Weather update and 2011 outlook

20th Jan 2011 07:00

2010 Weather Update and 2011 Outlook

2010 Update: Strong performance despite extreme weather conditions

Weather losses in November and December 2010 around £142m more than normal levels Across the Group, full year 2010 weather impact is around £255m more than normal levels Full year 2010 results1 expected to show NWP growth of 11%, a COR of between 96.5% and 97.0% and an operating profit of between £600m and £630m Emerging Markets achieves goal of NWP of £1bn

2011 Outlook: Confident of delivering premium growth and strong profitability

Expect to deliver continued NWP growth COR to be better than 95% Investment income of around £550m and investment gains of around £50m

Overview

RSA today announces the impact of the adverse weather in November and December 2010 to be around £142m more than normal levels and for the full year to be around £255m, or 3.5 points on the COR, more than normal. Compared with the prior year, the total impact of weather across the Group is expected to be around £175m worse or approximately 2.4 points on the COR.

RSA expects its full year 2010 results to show net written premium growth of 11%, a COR of between 96.5% and 97.0% and an operating profit in the range of £600m to £630m. Given the extreme weather in 2010, this is a strong result and reflects the diversity of the portfolio and the resilience of the Group's underlying profitability.

RSA remains committed to sustainable profitable performance and in 2011, as it stands today and assuming a return to more normalised weather, expects to deliver continued premium growth, a combined operating ratio of better than 95%, investment income of around £550m and total investment gains of around £50m.

The Group's dividend policy is to increase the dividend at least in line with inflation and the adverse weather in 2010 will not impact this policy.

Andy Haste, Group CEO of RSA, commented:

"This is a strong result in what has been an extremely tough year for the industry, including the European freeze and Chilean earthquake in the first quarter and the coldest December in the UK for 100 years. To deliver a COR of between 96.5% and 97% in these conditions underlines the strength and resilience of our portfolio. We look forward to 2011 with confidence and, as our guidance today shows, expect to deliver continued premium growth and strong profitability."

Winter Weather Update

Across the Group, the impact of adverse weather in November and December 2010 is around £142m more than normal levels, of which £110m is in the UK, £17m across Scandinavia, £7m from Ireland, £6m in Emerging Markets, mainly due to Hurricane Tomas and £2m in Italy.

In the UK, around £72m of the adverse experience relates to Household, where we have a market share of around 6%, with a further £26m in Commercial Property and £12m across Motor and other classes.

In Household, we have experienced a significant increase in claims relating to burst water pipes with around 8,000 claims at an average cost of approximately £6,700 received since 1 November, with volumes peaking in the weeks around Christmas, as well as an increase in claims from Household schemes. In addition, we have received almost 19,000 home emergency claims, around 5,500 snow claims and almost 5,700 other weather related claims. Our UK call centres handled around 90% more calls than normal in December and to date, we have received over 82,000 more calls than usual.

In Commercial Property, we have experienced over 2,300 claims, with around 15 claims accounting for approximately 23% of the adverse impact and the remainder being smaller losses.

Across the Motor book, in the period from 26th November to 24th December we experienced around a 70% increase in single vehicle accidents and around 20% more accidental damage claims compared with early November.

In Scandinavia, December was reported to be the second coldest ever recorded in Denmark and the coldest since 1915 in Stockholm. The impact of this freeze is around £17m more than normal levels, with the cost spread evenly across Personal and Commercial lines driven by an increase in burst water pipes and motor claims.

The impact from Ireland is around £7m more than normal levels, with the cost again driven by burst water pipes as the country experienced the coldest December on record.

Across the Group, our customers remain our key focus and we mobilised additional resources to ensure they received a prompt response, with claims dealt with as quickly as possible.

Full Year 2010 Result

- Net Written Premiums

We have continued to build good momentum, with net written premiums for the twelve months to 31 December 2010 of £7,455m, an increase of 11% (8% at constant exchange) compared with the prior year. Net written premiums2 by region are:

International net written premiums of £3,536m up 9% (5% at constant exchange) UK net written premiums of £2,925m up 11% Emerging Markets net written premiums of £964m up 16% (10% at constant exchange) Indian associate net written premiums of £116m up 35% (26% at constant exchange)

In International, growth is driven by Canada, with premiums of £1,245m up by 22% (9% at constant exchange), with Personal lines up by 20% (7% at constant exchange), including Johnson up by 22% (9% at constant exchange), and Commercial lines up by 29% (15% at constant exchange) due to strong new business in Mid Market and SME. Scandinavia grew by 3% (1% at constant exchange) to £1,724m with a good performance in Personal offset by reduced exposures in Commercial. Across Other Europe, premiums of £567m are up by 1% (5% at constant exchange) due to rating actions and the impact of acquisitions in Ireland and positive rate in Italy.

