Half-year Results

2017 INTERIM RESULTS

Stephen Hester, RSA Group Chief Executive, commented:

"RSA did well in the first half. We delivered outperformance, showing record underwriting results, attractive earnings and dividend growth with strong return on capital. Pleasingly, customers are also growing business volumes with us.

Across the Group the focus is on making progress towards our best-in-class ambitions. And while RSA is now measuring against higher performance standards, there is much more that can be done to improve."

Trading results

· Group operating profit £360m up 15% (H1 2016: £312m): Scandinavia £202m; Canada £71m; UK & International £151m2.

· Group underwriting profit of £222m, up 28% (H1 2016: £174m).

- Record1 Group combined ratio of 93.2% (H1 2016: 94.7%). Scandinavia 81.9%; Canada 94.8%; and UK & International 95.4%2.

- Group attritional loss ratio of 54.9%, 0.3pts better than last year3; weather and large losses 0.2pts worse.

- Group prior year underwriting profit of £79m (H1 2016: £55m).

· Group premiums of £3.4bn up 11% at reported fx, and up 3% at constant fx. Volumes accounted for 1% and rate increases 2%.

· Investment income of £171m (H1 2016: £187m) down 9% versus the same period last year reflecting the impact of disposals and ongoing reinvestment at lower yields.

· Below the operating result there were lower interest costs following our debt restructuring, with other non-operating items largely as flagged.

· Pre-tax profit of £263m, up 78% (H1 2016: £148m).

· Underlying earnings per share (EPS) 23.3p up 31% (H1 2016: 17.8p). Stated EPS up 133% to 18.4p.

· Interim dividend of 6.6p/ordinary share declared, up 32% (H1 2016: 5.0p).

1 Underlying measure, please refer to pages 21-23 for further information.

2 Excluding Ogden impact.

3 At constant exchange, ex disposals

Capital & balance sheet

· Solvency II coverage ratio of 163% after dividend accrual (31 December 2016: 158%), slightly above 130-160% target range.

· Reserve margin returned to 5.0% target (31 December 2016: 5.5%) after release for Ogden rate change.

· Tangible equity £2.8bn (31 December 2016: £2.9bn), 273p per share.

· Underlying return on opening tangible equity of 16.6% annualised (H1 2016: 12.8%).

Strategic update

· Restructuring now complete. 2017 actions comprised the disposal of UK legacy liabilities (announced in February); the issuance of c.£300m of restricted tier 1 notes in Scandinavia and retirement of c.£600m of existing high coupon debt. These actions reduced risk, improved capital resilience, and lowered interest costs.

· The Group's entire focus is now on the drive for outperformance. In that context, our many performance improvement initiatives continue to deliver progress, targeted at customer service, underwriting capabilities, and costs.

· The improved premium trends we report for the first half reflect the service and capability enhancements we have been implementing. Pleasingly they are reflected in every region.

· Underwriting capabilities continue to be refined across the Group. These include more sophisticated and agile pricing models, underwriter training and heightened discipline, and technology driven insights. Progress on loss ratios can be volatile but is on track overall with a couple of business line exceptions.

· Group written controllable costs for H1 2017 were down 6% year-on-year at constant exchange to £723m (comprising 8% cost reductions, offset by 2% inflation). Group headcount down 8% versus H1 2016. Overall we remain on track to deliver >£400m gross annualised savings by 2018 (c.£330m achieved to date).

MANAGEMENT REPORT - KEY FINANCIAL PERFORMANCE DATA

Management basis

CHIEF EXECUTIVE'S STATEMENT

RSA is pleased to report another half year of outperformance. But we are not relaxing. There is much more we aim to improve - for both customers and shareholders. Competitive markets and our own raised ambitions will demand no less.

Across RSA's markets, conditions are essentially unchanged versus 2016 though with many variations by business line and geography. We are carefully watching inflation trends, notably in the UK. Testing competition and, occasionally, volatile loss trends create underwriting challenges which we must continue to address more crisply as capabilities improve.

RSA's restructuring efforts were completed by the £834m sale of UK legacy liabilities announced in February, and the subsequent repurchase and refinancing of capital instruments. Taken together these actions reduced risk, boosted capital resilience and increased future earnings. They leave us with undiluted focus on the pursuit of high performance in our continuing businesses.

