5th Nov 2009 07:00
| IMMEDIATE | 5 November 2009 |
RSA Interim Management Statement
Quarter 3 2009: Strong performance in challenging conditions
Net written premiums of £5.0bn up 4% IGD surplus remains strong at £1.7bn representing coverage of 2.4 times Net asset value per share excluding IAS 19 of 104p, compared with 95p at 30 June1 Total net asset value per share of 98p compared with 101p at 30 June1 €500m subordinated guaranteed bond called on 15 October Expect to deliver a COR of around 95% in 2009Andy Haste, Group CEO of RSA, commented:
"We have produced another robust performance with our net written premiums again demonstrating the resilience of our strong and diversified portfolio. While economic conditions remain challenging, we are now seeing some encouraging signs, particularly in International and Emerging Markets. We are well positioned and taking the right actions to successfully manage through the downturn and take advantage as conditions improve."
Business Overview
Net written premiums for the nine months to 30 September 2009 were £5,028m, an increase of 4% over the same period in 2008 (down 1% at constant exchange).
International net written premiums of £2,462m up 8% (flat at constant exchange) 2 UK net written premiums of £1,976m down 3% 2 Emerging Markets net written premiums of £575m up 7% (down 4% at constant exchange) 2In line with our first half experience, the trading environment remains challenging, with economic conditions leading to reductions in exposures and premiums across the majority of our markets. To mitigate this we continue to push hard on rate, target profitable growth and exercise tight operational and financial management and we remain confident of delivering a combined operating ratio for 2009 of around 95%.
1 See notes to editors Note 5
2 See notes to editors Note 1
- International
International has delivered another strong performance, with premiums up 8% to £2,462m (flat on 2008 at constant exchange).
In Scandinavia, premiums of £1,320m were up 5% (down 1% at constant exchange) driven by continued action on rating and positive foreign exchange. Personal lines were up 8% (4% at constant exchange) with good growth in Norway and Swedish Personal Accident. Commercial lines were up 1% (down 6% at constant exchange) with growth in Norway offsetting the impact of the withdrawal of capacity and reduction in exposure. We continue to make good progress towards our additional £25m cost savings target and remain on track to deliver this by mid 2010.
In Canada, premiums of £755m were up 13% (3% at constant exchange) driven by rate increases, strong retention and favourable exchange. In Personal lines, premiums were up 15% (4% at constant exchange) with Johnson performing strongly, delivering growth of 19% (8% at constant exchange). Commercial lines were up 8% (down 1% at constant exchange) in a continuing competitive market.
In Other Europe, premiums were up 12% to £387m (down 1% at constant exchange), with strong growth in Ireland, driven by positive rate action across all lines of business and the benefit of prior year acquisitions, offsetting a reduction in personal motor and the withdrawal of capacity in Commercial Property in Italy.
- UK
The UK remains a competitive market with overall premiums of £1,976m down 3% on last year. We are maintaining our strategy of pushing rate, targeting profitable growth and selective capacity withdrawal where we cannot achieve target returns.
In Personal lines, premiums increased by 1% to £829m, with new Affinity deals and strong growth in Personal Broker offsetting lower new business levels related to mortgage origination and car sales. In Commercial, premiums of £1,147m were 5% down on last year, with lower premiums in Commercial Motor schemes and the Mid-Market segment partially mitigated by strong performances in Specialty lines including Risk Solutions and Marine.
We continue to take the right action on rate and have achieved a 7% rate increase in Personal Motor and 4% in Household. In Commercial, we have pushed rate hard and achieved increases of 8% on Liability, Property and Motor.
At our full year results in February, we announced a further £70m cost savings target in the UK, to be delivered by mid 2010, with plans to reduce headcount by 1,200. We are on track to achieve this and as of today, we have announced 1,050 of the roles, of which 650 have already left the business.
