4th Nov 2010 07:00
RSA Interim Management Statement
Quarter 3 2010: Continued good top line momentum and strong financial position
Net written premiums of £5.5bn up 10% Acquisition of GCAN in Canada and 123 Money in Ireland; Tesco Pet in UK now operational IGD surplus increased to £1.7bn representing coverage of 2.3 times Net asset value per share excluding IAS 19 of 111p, compared with 104p at 30 June1 Total net asset value per share of 103p compared with 96p at 30 June1 Continue to expect to deliver a COR of around 95% in 2010Overview
We have continued to build good momentum, with net written premiums for the nine months to 30 September 2010 of £5,531m, an increase of 10% (7% at constant exchange) compared with the same period in 2009.
International net written premiums of £2,652m up 8% (3% at constant exchange) 2 UK net written premiums of £2,175m up 10% 2 Emerging Markets net written premiums of £683m up 19% (13% at constant exchange) 2 Indian associate net written premiums of £84m up 33% (24% at constant exchange)As in the first half of the year, trading conditions remain challenging including further adverse weather in Canada and Scandinavia. We continue to benefit from our strong and diversified portfolio, our focus on underwriting discipline and our prudent reinsurance and reserving policies. In Chile, the estimated net loss for the earthquake in February is unchanged at around £30m.
For the full year, we expect UK net written premium growth to be close to the nine month level and International to deliver mid-single digit growth. Emerging Markets is expected to return to double digit growth in 2011 and be close to achieving this in 2010. As it stands today, we continue to expect to deliver a combined operating ratio for the full year of around 95%.
Andy Haste, Group CEO of RSA, commented:
"In what is a challenging year for the industry, we have built good top line momentum and have again driven the business forward delivering strong premium growth in the UK, International and Emerging Markets. We continue to supplement organic growth with targeted acquisitions and have signed a further ten deals in 2010, including GCAN in Canada and 123 Money in Ireland. We remain excited about the Group's prospects and confident of delivering sustainable profitable performance."
1 See notes to editors Note 42 See notes to editors Note 1
Business Update
- International
International has delivered a good top line performance, with premiums up 8% to £2,652m (3% at constant exchange).
In Scandinavia, premiums of £1,342m were up 2% (in line with 2009 at constant exchange) driven by Personal lines which were up 6% (4% at constant exchange) with good growth in Personal Accident, Household and Norway predominantly resulting from rating action. While GDP trends are improving in Scandinavia, Commercial lines growth continues to be impacted by reduced exposures as a result of the economic downturn and premiums were down 4% (down 5% at constant exchange).
In Canada, premiums of £925m were up 23% (8% at constant exchange) due to rate increases, good retention and favourable exchange. In Personal lines, premiums were up 21% (7% at constant exchange) with Johnson performing strongly, delivering growth of 23% (9% at constant exchange) and adding eight new sponsorship groups in the quarter. Commercial lines were up 26% (12% at constant exchange) due to strong new business in Mid-Market and SME. With the acquisition of GCAN, a leading mid-market, large risks & specialty commercial insurer, RSA will become the fourth largest general insurer in the market.
In Other Europe, premiums were down 1% to £385m (up 3% at constant exchange), with growth in Ireland of 1% (4% at constant exchange) driven by positive rate action across all portfolios, including increases of 27% in Household and 20% in Personal Motor, and the benefit of recent affinity wins and previous acquisitions. RSA is now the second largest insurer in the Irish market and with the acquisition of 123 Money, has a leading direct presence to complement its existing intermediated distribution. In Italy, we continue to take action on risk selection and rate, with premiums for the nine months down 4% (in line with the prior year at constant exchange).
The International portfolio continues to build top line momentum and we remain confident that it will deliver mid-single digit top line growth in 2010.
- UK
The UK delivered another excellent top line performance with premiums up by 10% to £2,175m. The market in the UK remains competitive and our strategy of pushing rate, targeting profitable growth and selective capacity withdrawal where we cannot achieve target returns is unchanged.
