Become a Member

Track your favourite stocks
Create & monitor portfolios
Daily portfolio value

Company	Chg	Chg %
Quickpicks
£	%
Add shares to your quickpicks to display them here!

Half-yearly Report

6th Aug 2015 07:00

2015 INTERIM RESULTS

Excellent progress implementing the RSA Action Plan

Operating profit £259m (up 84%). Pre-tax profit £288m (up 317%)

Loss ratio, costs, combined ratio and capital, all improving

Stephen Hester, RSA Group Chief Executive, commented:

"We are making fundamental improvements to RSA, as promised. These interim results show excellent progress on all key measures. The foundations are being laid to improve still further.

“Profits are up strongly on both a headline and underlying basis. Premium income has been stabilised, underwriting and cost levers are responding positively. The interim dividend is restored and progress continues on strategic reshaping and capital strength.

“We are encouraged by the increasing momentum at this stage of our planned improvements."

Trading results

Core Group premiums up 2%1 ex Group reinsurance programme. Overall Group net written premiums of £3.4bn down 3%1 year-on-year post disposals. Group operating profit £259m (H1 2014: £141m): UK £144m; Canada £92m; Scandinavia £55m. Group underwriting profit of £101m (H1 2014: £23m loss). Core Group combined ratio of 96.9% (H1 2014: 100.3%). Record underwriting profits in the UK and Canada (Combined ratios of 94.4% and 92.3% respectively). Underlying results in Scandinavia strong. Current year underwriting profit of £73m (H1 2014: £27m); current year attritional loss ratio of 57.1%, 1.2pts better than prior year (H1 2014: 58.3%). Weather and large losses £7m better than planned and £36m2 better than H1 2014. Prior year underwriting profit of £28m, within our expected range of 0-1% of net earned premiums. Positive development in Canada and the UK; net strengthening in Scandinavia. Ireland underwriting loss of £16m, much reduced from H1 2014 (£65m loss) - remediation continues. Improved underwriting result in Latin America despite impact of first quarter Chile floods. Investment income of £206m; full year outlook improved to c.£390m. Increasing bond yields during H1 are a positive for future earnings and economic capital ratios. Net gains of £169m include £140m from disposals completed in the first half. Reorganisation costs were £55m. No further ‘clean up’ charges in the period. Pre-tax profit was £288m (H1 2014: £69m). Post tax profit of £215m (H1 2014: £6m).

1 At constant FX.

2 Net of earned premium for Group aggregate reinsurance cover; H1 2014 comparative adjusted for actual 2015 volume.

Capital metrics at 30 June 2015: ECA surplus c.£1.0bn (up from £0.9bn at FY 2014) with coverage of 1.3 times; IGD surplus c.£1.7bn with coverage of 2.2 times. UK pension schemes at 30 June 2015 showed a £106m IAS19 surplus. At 31 March 2015 the funding level was estimated to be 97% (prior to any assumption changes or update of scheme data in the triennial review process). Tangible equity £2.9bn (31 December 2014: £2.9bn), 282p per share. Tangible equity to premiums ratio of 42%1 (31 December 2014: 39%). Reserve margin for the core Group increased to 5.2% of booked reserves. Underlying return on tangible equity of 9.7% (H1 2014: 6.4%). Interim dividend payment reinstated with a declaration of 3.5p per ordinary share.

Strategic update

The intense pace of change over the last 18 months to make RSA better, stronger and more focused is now producing strong results. This is building further confidence and ambition within our business. The disposal programme, that has reshaped RSA and funded the clean-up, continues to deliver. In the first half we completed the disposals of Hong Kong, Singapore and China, and announced disposals of our UK Engineering Inspection business and our Indian associate. These bring total agreed disposal proceeds to date of £835m, with gains of c.£500m to date. Improvements in capital and balance sheet health continue. S&P ‘A’ rating reaffirmed. No additional ‘clean up’ charges needed in the period. Performance improvement actions progressing well with focus on improving our customer franchise, improving underwriting loss ratios and reducing costs. Cost reduction ahead of plans. Increased confidence in delivery of cost reduction target of greater than £250m by 2017. Total Group controllable costs were down 10% H1 2015 vs. H1 2014 at constant exchange to £932m. Core business controllable costs were down 3% in the same period at constant exchange to £854m (comprising 5% cost reductions, offset by 2% inflation). Group FTE down 19% since start of 2014 (8% down ex disposals). Our focus is to continue the excellent work we have done over the last 18 months, with further strong progress on underlying loss ratios and expense control to drive sustainably higher underwriting profits subject to weather, large losses and prior year reserving. We remain confident in meeting our medium term performance targets: underlying return on tangible equity of 12-15% by 2017; tangible equity expected to be 35-45%2 of net written premiums; ordinary dividend payout ratio of 40-50% with additional payouts where justified. We will manage the business with the intention of moving towards first quartile performance in our markets and of outperforming our performance targets where possible.

1 30 June 2015 TNAV:NWP ratio calculated using two times H1 2015 NWP.

2 Capital target to be updated at end 2015 once Solvency II impacts are assessed.

Note: On an IFRS basis, pre-tax profit of £288m comprises profits from both continuing and discontinued operations. Please refer to page 36 for further details.

MANAGEMENT REPORT – KEY FINANCIAL PERFORMANCE DATA

Management basis

	H1 2015 £m		H1 2015 £m	H1 20144 £mConstant FX	H1 20144 £mReported FX
Net Written Premiums	Personal	Commercial	Total	Total	Total
Scandinavia	481	468	949	922	1,059
Canada	447	190	637	662	680
UK	536	746	1,282	1,249	1,257
Ireland	78	52	130	139	152
Latin America	148	185	333	288	311
Group Re1	-	(106)	(106)	(41)	(41)
Total Core Group	1,690	1,535	3,225	3,219	3,418
Discontinued & non-core2	122	96	218	337	351
Total Group net written premiums	1,812	1,631	3,443	3,556	3,769

	Combined operating ratio (%)		H1 2015 £m	H1 20144 £m	H1 20144 £m
Underwriting performance	H1 2015	H1 20144		Constant FX	Reported FX
Scandinavia	98.0	89.2	16	83	96
Canada	92.3	100.7	56	(4)	(4)
UK	94.4	100.6	77	(9)	(9)
Ireland	111.8	137.1	(16)	(58)	(65)
Latin America	100.5	106.8	(2)	(23)	(24)
Group Re1	-	-	(25)	(6)	(6)
Total Core Group	96.9	100.3	106	(17)	(12)
Discontinued & non-core2	-	-	(5)	(10)	(11)
Total Group underwriting performance	97.2	100.6	101	(27)	(23)
Investment result			167		174
Operating result			259		141
Profit before tax			288		69
Profit after tax			215		6

Earnings per share – basic (pence)			20.4p		(0.2)p
Recommended dividend per share (pence)			3.5p		-
Return on tangible equity (%)			14.3%		(0.1)%
Underlying return on tangible equity (%)			9.7%		6.4%

			30 Jun 2015		31 Dec 2014
Net asset value (£m)			3,722		3,825
Tangible net asset value (£m)			2,867		2,900
Net asset value per share (pence)			354		365
Tangible net asset value per share (pence)			282		286

IGD surplus (£bn)3			1.7		1.8
IGD coverage ratio (times) 3			2.2		2.2
ECA surplus (S&P ‘A’ curve calibration) (£bn) 3			1.0		0.9
ECA coverage ratio (times) 3			1.3		1.3

1 Group Re premiums include £139m in H1 2015 for the purchase of a new 3 year Group aggregate reinsurance cover, and £67m in H1 2014 for the purchase of the Group Adverse Development Cover.

2 Discontinued operations include Poland, Baltics, Italy, Hong Kong, Singapore, China, Thailand and India. Non-core operations include Noraxis, UK Legacy, Russia, and the Middle East.

3 Capital positions are estimated

4 Restated, please refer to page 28 for further details.

CHIEF EXECUTIVE’S STATEMENT

RSA continued to make excellent progress during the first half of 2015. Fundamental improvements are being made towards our goal of a high performing RSA, winning for customers and for shareholders.

From a much stronger strategic base and healthier financial foundations, our aim is to continue to improve performance - first past industry averages and then working towards ‘best in class’ standards. Results that are better in both quantity and quality should drive much improved shareholder value and support good growth in dividends too. And we are determined that success will be built on reliable foundations - strong customer franchises; leading market positions in our chosen sectors; and a sustainable, well founded risk profile.

