Press Releases

RSA Interim Management Statement

05.11.2009

Quarter 3 2009: Strong performance in challenging conditions

• Net written premiums of £5.0bn up 4%
• IGD surplus remains strong at £1.7bn representing coverage of 2.4 times
• Net asset value per share excluding IAS 19 of 104p, compared with 95p at 30 June¹
• Total net asset value per share of 98p compared with 101p at 30 June¹
• €500m subordinated guaranteed bond called on 15 October
• Expect to deliver a COR of around 95% in 2009

Andy Haste, Group CEO of RSA, commented:
“We have produced another robust performance with our net written premiums again demonstrating the resilience of our strong and diversified portfolio. While economic conditions remain challenging, we are now seeing some encouraging signs, particularly in International and Emerging Markets. We are well positioned and taking the right actions to successfully manage through the downturn and take advantage as conditions improve.”

Business Overview
Net written premiums for the nine months to 30 September 2009 were £5,028m, an increase of 4% over the same period in 2008 (down 1% at constant exchange).

• International net written premiums of £2,462m up 8% (flat at constant exchange) ²
• UK net written premiums of £1,976m down 3% ²
• Emerging Markets net written premiums of £575m up 7% (down 4% at constant exchange) ²
  

¹ See notes to editors Note 5
² See notes to editors Note 1 

In line with our first half experience, the trading environment remains challenging, with economic conditions leading to reductions in exposures and premiums across the majority of our markets. To mitigate this we continue to push hard on rate, target profitable growth and exercise tight operational and financial management and we remain confident of delivering a combined operating ratio for 2009 of around 95%.

- International
International has delivered another strong performance, with premiums up 8% to £2,462m (flat on 2008 at constant exchange). 

In Scandinavia, premiums of £1,320m were up 5% (down 1% at constant exchange) driven by continued action on rating and positive foreign exchange. Personal lines were up 8% (4% at constant exchange) with good growth in Norway and Swedish Personal Accident. Commercial lines were up 1% (down 6% at constant exchange) with growth in Norway offsetting the impact of the withdrawal of capacity and reduction in exposure. We continue to make good progress towards our additional £25m cost savings target and remain on track to deliver this by mid 2010.

In Canada, premiums of £755m were up 13% (3% at constant exchange) driven by rate increases, strong retention and favourable exchange. In Personal lines, premiums were up 15% (4% at constant exchange) with Johnson performing strongly, delivering growth of 19% (8% at constant exchange). Commercial lines were up 8% (down 1% at constant exchange) in a continuing competitive market.

In Other Europe, premiums were up 12% to £387m (down 1% at constant exchange), with strong growth in Ireland, driven by positive rate action across all lines of business and the benefit of prior year acquisitions, offsetting a reduction in personal motor and the withdrawal of capacity in Commercial Property in Italy.

- UK
The UK remains a competitive market with overall premiums of £1,976m down 3% on last year.  We are maintaining our strategy of pushing rate, targeting profitable growth and selective capacity withdrawal where we cannot achieve target returns.

In Personal lines, premiums increased by 1% to £829m, with new Affinity deals and strong growth in Personal Broker offsetting lower new business levels related to mortgage origination and car sales. In Commercial, premiums of £1,147m were 5% down on last year, with lower premiums in Commercial Motor schemes and the Mid-Market segment partially mitigated by strong performances in Specialty lines including Risk Solutions and Marine.

We continue to take the right action on rate and have achieved a 7% rate increase in Personal Motor and 4% in Household.  In Commercial, we have pushed rate hard and achieved increases of 8% on Liability, Property and Motor. 

At our full year results in February, we announced a further £70m cost savings target in the UK, to be delivered by mid 2010, with plans to reduce headcount by 1,200. We are on track to achieve this and as of today, we have announced 1,050 of the roles, of which 650 have already left the business.

- Emerging Markets
Emerging Markets has again delivered a good result in the expected challenging conditions, with net written premiums of £575m up 7% (down 4% at constant exchange). We continue to take action on rate, policy terms, expenses and headcount to protect the bottom line. Total premiums including our associates were £673m, an increase of 5% (down 4% on constant exchange). These markets remain attractive places to do business and we will continue to invest in the region.

In Asia and the Middle East premiums were up 32% (4% at constant exchange) with Hong Kong, Singapore, Oman and KSA delivering double digit growth and offsetting the impact of small reductions in other territories.

In Latin America premiums were up 5% (flat at constant exchange) with good growth in Brazil, Colombia and Uruguay mitigating the move to six month policies in Argentina and portfolio actions in Mexico.

In Central and Eastern Europe premiums were down 10% (down 20% at constant exchange). As expected, the Baltics continue to be impacted by the economic downturn, however we are taking the right action and have maintained our market leading position. Following the acquisition of the remaining 50% of Intouch, we have, from 1 July, consolidated our operations in Poland, the Czech Republic and Russia. These businesses continue to deliver strong growth, with premiums up 4% (14% at constant exchange) in the first nine months.

Our associate in India continues to perform well with premiums up by 19% to £63m (11% at constant exchange).

A full breakdown of Group net written premiums and rating actions for the third quarter is included in the notes to editors. 

Financial Position and 2009 Outlook

- Investment Portfolio
The investment portfolio totalled £15.1bn at 30 September, an increase of 7% since the half year due mainly to foreign exchange movements.

The Group continues to benefit from its low risk investment strategy with 88% of the total investment portfolio invested in high quality fixed income and cash assets. As previously reported, we are implementing a number of actions to mitigate falling yields and respond to changed investment conditions, including increasing the proportion of non governments towards 60% of the bond portfolio, minimising cash balances and a measured increase in equity and property holdings. As mentioned at the full and half year, we currently expect investment income in 2009 to be around 2007 levels and are not anticipating a positive contribution from total gains.

- Shareholders’ Funds and Capital Position
Shareholders’ funds as at 30 September 2009, excluding the pension fund deficit, were £3,607m (104p per share) compared with £3,311m (95p per share) at 30 June 2009 due to retained profits, fair value gains and positive foreign exchange. The pension fund has moved from a surplus of £196m at 30 June to a deficit of £182m. This primarily reflects the impact of the recently announced de-risking of the UK pension schemes as well as changes in assumptions and other movements. The de-risking reduced the surplus by £349m compared with the expected £361m as reported on 14 July. As a result of this action, the impact of assumption changes and other movements on the pension deficit was just £14m. Total shareholders’ funds including the pension deficit were £3,425m (98p per share), compared with £3,507m at 30 June (101p per share).

The Group’s capital position remains strong.  At 30 September, the IGD surplus was unchanged from the position at 30 June at £1.7bn, representing coverage of 2.4 times the requirement. The economic capital surplus remains strong, increasing marginally to £1.8bn.

Our financing and liquidity position is also strong and our committed £455m senior facility remains undrawn. On 15 October 2009 we called our €500m subordinated guaranteed bond; this will have no impact on our IGD surplus as, in accordance with FSA requirements, these notes were derecognised for regulatory purposes six months prior to the call date.

Further details on movements in the investment portfolio, net asset value, pension surplus and capital position are provided in the notes to editors.

- Combined Operating Ratio
As it stands today, we continue to expect to deliver a combined operating ratio of around 95% in 2009. 

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