In Commercial lines, premiums of £1,257m were up by 10% on last year. Specialty lines again performed well with Risk Solutions up by 12% in the UK and 11% in Europe and Marine up by 13%. We continued to see a return to growth in Commercial Motor, up by 22% driven by rating action and the phasing of renewals. We have also continued to take action to place into run-off and exit those schemes where we cannot meet our target returns. In Personal, premiums increased by 11% to £918m, with further strong growth in Personal Broker due to increased rates and shares on targeted broker panels with premiums up by 33% in Home and 43% in Motor. Pet again performed well with premiums up by 7%. The Tesco deal is now operational and as previously disclosed, is expected to generate around £100m of premiums in 2011.
Across the UK, we continue to take further action on rate, increasing Personal Motor rates by 18%, Household by 4% and Commercial rates by 6% in Liability, 5% in Property and 8% in Motor.
We have maintained top line growth in the UK and expect full year growth to be close to the nine month level.
- Emerging Markets
Emerging Markets has delivered a strong result, with net written premiums of £683m up by 19% (13% at constant exchange). Total premiums including associates were £767m, an increase of 14% (8% at constant exchange).
In Central and Eastern Europe premiums of £145m were up by 13% (16% at constant exchange) driven by the consolidation of our Intouch businesses from July 2009 when the remaining 50% of our former associate was acquired. We continue to be the leading direct insurer in Poland, the Czech Republic and Russia. The Baltics remain impacted by the economic downturn, however, we are taking the right action and have maintained our market leading position.
In Asia and the Middle East, premiums of £141m were down by 8% (down 9% at constant exchange). As disclosed at the time, 2009 benefitted from a large construction win in Hong Kong in the first quarter. Excluding this, premiums are in line with the prior year (down 1% at constant exchange) with 50% growth in Oman at constant exchange following the acquisition of Al Ahlia, 33% growth in China due to Marine and Casualty and 13% growth in Singapore due to SME and Marine, offset by the impact of reductions in other territories.
Our associate in India continues to perform well with premiums up by 33% to £84m (24% at constant exchange) due to strong growth in the motor market.
Latin America delivered another excellent top line result, with premiums of £397m up by 35% (22% at constant exchange). Argentina was up by 63% at constant exchange due to strong new business in Motor and the ongoing impact of the sale of six month policies, Brazil was up by 31% with strong performances in Motor and Marine, Colombia was up by 23% driven by Affinity and Uruguay was up by 14% with good growth in Motor. Chile also returned to growth following the disruption of the earthquake in February and premiums were up by 10%.
In terms of the full year, we expect overall growth in Emerging Markets to be close to double digit but marginally down on third quarter levels due to large contract wins in the fourth quarter of 2009 in Asia and the Middle East. Emerging Markets remains an attractive place to do business and we will continue to invest in the region.
A full breakdown of Group net written premiums and rating actions for the third quarter is included in the notes to editors.
Financial Position and 2010 Outlook
- Investment Portfolio
The investment portfolio totalled £14.8bn at 30 September, an increase of 4% since the half year due mainly to foreign exchange and mark to market movements.
The Group operates a low risk investment strategy with 86% of the total investment portfolio invested in high quality fixed income and cash assets. As previously reported, we are implementing a number of actions to mitigate falling yields and respond to changed investment conditions, including increasing the proportion of non governments towards 60% of the bond portfolio and a measured increase in equity and property holdings.
- Shareholders' Funds and Capital Position
As at 30 September 2010, shareholders' funds excluding the pension fund deficit were £3,945m (111p per share) compared with £3,700m (104p per share) at 30 June 2010 due to retained profits, fair value gains and positive foreign exchange. Total shareholders' funds including the pension deficit were £3,677m (103p per share), compared with £3,433m at 30 June (96p per share).
The Group's capital position remains strong. At 30 September, the IGD surplus increased marginally to £1.7bn, representing coverage of 2.3 times the requirement. The economic capital surplus reduced to £1.4bn. The Group's economic capital model projects three years of new business followed by a multi-year run-off period. The movement in the surplus since the half year includes the impact of acquisitions and reductions in yield curves within our major operating territories.
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 editors.