The UK delivered an excellent top line performance with premiums up by 11% to £2,925m. The UK market remains competitive and our strategy of pushing rate, targeting profitable growth and selective capacity withdrawal where we cannot achieve target returns is unchanged. In Commercial lines, growth of 10% continued to be driven by Specialty lines and Motor. We have also continued to take action to place into run-off and exit those schemes where we cannot meet our target returns. Personal lines is up by 13% as a result of rating action, increased shares on targeted broker panels in both Household and Motor and further growth in Pet following the launch of the Tesco deal in October.

Emerging Markets delivered a strong result with premiums of £964m up by 16% (10% at constant exchange). We achieved our goal of more than £1bn in premiums by the end of 2010, with total premiums including our Indian associate of £1,080m. Latin America delivered an excellent top line performance across all operations, with premiums up by 35% (23% at constant exchange) to £575m led by strong double digit growth in Argentina, Brazil, Chile and Colombia. In Central and Eastern Europe, growth of 15% (17% at constant exchange) to £202m is due to the consolidation of the Intouch businesses for the first full year. As expected, in Asia and the Middle East, premiums are down by 20% (down 21% at constant exchange) to £187m, with the previously reported impact of large contract wins in 2009 on the comparative. Excluding these contracts, Asia and the Middle East grew at 10% (7% at constant exchange) driven by good growth in Oman, Singapore and China. Our associate in India continues to deliver excellent growth with premiums up by 35% (26% on a constant basis) to £116m.

- COR and Operating Profit

2010 was a challenging year for the industry, with extreme weather throughout the year and the Chilean earthquake in February. Against this backdrop, we expect to deliver a strong result for the full year, with a COR of between 96.5% and 97.0%, compared with our previous guidance of around 95% due to weather losses being around £255m worse than normal levels and £175m worse than 2009. The operating profit for 2010 is expected to be in the range of £600m to £630m.

This is a strong performance in tough conditions and reflects both the diversity of the portfolio and the resilience of the Group's underlying profitability. The Group's dividend policy is to increase the dividend at least in line with inflation and the adverse weather in 2010 will not impact this policy.

2011 Outlook

The underlying results of the Group remain strong and we look forward to 2011 with confidence. We have great businesses, with strong positions in attractive markets and, as it stands today and assuming a more normalised level of weather losses, we expect to deliver continued premium growth, a combined operating ratio of better than 95%, investment income of around £550m and total investment gains of around £50m.

For further information:

Analysts

Press

Claire Cordell

Louise Shield

Tel: +44 (0) 20 7111 7212

Tel: +44 (0) 20 7111 7047

Simon Sperryn-Jones

Jon Sellors

Tel: +44 (0) 20 7111 7140

Tel: +44 (0) 20 7111 7327

Notes to editors:

1. As previously announced, full year audited results for 2010, including an analyst presentation and question and answer session, will be held on 24th February 2011.

2. According to the Met Office, December 2010 was the coldest December across the UK since the national series began in 1910, with a mean temperature of -1.0oC. In the last 100 years the UK has experienced only five colder months - January 1940, February 1947, January 1963, February 1963 and February 1986.

As reported by the local Met offices, in the first quarter Scandinavia experienced the coldest weather for 20 years in Denmark, around 40 years in Sweden and 100 years in Norway. December 2010 was also reported to be the second coldest ever recorded in Denmark and the coldest since 1915 in Stockholm.

In Ireland, the Met office reported that December 2010 was the coldest December on record.

3. Set out below are the net written premiums for each of the regions for the twelve months to December 2010:

				Net written premiums				Increase as		Increase at constant
				Q4 2010		Q4 2009		reported		exchange
				£m		£m		%		%
Scandinavia				1,724		1,669		3		1
Canada				1,245		1,021		22		9
Other Europe				567		559		1		5
Total International				3,536		3,249		9		5
UK Personal				1,241		1,095		13		13
UK Commercial				1,684		1,537		10		10
Total UK				2,925		2,632		11		11
Latin America				575		425		35		23
Asia Middle East				187		233		(20)		(21)
Central & Eastern Europe				202		175		15		17
Emerging Markets				964		833		16		10
Group Re				30		23		30		30
Total Group				7,455		6,737		11		8

4. Foreign exchange rates used to translate the 2010 and 2009 consolidated results included in this statement are as follows:

Local currency/£		Average						Closing
		12 Months 2010		12 Months 2009				31 December 2010		31 December 2009
Canadian Dollar		1.59		1.78				1.56		1.69
Danish Krone		8.68		8.36				8.70		8.37
Swedish Krona		11.12		11.93				10.52		11.53
Euro		1.17		1.12				1.17		1.13

About RSA

With a 300 year heritage, RSA is one of the world's leading multinational quoted insurance groups. RSA has major operations in the UK, Scandinavia, Canada, Ireland, Asia and the Middle East, Latin America and Central and Eastern Europe and has the capability to write business in over 130 countries. Focusing on general insurance, RSA has around 23,000 employees and, in 2010, its net written premiums were £7.5 billion.

Important Disclaimer

This press release 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 and other 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.

Copyright Business Wire 2011

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