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Half-yearly Report

7th Aug 2014 07:00

2014 INTERIM RESULTS

RSA Insurance Group plc

2014 Interim Results

7 August 2014

Good progress on our Action Plan: Strategy reset ahead of schedule; Balance sheet health much improved; Foundations being laid for future performance

Tangible equity up 82% since start of 2014 to £3.1bn pro-forma for announced disposals

Group returned to profit (£69m pre-tax); underlying trends in line with our expectations

Stephen Hester, RSA Group Chief Executive, commented:

"RSA's Action Plan is going well. Since announcing it five months ago, we have made strong progress improving strategic focus and capital health. Good work is also underway on cost, portfolio actions and the management line-up to drive future performance.

“While first half profits are modest, they reflect further balance sheet and reserve clean-up as well as above normal weather costs. Underlying business trends, together with the actions outlined, are supportive of achieving the medium-term customer, capital and shareholder targets we have set.

“RSA is again a strong international general insurer. We intend to build a track record of delivery, and increasingly of excellence."

Trading results

Capital metrics at 30 June 2014 (pro-forma for announced disposals): IGD surplus c.£1.7bn with coverage of 2.2 times; ECA surplus c.£1.3bn with coverage of 1.5 times. Tangible equity £2.6bn (31 December 2013: £1.7bn); £3.1bn pro-forma for announced disposals. Net written premiums of £3.9bn down 9%1 (down 3% underlying) reflecting our portfolio action plan and a more disciplined underwriting approach. Foreign exchange movements, notably the strengthening of Sterling during the first half, drove reported premiums down 16%. Headline underwriting profit £2m after absorbing losses in Ireland and charges elsewhere for prior year reserve additions. Current year underwriting profit of £87m excluding Ireland (H1 2013: £80m excluding Ireland); underlying current year loss ratio of 58.5% excluding Ireland, 1.2pts better than prior year (H1 2013: 59.7%). Underlying current year profit trends broadly in line with our expectations including aggregate weather and large loss performance at a Group level. Good results in Scandinavia; Weather impacts in the UK, Ireland, and Canada; Latin America impacted by Chile earthquake, as previously reported. Ireland underwriting loss of £64m as clean-up continues. Our goal is to return Ireland to profitability in 2015. Prior year loss of £21m excluding Ireland (H1 2013: £98m profit ex Ireland, included margin release ex Ireland of £42m). Various clean-up adjustments including reserve additions in the UK and Scandinavia. Net gains of £142m includes only £17m from announced disposals (Latvia) with the balance expected in H2 2014 or early 2015. Gains offset by £133m ‘one-off’ charges including £57m write down of Ireland goodwill and intangibles. Pre-tax profit was £69m (£45m from continuing operations).

Strategic update

Good progress on our Action Plan as we tighten strategic focus, build capital strength, and put in place the foundations to improve business performance. Agreed disposals of Baltics, Poland, Noraxis and China operations with total proceeds of £591m. Rights issue proceeds and disposal gains substantially rebuilding tangible equity. Pension plans now moved into IAS 19 surplus of £50m. Tangible equity to premiums ratio of 33%2 (31 December 2013: 19%). Expect to advance to a healthy level within our target range of 35-45% over the next 18-30 months. Focused on laying the foundations for future business performance. Also engaged in further and more detailed and ambitious strategic challenge of the business. Existing plans include target gross annualised cost reductions in excess of £180m (excluding disposals). Targeting dividend restart with 2014 full year results.

1 at constant exchange rates

2 30 June 2014 TNAV:NWP ratio calculated using two times H1 2014 NWP

MANAGEMENT REPORT – KEY FINANCIAL PERFORMANCE DATA

Management basis

	H1 2014 £m		H1 2014 £m	H2 2013 £m	H1 20131 £m
Net Written Premiums	Personal	Commercial	Total	Total	Total
Scandinavia	537	522	1,059	745	1,118
Canada	484	243	727	889	866
UK & Western Europe	758	834	1,592	1,643	1,946
Emerging Markets	282	325	607	717	686
Group Re (excl. ADC)	-	12	12	18	36
Group ADC	-	-	(67)	-	-
Total net written premiums	2,061	1,936	3,930	4,012	4,652

	Combined operating ratio (%)		H1 2014 £m	H2 2013 £m	H1 20131 £m
Underwriting performance	H1 2014	H1 2013
Scandinavia	86.7	87.7	105	127	98
Canada	98.6	98.7	12	(5)	15
UK & Western Europe	107.6	95.4	(86)	(276)	50
Emerging Markets	105.9	97.8	(23)	34	12
Group Re	-	-	(6)	(11)	13
Total underwriting performance	100.8	94.2	2	(131)	188
Investment result			166	173	192
Insurance result			168	42	380
Operating result			141	6	343
Profit / (Loss) before tax			69	(494)	250
Profit / (Loss) after tax			6	(528)	190

Earnings per share – basic (pence)			(0.2)		22.2
Earnings per share – diluted (pence)			(0.2)		22.1
Return on tangible equity (%)			(0.1)		16.9
Underlying return on tangible equity (%)			3.6		17.0

			30 June 2014 £m	31 Dec 20131 £m
Net asset value			3,726	2,893
Tangible net asset value			2,620	1,665
Net asset value per share (pence)			356	335
Tangible net asset value per share (pence)			259	202

IGD surplus (£bn)			1.3	0.2
IGD coverage ratio (times)			1.9	1.1
ECA surplus (S&P ‘A’ curve calibration) (£bn)			1.1	0.7
ECA coverage ratio (times)			1.4	1.3

Notes

1 Per share amounts restated to reflect the impact of the bonus shares creation following the completion of the rights issue and share consolidation.

CHIEF EXECUTIVE’S STATEMENT

RSA made pleasing progress during the first half of 2014 in addressing the challenges that had accumulated over some years and culminated in the Group's Irish write-downs. We remain confident that the Action Plan laid out in February can be successfully accomplished; indeed progress is ahead of our expectations so far. As so often in restructuring situations, the ‘clean-up’ costs are proving higher than initially expected, but these are outweighed by gains on disposals which are well ahead of plan. We are grateful to our customers, business partners and especially our shareholders for their support at the start of this year.

Our Action Plan has three parts - making RSA ‘Focused, Stronger, Better’.

1. RSA's strategy ‘reset’ is ahead of schedule, focusing the Group principally on its businesses in Scandinavia, Canada, UK & Ireland and Latin America. Disposals of our businesses in the Baltics, Poland, Noraxis in Canada, and China have all been agreed. The businesses are going to good new owners and at attractive values for our shareholders. Further disposals are targeted over the next 12-18 months to complete the process.

2. Our capital and balance sheet health has been decisively restored, along with new management disciplines to sustain the position. The rights issue and disposal gains are substantially rebuilding tangible equity, up 82% in H1 (pro-forma for announced disposals). Our credit rating is restored to A ‘stable’ (S&P) and the business is now trading more normally after an uncertain start to the year.

We have some continuing balance sheet clean-up work to do to ensure the quality of what we present. The largest items were booked as at end 2013 and announced in February. We said then that there might be more to come. In this half year we have booked Irish goodwill and intangible write-downs and taken a range of other reserve actions against prior year emergence. We target completing this process during the remainder of 2014 which should also see some healthy gains realised as disposals complete.

Our commitment to transparent disclosure continues. Our reserve margin is unchanged during the year at 5% of our actuarial indication. We also provide significantly increased financial analysis in our first half reporting.

