RSA Insurance : Group plc 2016 Q1 Trading Update

RSA's underwriting results were good in Q1 with operating profits up strongly as a consequence.

Headline figures benefited from benign weather but underlying results also continue the improving trends visible in 2015.

Stephen Hester, RSA Group Chief Executive, commented:

'The year has started well for RSA. A streamlined and focused business model is already proving its worth, channelling our self-improvement measures more effectively to drive performance gains. Higher profits are underpinned by better attritional loss ratios and falling costs as planned. More volatile underwriting items have also gone our way this quarter.

'We have laid out ambitious plans to transform operating performance, and so closing gaps to 'best in class' peers. We are 'on-track' in this journey, though with much still to do.

'The external environment is challenging, characterised by slow growth, competition and volatile financial markets. Hence our reliance on self-help as the route to a focused, stronger and better RSA.'

Update on strategy and performance improvement

Disposals of our businesses in Brazil, Colombia and Russia closed successfully in Q1, while Chile and Argentina also closed in April. The two remaining Latin American disposals should complete by the middle of the year.

Our many performance improvement initiatives are proceeding well. These cover:

• Customer service, sales effectiveness and digitisation;
• Pricing and underwriting improvements;
• Expense reduction in line with published targets;
• Technology improvements in infrastructure, policy administration, claims and pricing.

Trading update

Market conditions

• Insurance market conditions are broadly unchanged from 2015. Slow growth and strong competition drive sharp price/volume trade-offs, in line with our expectations overall.
• Financial market volatility was elevated in Q1. Notable were significant intra-quarter movements in equities and in credit spreads which widened significantly during the first two months, before partially retracting in March (and narrowing further still in April). Government bond yields fell across our core markets.
• Sterling depreciated c.7% against our major international currency blocks but has since strengthened somewhat and remains potentially volatile as the UK's EU referendum date comes closer.  

Premiums

• Group net written premiums flat versus prior year reflecting the impact of disposals.
• Core Group net written premiums up 8%, though slightly down ex-Group Re movements. Underlying trends in line with our expectations overall, with UK/Ireland ahead of plan, Canada in line, and Scandinavia behind, due primarily to temporary factors.

Profitability

• Operating profits and net attributable profits for Q1 were strong and ahead of our expectations.
• The Group delivered a good Q1 underwriting performance with the UK & Ireland, Canada and Scandinavia each ahead of the same period last year and ahead of our plan.
• The attritional loss ratio for Q1 2016 showed year-on-year improvement across all of our core regions.
• Q1 weather event costs for the Core Group were £23m which represents 1.5% of net earned premiums (Q1 2015: 2.3%; planning assumption: c.3.0%). The overall Group weather ratio was 1.5% (Q1 2015: 2.6%).
• Large losses for the Core Group were £142m for Q1 representing 9.5% of net earned premiums (Q1 2015: 8.5%; planning assumption c.8.5%). The overall Group large loss ratio was 8.5% (Q1 2015: 7.5%).
• During Q1 we saw positive prior year profit emergence ahead of planned levels, though likely to remain volatile on a quarterly basis.
• Expense reductions and our transformation programme are on track.
• We target continuing improvements to 'normalised' underwriting profitability in the remainder of the year. Overall results, as always, will be subject to weather/large loss volatility and prior year reserve movements.
• Investment performance is in line with our forecasts for 2016 (of c.£330m of income and c.£55m of discount unwind).
• Below operating profits, Q1 movements were broadly as flagged - the overall impact of business disposals comprised tangible gains of £11m (capital accretive), and intangible and FCTR recycle charges of £27m (non-cash/non-capital); and there were planned charges reflecting the progress of our cost/restructuring activities.

Capital

• Tangible equity up 9% to £3.1bn (31 Dec 2015: £2.8bn) driven by volatility in FX and interest rate/spreads, as well as disposals and net income. Tangible net asset value per share 303p. Some of the market gains have unwound in April.
• Solvency II capital surplus at 31 March 2016 of c.£1.0bn with coverage of 150% (31 Dec 2015: 143%). The increase relates to first quarter profits including a benefit from disposal proceeds of 3%, and favourable FX movements, partly offset by adverse mark-to-market impacts.
• Movement in pension surplus during the quarter was modestly positive. In April, spread tightening has more than reversed this movement, moderately reducing the overall capital ratio gains YTD.

Notes

1 At constant exchange rates.

2 Foreign Currency Translation Reserve.

3 The Solvency II capital position at 31 March 2016 is estimated.