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

1. We are on-track to substantially complete RSA's strategic refocus by 2015 year end results. The aim is to concentrate our efforts where the Company can best succeed. Disposals of our businesses in Hong Kong, Singapore and China were completed in H1 and our Indian associate in July. We also announced the disposal of our UK Engineering Inspection business, bringing total agreed sales to £835m over the last 18 months. Disposal gains of £140m are reported in this half year period underlining the achievement (on top of £342m disposal gains in 2014).

2. RSA's capital and balance sheet health continues to strengthen. H1 retained earnings were £212m1. Economic capital measures improved despite adverse FX movements. S&P reaffirmed our ‘A’ credit rating. The half year results have not required further ‘clean-up’ charges.

There is important work still to complete. Our application for Internal Model approval under Solvency II has been submitted and we target a positive outcome by year end. We are also aiming for a sound result from the triennial UK pension scheme review by the time of announcing the full year results, and continued progress on capital measures more broadly.

3. Performance improvement lies at the heart of our Action Plan. Less than 18 months into the Plan results are coming through strongly.

While at a headline level, pre-tax profits are up 317% to £288m, we most closely track underlying trends which are also pleasing. Core Group premium income is up 2% underlying. This compares to a declining picture in 2014. Insurance markets remain competitive however. In what is normally a seasonally weaker period, underwriting profits were up £124m. Operating profit rose 84% to £259m reflecting the sharply higher underwriting profit and relatively stable investment income.

We improved current year attritional loss ratios by 1.2 points. Volatile weather/large losses were slightly better than planned levels overall. Losses are coming down in Ireland, though with some uncertainty remaining as claims patterns mature. Prior year reserve releases at 0.8% of NEP are within our target ranges, with core Group reserve margin also stronger at 5.2%.

Total Group controllable expenses fell 10% and cost reduction is ahead of plans. We have increased confidence in the delivery of our cost reduction target of greater than £250m by 2017. Group FTE continues to fall as planned, and is down 19% since the start of 2014 (8% down ex disposals).

Across the business, the actions outlined in February are proceeding to plan overall. These focus on improving our customer franchise, improving underwriting results and reducing costs. Changes in people, culture and operating rhythm are also central to our task. Our aim is to deliver more than plan in the coming years wherever possible.

1 Profit after tax of £215m less £3m non-controlling interests.

The first half progress was not without ups and downs. Notable are the best UK underwriting results since 2006 and the best Canadian underwriting results for 10 years. Scandinavia's result was ahead of prior year and plan on an underlying basis, but suffered at an overall level due to a large marine loss and reserve strengthening. Latin America improved on 2014 despite a flood event. In each business the underlying picture is on the right track. Positive progress has been made and is expected to continue.

We are not complacent. Much work is needed to keep performance improving. Insurance also has natural volatility which can impact positively or otherwise.

We are pleased, in the light of progress so far, to reinstate the interim dividend. We are declaring 3.5p per ordinary share. In the medium term we target higher pay-outs per the policy we have articulated. This should follow completion of disposals, Solvency II impacts being agreed and performance improving further.

Our goals for 2015 as a whole and beyond are unchanged - to make further strong and sustainable progress towards an RSA that is ‘Focused, Stronger, Better’. We firmly intend to build a company that will thereby outperform for customers and for shareholders.

Stephen Hester

Group Chief Executive

5 August 2015

MANAGEMENT REPORT

INCOME STATEMENT

Management basis – 6 months ended 30 June 2015

Total ‘non-core’

Group H1 2015

Core4

‘Non-core’5

Discontinued operations5

Group H120146

£m

Net Written Premiums

3,443

3,225

107

111

3,769

Net Earned Premiums

3,579

3,359

123

4,012

Net Incurred Claims1

(2,356)

(2,206)

(74)

(76)

(2,800)

Commissions

(560)

(525)

(13)

(22)

(586)

Operating expenses

(562)

(522)

(22)

(18)

(649)

Underwriting result

101

106

(12)

(23)

Investment income

206

189

223

Investment expenses

(7)

(7)

(7)

Unwind of discount

(32)

(20)

(12)

(42)

Investment result

167

162

174

Central expenses

(9)

(9)

(1)

(10)

Operating result

259

(9)

141

Net gains/losses/exchange

169

142

Interest

(54)

(58)

Non-operating charges2

(17)

(23)

Non-recurring charges3

(69)

(133)

Profit before tax

288

Tax

(73)

(63)

Profit after tax

215

Loss ratio (%)

65.8

65.7

69.8

Weather loss ratio

1.7

3.9

Large loss ratio

7.7

7.8

6.7

Current year attritional loss ratio

57.1

56.8

58.3

Prior year effect on loss ratio

(0.7)

(0.6)

0.9

Commission ratio (%)

15.7

15.6

14.6

Expense ratio (%)

15.7

15.6

16.2

Combined ratio (%)

97.2

96.9

100.6

Reported ROTE

14.3%

(0.1)%

Underlying ROTE

9.7%

6.4%

Notes:

1 Of which: claims handling costs

(199)

(239)

2 Amortisation

(14)

(18)

2 Pension net interest costs

(3)

(5)

3 Solvency II costs

(14)

3 Reorganisation costs

(55)

(117)

3 Transaction costs

(2)

3 Economic assumption changes

4 ‘Core’ comprises Scandinavia, Canada (ex Noraxis), UK (ex Legacy), Ireland, Latin America and central functions.

5 Discontinued operations include Poland, Baltics, Italy, Hong Kong, Singapore, China, Thailand and India. Non-core operations include Noraxis, UK Legacy, Russia, and the Middle East.

6 Restated, please refer to page 28 for further details.

Note: please refer to appendix for H1 2014 comparatives

SEGMENTAL ANALYSIS

Management basis – 6 months ended 30 June 2015

	Scandinavia	Canada	UK	Ireland	LatinAmerica	Centralfunctions	Total ‘non-core’1	Group H1 2015
	£m	£m	£m	£m	£m	£m	£m	£m
Net Written Premiums	949	637	1,282	130	333	(106)	218	3,443
Net Earned Premiums	782	722	1,378	134	349	(6)	220	3,579
Net Incurred Claims	(613)	(454)	(832)	(114)	(179)	(14)	(150)	(2,356)
Commissions	(27)	(95)	(281)	(17)	(102)	(3)	(35)	(560)
Operating expenses	(126)	(117)	(188)	(19)	(70)	(2)	(40)	(562)
Underwriting result	16	56	77	(16)	(2)	(25)	(5)	101
Investment income	50	38	73	5	23	-	17	206
Investment expenses	(1)	(1)	(4)	-	(1)	-	-	(7)
Unwind of discount	(10)	(1)	(2)	-	(7)	-	(12)	(32)
Investment result	39	36	67	5	15	-	5	167
Central expenses	-	-	-	-	-	(9)	-	(9)
Operating result	55	92	144	(11)	13	(34)	-	259
Net gains/losses/exchange								169
Interest								(54)
Non-operating charges								(17)
Non-recurring charges								(69)
Profit before tax								288
Tax								(73)
Profit after tax								215

Loss ratio (%)	78.3	62.9	60.4	85.3	51.4			65.8
Weather loss ratio	0.6	2.7	1.1	-	2.9			1.7
Large loss ratio	7.0	5.8	11.6	2.1	1.0			7.7
Current year attritional loss ratio	66.5	61.2	48.7	81.5	47.7			57.1
Prior year effect on loss ratio	4.2	(6.8)	(1.0)	1.7	(0.2)			(0.7)
Commission ratio (%)	3.5	13.2	20.3	12.6	29.0			15.7
Expense ratio (%)	16.2	16.2	13.7	13.9	20.1			15.7
Combined ratio (%)	98.0	92.3	94.4	111.8	100.5			97.2

Note: please refer to appendix for H1 2014 comparatives

Market conditions

Insurance market conditions during the first half remained similar to last year. Price competition continues to drive sharp price/volume trade-offs, though in line with our expectations overall.

During the first half of 2015, five-year bond yields increased in the UK (up 30bps) and Sweden (up 20bps), were flat in Denmark and down 50bps in Canada. At an aggregate level, this has had a positive impact on economic capital ratios, the outlook for investment returns and discount rates on liabilities, but reduces tangible equity in the short term as unrealised bond gains reverse.

Around two thirds of RSA's core premiums lie outside the UK. Foreign exchange movements, notably the further strengthening of Sterling during the first half, have impacted reported results, with Core Group premiums flat at constant exchange rates (up 2% underlying), but down 6% at reported exchange rates. A 5% change in the average rates of our operating currencies against Sterling would imply a 3% change in our H1 2015 operating profit.

