TIDMRSA
RNS Number : 5362U
RSA Insurance Group PLC
30 July 2020
2020 INTERIM RESULTS
RSA Insurance Group plc 30 July 2020
-- Group business operating result up 13% vs H1 2019
-- Group underwriting profit GBP240m(1) up 33%
-- Group combined ratio 92.2%(1) ; underlying EPS 23.5p(1) per share
-- Statutory profit before tax GBP211m down 7% due to COVID-19 market related impacts
Stephen Hester, RSA Group Chief Executive, commented:
"RSA is reporting good growth in underwriting profits for the
first half from continued business improvement actions. COVID-19
impacts on operating profits were broadly neutral in H1, though
related financial market charges reduced our statutory results.
Each region of RSA contributed in line or better than our plans,
driven by improved attritional loss ratios. We are pleased with
progress towards our "best in class" ambitions, and the
underwriting performance which is a first half record for RSA.
COVID-19 has dominated recent months. Uncertain times put a
special premium on sustaining customer service whilst operating
safely and securely for our people and other stakeholders. This has
been our focus and will remain so over the rest of the year. The
recovery path from the pandemic itself is not yet certain, as well
as its human and economic consequences. Nevertheless, we see good
prospects for RSA remaining resilient and emerging strongly from
this period."
Trading results
-- Underlying profit before tax GBP332m (1) up 14%. Statutory
profit before tax GBP211m down 7% impacted by COVID-19 financial
market impacts
-- Group business operating result of GBP349m (1) up 13%:
Scandinavia GBP164m; Canada GBP88m; UK & International GBP
148m(1) . Group total business operating result of GBP316m (H1
2019: GBP280m). In aggregate, the net impact of COVID-19 from
premiums, claims and investment income effects is neutral
-- Group underwriting profit of GBP240m (1) up 33%. Group total
underwriting profit GBP207m (H1 2019: GBP153m)
-- Group combined ratio of 92.2%(1) : Scandinavia 83.2%; Canada
93.2%; UK & International 93.6%(1) . Group total combined ratio
93.3%; UK & International (including exits) 96.0%:
- Group attritional loss ratio(1) improved 4 points vs. H1 2019
of which 2.5 points are COVID-19 related
- Group weather costs 3.4%(1) of premiums (H1 2019(1) : 3.0%)
- Large losses 9.9%(1) of which 0.9 points COVID-19 related (H1 2019(1) : 9.6%)
- Group prior year underwriting profit of GBP18m(1) after GBP6m
of COVID-19 related provisions (H1 2019(1) : GBP26m)
(1) Excluding UK/ London Market exit portfolios, refer to pages
33 to 42 for further information
-- Personal Lines (55% of net written premiums) combined ratio
86.0%(1) , Commercial Lines 96.8%(1)
-- Net written premiums ('NWP') of GBP3,136m(1) , down 3%(2) vs.
H1 2019. We estimate that COVID-19 reduced NWP by c.GBP110m (3%),
consisting of price reductions, refunds, coverage changes and
specific business line volume impacts. Group NWP was on plan ex
COVID-19 impacts. In total:
- NWP down 1%(2) in Scandinavia
- NWP up 3%(2) in Canada
- NWP down 8%(1,2) in UK & International
-- Group written controllable costs down to GBP680m (H1 2019:
GBP694m). Earned controllable cost ratio 21.9%
-- Investment income of GBP134m down 13% after GBP6m COVID-19 impacts
-- Other charges include GBP54m of mark to market
losses/impairments/discount rate change relating to COVID-19 market
volatility and GBP18m for UK cost base restructuring as guided.
-- Losses on UK/ London market exit portfolios were GBP33m
reflecting one large "bau" claim, certain COVID-19 international
construction claims and increased prior year reserves
-- Statutory profit after tax GBP164m (H1 2019: GBP183m)
-- Underlying EPS 23.5p(1) is up 12%, statutory earnings per share 13.5p down 12%
-- Consistent with the 2019 final dividend suspension in April,
an interim dividend for 2020 is not presently being announced. RSA
expects to resume dividends as soon as judged prudent, which absent
unforeseen events should be by the time of full year results 2020.
We also aim to catch up on missed dividend payments over time
consistent with prudent capital management.
Capital & balance sheet
-- Solvency II coverage ratio of 172%(3) as stated, 158%(3)
including proforma dividend accruals for full year 2019 and H1 2020
(31 December 2019: 168%), versus our 130-160% target range
-- Tangible equity GBP3.17bn up 9% (31 December 2019: GBP2.91bn), 307p per share
-- Underlying return on tangible equity of 16.7% (1) , within the 13-17% target range
-- IFRS pension surplus GBP328m (31 December 2019: GBP211m).
Fall in bond yields increases estimated full year 2020 capital
impact of bond 'pull-to-par' to c.GBP80m.
Strategic and market update
-- RSA continues to benefit from a settled and consistent
strategy. The focus is on building capabilities to outperform in
our selected markets. In that context many initiatives continue,
targeted at improving customer service, underwriting and costs
-- From the base of strong 2019 results, the tasks for 2020 were
around sustaining momentum in the large parts of our business that
perform very well whilst focusing on driving remedial action in
weaker performing areas. This latter principally involves
completing the portfolio exits announced in 2018, building our UK
performance track record (including reducing its cost base) and
improving Danish and Canadian commercial lines results:
(1) Excluding UK/ London Market exit portfolios, refer to pages
33 to 42 for further information
(2) At constant FX, refer to pages 33 to 42 for further
information
(3) The Solvency II capital position at 30 June 2020 is
estimated
- In our UK domestic business, normalising for weather which hit
results in H1, there has been sustained improvement into 2020
though with more to do. The exit portfolios are substantially run
off (though with some tail exposures left) and the business is
refocused and operating with greater clarity and intensity.
Business simplification and cost improvements are vital and the
programme which started in H2 last year will be expanded further
this year, not least to offset top line threats from a weak
economy. In both Canada and Denmark, good progress continues in
commercial lines pricing and underwriting with strong attritional
gains and large loss improvements starting to come through
also.
Market conditions
-- Insurance market conditions remain competitive across our
territories. However, COVID-19 disruptions make it hard to
accurately discern underlying prospects. On the one hand rate
hardening and capacity adjustment is generally helping us re-price
in loss-making business lines. But recessionary conditions normally
bring lower business volumes which in turn can encourage greater
competition for business and rate softening. It will take some time
for the balance of these effects to become clear.
-- Financial market conditions are volatile, and while they have
recovered somewhat since March, the risk of further sharp movements
cannot be excluded. RSA is relatively well protected with
conservative investment portfolios and a broad array of
internationally derived profits. However, risk free yields have
fallen significantly in H1 2020 in addition to heightened risks
around property and some other asset classes. Wider credit spreads
offer partial offsets but the risk remains of mark to market
volatility impacting investment income and capital ratios.
COVID-19 impacts
-- While the impacts of COVID-19 on RSA are ongoing, we discuss
the principal areas affected below with data for H1:
- Financial market movements will continue to affect balance
sheet, solvency ratios, pension surplus and investment income. Data
as at end June is presented above.
- Our priority is to sustain good service to customers. RSA is
working hard to settle claims promptly and fairly and where
relevant to offer interim payment to support customers, as well as
sustaining supply chains similarly. We are also providing a range
of customer relief measures across our different territories,
ranging from coverage adjustments and waivers, payment timing
relief and discount or price capping of rates. We are participating
fully in industry initiatives including exploring future pandemic
coverage options and voluntary relief funds.
- Claims impacts are complex to interpret as claims patterns are
distorted by the impact of lockdowns. It is still too early to have
settled trends or to know the full timing and pattern of pandemic
impacts, government actions and their economic effects.
Encouragingly all of our territories have begun a steady
normalisation though we do not yet know how this will play out.
- For the second quarter 2020 non COVID-19 claims frequency was
down vs prior year in a range 15-60%, mostly reflecting lower
economic activity levels. Frequencies increased in June as lockdown
easings began. It is not yet possible to fully assess the impact on
claims severity of disrupted supply chains or on timing of claims
notifications. However, we can see that frequency effects overall
will provide a material offset to areas of negative COVID-19 impact
on premiums, costs and claims. The first half claims reserving
calculations show frequency benefits broadly matched with COVID-19
claims costs and premium reductions resulting in a neutral overall
impact to the business operating result at Group level after
building some cautionary reserves for the uncertainties described
above.
- Most business interruption coverages are not expected to be
eligible under their terms for COVID-19 claims. However, there are
a number of areas where claims are being paid. In addition, RSA is
one of 8 participants in the FCA "test case" on business
interruption coverage wordings in the UK, the result of which may
also have wider implications for the industry in this sector. We
are not able to comment on this process at present, beyond
confirming that RSA's position on its BI wordings is supported by
external legal advice.
- In H1 2020 RSA booked c.39,000 travel claims with estimated
costs of GBP26m but GBP1m net of reinsurance and 2,700 claims for
wedding cancellation, with an estimated cost of GBP9m. In addition,
we have received claims under Business Interruption coverages with
case reserves and actuarial IBNR of GBP47m (of which GBP7m relates
to delayed construction projects). The development since our
reporting on 7th May, represents the receipt of some additional
claims but primarily the completion of reserve reviews which has
led to revisions to ultimate estimates and IBNR to the up to date
values provided here.
- The great majority of the non-travel claims relate to our
UK&I division. Claims backlogs at period end were within normal
tolerances overall.
- Away from the reinsurance coverage on travel claims, we expect
most other COVID-19 related claims can be aggregated by week and
applied against the Group's GVC programme if over GBP10m, and
against the Group's Cat programmes if reaching higher levels. This
is expected to provide substantial protection in relation to
downside claims scenarios. So far, these coverages have not been
applied. 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 has so far totalled c GBP110m in H1. This results from a
range of customer driven coverage changes, volume impacts and
specific premium relief schemes across our different territories.
We continue to monitor any increase in credit risks arising from
customers experiencing financial difficulties as a result of weaker
economic conditions and are actively working with those in most
need on payment deferral plans. In H1 the bad debt charge did not
increase materially, however.
- RSA itself was able to adjust well to substantially all
employees working from home and is only cautiously beginning to
return to office working in certain territories so far. While there
are areas of service slippage, in general business as usual remains
the norm. We have prioritised health and welfare of our staff and
have not taken part in government furlough programmes.
MANAGEMENT REPORT - KEY FINANCIAL PERFORMANCE DATA
Management basis
GBPm (unless stated) H1 2020 H1 2019
H1 2020 H1 2019 ex. exits ex. exits
Profit and loss
Group net written premiums 3,135 3,254 3,136 3,242
Underwriting profit , 207 153 240 181
Combined operating ratio , 93.3% 95.2% 92.2% 94.3%
Investment result , 112 131 112 131
Business operating result , 316 280 349 308
Profit before tax 211 227 244 255
Underlying profit before tax
, 299 264 332 292
Profit after tax 164 183
Metrics
Earnings per share (pence) 13.5p 15.3p
Underlying earnings per share
(pence) , 20.6p 18.6p 23.5p 20.9p
Interim dividend per ordinary
share (pence) - 7.5p
Return on tangible equity (%) 9.6% 11.0%
Underlying return on tangible
equity (%) , 14.6% 13.4% 16.7% 15.0%
30 June 2020 31 Dec
2019
Balance sheet
Net asset value (GBPm) 4,165 3,872
Tangible net asset value (GBPm)
, 3,171 2,910
Net asset value per share (pence)
, 391p 363p
Tangible net asset value per
share (pence) , 307p 282p
Capital (including dividend)
Solvency II surplus (GBPbn) 1.1 1.2
Solvency II coverage ratio 158% 168%
Capital (excluding dividend)
Solvency II surplus (GBPbn) 1.3 1.3
Solvency II coverage ratio 172% 178%
, Alternative performance measures:
The Group uses Alternative Performance Measures (marked ,
throughout), including certain underlying measures, to help explain
business performance and financial position. Where not defined in
the body of this announcement, further information is set out in
the appendix on pages 33 to 42.
CHIEF EXECUTIVE'S FIRST HALF 2020 REVIEW
RSA has reported a strong first half 2020 performance. We have
been able to operate throughout the period with limited COVID-19
related impacts on our service to customers and in so doing
continue to support and protect, per our policy promises. We expect
to pay out c.GBP2bn in claims costs for H1. This is our raison
d'etre. At the same time we have safeguarded our staff and
continued to make contributions to our communities more broadly.
While this has been our focus in a time of great external
challenges, our mission to improve RSA's business thereby serving
shareholders and others well has not been neglected. A record first
half underwriting performance, and a healthy increase in underlying
earnings per share are important proof points.