Our best-in-class ambitions are being pursued through companywide efforts to improve customer service and underwriting skills, and to reduce operating costs.

Net written premiums grew 11% in the period, with higher retention and new business adding to pricing and FX gains. Although top line growth is not our highest priority, it is nevertheless pleasing that customers are responding to the improved capabilities we are deploying.

While underwriting results will always be 'noisy' over short periods, we are pleased with continuing progress, and a combined ratio of 93.2% is our best on record. In terms of volatile items, better than planned weather costs were offset by higher than usual large losses. Attritional loss ratio improvement continued with an H1 ratio of 54.9% vs 55.2% for H1 2016 at constant FX.

Cost efficiency remains crucial for all businesses in our industry. RSA continues to track ahead of our plans in this regard, with gross cost reductions of 8% (CFX) vs prior year.

The strength of our regional line-up also showed well in the period. Our Scandinavian business contributed a majority of underwriting profits with strong underlying advances and above trend prior year profits. Canada did well also, despite higher large losses. Our Irish business returned to profit. Our UK business had the toughest time with Ogden costs, above plan large losses and challenges in household loss ratios. But, excluding Ogden, results were in-line with our plan even here.

Across RSA improvement programmes are continuing to deliver. Our digital capabilities are improving, with notable advances in digital claims and policy servicing. New, more sophisticated underwriting and pricing models continue to roll out. Cost programmes around automation, site consolidation, lean methodology, outsourcing and zero-based budgeting are all progressing.

Overall, RSA is in good health. We have much to do. We will fall short in areas. But we nevertheless expect to make continued good progress in pursuit of sustained outperformance.

Stephen Hester

Group Chief Executive

1 August 2017

MANAGEMENT REPORT

SEGMENTAL INCOME STATEMENT

Management basis - 6 months ended 30 June 2017

Note:

UK & International comprises the UK (and European branches), Ireland and the Middle East

Please refer to appendix for H1 2016 comparatives

1 Preference dividends of £5m and coupons of £3m paid on 2017 issued restricted tier 1 securities.

Premiums

First half 2017 Group net written premiums of £3.4bn were up 11% at reported FX and up 3% at constant fx (excluding the impact of disposals).

Foreign exchange provided an 8% benefit to first half premiums. At current exchange rate levels, this benefit will moderate by around half for full year 2017.

We are pleased to report positive topline performance in the first half. Growth of 3% (at constant exchange) included 1% volume growth and 2% rate increases.

We have seen a strengthening of underlying customer activity as capability improvements take effect. Customer retention trends are improving and satisfaction levels remain good. Overall Group retention improved slightly to 81%.

Our goal is to serve customers well but profitably.

Regional trends for H1 2017 include:

· Scandinavian premiums up 10% at reported fx, and up 1% at constant fx, with growth in Sweden and Norway partly offset by reductions in Denmark;

· Canadian premiums up 20%, and up 5% at constant fx with Personal up 5% and Commercial also up 5%, reflecting good growth in the broker channel;

· UK & International premiums were up 7%, and up 3% at constant fx. UK premiums were up 5% (at CFX) with Personal up 12% and Commercial up 1%. Premiums in Ireland were down 8%, whilst Middle East premiums were up 9%.

Underwriting result

Group underwriting profit of £222m was up 28% year-on-year.

Current year profit of £143m (H1 2016: £119m):

· The Group attritional loss ratio was 54.9% which showed a 0.3 point improvement from H1 2016 at constant exchange. Scandinavia was 1.4 points better. Canada was 0.2 points better after adjusting for the c.1 point of benign 'indirect' weather that we flagged in H1 2016. The UK & International was slightly better than a year ago and included good improvements in UK Commercial, Ireland and the Middle East, offset by a higher UK Personal attritional loss ratio driven by Household.

· Total Group weather costs were £38m or 1.2% of net earned premiums (H1 2016: 3.5% ex disposals; five year average: 3.2%), with experience benign in the UK and Scandinavia.

· Total Group large losses were £370m or 11.4% of net earned premiums (H1 2016: 8.9% ex-disposals; five year average: 8.6%). This elevated large loss experience was driven by higher than trend levels in the UK, Ireland and Canada. Our expectation is it will revert to normal patterns, but we are watching trends carefully.

Prior year profit was £79m, with prior year development providing a 2.8 point benefit to the Group combined ratio. This included positive development from each region.