Premiums

H1 2015 Group net written premiums were down 3% year-on-year at constant exchange rates due to disposals, however Core Group premiums rose 2% on an underlying basis, with the key movements being:

	Scandi-navia	Canada	UK	Ireland	LatinAmerica	Total
Net Written Premiums (£m)	949	637	1,282	130	333
% changes in NWP
Volume change including portfolio actions	-	(6)	1	(9)	12	-
Rate increases	3	2	2	3	4	2
Core Group H1 2015 CFX movt. (ex Group Re)	3	(4)	3	(6)	16	2
Impact of Group Re1						(2)
Core Group H1 2015 CFX movt.						-
Impact of non-core businesses/disposals						(3)
Total Group H1 2015 CFX movt.						(3)

1 Group Re premiums include £139m H1 2015 for the purchase of a new 3 year Group aggregate reinsurance cover, and £67m in H1 2014 for the purchase of the Group Adverse Development Cover.

Regional highlights (at constant FX) include:

Scandinavian premiums were up 3%, due to improving rate and retention across the book; Canadian premiums were down 4% with an 8% reduction in Commercial as the impact of the underwriting actions we have been taking continue to work through the portfolio; UK premiums were up 3% with Commercial up 7% and Personal down 3%; Ireland premiums were down 6% reflecting the continued impact of our remediation work; and Latin American premiums grew 16% with strong growth in Chile and Argentina in particular.

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

Underwriting result

Group underwriting profit of £101m has improved sharply year-on-year (H1 2014: £23m loss) comprised £106m from core operations, and a £5m loss from discontinued and non-core operations.

	Total UW result		Current Year UW		Prior Year UW
£m	H1 2015	H1 20141	H1 2015	H1 20141	H1 2015	H1 20141
Scandinavia	16	96	49	103	(33)	(7)
Canada	56	(4)	7	(20)	49	16
UK	77	(9)	59	10	18	(19)
Ireland	(16)	(65)	(14)	(36)	(2)	(29)
Latin America	(2)	(24)	(6)	(16)	4	(8)
Group Re	(25)	(6)	(16)	-	(9)	(6)
Total Core	106	(12)	79	41	27	(53)


Non-core & discontinued	(5)	(11)	(6)	(14)	1	3
Total Group	101	(23)	73	27	28	(50)

Current year profit of £73m (H1 2014: £27m):

The current year attritional loss ratio was 57.1% (H1 2014: 58.3%; FY 2014: 57.6%) showing strong improvement year-on-year driven by Canada, the UK and Latin America; Total weather costs for H1 2015 were £60m representing a weather loss ratio of 1.7% (H1 2014: £156m or 3.9%; five year average: 3.2%), with better than trend experience across all regions with the exception of Latin America; and Total large losses were £277m or 7.7% of premiums (H1 2014: £272m or 6.7%), which was marginally lower than the five year average of 8.1%, with lower than trend levels in the UK (although in line with expectations), Ireland and Latin America, offset by more elevated levels in Scandinavia and Canada.

Prior year profit of £28m provided a 0.7 point benefit to the combined ratio, within our target range, and included the following specific items:

Positive prior year development from Canada, the UK and Latin America; Reserve strengthening in Scandinavia relating to legacy long-tail Swedish Personal Accident products; and A much reduced prior year loss of £2m in Ireland (H1 2014: £29m loss) as our actions to improve the business continue to take effect.

We continue to expect prior year releases to be generally in the range of 0-1% of premiums, but there is the potential for volatility given our commitment to transparent reserve margins.

Our own assessment of the margin in reserves for the core Group (the difference between our actuarial indication and the booked reserves in the financial statements) increased to 5.2% of booked claims reserves.

1 Restated, please refer to page 28 for further details.

Investment result

The investment result was £167m (H1 2014: £174m) with investment income of £206m (H1 2014: £223m) partly offset by investment expenses of £7m (H1 2014: £7m) and the liability discount unwind of £32m (H1 2014: £42m). The liability discount unwind was lower than H1 2014 following the reduction in Scandinavian discount rates made at the end of 2014.

The average book yield across our major bond portfolios fell from 3.0% to 2.7% year-on-year.

The outlook for full year 2015 investment income has improved to c.£390m, with outlook for future years benefitting from higher bond yields than assumed in February.

Total controllable costs

Cost reduction is ahead of plans. We have increased confidence in the delivery of our cost reduction target of greater than £250m by 2017.

Total Group controllable costs1 were down 10% H1 2015 vs. H1 2014 at constant exchange to £932m. Core business controllable costs were down 3% in the same period at constant exchange to £854m (comprising 5% cost reductions, offset by 2% inflation).

The majority of the year-on-year core business cost reduction has come from our Scandinavian business (10% down) and our UK business (5% down).

Group FTE is down 19% since the start of 2014 to 18,3202 at H1 2015. Of this, 11% is due to disposals and 8% is driven by headcount reductions in our core businesses.

Non-operating items

Net gains of £169m include:

£140m of disposal gains (comprising Hong Kong & Singapore £112m and China £28m); £29m of investment gains mainly comprising realised equity gains and unrealised gains on property assets.

Non-cash non-operating charges of £17m comprise £14m of amortisation of customer related intangible assets and £3m of pension net interest costs.

Non-recurring charges of £69m include:

Reorganisation costs of £55m in respect of redundancy and restructuring; and Solvency II implementation costs of £14m (H1 2014: £14m).

Tax

The Group has recognised a tax charge of £73m for the first half which represents an effective tax rate of 25%.

Dividend

We are pleased, in the light of progress so far, to reinstate an interim dividend. We are declaring 3.5p per ordinary share.

Our medium term policy of 40-50% ordinary dividend payouts remains, with additional payouts where justified. This should follow completion of disposals, Solvency II impacts being agreed and performance improving further.

1 Total controllable costs includes underwriting operating expenses, claims expenses, investment expenses, central expenses and Solvency II costs

2 Pro forma net of 170 where notice given, dual running for site changes or transformation project FTE

BALANCE SHEET

Movement in Net Assets

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

Balance at 1 January 2015	3,825	108	1,243	5,176	2,900
Profit/(loss) after tax	212	3	-	215	259
Exchange gains/(losses) net of tax	(182)	(2)	-	(184)	(134)
Fair value gains/(losses) net of tax	(150)	-	-	(150)	(150)
Pension fund gains/(losses) net of tax	26	-	-	26	26
Repayment & amortisation of loan capital	-	-	6	6	-
Share issue	1	-	-	1	1
Changes in shareholders’ interests insubsidiaries	-	16	-	16	-
Share based payments	15	-	-	15	15
Prior year final dividend	(20)	(1)	-	(21)	(20)
Preference dividend	(5)	-	-	(5)	(5)
Goodwill and intangible additions	-	-	-	-	(25)
Balance at 30 June 2015	3,722	124	1,249	5,095	2,867

Per share (pence)
At 1 January 2015	365				286
At 30 June 2015	354				282

Tangible net assets have reduced by 1% to £2.9bn during H1 2015. Profits in the first half (including disposal gains) and positive IAS 19 pension fund movements were offset by adverse foreign exchange, fair value mark-to-market reductions due to higher bond yields, the payment of the 2014 final dividend and intangible asset additions.

CAPITAL POSITION

Capital position

Requirement

Surplus

Coverage

£bn

(times)

InsuranceGroupsDirective1

30 Jun 2015

1.4

1.7

2.2

31 Dec 2014

1.4

1.8

2.2

EconomicCapital1 (S&P ‘A’ curve)

30 Jun 2015

3.3

1.0

1.3

31 Dec 2014

3.4

0.9

1.3

1 The IGD and economic capital positions at 30 June 2015 are estimated.

Preliminary reconciliation of IFRS capital to IGD and ECA capital

	IGD £bn	ECA £bn

Total IFRS equity plus loan capital at 30 June 2015	5.1	5.1
Adjust for:
Non-controlling interests	(0.1)	-
Goodwill and intangibles	(0.7)	(0.7)
Deferred tax	(0.1)	(0.1)
Discounting	(0.5)	-
Claims equalisation reserve	(0.3)	-
IAS 19 pension accounting	(0.1)	-
Other	(0.2)	-
Total available capital at 30 June 2015	3.1	4.3

The estimated economic capital surplus at 30 June 2015 was £1.0bn giving coverage of 1.3 times. The £0.1bn increase in the surplus since the start of the year was driven by capital generated and higher bond yields, partly offset by adverse foreign exchange movements and pension contributions which are paid during the first quarter.

