RSA announces excellent 2016 Results
- Underlying EPS 39.5p, up 42%. Operating profit £655m, up 25%
- Record underwriting profit and The sum of the expense ratio, commission ratio and claims ratio - expressed as a percentage. If the COR is over 100% the business is generating an underwriting loss, if the COR is below 100% the business is generating an underwriting profit. (£380m, up 73%, 94.2% vs 96.9%)
- Final dividend 11p/share (16p total for 2016, up 52%)
- Statutory net profit £20m, impacted by non-capital charges for Legacy disposal
Stephen Hester, RSA Group Chief Executive, commented:
"In 2016 RSA took major strides forward, moving seamlessly from 'successful turnaround' to organic outperformance. Our improvements are both strategic and operational. They are delivering high quality sustainable results.
Our ambition now is to drive RSA’s performance towards 'best in class' levels. Industry and financial market conditions will remain tough. We plan to outperform through continuing self-help measures on customer service, underwriting and costs."
2016 Trading results
- Group operating profit £655m up 25% (2015: £523m): Scandinavia £311m; Canada £140m; UK £259m.
- Record1 Group underwriting profit of £380m, up 73% (2015: £220m). Core Group combined ratio of 93.8% (2015: 96.0%). Scandinavia 86.2%; Canada 94.9%; and the UK 95.4%.
- Record1 Group current year underwriting profit of £271m (2015: £129m): Core Group attritional loss ratio 1.4pts better than last year, weather and large losses 0.3pts worse. Group prior year underwriting profit of £109m (2015: £91m).
- Core Group premiums of £6.3bn up 6%, although down slightly on an underlying basis2.
- Investment income £369m (2015: £403m), fell 8% reflecting impact of disposals and low bond yields, partly offset by FX translation benefits.
- Non-capital charge of £204m for disposal of legacy liabilities3; Other non-operating charges3 of £261m (c.90% non-capital in nature);
- Post tax statutory profit of £20m reflecting the non-capital accounting charges above (2015: £244m benefited from disposal gains).
- Underlying earnings per share1 (EPS) 39.5p up 42% (2015: 27.8p).
- Final dividend of 11p/ordinary share proposed, bringing total 2016 dividends to 16p/ordinary share (up 52%).
RSA Group: 2016 Full Year Results
Capital and balance sheet
- Solvency II coverage ratio of 158% after final dividend (31 December 2015: 143%), at upper end of 130-160% target range; resilient in testing market conditions. Legacy disposal will add a further 17-20 coverage points.
- Reserve margin was also strengthened to 5.5% (2015: 5.0%).
- Tangible equity1 £2.9bn (31 December 2015: £2.8bn), 281p per share.
- Underlying return on opening tangible equity1 of 14.2% (2015: 9.7%), at upper end of 12-15% target range.
- Strategic restructuring and turnaround of RSA delivered ahead of expectations.
- 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), achieving the desired strategic focus.
- RSA’s balance sheet and capital position are stronger and more resilient. In July, we commenced actions to optimise the composition of capital. We retired £200m of subordinated debt, reducing both leverage and interest costs. During the first half of the year we also completed a de-risking of the asset mix in our UK pension schemes.
- On 7 February 2017, we announced the disposal of £834m UK Legacy liabilities to Enstar. This boosts Solvency II coverage by 17-20 points, to be used to accelerate debt retirement in 2017 thereby reducing risk, improving capital quality and improving earnings. Further details on the non-capital charge for this disposal are set out on pages 11 and 30 of the full press release (PDF).
- RSA’s financial and operational performance is now healthy, and we are focused on moving performance towards ‘best in class’ for our markets. Our many performance improvement initiatives are proceeding well, targeted at improving customer service, underwriting and costs.
- Core business controllable costs1 for 2016 were reduced 6% year-on-year at constant exchange to £1,455m (comprising 8% cost reductions, offset by 2% inflation). Core Group FTE down 7% year-on-year 2016 vs 2015 and down 19% since start of 2014.
- Our cost reduction programme is ahead of original targets with c.£290m of gross annualised savings achieved by the end of 2016 (original 2016 target of >£180m). Today we are upgrading the cost savings target for a third time to >£400m gross annualised savings by 2018 (previous target >£350m by 2018). ‘Costs to achieve’ now expected to be lower than originally planned at c.1.3 times.
- We are also increasing our medium term ROTE1 target range to 13-17% (from 12-15% previously) reflecting the progress RSA has made and the impact of the Legacy sale. While market moves make the denominator volatile, we hope to perform in the upper part of this range. Indeed if our ‘best in class’ ambitions are reached, there is scope to do better still. This implies performance better than most competitors and should be prized as an ambition but not taken for granted.
- Dividend policy unchanged: medium term ordinary dividend payout of 40-50% with additional ‘special’ payouts where justified.
- RSA is relatively insulated from Brexit impacts with c.70% non-Sterling profits and separate, locally regulated, European subsidiaries.
1 Underlying or alternative performance measure, refer to pages 28-29 of the full press release (PDF) for further explanation
2 At CFX, excluding Group Re
3 Refer to page 11 of the full press release (PDF) for further explanation
The Group uses alternative performance measures, including certain underlying measures, to help explain business performance and financial position. Further information on these is set out in the appendix of the full press release.
Investor and analyst presentation
Watch a recording of the live webcast of the analyst presentation, including a question and answer session: http://view-w.tv/960-1313-17995/en
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.