We are in uncertain times and as a financial institution must
keep resilience and prudent financial management central to our
decision making. In that regard we were sorry to suspend our 2019
final dividend payment and not presently to have announced a 2020
interim payment either. These decisions reflect regulatory guidance
and a consideration for wider reputational arguments. We expect to
resume dividend payments as soon as prudent to do so, and aim to
catch up on missed dividends over time on the same basis.
Financial results
Our underwriting profits rose 33%(1) . In turn this drove a
13%(1) increase in the business operating result. Earnings per
share rose to 23.5p(1) on an underlying basis, producing a return
on tangible equity of 16.7%(1) . Statutory earnings were down 7%
impacted by a variety of COVID-19 related charges.
These results are driven by business improvement actions taken
over recent years and focussed on underwriting quality, whilst
pushing hard on cost efficiency. Even excluding COVID-19 impacts,
attritional loss ratios have improved again, as have large losses.
Weather costs were above prior year though switching in severity
from Canada to UK on this occasion.
Customer focus & market conditions
RSA's mission is to serve customers well. In that regard our
change efforts continue across the business focused on digital
enablement, improving service and sustaining strong and effective
claims support. We remain equally dedicated to good and productive
partnerships with our brokers and affinity clients. The mutual
support and focus on our end customer is much appreciated.
COVID-19 has brought many particular challenges - from an
unprecedented shift to "working from home", to supply chain
interruptions and then a range of new claims in those policy areas
responding to COVID-19. While never perfect, I am proud of our
teams' response to these challenges. RSA has operated near normally
throughout the crisis, supporting our customers and responding to
the new challenges. There have inevitably been questions around
some policy coverage wordings, since few customers, brokers or
underwriters had concentrated on a COVID-19 scenario when
establishing covers. But we remain determined to pay claims
promptly and in accordance with our policies whilst protecting all
stakeholders against unaffordable widening of covers. We support
the UK legal test case on business interruption wording in that
regard as an important contribution to clarity of cover.
(1) Excluding UK/ London Market exit portfolios, refer to pages
33 to 42 for further information
Insurance markets inevitably reflect the broader economic
conditions around them. As such there are uncertainties and the
prospect of a reduction of business volumes as a direct result of
COVID-19 and as a result of the economic weakness it gives rise to.
We will weather these impacts but will work hard to keep costs in
line with any reduced income. Financial markets are also important
to insurers. The fall in risk free interest rates hurts investment
income and the volatility of credit and other asset classes impacts
capital too. We will continue to prioritise resilience and a
conservative risk profile in navigating these challenges.
Business improvement
Across RSA we are pushing determinedly towards our "best in
class" performance ambitions. At its heart we seek to sustain and
improve those business areas already achieving excellent
performance, whilst taking strong action to improve where lagging.
The report card for H1 2020 is good.
RSA's international businesses, which constitute c.87% of H1
profits, are all performing very well. Scandinavian H1 combined
ratio is good and consistent with our ambition at 83%, and the
particular work needed to improve Danish commercial lines results
is showing good progress though with more to do here and on cost in
H2.
In Canada a COR of 93% is also at very attractive levels,
flattered a bit by better weather conditions but strong anyway. And
similarly our businesses in Ireland and Middle East have had
excellent first halves.
In the UK our results were down on H1 last year due to
February's flooding, but improved if normalising for weather. We
are making encouraging progress in re-establishing good performance
standards here but with much left to do. Improved cost
competitiveness is most needed in the UK. The cost programme we
announced in 2019 has gone well and will be increased further this
year to address economic challenges and faster bring the business
to where we need to be.
Outlook
Given the particular challenges of 2020, our goals for the year
are first and foremost to provide customer service, to safeguard
our people's health and to sustain financial strength and
resilience. However, we are also determined that RSA should enter
2021 in good shape and with strong "business as usual" results for
this year, whatever the other challenges that superimpose on this.
Half one is encouraging in this regard.
Stephen Hester
Group Chief Executive
29 July 2020
MANAGEMENT REPORT
SEGMENTAL INCOME STATEMENT
Management basis - 6 months ended 30 June 2020
UK&I Group Group
Scandi ex. UK&I Central Group Group ex exits(1) ex exits(1)
-navia Canada exits(1) total functions HY20 HY19 HY20 HY19
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Net written premiums 1,012 795 1,292 1,291 37 3,135 3,254 3,136 3,242
Net earned premiums 840 848 1,389 1,400 (4) 3,084 3,209 3,073 3,152
Net incurred claims (557) (544) (808) (846) (44) (1,991) (2,160) (1,953) (2,101)
Commissions (26) (103) (265) (269) 3 (395) (414) (391) (398)
Operating expenses (116) (143) (227) (229) (3) (491) (482) (489) (472)
Underwriting result
, 141 58 89 56 (48) 207 153 240 181
Investment income 36 32 66 66 - 134 154 134 154
Investment expenses (2) (1) (4) (4) - (7) (7) (7) (7)
Unwind of discount (11) (1) (3) (3) - (15) (16) (15) (16)
Investment result
, 23 30 59 59 - 112 131 112 131
Central expenses - - - - (3) (3) (4) (3) (4)
Business operating
result , 164 88 148 115 (51) 316 280 349 308
Interest (17) (16)
Other charges (88) (37)
Profit before tax 211 227
Tax (47) (44)
Profit after tax 164 183
Non-controlling interest (12) (13)
Other equity costs(2) (12) (12)
Net attributable
profit , 140 158
Loss ratio (%) 66.3 64.1 58.2 60.4 64.6 67.3 63.6 66.6
Weather loss ratio 0.1 5.4 3.7 3.8 3.4 3.2 3.4 3.0
Large loss ratio 7.4 7.4 11.8 13.0 10.4 9.9 9.9 9.6
Current year
attritional
loss ratio , 61.8 50.5 42.5 42.8 51.0 54.9 50.9 54.9
Prior year effect
on loss ratio (3.0) 0.8 0.2 0.8 (0.2) (0.7) (0.6) (0.9)
Commission ratio (%) 3.1 12.2 19.1 19.3 12.8 12.9 12.7 12.7
Expense ratio (%) 13.8 16.9 16.3 16.3 15.9 15.0 15.9 15.0
Combined ratio (%)
, 83.2 93.2 93.6 96.0 93.3 95.2 92.2 94.3
Controllable expense
ratio (%)(3) , 22.3 20.1 22.3 22.4 21.9 21.3 21.8 21.3
Notes:
UK & International comprises the UK (and European branches),
Ireland and Middle East. Refer to page 29 for comparatives.
(1) Exit portfolios in UK & International which was
substantially ran off in 2019, with residual premium still to earn
out in 2020
(2) Preference dividends of GBP5m and coupons of GBP7m paid on
Restricted Tier 1 securities
(3) On an earned basis
Premiums(1)
Net written premiums ('NWP') of GBP3,136m were down 3% vs. H1
2019 at constant FX. We estimate that COVID-19 impacts on NWP were
c.GBP110m (3%), consisting of price reductions, refunds, coverage
changes and specific business line volume impacts. Outside of
COVID-19 impacts, areas of profitable growth were balanced by
planned underwriting effects in portfolios being remediated, with
the process nearing its conclusion.
Group retention declined slightly to 79.6% in the period (H1
2019: 80.7%) with retention ahead of our plans in Swedish Personal
Lines and the UK. In Commercial Lines, retention was up in the UK
and Canada, but down in Scandinavia (principally Danish Commercial)
where we are taking the most rating and underwriting action.
Regional trends for H1 2020 include:
-- Scandinavian premiums were down 1% at constant FX. Personal
Lines premiums grew 1%(2) and included growth in Swedish Household
and Personal Accident, our most attractive markets. Premiums were
down 4%(2) in Commercial Lines reflecting portfolio actions in
Danish Commercial Lines where volumes were down 13%.
-- Premiums grew 3% in Canada at constant FX, this included an
estimated GBP22m of COVID-19 related customer relief measures
impacting written premiums in the second quarter. Personal Lines
premiums grew 4%(2) driven by strong growth in Johnson which
increased 12% (of which 5% was organic growth). We achieved high
single-digit rate and hard market conditions meant that retention
remained strong at 89% for Johnson, while PIFs were also up 4%.
Premiums in Commercial Lines increased by 1%(2) where double digit
rate more than offset lower volumes.
-- Premiums were down 8% in the UK & International region at
constant FX, this included an estimated GBP81m impact from
COVID-19. UK Personal Lines premiums were down 9% as reported (4%
excluding COVID-19 impacts). Household premiums were broadly flat
and despite pushing good rate, stronger retention helped to offset
lower new business volumes. Motor and Pet premiums decreased as we
continue to prioritise margin improvements. UK Commercial Lines
premiums were down 5% (2% growth excluding COVID-19 impacts). We
achieved rate ahead of our plans across all major lines of business
and both retention and new business were better than prior year.
Premiums in Ireland decreased by 11%(2) (1% excluding COVID-19
impacts) due to lower Personal Motor new business. In the Middle
East, premiums were down 17%(2) (9% excluding COVID-19 impacts)
largely due to lower volumes in Commercial Lines and rating
pressure in Personal Lines.
-- Although there was no net written premium in the UK/ London
Market exit portfolios, there was GBP11m of premium earned in H1
2020. The remainder of any unearned premium will earn through in
the second half of the year.
More detail is provided in the regional reviews on pages 16 to
22.
(1) Excluding UK/ London Market exit portfolios, refer to pages
33 to 42 for further information
(2) At constant FX
Underwriting result (1)
Total Group underwriting result:
Current year Prior year Total UW result
UW , UW , ,
GBPm H1 2020 H1 2019 H1 2020 H1 2019 H1 2020 H1 2019
Scandinavia 116 87 25 9 141 96
Canada 65 6 (7) 13 58 19
UK & International 67 61 (11) (3) 56 58
UK & International ex.
exits 89 82 - 4 89 86
Central functions (48) (20) - - (48) (20)
Total Group 200 134 7 19 207 153
Total Group ex. exits 222 155 18 26 240 181
-- The impacts of COVID-19 provided a small underwriting benefit
overall. COVID-19 related frequency benefits were offset by lower
premiums, direct COVID-19 related claims, claims provisions and
projected claims inflation impacting both the prior year and
current year.
-- The Group attritional loss ratio of 50.9% was 4 points better
than H1 2019. Excluding the impacts of COVID-19 the attritional
loss ratio was 53.4%, a 1.5 points improvement. The ratio improved
by 2.0 points in Scandinavia (of which COVID-19 provided a 1.6
point benefit). In Canada, the attritional loss ratio improved by
5.7 points (of which COVID-19 provided a 1.7 point benefit). The UK
& International attritional loss ratio improved by 5.9 points
(of which COVID-19 provided a 5.5 point benefit).
-- Weather losses amounted to GBP104m or 3.4% of net earned
premiums (H1 2019: 3.0%; five year average: 2.9%(2) ) a little
worse than prior year. Weather costs were adverse in the UK &
International due to February flooding in the UK, while Canada was
better overall though not in the second quarter.
-- Large losses were GBP303m or 9.9% of net earned premiums
(Inc. exits: 10.4%; H1 2019: 9.6%; five year average: 10.0%(2) ).
Excluding the impacts of COVID-19 the large loss ratio was 9.0%, a
0.6 points improvement versus H1 2019. Scandinavia improved by 1.1
points. Large losses were 1.5 points better in Canada. The UK &
International was flat excluding COVID-19 and 1.9 points worse than
H1 2019 altogether.
-- Reinsurance: Excluding any COVID-19 related loss, the
percentage retention reached for each of our covers was as follows:
GVC 54%; Scandinavia 68%; Canada large 37%; Canada catastrophe 80%;
UK 17%. Please see page 28 for further details of the relevant
covers.
Group prior year profit provided 0.6% of benefit to the combined
ratio or GBP18m, this included a COVID-19 reserve of GBP6m (H1
2019: 0.9 points benefit to the combined ratio).
Our assessment of the margin in reserves for the Group (the
difference between our actuarial indication and the booked reserves
in the financial statements) remains over its target level at c.5%
of best estimate claims reserves. We added to this margin by GBP25m
in H1 with a precautionary COVID-19 general reserve.
(1) Excluding UK/ London Market exit portfolios, refer to pages
33 to 42 for further information
(2) 2015 to 2019
Underwriting operating expenses
The Group underwriting expense ratio of 15.9% increased as
expected due to lower premiums from COVID-19 impacts. Scandinavia
improved by 0.3 points while Canada and the UK & International
increased by 2.2 points and 0.8 points respectively. The Canadian
expense ratio also reflected increased amortisation (as guided) but
was impacted by lower premiums driven by COVID-19. The UK cost
programme has continued and is expected to be further increased in
the second half of the year.
Commissions
The Group commission ratio of 12.7% was flat versus prior year
(H1 2019: 12.7%)
Investment result
The investment result was GBP112m (H1 2019: GBP131m) with
investment income of GBP134m (H1 2019: GBP154m), investment
expenses of GBP7m (H1 2019: GBP7m) and the liability discount
unwind of GBP15m (H1 2019: GBP16m).