Our target of building net tangible assets to 35-45% of our premium income remains. We expect to advance to a healthy level within that range over the next 18-30 months. This will be through disposals, retained earnings, net of any further clean-up costs, restructuring charges to fund cost savings and after reinstating dividend payments. We see this as being an appropriate position relative to other internationally operating peers, with proper buffers in excess of a range of regulatory and rating agency indicators. This judgement will be updated once the new Solvency II capital regime is more settled.

Our dividend policy is unchanged. We expect to restart dividends with our full year results and to build to a target payout level of 40-50% of net profits over the medium term.

3. The bulk of our efforts are now turning to improving and then sustaining business performance. 2014 is very much a foundation year. We put a three year Plan in place in February which we are working to. However, we are also engaged in a more detailed and ambitious strategic challenge of the business in our largest markets which we hope will result in further actions to underpin the quality and ambition of this Plan.

Fundamental to our ability to improve is the human dimension; ensuring our people share the new Vision and Roadmap; and assembling a management team that can improve upon what we have done before. Good progress is being made in this. We have appointed new Chief Executives of our businesses in UK, Ireland and Scandinavia and a newly created Chief Operating Officer role at Group. Inevitably though, it will be 2015 before we can fire on all cylinders in management terms.

The operating plan is all about being better. In fact, aiming at being amongst the best at what we do. This is a multi-faceted task. We start with two priorities, costs and revenues. To be competitive for customers, to invest in better capabilities and to properly deliver for shareholders we need to reduce costs. We are targeting in excess of £180m gross annualised cost reductions over the next 3 years (excluding disposals). Our ambition is to raise these targets over time dependent on progress. There will be restructuring charges to effect these changes. At the same time we are developing many initiatives to invest in our business to improve customer service and efficiency. Our technology needs to move forward as does the sophisticated use of data to make the best underwriting decisions.

Determined action to improve the sustainability of our insurance portfolio and its expected loss ratios is another major feature of our work. In the current year this means re-pricing or trimming business we cannot make sense of. Overall premium income is reduced as a result. From this new sounder base we expect to grow again but with better underlying loss ratios. Pleasingly, our business retention levels remain stable and healthy in the areas we target, a testimony to the enduring competitive strength of our business.

So there is much to do. There will be setbacks and the performance standards we aspire to will take some years to achieve. But a good start has been made. We are determined to deliver an RSA admired amongst international general insurers for both customer appeal and shareholder delivery. And to do this with transparent and conservative risk and financial management.

Stephen Hester

Group Chief Executive

6 August 2014

MANAGEMENT REPORT

INCOME STATEMENT

Management basis - 6 months ended 30 June 2014

	Scand -inavia	Canada	UK & Western Europe	Emerging Markets	Central functions	Group H1 2014	Group H2 2013	Group H1 2013
	£m	£m	£m	£m	£m	£m	£m	£m
Net Written Premiums	1,059	727	1,592	607	(55)	3,930	4,012	4,652
Net Earned Premiums	890	766	1,721	624	11	4,012	4,296	4,298
Net Incurred Claims1	(615)	(542)	(1,239)	(389)	(15)	(2,800)	(3,139)	(2,831)
Commissions	(39)	(102)	(332)	(128)	(2)	(603)	(628)	(631)
Operating expenses	(146)	(101)	(234)	(137)	1	(617)	(665)	(685)
DAC	15	(9)	(2)	7	(1)	10	5	37
Underwriting result	105	12	(86)	(23)	(6)	2	(131)	188
Investment income	49	33	115	23	3	223	237	256
Investment expenses	(5)	(2)	(5)	(3)	-	(15)	(17)	(14)
Unwind of discount	(19)	(1)	(14)	(7)	(1)	(42)	(47)	(50)
Investment result	25	30	96	13	2	166	173	192
Insurance result	130	42	10	(10)	(4)	168	42	380
Central expenses	-	-	-	-	(27)	(27)	(36)	(37)
Operating result	130	42	10	(10)	(31)	141	6	343
Net gains/losses/exchange						142	15	18
Interest						(58)	(58)	(59)
Recurring non-operating costs2						(23)	(29)	(29)
One-off non-operating costs3						(133)	(428)	(23)
Profit before tax						69	(494)	250
Tax						(63)	(34)	(60)
Profit after tax						6	(528)	190

% Loss ratio	69.2	70.8	72.0	62.3	-	69.8	73.1	65.9
% Commission ratio	3.7	14.0	20.9	21.1	-	15.3	15.6	13.6
% Expense ratio	13.8	13.8	14.7	22.5	-	15.7	16.6	14.7
% Combined ratio	86.7	98.6	107.6	105.9	-	100.8	105.3	94.2
Of which:
Current year (CY) loss ratio	69.1	73.3	69.3	63.1	-	69.3	69.2	71.9
CY underlying loss ratio4	66.1	62.8	54.9	58.3	-	59.5	59.8	60.3
Prior year loss ratio	0.1	(2.5)	2.7	(0.8)	-	0.5	(3.3)	1.2

Reported ROTE						(0.1)		16.9
Underlying ROTE						3.6		17.0

Notes:
1 Of which: claims handling costs						239	249	235

2 Amortisation						(18)	(21)	(21)
2 Total pension costs						(5)	(8)	(8)

3 Solvency II costs						(14)	(10)	(10)
3 Reorganisation costs						(117)	(352)	(4)
3 Transaction costs						(2)	(3)	(9)
3 Economic assumption changes						-	(63)	-

4 Current year underlying loss ratio excludes weather and large losses.

Market conditions

Insurance market conditions during the first half remained highly competitive, although varying by region and business segment.

Conditions in Scandinavia have been relatively stable. In Canada there have been increased competitive pressures on rate especially in Commercial lines, although Personal Household rate has responded well to last year’s weather events. In the UK pricing pressures are elevated across both Commercial and Personal lines. In Ireland we have been increasing prices significantly ahead of the market across much of our book as we continue to remediate the business.

Retention trends remain stable with overall retention across the Group of around 80%.

Foreign exchange movements, notably the strengthening of Sterling during the first half of 2014, have impacted reported results, with premiums down 9% on a constant exchange rate basis (3% underlying), but down 16% at reported exchange rates.

RSA’s strategy is to compete strongly to retain and attract business in profitable areas and to apply increased pricing and capital return discipline where required. We are prepared to reduce business volumes if necessary as a consequence.

Premiums

First half 2014 net written premiums were down 9% from H1 2013 at constant exchange rates and down 3% on an underlying basis, with the key movements being:

Volume reductions including portfolio actions								(5)%
Rate increases								2%
Underlying H1 2014 movement at constant FX								(3)%
Group Adverse Development cover								(2)%
Changes to Motability contract								(4)%
Total H1 2014 movement at constant FX								(9)%

Regional highlights (at constant FX) include:

UK & Western Europe underlying premiums were down 9% (down 18% including Motability). This region is where the most significant of our portfolio actions are taking place. We have taken particular action in UK Personal Motor, including the exit of certain broker relationships and the exit of our eChoice offering, to ensure we remain focused on achieving our target returns. This is reflected in a 39% reduction in premiums during H1 2014. Premiums in Scandinavia were up 2%, in line with our expectations Canadian premiums were down 2% driven by a 5% reduction in Commercial premiums due to the underwriting actions we have been taking on the portfolio. Latin American premiums grew 10% at constant exchange during the first half.