At 30 June 2015, the estimated IGD surplus was £1.7bn covering the capital requirement 2.2 times. The movement since the start of 2015 reflects capital generated (including disposal gains from the sales of Hong Kong, Singapore and China) offset by adverse foreign exchange movements due to the strengthening of Sterling and higher yields which have reduced asset values.

On Solvency II, our application for Internal Model approval is submitted and we target a positive outcome by year end. Our current Internal Model1 for Solvency II shows higher coverage ratios than our ECA model. Also, during the second quarter, Standard & Poors reaffirmed our ‘A’ credit rating.

1 Which remains subject to Regulator approval

GROUP OUTLOOK

Our focus is to continue the excellent progress we have made over the last 18 months in fundamentally improving RSA.

By the time of announcing year end results we hope to have substantially completed the Group’s strategic reshaping and disposal announcements.

We target internal model approval from regulators under Solvency II, reaching agreement with pension trustees on the triennial review, and continued improvement of our capital resilience.

Market conditions seem likely to remain competitive with strong price/volume trade-offs in insurance markets. Foreign exchange and interest rates are also important to us. Current bond yields are in aggregate higher than our February guidance which gives potential upside in coming years. Conversely, Sterling has continued to strengthen, with negative translation impacts on results.

We expect to make further progress on attritional loss ratios and expense control allowing for higher underwriting profits, subject to volatile items in weather, large losses and prior year reserving.

We remain confident in meeting our medium-term performance objectives and will strive to do better still.

BUSINESS REVIEW – INVESTMENT PERFORMANCE

Management basis

Investment result						H1 2015 £m			H1 2014 £m		Change %
Bonds						164			177		(7)
Equities						14			14		-
Cash and cash equivalents						14			16		(13)
Property						11			12		8
Other						3			4		(25)
Investment income						206			223		(8)
Investment expenses						(7)			(7)		-
Unwind of discount						(32)			(42)		24
Investment result						167			174		(4)

Balance sheet unrealised gains						30 Jun 2015 (£m)			31 Dec 2014 (£m)		Change %
Bonds						484			634		(24)
Equities						6			35		(83)
Other						3			3		-
Total						493			672		(27)



Investment portfolio	Value31 Dec2014		Foreignexchange	Mark tomarket			Othermovements			Transfer toassets heldfor sale		Value 30 Jun 2015
	£m		£m	£m			£m			£m		£m
Government bonds	4,163		(223)	(36)			224			-		4,128
Non-Government bonds	8,085		(347)	(120)			(196)			-		7,422
Cash	1,011		(46)	-			(84)			-		881
Equities	160		(13)	3			4			-		154
Property	346		(1)	15			-			-		360
Prefs & CIVs	335		(13)	(18)			68			-		372
Other	97		(7)	(2)			10			-		98
Total	14,197		(650)	(158)			26			-		13,415

Split by currency:
Sterling	4,466											4,569
Danish Krone	1,229											947
Swedish Krona	2,344											2,095
Canadian Dollar	3,128											2,807
Euro	1,308											1,222
Other	1,722											1,775
Total	14,197											13,415


Credit quality – bond portfolio		Non-government						Government
		30 Jun 2015 %			31 Dec2014%			30 Jun 2015 %					31 Dec2014%
AAA		31			31			82					81
AA		17			21			9					10
A		36			38			3					3
BBB		13			8			4					5
< BBB		1			1			2					1
Non rated		2			1			-					-
Total		100			100			100					100

INVESTMENT PERFORMANCE

Investment income of £206m (H1 2014: £223m) was offset by investment expenses of £7m (H1 2014: £7m) and the liability discount unwind of £32m (H1 2014: £42m). Investment income of £206m is ahead of our expectations but down 8% on prior year, primarily reflecting the continued impact of the low bond yield environment.

The average book yield on the total portfolio was 3.0% (H1 2014: 3.2%), with average yield on the bond portfolios of 2.7% (H1 2014: 3.0%). Reinvestment rates in the Group’s major bond portfolios at 30 June 2015 were approximately 1.5%.

Average duration is 4.0 years (31 December 2014: 4.0 years).

The investment portfolio fell by 6% during the first half to £13.4bn. The movement was driven primarily by the impact of strengthening of Sterling and negative mark-to-market on bond holdings, partly offset by positive cash flow.

At 30 June 2015, high quality widely diversified fixed income securities represented 86% of the portfolio (31 December 2014: 86%). Equities represented 1% (31 December 2014: 1%) and cash 7% of the total portfolio (31 December 2014: 7%).

The quality of the bond portfolio remains very high with 97% investment grade and 64% rated AA or above. We remain well diversified by sector and geography.

Balance sheet unrealised gains of £493m (pre-tax) decreased by £179m during the first half (31 December 2014: £672m) due to higher bond yields and foreign exchange movements. This decrease in the unrealised gains reserve will reduce the pull-to-par impact for future periods. Based on forward yields at the end of June 2015 we anticipate that the majority of the unrealised gains will have unwound within the next three years.

Outlook

Based on current forward bond yields and foreign exchange rates, it is estimated that investment income outlook has improved to c.£390m for 2015, and around £370m in 2016 and 2017. These projected income numbers are, however, sensitive to changes in market conditions.

REGIONAL REVIEW – SCANDINAVIA

Management basis

	Net written premiums					Change		Underwriting result
	H1 2015 £m		H1 20141 £m			Constant FX (%)		H1 2015 £m			H1 20141 £m
Split by country
Sweden	476		529			5		3			69
Denmark	380		422			1		8			29
Norway	93		108			1		5			(2)
Total Scandinavia	949		1,059			3		16			96
Split by class
Household	153		166			6		20			6
Personal Motor	183		208			1		34			15
Personal Accident & Other	145		163			4		(37)			49
Total Scandinavia Personal	481		537			3		17			70
Property	175		207			(3)		12			26
Liability	94		96			12		2			5
Commercial Motor	116		132			1		3			(2)
Marine & Other	83		87			8		(18)			(3)
Total Scandinavia Commercial	468		522			2		(1)			26

Total Scandinavia	949		1,059			3		16			96
Investment result								39			39
Scandinavia operating result								55			135


Operating Ratios (%)	Claims			Commission			Op Expenses			Combined
	H1 ‘15	H1 ‘14		H1 ’15	H1 ‘14		H1 ‘15		H1 ‘141	H1 ‘15		H1 ‘141
Household										85.5		96.0
Personal Motor										78.5		91.5
Personal Accident & Other										127.5		67.9
Total Scandinavia Personal	79.4	68.2		3.4	3.1		13.2		14.3	96.0		85.6
Property										91.4		85.3
Liability										96.7		91.5
Commercial Motor										96.8		102.2
Marine & Other										130.0		103.8
Total Scandinavia Commercial	76.8	70.3		3.6	3.0		19.9		20.3	100.3		93.6

Total Scandinavia	78.3	69.2		3.5	3.0		16.2		17.0	98.0		89.2
Of which:				5yr ave
Weather loss ratio	0.6	0.2		1.8
Large loss ratio	7.0	2.8		5.2
Current year attritional loss ratio	66.5	65.9
Prior year effect on loss ratio	4.2	0.3


YTD rate increases2 (%)	At June 2015			At March 2015			At Dec 2014			At Sept 2014
Personal Household	4			3			4			4
Personal Motor	3			3			3			3
Commercial Property	2			2			2			4
Commercial Liability	5			4			4			4
Commercial Motor	4			3			4			4

1 Restated, please refer to page 28 for further details.

2 Rating increases reflect rate movements achieved for risks renewing in the year-to-date versus comparable risks renewing in the same period the previous year

SCANDINAVIA

Scandinavian net written premiums of £949m were up 3% at constant exchange (H1 2014: £1,059m as reported; £922m at constant exchange), with volumes flat across the region and rate increases contributing 3% growth.

Personal grew 3% with strong growth of 6% in Sweden Personal driven by a combination of rate increases and good retention levels across all lines. Denmark Personal premiums were down 1% whilst Norway Personal premiums were down 2% primarily as a result of the termination of a single large affinity arrangement in late 2014.

Commercial premiums were up 2% with growth of 3% in Sweden Commercial due to good new business levels in the Care portfolio, growth of 2% in Denmark Commercial driven by strong progress in Workers Compensation, and growth of 4% in Norway Commercial.

