2016 Interim Results - RSA Insurance Group plc

RSA Group

Date:

RSA Insurance Group plc has announced its 2016 Half Year results

  • RSA is making excellent progress. Results are ahead of our plans.
  • Underwriting profit up 72%. Operating profit up 20%. Underlying EPS1 17.8p, up 29%. Basic EPS from continuing operations up 93% to 11.2p. Interim Dividend 5.0p / share, up 43%.
  • Return on Tangible Equity1 12.8%—within our 12-15% medium term target, a year ahead of our expectations. 

Financial reporting

Stephen Hester, Group Chief Executive, RSA Insurance Group

Interim Results 2016

Stephen Hester, RSA Group Chief Executive, commented:

“We are delighted with RSA’s progress towards our demanding ’best in class’ ambitions. In tough, competitive insurance markets and with significant financial market volatility, our results are even more satisfying. Particularly pleasing is the track record we are building of setting out plans and then achieving them in a high quality way.

“Strategic focus has now been achieved through completion of our principal disposal programmes. Performance improvement is coming through strongly, driven by underwriting gains and cost re-engineering. In fact our interim results were actually held back by volatile items in weather / large losses.

“The impact of Brexit will take time to play out. But RSA is well placed, with a majority of earnings in foreign currencies.

“Our agenda for the second half is clear; a continued drive to raise performance through better underwriting, lower costs and strong focus on customers. We expect that 2016 will be another year of great progress for RSA.”


Trading results

  • Group operating profit £312m up 20% (H1 2015: £259m): Scandinavia £131m; Canada £69m; UK £144m.
  • Record1 H1 Group underwriting profit of £174m, up 72% (H1 2015: £101m). Core Group combined ratio of 94.3% (H1 2015: 96.4%). Scandinavia 88.5%; Canada 94.5%; and the UK 94.4%.
  • Record1 H1 Group current year underwriting profit of £119m (H1 2015: £73m); Core Group current year attritional loss ratio 3.1pts better than last year.
  • Weather and large losses £59m worse than planned and £49m worse than H1 2015; net claims cost of £39m for the Alberta wildfire and £35m for UK and European floods in June.
  • Prior year underwriting profit of £55m (H1 2015: £28m), driven by Canada and the UK in particular.
  • Ireland returned to operating profit (£3m vs £11m loss in H1 2015).
  • Core Group premiums flat on an underlying basis1; up 3%2 headline.
  • Investment income of £187m (H1 2015: £206m).
  • Net gains include £169m tangible gains1 mainly from disposals completed in the year, offset by £188m intangible charges1, as previously flagged. Reorganisation costs of £70m.
  • Post tax profit of £91m (H1 2015: £215m benefited from disposal gains).
  • Solvency II coverage ratio of 158% (31 December 2015: 143%), towards upper end of our target range of 130-160%; now includes the full benefit of the completed Latin America disposals and pension de-risk.
  • Tangible equity2 £3.3bn (31 December 2015: £2.8bn), 326p per share; increase driven by profits, positive mark-to-market and foreign exchange.
  • Underlying return on opening tangible equity2 of 12.8% annualised (H1 2015: 9.7%).
  • Underlying earnings per share2 (EPS) 17.8p (H1 2015: 13.8p).
  • Interim dividend of 5.0p / ordinary share (H1 2015: 3.5p). 
Stephen Hester, RSA Group Chief Executive - still from a filmed interview on 4 August 2016 Play video
"It's a really exciting time for RSA and the people associated with us — we have a really excellent set of half year results to report."


Strategic update

  • Strategic actions to make RSA ‘focused, stronger and better’ continue apace.
  • Successfully completed the disposals of our businesses in Latin America and Russia in the first half. This brings to a close our principal disposal programme (total proceeds £1.2bn 2014-16), with the desired strategic focus now achieved.
  • With RSA stronger and more resilient, actions are now being taken to optimise the composition of capital. In July we completed the retirement of £200m of subordinated debt reducing both leverage and interest costs, with further actions in contemplation. During the first half we also completed, as previously flagged, a de-risking of the asset mix in our UK pension schemes.
  • Our many performance improvement initiatives are proceeding well. These cover:
       + Customer service, sales effectiveness and digitisation;
       + Pricing and underwriting improvements;
       + Expense reduction;
       + Technology improvements in infrastructure, policy administration, claims and pricing.
  • Core business controllable costs2 for H1 2016 were down 3% year-on-year at constant exchange to £702m (comprising 5% cost reductions, offset by 2% inflation).
  • Group FTE down 39% since start of 2014 (13% down ex disposals), with Core Group FTE down 6% year-on-year to H1 2016.
  • Our cost reduction programme remains on track to deliver in excess of £350m gross annualised savings by 2018 (c.£200m achieved to date, with proportionately more cost saves expected in H2).
  • Medium term performance target of 12-15% underlying return on tangible equity2 remains, and we continue to target the upper half of this range in 2017. Dividend policy unchanged: medium term ordinary dividend payout of 40-50% with additional ‘special’ payouts where justified.
  • RSA is insulated from Brexit impacts via non-Sterling profits and separate regulated European subsidiaries. However, the impacts on interest rates are negative for insurers generally and uncertainties remain in other dimensions.

Notes

1 Underlying or alternative performance measure.

2 At constant FX.


Analyst presentation

A live webcast of the analyst presentation, including the question and answer session, will be broadcast at 10:30am on 4 August 2016. Register or login to view

Contacts for analysts and investors

Contacts for press


Inside information statement

Prior to publication, the information contained within this announcement was deemed to constitute inside information under the Market Abuse Regulations (EU) No 596/2014 (“MAR”).

Market soundings, as defined in MAR, were taken in respect of this announcement prior to its release with the result that certain persons became aware of inside information, as permitted by MAR. Those persons that received inside information in a market sounding are no longer in possession of inside information relating to the Company and its securities following this announcement.


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.