Underwriting result

2014 is a foundation year from which our Action Plan can deliver future improvements. Whilst headline underwriting profit in H1 2014 was just £2m with a combined ratio of 100.8%, at an underlying level profitability is broadly in line with our expectations.

Current year profit of £52m (H1 2013: £94m):

Excluding Ireland, current year profits were £87m (H1 2013: £80m). As previously flagged, the flooding and storms in the UK and Ireland, and the severe winter weather in Canada significantly impacted results during the first half. Total weather costs for H1 2014 were £156m representing a weather loss ratio of 3.9% (H1 2013: £93m or 2.2%; five year average: 3.0%). The large loss ratio of 5.9% (H1 2013: 7.2%) was better than expectations reflecting relatively benign experience in Scandinavia and the UK, partly offset by Latin America which was impacted by the earthquake in Chile. Excluding Ireland the underlying current year loss ratio was 58.5% which represents an improvement of 1.2 points over H1 2013.

Prior year loss of £50m includes the following specific items:

Ireland prior year underwriting loss of £29m. UK reserve additions of £30m in respect of noise induced hearing loss (NIHL) claims and Professional Indemnity. Further claims of £10m for December 2013 UK weather. £18m prior year loss in UK Marine driven by premium adjustments. Swedish annuity reserve additions of £19m ahead of an upcoming market review of longevity assumptions. Excluding the above items, there was positive prior year development from across the Group, and in particular from UK Commercial Motor and Property, Danish Workers Compensation, and Swedish Personal Accident.

Investment result

The investment result, which now includes investment expenses (previously reported below the insurance result), was £166m (H1 2013: £192m).

Investment income of £223m (H1 2013: £256m) was offset by investment expenses of £15m (H1 2013: £14m) and the liability discount unwind of £42m (H1 2013: £50m). Investment income of £223m is in line with our expectations but down 13% on prior year, primarily reflecting the continued impact of the low bond yield environment.

Average book yield across the whole portfolio fell from 3.6% to 3.2% year on year.

Central expenses and non-operating items

Central expenses of £27m are down 27% mainly reflecting the cessation of start-up cost accounting in Central & Eastern Europe (these costs, £6m in H1 2013, are now reflected in the underwriting result of the relevant businesses).

Net gains of £142m include:

£61m of gains in respect of the sale of equities mainly in January; £29m relating to the sale and leaseback of our Swedish head office; and £28m of disposal gains of which £17m is attributable to the sale of our business in Latvia with the balance relating to some portfolio disposals in our core businesses. The balance of gains relating to other announced disposals is expected in H2 2014 or early 2015.

One-off non-operating costs of £133m include:

Reorganisation costs of £117m which includes £66m of goodwill and intangible write downs (of which £57m relates to Ireland with the balance relating to software write downs in the UK and Scandinavia), and £38m of redundancy costs in respect of headcount reductions across all regions; and Solvency II implementation costs of £14m (H1 2013: £10m).

Tax

The Group has recognised a tax charge of £63m despite a modest level of profit before tax for the period. This is principally due to losses arising in territories where a tax benefit was either not recognised (UK and Ireland), not available or accrued at a lower rate. In addition, profits have arisen in territories that have a higher tax rate than the UK. Our UK and Irish balance sheet deferred tax asset is now £166m (H1 2013: £246m) with a further £125m (H1 2013: £10m) of unrecognised asset available for future use, excluding unrecognised assets on capital losses.

Dividend

No ordinary interim dividend has been declared. The Board is currently targeting restarting dividend payments with the 2014 full year results.

BALANCE SHEET

Movement in Net Assets

	Shareholders’ funds	Non controlling interests	Loan capital	Equity plus loan capital	TNAV
	£m	£m	£m	£m	£m

Balance at 1 January 2014	2,893	121	1,309	4,323	1,665
Profit/(loss) after tax	4	2	-	6	128
Exchange gains/(losses) net of tax	(109)	(2)	-	(111)	(70)
Fair value gains/(losses) net of tax	95	-	-	95	95
Pension fund gains net of tax	96	-	-	96	96
Amortisation of loan capital	-	-	(6)	(6)	-
Share issue	749	-	-	749	749
Changes in shareholders’ interests in subsidiaries	2	(2)	-	-	2
Share based payments	1	-	-	1	1
Prior year final dividend	-	(5)	-	(5)	-
Preference dividend	(5)	-	-	(5)	(5)
Goodwill and intangible additions	-	-	-	-	(41)
Balance at 30 June 2014	3,726	114	1,303	5,143	2,620

Per share (pence)
At 1 January 20141	335				202
At 30 June 2014	356				259

1 Restated to include the bonus element of the subsequent rights issue in accordance with IAS 33, and the impact of the share consolidation.

Net assets have increased by 19% to £5,143m during the first half of 2014. The most significant driver of this is the proceeds from the rights issue (£747m). There were also £95m of fair value gains on available for sale assets and an improvement in the net pension position under IAS 19. Foreign exchange movements on the retranslation of the balance sheets of non-sterling denominated operations gave rise to foreign exchange losses of £111m. Tangible net assets have increased by 57% during the first half with the rights issue proceeds and tangible profits driving the movement.

Our review and clean-up of the balance sheet has continued during the first half of 2014. This has led to some actions on goodwill and intangible assets, and on reserving.

Goodwill and intangible assets were written down by a total of £66m. This comprises £57m in respect of Ireland of which £45m relates to goodwill and £12m relates to software and customer lists. There was £6m of software write-down in the UK, and a £3m write-down in Scandinavia.

We have developed a more granular segmentation of the portfolio in Canada for reserving purposes. This has led to a reallocation of reserves to better reflect the risk profile of the book, and a £19m release of margin in Canada.

Reserve additions were made in the UK in respect of Professional Indemnity and Noise Induced Hearing Loss claims. We have also increased Swedish annuity reserves. In Ireland, the first half underwriting loss of £64m includes reserve additions in the prior year. Further detail is available in the regional commentaries. Reserve margin at a total Group level remained unchanged at 5%.

CAPITAL POSITION

Requirement

Surplus

Coverage

£bn

(times)

Insurance Groups Directive

30 June 2014

1.5

1.3

1.9

30 June 2014 (plus announced disposals)

1.5

1.7

2.2

31 December 2013

1.5

0.2

1.1

Economic Capital1

(S&P ‘A’ curve)

30 June 2014

2.7

1.1

1.4

30 June 2014 (plus announced disposals)

2.9

1.3

1.5

31 December 2013

2.4

0.7

1.3

1 The economic capital position at 30 June 2014 is estimated, pending the outcome of the next full economic capital model run in Q3.

Preliminary reconciliation of IFRS capital to IGD and ECA capital

	IGD £bn	ECA £bn

Total IFRS equity plus loan capital at 30 June 2014	5.1	5.1

Adjust for:
Non-controlling interests	(0.1)	-
Goodwill and intangibles	(1.0)	(1.0)
Deferred tax	(0.3)	(0.2)
Discounting	(0.5)	-
Claims equalisation reserve	(0.3)	-
IAS 19 pension accounting	(0.1)	(0.1)
Total available capital at 30 June 2014	2.8	3.8

At 30 June 2014 the Group’s IGD surplus was £1.3bn giving coverage of 1.9 times the capital requirement. The £1.1bn increase in the surplus since the beginning of 2014 mainly reflects the impact of the rights issue proceeds received (£747m) and the reversal of a hybrid debt restriction (£253m) which took effect at the end of 2013 limiting the amount of loan capital that could be counted as capital resources.

