RSA Insurance Group – Final ResultsRSA Ins Grp RSA FY20 Preliminary Results

2020 PRELIMINARY RESULTS

RSA Insurance Group plc  26 February 2021

· Group business operating result £751m¹ up 15% vs 2019

· Group underwriting profit £550m¹ up 36%

· Group combined ratio 91.1%¹; underlying EPS 51.2p¹ per share

· Statutory profit before tax £483m. Underlying ROTE 18.2¹%

Stephen Hester, RSA Group Chief Executive, commented:

“We are pleased to report excellent results for RSA in 2020. Underwriting profits are sharply up to new record levels and return on tangible equity has risen above our target range. 

Naturally, the impact of COVID-19 was the major feature of our year, as for society as a whole. We prioritised the safety of our employees and sustaining service to customers. The Group paid out some £4.6bn in 'normal' claims whilst also providing for over £250m in COVID-19 specific claims, together with offering a range of other customer support measures.

The Group has delivered on large parts of our “best in class” ambitions. The quality of earnings is excellent which augurs well for RSA's prospects in 2021 and beyond.  I am proud of the hard work, dedication and focus of all my colleagues in what was a difficult and turbulent year.

 

We have built a high performing company and 2020's results showcase the value creation thereby achieved. This in turn drove the 52% premium we were able to negotiate in Q4 through an all cash bid from Intact and Tryg. The Offer is on track to complete in the coming months, ending a chapter for RSA but not the whole story…”

Trading results

· Underlying profit before tax £718m ¹ up 15%. Statutory profit before tax £483m down 2% driven by market impacts from COVID-19, bid costs, exits and restructuring

· Group business operating result of £751m ¹ up 15%: Scandinavia £337m; Canada £256m; UK & International £200 m¹. Group total business operating result of £703m (2019: £597m). In aggregate, the estimated net impact of COVID-19 from premiums, claims and investment income effects is a £42m drag on business operating result

· Group underwriting profit of £550m ¹ up 36%. Group total underwriting profit £502m (2019: £346m)

· Group combined ratio of 91.1%¹: Scandinavia 83.2%; Canada 88.3%; UK & International 96.7%¹. Group total combined ratio 91.9%; UK & International (including exits) 98.5%:

–  Group attritional loss ratio¹ improved 4.5 points vs. 2019 of which an estimated 1.9 points are COVID-19 related

–  Group weather costs 2.3%¹ of premiums (2019: 2.5%¹)

–  Large losses 9.9%¹ of which an estimated 1.2 points reflect negative COVID-19 impacts (2019: 9.7%¹)

¹ Excluding UK&I exit portfolios, refer to pages 33 to 43 for further information

–  Group prior year underwriting profit of £15m¹ (2019: £45m¹ profit)

· Personal Lines (56% of net written premiums) combined ratio 86%¹, Commercial Lines combined ratio 97%¹ (44% of net written premiums)

Net written premiums ('NWP') of £6,220m¹ were flat² vs. 2019 excluding the estimated impacts of COVID-19 of c.£166m (3%). These consisted of price reductions, refunds, coverage changes and specific business line volume impacts. Including these impacts, NWP was down 3%² overall vs. 2019.  In total:

–  NWP down 1%² in Scandinavia

–  NWP up 3%² in Canada excluding the estimated impacts of COVID-19 or down 1%² overall

–  NWP down 2%^1,2 in UK & International excluding the estimated impacts of COVID-19 or down 5%^1,2 overall

· Group written controllable costs down to £1,339m (2019: £1,346m). Earned controllable cost ratio of 21.5%

· Investment income of £258m down 16%, at the lower end of our predicted range

· Other charges include £40m of mark to market losses/impairments/discount rate change relating to estimated COVID-19 market volatility and £78m for UK cost base restructuring

· Losses on UK&I exit portfolios were £48m reflecting one large claim, certain COVID-19 international construction claims and increased prior year reserves

· Statutory profit after tax £364m (2019: £383m)

· Underlying EPS 51.2p¹ is up 15%, statutory earnings per share 30.9p down 5%

Capital & balance sheet

· Solvency II coverage ratio of 189%³ as stated, 170%³ including proforma dividend accrual for full year 2019 and full year 2020 (31 December 2019: 178% as stated, 168% proforma), versus our 130-160% target range

· Tangible equity £3.27bn up 13% (31 December 2019: £2.91bn), 316p per share

· Underlying return on tangible equity of 18.2% ¹ , above the 13-17% target range

· IFRS pension surplus £290m (31 December 2019: £211m). Fall in bond yields increases estimated full year 2021 capital impact of bond 'pull-to-par' to c.£90m post tax

Acquisition update

 

The recommended bid for RSA by Intact in consortium with Tryg was approved by RSA shareholders in January and good progress is being made in satisfying the various conditions to closing. It is presently estimated that closing is likely to occur during Q2 2021, subject to the conditions being satisfied.

 

COVID-19 impacts

 

· While the impacts of COVID-19 are ongoing, we discuss the principal areas affected below with data for 2020:

–  Financial market movements will continue to affect balance sheet, solvency ratios, pension surplus and investment income. Data as at year end 2020 is presented above.

¹ Excluding UK&I exit portfolios, refer to pages 33 to 43 for further information
² At constant FX
³The Solvency II capital position at 31 December 2020 is estimated

–  During 2020, non COVID-19 claims frequency was down vs prior year in a range 9-34% providing partial mitigation to the negative impacts for COVID-19 claims, investment income reductions and lower premiums.

–  On 15 January 2021, the Supreme Court handed down judgment relating to the FCA “test case” on business interruption coverage wordings in the UK.  As a result of this judgment, gross loss reserving for 2020 increased but RSA does not currently expect the net loss estimates in relation to the policies before the Court to change materially from those previously reported .

–  In 2020 RSA booked group wide gross claims costs (including substantial IBNR reserves) of £259m¹.

–  Reinsurance recoverables arise to mitigate gross claims costs under travel insurance protection, the Group GVC and Cat programmes. Please see page 28 for further details of the GVC and Group Cat programmes.

–  There is also a COVID-19 effect on premium income for 2020, which totalled c.£166m reduction. This results from a range of customer driven coverage changes, volume impacts and specific premium relief schemes across our different territories.

–  RSA itself was able to adjust well to substantially all employees working from home and business as usual for customer service has largely been sustained. We have prioritised health and welfare of our staff and have not taken part in government furlough programmes.

¹ Gross numbers are net of specific quota share and facultative reinsurance impacts