The Scandinavian underwriting result was a profit of £16m (H1 2014: £96m) with a current year profit of £49m (H1 2014: £103m) and a prior year loss of £33m (H1 2014: £7m loss). After including the investment result of £39m (H1 2014: £39m), the operating result was £55m (H1 2014: £135m).

Underlying performance remains encouraging with current year profits (excluding the impact of the discount rate change made at FY 2014, weather and large losses) of £115m, slightly ahead of last year and our expectations. The current year attritional loss ratio was 66.5%, however this was 65.7% before the impact of 2014 year end discount rate changes, and compares to an H1 2014 ratio of 65.9%. Weather losses of 0.6% compared to a five year average of 1.8%. Large loss experience of 7.0% was adverse to prior year (2.8%) and to the long term average (5.2%) due to a small number of large Property and Marine losses in the first quarter.

The prior year reserve strengthening of £33m reflected a legacy long-tail Swedish Personal Accident strengthening. Overall, the prior year effect on the loss ratio was adverse at 4.2% (H1 2014: 0.3% adverse).

The combined ratio was 98.0% (H1 2014: 89.2%).

Total controllable expenses are down 9% year-on-year (comprising 10% cost reduction, partly offset by 1% inflation) and FTE is down 2% in the first half of 2015 and 7% since the start of 2014. This was particularly pleasing given costs are a key area of focus for the business.

Scandinavia – Outlook

We continue to expect the Scandinavian P&C markets to grow in line with local GDP growth, and we target top line performance broadly in line with the market. Our focus remains on improving the underlying performance of the business, in particular attritional loss ratios and cost improvements in Denmark and Sweden. We target combined ratios converging with those of key competitors over the planning period.

REGIONAL REVIEW – CANADA

Management basis

	Net written premiums		Change	Underwriting result
	H1 2015 £m	H1 20141 £m	Constant FX (%)	H1 2015 £m	H1 20141 £m
Household	173	169	5	24	(10)
Personal Motor	274	299	(6)	17	7
Total Canada Personal	447	468	(2)	41	(3)

Property	73	86	(13)	-	(15)
Liability	48	56	(13)	8	(16)
Commercial Motor	46	47	2	4	24
Marine & Other	23	23	-	3	6
Total Canada Commercial	190	212	(8)	15	(1)

Total Canada	637	680	(4)	56	(4)

Investment result				36	38
Canada operating result				92	34

Operating Ratios (%)

Claims

Commission

Op Expense

Combined

H1 ‘15

H1 ‘14

H1 ’15

H1 ‘14

H1 ‘15

H1 ‘141

H1 ‘15

H1 ‘141

Household

89.1

104.5

Personal Motor

94.2

97.9

Total Canada Personal

65.6

74.4

11.1

11.5

15.4

14.7

92.1

100.6

Property

99.8

114.2

Liability

85.9

127.1

Commercial Motor

90.0

48.7

Marine & Other

87.1

75.5

Total Canada Commercial

56.5

62.7

18.2

19.8

18.3

18.1

93.0

100.6

Total Canada

62.9

70.8

13.2

14.1

16.2

15.8

92.3

100.7

Of which:

5yr ave

Weather loss ratio

2.7

6.1

4.4

Large loss ratio

5.8

4.4

3.2

Current year attritional loss ratio

61.2

62.7

Prior year effect on loss ratio

(6.8)

(2.4)

YTD rate increases2 (%)

At June 2015

At March 2015

At Dec 2014

At Sept 2014

Personal Household

Personal Motor

(2)

(4)

(2)

(1)

Commercial Property

Commercial Liability

Commercial Motor

1 Restated, please refer to page 28 for further details.2 Rating increases reflect rate movements achieved for risks renewing in the year-to-date versus comparable risks renewing in the same period the previous year

CANADA

Net written premiums in Canada were down 4% on a constant exchange rate basis to £637m (H1 2014: £680m as reported; £662m at constant exchange) with 6% volume reductions partly offset by 2% rate growth.

Personal premiums were down 2%, with a 6% reduction in Motor offset by growth of 5% in Household. Household premiums included continued rate increases whilst lower Motor premiums were primarily driven by the government mandated rate reductions in Ontario. In Commercial, premiums were down 8% during the first half, reflecting the continued impact of the actions we have been taking on the portfolio, particularly where we have been re-underwriting or exiting poorer performing accounts.

Underwriting profit for the first half was £56m (H1 2014: £4m loss) which is the strongest first half performance in Canada for 10 years. Current year underwriting produced a profit of £7m with a prior year profit of £49m. The combined ratio was 92.3% (H1 2014: 100.7%). After including an investment result of £36m (H1 2014: £38m), the operating result was £92m (H1 2014: £34m).

Weather losses were 2.7% for the first half compared to 6.1% for H1 2014 and a five year average for our Canadian business of 4.4%. Large losses, at 5.8%, were adverse to both prior year (4.4%) and the five year average (3.2%) reflecting a number of large losses in the Commercial portfolios. The current year attritional loss ratio showed an encouraging improvement of 1.5 points from the prior year to 61.2% as the benefits of our underwriting and portfolio actions begin to build. The prior year effect on the loss ratio was a benefit of 6.8% with prior year profits arising from the Personal and Commercial Property, Personal Auto and General Liability books. Around two thirds of prior year development came from the 2014 accident year.

Controllable expenses are down 1% year-on-year and FTE down 6% since the beginning of 2014.

Canada – Outlook

Following a challenging 2014 for RSA in Canada, the business is beginning to deliver better performance patterns. We expect this trend to continue, subject to volatile items such as weather events. Our focus continues to be on delivering operational improvement, particularly underwriting and claims improvements, process simplification and modernisation of technology and infrastructure.

REGIONAL REVIEW – UK

Management basis

	Net written premiums		Change	Underwriting result
	H1 2015 £m	H1 20141 £m	Constant FX (%)	H1 2015 £m	H1 20141 £m
Household	271	296	(8)	53	19
Personal Motor	127	125	1	(18)	(4)
Pet	138	130	7	1	(2)
Total UK Personal	536	551	(3)	36	13
Property	324	303	9	54	(31)
Liability	153	158	(2)	(12)	(14)
Commercial Motor	116	97	20	2	15
Marine & Other	153	148	3	(3)	8
Total UK Commercial	746	706	7	41	(22)

Total UK	1,282	1,257	3	77	(9)

Investment result				67	65
UK operating result				144	56

Operating Ratios (%)

Claims

Commission

Op Expenses

Combined

H1 ‘15

H1 ‘14

H1 ’15

H1 ‘14

H1 ‘15

H1 ‘141

H1 ‘15

H1 ‘141

Household

83.0

94.1

Personal Motor

113.6

102.7

Pet

99.5

101.8

Total UK Personal

56.5

60.4

22.0

21.5

15.3

16.0

93.8

97.9

Property

82.4

110.5

Liability

108.0

109.3

Commercial Motor

99.0

94.2

Marine & Other

102.4

94.1

Total UK Commercial

63.2

70.8

19.1

18.4

12.5

13.5

94.8

102.7

Total UK

60.4

66.3

20.3

19.7

13.7

14.6

94.4

100.6

Of which:

5yr ave

Weather loss ratio

1.1

5.9

3.6

Large loss ratio

11.6

10.7

14.2

Current year attritional loss ratio

48.7

48.9

Prior year effect on loss ratio

(1.0)

0.8

YTD rate increases2 (%)

At June 2015

At March 2015

At Dec 2014

At Sept 2014

Personal Household

(1)

Personal Motor

Commercial Property

Commercial Liability

Commercial Motor

The UK has had a strong first half with the highest underwriting profits since 2006 and a combined ratio of 94.4%. Headline premiums were up 3% against a challenging competitive landscape.

We have maintained underwriting discipline and have written new business selectively. The underwriting profit of £77m and combined ratio of 94.4% benefited from relatively benign weather experience (1.1%, which was 4.8 points better than H1 2014 and 2.5 points better than the five year average) and an improved underlying performance in our Commercial business. We have also seen further cost and FTE reductions during the first half. Controllable expenses are down 4% year-on-year (comprising 5% cost reduction, partly offset by 1% inflation) and FTE down 2% in the first half of 2015 and down 9% since the start of 2014.

We have continued our work in the UK to focus the business on its core capabilities – during H1 we agreed the sale of our UK Engineering Inspection business, and by the end of this year our withdrawal from the Specialty Property market in Germany will be complete as the last of our exposures runs off.