The Group’s estimated economic capital surplus at 30 June 2014 was £1.1bn giving coverage of 1.4 times the requirement. The movement in the surplus since the beginning of the year mainly reflects the impact of the rights issue proceeds and capital generated, partly offset by the impact of lower yields, pension contributions and assumption changes. RSA's measure of economic capital is based upon using the S&P A rated default curve to determine the appropriate confidence interval. The model allows for 3 years of business and the ultimate run-off and closure of the business. The capital available and requirement is expressed as being the amount in excess of the IFRS booked technical provisions (including discount and margin).

Allowing for the anticipated capital benefit arising from business disposals announced but not completed at 30 June, the IGD surplus would have been £1.7bn with coverage of 2.2 times, and the estimated economic capital surplus would have been £1.3bn with coverage of 1.5 times.

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 2014 to 30 June 2014.

Other

Group

£m

Pension fund surplus/(deficit) at 1 January 2014

(58)

(67)

(125)

Actuarial gains/(losses)1

126

(15)

111

Deficit funding

Other movements2

Pension fund surplus/(deficit) at 30 June 2014

128

(78)

1 Actuarial gains/(losses) include pension investment expenses, variance against expected returns, change in actuarial assumptions and experience losses. The re-measurement of net defined benefit pension surplus, net of tax of £96m disclosed in the condensed consolidated statement of comprehensive income in the interim financial statements includes other tax charges of £15m.

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

The IAS 19 pension position has improved during the first half of 2014 from a deficit of £125m to a surplus of £50m. The UK pension position has improved by £186m during the year to a surplus of £128m. The movement in the period is driven by greater than expected return on assets of £248m and contributions of £70m, net of changes to actuarial assumptions (£109m), experience losses of £13m and service costs of £10m.

A full actuarial review of the overseas pension positions will be carried out at the year end.

GROUP OUTLOOK

Our guidance of up to a 10% reduction in premiums during 2014 is unchanged. However, given the strengthening of Sterling during the first half, the reduction on a reported exchange rate basis is likely to be greater. Also, given a fuller period effect of the announced disposals, written premiums are likely to fall further, but more modestly, in 2015.

We expect underwriting profits to improve in the second half of 2014 driven by further improvements in the current year underlying loss ratio together with the benefit of the cost saving actions we have taken during the first half. We expect there to be a positive prior year result in normal years. There will be gains from the announced disposals as some of these complete during the second half. It is likely that there will be further charges as we complete our restructuring work.

Our medium targets remain unchanged: return on tangible equity of 12-15%; tangible equity to be 35-45% of net written premiums; dividend payout ratio of 40-50% over time.

BUSINESS REVIEW – INVESTMENT RESULT

Management basis

Investment result				H1 2014 £m		H1 2013 £m		Change %
Bonds				177		194		(9)
Equities				14		27		(48)
Cash and cash equivalents				16		7		129
Property				5		14		(64)
Other				11		14		(21)
Investment income				223		256		(13)
Investment expenses				(15)		(14)		(7)
Unwind of discount				(42)		(50)		16
Investment result				166		192		(14)

Attributed to:
Scandinavia				25		39		(36)
Canada				30		33		(9)
UK & Western Europe				96		102		(6)
Emerging Markets				13		19		(32)
Central functions				2		(1)		-

Realised and unrealised gains
Realised gains				124		22		464
Unrealised gains / (losses), impairments and foreign exchange				18		(4)		-
Total				142		18		689

Balance sheet unrealised gains				30 June 2014 (£m)		31 Dec 2013 (£m)		Change %
Bonds				449		299		50
Equities				40		86		(53)
Other				6		7		(14)
Total				495		392		26

Investment portfolio	Value 31 Dec 2013	Foreign exchange	Mark to market		Other movements		Transfer to assets held for sale		Value 30 Jun 2014
	£m	£m	£m		£m		£m		£m
Government bonds	4,168	(143)	54		343		(164)		4,258
Non-Government bonds	7,083	(228)	80		1,044		(54)		7,925
Cash	1,162	(49)	-		2		(38)		1,077
Equities	582	(14)	16		(449)		(1)		134
Property	331	(2)	13		(18)		-		324
Prefs & CIVs	280	(6)	(4)		17		-		287
Other	146	(4)	(1)		(32)		-		109
Total	13,752	(446)	158		907		(257)		14,114

Split by currency:
Sterling	3,493								4,027
Danish Krone	1,302								1,207
Swedish Krona	2,287								2,391
Canadian Dollar	2,947								3,039
Euro	1,763								1,631
Other	1,960								1,819
Total	13,752								14,114

The average book yield on the total portfolio was 3.2% (H1 2013: 3.6%), with average yield on the bond portfolios of 3.0% (H1 2013: 3.4%). Reinvestment rates in the Group’s bond portfolios at 30 June 2014 were approximately 120bps lower than the existing average yield.

Average duration is unchanged at 3.8 years (31 December 2013: 3.8 years).

The investment portfolio grew 3% during the first half to £14.1bn. The movement was driven by the rights issue proceeds, other net cash inflows, and positive mark-to-market movements, partly offset by foreign exchange losses and transfers into assets held for sale relating to the announced disposals of our Lithuania, Estonia, Poland, China and Noraxis businesses.

At 30 June 2014, high quality widely diversified fixed income securities represented 86% of the portfolio (31 December 2013: 82%). As reported at our Preliminary Results announcement on 27 February, we reduced our exposure to equities during the first quarter with equities now representing 1% of the total portfolio (31 December 2013: 4%). We also agreed the sale and leaseback of our Swedish head office. These proceeds together with the rights issue proceeds have been invested into high quality fixed income assets. Cash accounts for 8% of the total portfolio (31 December 2013: 8%).

The quality of the bond portfolio remains very high with 98% investment grade and 68% rated AA or above. We remain well diversified by sector and geography.

Balance sheet unrealised gains of £495m (pre-tax) increased by £103m during the first half (31 December 2013: £392m); an increase in bond unrealised gains driven by lower yields was partly offset by a reduction in unrealised equity gains as we crystalised these by reducing our exposure to equities during the first quarter.

Credit quality – bond portfolio	Non-government		Government
	30 June 2014 %	31 Dec 2013 %	30 June 2014 %	31 Dec 2013 %

AAA	33	34	78	74
AA	23	24	13	14
A	35	33	2	2
BBB	7	7	6	9
< BBB	1	1	1	1
Non rated	1	1	-	-
Total	100	100	100	100

REGIONAL REVIEW – SCANDINAVIA

Management basis

	Net written premiums					Change	Underwriting result
	H1 2014 £m		H1 2013 £m			Constant FX (%)	H1 2014 £m			H1 2013 £m
Split by country
Sweden	529		573			-	73			62
Denmark	422		435			-	33			31
Norway	108		110			13	(1)			5
Total Scandinavia	1,059		1,118			2	105			98
Split by class
Personal
Household	166		172			3	8			11
Motor	208		232			(3)	17			57
Personal Accident & Other	163		159			10	50			55
Total Scandinavia Personal	537		563			3	75			123
Commercial
Property	193		198			4	27			(37)
Liability	96		92			10	6			8
Motor	132		144			(1)	(1)			(2)
Marine & Other	101		121			(11)	(2)			6
Total Scandinavia Commercial	522		555			-	30			(25)