Investment income was down 13% on prior year, primarily
reflecting the impact of reinvestment at lower yields. The average
book yield across our major bond portfolios was 1.9% (H1 2019:
2.2%). Approximately GBP6m of the reduction in investment income
was a result of COVID-19 market impacts.
Based on current forward bond yields and FX rates, for H2 2020
we project investment income of c.GBP120-135m and the capital
element of the bond pull-to-par of c.GBP40m (post tax).
Controllable costs
Group written controllable costs were GBP680m (H1 2019:
GBP694m). This comprised 3% cost reductions, offset by 2%
inflation. Scandinavia delivered cost reductions of 1% and UK &
International delivered 11% savings, all gross of inflation and at
constant FX.
Group FTE(2) was flat versus H1 2019, despite additional
resources required to support the new Scotiabank partnership in
Canada.
The earned controllable expense ratio of 21.8% (ex. exits) was
up slightly versus H1 2019 (21.3%) due to a lower premium base
driven by both portfolio actions and COVID-19. The ratio is down
over 2.5(1) points since H1 2013 and our ambition of an earned
controllable expense ratio of less than 20% is unchanged.
UK&I UK&I Group Total
Earned controllable expense Scandinavia Canada ex. exits total ex. exits Group
ratio: , % % % % % %
6 months ended 30 June
2020 22.3 20.1 22.3 22.4 21.8 21.9
6 months ended 30 June
2019 22.0 17.6 22.9 22.8 21.3 21.3
(1) At constant FX and ex. disposals (where relevant)
(2) Full time equivalent employees
Other charges
Interest costs:
-- Interest costs were GBP17m (GBP24m including the Tier 1
issuance), up from GBP16m in H1 2019.
-- Coupon costs of GBP7m (H1 2019: GBP7m) for the 2017 Tier 1
issuance are presented at the bottom of the management P&L as
'other equity costs'. Under IFRS, these are recognised in the
statement of changes in equity.
Other charges:
GBPm H1 2020 H1 2019
Net gains/ losses/ FX (57) (18)
Amortisation (6) (6)
Pension net interest cost 1 2
Restructuring costs (18) -
Changes in economic assumptions (8) (15)
Other - -
Total , 88 (37)
-- Net losses of GBP57m were incurred, of which GBP46m related
to COVID-19 market volatility. This was split between unrealised
losses of GBP26m on inflation linked derivatives and property as
well as impairments of GBP20m, primarily driven by REITs(1) .
-- GBP18m of restructuring charges were incurred relating to the
UK cost reduction programme that commenced in H2 2019 in the
business. GBP45m of costs have been incurred since the start of the
programme.
-- Changes in economic assumptions represents GBP8m for the
accounting impact of a reduction in the discount rate on long-term
insurance liabilities in Denmark driven by COVID-19 impacts on
interest rates, while there was also a GBP5m goodwill write-down
relating to our Norwegian business
Tax
The Group reported a tax charge of GBP47m for H1 2020, giving an
effective tax rate ('ETR') of 22% (H1 2019: 20%). The tax charge
largely comprises tax payable on overseas profits. The Group
underlying tax rate for H1 2020 was 20% (ex. exits) and 21% (inc.
exits) in line with our plans (H1 2019: 18% inc. and ex.
exits).
The carrying value of the Group's deferred tax assets at 30 June
2020 was GBP202m (31 December 2019: GBP209m), of which GBP180m (31
December 2019: GBP180m) are in the UK. At expected tax rates, a
further c.GBP310m (31 December 2019: GBP254m) of deferred tax
assets remain available for use but not recognised on balance
sheet; these are predominantly in the UK and Ireland. The majority
of the movement in H1 2020 relates to the change in the UK tax rate
from 17% to 19% effective 1 April 2020.
The carrying value of the Group's deferred tax liabilities at 30
June 2020 was GBP102m (31 December 2019: GBP84m), the majority of
which are in Sweden and Denmark.
For 2020 as a whole, we expect the Group's ETR and underlying
tax rate to be comparable to the rates for H1 2020, subject to
profit mix. In the medium term, we continue to expect the ETR and
underlying rate to be in the region of 20%, given the scale of
unrecognised UK and Irish tax assets.
(1) Real Estate Investment Trusts
Dividend
-- Consistent with the 2019 final dividend suspension in April,
an interim dividend for 2020 is not presently being announced. RSA
expects to resume dividends as soon as judged prudent, which absent
unforeseen events should be by the time of full year results 2020.
We also aim to catch up on missed dividend payments over time
consistent with prudent capital management.
BALANCE SHEET
Movement in Net Assets
Share-holders' Non- Equity
funds(1) controlling Tier Total Loan &
interests 1 notes equity capital loan TNAV
capital ,
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1 January 2020 3,872 173 297 4,342 402 4,744 2,910
Profit after tax 152 12 - 164 - 164 199
Foreign exchange gains
net of tax 93 13 - 106 1 107 67
Fair value gains net of
tax 35 1 - 36 - 36 35
Pension fund gains net
of tax 14 - - 14 - 14 14
Share based payments &
share issue 11 - - 11 - 11 11
Prior year final dividends - (5) - (5) - (5) -
Other equity costs(2) (12) - - (12) - (12) (12)
Goodwill and net intangible
additions - - - - - - (53)
Balance at 30 June 2020 4,165 194 297 4,656 403 5,059 3,171
Per share (pence) ,
At 1 January 2020 363 282
At 30 June 2020 391 307
Tangible net assets increased by 9% to GBP3.17bn at 30 June
2020.
The increase was driven by profit after tax of GBP199m(3) and
fair value exchange gains and mark-to-market movements of GBP102m,
mainly reflecting translational gains from weaker sterling and
lower bond yields respectively. Tangible net assets were reduced by
investment of GBP53m in intangible assets which were primarily IT
related (net investment of GBP13m after amortisation of GBP40m
shown as part of profit).
The pension schemes generated a profit of GBP14m in net asset
terms with market movements and experience slightly positive in
aggregate. The IAS 19 surplus at 30 June 2020 was GBP328m, please
see page 27 for more details.
TNAV per share increased by 9% to 307p.
(1) Ordinary shareholders' funds including preference share
capital of GBP125m
(2) Includes preference dividends of GBP5m and coupons of GBP7m
paid on 2017 issued restricted tier 1 securitie s
(3) Adjusted for items relating to goodwill and intangible
assets
CAPITAL POSITION
Solvency II position(1) Requirement Eligible Surplus Coverage
: (SCR) Own Funds
GBPbn GBPbn GBPbn %
30 June 2020 1.8 2.9 1.1 158%
31 March 2020 1.8 2.8 1.0 151%
31 December 2019 1.7 2.9 1.2 168%
The Solvency II coverage ratio(1) decreased to 158% during the
period:
%
At 1 January 2020 168
Underlying capital generation 14
Net capital investment (1)
Impact of pension contributions (paid annually in Q1) (4)
Pull-to-par on unrealised bond gains (2)
Exit losses (2)
Reorganisation costs (1)
Notional dividend(2) (6)
Market movements (including IAS 19) and other (8)
At 30 June 2020 158
Please refer to appendix (page 26) for further Solvency II
details (including sensitivities).
Note: IFRS pension surplus increased GBP117m, providing a 5
point additional unrecognised buffer to the Solvency II ratio This
brings the total unrecognised pension buffer to c.8 points.
(1) The Solvency II capital position at 30 June 2020 is
estimated and is shown post dividend accrual
(2) Represents 6 months' accrual of a 'notional' dividend amount
for the year 2020
REGIONAL REVIEW - SCANDINAVIA
Management basis
Net written Change Underwriting Change
premiums results
H1 H1 2019 CFX H1 2020 H1 2019 CFX
2020 GBPm % GBPm GBPm %
GBPm
Split by
country
Sweden 557 556 2 116 115 2
Denmark 389 412 (6) 29 (12) 333
Norway 66 71 4 (4) (7) 34
Total
Scandinavia 1,012 1,039 (1) 141 96 49
Split by
class
Household 183 183 2
Personal
Motor 194 200 (1)
Personal
Accident
& Other 186 184 2
Total
Scandinavia
Personal 563 567 1 109 109 1
Policy count -
change
Property 187 196 (4)
Liability 91 96 (4)
Commercial
Motor 119 128 (6)
Other 52 52 4
Total
Scandinavia
Commercial 449 472 (4) 32 (13) 336
Volume change (8)
Total
Scandinavia 1,012 1,039 141 96 49
Investment
result 23 31 (25)
Scandinavia business
operating
result 164 127 30
Operating Claims Commission Expenses Combined
ratios (%)
H1 H1 2019 H1 2020 H1 H1 2020 H1 2019 H1 2020 H1
2020 2019 2019
Scandinavia
Personal 63.2 63.8 3.1 3.1 12.1 12.1 78.4 79.0
Scandinavia
Commercial 71.0 83.8 3.1 3.1 16.4 16.9 90.5 103.8
Total
Scandinavia 66.3 71.9 3.1 3.1 13.8 14.1 83.2 89.1
Earned
controllable
expense
ratio 22.3 22.0
H1 H1 5 year
average
2020 2019
Claims ratio:
Weather loss
ratio 0.1 0.9 0.4
Large loss
ratio 7.4 8.5 6.8
Current year
attritional
loss ratio 61.8 63.8
Prior year
effect
on loss
ratio (3.0) (1.3)
SCANDINAVIA
Scandinavia delivered a business operating result of GBP164m for
H1 2020, up 30%. The combined ratio of 83.2% was 5.9 points better
than the first half last year. Excluding impacts of COVID-19 the
combined ratio was 84.7%. Personal Lines performance remained
excellent with a combined ratio of 78.4%. Commercial Lines improved
significantly by 13 points to 90.5% with the Danish Commercial
Lines generating a GBP10m profit in the first half (H1 2019: GBP25m
loss).
Net written premiums of GBP1,012 decreased by 1% at constant FX.
Personal Lines premiums were up 1%(1) driven by Swedish Personal
Lines which grew 2%(1) with both Household and Personal Accident
up. This was driven by strong new business trends, particularly in
Personal Accident, whilst retention was ahead of our Plans across
all classes. Danish Personal Lines premiums were flat with rate
offsetting slightly lower retention. PIFs grew in all lines of
business.
Net written premiums decreased by 4%(1) in Commercial Lines.
Rate was ahead of plan and H1 last year across the majority of
lines of business but was impacted by significant portfolio action
taken in Danish Commercial where volumes were down 13% (as
planned). Swedish Commercial was up 1%(1) driven by strong new
business levels.
During the second quarter the majority of our employees in
Scandinavia have been successfully working from home. Despite
changes to the work environment, customer satisfaction measures
have remained strong during the period for both sales and service
and claims. Digital sales in both Personal Lines and Commercial
Lines have increased year on year in each of our geographies with
online traffic also up between 25-55% in the period.
Large losses of 7.4% improved (H1 2019: 8.5%). The attritional
loss ratio of 61.8% included 1.6 points of COVID-19 related
frequency benefits. Excluding COVID-19 the attritional loss ratio
of 63.4% was 0.4 points better than H1 2019.
Written controllable expenses were flat in H1 2020, with 1% cost
reductions offset by 1% inflation. The earned controllable cost
ratio of 22.3% increased by 0.3 points, driven by lower earned
premiums.
Geographically, Sweden generated an underwriting profit of
GBP116m (H1 2019: GBP113m(1) ) and a combined ratio of 77.0% (H1
2019: 77.3%). Lower large losses, better weather experience and
lower expenses were partly offset by adverse prior year
development. Denmark reported an underwriting profit of GBP29m (H1
2019: GBP13m(1) loss) and a combined ratio of 89.6% (H1 2019:
104.0%). This was supported by a strong turnaround in Danish
Commercial Lines performance. The underwriting loss in Norway of
GBP4m was lower (H1 2019: GBP6m(1) loss) driven by modest
improvements in the attritional loss ratio and expenses.