- Outlook
We have great businesses, with strong positions in attractive markets. For the full year, we expect UK net written premium growth to be close to the nine month level and International to deliver mid-single digit growth. Emerging Markets is expected to return to double digit growth in 2011 and be close to achieving this in 2010. As it stands today, we expect to deliver a combined operating ratio for the full year of around 95%. We continue to expect investment income and total gains to both be marginally ahead of the original guidance, which was around £540m and in line with 2009 respectively.
For further information:
| 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 editors:
1. Set out below are the net written premiums for each of the regions for the nine months to September 2010:
| Net written premiums |
Increaseas | Increase atconstant | ||||||||||||
| Q3 2010 | Q3 2009 | reported | exchange | |||||||||||
| £m | £m | % | % | |||||||||||
| Scandinavia | 1,342 | 1,320 | 2 | - | ||||||||||
| Canada | 925 | 755 | 23 | 8 | ||||||||||
| Other Europe | 385 | 387 | (1) | 3 | ||||||||||
| Total International | 2,652 | 2,462 | 8 | 3 | ||||||||||
| UK Personal | 918 | 829 | 11 | 11 | ||||||||||
| UK Commercial | 1,257 | 1,147 | 10 | 10 | ||||||||||
| Total UK | 2,175 | 1,976 | 10 | 10 | ||||||||||
| Emerging Markets | 683 | 575 | 19 | 13 | ||||||||||
| Group Re | 21 | 15 | 40 | 40 | ||||||||||
| Total Group | 5,531 | 5,028 | 10 | 7 | ||||||||||
2. Rate movements achieved for risks renewing in September 2010 versus comparable risks renewing in September 2009 were as follows:
| Personal | Commercial | |||||||||||||||
| Motor | Household | Motor | Liability | Property | ||||||||||||
| % | % | % | % | % | ||||||||||||
| Scandinavia | 4 | 7 | 4 | 2 | 5 | |||||||||||
| Canada | 5 | 12 | 4 | 1 | 2 | |||||||||||
| UK | 18 | 4 | 8 | 6 | 5 | |||||||||||
3. The movement in the value of the investment portfolio from 30 June 2010 to 30 September 2010 is set out below:
| Value 30/6/2010 | Foreign Exchange | Mark to Market | Other Movements | Value 30/9/2010 | |||||||||||||
| £m | £m | £m | £m | £m | |||||||||||||
| Government Bonds | 5,273 | 217 | 4 | (7) | 5,487 | ||||||||||||
| Non Government Bonds | 5,973 | 146 | 29 | 101 | 6,249 | ||||||||||||
| Cash | 1,199 | 16 | - | (185) | 1,030 | ||||||||||||
| Equities | 1,011 | 13 | 110 | 49 | 1,183 | ||||||||||||
| Property | 421 | 6 | 2 | 24 | 453 | ||||||||||||
| Prefs & CIVs | 253 | (2) | 16 | (17) | 250 | ||||||||||||
| Other | 96 | 1 | - | 18 | 115 | ||||||||||||
| Total | 14,226 | 397 | 161 | (17) | 14,767 | ||||||||||||
The investment portfolio increased by 4% over the quarter to £14,767m, with foreign exchange of £397m and mark to market movements of £161m marginally offset by net outflows of £17m. The foreign exchange movement reflects the depreciation of Sterling against the Euro, the Danish Krone and the Swedish Krona. The mark to market movement predominantly reflects increases on equities with smaller movements on bonds, property, preference shares and Collective Investment Vehicles (CIVs).
At 30 September 2010, unrealised gains in the statement of financial position were £725m (30 June 2010: £533m).
86% 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 98% of the bond portfolio investment grade, and 77% rated AA or above. The bond holdings are well diversified, with 74% invested in currencies other than Sterling and 53% invested in non government bonds (30 June 2010: 53%). The average duration is 3.1 years for the Group.
Equities (excluding preference shares and CIVs backed by fixed income and cash) comprised 8% of the portfolio. We continue to hedge our equity portfolio, with around 60% of the exposure hedged with a rolling programme of put and call options, providing protection down to a FTSE level of 4,250. The commercial property portfolio is 3% of investment assets and comprises high quality commercial properties and does not include any development properties.