Total Scandinavia	1,059		1,118			2	105			98
Investment result							25			39
Scandinavia insurance result							130			137

Operating Ratios (%)	Claims			Commission			Op Expenses		Combined
	H1 2014	H1 2013		H1 2014	H1 2013		H1 2014	H1 2013	H1 2014		H1 2013
Personal
Household									95.5		92.3
Motor									89.7		71.1
Personal Accident & Other									66.7		63.6
Total Scandinavia Personal	68.2	60.5		3.8	3.0		12.4	11.8	84.4		75.3
Commercial
Property									80.2		119.6
Liability									84.1		81.6
Motor									98.5		99.1
Marine & Other									99.4		89.9
Total Scandinavia Commercial	70.3	84.9		3.7	3.0		15.2	14.4	89.2		102.3

Total Scandinavia	69.2	71.6		3.7	3.0		13.8	13.1	86.7		87.7
Of which:
Weather	0.2	-
Large losses	2.8	9.5
Current year underlying	66.1	67.7
Prior year	0.1	(5.6)
Rate increases1 (%)	Jun 14 v Jun 13			Mar 14 v Mar 13			Dec 13 v Dec 12		Sep 13 v Sep 12
Personal Household	4			4			5		6
Personal Motor	3			1			1		2
Commercial Property	3			5			4		4
Commercial Liability	5			5			4		5
Commercial Motor	5			8			7		5

1 Rating increases reflect rate movements achieved for risks renewing in the month versus comparable risks renewing in the same month the previous year

SCANDINAVIA – STRONG PERFORMANCE; COR OF 86.7%

Our Scandinavian business continued to perform strongly. Underwriting profits in the first half were £105m (H1 2013: £98m) and the combined ratio was 86.7% (H1 2013: 87.7%).

Net written premiums of £1,059m were up 2% at constant exchange (H1 2013: £1,118m as reported; £1,043m at constant exchange).

Personal grew 3% to £537m. Household growth of 3% was by good rate increases across all countries whilst Motor was down 3% mainly reflecting disciplined risk selection and targeted rate increases in Denmark. Personal Accident was up 10%, although on an underlying basis excluding the impact of the transfer of the Care portfolio from Commercial, growth was 6%.

In Commercial, premiums of £522m were flat. Property growth of 4% was driven by rate increases in Sweden and volume growth in Denmark and Norway. Liability grew 10% due to a small number of large new contracts in Denmark and rate increases in Sweden. Marine & Other contraction of 11% was 5% on an underlying basis excluding the impact of the Care transfer to Personal Accident.

The Scandinavian underwriting result was a profit of £105m (H1 2013: £98m) with a current year profit of £112m and a prior year loss of £7m. After including investment returns of £25m (H1 2013: £39m), the insurance result was £130m (H1 2013: £137m).

In Personal, underwriting profits were £75m with a combined ratio of 84.4%. This mainly reflects a strong performance in Swedish Personal Accident where we have seen favourable average claims cost trends. Personal Motor profitability was lower than H1 2013 reflecting an increase to prior year Swedish Motor annuity reserves of £19m in anticipation of an upcoming market review of longevity assumptions. Scandinavia Commercial made an underwriting profit of £30m with a combined ratio of 89.2% (H1 2013: 102.3%) with lower levels of large losses and good underlying performances in Danish Property, Swedish Motor and Swedish Liability.

The combined ratio in H1 2014 was 86.7% (H1 2013: 87.7%). Weather and large loss experience was relatively benign. The weather ratio of 0.2% compares to a five year average for our Scandinavian business of 1.6%, whilst large losses of 2.8% compare to a long term average of 5.6%. The underlying current year loss ratio was 1.6 points better than H1 2013, and there was strong contribution from both Sweden and Denmark. Expenses are in line with our expectations, and so far in 2014 we have delivered a headcount reduction of around 3%.

Scandinavia – Outlook

We expect the Scandinavian P&C markets to grow in line with local GDP growth, and we expect to perform broadly in line with the market. Our focus is on sustaining strong personal lines results in Sweden and improving commercial lines profitability; further cost improvements in Denmark; and focusing on profitable growth in Norway.

REGIONAL REVIEW – CANADA

Management basis

	Net written premiums		Change	Underwriting result
	H1 2014 £m	H1 2013 £m	Constant FX (%)	H1 2014 £m	H1 2013 £m
Personal
Household	185	200	8	(9)	17
Motor	299	368	(5)	10	30
Total Canada Personal	484	568	(1)	1	47

Commercial
Property	107	131	(4)	(9)	(51)
Liability	63	79	(7)	(14)	8
Motor	48	59	(6)	27	8
Marine & Other	25	29	-	7	3
Total Canada Commercial	243	298	(5)	11	(32)

Total Canada	727	866	(2)	12	15

Investment result				30	33
Canada insurance result				42	48

Operating Ratios (%)

Claims

Commission

Op Expense

Combined

2014

2013

2014

2013

2014

2013

2014

2013

Personal

Household

106.0

94.5

Motor

96.7

92.1

Total Canada Personal

74.8

67.2

11.6

11.8

13.6

13.8

100.0

92.8

Commercial

Property

108.4

139.3

Liability

121.5

89.6

Motor

42.9

84.0

Marine & Other

71.3

90.4

Total Canada Commercial

61.8

77.1

18.9

19.8

14.2

14.0

94.9

110.9

Total Canada

70.8

70.4

14.0

14.5

13.8

98.6

98.7

Of which:

Weather

6.1

6.0

Large losses

4.4

2.7

Current year underlying

62.8

63.9

Prior year

(2.5)

(2.2)

Rate increases1 (%)

Jun 14 v Jun 13

Mar 14 v Mar 13

Dec 13 v Dec 12

Sep 13 v Sep 12

Personal Household

Personal Motor

(2)

Commercial Property

Commercial Liability

Commercial Motor

1 Rating increases reflect rate movements achieved for risks renewing in the month versus comparable risks renewing in the same month the previous year

CANADA – UNDERLYING PERFORMANCE STRONG DESPITE ADVERSE WINTER WEATHER

After a record year for weather events in Canada in 2013, adverse weather conditions continued into the first quarter of 2014. As a result, H1 2014 has been challenging for our Canadian business, however, we delivered an underwriting profit of £12m and a combined ratio of 98.6%. The underlying performance of our Canadian business remains strong.

Net written premiums in Canada were down 2% on a constant exchange rate basis to £727m (H1 2013: £866m as reported; £743m at constant exchange) with 4% volume reductions partly offset by 2% rate growth.

Personal premiums were down 1% with a reduction of 5% in Motor partly offset by growth of 8% in Household. Household premiums included rate increases of 8% driven by both our Johnson and Broker businesses whilst volumes were flat. In Motor, premium reductions were due to the exit of unprofitable brokers and lower new business in Ontario in our Johnson business as we reshape portions of the affinity portfolio.

In Commercial lines, premiums were down 5% to £243m driven mainly by the management actions we have been taking on the portfolio, particularly where we have been re-underwriting or exiting poorer performing accounts. Property reductions of 4% are mainly due to underwriting actions in Quebec, whilst Liability contraction of 7% follows the exit of unprofitable programs and market leading rating action.

