RSA: RSA Insurance Group Plc: Interim Management Statement UK Regulatory Announcement LONDON 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 Markets UK & Western 1,275 957 606 2,838 2,728 4 3 Europe 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 associates) 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 & Engineering. 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 claims. 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 performance. 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. Enquiries: Analysts Press Matt Hotson Louise Shield Investor Relations Director Director of External Communications Tel: +44 (0) 20 7111 7212 Tel: +44 (0) 20 7111 7047 Email: firstname.lastname@example.org Email: email@example.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: Email: firstname.lastname@example.org email@example.com 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 (www.rsagroup.com). 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 region 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 % % Personal Household 252 228 11 5 Motor 321 313 3 (3) Personal Accident and 229 208 10 4 Other Total Personal 802 749 7 1 Commercial 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 (%)^1 Household Motor Property Liability Motor Sep 13 vs Sep 6 2 4 5 5 12 Jun 13 vs Jun 8 3 3 4 4 12 Mar 13 vs Mar 9 3 3 4 4 12 Dec 12 vs Dec 12 3 1 4 5 11 Sep 12 vs Sep 12 2 6 - 4 11 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 % % Personal Household 348 282 23 23 Motor 570 520 10 10 Total Personal 918 802 14 14 Commercial 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 (%)^1 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 Associates) 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 actions 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 % % Personal Household 515 497 4 4 Motor 307 326 (6) (6) Pet 171 179 (4) (4) Total Personal 993 1,002 (1) (1) Commercial 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 (%)^1 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 Bonds 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 currency: 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 2013 30 September 3,732 (257) 3,475 99p 92p 2013 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 Directive Economic Capital (1in 200 1.6x 1.3 1.3 Calibration) 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 currency/£ 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 Dollar 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 Contact: RSA Insurance Group Plc
RSA: RSA Insurance Group Plc: Interim Management Statement
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