6th Nov 2008 07:00
6 November 2008 RSA Interim Management Statement Quarter 3 2008: Continued strong performance -- Group net written premiums of £4.9bn up 11% (4% at constant exchange rates) -- IGD surplus of £1.4bn and coverage of 2.3 times the requirement, unchanged from 30 June -- Net asset value per share excluding IAS 19 of 85p, unchanged from 30 June(1) -- Total net asset value per share of 92p compared with 94p at 30 June(1) -- At 5 November, IGD surplus of £1.5bn and net assets in line with 30 September -- Expect to deliver a COR of better than 95% in 2008 Andy Haste, Group CEO of RSA, commented: "We have maintained good momentum in the first nine months and our premiumgrowth continues to demonstrate the benefits of our management actions and ourstrong and diversified portfolio. The Group's financial position is strong,reflecting our high quality, low risk investment strategy and resilient capitalposition. Against a backdrop of challenging trading conditions and volatileinvestment markets, we continue to exercise tight operational and financialmanagement and remain confident of delivering a strong result in 2008 andbeyond." Business Overview Net written premiums for the nine months to 30 September 2008 were £4,853m, anincrease of 11% (4% at constant exchange) over the same period in 2007. -- International net written premiums of £2,272m up 21% (7% at constant exchange) -- UK net written premiums of £2,032m, in line with prior year -- Emerging Markets net written premiums of £538m up 22% (10% at constant exchange)(2) International has continued to deliver excellent growth, with premiums up 21% to£2,272m, reflecting the benefits of organic initiatives, bolt on acquisitionsand favourable foreign exchange movements. (1) See notes to editors Note 4 (2 )See notes to editors Note 1 In Scandinavia, premiums were £1,258m, up 17% (3% at constant exchange) withgood growth in Denmark and Norway. In Canada, premiums of £668m were up 30% (18%at constant exchange), driven by organic initiatives and the benefit of the CNSacquisition in December 2007. In Other Europe, premiums were up 18%, or 2% atconstant exchange. The UK has again delivered a good performance in a competitive market andoverall premiums are in line with last year at £2,032m. We remain committed toour strategy of maintaining underwriting discipline, targeting profitable nichesand withdrawing capacity from unprofitable areas of the market. In Personal lines, premiums increased by 1% to £824m, a good result givencompetitive trading conditions and the impact of the economic downturn onmortgage originations and new car sales. In Commercial, premiums of £1,208m werein line with last year, with targeted growth in Marine and Commercial Motoroffsetting the withdrawal of capacity in areas such as small and mid corporateProperty, where we would not have achieved our target returns. We continue to take the right action on rate and have again achieved 5% rateincreases in Personal Motor and Household. In Commercial, we have pushed ratehard and achieved rate increases of 4% on Liability, 7% on Property and 9% onMotor. Retention remains strong across the UK at around 80%. Emerging Markets has continued to deliver double digit growth across LatinAmerica, the Baltics and Asia and the Middle East. Net written premiums of £538mare up 22% (10% at constant exchange); excluding Venezuela, which was sold inDecember 2007, premium growth is 29% (16% at constant exchange). Our jointventures in Eastern Europe and India also continue to perform well and deliveredgrowth of 46% (29% at constant exchange). The Group's net written premium growth for the period from 30 September to 5November is in line with that seen in the first nine months of the year. A breakdown of net written premiums and rating actions for the third quarter isincluded in the notes to editors. Financial Position The Group's financial position is strong. The Group continues to benefit fromits low risk investment strategy with the portfolio dominated by high qualityfixed income and cash assets. The investment portfolio totalled £13.5bn at 30September, compared with £13.2bn at the half year, with foreign exchange gainsand other positive portfolio movements offsetting mark to market valueadjustments. The fixed interest portfolio remains concentrated on high quality short datedassets, with 99% of the portfolio investment grade, 87% rated AA or above and70% invested in currencies other than sterling. At 30 September, equity investments comprised only 7% of the total investmentportfolio and around 75% of this exposure is covered by hedges, with the lowesttranche of options currently providing protection down to a FTSE of 2,825. Net assets as at 30 September, excluding the pension fund surplus, were £2,926m(85p per share) compared with £2,920m (85p per share) at 30 June. Total netassets were £3,159m (92p per share), compared with £3,221m at 30 June (94p pershare), with retained profits offset by the interim dividend and the movement inthe pension fund surplus. The Group's capital position also remains strong. At 30 September, the IGDsurplus was unchanged from the position at 30 June at £1.4bn, representingcoverage of 2.3 times the requirement. The economic capital surplus as at 30September was £2.0bn compared with £2.3bn at the half year. Although investment markets have remained