Underwriting profit was £12m (H1 2013: £15m) with a current year loss of £4m and a prior year profit of £16m. The combined ratio was 98.6% (H1 2013: 98.7%). After including investment returns of £30m (H1 2013: £33m), the insurance result was £42m (H1 2013: £48m). Ongoing balance sheet work across the Group has included a more granular segmentation of the portfolio in Canada for reserving purposes. This has led to a reallocation of reserves to better reflect the risk profile of the book, and a £19m release of margin.

Profitability was significantly impacted by extreme winter conditions resulting in a weather loss ratio of 6.1% in the first half which compares to a five year average for our Canadian business of 4.3%. Personal Household and Motor were both affected by the weather, with Motor experiencing elevated claims frequency as a result of severe driving conditions in the first quarter.

In Commercial, the reallocation of reserves has resulted in an increase in Liability reserves and a release in Motor, impacting their respective results. Property profitability remains under pressure given a highly competitive market, with adverse weather and large loss experience during the first half. At a total Canadian level, the large loss ratio was 4.4% in H1 2014 compared to a five year average of 3.0% and an H1 2013 ratio of 2.7%.

Canada – Outlook

H1 2014 has been a challenging period for us in Canada. However, we anticipate the business returning to more normal performance patterns, subject to volatile items such as weather trends.

REGIONAL REVIEW – UK

Management basis

	Net written premiums		Change	Underwriting result
	H1 2014 £m	H1 2013 £m	Constant FX (%)	H1 2014 £m	H1 2013 £m
UK Personal
Household	336	334	1	19	47
Motor	132	215	(39)	(1)	(2)
Pet	130	104	25	(2)	3
Total UK Personal	598	653	(8)	16	48

UK Commercial
Property	312	350	(10)	(30)	7
Liability	166	156	6	(31)	(9)
Motor	106	310	(66)	13	(7)
Marine & Other	158	176	(10)	8	6
Total UK Commercial	742	992	(25)	(40)	(3)

Total UK	1,340	1,645	(18)	(24)	45

Investment result				77	87
UK insurance result				53	132

Operating Ratios (%)

Claims

Commission

Op Expenses

Combined

2014

2013

2014

2013

2014

2013

2014

2013

UK Personal

Household

94.6

86.7

Motor

101.5

101.2

Pet

101.5

98.1

Total UK Personal

60.0

55.5

22.9

22.1

15.1

15.4

98.0

93.0

UK Commercial

Property

106.1

92.2

Liability

121.2

102.8

Motor

115.5

101.0

Marine & Other

92.7

90.4

Total UK Commercial

73.9

68.9

21.4

15.0

14.4

12.7

109.7

96.6

Total UK

67.7

63.1

22.1

17.8

14.7

13.8

104.5

94.7

Of which:

Weather

6.0

1.9

Large losses

8.5

11.0

Current year underlying

51.7

53.7

Prior year

1.5

(3.5)

UK rate increases1 (%)	Jun 14 v Jun 13	Mar 14 v Mar 13	Dec 13 v Dec 12	Sep 13 v Sep 12
Personal Household	-	1	-	-
Personal Motor	5	3	2	(2)
Commercial Property	5	2	1	3
Commercial Liability	2	5	4	3
Commercial Motor	4	4	2	4

1 Rating increases reflect rate movements achieved for risks renewing in the month versus comparable risks renewing in the same month the previous year

UK – UNDERLYING CURRENT YEAR IMPROVEMENT; ADVERSE PRIOR YEAR RESERVE MOVEMENTS

In the UK we have made progress with targeted management action on pricing and underwriting that included both planned exits and focused growth. Adverse weather in the first quarter together with reserve additions in Commercial have affected profitability. However, expenses are coming down and headcount reductions are being made with a reduction of over 100 staff during H1 2014.

In UK Personal, premiums were down 8% to £598m. Household premiums were up 1% despite competitive market conditions and a softening rating environment. Motor premiums were down 39% as a result of our portfolio actions. During the first half we have consolidated our direct Motor offering to MORE TH>N exiting our eChoice offering; significantly reduced the number of Personal Motor broker partners we do business with; and exited our arrangement with Ford. We have also maintained pricing discipline in a very soft pricing environment. Pet premiums were up 25% although, excluding the impact of prior period pipeline premium adjustment made in H1 2013, premium increases were 9% mainly driven by rate increases.

In UK Commercial, premiums were down 25% to £742m driven primarily by a reduction in Motability premiums as a result of our restructured arrangements which took effect from 1 October 2013. Underlying premiums excluding Motability were down 9% as we have continued to price and underwrite for profit in a competitive market environment which has resulted in lower new business.

The UK underwriting result was a loss of £24m (H1 2013: £45m profit). The current year profit of £15m comprises £12m from Personal and £3m from Commercial, whilst the prior year loss of £39m includes a loss of £43m in Commercial and a profit of £4m in Personal.

In UK Personal the underwriting profit of £16m includes £19m from Household which was impacted by adverse weather in the first quarter and a £1m loss in Motor in a highly competitive market. Pet profitability was disappointing due to higher than anticipated claims inflation, for which we have already implemented rating action to address.

The UK Commercial underwriting loss of £40m is driven by continued adverse development of the prior year Professional Indemnity book (£20m), especially the 2008-11 underwriting years, together with reserve additions in respect of Noise Induced Hearing Loss (NIHL) claims (£10m) where claims frequencies continue to fall but slower than anticipated. Our Property book suffered a loss of £30m driven by a single large claim at Glasgow School of Arts together with weather losses of £31m following storms in January/February and also in June in Europe. Marine continued with a strong underwriting result of £8m and COR of 92.7%, whilst Commercial Motor produced a COR excluding Motability of 97.0% as the improved performance continued. Rate remained positive as we continued to price for profit.

The UK combined ratio was 104.5% and included a claims ratio of 67.7% (H1 2013: 63.1%). The weather ratio of 6.0% was 4.1 points higher than H1 2013 and 2.7 points higher than the five year average for the UK business. The large loss ratio of 8.5% was 2.5 points lower than H1 2013 and 3.0 points lower than the five year average. The current year underlying loss ratio shows a 2.0 point improvement over the same period last year to 51.7%.

UK – Outlook

In the UK we will continue on our path to restoring the business to good levels of profitability which will include completing the announced exits and portfolio remediation, as well as an ongoing focus on reducing our costs.

REGIONAL REVIEW – IRELAND AND ITALY

Management basis

Net written premiums

Change

Underwriting result

H1 2014

£m

H1 2013

£m

Constant

FX (%)

H1 2014

£m

H1 2013

£m

Ireland

161

197

(16)

(64)

Italy

104

(10)

(5)

Operating Ratios (%)

Claims

Commission

Op Expenses

Combined

2014

2013

2014

2013

2014

2013

2014

2013

Ireland

110.2

69.1

13.1

13.0

15.2

12.7

138.5

94.8

Of which:

Weather

8.6

2.8

Large losses

3.2

1.8

Current year underlying

77.5

62.0

Prior year

20.9

2.5

Italy

66.5

73.9

16.8

16.9

14.6

14.4

97.9

105.2

Ireland rate increases1 (%)	Jun 14 v Jun 13	Mar 14 v Mar 13	Dec 13 v Dec 12	Sep 13 v Sep 12
Personal Household	-	(3)	2	2
Personal Motor	15	12	13	13
Commercial Property	5	(1)	(3)	-
Commercial Liability	10	19	18	6
Commercial Motor	2	5	2	3

1 Rating increases reflect rate movements achieved for risks renewing in the month versus comparable risks renewing in the same month the previous year

IRELAND AND ITALY – ONGOING REMEDIATION IN IRELAND; GOOD PROGRESS IN ITALY

Ireland

In Ireland, it has been a difficult first half. The underwriting loss was £64m and includes a current year loss of £35m which reflects:

£15m of expected underwriting loss for the first half, mainly in recognition of the ongoing impact of the issues identified in 2013, in particular inadequate pricing on pre-remediation business that is continuing to come through in earned premiums; Around £13m of adverse current year claims experience, related to actuarial ‘true ups’ post the 2013 reserving resets. Both of the above factors are being addressed through assertive rating and underwriting action; and The impact of adverse weather in the first quarter which was £7m higher than the five year average. The weather ratio in H1 2014 was 8.6% compared to the five year average of 5.8%.

