6th May 2010 07:00
| RSA Interim Management Statement |
Quarter 1 2010: Good top-line momentum and strong financial position
Net written premiums of £1.9bn up 5% Acquisitions in Sweden, Denmark and Oman and signed deal with Tesco Pet in the UK IGD surplus maintained at £1.7bn; coverage remains strong at 2.4 times Net asset value per share excluding IAS 19 of 111p, compared with 106p at 31 December 20091 Total net asset value per share of 104p compared with 99p at 31 December 20091 Expect to deliver a COR of around 95% in 2010Overview
We have made a good start to the year with net written premiums for the three months to 31 March 2010 of £1,938m, an increase of 5% over 2009 (3% at constant exchange).
International net written premiums of £1,029m up 3% (in line at constant exchange) 2 UK net written premiums of £697m up 7% 2 Emerging Markets net written premiums of £204m up 5% (4% at constant exchange) 2Our associate in India also delivered strong growth with premiums up by 21% (21% at constant exchange). We have undertaken acquisitions in Sweden, Denmark and Oman and signed a deal in the UK with Tesco to provide Pet insurance, which is expected to deliver around £100m of premiums in its first full year. In 2010 we continue to expect International to deliver mid-single digit growth, the UK to remain in positive territory and Emerging Markets to return to double digit growth over the longer term.
During the first quarter, we completed our current UK and Scandinavian cost savings programmes and we continued to push rate across the business. In February, an earthquake struck Chile causing widespread damage. As announced at the time, RSA is the largest insurer in Chile and while the situation is still evolving, we continue to expect an estimated cost from the event of around £30m, net of reinsurance.
In the first three months we have also experienced increased large losses and severe winter weather across the UK, Ireland and Scandinavia, the impact of which was around £80m greater than would normally be expected. Despite these losses we continue to expect to deliver a COR of around 95% in 2010 and, as previously reported, we also expect investment income for 2010 to be around £540m and total gains to be around 2009 levels.
| 1 | See notes to the IMS Note 4 | |
| 2 | See notes to the IMS Note 1 |
Andy Haste, Group CEO of RSA, commented:
"We have built good top-line momentum in the first quarter of 2010, with strong growth in the UK, Canada and Latin America. As we celebrate our 300th anniversary, we look to the future with confidence. We are well placed with a great set of businesses with strong positions in attractive markets and we remain confident of our ability to deliver targeted growth and sustainable profitable performance."
Business Update
- International
International premiums are up by 3% to £1,029m (in line with 2009 at constant exchange), with good growth in Canada, Ireland and Scandinavian Personal lines.
In Scandinavia, premiums of £663m were in line with 2009 (down 2% at constant exchange) driven by continued action on rate and positive foreign exchange. Personal lines premiums were up by 7% (4% at constant exchange) with good growth in Norway and Denmark. Commercial lines premiums were down 6% (down 8% at constant exchange) with growth in Danish Renewables and Norway offset by the impact of the withdrawal of capacity and reductions in exposures. During the quarter we completed the acquisitions of Sveland, the ninth largest private insurer in Sweden and TrygVesta's Marine portfolio in Denmark. We have also achieved our cost savings target of an additional £25m ahead of the mid-2010 schedule.
In Canada, premiums of £231m were up by 17% (6% at constant exchange) driven by rate increases, strong retention and favourable exchange. In Personal lines, premiums were up by 17% (6% at constant exchange) with Johnson performing strongly, delivering growth of 24% (12% at constant exchange). Commercial lines were up by 16% (5% at constant exchange) with strong performances in Mid-Market, up by 11% and Risk Solutions, up by 10%.
In Other Europe, premiums were down 2% to £135m (in line with 2009 at constant exchange). In Ireland, growth of 3% (5% at constant exchange) was driven by positive rate action across all lines of business, which was offset by continued management actions in Italy.
- UK
The UK delivered a strong top-line performance in the first quarter, with overall premiums of £697m up by 7% on last year. We are maintaining our strategy of pushing rate, targeting profitable growth and selective capacity withdrawal where we cannot achieve target returns.