volatile, the IGD and economic capitalsurplus have both increased since 30 September. At 5 November, the IGD surplusis £1.5bn and the economic capital surplus £2.1bn, while the Group's net assetsare in line with the end of the third quarter. A further 30% fall in the FTSEfrom current levels of around 4,500 would reduce the IGD surplus by an estimated£0.3bn. Further details on movements in the investment portfolio, net asset value,pension surplus and capital position are provided in the notes to editors. Outlook The Group has maintained good momentum in the first nine months. We expecttrading conditions to remain challenging in a number of our markets andinvestment markets to remain volatile, however, with the actions we are takingand the strength of our portfolio, we remain confident of delivering a strongresult in 2008 and beyond. As reported in the 2008 Interim Results, we expect todeliver a combined operating ratio for 2008 of better than 95%. For further information: \* TAnalysts Press------------------------------- -----------------------------------Shona Cotterill Thomas Coops / Simon Kutner------------------------------- -----------------------------------Tel: +44 (0) 20 7111 7212 Tel: +44 (0) 20 7111 7047/7327------------------------------- -----------------------------------Suzannah Seddon Faeth Birch (Finsbury)------------------------------- -----------------------------------Tel: +44 (0) 20 7111 7140 Tel: +44 (0) 20 7251 3801------------------------------- -----------------------------------\* T Notes to editors: 1. Set out below are the net written premiums for each of the regions for thenine months to September 2008: \* T Increase at Net written premiums Increase as constant Q3 2008 Q3 2007 reported exchange £m £m % % Scandinavia 1,258 1,073 17% 3%Canada 668 512 30% 18%Other Europe 346 294 18% 2% ------------------------ ------------- ------------ --------------------Total International 2,272 1,879 21% 7% UK Personal 824 819 1% 1%UK Commercial 1,208 1,206 - - ------------------------ ------------- ------------ --------------------Total UK 2,032 2,025 - - Emerging Markets1 538 441 22% 10% Group Re 11 15 (27)% (27)% --------------------- ------------------------ ------------- ------------ --------------------Total Group 4,853 4,360 11% 4%--------------------- ------------------------ ------------- ------------ --------------------\* T (1) Note: Emerging Markets Q3 2007 net written premiums include £23m in respectof the Venezuelan business, which was sold in December 2007. ExcludingVenezuela, Emerging Markets premium growth was 29% on a reported basis, and 16%at constant exchange. 2. Rate movements achieved for risks renewing in September 2008 versuscomparable risks renewing in September 2007 were as follows: \* T Personal Commercial Motor Household Motor Liability Property % % % % % UK 5 5 9 4 7Scandinavia - 4 2 5 3Canada 2 6 (3) (1) (2)\* T 3. The movement in the value of the investment portfolio from 30 June to 30September is set out below: \* T Value Foreign Mark to Other Value 30/06/2008 Exchange Market Movements 30/09/2008 £m £m £m £m £m Bonds 10,148 10 88 152 10,398Cash 1,158 22 - 166 1,346Equities 1,003 4 (119) 11 899Property 396 (1) (25) - 370Prefs & CIVs 227 7 (12) - 222Other 284 10 - (60) 234----------------- ------------------ ---------------- -------------- --------------- ----------------Total 13,216 52 (68) 269 13,469----------------- ------------------ ---------------- -------------- --------------- ----------------\* T The investment portfolio totalled £13.5bn at 30 September, compared with £13.2bnat the half year, with foreign exchange gains and other positive portfoliomovements offsetting mark to market value adjustments. The portfolio comprisesassets of £7.5bn held in International, £5.3bn in the UK and £0.7bn in EmergingMarkets. The International investment portfolio includes £1.0bn of Swedish MortgageBonds, which are all rated AAA and have an average LTV of around 40%, and £0.4bnof Danish Mortgage Bonds, which are principally rated Aaa and have an averageLTV of around 50%. The average duration on the Scandinavian mortgage bondportfolio is 2.5 years. The Emerging Market's investment portfolio comprises 47% government bonds and43% cash and short term deposits. Corporate bond exposure is 10% and comprisessupra national and highly rated Western corporates, with negligible exposure tolocal corporate bond issuance. Equity exposure is less than 1%. Overall, the Group continues to maintain a low risk investment strategy with theportfolio dominated by high quality fixed income and cash assets. The total fixed interest portfolio of £10.4bn at 30 September is 99% investmentgrade, with 87% rated AA or above and 70% invested in currencies other thansterling. The overall average duration is 2.5 years and 1.9 years in the UK.Government bonds comprise around 55% of the portfolio, while the corporate bondportfolio is high quality and extremely well diversified. Equity investments comprised only 7% of the portfolio at 30 September. We havehedged our equity holdings for the past 4 years and currently around 75% of theequity exposure is covered by hedges, with the lowest tranche of optionsproviding protection to a FTSE of 2,825. The mark to market movement on the equity portfolio was £119m in the quarter,making the total market movement on equities £277m for the year to 30 September.Offsetting this movement are realised and unrealised gains on the equity hedgesof £46m in the quarter, and £106m for the year to 30 September, which arerecognised in the income statement. Other Movements comprise operating cashflows, cash from gilt repo activity,realised gains and losses and impairments. At 30 September, total impairmentsare around £30m, including £15m on Lehman Brothers corporate bonds. If equitymarkets stay at current levels of around FTSE 4,500, we would expect totalimpairments for the full year to be around £60m and total realised andunrealised gains on the equity hedges to be around £140m. At 5 November, the value of the Group's investment portfolio is estimated to bein line with 30 September. 