2018 Preliminary Results

RSA Group


  • Pre-tax profit £480m, up 7%. Dividends 21p per share, up 7% (final dividend 13.7p)
  • Underlying results down, driven by higher weather costs and large loss challenges in Commercial Lines; especially London Market business
  • Extensive underwriting action underway, including portfolio exits announced in 2018
  • Underlying EPS 34.1p (201&; 43.5p), but c.42p proforma for portfolio exits and reinsurance additions1
  • Underlying return on tangible equity 12.6% (2017:15.5%) versus 13-17% target range

Stephen Hester, RSA Group Chief Executive, commented:

“In 2018 RSA increased headline profits and dividends with a still attractive return on capital. At an underlying level however, the results represent RSA’s first down year since 2013. We believe strongly that 2019 will show a bounce back and are taking decisive action to that end.
Much went well in 2018, with excellent results in many of RSA’s Personal Lines businesses and good progress on expenses and other strategic initiatives. However, adverse weather costs and challenging Commercial Lines results exposed us to more volatility than expected.  This was most intense in the ‘London Market’ business which accounted for substantially all our underperformance in the second half.  We announced significant portfolio exits and initiated major pricing and re-underwriting programmes during the year. We have also made management changes and increased reinsurance coverage for 2019. Our performance ambitions for RSA are high, and unchanged. We recognise the need to demonstrate resumed progress against them.”

Financial performance


RSA Group: 2018 Preliminary Results

Trading results

  • Pre-tax profits up 7% to £480m (2017: £448m)
  • Group operating profit £517m (2017: £663m) down 19% at constant FX: Scandinavia £306m; Canada £84m; UK & International £105m
  • Underwriting profit of £250m (2017: £394m) down 33% at constant FX. Proforma underwriting profit was £344m1 excluding losses on exit portfolios and adjusting for reinsurance additions in 2019
  • Group combined ratio of 96.2% (2017: 94.0%): Scandinavia 86.8%, Canada 97.6%2 and UK & International 101.4%. Proforma Group combined ratio 94.6%1, UK & International 97.4%1 and Canada 96.7%1:
    • Group attritional loss ratio comparable to 2017
    • Group weather costs 3.7% (2017: 2.6%) of premiums, £76mabove 2017; large losses elevated at 11.6% of premiums (2017: 10.8%) 
    • Group prior year underwriting profit of £165m (2017: £157m)
  • Net written premiums ('NWP') of £6,470m up 1%4 underlying (down 3% headline):
    • NWP up 2%3 in Scandinavia, with Sweden up 6%3
    • NWP up 6%3 in Canada. New distribution partnership with Scotiabank to commence in Q2 2019
    • NWP down 3%in UK & International as underwriting and rating actions (including portfolio exits) take effect
  • Group written controllable costs down 2%3 to £1,343m (earned controllable cost ratio 20.4%, 0.73 points better than 2017)
  • Investment income of £322m (2017: £331m) down 3%
  • Statutory profit after tax £372m (2017: £322m)
  • Headline earnings per share 31.8p up 21% (2017: 26.3p). Underlying EPS 34.1p, down 22% (2017: 43.5p) but down 19% at constant FX. Proforma for UK exits and/ or reinsurance, EPS c.42p1
  • Final dividend of 13.7p per ordinary share proposed, bringing total 2018 dividends to 21p per ordinary share (up 7%) and representing a 62% payout ratio of underlying earnings and a 50% payout of proformaEPS.
hester2018FYvideojpg Play video
Watch RSA Group chief executive, Stephen Hester, talk through the highlights of our 2018 full year results

Capital and balance sheet

  • Solvency II coverage ratio of 170% after final dividend (31 December 2017: 163%), above 130-160% target range
  • Tangible equity £2.9bn (31 December 2017: £2.8bn), 279p per share
  • Underlying return on tangible equity of 12.6% (2017: 15.5%) just below the 13-17% target range
  • Triennial UK pension review concluded successfully. Stable long-term agreement in place to an agreed de-risked end point (see page 25)
  • IFRS pension surplus £182m (2017: £88m deficit). 2018 capital impact of bond ‘pull-to-par’ of c.£85m (2019 outlook: c.£60m).

Strategic update

  • RSA’s entire focus is on the drive for outperformance in our markets. In that context, our improvements continue - targeted at customer service, underwriting capabilities and costs. In those business areas where profitability is good, we are seeing good success with growing customer volumes as a result
  • RSA’s 2018 underwriting results (coupled with our London Market losses in H2 2017) demonstrate too much exposure to market volatility, while accepting that volatility is an inescapable part of the insurance industry. During the year we initiated determined actions to improve the position in future:
    • Our reinsurance programmes have operated well, capping individual losses, and with a Group aggregate cover capping accumulated individual losses over £10 million. These continue, but we have supplemented them with new aggregate covers for losses between £1-10m in each of our three regions for 2019. Had these covers been in place in 2018, they would have reduced losses by c.£30m net, of which £12m would have been on continuing portfolios
    • Our London Market Specialty & Wholesale business had 2018 premium income of £265m, but underwriting losses of £109m after net GVC reinsurance recoveries of £13m. This reflects unusually difficult conditions (including Nat Cat) across the market as well as our own underwriting shortcomings. We have announced portfolio exits and changes in underwriting appetite in this business area that reduce our activity by c.50% versus 2017 levels and a strategic review is ongoing to identify any further portfolio exits. While portfolio run-off will continue over 2019, proforma for UK exits and/ or reinsurance these changes (including two domestic UK scheme exits) would have improved UK Commercial reported 2018 underwriting profits by £110m1
    • In the rest of our Commercial Lines businesses, intense programmes are underway re-underwriting and re-pricing business where needed and possible, or lapsing if necessary; c.55% of the pricing and underwriting actions targeted have already been implemented
    • Underwriting capabilities continue to receive intense focus across the Group. These include more sophisticated and agile pricing models, underwriter training and portfolio discipline and technology driven insights
  • A fundamental aspect of competitiveness is cost efficiency and RSA has transformed its position in this regard. There is work yet to do, especially in areas where underwriting actions are reducing business volumes. Group written controllable costs for 2018 were down 2%3 year-on-year to £1,343m (comprising 4% cost reductions, offset by 2% inflation). With gross annual savings of £460m since the beginning of 2014, we have achieved the Group target of > £450m savings a year early and will now move cost efficiency into ‘business as usual’ mode.

Market update and outlook

  • Insurance market conditions remain competitive across our territories with significant price/ volume trade-offs. However, rate hardening and capacity adjustment is now helping us reprice in Canada and in loss-making international business lines
  • Financial market conditions are volatile, driven by political developments and their knock-on to monetary and economic trends. RSA is relatively well protected, with conservative investment portfolios and a broad array of internationally derived profits
  • RSA has made strong fundamental progress in recent years. Despite 2018 setbacks, all of our international businesses have the capability to operate around the ‘best-in-class’ combined ratio ambitions we have articulated, albeit with Canada having a particular bounce back targeted in 2019. Our UK business faces the toughest competition and is taking longer than hoped to achieve its targets. But we firmly believe these are possible and expect the portfolio changes and other measures outlined to improve results substantially in 2019 and beyond.


1 Proforma for UK exits and / or reinsurance, see definition on pages 40 to 41 of press release

After allocation of net GVC reinsurance recoveries

At constant FX

Underlying measure, refer to page 38 of the press release for further information

Investor and media enquiries

Investor and analyst presentation

A live webcast of the analyst presentation, including the question and answer session, will be broadcast on the website at 09:00am on 28 February 2019.

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.