RSA Insurance Group plc (LON:RSA), today announced half year results 2018.
Earnings per share up 18%; interim dividend up 11%; return on tangible equity 16%
Underwriting result down due to adverse weather, especially in Canada (but up excluding weather impacts)
Stephen Hester, RSA Group Chief Executive, commented:
“RSA is reporting a strong first half. Activity is high across the Group, aimed at building capability to outperform in our markets.
First half underwriting results were below our ambitions due to adverse weather costs. On an underlying basis we showed areas of excellent performance however, and with much we can continue to improve.”
Trading results
· Statutory profit after tax up 19% to £245m (H1 2017: £206m)
· Pre-tax profits up 12% to £296m (H1 2017: £263m)
· Group operating profit of £304m down 15% (H1 2017: £360m) due to adverse weather, which was £53m in excess of the five year average2. Regional results were: Scandinavia £147m; Canada £25m; UK & International £144m
· Underwriting profit of £171m down 23% (H1 2017: £222m):
– Group combined ratio of 94.7% (H1 2017: 93.2%): Scandinavia 87.6%, Canada 100.5% and UK & International 95.3%
– Attritional loss ratio up 0.4 points but flat net of changes in reinsurance
– Group weather costs elevated at 4.9% versus a benign prior year (H1 2017: 1.2%)
– Large losses improved to 9.7% of premiums (H1 2017: 11.4%)
– Group prior year underwriting profit of £92m (H1 2017: £79m)
· Net written premiums (‘NWP’) of £3,219m down 5%1 but flat net of changes in reinsurance2:
− Headline premiums were dampened by c.£180m of budgeted reinsurance costs, primarily for the triennial Group Volatility Cover (‘GVC’) renewal
− NWP up 1%1 in Scandinavia, with Sweden up 6%1
− NWP up 5%1 in Canada. Scotiabank, one of Canada’s leading retail financial services providers, has agreed to switch its exclusive general insurance partnership to RSA from 2019, giving us an exciting new distribution channel
− NWP down 5%1 in UK & International or 2% net of changes in reinsurance, as underwriting and rating actions (including scheme exits) take effect
1 At constant FX
2 Please refer to pages 27 to 34 for further information
· Total Group written controllable costs down 2%1 to £697m. This comprised 4% cost reductions, offset by 2% inflation
· Investment income of £160m (H1 2017: £171m) ahead of guidance but down 6%1 versus last year due to reinvestment at lower yields
· Below the operating result, interest expense more than halved following debt restructuring actions in prior years. As planned, restructuring charges fell away (H1 2017: £100m)
· Headline earnings per share (EPS) up 18% to 21.8p (H1 2017: 18.4p). Underlying EPS2 down 10% to 21.0p due to adverse weather (H1 2017: 23.3p)
· Interim dividend of 7.3p per ordinary share declared, up 11% (H1 2017: 6.6p).
Capital & balance sheet
· Solvency II coverage ratio of 169% after dividend accrual (31 December 2017: 163%), above 130-160% target range
· Tangible equity £2.9bn up 6% (31 December 2017: £2.8bn), 285p per share
· Return on tangible equity of 16.2% (H1 2017: 13.1%) in upper half of 13-17% target range.
Strategic and market update
· RSA’s focus is on building capability for outperformance in our markets. In that context, our many performance improvement initiatives continue to deliver progress; targeted at customer service, underwriting capabilities and costs
· Financial market conditions have been relatively stable as they impact RSA, albeit with negative foreign exchange impacts of circa 2% in the first half. Political uncertainties in the UK and internationally continue to give the potential for volatility however
· Insurance markets remain competitive overall, with significant variations by region and by product line. Scandinavian markets were relatively stable. In Canada prices are responding to weather and auto loss cost challenges. The UK and ‘London market’ are experiencing soft conditions requiring volume trade-offs for underwriting discipline.