As previously flagged, the Group booked a £42m net charge (after release of FY16 margin build) relating to the change in Ogden discount rate in the UK. £39m related to our UK business and £3m to Ireland.

Our assessment of the margin in reserves for the Group (the difference between our actuarial indication and the booked reserves in the financial statements) is 5% of booked claims reserves per our target. This follows the release of the additional 0.5% that was built at FY16 in anticipation of the Ogden discount rate change.

Underwriting operating expenses

The Group underwriting expense ratio of 14.9% was 0.3 points better than a year ago (H1 2016: 15.2% ex disposals). There were improvements of 0.6 points in Scandinavia and 1.5 points in Canada, whilst the UK reported ratio was 0.4 points higher (though UK total controllable costs and cost ratio improved). We continue to work towards further improvements in the expense ratio in the coming years.

Commissions

The Group commission ratio in H1 2017 of 13.6% compared to 13.9% (ex disposals) in H1 2016. We expect the Group's commission ratio to be broadly similar in the second half of 2017.

Investment result

The investment result was £148m (H1 2016: £150m) with investment income of £171m (H1 2016: £187m), investment expenses of £6m (H1 2016: £6m) and the liability discount unwind of £17m (H1 2016: £31m).

Investment income was down 9% on prior year, primarily reflecting the impact of the disposal of Latin America and the UK Legacy business together with ongoing reinvestment at lower yields. The average book yield across our major bond portfolios was down slightly to 2.4% (H1 2016: 2.6%).

At current market forward rates, we expect investment income of c.£315m for the full year 2017.

Total controllable costs

As at the end of the first half of 2017 our cost reduction programme has delivered total gross annualised cost reductions of around £330m. Overall we remain on track to deliver >£400m gross annualised savings by 2018.

Group written total controllable costs were down 6% (ex disposals) year-on-year at constant exchange to £723m, and comprised 8% cost reductions, offset by 2% inflation.

Scandinavia delivered year-on-year 'real' cost reductions of 7%, with 12% in Canada and 7% in the UK.

Group FTE1 is down 20% (ex disposals) since the start of 2014 to 13,200 at June 2017, and is down 8% H1 2017 v H1 2016.

Non-operating items

Interest costs:

· Interest costs in H1 2017 were £30m (£33m including the new tier 1 issuance - see below), down from £54m a year ago. The reduction reflects debt restructuring actions over the past 12 months.

· In the first half of 2017 the Group issued c.£300m of restricted tier 1 notes in Scandinavia; and retired c.£600m of existing high coupon debt. These actions supplemented the £200m debt retirement completed in July 2016.

· Coupon costs for the new Scandinavian issuance are reflected at the bottom of the management P&L as 'other equity costs', as per accounting rules. The first half cost was £3m, with an annualised interest cost for this instrument of £14m.

1 Full time equivalent employees.

Other non-operating charges:

· Net gains of £44m included a £66m gain relating to the Legacy disposal (mainly mark-to-market of the assets transferred to the buyer) and a £22m charge relating to the commutation of the Group's adverse development reinsurance cover, both as previously flagged at FY 2016.

· There was a charge, as flagged at Q1 2017, of £59m relating to the premium paid on the debt buybacks completed at the end of March.

· Restructuring costs were £41m in the first half and included £20m in respect of redundancy. 2017 is expected to be the last year of our restructuring costs and we continue to anticipate a full year charge of c.£100m.

Tax

The Group has reported a tax charge of £57m for H1 2017, giving an effective tax rate (ETR) of 21.6% (H1 2016: 39%). This charge largely comprises tax payable on Scandinavian and Canadian profits (at local statutory tax rates). We continue to expect the full year 2017 ETR to be in line with statutory tax rates in our local territories.

The Group underlying tax rate in the first half was 22.4% (H1 2016: 24%). Given the scale of unrecognised UK tax assets (which given expected changes in UK legislation are likely to last well over 10 years) this may trend towards 20% over the next few years.

The carrying value of the Group's net deferred tax asset at 30 June 2017 was £206m (of which £202m is in the UK). At current tax rates, a further c.£200m of deferred tax assets remain available for use but not recognised on balance sheet; these are predominantly in the UK and Ireland.

Dividend

We are pleased to declare an interim dividend of 6.6p per ordinary share, up 32% year-on-year (H1 2016: 5.0p).

