A strong business, better able to absorb underwriting volatility
RSA’s first half performance was strong with EPS up 18%, dividends up 11% and a return on tangible equity of 16%. This reflects an inherently stronger business, better able to absorb underwriting volatility; together with an absence of restructuring costs reflecting the Group’s progress.
RSA Group: 2018 Interim Results
The Group combined ratio of 94.7% was good by historical standards, but short of our plan and H1 2017 due to adverse weather costs. Our view of RSA’s underlying earnings capacity is unchanged however.
RSA continues to focus intensely on building performance capability in pursuit of our best-in-class ambitions for both customers and shareholders. We are making good progress, but with much more we can do. We expect to have setbacks—from external events and in our own execution—but to progress nevertheless.
Market conditions in the first half remained competitive, with areas where the correct underwriting and price actions required a ‘top line’ trade-off. Conversely, large parts of our business saw good progress in both top line and ‘bottom line’ drivers.
We are investing across RSA to serve customers better, to be better underwriters and to drive further efficiencies. Top line was positive1 in two of our three regions, with UK weaker as our underwriting measures to improve on 2017 results took hold.
H1 attritional loss ratios (except in the UK) and expenses tracked closely to plan. The balance of naturally volatile underwriting items was £59m1 negative in H1 versus prior year with weather costs £118m1 adverse, partially offset by lower large losses (£55m1) and better prior year development (£4m1). Pleasingly, large losses were significantly better in the UK and Canada where 2017 corrections were needed, but Scandinavia had poor results in this respect — just volatility as far as we can tell.
In terms of our regional businesses; the UK & International segment saw 142%1 higher underwriting profits — though there remains work to do, not least to navigate soft market conditions. Our important Scandinavian business saw lower underwriting profits due to large loss and PYD volatility but on an underlying basis is on track versus our plans. Similarly Canada had poor headline results due to very challenging weather, but was on track in all other respects. Weather volatility is a continuing feature of that market which we have previously highlighted.
We enter the second half of 2018 with confidence, while mindful of market challenges. Good progress is being made in modernising technology platforms in every region. Underwriting actions and technical capability remain in focus. And we are pleased to have concluded an important new bancassurance alliance in Canada with Scotiabank, one of Canada’s leading retail financial services providers.
Group Chief Executive
1 August 2018
1 At constant FX