(1) At constant FX
REGIONAL REVIEW - CANADA
Management basis
Net written Change Underwriting Change
premiums result
H1 2020 H1 2019 CFX H1 2020 H1 2019 CFX
GBPm GBPm % GBPm GBPm %
Household 230 217 6
Personal Motor 340 329 3
Total Canada Personal 570 546 4 79 33 142
Policy count change (5)
Property 98 85 15
Liability 43 44 (4)
Commercial Motor 58 68 (15)
Marine & Other 26 25 5
Total Canada Commercial 225 222 1 (21) (14) (49)
Volume change (7)
Total Canada 795 768 3 58 19 213
Investment result 30 31 (6)
Canada business operating
result 88 50 76
Operating
ratios (%) Claims Commission Expenses Combined
H1 2020 H1 2019 H1 H1 2019 H1 2020 H1 H1 2020 H1
2020 2019 2019
Canada
Personal 60.1 69.6 9.9 10.3 17.2 14.6 87.2 94.5
Canada
Commercial 74.7 73.6 18.3 17.3 16.0 14.7 109.0 105.6
Total Canada 64.1 70.8 12.2 12.3 16.9 14.7 93.2 97.8
Earned
controllable
expense ratio 20.1 17.6
H1 H1
2020 2019 5 year
average
Claims ratio:
Weather loss
ratio 5.4 7.2 4.7
Large loss
ratio 7.4 8.9 7.3
Current year
attritional
loss ratio 50.5 56.2
Prior year
effect
on loss ratio 0.8 (1.5)
CANADA
Canada delivered a business operating result of GBP88m for H1
2020, up 76% versus H1 last year. The combined ratio improved by
4.6 points to 93.2%. Excluding the impacts of COVID-19 the combined
ratio was 94.3%. Personal Lines continued to perform well and the
combined ratio improved by over 7 points to 87.2%. Pleasingly,
Personal Broker performance showed continued improvement and is now
operating at target profitability levels. In the Personal Motor
segments, rate reductions and premium adjustments offset COVID-19
related frequency benefits. The combined ratio in Commercial Lines
remained disappointing at 109.0% (H1 2019: 105.6%) with improved
attritional and large loss improvements offset by higher weather
costs and adverse prior year development. The Commercial Lines
current year combined ratio improved by c.4 points to 103.4%.
Net written premiums of GBP795m increased by 3% at constant FX.
This was driven by growth of 4%(1) in Personal Lines in H1, despite
COVID-19 related customer relief measures made in the second
quarter. These relief measures, which totalled an estimated $75m
CAD included premium rebates, coverage changes as well as changes
to rate filings. We applied rate of c.9% in Personal Auto, while we
applied double digit rate in Household. This helped to combat
ongoing and significant claims inflation and build an allowance for
heavier weather losses expected as a result of climate change.
Retention remained strong at 89% for Johnson, our direct business.
Personal Broker reported a 3 point decrease to 81%; this was in
line with our plans and reflected targeted actions to improve
profitably. Johnson continued to grow organically (5%). We
commenced writing new business for Scotiabank in April last year
and renewals followed in July and the portfolio has performed well
to date. Premiums in Commercial Lines increased by 1%(1) where a 7%
reduction in volumes was more than offset by rate achieved. Lower
volumes were in line with our plans and mainly driven by targeted
lapses. We expect to continue to prioritise profitability over
volume.
Lockdown measures in Canada have meant that 95% of employees
quickly transitioned to work from home at the beginning of the
pandemic in Canada. Despite this, business operations and
performance kept on track. Johnson service levels exceeded plan
with brand and agent net promoter scores at a twelve month high.
Meanwhile, digital transactions were up 11% and site visits up 46%
for Johnson since the onset of COVID-19.
While the weather loss ratio reduced by 1.8 points to 5.4%, it
remained above the five year average of 4.7%(2) . This included the
June Alberta Hailstorm which was the fourth-most-expensive insured
natural disaster in Canadian history at $1.2bn(3) . The large loss
charge of 7.4% was 1.5 points better than H1 2019. The attritional
loss ratio of 50.5% improved by nearly 6 points in H1 2020.
Excluding COVID-19 the attritional loss ratio was 52.2%.
Written controllable expenses of GBP170m were 15%(1) higher than
H1 last year driven primarily by an increase in both planned
software amortisation charges as well as higher staff costs (also
planned) relating to the Scotiabank partnership and some one-off
items. The earned controllable expense ratio of 20.1% is expected
to trend back below 20% for 2020.
(1) At constant FX
(2) 2015-2019
(3) Source: Catastrophe Indices and Quantification Inc .
REGIONAL REVIEW - UK & INTERNATIONAL
Management
basis(1) Net written premiums Underwriting result
H1 2020 H1 2020 H1 2019 H1 2019 H1 2020 H1 H1 H1
2020 2019 2019
Ex. Ex. Ex. Ex.
exits Total exits Total exits Total exits Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Household 270 270 273 273
Personal Motor 59 59 93 93
Pet 116 116 122 122
Total UK
Personal 445 445 488 488 29 29 8 2
Policy count
change ex.
exits (11)
Property 219 218 211 219
Liability 115 116 114 115
Commercial
Motor 70 70 89 88
Marine & Other 78 77 90 87
Total UK
Commercial(1) 482 481 504 509 11 (24) 38 24
Volume change
ex. exits (10)
Total UK(1) 927 926 992 997 40 5 46 26
Europe(1) 134 134 144 151 5 7 (4) (12)
Ireland 143 143 160 160 28 28 26 26
Middle East 88 88 103 103 16 16 18 18
Total UK &
International 1,292 1,291 1,399 1,411 89 56 86 58
Investment
result 59 59 69 69
UK & International
operating result 148 115 155 127
Claims Commission Expenses Combined
Operating
ratios (%)
H1 2020 H1 2019 H1 2020 H1 2019 H1 2020 H1 H1 H1
2019 2020 2019
Total UK
Personal 55.3 60.2 20.4 20.9 18.6 18.6 94.3 99.7
UK Personal
ex. exits 55.3 59.2 20.4 20.6 18.5 18.7 94.2 98.5
Total UK
Commercial(1) 70.6 63.1 20.7 20.7 13.1 11.9 104.4 95.7
UK Commercial
ex.
exits(1) 64.5 60.7 20.4 20.1 13.0 11.8 97.9 92.6
Total UK(1) 63.1 61.7 20.6 20.8 15.8 15.2 99.5 97.7
UK ex.
exits(1) 59.9 59.9 20.5 20.4 15.7 15.4 96.1 95.7
Europe(1) 65.0 82.0 14.7 12.0 14.3 16.4 94.0 110.4
Europe ex.
exits(1) 66.3 77.7 14.7 11.8 14.2 14.6 95.2 104.1
Ireland 51.1 57.3 13.0 11.9 17.8 14.1 81.9 83.3
Middle East 40.7 43.7 19.6 17.2 22.7 20.8 83.0 81.7
Total UK &
International 60.4 61.6 19.3 18.9 16.3 15.6 96.0 96.1
UK &
International
ex. exits 58.2 59.9 19.1 18.6 16.3 15.5 93.6 94.0
Earned
controllable
exp ratio(2) 22.3 22.9
H1 H1 5 year
5 year average
2020(2) 2019(2) average adj(3)
Claims ratio:
Weather loss
ratio 3.7 1.8 4.3 c.3.0
Large loss
ratio 11.8 9.9 12.9 c.11.0
Current year
attritional
loss ratio 42.5 48.4
Prior year
effect on
loss ratio 0.2 (0.2)
(1) Europe, previously reported within UK Commercial, is now
reported separately.
(2) Excluding UK/ London Market exit portfolios, refer to pages
33 to 42 for further information
(3) Adjusted for changes in UK&I business mix resulting from
exits.
UK & INTERNATIONAL
The UK & International region delivered a business operating
result of GBP148m(1) for the period (GBP115m including exits),
slightly down on prior year due to lower investment income. The
business delivered a combined ratio of 93.6%(1) (96.0% including
exits). Excluding the impacts of COVID-19 the combined ratio was
94.7%(1) with the attritional loss ratios improved by c.0.5 points
while the large loss ratio stayed below the adjusted five year
average, with weather being adverse.
UK
The UK reported an underwriting profit of GBP40m(1) in the
period and a combined ratio of 96.1%(1) . This was GBP6m below
prior year though would have been GBP19m better if equalising for
weather.
Net written premiums of GBP927m were down 7%(1) as reported,
reflecting COVID-19 impacts plus the underwriting and pricing
action taken in 2018 and 2019. Rates were strong and ahead of plan
in Commercial Lines while we saw an improvement in retention in
both Personal and Commercial Lines, albeit partly helped by lower
churn in some of the business lines due to the UK lockdown.
Personal Lines premiums decreased by 9% in the period of which
5% relates to COVID-19, mainly driven by lower sales in our
telematics business and through some of our branch-based partners.
Household premiums were down 1% with retention being better than
both plan and prior year. MORE TH>N Home premiums exceeded our
expectations and delivered positive new business growth. Overall,
new business volumes were down as we continued to hold our
discipline on rate.
Commercial Lines premiums were down 5%(2) excluding exits with
the majority of this driven by the impacts of COVID-19. Rates were
ahead of our plans as we achieved double digit rate increases in
London Market and mid-single digit in our Regions business.
Positive momentum continued in our Regions business as we grew
premiums by 14% on prior year, supported by strong new business,
retention and rates all of which were ahead of our plans.
Throughout COVID-19 we were able to maintain service to our
customers, transitioning our customer contact centres almost
exclusively to remote working. Customer migration to digital
channels of communication has been sustained, with More Than
digital renewals increasing 18% in the month of June, versus a year
ago. In Commercial Lines, we implemented a new Claims Commitment,
accelerating our standard response times for customers.
The weather ratio of 4.6%(1) was 2.5 points worse than prior
year and was driven by the February floods which cost c.GBP35m. The
large loss ratio of 12.3%(1) was 1.8 points worse than last year,
but was stable versus prior year excluding COVID-19 impacts. The
attritional loss ratio of 41.6%(1) was 5.9 points better than H1
2019 driven substantially by frequency benefits associated with
COVID-19 and improved by 0.3 points excluding COVID-19. Prior year
underwriting result was an GBP11m loss(1) or 1.1%(1) on the
combined ratio (H1 2019: 0.3% benefit). The expense ratio increased
slightly due to premium shortfalls but controllable expenses fell
in absolute terms. As a result, the 2019 cost programme will be
expanded in the second half.
(1) Excluding UK/ London Market exit portfolios, refer to pages
33 to 42 for further information
(2) At constant FX
Europe, Ireland and the Middle East
Europe(1) , which is now reported separately within UK &
International, delivered an underwriting profit of GBP5m and a
combined ratio of 95.2%. The combined ratio was nearly 10 points
better than the same period last year, with attritional loss ratios
significantly improved and large loss ratio better than prior year
and plan (excluding COVID-19). Premiums were lower versus prior
year as we cautiously rebuild the portfolio, although market
hardening has allowed us to achieve double digit rate increases but
we remain mindful of possible volatility in this portfolio.
Ireland reported another excellent performance, generating an
underwriting profit of GBP28m (H1 2019: GBP26m) on a combined ratio
of 81.9% (H1 2019: 83.3%). Net written premiums fell by 11%(2)
driven by the COVID-19 impact on new business levels in Personal
Motor. Improved attritionals and large loss ratio helped to improve
the combined ratio versus H1 last year.
The Middle East delivered an underwriting profit of GBP16m (H1
2019: GBP18m) on a combined ratio of 83.0% (H1 2019: 81.7%). Net
written premiums decreased by 17%(2) with COVID-19 impact on
business activity a key driver. An improved attritional loss ratio
was more than offset by increased expenses and commissions as a
result of lower premium contribution.
Exit portfolios
The underwriting loss from these portfolios was GBP33m for the
period. Net written premiums were negligible, while net earned
premiums were GBP11m reflecting the ongoing run-off of exposures.
The portfolios are expected to be materially run-off by the end of
2020.
(1) Excluding UK/ London Market exit portfolios, refer to pages
33 to 42 for further information
(2) At constant FX
INVESTMENT PERFORMANCE
Management basis
Investment result H1 2020 H1 2019 Change
GBPm GBPm %
Bonds 99 113 (12)
Equities 15 18 (17)
Cash and cash equivalents 3 4 (25)
Property 9 9 -
Other 8 10 (20)
Investment income 134 154 (13)
Investment expenses (7) (7) -
Unwind of discount (15) (16) 6
Investment result 112 131 (15)
Balance sheet unrealised gains (pre-tax) 30 June 31 Dec Change
2020 (GBPm) 2019 (GBPm) %
Bonds 497 370 34
Equities (69) 1 (7000)
Total 428 371 15
Investment portfolio Value Foreign Mark Other Transfer Value
31 Dec exchange to market movements from assets 30 June
2019 held for 2020
sale
GBPm GBPm GBPm GBPm GBPm GBPm
Government bonds 3,441 92 64 (93) - 3,504
Non-Government
bonds 6,970 271 17 (134) - 7,124
Cash 909 27 - (8) - 928
Equities 218 26 (54) (10) - 180
Property 300 - (14) 9 - 295
Preference shares
& CIVs 455 3 (30) 27 - 455
Other 338 7 - 23 - 368
Total 12,631 426 (17) (186) - 12,854
Split by currency:
Sterling 3,567 3,307
Danish Krone 1,030 1,040
Swedish Krona 2,367 2,506
Canadian Dollar 2,901 3,008
Euro 1,474 1,578
Other 1,292 1,415
Total 12,631 12,854
Credit quality - bond Non-government Government
portfolio
30 June 31 Dec 30 June 31 Dec
2020 2019 2020 2019
% % % %
AAA 41 42 65 62
AA 13 13 33 33
A 28 29 2 5
BBB 16 13 - -
< BBB 2 3 - -
Non-rated - - - -
Total 100 100 100 100
INVESTMENT PERFORMANCE
Investment income of GBP134m (H1 2019: GBP154m) was offset by
investment expenses of GBP7m (H1 2019: GBP7m) and the liability
discount unwind of GBP15m (H1 2019: GBP16m). Investment income was
down on the same period last year primarily reflecting the impact
of reinvestment at lower yields but also negatively impacted by
lower cash rates and reduced dividend income from the REIT(1)
portfolio.