- Emerging Markets
Emerging Markets has again delivered a good result in the expected challenging conditions, with net written premiums of £575m up 7% (down 4% at constant exchange). We continue to take action on rate, policy terms, expenses and headcount to protect the bottom line. Total premiums including our associates were £673m, an increase of 5% (down 4% on constant exchange). These markets remain attractive places to do business and we will continue to invest in the region.
In Asia and the Middle East premiums were up 32% (4% at constant exchange) with Hong Kong, Singapore, Oman and KSA delivering double digit growth and offsetting the impact of small reductions in other territories.
In Latin America premiums were up 5% (flat at constant exchange) with good growth in Brazil, Colombia and Uruguay mitigating the move to six month policies in Argentina and portfolio actions in Mexico.
In Central and Eastern Europe premiums were down 10% (down 20% at constant exchange). As expected, the Baltics continue to be impacted by the economic downturn, however we are taking the right action and have maintained our market leading position. Following the acquisition of the remaining 50% of Intouch, we have, from 1 July, consolidated our operations in Poland, the Czech Republic and Russia. These businesses continue to deliver strong growth, with premiums up 4% (14% at constant exchange) in the first nine months.
Our associate in India continues to perform well with premiums up by 19% to £63m (11% at constant exchange).
A full breakdown of Group net written premiums and rating actions for the third quarter is included in the notes to editors.
Financial Position and 2009 Outlook
- Investment Portfolio
The investment portfolio totalled £15.1bn at 30 September, an increase of 7% since the half year due mainly to foreign exchange movements.
The Group continues to benefit from its low risk investment strategy with 88% of the total investment portfolio invested in high quality fixed income and cash assets. As previously reported, we are implementing a number of actions to mitigate falling yields and respond to changed investment conditions, including increasing the proportion of non governments towards 60% of the bond portfolio, minimising cash balances and a measured increase in equity and property holdings. As mentioned at the full and half year, we currently expect investment income in 2009 to be around 2007 levels and are not anticipating a positive contribution from total gains.
- Shareholders' Funds and Capital Position
Shareholders' funds as at 30 September 2009, excluding the pension fund deficit, were £3,607m (104p per share) compared with £3,311m (95p per share) at 30 June 2009 due to retained profits, fair value gains and positive foreign exchange. The pension fund has moved from a surplus of £196m at 30 June to a deficit of £182m. This primarily reflects the impact of the recently announced de-risking of the UK pension schemes as well as changes in assumptions and other movements. The de-risking reduced the surplus by £349m compared with the expected £361m as reported on 14 July. As a result of this action, the impact of assumption changes and other movements on the pension deficit was just £14m. Total shareholders' funds including the pension deficit were £3,425m (98p per share), compared with £3,507m at 30 June (101p per share).
The Group's capital position remains strong. At 30 September, the IGD surplus was unchanged from the position at 30 June at £1.7bn, representing coverage of 2.4 times the requirement. The economic capital surplus remains strong, increasing marginally to £1.8bn.
Our financing and liquidity position is also strong and our committed £455m senior facility remains undrawn. On 15 October 2009 we called our €500m subordinated guaranteed bond; this will have no impact on our IGD surplus as, in accordance with FSA requirements, these notes were derecognised for regulatory purposes six months prior to the call date.
Further details on movements in the investment portfolio, net asset value, pension surplus and capital position are provided in the notes to editors.
- Combined Operating Ratio
As it stands today, we continue to expect to deliver a combined operating ratio of around 95% in 2009.