In Personal lines, premiums increased by 6% to £280m, with Motor up by 9% and Household up by 4% due to strong new business levels, rate increases and increased shares on broker panels. Pet premiums grew by 11% in the quarter and we have recently signed a deal with Tesco to provide cover for over 700,000 pets. Tesco Pet Insurance customers will migrate to RSA over a twelve month period from Q4 this year and the deal, which will create approximately 230 new roles within RSA, is expected to deliver premiums of around £100m in its first full year.
In Commercial, premiums of £417m were up by 7% on last year. Liability was up by 6% and Motor up by 19% following strong new business in large Motor schemes, rate increases and double digit growth in Small Commercial Vehicles. Specialty lines continued to grow with Marine up by 14% and European Risk Solutions up by 6%.
We continue to take the right action on rate and have achieved a 9% rate increase in Personal Motor and 3% in Household. In Commercial, we achieved increases of 6% on Liability, 5% on Property and 4% on Motor.
In terms of cost savings, we achieved the £70m target, announced in February 2009, ahead of schedule.
- Emerging Markets
Emerging Markets has delivered a good top-line performance against a strong first quarter last year, the continued economic downturn in the Baltics and the disruption caused by the earthquake in Chile. Net written premiums of £204m are up by 5% (4% at constant exchange), with total premiums including our associate in India of £230m.
In Asia and the Middle East, premiums of £49m were down 23% (down 18% at constant exchange). As disclosed last year, Q1 2009 benefitted from a significant construction win in Hong Kong. Excluding this win, premiums are up by 3% on a constant basis with double digit growth in Singapore and China, driven by strong growth in Specialty lines. Our associate in India continues to perform well and premiums are up by 21% to £26m (21% at constant exchange), with Personal Motor growing on the back of strong new car sales. During the quarter we also undertook the acquisition of Al Ahlia, creating the largest insurer in Oman by net written premium.
In Latin America premiums of £108m were up by 23% (15% at constant exchange) with strong double digit growth in Argentina, Brazil, Colombia, Mexico and Uruguay driven by Motor and Affinity. Chile has, as expected, been impacted by the disruption following the earthquake in February and premiums are marginally down on prior year. In response to the earthquake, we mobilised our catastrophe management team, supporting local staff with Group specialists and our branch network was up and running to support customers within hours.
In Central and Eastern Europe, premiums of £47m were up by 9% (12% at constant exchange). In the Baltics, the insurance market continues to be impacted by the economic downturn. Premiums are down 30% (29% at constant exchange), but we continue to take the right action and have maintained our market leading position. This premium reduction was offset by our direct businesses across Poland, the Czech Republic and Russia.
A full breakdown of Group net written premiums and rating actions for the first quarter is included in the notes to the IMS.
Financial Position and 2010 Outlook
- Investment Portfolio
The investment portfolio totalled £14,970m at 31 March, an increase of 5% since 31 December 2009 due to foreign exchange movements and mark to market gains.
The Group continues to benefit from its low risk investment strategy with 87% of the total investment portfolio invested in high quality fixed income and cash assets. We continue to implement a number of actions to mitigate falling yields and respond to changed investment conditions, including increasing over time the proportion of non governments towards 60% of the bond portfolio, minimising cash balances and a measured increase in high yielding equities and property. As previously reported, we currently expect investment income in 2010 to be around £540m and total gains to be around 2009 levels.
- Shareholders' Funds and Capital Position
Shareholders' funds as at 31 March 2010, excluding the pension fund deficit, were £3,942m (111p per share) compared with £3,753m (106p per share) at 31 December 2009 due to retained profits, fair value gains and positive foreign exchange. The pension fund deficit of £262m at 31 December has reduced to a deficit of £226m driven by fair value gains partially offset by changes in assumptions. Total shareholders' funds including the pension deficit were £3,716m (104p per share), compared with £3,491m at 31 December (99p per share).
The Group's capital position remains strong. At 31 March, the IGD surplus of £1.7bn was in line with the position at 31 December 2009. Coverage was maintained at 2.4 times the requirement. The economic capital surplus remained constant at £1.8bn.
Our financing and liquidity position is also strong and our committed £455m senior facility remains undrawn.