In UK Personal, net written premiums were down 3%. Household premiums fell 8% reflecting competitive conditions and lower retention. Motor premiums were up 1% driven by Telematics which continues strongly. Excluding this, Motor premiums were down 8% reflecting our continued discipline in this market. Pet growth of 7% was driven by rate increases to cover claims inflation.

The Personal profit of £36m reflected a strong performance in Household with an underwriting profit of £53m, although competitive pressures continue to build in this market, especially following a benign first half for weather. The Personal Motor loss of £18m reflects ongoing depressed profitability across the market. Reforms continue to address this, however the direct market and, in particular the Broker market, remain challenging.

In UK Commercial underlying premium growth was 5% (excluding reinsurance changes and one-off items). In Property, we are seeing growth in our packages book as well as our specialty lines target markets, including Europe. In Motor, Motability is driving the overall growth as the book shifts to the new contract. We continue to manage our Fleet portfolio focusing on retention and pricing. Liability contraction continues reflecting the impact of ongoing remediation actions. In Marine, we are managing the portfolio focusing growth on Transportation and Cargo, whilst writing selectively in Hull as we are seeing rate declines.

Commercial underwriting profit of £41m included a strong Property result due to continued good underwriting discipline and favourable weather and large loss experience. Marine and Liability have seen higher than expected large losses which have deteriorated the result. Our Motor portfolio current year performance continues to improve.

UK – Outlook

As we look into the second half of the year, the competitive landscape will continue to challenge. We aim to maintain underlying profitability trends in our core UK business together with ongoing cost actions, and assume a return to more normalised levels of weather losses. Pricing pressure looks set to continue and we intend to maintain discipline.

REGIONAL REVIEW – IRELAND

Management basis

Net written premiums

Change

Underwriting result

H1 2015

£m

H1 20141

£m

Constant

FX (%)

H1 2015

£m

H1 20141

£m

Personal

(11)

(9)

(36)

Commercial

(7)

(29)

Total Ireland

130

152

(6)

(16)

(65)

Investment result

Ireland operating result

(11)

(59)

Operating Ratios (%)

Claims

Commission

Op Expenses

Combined

H1 ‘15

H1 ‘14

H1 ’15

H1 ‘14

H1 ‘15

H1 ‘141

H1 ‘15

H1 ‘141

Personal

110.1

130.2

Commercial

114.9

151.1

Total Ireland

85.3

110.2

12.6

12.2

13.9

14.7

111.8

137.1

Of which:

5yr ave

Weather loss ratio

9.0

5.0

Large loss ratio

2.1

3.4

2.8

Current year attritional loss ratio

81.5

81.1

Prior year effect on loss ratio

1.7

16.7

YTD rate increases2 (%)

At June 2015

At March 2015

At Dec 2014

At Sept 2014

Personal Household

Personal Motor

Commercial Property

(1)

(4)

Commercial Liability

Commercial Motor

IRELAND

In Ireland there has been strong progress and underwriting losses have reduced. The ongoing impact of our remediation work can be seen in in the premium base, which is down 6% at constant exchange to £130m. Personal premiums were down 11%, whilst Commercial premiums were up by 2%. We have continued to drive strong rating action with double digit year-to-date rate increases across our Motor book and also in Liability.

The underwriting loss of £16m is much reduced from H1 2014 (£65m loss). It comprises a £14m current year loss (H1 2014: £36m loss) and a £2m prior year loss (H1 2014: £29m loss).

Weather and large loss experience was relatively benign, and taken together they were around 6 points better than long term averages. There is still residual noise in the loss development patterns arising out of past claims handling and reserving practices and this is being felt in the current year attritional loss ratio which was marginally increased at an aggregate level year-on-year. Underwriting actions have focused on the strategic lapsing of poor performing risks where we have been unable to get rate, and the rebalancing of certain lines of business into attractive segments. There has been particular focus on Private Motor, Motor Fleet and Liability.

The much reduced prior year loss of £2m (H1 2014: £29m loss) reflects our actions to stabilise the business which have continued to build.

The performance improvement plan in Ireland is progressing well. Irish FTE was down 3% in the first half of 2015 and down 17% since the start of 2014. Total controllable expenses were down 10% year-on-year.

Ireland - Outlook

Our goal remains to deliver significantly reduced underwriting losses in 2015, and then to return the business to profitability in 2016 through continued underwriting improvement and cost reduction.

REGIONAL REVIEW – LATIN AMERICA

Management basis

	Net written premiums		Change	Underwriting result
	H1 2015 £m	H1 20141 £m	Constant FX (%)	H1 2015 £m	H1 20141 £m

Chile	81	56	50	(5)	(15)
Argentina	118	107	13	7	3
Brazil	48	58	(2)	(8)	(10)
Mexico	45	37	32	2	1
Colombia	17	32	(37)	-	(2)
Uruguay	24	21	20	2	(1)
Total Latin America	333	311	16	(2)	(24)

Investment result				15	16
Latin America operating result				13	(8)

Operating Ratios (%)

Claims

Commission

Op Expenses

Combined

H1 ‘15

H1 ‘14

H1 ’15

H1 ‘14

H1 ‘15

H1 ‘141

H1 ‘15

H1 ‘141

Chile

105.7

118.8

Argentina

93.7

96.4

Brazil

117.0

116.5

Mexico

95.3

97.1

Colombia

97.0

104.7

Uruguay

91.2

103.4

Total Latin America

51.4

61.6

29.0

25.3

20.1

19.9

100.5

106.8

Of which:

5yr ave

Weather loss ratio

2.9

0.8

Large loss ratio

1.0

6.6

2.9

Current year attritional loss ratio

47.7

53.0

Prior year effect on loss ratio

(0.2)

2.0

1 Restated, please refer to page 28 for further details.

LATIN AMERICA

Net written premiums in Latin America were up 16% on a constant exchange rate basis to £333m (H1 2014: £311m as reported; £288m at constant exchange) with 12% volume growth and 4% rate growth.

The economic environment continues to be relatively muted with lower growth levels driven by falling commodity prices and weakening currencies. In Chile and Argentina, new large long-term distribution agreements drove better than expected growth. Mexico also benefited from new affinity deals. Lower premiums in Colombia and Brazil reflect the restructuring actions we took in these countries in 2014.

The underwriting loss of £2m includes £10m in respect of the severe flooding in the north of Chile in March (a further £8m is included in the Group Re result bringing the total event cost to £18m) and several other large losses. As a result the weather ratio of 2.9% was 2.1 points worse than the long term average, and 2.9 points higher than H1 2014. Large losses, at 1.0% of premiums, were better than prior year and the long term average.

The current year attritional loss ratio has improved by 5.3 percentage points against prior year recognising significant portfolio action. Subject to a normal level of weather and large activity we anticipate a positive underwriting result at year end, the second half traditionally providing significantly stronger underwriting performance as growth earns through.

Latin American FTE was down 4% in the first half of 2015 and down 10% since the start of 2014.

Latin America - Outlook

In Latin America, the markets we operate in continue to be appealing on a fundamental basis, though competitive, driven by low insurance penetration and a growing middle class across the region. We continue to target attractive growth levels on a constant exchange rate basis, with improving levels of profitability.

DISCONTINUED & NON-CORE OPERATIONS

	Net written premiums		Underwriting result
	H1 2015 £m	H1 2014 £m	H1 2015 £m	H1 2014 £m

Asia	34	62	(6)	(3)
CEE&ME	105	202	1	(1)
Italy	77	87	13	(1)
Noraxis	-	-	-	11
UK Legacy	2	-	(14)	(17)
UK Engineering Inspection	-	-	1	-
Total Discontinued & Non-Core	218	351	(5)	(11)

Disposal programme

In 2014 we commenced a major disposal programme with the intention of focusing RSA on its strongest businesses. Significant progress has been to date, as follows:

Completed disposals:

Baltics (Lithuania, Latvia, Estonia): announced 17 April 2014, completed 30 June 2014 Latvia, 31 October 2014 Lithuania and Estonia. Total proceeds: £215m. Gain on sale: £124m. Poland: announced 17 April 2014, completed 15 September 2014. Total proceeds: £74m. Gain on sale: £29m. Noraxis: announced 19 May 2014, completed 2 July 2014. Total proceeds: £220m. Gain on sale: £164m. Thailand associate: announced and completed 19 December 2014. Total proceeds: £37m. Gain on sale: £21m. Hong Kong & Singapore: announced 21 August 2014, completed 31 March 2015. Total proceeds: £130m. Gain on sale: £112m. China: announced 3 July 2014, completed 14 May 2015. Total proceeds: £71m. Gain on sale: £28m. India associate: announced 18 February 2015, completed 29 July 2015. Total proceeds: £46m. Gain on sale: £17m.