Our medium term policy of between 40-50% ordinary dividend payouts remains, with additional distributions where justified.

1 In H1 2016 'other' included Solvency II costs of £6m and a cost of £6m relating to a discount rate change on Danish claims liabilities.

BALANCE SHEET

Movement in Net Assets

Tangible net assets3 decreased by 3% to £2.8bn in the first half of 2017. Profits in the period were more than offset by fair value mark-to-market movements (partly reflecting the transfer of Legacy assets for which a corresponding gain was included within profit) and the payment of the 2016 final dividend. IAS 19 pension movements (excluding deficit funding contributions) were largely neutral (see page 25 for further detail).

1 Ordinary shareholders' funds including preference share capital of £125m.

2 Includes preference dividends of £5m and coupons of £3m paid on 2017 issued restricted tier 1 securities.

CAPITAL POSITION

The Solvency II coverage ratio1 increased to 163% in the first half (31 December 2016: 158%), with the key drivers as follows:

· Underlying capital generation added 14 points of coverage;

· Restructuring costs, net capital investments and other non-operating items reduced the ratio by 3 points;

· Pull-to-par on unrealised bond gains accounted for a 4 point reduction;

· 18 points of benefit from the disposal of UK legacy liabilities, announced in February;

· 10 point reduction due to the debt restructuring actions taken in the first half of 2017;

· Market movements, fx and IAS 19 were a small negative, reflecting the impact of narrower AA corporate bond spreads on IAS 19 pension accounting, offset mainly by a positive impact from equities. There was also a 3 point reduction due to the Ogden rate change;

· 2017 dividend accruals2 reduced the coverage ratio by 6 points.

Please refer to Appendix (page 24) for further Solvency II details (including sensitivities).

OUTLOOK

In the second half of 2017, our priorities are unchanged: the drive for further performance gains.

We aim for premium growth, however the priority is to maintain underwriting discipline.

We target a lower attritional loss ratio, and we expect further cost reduction and efficiency gains. Volatile items (weather, large losses and PYD) will remain just that.

In summary, we target attractive full year 2017 performance as we continue to build from the quality performance base now established.

1 The Solvency II capital position at 30 June 2017 is estimated.

2 Reflects 6 months accrual of a 'notional' dividend amount for the year. This 'notional' amount should not be considered in any way to be an indication of actual dividend amounts for 2017.

REGIONAL REVIEW - SCANDINAVIA

Management basis

1 Rate changes reflect changes for risks renewing in the year-to-date versus comparable risks renewing in the same period the previous year

SCANDINAVIA

In H1 2017, Scandinavia delivered an excellent underwriting profit of £162m, up 56% (at constant fx) versus a year ago, with both strong current and prior year profitability.

We continue to make good progress with our customer agenda as we aim to deliver an 'effortless' customer experience. Our improvement initiatives continue with the launch of a 'chat bot' service in Sweden and a new customer service portal in Denmark that enhances the customer journey and claims handling process. Our overall retention rate improved slightly to 80%.

Net written premiums of £1,064m were up 10% at reported fx and up 1% at constant fx, driven by Norway and Sweden (H1 2016: £965m as reported). Rates were up 2% whilst volumes were down 1%.

The underwriting result was £162m (H1 2016: £96m as reported; £104m at constant fx) with current year profit of £120m and prior year profit of £42m.

The current year attritional loss ratio of 63.1% was 1.4 points better than H1 2016 reflecting underwriting discipline, ongoing capability improvements and lower claims handling costs. Benign weather experience (0.3 points better than last year) was offset by adverse large loss experience (0.4 points higher than last year). The prior year effect on the loss ratio was unusually positive, producing a benefit of 4.7%. The overall combined ratio was 81.9% (H1 2016: 88.5%).

After including an investment result of £40m (H1 2016: £35m), the total operating profit was £202m, up 54%.

The Scandinavian performance improvement programme has continued to deliver well, with particular focus on operational efficiency, e.g. process redesign, robotics and automation. We've also seen further site consolidation progress and IT cost reduction.

Total written controllable expenses were down 5% year-on-year, with 7% cost reductions offset by 2% inflation. The earned controllable cost ratio of 24.2% showed a 1.2 point reduction year-on-year. Headcount was down 10% in the first half of the year and is now down 18% since the end of 2013.