The average book yield for H1 2020 on the total portfolio was
2.1% (H1 2019: 2.4%), with an average yield on the bond portfolios
of 1.9% (H1 2019: 2.2%). Reinvestment rates in the Group's major
bond portfolios were approximately 0.7% (H1 2019: 1.3%).
At 30 June 2020, the average duration of the Group's bond
portfolios of 4.2 years was slightly higher than at year-end (31
December 2019: 3.9 years).
The investment portfolio increased by 2% during the period to
GBP12.9bn.
At 30 June 2020, high quality widely diversified fixed income
securities represented 83% of the portfolio (31 December 2019:
82%). Equities (largely REITs(1) ) represented 1% (31 December
2019: 2%) and cash was 7% of the total portfolio (31 December 2019:
7%).
The quality of the bond portfolio remains very high with 99%
investment grade and 69% rated AA or above. The bond portfolio
remains well diversified by sector and geography.
Based on current forward bond yields and foreign exchange rates,
we have left our investment income guidance unchanged at
c.GBP255-270m for 2020, c.GBP240-255m for 2021 and c.GBP235-250m
for 2022. The discount unwind is expected to be in the region of
c.GBP30m per annum and investment expenses are expected to be
c.GBP14m per annum.
Unrealised bond gains and pull-to-par
At 30 June 2020, balance sheet unrealised gains of GBP428m
(pre-tax) had increased by GBP57m, principally driven by positive
mark-to-market on bond holdings due to declining yields, partially
offset by negative movements in our REIT(1) and preference share
holdings.
If yield curves were to stay as they are, it is now estimated
that the bond gains would take around 7 to 8 years to fully unwind,
with around 50% within the next 3 years (AFS unwind is estimated to
be c.GBP40m post tax for H2 2020 and c.GBP80m for 2021, impacting
capital generation by those amounts).
(1) Real Estate Investment Trusts
APPIX I
Further information
CAPITAL
Solvency II sensitivities
Coverage ratio at 30 June 2020 158 %
Sensitivities (change in coverage Including Excluding
ratio): pensions(1) pensions
Interest rates: +1% non-parallel(2,3)
shift +3% +6%
Interest rates: -1% non-parallel(2)
shift -9% -8%
Equities: -15% -7% -2%
Property: -10% -2% -2%
Foreign exchange: GBP +10%
vs. all currencies -4% -4%
Cat loss of GBP75m net -4% -4%
Credit spreads: +0.25%(3,4)
parallel shift -1% -1%
Credit spreads: -0.25% parallel
shift -7% +1%
The above sensitivities have been considered in isolation. The
impact of a combination of sensitivities may be different to the
individual outcomes stated above. Where an IFRS valuation of a
pension scheme surplus is restricted under Solvency II, downside
pension sensitivities may be dampened relative to those shown. In
Q1 2020, RSA were granted approval to apply the volatility
adjustment, which reduces our exposure to spread movements and is
reflected in the sensitivities above.
Reconciliation of IFRS total capital to Eligible Own Funds
30 June 2020
GBPbn
Shareholders' funds (including
preference shares) 4.5
Loan capital 0.4
Non-controlling interests 0.2
Total IFRS capital 5.1
Less: Goodwill & intangibles (0.9)
Adjust technical provisions
to Solvency II basis (0.5)
Basic Own Funds 3.7
Tiering & availability restrictions (0.5)
Dividends (0.3)
Eligible Own Funds 2.9
(1) The impact of pensions depends significantly on the opening
position of the schemes and market conditions. As such, the
sensitivities shown are point-in-time estimates that will vary and
should not be extrapolated
(2) The interest rate sensitivity assumes a non-parallel shift
in the yield curve to reflect that the long end of the yield curve
is typically more stable than the short end
(3) The asymmetry in credit spread and interest rate
sensitivities reflects the fact that upside pension sensitivities
are restricted to the surplus cap.
(4) Sensitivities assume that credit spreads of different
ratings all move by the same amount and hence reflect an assumed
offset between the impact on assets held and the IFRS value of
pension scheme obligations which could differ
PENSIONS
The table below provides a reconciliation of the movement in the
Group's pension fund position under IAS 19 (net of tax) from 1
January 2020 to 30 June 2020:
UK non-UK Group
GBPm GBPm GBPm
Net pension fund surplus/ (deficit)
at 1 January 2020 255 (44) 211
Actuarial gains(1) 66 21 87
Deficit funding 75 - 75
Tax movements (52) (5) (57)
Other movements(2) 11 1 12
Net pension fund surplus/ (deficit)
at 30 June 2020 355 (27) 328
At an aggregate level, the pension fund surplus under IAS 19
improved during H1 2020 from a GBP211m surplus at 1 January to a
surplus of GBP328m at 30 June (net of tax). This was driven
primarily by deficit funding contributions paid in January (GBP75m
pre-tax) with the impact of market movements and experience also
slightly positive in aggregate.
(1) Actuarial gains/ (losses) are gross of tax and include
pension investment expenses, variance against expected returns,
change in actuarial assumptions and experience losses
(2) Other movements are gross of tax and include regular
contributions, service/ administration costs, expected returns,
interest costs and settlement gains/ (losses)
REINSURANCE
On 1 January 2020, the Group Volatility Cover (GVC) entered the
final year of the three year agreement that commenced on 1 January
2018.
The key terms of the GVC are as follows:
-- Cover protects all our short tail business including
Property, Marine and Construction & Engineering
-- Events or individual net losses of GBP10m or greater are
added together across our financial year. When a loss exceeds
GBP10m it is included in full
-- Cover attaches when the total of these retained losses is greater than GBP170m
-- Limit of cover is GBP150m per year, with GBP300m maximum over the 3 year period
-- Counterparties are high credit quality reinsurers (50% AA- or better, 50% A- or better)
Alongside the GVC, we continue to purchase additional aggregate
covers for the UK, Scandinavia and Canada for losses below GBP10m.
These covers provide protection for our short tail lines of
business including Property, Marine and Construction &
Engineering. For 2020, we placed 100% of the Canada and Scandinavia
aggregate covers and chose to place 75% of the UK aggregate cover
in order to balance the cost versus benefit of this protection.
Further details below:
-- UK: Aggregate cover protects large losses between GBP3m and
GBP10m. Cover attaches when the total of the losses in this band
exceeds GBP50m. Limit of cover is GBP35m
-- Scandinavia: Aggregate cover protects large losses between
DKK 20m and DKK 100m. Cover attaches when the total of the losses
in these bands exceeds DKK 120m. Limit of cover is DKK 150m
-- Canada: Aggregate cover protects large losses between C$2.5m
and C$10m and catastrophe losses between C$7.5m and C$17.5m. Large
loss and Catastrophe sections operate independently; cover attaches
when large losses exceed C$55m or Catastrophe losses exceed C$25m.
Limit of cover is C$65m which is shared across the two sections of
cover.
There were no other material changes to our reinsurance
retentions for 2020. Our main Catastrophe retentions remain at
GBP75m for the UK and Europe combined, GBP50m for Europe excluding
the UK and $75m for Canada. Our UK and Ireland Motor retentions
remain at the 2019 level of GBP1m and EUR1m respectively.
MANAGEMENT REPORT
SEGMENTAL INCOME STATEMENT
Management basis - 6 months ended 30 June 2019
Scandinavia Canada UK & Central H1 19 H1 19
International functions Group Group
ex exits ex exits total
GBPm GBPm GBPm GBPm GBPm GBPm
Net written premiums 1,039 768 1,399 36 3,242 3,254
Net earned premiums 879 835 1,442 (4) 3,152 3,209
Net incurred claims (632) (591) (865) (13) (2,101) (2,160)
Commissions (27) (103) (268) - (398) (414)
Operating expenses (124) (122) (223) (3) (472) (482)
Underwriting result 96 19 86 (20) 181 153
Investment income 44 34 76 - 154 154
Investment expenses (1) (2) (4) - (7) (7)
Unwind of discount (12) (1) (3) - (16) (16)
Investment result 31 31 69 - 131 131
Central expenses - - - (4) (4) (4)
Operating result 127 50 155 (24) 308 280
Interest (16)
Other non-operating
charges (37)
Profit before tax 227
Tax (44)
Profit after tax 183
Non-controlling interest (13)
Other equity costs(1) (12)
Net attributable profit
, 158
Loss ratio (%) 71.9 70.8 59.9 66.6 67.3
Weather loss ratio 0.9 7.2 1.8 3.0 3.2
Large loss ratio 8.5 8.9 9.9 9.6 9.9
Current year attritional
loss ratio , 63.8 56.2 48.4 54.9 54.9
Prior year effect on
loss ratio (1.3) (1.5) (0.2) (0.9) (0.7)
Commission ratio (%) 3.1 12.3 18.6 12.7 12.9
Expense ratio (%) 14.1 14.7 15.5 15.0 15.0
Combined ratio (%)
, 89.1 97.8 94.0 94.3 95.2
Controllable expense
ratio (%)(2) , 22.0 17.6 22.9 21.3 21.3
Notes:
UK & International comprises the UK (and European branches),
Ireland and Middle East.
(1) Preference dividends of GBP5m and coupons of GBP7m paid on
Restricted Tier 1 securities
(2) On an earned basis
COMBINED RATIO DETAIL
Group
GBPm unless stated H1 20 Current Prior H1 2019 H1 2019
Current Prior H1 20 ex. year year total ex exits
year year total exits
Net written premiums 1 3,123 7 12 13 3,135 3,136 3,229 25 3,254 3,242
Net earned premiums 2 3,078 8 6 14 3,084 3,073 3,193 16 3,209 3,152
Net incurred claims 3 (1,995) 9 4 15 (1,991) (1,953) (2,171) 11 (2,160) (2,101)
Commissions 4 (393) 10 (2) 16 (395) (391) (408) (6) (414) (398)
Operating expenses 5 (490) 11 (1) 17 (491) (489) (480) (2) (482) (472)
Underwriting result
, 6 200 12 7 18 207 240 134 19 153 181
CY attritional claims 19 (1,569) (1,561) (1,752) (1,723)
Weather claims 20 (105) (104) (103) (95)
Large losses 21 (321) (303) (316) (301)
CY net incurred
claims 22 (1,995) (1,968) (2,171) (2,119)
=15 /
Loss ratio (%) 14 23 64.6 63.6 67.3 66.6
=20 /
Weather loss ratio 2 24 3.4 3.4 3.2 3.0
=21 /
Large loss ratio 2 25 10.4 9.9 9.9 9.6
Current year attritional =19 /
loss ratio , 2 26 51.0 50.9 54.9 54.9
=23 -
Prior year effect 24 - 25
on loss ratio - 26 27 (0.2) (0.6) (0.7) (0.9)
Commission ratio =16 /
(%) 14 28 12.8 12.7 12.9 12.7
=17 /
Expense ratio (%) 14 29 15.9 15.9 15.0 15.0
Combined ratio =23 +
(%) , 28 + 29 30 93.3 92.2 95.2 94.3
Scandinavia
GBPm unless stated Current Prior H1 2020 Current Prior H1 2019
year year total year year total
Net written premiums 1,012 - 1,012 1,044 (5) 1,039
Net earned premiums 839 1 840 883 (4) 879
Net incurred claims (582) 25 (557) (647) 15 (632)
Commissions (25) (1) (26) (27) - (27)
Operating expenses (116) - (116) (122) (2) (124)
Underwriting result 116 25 141 87 9 96
CY attritional claims (519) (564)
Weather claims (1) (8)
Large losses (62) (75)
Net incurred claims (582) (647)
Loss ratio (%) 66.3 71.9
Weather loss ratio 0.1 0.9
Large loss ratio 7.4 8.5
Current year attritional
loss ratio 61.8 63.8
Prior year effect on loss
ratio (3.0) (1.3)
Commission ratio (%) 3.1 3.1
Expense ratio (%) 13.8 14.1
Combined ratio (%) 83.2 89.1
COMBINED RATIO DETAIL
Canada
GBPm unless stated Current Prior H1 2020 Current Prior H1 2019
Year year total year year total
Net written premiums 795 - 795 768 - 768
Net earned premiums 848 - 848 835 - 835
Net incurred claims (537) (7) (544) (604) 13 (591)
Commissions (103) - (103) (103) - (103)
Operating expenses (143) - (143) (122) - (122)
Underwriting result 65 (7) 58 6 13 19
CY attritional claims (428) (469)
Weather claims (47) (60)
Large losses (62) (75)
Net incurred claims (537) (604)
Loss ratio (%) 64.1 70.8
Weather loss ratio 5.4 7.2
Large loss ratio 7.4 8.9
Current year attritional
loss ratio 50.5 56.2
Prior year effect
on loss ratio 0.8 (1.5)
Commission ratio (%) 12.2 12.3
Expense ratio (%) 16.9 14.7
Combined ratio (%) 93.2 97.8
UK&I
GBPm unless stated Current Prior H1 2020 H1 2020 Current Prior H1 2019 H1 2019
year year total ex. exits year year total ex exits
Net written premiums 1,279 12 1,291 1,292 1,382 29 1,411 1,399
Net earned premiums 1,395 5 1,400 1,389 1,480 19 1,499 1,442
Net incurred
claims (831) (15) (846) (808) (908) (16) (924) (865)
Commissions (269) - (269) (265) (278) (6) (284) (268)
Operating expenses (228) (1) (229) (227) (233) - (233) (223)
Underwriting
result 67 (11) 56 89 61 (3) 58 86
CY attritional
claims (597) (589) (719) (690)
Weather claims (52) (51) (34) (26)
Large losses (182) (164) (155) (140)
CY net incurred
claims (831) (804) (908) (856)
Loss ratio (%) 60.4 58.2 61.6 59.9
Weather loss
ratio 3.8 3.7 2.3 1.8
Large loss ratio 13.0 11.8 10.6 9.9
Current year attritional
loss ratio 42.8 42.5 48.5 48.4
Prior year effect on
loss ratio 0.8 0.2 0.2 (0.2)
Commission ratio
(%) 19.3 19.1 18.9 18.6
Expense ratio
(%) 16.3 16.3 15.6 15.5
Combined ratio
(%) 96.0 93.6 96.1 94.0
APPIX II
Alternative Performance Measures
ALTERNATIVE PERFORMANCE MEASURES
Alternative performance measures ('APMs') are complementary to
measures defined within International Financial Reporting Standards
('IFRS') and are used by management to explain the Group's business
performance and financial position. They include common insurance
industry metrics, as well as measures management and the Board
consider are useful to enhance the understanding of its performance
and allow meaningful comparisons between periods and business
segments. The APMs reported are monitored consistently across the
Group to manage performance on a monthly basis. They are reviewed
across various functions and undergo rigorous internal quality
assurance.