Disposals pending completion:

Italy: announced 17 October 2014. Expected total proceeds: £19m. UK Engineering Inspection: terms of sale not disclosed.

Remaining non-core operations1:

Middle East Russia UK Legacy

UK Legacy

Our UK Legacy portfolio comprises exposure to asbestos and other long term liabilities arising from Employers’ and Public Liability policies written over the past 50 years. The UK Legacy underwriting result for H1 2015 was a loss of £14m (H1 2014: £17m loss) and was primarily driven by minor strengthening for abuse and deafness claims, together with operating expenses incurred.

1 Not all will necessarily be disposed

APPENDIX

RATIOS, DEFINITIONS AND OTHER INFORMATION

Reinsurance accounting restatement

As reported at Q1 2015, we have changed our accounting for excess of loss reinsurance policies purchased by the Group. Reinsurance written premiums are now recognised in full on inception. Previously, reinsurance written premiums were accrued for over the course of the year.

The treatment has been changed from 1 January 2015. The majority of these policies provide cover on a calendar year basis and therefore no restatement is required for FY 2014. However, H1 2014 has been restated to ensure comparatives are on a consistent basis. Similar restatement will be required at Q3. The restatements for H1 and Q3 2014 are to decrease net written premiums by £161m and £85m respectively. The restatement has had no impact on the insurance result, combined ratio or net assets.

Expense allocation changes

In line with the Group’s focus on transparency of performance, we have revisited the methodology used to allocate expenses across the Group. This has identified certain expense items within the Group’s P&L which we believe should be allocated into the underwriting result but which currently sit elsewhere in the management basis P&L. These fall into two categories:

Investment expenses – historically a number of additional overheads have been allocated into this P&L line. Only genuine investment related expenses are now charged to this line. Central expenses – a review has been conducted of the activities within the Group Corporate Centre and a revised allocation into the underwriting result has been determined.

The Group’s H1 2015 results have been prepared on this new basis and therefore we have restated our H1 2014 comparatives. We will also restate our FY 2014 comparatives. The Group’s operating result remains unchanged, as does ROTE, but the underwriting result is reduced and the combined operating ratios that were reported in 2014 increased slightly. The impact for H1 2014 is to transfer £25m of cost into the underwriting result. For FY 2014 the impact is £49m. The Group's COR ratio increases from 100.0% to 100.6% for H1 2014 and from 98.8% to 99.5% for FY 2014.

Combined operating ratio

The Group’s combined operating ratio (COR) calculation was changed at FY 2014 and is now as follows. All H1 2014 comparatives have been restated on this basis.

COR = loss ratio + commission ratio + expense ratio

Where:

Loss ratio = net incurred claims / net earned premiums

Commission ratio = earned commissions / net earned premiums

Expense ratio = earned operating expenses / net earned premiums

Net asset value and tangible net asset value per share

Net asset value per share data at 30 June 2015 was based on total shareholders’ funds of £3,722m, adjusted by £125m for preference shares. Tangible net asset value per share was based on a tangible book value of £2,867m.

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. On a basic and diluted basis these were 1,016,424,618 and 1,019,350,001 respectively (net of RSA owned shares). The number of shares in issue at 30 June 2015 was 1,016,861,330 (net of RSA owned shares).

Return on equity and tangible equity

H1 2015

H1 20141

£m

Profit/(loss) after tax

215

Less: non-controlling interest

(3)

(2)

Less: preference dividend

(5)

Profit/(loss) attributable to ordinary shareholders

207

(1)

Operating profit/(loss) before tax

259

141

Less: interest costs

(54)

(58)

Underlying profit/(loss) before tax

205

Less: tax2

(57)

(23)

Less: non-controlling interest

(3)

(2)

Less: preference dividend

(5)

Underlying profit/(loss) after tax attributable to ordinary shareholders

140

Opening shareholders’ funds

3,825

2,893

Less: preference share capital

(125)

Opening ordinary shareholders’ funds

3,700

2,768

Less: goodwill & intangibles

(800)

(1,103)

Opening tangible ordinary shareholders’ funds

2,900

1,665

Annualised return on equity

(2xA)/C

Reported

11.2%

0.0%

(2xB)/C

Underlying

7.6%

3.8%

Annualised return on tangible equity

(2xA)/D

Reported

14.3%

(0.1)%

(2xB)/D

Underlying

9.7%

6.4%

1 Restated for revised methodology introduced at FY 20142 Using underlying assumed tax rate of 28%

NET EARNED PREMIUMS BY CLASS

Management basis

	H1 2015	H1 2014	Change asreported	Change atconstant fx
	£m	£m	%	%
Scandinavia
Household	140	153	(8)	5
Personal Motor	160	181	(12)	2
Personal Accident & Other	135	152	(11)	3
Total Personal	435	486	(10)	3

Property	134	170	(21)	(9)
Liability	64	66	(3)	10
Commercial Motor	90	105	(14)	(1)
Marine & Other	59	63	(6)	5
Total Commercial	347	404	(14)	(2)
Total Scandinavia	782	890	(12)	1

Canada
Household	220	215	2	5
Personal Motor	289	314	(8)	(6)
Total Personal	509	529	(4)	(1)

Property	92	105	(12)	(10)
Liability	53	60	(12)	(10)
Commercial Motor	43	46	(7)	(4)
Marine & Other	25	26	(4)	-
Total Commercial	213	237	(10)	(8)
Total Core Canada	722	766	(6)	(3)

UK
Household	315	328	(4)	(4)
Personal Motor	135	164	(18)	(18)
Pet	132	125	6	6
Total Personal	582	617	(6)	(6)

Property	309	293	5	7
Liability	144	149	(3)	(2)
Commercial Motor	199	256	(22)	(22)
Marine	144	129	12	12
Total Commercial	796	827	(4)	(3)
Total Core UK	1,378	1,444	(5)	(4)

Ireland
Personal	85	118	(28)	(19)
Commercial	49	57	(14)	(4)
Total Ireland	134	175	(23)	(14)

Latin America
Chile	94	83	13	18
Argentina	115	96	20	22
Brazil	50	62	(19)	(6)
Mexico	44	45	(2)	2
Colombia	23	42	(45)	(36)
Uruguay	23	23	-	10
Total Latin America	349	351	(1)	7

Group Re	(6)	11	(155)	(155)
Total Core Group	3,359	3,637	(8)	(3)

Discontinued & non-core	220	375	(41)	(39)
Total Group	3,579	4,012	(11)	(6)

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 2015 to 30 June 2015.

	UK	Other	Group
	£m	£m	£m

Pension fund surplus/(deficit) at 1 January 2015	33	(105)	(72)

Actuarial gains/(losses)1	12	13	25
Deficit funding	52	-	52
Other movements2	9	6	15

Pension fund surplus/(deficit) at 30 June 2015	106	(86)	20

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.

Accounting basis

At an aggregate level the pension fund position under IAS 19 improved during the first half from a deficit of £72m to a surplus of £20m. Both the UK and non-UK positions improved, and the IAS 19 surplus for the UK schemes now stands at £106m.

The improvement was driven by deficit funding contributions of £65m (pre-tax) paid in the first quarter, and positive asset performance.

Funding basis

During the second quarter we commenced the latest triennial valuation review with the UK schemes’ trustees. The valuation date is 31 March 2015.

At 31 March the funding level was estimated to be 97% (prior to any assumption changes or update of scheme data in the triennial review process).

We are aiming for a sound result from the triennial UK pension review by the time of announcing the full year results.

