RSA has reported a strong first half 2020 performance. We have been able to operate throughout the period with limited COVID-19 related impacts on our service to customers and in so doing continue to support and protect, per our policy promises.
We expect to pay out c.£2bn in claims costs for H1. This is our raison d’etre. At the same time we have safeguarded our staff and continued to make contributions to our communities more broadly.
While this has been our focus in a time of great external challenges, our mission to improve RSA’s business thereby serving shareholders and others well has not been neglected. A record first half underwriting performance, and a healthy increase in underlying earnings per share are important proof points. We are in uncertain times and as a financial institution must keep resilience and prudent financial management central to our decision making.
In that regard we were sorry to suspend our 2019 final dividend payment and not presently to have announced a 2020 interim payment either. These decisions reflect regulatory guidance and a consideration for wider reputational arguments. We expect to resume dividend payments as soon as prudent to do so, and aim to catch up on missed dividends over time on the same basis.
Our underwriting profits rose 33%1. In turn this drove a 13%1 increase in the business operating result. Earnings per share rose to 23.5p1 on an underlying basis, producing a return on tangible equity of 16.7%1. Statutory earnings were down 7% impacted by a variety of COVID-19 related charges.
These results are driven by business improvement actions taken over recent years and focussed on underwriting quality, whilst pushing hard on cost efficiency. Even excluding COVID-19 impacts, attritional loss ratios have improved again, as have large losses. Weather costs were above prior year though switching in severity from Canada to UK on this occasion.
Customer focus & market conditions
RSA’s mission is to serve customers well. In that regard our change efforts continue across the business focused on digital enablement, improving service and sustaining strong and effective claims support. We remain equally dedicated to good and productive partnerships with our brokers and affinity clients. The mutual support and focus on our end customer is much appreciated.
COVID-19 has brought many particular challenges – from an unprecedented shift to “working from home”, to supply chain interruptions and then a range of new claims in those policy areas responding to COVID-19. While never perfect, I am proud of our teams’ response to these challenges. RSA has operated near normally throughout the crisis, supporting our customers and responding to the new challenges. There have inevitably been questions around some policy coverage wordings, since few customers, brokers or underwriters had concentrated on a COVID-19 scenario when establishing covers. But we remain determined to pay claims promptly and in accordance with our policies whilst protecting all stakeholders against unaffordable widening of covers. We support the UK legal test case on business interruption wording in that regard as an important contribution to clarity of cover.
Insurance markets inevitably reflect the broader economic conditions around them. As such there are uncertainties and the prospect of a reduction of business volumes as a direct result of COVID-19 and as a result of the economic weakness it gives rise to. We will weather these impacts but will work hard to keep costs in line with any reduced income. Financial markets are also important to insurers. The fall in risk free interest rates hurts investment income and the volatility of credit and other asset classes impacts capital too. We will continue to prioritise resilience and a conservative risk profile in navigating these challenges.
RSA Group: 2020 Half Year Results
Across RSA we are pushing determinedly towards our “best in class” performance ambitions. At its heart we seek to sustain and improve those business areas already achieving excellent performance, whilst taking strong action to improve where lagging. The report card for H1 2020 is good.
RSA’s international businesses, which constitute c.87% of H1 profits, are all performing very well. Scandinavian H1 combined ratio is good and consistent with our ambition at 83%, and the particular work needed to improve Danish commercial lines results is showing good progress though with more to do here and on cost in H2.
In Canada a COR of 93% is also at very attractive levels, flattered a bit by better weather conditions but strong anyway. And similarly our businesses in Ireland and Middle East have had excellent first halves.
In the UK our results were down on H1 last year due to February’s flooding, but improved if normalising for weather. We are making encouraging progress in re-establishing good performance standards here but with much left to do. Improved cost competitiveness is most needed in the UK. The cost programme we announced in 2019 has gone well and will be increased further this year to address economic challenges and faster bring the business to where we need to be.
Given the particular challenges of 2020, our goals for the year are first and foremost to provide customer service, to safeguard our people’s health and to sustain financial strength and resilience. However, we are also determined that RSA should enter 2021 in good shape and with strong “business as usual” results for this year, whatever the other challenges that superimpose on this. Half one is encouraging in this regard.
Group Chief Executive