Further details on movements in the investment portfolio, net asset value, pension surplus and capital position are provided in the notes to the IMS.
- Combined Operating Ratio
As it stands today, we continue to expect to deliver a combined operating ratio of around 95% in 2010.
| Analysts | Press | |||||
| Claire Cordell | Louise Shield | |||||
| Tel: +44 (0) 20 7111 7212 | Tel: +44 (0) 20 7111 7047 | |||||
| Suzannah Oliver | Simon Kutner | |||||
| Tel: +44 (0) 20 7111 7140 | Tel: +44 (0) 20 7111 7327 | |||||
Notes to the IMS:
1. Set out below are the net written premiums for each of the regions for the three months to 31 March 2010:
| Net written premiums |
Increase as | Increase atconstant | |||||||
| Q1 2010 | Q1 2009 | reported | exchange | ||||||
| £m | £m | % | % | ||||||
| International | |||||||||
| Scandinavia | 663 | 665 | - | (2) | |||||
| Canada | 231 | 198 | 17 | 6 | |||||
| Other Europe | 135 | 138 | (2) | - | |||||
| Total International | 1,029 | 1,001 | 3 | - | |||||
| UK | |||||||||
| Personal | 280 | 263 | 6 | 6 | |||||
| Commercial | 417 | 389 | 7 | 7 | |||||
| Total UK | 697 | 652 | 7 | 7 | |||||
| Emerging Markets | 204 | 195 | 5 | 4 | |||||
| Group Re | 8 | 4 | 100 | 100 | |||||
| Total Group | 1,938 | 1,852 | 5 | 3 | |||||
2. Rate movements achieved for risks renewing in March 2010 versus comparable risks renewing in March 2009 were as follows:
| Personal |
| Commercial | |||||||||||
| Motor | Household | Motor | Liability | Property | |||||||||
| % | % | % | % | % | |||||||||
| Scandinavia | 4 | 8 | 3 | 2 | 7 | ||||||||
| Canada | 5 | 12 | 4 | 1 | 2 | ||||||||
| UK | 9 | 3 | 4 | 6 | 5 | ||||||||
3. The movement in the value of the investment portfolio from 31 December 2009 to 31 March 2010 is set out below:
| Value31/12/2009 | ForeignExchange | Mark toMarket | OtherMovements | Value31/3/2010 | |||||||||
| £m | £m | £m | £m | £m | |||||||||
| Government Bonds | 5,310 | 188 | 28 | 17 | 5,543 | ||||||||
| Non Government Bonds | 6,198 | 229 | 30 | (86) | 6,371 | ||||||||
| Cash | 996 | 35 | - | 95 | 1,126 | ||||||||
| Equities | 987 | 14 | 46 | 26 | 1,073 | ||||||||
| Property | 391 | 1 | 10 | 25 | 427 | ||||||||
| Prefs & CIVs | 265 | 16 | 9 | (1) | 289 | ||||||||
| Other | 140 | 3 | - | (2) | 141 | ||||||||
| Total | 14,287 | 486 | 123 | 74 | 14,970 | ||||||||
The investment portfolio increased by 5% over the three months to £14,970m, with foreign exchange gains of £486m, mark to market movements of £123m and other movements of £74m. The foreign exchange movement reflects the depreciation of Sterling against our major reporting currencies. The mark to market movement predominantly reflects increases on bonds and equities.
At 31 March 2010, unrealised gains on the balance sheet were £634m (31 December 2009: £509m).
87% of the total investment portfolio remains invested in high quality fixed income and cash assets. The fixed interest portfolio is concentrated on high quality short dated assets, with 99% of the bond portfolio investment grade, and 80% rated AA or above. The bond holdings are well diversified, with 75% invested in currencies other than Sterling and 53% invested in non government bonds (31 December 2009: 54%). The average duration is 3.1 years for the Group.
Within the Government bond portfolio, our exposure to Greece, Ireland, Italy, Portugal and Spain is £287m, less than 2% of the total portfolio. Of this exposure, £203m is held to back the liabilities of our operations in Ireland and Italy and only £8m is in Greek bonds.