Scandinavia - Outlook

We continue to expect the Scandinavian P&C markets to grow in line with local GDP growth and we target medium-term growth broadly in line with the market, subject to maintaining underwriting discipline.

Our focus remains on further improving the underlying performance of the business, particularly customer volumes, attritional loss ratios and cost improvements. Our COR ambition for Scandinavia is

REGIONAL REVIEW - CANADA

Management basis

1 Rate changes reflect changes for risks renewing in the year-to-date versus comparable risks renewing in the same period the previous year

CANADA

Canada delivered a first half underwriting profit of £40m despite higher large losses and lower prior year releases versus a year ago.

We continue to work hard to enhance our customer offering. In Johnson we've made strong progress in digital capabilities, and customer scores have continued to improve and outperform benchmarks. In our broker distributed businesses, faster response times and new digital tools enable brokers to service their clients anywhere, anytime, reducing the time to quote from hours to minutes. Customer retention has improved to 86% (versus 84% a year ago).

Net written premiums of £728m were up 20% at reported fx and up 5% at constant fx (H1 2016: £609m as reported). Growth comprised 2% from increased volumes, 1% from rate increases and 2% from lower reinsurance costs. Growth was particularly good in the broker channel with Personal broker up 12% and Commercial up 5%. Johnson, our Personal direct business, returned to volume growth in the second quarter.

The underwriting profit was £40m (H1 2016: £37m) with current year profit of £19m and prior year profit of £21m.

The current year attritional loss ratio was 57.9%, versus 57.1% a year ago. However, H1 2016 was flattered by c.1pt due to benign indirect weather experience, as previously disclosed: excluding this the attritional loss ratio was c.0.2pts better than a year ago. Favourable weather experience (3.9 points better than last year due to Fort McMurray losses in H1 2016) was partly offset by adverse large loss experience (1.9 points higher). Prior year reserve releases, whilst still positive at 3.0%, were lower than last year (H1 2016: 6.0%). The overall combined ratio was 94.8% (H1 2016: 94.5%).

After including an investment result of £31m (H1 2016: £32m), the total operating profit was £71m, up 3%.

Our business improvement programme in Canada has continued well during the first half of the year, delivering further enhancements to pricing sophistication, process simplification, site consolidation. and the implementation of the Guidewire claims system proceeding as planned.

Total written controllable expenses were down 10% year-on-year, with 12% cost reductions offset by 2% inflation. The earned controllable cost ratio of 19.3% showed a 2.4 point reduction year-on-year. Headcount was down 5% in the first half of the year and is now down 16% since the end of 2013.

Canada - Outlook

We target a continuation of the positive premium trends we have seen in the first half of 2017 and continued progress towards our combined ratio ambition of

 REGIONAL REVIEW - UK & INTERNATIONAL

Management basis

1 Rate changes reflect changes for risks renewing in the year-to-date versus comparable risks renewing in the same period the previous year

UK & INTERNATIONAL

In H1 2017 the UK & International delivered a combined ratio of 95.4% (excluding the impact of Ogden; 98.0% including Ogden) despite a competitive landscape.

UK

In the UK our customer capabilities have continued to advance with improved satisfaction metrics for Personal Intermediated and Motability. Motability improved on their NPS score, increasing 10 pts to +86 for the half year.

First half net written premiums in the UK increased by 5% at constant exchange, with rate increases of 1% and volume increases of 4%. UK Personal growth of 12% was underpinned by continued growth in our motor telematics proposition. UK Commercial net written premiums grew by 1% at constant exchange. Targeted growth in our Marine and Property portfolios helped offset shrinkage in Commercial Motor as a result of strong underwriting actions.

The UK underwriting result of £56m excluding Ogden (£17m including the impact of the Ogden discount rate change) (H1 2016: £76m) was achieved despite difficult trading conditions. Weather and large losses taken together were 1.6 points worse than last year. The attritional loss ratio deteriorated mainly due to inflationary experience in Personal Household. Prior year reserve releases were positive but lower than last year due to the impact of Ogden.

Our transformation agenda continues to deliver benefits with increased process simplification and enhanced data analytics capabilities.

Total written controllable expenses were down 5% year-on-year, with 7% cost reductions offset by 2% inflation. The earned controllable cost ratio of 21.2% improved 0.6 points year-on-year. Headcount was down 10% in the first half of the year and is now down 22% since the end of 2013.