Occasionally management may also report additional or adjusted
APMs when circumstance requires. Reasons for doing so, definitions
and reconciliations are provided in this appendix. In Q4 2018
targeted portfolio exits were announced as part of an ongoing
strategic review of the UK & International business which
concluded in 2019. The Group continues to be impacted by exits in
2020 due to the ongoing run-off of exposures. Therefore, APMs,
continue to be reported both including and excluding the impacts of
the UK&I exited portfolios to provide measures that allow users
to assess the future performance of UK&I and the Group.
APMs are identifiable within Group tables by the symbol , and
are defined in the below jargon buster. Further definition,
commentary, and outlook of those APMs considered important in
measuring the delivery of the Group's strategic priorities can be
found on pages 26 and 27 of the Annual Report and Accounts 2019.
Detailed reconciliations of APMs to their nearest IFRS Income
Statement equivalents and adjusted APMs can be found after the
below jargon buster. APMs used to determine management and
executive remuneration are identified below with , *.
JARGON BUSTER
Term Definition APM Reconciliation
------------------------- ====================================================== ===== =================
Affinity Selling insurance through a partner's
distribution network, usually
to a group of similar customers
e.g. store-card holders, alumni
groups, unions and utility company
customers.
====================================================== ===== ====== =========
Attritional Loss This is the claims ratio (net , 1 R
Ratio incurred claims and claims handling
expense as a proportion of net
earned premium) of our business
prior to volatile impacts from
weather, large losses and prior-year
reserve developments.
====================================================== ===== ====== =========
Available for A class of financial asset that
Sale (AFS) is neither held for trading nor
held to maturity.
====================================================== ===== ====== =========
Business Operating Business operating result represents , 1 AC
Result profit before tax adjusted to
add back other charges.
====================================================== ===== ====== =========
Claims Frequency Average number of claims per
policy over the year.
====================================================== ===== ====== =========
Claims Handling The administrative cost of processing
Expenses a claim (such as salary costs,
costs of running claims centres,
allocated share of the costs
of head office units) which are
separate to the cost of settling
the claim itself with the policyholder.
====================================================== ===== ====== =========
Claims Ratio Percentage of net earned premiums , 1 V
(Loss Ratio) that is paid out in claims and
claims handling expenses.
====================================================== ===== ====== =========
Claims Reserve A provision established to cover
(Provision for the estimated cost of claims
Losses and Loss payments and claims handling
Adjustment Expenses) expenses that are still to be
settled and incurred in respect
of insurance cover provided to
policyholders up to the reporting
date.
====================================================== ===== ====== =========
Claims Severity Average cost of claims incurred
over the period.
====================================================== ===== ====== =========
Combined Operating A measure of underwriting performance , * 1 Y
Ratio (COR) being the ratio of underwriting
costs (claims, commissions and
expenses) expressed in relation
to earned premiums:
COR = loss ratio + commission
ratio + expense ratio, where
Loss ratio = net incurred claims/
net earned premiums
Commission ratio = commissions/
net earned premiums
Expense ratio = operating expenses/
net earned premiums
====================================================== ===== ====== =========
Commission An amount paid to an intermediary
such as a broker for introducing
business to the Group.
====================================================== ===== ====== =========
Constant Exchange Prior period comparative retranslated
(CFX) at current period exchange rates. , 4
------------------------- ------------------------------------------------------ ----- ------ ---------
A measure of operating expenses
incurred by the Group in undertaking
business activities, predominantly
underwriting and policy acquisition
costs, excluding commission and
premium related costs such as
levies. They are adjusted to
include claims handling costs
Controllable that are reported within net
Costs/ Expenses claims incurred. , * 5
====================================================== ===== ====== =========
Current Year The profit or loss earned from , 1 Q
Underwriting business for which insurance
Result cover has been provided during
the current financial period.
This does not include performance
impacts recognised in the current
reporting period relating to
prior accident years.
====================================================== ===== ====== =========
Current Year A measure of current year underwriting
Combined Operating result performance calculated
Ratio (CY COR) as per the combined operating
ratio.
====================================================== ===== ====== =========
Customer Retention A measure of the amount of business
that is renewed with us each
year.
====================================================== ===== ====== =========
Excluding exits refers to financial
results adjusted for the impact
of UK&I portfolio exits and business
lapses targeted as part of the
UK&I strategic review that concluded
Ex. Exits in 2019. 7
====================================================== ===== ====== =========
Expense Ratio Underwriting and policy expenses , 1 X
expressed as a percentage of
net earned premium.
====================================================== ===== ====== =========
Exposure A measurement of risk we are
exposed to through the premiums
we have written. For example,
in motor insurance one vehicle
insured for one year is one unit
of exposure.
====================================================== ===== ====== =========
Financial Conduct The regulatory authority with
Authority (FCA) responsibility for the conduct
of the UK financial services
industry.
====================================================== ===== ====== =========
Gross Written Total revenue generated through
Premium (GWP) sale of insurance products. This
is before taking into account
reinsurance and is stated irrespective
of whether payment has been received.
====================================================== ===== ====== =========
Group Catastrophe Reinsurance purchased by the
programme (Cat) Group to protect against a catastrophic
event, usually a large number
of losses accumulating over a
short period of time. Losses
can arise worldwide from either
natural peril, for example hurricane,
windstorm, flood and earthquake,
or from man-made perils, for
example explosion, fire. Individual
losses are aggregated and, when
the respective Catastrophe retention
is exceeded, a reinsurance recovery
is made.
====================================================== ===== ====== =========
Group Volatility This is an aggregate reinsurance
Cover (GVC) cover purchased by the Group
to protect against the accumulation
of "smaller/medium" single or
event type losses. Individual
losses/events are covered in
full if they exceed the franchise
level. Cover attaches once the
aggregate deductible is breached.
This reinsurance provides protection
world-wide for all short tail
classes of business.
====================================================== ===== ====== =========
IBNR (Incurred An estimated reserve for amounts
But Not Yet Reported) owed to all valid claimants who
have had a covered loss but have
not yet reported it and for claims
that have been reported but the
cost is not yet known.
====================================================== ===== ====== =========
Interest Costs Interest costs represent the
cost of Group debt.
====================================================== ===== ====== =========
Investment Result Investment result is the money , 1 AA
we make from our investments
on a management basis. It comprises
the major component of net investment
return, investment income, in
addition to unwind of discount
and investment expenses.
====================================================== ===== ====== =========
Large Losses Single claim or all claims arising
from a single loss event with
a net cost of GBP0.5m or higher.
====================================================== ===== ====== =========
Large Loss Ratio The large loss ratio is an expression , 1 T
of claims incurred in the period
with a net cost of GBP0.5m or
higher as a percentage of current
year net earned premium over
the same period.
====================================================== ===== ====== =========
Managing General A specialised type of insurance
Agent (MGA) agent or broker that has been
granted underwriting authority
by an insurer and can negotiate
contracts on behalf of the insurer.
====================================================== ===== ====== =========
Net Asset Value Net asset value per share is , 3 E
(NAV) per Share calculated as closing shareholders'
funds, less preference share
capital, divided by the number
of shares in issue at the end
of the period.
------------------------- ------------------------------------------------------ ----- ------ ---------
Net Earned Premium The proportion of premium written,
(NEP) net of the cost of associated
reinsurance, which represents
the consideration charged to
policyholders for providing insurance
cover during the reporting period.
====================================================== ===== ====== =========
Net Incurred The total claims cost incurred
Claims (NIC) in the period less any share
that is borne by reinsurers.
It includes both claims payments
and movements in claims reserves
and claims handling expenses
in the period.
====================================================== ===== ====== =========
Net Written Premium Premium written or processed
(NWP) in the period, irrespective of
whether it has been paid, less
the amount shared with reinsurers.
====================================================== ===== ====== =========
Other Charges Other charges represent items , 1 AD
that are excluded to arrive at
business operating result and
underlying profit measures.
====================================================== ===== ====== =========
Item Reason for classification , 1 AD
========================= =============================== ====== =========
Amortisation of To allow meaningful
intangible assets assessment of
segmental performance
where similar
internally generated
assets are not
capitalised.
========================= ================================== ======================== ====== =========
Reorganisation To allow assessment
costs of the performance
of ongoing business
activities.
========================= ==================================
Pension administration Costs that are
and net interest dependent on
costs the level of
defined benefit
pension scheme
plan funding
and arise from
servicing past
pension commitments.
========================= ==================================
Realised and unrealised To remove the
gains and losses impact of market
on investments/ volatility and
foreign exchange investment rebalancing
gains and losses activity.
========================= ==================================
Gains and losses To allow assessment
arising from the of the performance
disposal of businesses of ongoing business
and impairment activities.
of goodwill
========================= ==================================
Economic assumption To allow assessment
changes of performance
excluding impact
of a change in
economic assumptions.
========================= ================================== ======================== ====== =========
Payout Ratio Ordinary dividends expressed
as a percentage of underlying
profit after tax attributable
to ordinary shareholders. This
has also been expressed excluding
the impact of UK&I exits.
====================================================== ===== ====== =========
Policies in Force The number of active insurance
policies for which the Group
is providing cover.
====================================================== ===== ====== =========
Prior Year Underwriting Updates to premium, claims, commission , 1 P
Result and expense estimates relating
to prior years.
====================================================== ===== ====== =========
Property and Property insurance covers loss
Casualty (P&C) or damage through fire, theft,
(Non-Life Insurance floods, storms and other specified
or General Insurance) risks.
Casualty insurance primarily
covers losses arising from accidents
that cause injury to other people
or damage to the property of
others.
====================================================== ===== ====== =========
Prudential Regulation The regulatory authority with
Authority (PRA) responsibility for the prudential
regulation and supervision of
the UK financial services industry.
====================================================== ===== ====== =========
Pull to Par The movement of a bond's price
toward its face value as it approaches
its maturity date.
====================================================== ===== ====== =========
Rate The price of a unit of insurance
based on a standard risk for
one year. Actual premium charged
to the policyholder may differ
from the rate due to individual
risk characteristics and marketing
discounts.