4. The Group's net assets including and excluding the pension surplus are asfollows: \* T Net assets Pension Net Net assets Net ex. IAS 19 surplus Assets ex. IAS 19 Assets £m £m £m per share per share 30 June 2008 2,920 301 3,221 85p 94p 30 September 2008 2,926 233 3,159 85p 92p\* T The movement in net assets in the period from £3,221m at 30 June to £3,159m at30 September primarily comprises retained profits offset by the interim dividendand the movement in the pension fund surplus. The assumptions used to calculate the pension fund position are formallyreviewed each year and the next full review will be carried out at the year end. While corporate bond yields have continued to increase in the third quarter, wehave held our assumptions constant since 30 June with a discount rate of 6.5%and an inflation assumption of 3.6%. On this basis, the surplus on the pensionscheme remains strong at £233m at 30 September (30 June: £301m), benefiting fromthe actions that we have taken over the past few years to reduce the risk in theschemes. Had the discount rate been adjusted to take account of the increase in corporatebond yields, the surplus on the pension fund would have been £487m at 30September. The movement in the pension fund surplus since 30 June from £301m to £233m,reflects the impact of investment market movements on the assets, with declinesin equities (which, after the disposals in June 2007, comprised only 21% of theassets at 30 September) offset by movements in the bond portfolio. 5. The Group's regulatory capital position under the Insurance Groups Directive(IGD) is set out below: \* TInsurance Groups Directive Requirement Surplus Cover £bn £bn 30 June 2008 £1.1bn £1.4bn 2.3x 30 September 2008 £1.1bn £1.4bn 2.3x 5 November 2008 £1.1bn £1.5bn 2.3x\* T A further 30% fall in the FTSE from current levels of around 4,500 would reducethe IGD surplus by an estimated £0.3bn. At 30 September 2008, the Group had surplus economic capital of £2.0bn, comparedwith £2.3bn at the half year, based on a risk tolerance consistent with Standard& Poor's long term A rated bond default curve. This is equivalent to aprobability of solvency over 1 year of 99.94%. At 5 November, the Group'ssurplus economic capital is estimated to be £2.1bn. 6. Foreign exchange rates used to convert Q3 2008 and 2007 net written premiumsto sterling are as follows: \* T£/local currency 9 Months 2008 9 Months 2007 12 Months 2007 Average Closing Average Closing Average Closing Canadian Dollar 1.98 1.89 2.19 2.03 2.14 1.96Danish Kroner 9.55 9.47 11.01 10.68 10.88 10.15Euro 1.28 1.27 1.48 1.43 1.46 1.36\* T 7. This trading update constitutes RSA's Interim Management Statement for theperiod 30 June 2008 to 5 November 2008. About RSA With an almost 300 year heritage, RSA is one of the world's leadingmultinational quoted insurance groups. It has the capability to write businessin over 130 countries and with major operations in the UK, Scandinavia, Canada,Ireland, Asia and the Middle East and Latin America. Focusing on generalinsurance, it has around 22,000 employees and, in 2007, its net written premiumswere £5.8bn. Important Disclaimer This press release may contain "forward-looking statements" (as defined in theUS Private Securities Litigation Reform Act of 1995) with respect to certain ofthe Company's plans and its current goals and expectations relating to itsfuture financial condition, performance and results. By their nature, allforward-looking statements involve risk and uncertainty because they relate tofuture events and circumstances which are beyond the Company's control,including amongst other things, UK domestic and global economic businessconditions, market-related risks such as fluctuations in interest rates andexchange rates, the policies and actions of regulatory authorities, the impactof competition, inflation, deflation, the timing impact and other uncertaintiesof future acquisitions or combinations within relevant industries, as well asthe impact of tax and other legislation and other regulations in thejurisdictions in which the Company and its affiliates operate. As a result, theCompany's actual future financial condition, performance and results may differmaterially from the plans, goals and expectations set forth in the Company'sforward-looking statements. The Company undertakes no obligation to update anyforward-looking statements, save in respect of any requirement under applicablelaw or regulation. Nothing in this press release shall be construed as a profitforecast. Copyright Business Wire 2008Related Shares:
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