Ireland

Ireland returned to underwriting profit delivering a first half profit of £2m and combined ratio of 98.8% (96.7% ex Ogden), underpinned by disciplined underwriting actions. The attritional loss ratio of 60.9% was 4.4 points better than prior year. The result also includes a £3m cost due to the Ogden discount rate change. Net written premiums of £152m were down 8% at constant FX versus H1 2016 following targeted remediation activity.

Middle East

The Middle East region delivered an underwriting result of £13m (H1 2016: £7m) and combined ratio of 87.3% (H1 2016: 91.4%) driven by a 4.5 point improvement in the attritional loss ratio following underwriting actions taken across the portfolio. Premiums of £112m were up 9% at constant FX despite challenging trading conditions in Saudi Arabia.

UK & International - Outlook

We expect underlying premium trends to continue into the second half. Underwriting discipline and attritional loss ratios will be a key focus, resulting in some portfolio reductions coupled with targeted growth in stronger areas. Our transformation plans target further underwriting improvements, cost reductions and capability uplifts.

In Ireland we continue to target a return to operating profit for the full year 2017, although the market remains challenging, in particular for claims inflation. In the Middle East the medium term outlook remains positive and work is underway to further develop capabilities throughout the region including underwriting and pricing sophistication.

INVESTMENT PERFORMANCE

Management basis

INVESTMENT PERFORMANCE

Investment income of £171m (H1 2016: £187m) was offset by investment expenses of £6m (H1 2016: £6m) and the liability discount unwind of £17m (H1 2016: £31m). Investment income was down 9% on prior year, primarily reflecting the impact of the disposal of Latin America and the UK Legacy business together with ongoing reinvestment at lower yields.

The average book yield over the period on the total portfolio was 2.5% (H1 2016: 2.7%), with average yield on the bond portfolios of 2.4% (H1 2016: 2.6%). Reinvestment rates in the Group's major bond portfolios over the first half was approximately 1.6%.

Average duration of the Group's bond portfolios is marginally lower at 3.6 years (31 December 2016: 3.7 years).

The investment portfolio decreased by 4% during the first half to £13.1bn. The movement was driven primarily by cash outflows for corporate debt restructuring.

At 30 June 2017, high quality widely diversified fixed income securities represented 85% of the portfolio (31 December 2016: 85%). Equities (largely REITs) represented 2% (31 December 2016: 1%) and cash 6% of the total portfolio (31 December 2016: 7%).

The quality of the bond portfolio remains very high with 98% investment grade and 71% rated AA or above. We remain well diversified by sector and geography.

Unrealised bond gains and pull-to-par

Balance sheet unrealised gains of £487m (pre-tax) reduced by £142m or 23% during the first half, driven by realised gains from the UK Legacy disposal and bond pull-to-par.

We anticipate that the remaining gains will largely unwind over the next 3.5 years, based on current forward yields. We expect pull-to-par of c.£90m in H2 2017, c.£150m in 2018, and c.£110m in 2019.

Outlook

Based on current forward bond yields and foreign exchange rates it is estimated that investment income will be c.£315m for full year 2017. This projected income number is, however, sensitive to changes in market conditions. We continue to expect a discount unwind on long-tail liabilities in the range £30-35m per annum.

APPENDIX

UNDERLYING AND ALTERNATIVE PERFORMANCE MEASURES

The Group uses alternative performance measures, including certain underlying measures, to help explain business performance and financial position. Where not defined in the body of this announcement, further information is set out below.

Note 7 on pages 44-46 of the condensed consolidated financial statements presents a reconciliation of the management basis to statutory income statement.

Combined operating ratio

The Group's combined operating ratio (COR) is calculated on an 'earned' basis as follows:

COR = loss ratio + commission ratio + expense ratio

Where:

Loss ratio = net incurred claims / net earned premiums

Commission ratio = commissions / net earned premiums

Expense ratio = operating expenses / net earned premiums

Constant exchange (CFX)

Prior period comparative translated at current period exchange rates.

Controllable costs

Total controllable costs are stated on a 'written' basis, and include underwriting written controllable expenses of £520m, claims expenses of £187m (included within net incurred claims), investment expenses of £6m, and central expenses of £10m. These items are included within total expenses in the condensed consolidated income statement.

Current year underwriting result

The profit or loss earned from business for which protection has been provided in the current financial period.