For further information:
| Analysts | Press | |||||||||||||||||||||||
| Claire Cordell | Jon Sellors | |||||||||||||||||||||||
| Tel: +44 (0) 20 7111 7212 | Tel: +44 (0) 20 7111 7047 | |||||||||||||||||||||||
| Suzannah Oliver | Simon Kutner | |||||||||||||||||||||||
| Tel: +44 (0) 20 7111 7140 | Tel: +44 (0) 20 7111 7327 | |||||||||||||||||||||||
| Faeth Birch (Finsbury) | ||||||||||||||||||||||||
| Tel: +44 (0) 20 7251 3801 | ||||||||||||||||||||||||
Notes to editors:
1. Set out below are the net written premiums for each of the regions for the nine months to September 2009:
| Net written premiums |
Increase as | Increase atconstant | ||||||||||||||||||||||||||||||||||||
| Q3 2009 | Q3 2008 | reported | exchange | |||||||||||||||||||||||||||||||||||
| £m | £m | % | % | |||||||||||||||||||||||||||||||||||
| Scandinavia | 1,320 | 1,258 | 5 | (1) | ||||||||||||||||||||||||||||||||||
| Canada | 755 | 668 | 13 | 3 | ||||||||||||||||||||||||||||||||||
| Other Europe | 387 | 346 | 12 | (1) | ||||||||||||||||||||||||||||||||||
| Total International | 2,462 | 2,272 | 8 | - | ||||||||||||||||||||||||||||||||||
| UK Personal | 829 | 824 | 1 | 1 | ||||||||||||||||||||||||||||||||||
| UK Commercial | 1,147 | 1,208 | (5) | (5) | ||||||||||||||||||||||||||||||||||
| Total UK | 1,976 | 2,032 | (3) | (3) | ||||||||||||||||||||||||||||||||||
| Emerging Markets | 575 | 538 | 7 | (4) | ||||||||||||||||||||||||||||||||||
| Group Re | 15 | 11 | 36 | 36 | ||||||||||||||||||||||||||||||||||
| Total Group | 5,028 | 4,853 | 4 | (1) | ||||||||||||||||||||||||||||||||||
2. Rate movements achieved for risks renewing in September 2009 versus comparable risks renewing in September 2008 were as follows:
| Personal | Commercial | ||||||||||||||||||||||||||||||||||||||||||||
| Motor | Household | Motor | Liability | Property | |||||||||||||||||||||||||||||||||||||||||
| % | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||
| UK | 7 | 4 | 8 | 8 | 8 | ||||||||||||||||||||||||||||||||||||||||
| Scandinavia | 4 | 4 | - | 3 | 4 | ||||||||||||||||||||||||||||||||||||||||
| Canada | 5 | 10 | 5 | - | 2 | ||||||||||||||||||||||||||||||||||||||||
3. On 30 September we announced the sale of British Engine Limited to Knapton Holdings Limited, a wholly-owned subsidiary of Enstar Group Limited, for £28m, generating a small loss on disposal of £7m.
British Engine is an inwards reinsurance business covering Engineering, Casualty, Financial Products, Property and Marine Aviation and has been in run-off since 2001. This transaction removes £107m of net insurance liabilities from the Group's balance sheet and, subject to regulatory approval, is expected to complete by 31 December 2009.
4. The movement in the value of the investment portfolio from 30 June 2009 to 30 September 2009 is set out below:
| Value30/6/2009 | ForeignExchange | Mark toMarket | OtherMovements | Value30/9/2009 | |||||||||||||||||||||||||||||||||||||||
| £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||||||||
| Government Bonds | 5,125 | 358 | 24 | 84 | 5,591 | ||||||||||||||||||||||||||||||||||||||
| Non Government Bonds | 5,692 | 419 | 71 | 193 | 6,375 | ||||||||||||||||||||||||||||||||||||||
| Cash | 1,767 | 56 | - | (446) | 1,377 | ||||||||||||||||||||||||||||||||||||||
| Equities | 774 | 21 | 128 | 39 | 962 | ||||||||||||||||||||||||||||||||||||||
| Property | 346 | 8 | 9 | 9 | 372 | ||||||||||||||||||||||||||||||||||||||
| Prefs & CIVs | 214 | 15 | 30 | (1) | 258 | ||||||||||||||||||||||||||||||||||||||
| Other | 155 | 5 | (1) | (20) | 139 | ||||||||||||||||||||||||||||||||||||||
| Total | 14,073 | 882 | 261 | (142) | 15,074 |
The investment portfolio increased by 7% over the three months to £15,074m, with foreign exchange of £882m and mark to market movements of £261m partially offset by net outflows of £142m. The foreign exchange movement reflects the depreciation of Sterling against the Canadian Dollar, the Euro, the Danish Krone and the Swedish Krona. The mark to market movement predominantly reflects increases on bonds and equities with smaller movements on property, preference shares and CIVs.