The prior year loss of £29m represents:

£12m of further adverse prior year reserve development with around half related to the remediation of a specific delegated authority scheme; £10m of reserve margin build; and £7m provisioning for reinsurance retentions.

Our remediation work is ongoing, and we remain confident that the actions we are taking will restore the business to profitability.

We have made good progress in filling critical management vacancies. In March we announced the appointment of a new Chief Executive in Ireland who started in June, and we are advancing well in respect of other senior positions.

On pricing we have applied strong rate increases during 2014 in key lines requiring remediation, with year-on-year rate increases of c.20% in Motor and c.15% in Liability. As a result of this focus, premiums in the first half were down 16%.

We have conducted a further review of all portfolios since June and are targeting the implementation of refreshed portfolio action plans during the third quarter.

As previously indicated, we have undertaken an impairment review of the carrying value of Irish goodwill and intangible assets. In the H1 2014 accounts we have written down £45m relating to goodwill and £12m relating software and customer lists. This leaves £59m of goodwill and intangible assets in the Irish business.

We expect further but lower underwriting losses in the second half of 2014. Our goal is to return the business to profitability in 2015.

Italy

In Italy the underwriting profit of £2m reflects the excellent progress that has been made in remediating the business. First half premiums of £91m were down 10% driven by the further exit of underperforming distribution relationships in Personal Motor and Personal Accident.

REGIONAL REVIEW – EMERGING MARKETS

Management basis

	Net written premiums		Change	Underwriting result
	H1 2014 £m	H1 2013 £m	Constant FX (%)	H1 2014 £m	H1 2013 £m

Latin America	331	399	10	(27)	3
CEEME	205	209	4	(2)	6
Asia	71	78	-	6	3
Total Emerging Markets	607	686	7	(23)	12

Investment result				13	19
EM insurance result				(10)	31

Memo:
Middle East	75	81	(1)
India associate1	64	81	(6)
Thailand associate1	84	90	11

1 100% of the premiums of our associates in India and Thailand

Operating Ratios (%)

Claims

Commission

Op Expenses

Combined

2014

2013

2014

2013

2014

2013

2014

2013

Latin America

110.6

99.0

CEEME

101.0

96.4

Asia

98.4

96.6

Total Emerging Markets

62.3

57.1

21.1

18.9

22.5

21.8

105.9

97.8

Of which:

Weather

0.3

Large losses

4.8

2.5

Current year underlying

58.3

55.8

Prior year

(0.8)

(1.5)

EMERGING MARKETS – CONTINUED GROWTH IN LATIN AMERICA

Emerging Markets premiums were up 7% at constant exchange to £607m.

Latin American premiums were up 10% driven mainly by Argentina and Brazil with good growth also in Uruguay. The underwriting loss of £27m includes £14m in respect of the Chile earthquake in April (a further £5m is included in the Group Re result bringing the total event cost to £19m) and several other large losses.

During the first half we have taken action to restructure our businesses in Brazil and Colombia. In Brazil, we have announced the exit of Risk Managed Property, Construction & Engineering and Liability. We will retain focus on Marine and Commercial Motor as well as two emerging segments: Affinity and SME. In Colombia, we have announced the exit of Personal and Commercial Motor, and intend to pursue profitable growth in non-Motor Commercial lines and affinity schemes.

In Latin America, the markets we operate in continue to be attractive though competitive, driven by low insurance penetration and a growing middle class across the region.

Central & Eastern Europe and the Middle East (CEEME) saw premium growth of 4% driven by rate increases (3%) and volume growth (1%). The underwriting loss of £2m was impacted by residual ‘start-up’ costs being reallocated into the underwriting result together with adverse large loss experience. Growth in Asia was flat with an underwriting profit of £6m.

In total, Emerging Markets delivered an underwriting loss of £23m with a current year loss of £26m and a prior year profit of £3m. After an investment result of £13m (H1 2013: £19m) Emerging Markets generated an insurance result of £10m loss.

Emerging Markets – Outlook

Despite both political and economic headwinds in some of our emerging market countries, insurance penetration is still improving and we expect to achieve mid-high single digit organic growth.

During the first half we announced the sale of our businesses in Lithuania, Latvia, Estonia, Poland and China. The disposal of our Latvia business completed on 30 June, with the remaining announced disposals expected to complete during the second half or early in 2015. We are continuing to evaluate further disposals some of which may be agreed during the second half of 2014.

RATIOS, DEFINITIONS AND OTHER INFORMATION

Combined operating ratio (COR)

The Group’s COR is calculated as follows:

COR = loss ratio + commission ratio + expense ratio

Where:

Loss ratio = net incurred claims / net earned premiums

Commission ratio = commissions / net written premiums

Expense ratio = operating expenses / net written premiums

Underlying return on tangible equity

Underlying return on tangible equity was 3.6% (H1 2013: 17.0%). It is calculated as the profit after tax attributable to ordinary shareholders, excluding acquisitions, disposals, reorganisation costs, pension net interest costs and net unrealised investment gains or losses, impairments and foreign exchange expressed in relation to opening shareholders’ funds attributable to ordinary shareholders less goodwill and intangible assets.

Net asset value and tangible net asset value per share

Net asset value per share data at 30 June 2014 was based on total shareholders’ funds of £3,726m, adjusted by £125m for preference shares.

Earnings per share

The earnings per share is calculated by reference to the result attributable to the ordinary shareholders of the Parent Company and the weighted average number of shares in issue during the period. These were 859,495,718 on both a basic and diluted basis (excluding those held in ESOP and SIP trusts). The number of shares in issue at 30 June 2014 was 1,012,856,836 (excluding those held in ESOP and SIP trusts).

Related party transactions

In the first half of 2014, there have been no related party transactions that have materially affected the financial position of the Group.

Changes to management basis reporting

Investment expenses have been reclassified from Other Activities into the Investment Result. The Investment Result now includes investment income, investment expenses, and the discount unwind. Other Activities has been renamed to Central Expenses.

Below the Operating Result, amortisation and pension costs have been grouped into ‘recurring non-operating costs’ whilst Solvency II costs, reorganisation costs, transaction costs, and economic assumption changes have been grouped into ‘one-off non-operating costs’.

Economic assumption changes is a new line item in management basis reporting and captures the discount rate changes (£63m cost) made at 31 December 2013 which were previously reported within the discount unwind.

European Specialty Lines (ESL) previously reported within Western Europe, has been reclassified into UK Commercial in order to better reflect the way in which the ESL businesses are managed.