Interest costs

Interest costs as shown on a management basis (£30m) comprise coupon costs only. On a statutory basis finance costs of £89m comprise coupon costs of £30m plus debt buyback costs of £59m.

Investment income

Investment income of £171m as shown in the management basis P&L compares to net investment return of £169m shown on a statutory basis. The difference of £2m relates to certain realised and unrealised net losses that are shown within net investment return within the statutory income statement.

Operating profit

Operating profit is calculated as the underwriting result, plus the investment result, less central costs. Note 7 on pages 44-46 of the condensed consolidated financial statements presents a reconciliation of operating profit to profit before tax.

Prior year underwriting result

The profit or loss arising from settling claims incurred in previous years at a better or worse level than the previous estimated costs.

'Record' underwriting performance

Record Group underwriting performance (combined ratio and/or underwriting profit) considers the periods for 2006-2017. In order to compare on a 'like-for-like' basis, historical periods have been adjusted for central expense reallocation changes made in 2015, Scandinavian discount rate changes made in 2014, and IAS 19 pension net interest cost changes made in 2012. In the case of the expense reallocations and IAS 19 changes, the restatement value applied in the year of change has been applied to all preceding years back to 2006.

Reported exchange (RFX)

Prior period comparative translated at the exchange rates reported at that time.

Tangible net asset value (TNAV)

Tangible net asset value of £2,790m at 30 June 2017 comprises shareholders' funds of £3,651m, less goodwill & intangible assets of £736m, less £125m preference share capital.

Underlying earnings per share (EPS)

Please refer to page 23 for calculation.

Underlying profit before tax

Underlying profit before tax is calculated as operating profit of £360m less interest costs of £30m less coupon costs of £3m on the 2017 issuance of restricted tier 1 securities (as shown in Note 9 of the condensed consolidated financial statements).

Reconciliation of underlying profit before tax to profit before tax:

Underlying profit after tax attributable to ordinary shareholders

Reconciliation of underlying profit after tax attributable to ordinary shareholders to profit after tax:

Underlying return on tangible equity (ROTE)

Please refer to page 23 for calculation.

Underlying tax rate

The underlying Core Group tax rate mainly comprises the local statutory tax rates in our territories applied to underlying regional profits (operating profits less interest costs).

Underwriting result

Comprise net earned premiums less net incurred claims (including claims handling expenses), less underwriting expenses less commission expenses.

Net asset value (NAV) and tangible net asset value (TNAV) per share

Net asset value per share data at 30 June 2017 was based on total ordinary shareholders' funds of £3,651m, adjusted by £125m for preference shares. Tangible net asset value per share was based on a tangible book value of £2,790m.

Return on equity and tangible equity, and earnings per share calculations

1 Using underlying assumed tax rate of 22.4% in H1 2017 (applied to operating profits of £360m less interest costs of £30m) and 26% in H1 2016

We expect the underlying assumed tax rate to continue to fall to a rate broadly in line with the statutory tax rates in our operating territories. Given the scale of unrecognised UK tax assets it may trend towards 20% over the next few years.

DISPOSALS

H1 2016 net written premiums of £3,247m included £126m in respect of businesses now disposed (Latin America and Russia). The underwriting profit of £174m for the same period included a loss of £5m in respect of these disposed businesses. See page 26 for further detail.

CAPITAL

Solvency II sensitivities

The above sensitivities have been considered in isolation. The impact of a combination of sensitivities may be different to the individual outcomes stated above.

Reconciliation of IFRS total capital to Eligible Own Funds

1 The interest rate sensitivity assumes a non-parallel shift in the yield curve. This is to reflect that the long end of the yield curve is typically more stable than the short end.

PENSIONS

The table below provides a reconciliation of the movement in the Group's pension fund position under IAS 19 (net of tax) from 1 January 2017 to 30 June 2017.

At an aggregate level the pension fund position under IAS 19 improved during the first half from a £197m deficit to a £143m deficit. This was driven by deficit funding contributions (£65m pre-tax). Market movements, in aggregate, were largely neutral.

1 Actuarial gains/(losses) include pension investment expenses, variance against expected returns, change in actuarial assumptions and experience losses.

2 Other movements include regular contributions, service/administration costs, expected returns and interest costs.

SEGMENTAL ANALYSIS

Management basis - 6 months ended 30 June 2016 (re-presented onto current segmental split)