At 30 September 2009, unrealised gains on the balance sheet were £541m (30 June 2009: £265m).
88% of the total investment portfolio remains invested in high quality fixed income and cash assets. The fixed interest portfolio is concentrated on high quality short dated assets, with 99% of the bond portfolio investment grade, and 80% rated AA or above. The bond holdings are well diversified, with 71% invested in currencies other than Sterling and 53% invested in non government bonds (30 June 2009: 53%). The average duration is 2.7 years for the Group, and 2.5 years in the UK.
The non government bond portfolio of £6.4bn comprises £1.9bn of Scandinavian Mortgage Bonds, £2.5bn of other financials and £2.0bn of non financials. The Scandinavian Mortgage Bonds portfolio comprises £1.2bn of Swedish bonds, which are all rated AAA, and £0.7bn of Danish bonds, which are principally rated AAA. The average duration on the Scandinavian Mortgage Bond portfolio is 2.2 years with an average LTV of around 60%. Within the £2.5bn of other financial exposure, £350m is in supranational and sovereign backed entities, £370m in other non bank financials and £1.8bn in banks. Of the £1.8bn in banks, just £250m of this is subordinated debt and only £59m is Tier 1, the vast majority of which is in Canadian banks, with only £6m in the UK.
Equities (excluding preference shares and Collective Investment Vehicles backed by fixed income and cash) comprised 6% of the portfolio. We continue to hedge our equity portfolio, with around 64% of the exposure hedged with a rolling programme of put and call options, providing protection down to a FTSE level of 2,800. The commercial property portfolio is only 2% of investment assets and comprises high quality commercial properties and does not include any development properties.
We have a high quality, low risk portfolio and this has served us well over the last few years. With the changed investment conditions and outlook we reviewed our strategy in the first half of the year. This review reconfirmed the principles of our existing strategy, in particular the need to maintain the high quality, low risk portfolio. We are, however, implementing a number of actions to further mitigate falling yields and respond to changed investment conditions.
We will continue to be a cautious purchaser of high quality non government bonds and anticipate non governments increasing towards 60% of the fixed income portfolio. We also seek to minimise cash balances and see opportunities for a measured increase in equity and property holdings. Going forward, we will be a net purchaser of both and would expect, over time, for a moderate rise in the proportion of the portfolio they represent.
With the actions we are taking and our geographic spread, we still expect investment income for 2009 to be around 2007 levels. Total gains will continue to be impacted by any further market movements in commercial property values as well as financial market volatility. If the FTSE 100 remains at the current level of around 5,000, we would expect the value of the equity hedges to fall by around £30m from their mid year position, while total impairments will remain around their mid year level. The value of commercial property is expected to broadly track the IPD index. As a result, as it stands today, we are still not anticipating a positive contribution from total gains in 2009.
5. The Group's shareholders' funds including and excluding the pension surplus/(deficit) are as follows:
| Shareholders' funds ex. IAS 19 | Pension surplus/ (deficit) | Shareholders' funds | Shareholders' funds ex. IAS 19 | Shareholders' funds | |||||||
| £m | £m | £m | per share | per share | |||||||
| 30 June 2009 | 3,311 | 196 | 3,507 | 95p | 101p | ||||||
| 30 September 2009 | 3,607 | (182) | 3,425 | 104p | 98p |
As at 30 September shareholders' funds excluding the pension scheme increased by 9% to £3,607m due to retained profit, fair value gains and positive foreign exchange.