Net earned premiums by class

Management basis

	H1 2014	H1 2013	Change as reported	Change at constant fx
	£m	£m	%	%
Scandinavia Personal
Household	153	158	(3)	4
Motor	181	204	(11)	(4)
Personal Accident & Other	152	153	(1)	7
Total	486	515	(6)	2

Scandinavia Commercial
Property	158	164	(4)	2
Liability	66	64	3	10
Motor	105	115	(9)	(2)
Marine & Other	75	90	(17)	(11)
Total	404	433	(7)	-
Total Scandinavia	890	948	(6)	1

Canada Personal
Household	213	221	(4)	13
Motor	313	374	(16)	(2)
Total	526	595	(12)	3

Canada Commercial
Property	107	129	(17)	(3)
Liability	60	76	(21)	(8)
Motor	47	53	(11)	2
Marine & Other	26	29	(10)	4
Total	240	287	(16)	(2)
Total Canada	766	882	(13)	1

UK Personal
Household	348	333	5	5
Motor	168	205	(18)	(18)
Pet	125	104	20	20
Total	641	642	-	-

UK Commercial
Property	273	298	(8)	(8)
Liability	149	144	3	3
Motor	252	272	(7)	(7)
Marine	129	132	(2)	(2)
Total	803	846	(5)	(5)
Total UK	1,444	1,488	(3)	(3)

Ireland	175	184	(5)	(2)
Italy	102	114	(11)	(7)
Total UK & WE	1,721	1,786	(4)	(3)

Emerging Markets
Latin America	351	402	(13)	15
CEE&ME	195	189	3	10
Asia	78	70	11	22
Total Emerging Markets	624	661	(6)	14

Group Re	11	21	(48)	(48)
Total Group	4,012	4,298	(7)	1

Reconciliation between management basis underwriting result and statutory reporting

Management basis			Discontinued operations	Add back other income	Statutory basis
Net written premiums	3,930		(121)		3,809	Net written premiums
Net earned premiums	4,012		(119)		3,893	Net earned premiums
Net incurred claims	(2,800)		68		(2,732)	Net claims and benefits
Commissions	(603)	(1,210)	47	(65)	(1,228)	Underwriting and policy acquisition costs
Operating expenses	(617)
DAC	10
Underwriting result	2

Reporting and Dividend Timetable

13 August 2014				Ex dividend date for the second preference dividend for 2014
15 August 2014				Record date for the second preference dividend for 2014
6 November 2014				Q3 2014 interim management statement
1 October 2014				Payment date for the second preference dividend for 2014

SUMMARY CONSOLIDATED INCOME STATEMENT

MANAGEMENT BASIS

	6 Months	6 Months	12 Months
	2014	20134	20134
	£m	£m	£m

Net written premiums	3,930	4,652	8,664
Net earned premiums	4,012	4,298	8,594
Net incurred claims1	(2,800)	(2,831)	(5,970)
Commissions	(603)	(631)	(1,259)
Operating expenses	(617)	(685)	(1,350)
Change in deferred acquisition costs (DAC)	10	37	42
Underwriting result	2	188	57

Investment income	223	256	493
Investment expenses	(15)	(14)	(31)
Unwind of discount	(42)	(50)	(97)
Investment result	166	192	365
Insurance result	168	380	422
Central expenses	(27)	(37)	(73)
Operating result	141	343	349
Net gains	142	18	32
Interest	(58)	(59)	(117)
Recurring non-operating costs2	(23)	(29)	(57)
One-off non-operating costs3	(133)	(23)	(451)
Profit before tax	69	250	(244)
Tax	(63)	(60)	(94)
Profit after tax	6	190	(338)

Earnings per share on profit attributable to the ordinary shareholders of the Parent Company:
Basic	(0.2)	22.2	(43.7)
Diluted	(0.2)	22.1	(43.7)

1 Of which: claims handling costs	239	235	484

2 Amortisation	(18)	(21)	(42)
2 Total pension costs	(5)	(8)	(15)

3 Solvency II costs	(14)	(10)	(20)
3 Reorganisation costs	(117)	(4)	(356)
3 Transaction costs	(2)	(9)	(12)
3 Economic assumption changes	-	-	(63)

4 Per share amounts restated to reflect the impact of the bonus shares creation following the completion of the rights issue and share consolidation.

SUMMARY CONSOLIDATED STATEMENT OF FINANCIAL POSITION

MANAGEMENT BASIS

	30 June	30 June	31 December
	2014	2013	2013
	£m	£m	£m
Assets		Restated1
Goodwill and other intangible assets	855	1,519	1,103
Property and equipment	150	269	160
Associated undertakings	40	45	44
Investments
Investment property	324	340	331
Equity securities	421	929	862
Debt and fixed income securities	12,183	11,617	11,251
Other	109	137	146
Total investments	13,037	13,023	12,590
Reinsurers’ share of insurance contract liabilities	1,983	2,165	2,026
Insurance and reinsurance debtors	3,461	3,861	3,593
Other debtors and other assets	1,157	1,306	1,149
Cash and cash equivalents	1,077	1,250	1,162
Assets associated with continuing operations	21,760	23,438	21,827
Assets held for sale	543	1	103
Total assets	22,303	23,439	21,930

Equity and liabilities

Equity and loan capital
Shareholders’ funds	3,726	3,798	2,893
Non-controlling interests	114	131	121
Total equity	3,840	3,929	3,014
Loan capital	1,303	1,311	1,309
Total equity and loan capital	5,143	5,240	4,323

Liabilities (excluding loan capital)
Insurance contract liabilities	14,343	15,662	15,001
Insurance and reinsurance liabilities	785	596	643
Borrowings	299	300	301
Provisions and other liabilities	1,437	1,641	1,662
Liabilities associated with continuing operations	16,864	18,199	17,607
Liabilities held for sale	296	-	-
Total liabilities (excluding loan capital)	17,160	18,199	17,607

Total equity, loan capital and liabilities	22,303	23,439	21,930

1 Restated for the adoption of IFRS 13 ' Fair Value Measurement' at 31 December 2013.

SUMMARY CASH FLOW FOR CONTINUING OPERATIONS

MANAGEMENT BASIS

	6 months	6 months
	2014	2013
	£m	£m

Operating cash flow	335	392
Tax paid	(56)	(100)
Interest paid	(78)	(76)
Pension deficit funding	(65)	(66)
Cash generation	136	150
Group dividends	(5)	(95)
Dividend to non-controlling interests	(5)	(7)
Issue of share capital	749	4
Net movement of debt	(7)	3
Corporate activity	36	(30)
Cash movement	904	25

Represented by:
Increase/(decrease) in cash and cash equivalents	2	(111)
Purchase/(sale) of other investments	902	136
Cash movement	904	25

Enquiries:

Investors & analysts

Press

Rupert Taylor Rea

Louise Shield

Head of Investor Relations

Director of External Communications

Tel: +44 (0) 20 7111 7140

Tel: +44 (0) 20 7111 7047

Email: [email protected]

Louise Jordan

Jon Sellors

Investor Relations Executive

Head of Media Relations

Tel: +44 (0) 20 7111 1891

Tel: +44 (0) 20 7111 7327

Email: [email protected]

Further information

A live webcast of the analyst presentation, including the question and answer session, will be broadcast on the website at 10:00am today and is available via a listen only conference call by dialling +44 (0) 20 3427 1918. Participants should use access code 2239199. Scanning the QR code opposite will download details of the conference call to a smart phone. A webcast of the call will be available via the company website (www.rsagroup.com).

Important disclaimer

This press release and the associated conference call 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 or 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.

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