                 199        201          (1)            (1)
Motor                     472        416          13             13
Marine                   256       236         8             8
Total Commercial         1,285     1,211       6             6
Total UK                 2,278     2,213       3             3
Rate Increases    Personal            Commercial
                   Household    Motor    Property     Liability    Motor
Sep 13 vs Sep 12   -             (2)       3             3             4
Jun 13 vs Jun 12   1             (3)       4             5             3
Mar 13 vs Mar 12   2             (4)       4             3             4
Dec 12 vs Dec 11   3             (2)       4             6             10
Sep 12 vs Sep 11  4            1        4            4            9

In UK Personal, premiums were down 1% at £993m. We’ve seen continued strong
growth of 4% in Household driven by new deals in Affinity and Broker. Pet was
down 4% due to the pipeline premium adjustment discussed at the half year.
Underlying growth in Pet was good and included a strong contribution from our
partnership with John Lewis. We have also secured a new relationship with the
RSPCA. Motor was down 6% driven by lower volumes as we continue to follow our
strategy of prioritising profit over volume.

^1Rating increases reflect rate movements achieved for risks renewing in the
month versus comparable risks renewing in the same month the previous year.
Commercial Motor rate excludes rate on a large multi-year contract.

We are continuing to work hard to refocus our UK Commercial business and we
are making good progress. Premiums grew 6% to £1.3bn. Motor was up 13% driven
mainly by rating actions. Excluding Motability, Commercial Motor premiums were
down 8% reflecting the targeted reductions we have made. Our new arrangement
with Motability was effective on 1 October. Under this new arrangement RSA
will underwrite 20% of the overall scheme, and we therefore expect premiums to
fall from current levels of around £400m p.a (which represent 100% of the
scheme) to around £350m this year, before falling significantly in 2014.

Property was flat with rate increases offset by targeted volume reductions.
Liability premiums were down 1% as we maintain discipline and focus on current
year profitability in a challenging market. Headline growth of 8% in Marine
reflects the change in the timing of the recognition of premiums that we
discussed at the half year. Excluding this, underlying Marine premiums were
broadly flat.

Since the quarter end, the UK was affected by a severe windstorm on the 27 and
28 October. Due to the short duration of the storm and less severe rainfall,
there have been relatively limited claims to date in the UK.

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

Net Written Premiums      9 Months  9 Months  Movement  Movement
                           2013       2012       as         at constant
                                                 reported   exchange
                           £m         £m         %          %
European Specialty lines   129        115        12         8
Ireland                    291        265        10         5
Italy                     140       135       4         (1)
Total Western Europe      560       515       9         4

In Western Europe, European Specialty delivered growth of 8% to £129m in
particular in France and the Netherlands.

In Ireland, premiums were up 5% to £291m with growth in 123 and Commercial. In
particular, we have been driving strong rate increases across Motor and have
put through increases of 13% year-on-year in the month of September in
response to the deteriorating bodily injury trends we have seen within our
portfolio. As a result, we are in the process of reviewing our bodily injury
reserves in Ireland.

In Italy, premiums of £140m were down 1% reflecting our ongoing discipline
around pricing and risk selection as we remain on track in remediating the
business. We continue to expect to be trading on a break even basis in Italy
by the end of the year.

Investment Portfolio

The investment portfolio totalled £14.2bn at 30 September 2013, representing a
fall of 1% on the position at 30 June 2013 caused primarily by adverse foreign
exchange movements of £313m and adverse mark-to-market movements of £42m,
partly offset by other movements of £280m. There were significant foreign
exchange headwinds across our portfolio but most notably within our Danish
Krone, Swedish Krona, Canadian Dollar and Euro holdings as these currencies
weakened against Sterling during the quarter.