Equities (excluding preference shares and Collective Investment Vehicles backed by fixed income and cash) comprised 7% of the portfolio. We continue to hedge our equity portfolio, with around 62% of the exposure hedged with a rolling programme of put and call options, providing protection down to a FTSE level of 3,450.
We will continue to look for opportunities to enhance yield within the framework of our high quality, low risk investment strategy. With the actions we are taking, we expect investment income for 2010 to be around £540m and total gains to be around 2009 levels.
4. The Group's shareholders' funds including and excluding the pension deficit are as follows:
| Shareholders'fundsex. IAS 19 | Pensiondeficit | Shareholders'funds | Shareholders'funds ex. IAS 19 | Shareholders'funds | |||||||
| £m | £m | £m | per share | per share | |||||||
| 31 December 2009 | 3,753 | (262) | 3,491 | 106p | 99p | ||||||
| 31 March 2010 | 3,942 | (226) | 3,716 | 111p | 104p |
As at 31 March shareholders' funds excluding the pension scheme increased by 5% to £3,942m due to retained profit, fair value gains and positive foreign exchange.
The reduction in the pension fund deficit from £262m at 31 December 2009 to £226m at 31 March 2010, primarily reflects the impact of fair value gains offset by changes in market driven assumptions in accordance with IAS19. The discount rate has been reduced from 5.8% to 5.6%, in line with decreasing corporate bond yields and we have increased our general inflation assumption to 3.4% and our inflation assumption on pension increases to 3.2% from 3.3% and 3.1% respectively at 31 December 2009.
Shareholders' funds including the pension funds were £3,716m, an increase of 6% over the quarter.
5. The Group's regulatory capital position under the Insurance Groups Directive (IGD) is set out below:
| Insurance Groups Directive | Requirement | Surplus | Cover | ||||
| £bn | £bn | ||||||
| 31 December 2009 | 1.2 | 1.7 | 2.4x | ||||
| 31 March 2010 | 1.2 | 1.7 | 2.4x |
At 31 March 2010, the Group had surplus economic capital of £1.8bn, unchanged from 31 December 2009, based on a risk tolerance consistent with Standard & Poor's long term A rated bond default curve. This is equivalent to a probability of solvency over one year of 99.92%.
6. Foreign exchange rates used to translate the 2010 and 2009 consolidated results included in this statement are as follows:
| Local currency/£ | Average | Closing | |||||||||
| 3 Months 2010 | 3 Months 2009 | 31 March 2010 | 31 December 2009 | 31 March 2009 | |||||||
| Canadian Dollar | 1.62 | 1.79 | 1.54 | 1.69 | 1.80 | ||||||
| Danish Krone | 8.39 | 8.22 | 8.35 | 8.37 | 8.04 | ||||||
| Swedish Krona | 11.23 | 12.08 | 10.92 | 11.53 | 11.84 | ||||||
| Euro | 1.13 | 1.10 | 1.12 | 1.13 | 1.08 | ||||||
7. Movements since 31 March 2010
As at 5 May, the IGD and economic capital surpluses are unchanged at £1.7bn and £1.8bn respectively. Shareholders' funds have marginally increased with retained profits and pension fund actuarial gains offset by foreign exchange losses and mark to market movements on the investment portfolio and net asset value per share is estimated at 105p.
A 30% fall in the FTSE from current levels of around 5,300 would reduce the IGD surplus by an estimated £0.2bn.
8. This trading update constitutes RSA's Interim Management Statement for the period 31 December 2009 to 5 May 2010.
About RSA
With a 300 year heritage, RSA is one of the world's leading multinational quoted insurance groups. It has the capability to write business in over 130 countries and major operations in the UK, Scandinavia, Canada, Ireland, Asia and the Middle East, Latin America and Central and Eastern Europe. Focusing on general insurance, it has around 23,000 employees and, in 2009, its net written premiums were £6.7bn.
Important disclaimer
Visit www.rsagroup.com for more information.
This press release has been prepared in accordance with the requirements of English company law and the liabilities of the directors in connection with this press release shall be subject to the limitations and restrictions provided by such law. This press release 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 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 (including changes related to capital and solvency requirements), 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 and other 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. 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 should be construed as a profit forecast.
Copyright Business Wire 2010
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