INCOME STATEMENT

Management basis – 6 months ended 30 June 2014 (re-presented for core, non-core and discontinued split)

Total ‘non-core’

Group

H1 20147

Core4

‘Non-core’5

Discontinuedoperations5

£m

Net Written Premiums

3,769

3,418

261

Net Earned Premiums

4,012

3,637

291

Net Incurred Claims1

(2,800)

(2,538)

(84)

(178)

Commissions

(586)

(533)

(9)

(44)

Operating expenses

(649)

(578)

(12)

(59)

Underwriting result

(23)

(12)

(21)

Investment income

223

200

Investment expenses

(7)

(7)

Unwind of discount

(42)

(29)

(13)

Investment result

174

164

Central expenses

(10)

(10)

(3)

Operating result

141

142

(22)

Net gains/losses/exchange

142

Interest

(58)

Non-operating charges2

(23)

Non-recurring charges3

(133)

Profit before tax

Tax

(63)

Profit after tax

Loss ratio (%)

69.8

69.8

Weather loss ratio

3.9

4.1

Large loss ratio

6.7

6.9

Current year attritional loss ratio

58.3

57.8

Prior year effect on loss ratio

0.9

1.0

Commission ratio (%)6

14.6

14.6

Expense ratio (%)6

16.2

15.9

Combined ratio (%)

100.6

100.3

Reported ROTE

(0.1)%

Underlying ROTE

6.4%

Notes:

1 Of which: claims handling costs

(239)

2 Amortisation

(18)

2 Pension net interest costs

(5)

3 Solvency II costs

(14)

3 Reorganisation costs

(117)

3 Transaction costs

(2)

3 Economic assumption changes

4 ‘Core’ comprises Scandinavia, Canada (ex Noraxis), UK (ex Legacy), Ireland, Latin America and central functions.5 Discontinued operations include Poland, Baltics, Italy, Hong Kong, Singapore, China, Thailand and India. Non-core operations include Noraxis, UK Legacy, Middle East, and Russia6 Commission and expense ratios have been restated onto an ‘earned’ basis in line with the change in methodology presented at FY 2014.7 Restated, please refer to page 28 for further details.

SEGMENTAL ANALYSIS

Management basis – 6 months ended 30 June 2014 (re-presented onto 2014 year-end segmental split)

	Scandinavia	Canada3	UK4	Ireland	LatinAmerica	Centralfunctions	Total ‘non-core’1	GroupH1 20145
	£m	£m	£m	£m	£m	£m	£m	£m
Net Written Premiums	1,059	680	1,257	152	311	(41)	351	3,769
Net Earned Premiums	890	766	1,444	175	351	11	375	4,012
Net Incurred Claims	(615)	(542)	(958)	(193)	(216)	(14)	(262)	(2,800)
Commissions2	(27)	(108)	(285)	(21)	(89)	(3)	(53)	(586)
Operating expenses2	(152)	(120)	(210)	(26)	(70)	-	(71)	(649)
Underwriting result	96	(4)	(9)	(65)	(24)	(6)	(11)	(23)
Investment income	59	41	70	6	23	1	23	223
Investment expenses	(1)	(2)	(3)	-	(1)	-	-	(7)
Unwind of discount	(19)	(1)	(2)	-	(6)	(1)	(13)	(42)
Investment result	39	38	65	6	16	-	10	174
Central expenses	-	-	-	-	-	(10)	-	(10)
Operating result	135	34	56	(59)	(8)	(16)	(1)	141
Net gains/losses/exchange								142
Interest								(58)
Non-operating charges								(23)
Non-recurring charges								(133)
Profit before tax								69
Tax								(63)
Profit after tax								6

Loss ratio (%)	69.2	70.8	66.3	110.2	61.6			69.8
Weather loss ratio	0.2	6.1	5.9	9.0	-			3.9
Large loss ratio	2.8	4.4	10.7	3.4	6.6			6.7
Current year attritional loss ratio	65.9	62.7	48.9	81.1	53.0			58.3
Prior year effect on loss ratio	0.3	(2.4)	0.8	16.7	2.0			0.9
Commission ratio (%)2	3.0	14.1	19.7	12.2	25.3			14.6
Expense ratio (%)2	17.0	15.8	14.6	14.7	19.9			16.2
Combined ratio (%)	89.2	100.7	100.6	137.1	106.8			100.6

1 Total ‘non-core’ comprises discontinued operations of Poland, Baltics, Italy, Hong Kong, Singapore, China, Thailand and India, and other non-core operations of Noraxis, UK Legacy, Middle East, and Russia.2 Commission and expense ratios have been restated onto an ‘earned’ basis in line with the change in methodology presented at FY 2014.3 Excluding Noraxis4 Excluding Legacy5 Restated, please refer to page 28 for further details.

SUMMARY CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Management basis – at 30 June 2015

	30 June	30 June	31 December
	2015	2014	2014
	£m	£m	£m
Assets
Goodwill and other intangible assets	728	855	800
Property and equipment	133	150	151
Investment property	360	324	346
Investment in associates	13	40	31
Financial assets	12,174	12,681	12,840
Total investments	12,547	13,045	13,217
Reinsurers’ share of insurance contract liabilities	2,250	2,144	1,897
Insurance and reinsurance debtors	3,184	3,461	3,174
Deferred tax assets	139	253	180
Current tax assets	35	48	21
Other debtors and other assets	825	888	759
Other assets	999	1,189	960
Cash and cash equivalents	881	1,077	1,011
Assets associated with continuing operations	20,722	21,921	21,210
Assets held for sale	394	543	808
Total assets	21,116	22,464	22,018

Equity and liabilities

Equity and loan capital
Shareholders’ funds	3,722	3,726	3,825
Non-controlling interests	124	114	108
Total equity	3,846	3,840	3,933
Loan capital	1,249	1,303	1,243
Total equity and loan capital	5,095	5,143	5,176

Liabilities (excluding loan capital)
Insurance contract liabilities	12,971	14,343	13,266
Insurance and reinsurance liabilities	1,196	946	904
Borrowings	-	299	299
Deferred tax liabilities	62	71	62
Current tax liabilities	53	72	83
Provisions	272	277	338
Other liabilities	1,104	1,017	1,160
Provisions and other liabilities	1,491	1,437	1,643
Liabilities associated with continuing operations	15,658	17,025	16,112
Liabilities held for sale	363	296	730
Total liabilities (excluding loan capital)	16,021	17,321	16,842

Total equity, loan capital and liabilities	21,116	22,464	22,018

SUMMARY CASH FLOW FOR CONTINUING OPERATIONS

Management basis

	6 months2015	6 months 2014
	£m	£m

Current year underwriting profit/(loss)	73	27
Adjustment for non-cash items, claims payments/receipts	173	99
Underwriting cash	246	126
Investment cash	220	369
Underlying operating cash flow	466	495
Non-operating cash flow (including reorganisation costs)	(84)	(160)
Operating cash flow	382	335
Tax paid	(77)	(56)
Interest paid	(80)	(78)
Pension deficit funding	(65)	(65)
Cash generation	160	136
Group dividends	(25)	(5)
Dividend to non-controlling interests	(1)	(5)
Issue of share capital	1	749
Net movement of debt	(299)	(7)
Corporate activity	173	36
Cash movement	9	904

Represented by:
Increase/(decrease) in cash and cash equivalents	(158)	2
Purchase/(sale) of other investments	167	902
Cash movement	9	904

RECONCILIATION: MANAGEMENT BASIS TO STATUTORY REPORTING

Management basis			Discontinuedoperations	Add backother items1	Statutory basis
Net written premiums	3,443		(111)		3,332	Net written premiums
Net earned premiums	3,579		(123)		3,456	Net earned premiums
Net incurred claims	(2,356)		76		(2,280)	Net claims and benefits
Commissions	(560)	(1,122)	40	(202)	(1,156)	Underwriting and policy acquisition costs
Operating expenses	(562)				(128)	Other expenses
Underwriting result	101

Profit before tax	288		(148)		140	Profit before tax
Tax	(73)		7		(66)	Tax
Profit from discontinued operations	-		141		141	Profit from discontinued operations
Profit after tax	215		-		215	Profit after tax

1 Other items include: reorganisation costs, central expenses, investment expenses, Solvency II costs, amortisation of intangibles, and other income

REPORTING AND DIVIDEND TIMETABLE

2nd preference dividend ex dividend date				13 August 2015
2nd preference dividend record date				14 August 2015
Interim dividend ex dividend date				10 September 2015
Interim dividend record date				11 September 2015
2nd preference dividend payment date				1 October 2015
Interim dividend payment date				15 October 2015
Q3 Interim Management Statement				5 November 2015

Note: the scrip dividend alternative is not being offered for the 2015 interim dividend payment

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]				Email: [email protected]

Ryan Jones				Kaidee Sibborn
Investor Relations Manager				Media Relations Manager
Tel: +44 (0) 20 7111 7243				Tel: +44 (0) 20 7111 7137
Email: [email protected]				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 10:30am today. A webcast and transcript of the call will be available via the company website (www.rsagroup.com).

Important disclaimer

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF THAT JURISDICTION

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.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150805006472/en/

Related Shares:

FTSE 100 Latest

Value8,596.35

Change99.55