====================================================== ===== ====== =========
'Record' underwriting 'Record' refers to the lowest
performance combined ratio as reported when
considering the half year underwriting
performance from 2008 to 2020.
====================================================== ===== ====== =========
Reinsurance The practice whereby part or
all of the risk accepted is transferred
to another insurer (the reinsurer).
====================================================== ===== ====== =========
Reported Exchange Prior period comparative translated
(RFX) at exchange rates applicable
at that time.
====================================================== ===== ====== =========
Return on Equity Profit attributable to ordinary , 2 F
shareholders (profit after tax
excluding non-controlling interests,
coupon on tier 1 notes and preference
dividend) expressed in relation
to opening ordinary shareholders'
funds (opening ordinary shareholders
funds less preference share capital).
====================================================== ===== ====== =========
Return on Tangible Profit attributable to ordinary , 2 H
Equity shareholders (profit after tax
excluding non-controlling interests,
coupon on tier 1 notes and preference
dividend) expressed in relation
to opening tangible net asset
value.
====================================================== ===== ====== =========
Solvency II / Capital adequacy regime for the
Coverage Ratio European insurance industry which
commenced in 2016 and is based
on a set of EU wide capital requirements
and risk management standards.
The coverage ratio represents
total eligible capital as a proportion
of the Solvency Capital Requirement
(SCR) under Solvency II.
====================================================== ===== ====== =========
Scrip Dividend Where shareholders choose to
receive the dividend in the form
of additional shares rather than
cash. The Group would issue new
shares to meet the scrip demand.
====================================================== ===== ====== =========
Tangible Net Tangible net asset value comprises , * 3 C
Asset Value (TNAV) shareholders' equity, less preference
share capital and goodwill and
intangible assets.
====================================================== ===== ====== =========
Tangible Net Tangible net asset value, divided , 3 F
Asset Value (TNAV) by the number of shares in issue
per Share at the end of the period.
====================================================== ===== ====== =========
Underwriting Net earned premium less net claims , 1 Z
Result and underwriting and policy acquisition
costs.
====================================================== ===== ====== =========
Underlying Profit Profit before tax adjusted for , 6 B
before Tax the add back of all other charges
except finance costs.
====================================================== ===== ====== =========
Underlying Tax The Group underlying tax rate , 6 A
Rate mainly comprising the local statutory
tax rates in the Group's territories
applied to underlying regional
profits (business operating profits
less finance costs).
====================================================== ===== ====== =========
Underlying Profit Profit after tax, less the proportion , * 2 B
after Tax that is attributable to non-controlling
interests, preference shareholders
and tier 1 note holders, plus
the add back of all other charges
except finance costs (reasons
for exclusion above) before an
adjustment for the tax difference
between effective and underlying
rate.
====================================================== ===== ====== =========
Underlying Return Underlying profit after tax expressed , * 2 I
on Tangible Equity in relation to opening tangible
net asset value.
====================================================== ===== ====== =========
Underlying Return Underlying profit after tax expressed , 2 G
on Equity in relation to opening shareholders'
funds excluding preference share
capital.
====================================================== ===== ====== =========
Underlying Earnings Underlying profit after tax divided , 2 K
per Share (EPS) by the weighted average number
of shares in issue during the
period.
====================================================== ===== ====== =========
Unearned Premium The portion of a premium that
relates to future periods, for
which protection has not yet
been provided, irrespective of
whether the premium has been
paid or not.
====================================================== ===== ====== =========
Weather Losses Weather claims incurred with
a net cost of GBP0.5m or higher
and losses of less than GBP0.5m
where extreme weather has been
identified over an extended period.
====================================================== ===== ====== =========
Weather Loss The weather loss ratio is an , 1 S
Ratio expression of weather losses
in the period as a percentage
of earned premium.
====================================================== ===== ====== =========
Yield Rate of return on an investment
in percentage terms.
The dividend payable on a share
expressed as a percentage of
the market price.
====================================================== ===== ====== =========
ALTERNATIVE PERFORMANCE MEASURES RECONCILIATIONS
1. IFRS reconciliation to management P&L
For the 6 months ended 30 June 2020
Business Profit
Underwriting Investment Central operating Other before
result result costs result charges tax
============ ========== ======= ========== ======== =======
GBP'm IFRS Management
=============================== ========= ================================================================
Income
Gross written premiums 3,752 3,752
Less: reinsurance premiums (617) (617)
=============================== ========= ============ ========== ======= ========
Net written premiums 3,135 3,135
========= ============ ========== ======= ========
Change in the gross
provision for unearned
premiums (127) (127)
Change in provision
for unearned reinsurance
premiums 76 76
========= ============ ========== ======= ========
Change in provision
for unearned premiums (51) (51)
=============================== ========= ============ ========== ======= ========
Net earned premiums,
analysed as 3,084 A 3,084
============
Current year B 3,078
Prior year C 6
============
3,084
========= ============ ========== ======= ========
Investment income 134 D 134
Realised losses on
investments (1) (1)
Losses on forex derivatives (9) (9)
Unrealised losses (27) (27)
Impairments (20) (20)
========= ============ ========== ======= ========
Net investment return 77
========= ============ ========== ======= ========
Other insurance income 65 E 65
Pension net interest
and administration
costs 1 1
Foreign exchange gain 5 5
========= ============ ========== ======= ========
Other operating income 71
=============================== =========
Total income 3,232
=============================== =========
Expenses
========= ============ ========== ======= ========
Gross claims incurred (2,262) (2,262)
Less: claims recoveries
from reinsurers 271 271
========= ============ ========== ======= ========
Net claims, analysed
as (1,991) F (1,991)
============
Attritional G (1,569)
Weather H (105)
Large I (321)
Prior year J 4
============
(1,991)
========= ============ ========== ======= ========
Earned CY commission (393) K (393)
Earned PY commission (2) L (2)
Earned CY operating
expenses (555) M (555)
Earned PY operating
expenses (1) N (1)
========= ============ ========== ======= ========
Underwriting and policy
acquisition costs (951) (951)
Unwind of discount
and change in economic
assumptions (23) (15) (8)
========= ============ ========== ======= ========
Investment expenses (7) (7)
Central expenses (3) (3)
Amortisation of intangible
assets (6) (6)
Impairment of goodwill (5) (5)
Reorganisation costs (18) (18)
========= ============ ========== ======= ========
Other operating expenses (39)
=============================== =========
(3,004)
========= ============ ========== ======= ========
Interest costs (14) (14)
Interest on lease liabilities (3) (3)
========= ============ ========== ======= ========
Finance costs (17) O
Acquisitions and disposals - -
Net share of profit - -
after tax of associates
=============================== ========= ============ ========== ======= ========== ======== =======
Profit before tax 211 207 112 (3) 316 (105) 211
============ ========== ======= ========== ======== =======
Income tax expense (47) Z AA AB AC AD
=============================== =========
Profit for the year 164
=============================== ========= ============
C+J+L+N P 7 PY Underwriting
Z - P Q 200 CY Underwriting
============
207
Attritional loss
ratio G/B R 51.0%
Weather loss
ratio H/B S 3.4%
Large loss ratio I/B T 10.4%
Prior year effect
on loss ratio V-R-S-T U (0.2%)
============
Loss ratio F/A V 64.6%
Commission ratio (K+L)/A W 12.8%
Expense ratio (E+M+N)/A X 15.9%
============
Combined operating
ratio V+W+X Y 93.3%
============
1. IFRS reconciliation to management P&L
For the 6 months ended 30 June 2019
Business Profit
Underwriting Investment Central operating Other before
result result costs result charges tax
------------------------------- ============ ========== ======= ========== ======== =======
GBP'm IFRS Management
=============================== ========= ================================================================
Income
Gross written premiums 3,905 3,905
Less: reinsurance premiums (651) (651)
=============================== ========= ============ ========== ======= ========
Net written premiums 3,254 3,254
========= ============ ========== ======= ========
Change in the gross
provision for unearned
premiums (203) (203)
Change in provision
for unearned reinsurance
premiums 158 158
========= ============ ========== ======= ========
Change in provision
for unearned premiums (45) (45)
=============================== ========= ============ ========== ======= ========
Net earned premiums,
analysed as 3,209 A 3,209
============
Current year B 3,193
Prior year C 16
============
3,209
========= ============ ========== ======= ========
Investment income 154 D 154
Realised gains on investments 8 8
Gains on forex derivatives 1 1
Unrealised losses (13) (13)
========= ============ ========== ======= ========
Net investment return 150
========= ============ ========== ======= ========
Other insurance income 71 E 71
Foreign exchange gain 3 3
========= ============ ========== ======= ========
Other operating income 74
=============================== =========
Total income 3,433
=============================== =========
Expenses
========= ============ ========== ======= ========
Gross claims incurred (2,458) (2,458)
Less: claims recoveries
from reinsurers 298 298
========= ============ ========== ======= ========
Net claims, analysed
as (2,160) F (2,160)
============
Attritional G (1,752)
Weather H (103)
Large I (316)
Prior year J 11
============
(2,160)
========= ============ ========== ======= ========
Earned CY commission (408) K (408)
Earned PY commission (6) L (6)
Earned CY operating
expenses (551) M (551)
Earned PY operating
expenses (2) N (2)
========= ============ ========== ======= ========
Underwriting and policy
acquisition costs (967) (967)
Unwind of discount
and change in economic
assumptions (31) (16) (15)
========= ============ ========== ======= ========
Investment expenses (7) (7)
Central expenses (5) (5)
Amortisation of intangible
assets (6) (6)
Pension net interest
and administration
costs 2 2
Other operating expenses (16)
=============================== =========
(3,174)
========= ------------ ---------- ------- ========
Interest costs (13) (13)
Interest on lease liabilities (3) (3)
--------- ============ ========== ======= --------
Finance costs (16) O
Acquisitions and disposals (17) (17)
Net share of profit
after tax of associates 1 1
=============================== ========= ============ ========== ======= ========== ======== =======
Profit before tax 227 153 131 (4) 280 (53) 227
============ ========== ======= ========== ======== =======
Income tax expense (44) Z AA AB AC AD
=============================== =========
Profit for the year 183
=============================== ========= ============
C+J+L+N P 19 PY Underwriting
Z - P Q 134 CY Underwriting
============
153
Attritional loss
ratio G/B R 54.9%
Weather loss
ratio H/B S 3.2%
Large loss ratio I/B T 9.9%
Prior year effect
on loss ratio V-R-S-T U (0.7%)
============
Loss ratio F/A V 67.3%
Commission ratio (K+L)/A W 12.9%
Expense ratio (E+M+N)/A X 15.0%
============
Combined operating
ratio V+W+X Y 95.2%
============
2. Metric calculations 6 months 6 months
30 June 30 June
2020 2019
GBPm GBPm
Profit after tax 164 183
Less: non-controlling interest (12) (13)
Note 10 Less: tier 1 notes coupon payment (7) (7)
Note 10 Less: preference dividend (5) (5)
Profit attributable to ordinary
A shareholders 140 158
APM Rec
1 Add: other charges 105 53
APM Rec
1 Less: finance costs (17) (16)
APM Rec
6 Less: underlying tax differential (15) (3)
Underlying profit after tax attributable
B to ordinary shareholders 213 192
Opening shareholders' funds 3,872 3,786
Less: preference share capital (125) (125)
C Opening ordinary shareholders' funds 3,747 3,661
Note 11 Less: opening goodwill and intangibles (837) (794)
Opening tangible ordinary shareholders'
D funds 2,910 2,867
Weighted average no. shares during
E the period (un-diluted) 1,033 1,030
Return on equity (annualised)
(2xA)/C F Reported 7.5% 8.6%
(2xB)/C G Underlying 11.4% 10.5%
Return on tangible equity (annualised)
(2xA)/D H Reported 9.6% 11.0%
(2xB)/D I Underlying 14.6% 13.4%
APM Rec
7 J Underlying ex exits 16.7% 15.0%
Earnings per share
A/E K Basic earnings per share 13.5p 15.3p
B/E L Underlying earnings per share 20.6p 18.6p
APM Rec Underlying earnings per share ex
7 M exits 23.5p 20.9p
3. Balance sheet reconciliations 30 June 31 Dec
2020 2019
GBPm GBPm
A Closing shareholders' funds 4,165 3,872
Less: preference share capital (125) (125)
B Ordinary shareholders funds 4,040 3,747
Note 11 Less: closing goodwill and intangibles (869) (837)
C Tangible net asset value 3,171 2,910
D Shares in issue at the period end 1,034 1,032
B/D E Net asset value per share 391p 363p
C/D F Tangible net asset value per share 307p 282p
4. Net written premium movement and constant 6 months 6 months
exchange
30 June 30 June
2020 2019
GBPm GBPm
Note 7 A Net written premiums 3,135 3,254
Year-on-year movement (119) 35
Comprised of:
Volume change including portfolio
actions and reinsurance (308) (118)
Rate increases 197 158
B Movement at constant exchange (111) 40
C Foreign exchange (8) (5)
Total movement (119) 35
B/(2019A-C) D % movement at constant exchange (3%) 1%
5. Controllable expenses 6 months 6 months
30 June 30 June
2020 2019
GBPm GBPm
Underwriting and policy acquisition
costs (951) (967)
APM Rec
1 Less: commission 395 414
Less: non controllable premium related
costs e.g. levies 100 86
Add: claims expenses within net
claims (197) (192)
Add: other (17) (23)
A Written controllable expense base (670) (682)
Add: controllable deferred acquisition
B costs (4) (2)
A+B C Earned controllable expense base (674) (684)
APM Rec
1 D Add: investment expenses (7) (7)
APM Rec
1 E Add: central costs (3) (5)
Total written controllable expense
A+D+E F base (680) (694)
Total earned controllable expense
C+D+E G base (684) (696)
H Net earned premiums 3,084 3,209
C/H I Earned controllable expense ratio 21.9% 21.3%
Total earned controllable expense
G/H J ratio 22.2% 21.7%
6. Underlying tax rate 6 months 6 months
30 June 30 June
2020 2019
% %
Effective tax rate (ETR) 22 20
Less tax effect of:
Unrecognised tax losses - (1)
Underlying versus IFRS regional
profit mix (1) (1)
A Underlying tax rate 21 18
GBPm GBPm
Profit before tax 211 227
APM Rec
1 Add: other charges 105 53
APM Rec
1 Less: finance costs (17) (16)
B Underlying profit before tax 299 264
AxB C Underlying tax (62) (47)
APM Rec
1 D Income tax expense (47) (44)
C-D E Underlying tax differential (15) (3)
7. Adjusted APMs
Management report adjusted APMs when circumstance requires to further enhance understanding
of reported results and of future performance potential.