With the actions we are taking and our geographic spread, we continue to expect investment income and total gains for 2010 to both be marginally ahead of the original guidance, which was around £540m and in line with 2009 respectively. Total gains will be impacted by any further market movements in commercial property values as well as financial market volatility. If the FTSE 100 remains at the current level of around 5,750, we would expect the value of the equity hedges to fall by around £30m from their mid year position. The value of commercial property is expected to broadly track the IPD index.
4. The Group's shareholders' funds including and excluding the pension deficit are as follows:
| Shareholders' funds ex. IAS 19 | Pension deficit | Shareholders' funds | Shareholders' funds ex. IAS 19 | Shareholders' funds | ||||||||||||||||
| £m | £m | £m | per share | per share | ||||||||||||||||
| 30 June 2010 | 3,700 | (267) | 3,433 | 104p | 96p | |||||||||||||||
| 30 September 2010 | 3,945 | (268) | 3,677 | 111p | 103p | |||||||||||||||
As at 30 September, shareholders' funds excluding the pension scheme increased by 7% to £3,945m due to retained profit, fair value gains and positive foreign exchange.
The pension fund deficit remains broadly unchanged since 30 June with a reduction in the discount rate from 5.4% to 5.1%, in line with decreasing corporate bond yields, offset by an increase in the fair value of the pension scheme assets. Inflation assumptions were unchanged in the quarter.
The assumptions used to calculate the pension fund position are formally reviewed each year and the next full review will be carried out at the 2010 year end.
Shareholders' funds including the pension funds were £3,677m, an increase of 7% 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 | ||||||||||
| 30 June 2010 | 1.2 | 1.6 | 2.3x | ||||||||
| 30 September 2010 | 1.3 | 1.7 | 2.3x | ||||||||
At 30 September 2010, the Group had surplus economic capital of £1.4bn, compared with £1.8bn at 30 June 2010, based on a risk tolerance consistent with Standard & Poor's long term A rated bond default curve. The Group's economic capital model projects three years of new business followed by a multi-year run-off period. The movement in the surplus since the half year includes the impact of acquisitions and reductions in yield curves within our major operating territories. The risk tolerance is equivalent to a probability of solvency over one year of 99.92%. The model is a key decision making tool and is used for a range of strategic, operational and financial management purposes throughout the Group.
6. Foreign exchange rates used to translate the 2010 and 2009 consolidated results included in this statement are as follows:
| Local currency/£ | Average | Closing | |||||||||||||||
| 9 Months 2010 | 9 Months 2009 | 30 September 2010 | 30 June 2010 | 31 December 2009 | |||||||||||||
| Canadian Dollar | 1.59 | 1.80 | 1.62 | 1.59 | 1.69 | ||||||||||||
| Danish Krone | 8.68 | 8.41 | 8.60 | 9.10 | 8.37 | ||||||||||||
| Swedish Krona | 11.27 | 12.09 | 10.61 | 11.64 | 11.53 | ||||||||||||
| Euro | 1.17 | 1.13 | 1.15 | 1.22 | 1.13 | ||||||||||||
7. Movements since 30 September 2010
As at 3 November, shareholders' funds have decreased marginally with actuarial losses on the pension deficit partially offset by retained profits and net asset value per share is estimated at 102p. The IGD and economic capital surpluses are estimated to be unchanged at £1.7bn and £1.4bn respectively.
A 30% fall in the FTSE from current levels of around 5,750 would reduce the IGD surplus by an estimated £0.3bn.
8. This trading update constitutes RSA's Interim Management Statement for the period 30 June 2010 to 3 November 2010.
About RSAWith a 300 year heritage, RSA is one of the world's leading multinational quoted insurance groups. RSA has major operations in the UK, Scandinavia, Canada, Ireland, Asia and the Middle East, Latin America and Central and Eastern Europe and has the capability to write business in over 130 countries. Focusing on general insurance, RSA has around 23,000 employees and, in 2009, its net written premiums were £6.7 billion.
Important DisclaimerThis 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 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 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. 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.
Copyright Business Wire 2010
Related Shares:
RSA.L