RSA performed strongly in Q3 with underwriting profits, combined ratio and operating profits ahead of H1 run rate.
Stephen Hester, RSA Group Chief Executive, commented:
“We are very pleased with RSA’s continuing progress towards our ‘Best in Class’ ambitions.
“Momentum in the business is excellent across the many improvements to customer service, underwriting effectiveness and cost efficiency we are driving through.
“Brexit provides us an attractive tailwind from overseas earnings translation, in the context of an otherwise challenging environment. “While Q4 can be a bumpy underwriting period, RSA is on track for strong operating earnings increases for 2016 overall.”
Market conditions
- Insurance market conditions are broadly unchanged.
- Financial markets were volatile in Q3. In the UK, Brexit impacts were seen through lower bond yields, narrower spreads and weaker Sterling. In October, however, the yield and spread movements partly reversed.
- Sterling depreciated a further c.3% in the quarter against our major international currency blocks, bringing average year-to-date depreciation into the mid-teens. With over two thirds of RSA’s operating profit in non-Sterling currencies this benefits RSA’s reported results.
Premiums
- Core Group net written premiums YTD are up 6%, though slightly down on an underlying basis1. Premium levels are in line with our plan overall, though with some variability by region.
- Group net written premiums YTD down 5% versus prior year reflecting the impact of disposals.
Profitability
- Profitability for Q3 YTD on underwriting, operating and after-tax measures is strong and ahead of our expectations.
- 2016 YTD attritional loss ratios continue to show attractive year-on-year improvement across all of our core regions.
- Q3 YTD weather event costs for the Core Group were £145m which represents 3.2% of net earned premiums (Q3 YTD 2015: 1.5%; planning assumption: c.3.0%). The overall Group weather ratio was 3.0% (Q3 YTD 2015: 1.7%).
- Large losses for the Core Group were £411m for Q3 YTD representing 9.0% of net earned premiums (Q3 YTD 2015: 8.3%; planning assumption c.8.5%). The overall Group large loss ratio was 8.4% (Q3 YTD 2015: 7.7%).
- Q3 YTD prior year profit emergence is better than plan, though likely to remain volatile on a quarterly basis.
- Expense reductions remain on track.
- Investment performance is in line with our most recent guidance for 2016 (of c.£350m of full year income and c.£60m of discount unwind).
- Below operating profits, Q3 movements were broadly as expected. There was the previously flagged one-off charge of £39m relating to the July debt buyback, and there were planned charges reflecting the progress of our cost/restructuring activities.
Capital
- Tangible equity at 30 September was £3,179m (30 June 2016: £3,324m, 31 December 2015: £2,838m) with net income, positive FX and mark-to-market movements, offset by negative pension fund movements (IAS 19 basis). Tangible net asset value per share was 312p.
- Solvency II capital surplus at 30 September 20162 was c.£1.0bn with coverage well within the upper part of our target range at 151% (30 June 2016: 158%, 31 December 2015: 143%). Coverage strengthened in October.
- The movement in Solvency II coverage was dominated by the impact of UK post-Brexit quantitative easing on the AA corporate bond spread which drives IAS 19 pension accounting. This was partly offset by positive movements from profits, FX and other mark-to-market values. The 30 September Solvency II position also includes the accrual of a ‘notional’ dividend for the third quarter3.
- £200m subordinated debt retirement completed in July. We continue to evaluate further options to improve the quality of capital as well as exploring potential transactions involving our UK Legacy liabilities.
Source: RSA Group