                    Value        Foreign    Mark to   Other       Value
                    30 Jun       Exchange   Market    Movements   30 Sep
                    2013                                          2013
                    £m           £m         £m        £m          £m
Government Bonds    4,162        (87)       (21)      6           4,060
Non Government      7,455        (155)      (25)      105         7,380
Cash                1,250        (52)       -         181         1,379
Equities            618          (9)        12        (14)        607
Property            340          (1)        3         (4)         338
Prefs & CIVs        311          (7)        (11)      -           293
Other              137         (2)       -        6          141
Total              14,273      (313)     (42)     280        14,198
Split by
Sterling            3,708                                         3,819
Danish Krone        1,411                                         1,332
Swedish Krona       2,368                                         2,297
Canadian Dollar     3,113                                         3,147
Euro                1,644                                         1,611
Other              2,029                                  1,992
Total              14,273                                 14,198

The portfolio remains invested in widely diversified fixed income securities,
with 4% in equities, 10% in cash and 2% in property.

Average duration slightly decreased to 3.8 years (30 June: 3.9 years). The
proportion of our bond portfolio held in non-government bonds is 65% (30 June
2013: 64%).

The quality of the bond portfolio remains very high with 97% investment grade
and 66% rated AA or above. We are well diversified by sector and geography.

At 30 September 2013, balance sheet unrealised gains, gross of tax, were £459m
(30 June 2013: £500m) and primarily relate to unrealised gains on the bond
portfolio which we expect to reduce over time as our bond holdings reach
maturity. Balance sheet unrealised equity gains amounted to £99m (30 June
2013: £103m).

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.

Shareholders’ Funds

            Shareholders’   Pension   Shareholders’   Shareholders’   Shareholders’
            funds           deficit   funds           funds           funds
            ex. IAS 19                                ex. IAS 19
            £m              £m        £m              per share       per share
30 June     3,882           (251)     3,631           103p            96p
September   3,732           (257)     3,475           99p             92p

During the third quarter of 2013, shareholders’ funds excluding the pension
scheme deficit decreased by 4% to £3,732m, reflecting foreign exchange losses
and the declaration of the interim dividend which more than offset profits
generated in the period.

The deficit on the pension schemes as at 30 September 2013 was £257m compared
with £251m at 30 June 2013. The movement reflects an increase in the pension
inflation rate to 3.1% (30 June 2013: 3.0%), partly offset by higher than
expected returns on pension plan assets.

Shareholders’ funds including the pension scheme deficit were £3,475m, a
decrease of 4% over the quarter.

Tangible net asset value (TNAV) per share at 30 September 2013 was 51p (30
June 2013: 54p). Excluding IAS 19, TNAV per share was 58p (30 June 2013: 61p).

Capital position

                          30 September 2013   30 September 2013   30 June 2013
                          Coverage            Surplus             Surplus
                                              £bn                 £bn
Insurance Groups          1.5x                0.8                 0.9
Economic Capital (1in 200 1.6x                1.3                 1.3
Economic Capital (1in     1.3x                0.8                 0.8
1,250 Calibration)

The IGD surplus at 30 September 2013 was £0.8bn (30 June 2013: £0.9bn) with
coverage over the IGD requirement of 1.5 times. The reduction in surplus
mainly reflects the impact of the interim dividend and foreign exchange which
has more than offset profits generated.

The ECA surplus, on both a 1 in 200 per annum and a 1 in 1,250 per annum
calibration, was unchanged from the position at the half year. This reflected
profits generated in the period which were broadly offset by the accrual of
the interim dividend.

Foreign Exchange Rates

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

Local            Average                   Closing
                 9 Months   9 Months       30 September   30       31
                                                          June     December
                 2013       2012           2013           2013     2012
Canadian         1.58       1.58           1.66           1.60     1.62
Danish Krone     8.76       9.16           8.92           8.70     9.20
Swedish Krona    10.09      10.75          10.40          10.24    10.57
Euro             1.17       1.23           1.20           1.17     1.23

Forthcoming events

12 November 2013 Scandinavia investor and analyst briefing

22 November 2013 Payment of the ordinary interim dividend for 2013

27 February 2014 2013 Preliminary Results announcement


RSA Insurance Group Plc
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