The movement in the pension fund since 30 June of £378m, primarily reflects the impact of the recently announced de-risking of the UK pensions schemes as well as changes in assumptions and other movements. The de-risking reduced the surplus by £349m compared with the expected £361m as reported on 14 July. As a result of this action, the impact of assumption changes and other movements on the pension deficit was just £14m. The discount rate has been reduced from 6.4% to 5.6%, in line with decreasing corporate bond yields and we have lowered our inflation assumption to 2.8% from 3.0% at the half year.
The assumptions used to calculate the pension fund position are formally reviewed each year and the next full review will be carried out at the 2009 year end.
Shareholders' funds including the pension funds were £3,425m, a decline of 2% over the quarter.
6. The Group's regulatory capital position under the Insurance Groups Directive (IGD) is set out below:
| Insurance Groups Directive | Requirement | Surplus | Cover | |||||||||||||||||||||||||||||
| £bn | £bn | |||||||||||||||||||||||||||||||
| 30 June 2009 | 1.2 | 1.7 | 2.4x | |||||||||||||||||||||||||||||
| 30 September 2009 | 1.2 | 1.7 | 2.4x |
At 30 September 2009, the Group had surplus economic capital of £1.8bn, compared with £1.7bn at 30 June 2009, based on a risk tolerance consistent with Standard & Poor's long term A rated bond default curve. This is equivalent to a probability of solvency over one year of 99.92%.
7. Foreign exchange rates used to translate the 2009 and 2008 consolidated results included in this statement are as follows:
| Local currency/£ | Average | Closing | ||||||||||||||||||||||||||||
| 9 Months 2009 | 9 Months 2008 | 30 September 2009 | 30 June 2009 | 31 December 2008 | ||||||||||||||||||||||||||
| Canadian Dollar | 1.80 | 1.98 | 1.72 | 1.91 | 1.77 | |||||||||||||||||||||||||
| Danish Krone | 8.41 | 9.55 | 8.15 | 8.74 | 7.70 | |||||||||||||||||||||||||
| Swedish Krona | 12.09 | 12.05 | 11.18 | 12.76 | 11.35 | |||||||||||||||||||||||||
| Euro | 1.13 | 1.28 | 1.09 | 1.17 | 1.03 | |||||||||||||||||||||||||
8. Movements since 30 September 2009
As at 5 November, the IGD and economic capital surpluses are estimated to be unchanged at £1.7bn and £1.8bn respectively. Shareholders' funds have also remained constant with retained profits offset by mark to market movements on the investment portfolio and net asset value per share is estimated at 98p.
A 30% fall in the FTSE from current levels of around 5,000 would reduce the IGD surplus by an estimated £0.2bn.
9. This trading update constitutes RSA's Interim Management Statement for the period 30 June 2009 to 5 November 2009.
About RSA
With an almost 300 year heritage, RSA is one of the world's leading multinational quoted insurance groups. It has the capability to write business in over 130 countries and with major operations in the UK, Scandinavia, Canada, Ireland, Central and Eastern Europe, Asia and the Middle East and Latin America. Focusing on general insurance, it has around 21,000 employees and, in 2008, its net written premiums were £6.5bn.
Important Disclaimer
This press release may contain 'forward-looking statements' with respect to certain of the Company'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 involve risk and uncertainty because they relate to future events and circumstances which are beyond the Company's control, including amongst other things, UK domestic and global economic business conditions, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities, the impact of competition, inflation, deflation, the timing impact and other uncertainties of future acquisitions or combinations within relevant industries, as well as the impact of tax and other legislation and other regulations in the jurisdictions in which the Company and its affiliates operate. As a result, the Company's actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in the Company'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 Company undertakes no obligation to update any forward-looking statements, save in respect of any requirement under applicable law or regulation. Nothing in this press release shall be construed as a profit forecast.
Copyright Business Wire 2009
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