Impact of UK&I exits
UK Europe UK & International Group
2020 reported
GBPm (unless
stated)
A Net written premium 926 134 1,291 3,135
B Net earned premium 1,039 114 1,400 3,084
C Underwriting result 5 7 56 207
(C/B)-1 COR 99.5% 94.0% 96.0% 93.3%
D Business operating result 58 7 115 316
E Profit before tax 211
APM Rec Underlying profit before
6 F tax 299
APM Rec Underlying profit after
2 G tax 213
APM Rec Underlying earnings per
2 share 20.6p
APM Rec Underlying return on tangible
2 equity 14.6%
H Weighted average shares 1,033
Opening tangible ordinary
J shareholders' funds 2,910
UK&I exits
K Exited net written premium (1) - (1) (1)
L Exited net earned premium 11 - 11 11
M Underwriting result (35) 2 (33) (33)
N Tax impact thereon(1) 3
Excluding exits
A-K P Net written premium 927 134 1,292 3,136
B-L Q Net earned premium 1,028 114 1,389 3,073
C-M R Underwriting result 40 5 89 240
(R/Q)-1 S COR 96.1% 95.2% 93.6% 92.2%
D-M T Business operating result 93 5 148 349
E-M U Profit before tax 244
Underlying profit before
F-M V tax 332
Underlying earnings per
(G-M-N)/H W share 23.5p
((G-M-N)/J) Underlying return on tangible
x 2 X equity 16.7%
(1) UK underlying tax rate of 12% applied. Excluding UK exits
reduces the Group underlying tax rate from 21% to 20% because of an
increased share of UK profits in the Group profit mix,
UK(1) Europe(1) UK & International Group
2019 reported
GBPm (unless
stated)
A Net written premium 997 151 1,411 3,254
B Net earned premium 1,126 116 1,499 3,209
C Underwriting result 26 (12) 58 153
(C/B)-1 COR 97.7% 110.4% 96.1% 95.2%
D Business operating result 88 (12) 127 280
E Profit before tax 227
APM Rec Underlying profit before
6 F tax 264
APM Rec Underlying profit after
2 G tax 192
APM Rec Underlying earnings per
2 share 18.6p
APM Rec Underlying return on tangible
2 equity 13.4%
H Weighted average shares 1,030
Opening tangible ordinary
J shareholders' funds 2,867
UK&I exits
K Exited net written premium 5 7 12 12
L Exited net earned premium 52 5 57 57
M Underwriting result (20) (8) (28) (28)
N Tax impact thereon 5
Excluding exits
A-K P Net written premium 992 144 1,399 3,242
B-L Q Net earned premium 1,074 111 1,442 3,152
C-M R Underwriting result 46 (4) 86 181
(R/Q)-1 S COR 95.7% 104.1% 94.0% 94.3%
D-M T Business operating result 108 (4) 155 308
E-M U Profit before tax 255
Underlying profit before
F-M V tax 292
Underlying earnings per
(G-M-N)/H W share 20.9p
((G-M-N)/J) Underlying return on tangible
x 2 X equity 15.0%
(1) Europe presented together with UK at HY 2019.
APPIX III
Other information
REPORTING AND DIVID TIMETABLE
Reporting:
Q3 2020 trading update 5 November 2020
2nd preference dividend:
Announcement date 30 July 2020
Ex-dividend date 13 August 2020
Record date 14 August 2020
Dividend payment date 1 October 2020
PREFERENCE SHARE DIVID
In accordance with the original subscription terms, qualifying
registered holders of the 7 3/8 percent cumulative irredeemable
preference shares of GBP1 each will receive the second preference
dividend at a rate of 3.6875p per share.
OTHER INFORMATION
LEI number: 549300HOGQ7E0TY86138.
Enquiries:
Investors & analysts Press
Matt Cohen Natalie Whitty
Investor Relations Manager Communications Director
Tel: +44 (0) 7967 343 633 Tel: +44 (0) 20 7111 7213
Email: matthew.cohen@gcc.rsagroup.com Email: natalie.whitty@gcc.rsagroup.com
Eilis Murphy
Brunswick Group
Tel: +44 (0) 20 7404 5959
Email: emurphy@brunswickgroup.com
Further information
A conference call for analysts and investors, including a
presentation and question and answer session, will be held at
08:30am on 30 July 2020 to discuss the 2020 Interim Results.
Participants can register for the event using the link below:
https://onlinexperiences.com/Launch/QReg/ShowUUID=DEDDFE15-1DA9-4E55-9FD1-96B757CD3490
or alternatively participants can call: 0800 358 9473 (toll free)
or +44 33 3300 0804, using participant pin code 11788367#.
A recording and transcript of the presentation will be available
via the company website ( www.rsagroup.com ) after the call.
Important disclaimer
This press release and the associated conference call 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 or 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
announcement 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 announcement
shall be construed as a profit forecast.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Table of contents
Primary statements 47
Basis of preparation and significant accounting policies
1. Basis of preparation 52
2. Significant accounting estimates and judgements 52
3. Adoption of new and revised accounting standards 53
4. Accounting standards issued but not yet effective 53
Risk management
5. Risk management 54
Significant transactions and events
6. Loss on disposal of business 56
Notes to the condensed consolidated income statement, condensed
consolidated statement of other comprehensive income and distributions
7. Operating segments 57
8. Net investment return 58
9. Earnings per share 59
10. Distributions paid and declared 59
Notes to the condensed consolidated statement of financial
position
11. Goodwill and intangible assets 60
12. Financial assets and fair value measurements 61
13. Deferred tax 66
14. Cash and cash equivalents 67
15. Share capital 67
16. Insurance contract liabilities 67
17. Retirement benefit obligations 69
18. Related party transactions 70
19. Events after the reporting period 70
20. Results for the year 2019 70
Notes to the condensed consolidated statement of cash flows
21. Reconciliation of cash flows from operating activities 71
Appendix
A. Exchange rates 72
Responsibility Statement of the Directors in respect of the
half-yearly financial report 73
Independent review report to RSA Insurance Group plc 74
CONDENSED CONSOLIDATED INCOME STATEMENT
STATUTORY BASIS
for the 6 month period ended 30 June 2020
(Reviewed) (Reviewed)
6 months 6 months
30 June 30 June
2020 2019
Note GBPm GBPm
===================================================================== ==== =========== ===========
Income
Gross written premiums 3,752 3,905
Less: reinsurance written premiums (617) (651)
====================================================================== ==== =========== ===========
Net written premiums 7 3,135 3,254
=========== ===========
Change in the gross provision for unearned
premiums (127) (203)
Change in provision for unearned reinsurance
premiums 76 158
=========== ===========
Change in provision for net unearned premiums (51) (45)
====================================================================== ==== =========== ===========
Net earned premiums 3,084 3,209
Net investment return 8 77 150
Other operating income 71 74
====================================================================== ==== =========== ===========
Total income 3,232 3,433
====================================================================== ==== =========== ===========
Expenses
=========== ===========
Gross claims incurred (2,262) (2,458)
Less: claims recoveries from reinsurers 271 298
=========== ===========
Net claims (1,991) (2,160)
Underwriting and policy acquisition costs (951) (967)
Unwind of discount and change in economic
assumptions (23) (31)
Other operating expenses (39) (16)
====================================================================== ==== =========== ===========
(3,004) (3,174)
====================================================================== ==== =========== ===========
Finance costs (17) (16)
Loss on disposal of business 6 - (17)
Net share of profit after tax of associates - 1
====================================================================== ==== =========== ===========
Profit before tax 7 211 227
Income tax expense (47) (44)
====================================================================== ==== =========== ===========
Profit for the period 164 183
====================================================================== ==== =========== ===========
Attributable to:
Equity holders of the Parent Company 152 170
Non-controlling interests 12 13
====================================================================== ==== =========== ===========
164 183
====================================================================== ==== =========== ===========
Earnings per share on profit attributable to the ordinary shareholders
of the Parent Company
Basic 9 13.5p 15.3p
Diluted 9 13.5p 15.3p
====================================================================== ==== =========== ===========
Ordinary dividends paid and proposed
Final paid in respect of prior year 10 - 13.7p
Interim proposed/paid in respect of current
year 10 - 7.5p
====================================================================== ==== =========== ===========
The following explanatory notes form an integral part of these condensed
consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
STATUTORY BASIS
for the 6 month period ended 30 June 2020
(Reviewed) (Reviewed)
6 months 6 months
30 June 30 June
2020 2019
GBPm GBPm
============================================================================ =========== =============
Profit for the period 164 183
Items that may be reclassified to the income statement:
=========== =============
Exchange gains net of tax on translation of foreign
operations 106 12
Fair value gains on available for sale financial assets
net of tax 36 157
=========== =============
142 169
Items that will not be reclassified to the income statement:
Pension - remeasurement of defined benefit asset/liability
net of tax 14 (109)
Total other comprehensive income for the period 156 60
============================================================================= =========== =============
Total comprehensive income for the period 320 243
=============================================================================
Attributable to:
Equity holders of the Parent Company 294 228
Non-controlling interests 26 15
320 243
The following explanatory notes form an integral part of these condensed
consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
STATUTORY BASIS
for the 6 month period ended 30 June 2020
(Reviewed)
Foreign
Ordinary Ordinary Capital currency Share- Tier
share share Own Preference Revaluation redemption translation Retained holders' 1 Non-controlling Total
capital premium shares shares reserves reserve reserve earnings equity notes interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at
1 January
2020 1,032 1,090 - 125 259 389 (26) 1,003 3,872 297 173 4,342
Total comprehensive
income for the
period
Profit for
the period - - - - - - - 152 152 - 12 164
Other
comprehensive
income for
the period - - - - 47 - 81 14 142 - 14 156
- - - - 47 - 81 166 294 - 26 320
Transactions with owners
of the Group
Contribution and
distribution
Dividends
(note 10) - - - - - - - (12) (12) - (5) (17)
Shares issued
for cash 1 2 - - - - - - 3 - - 3
Share based
payments 2 - - - - - - 6 8 - - 8
3 2 - - - - - (6) (1) - (5) (6)
Balance at
30 June 2020 1,035 1,092 - 125 306 389 55 1,163 4,165 297 194 4,656
Balance at
1 January
2019 1,027 1,087 (1) 125 152 389 36 971 3,786 297 168 4,251
Total comprehensive
income for the
period
Profit for
the period - - - - - - - 170 170 - 13 183
Other
comprehensive
income/(expense)
for the period - - - - 152 - 15 (109) 58 - 2 60
- - - - 152 - 15 61 228 - 15 243
Transactions with owners
of the Group
Contribution and
distribution
Dividends
(note 10) - - - - - - - (153) (153) - (12) (165)
Shares issued
for cash 1 3 - - - - - - 4 - - 4
Share based
payments 3 - - - - - - 3 6 - - 6
Transfers - - 1 - - - - (1) - - - -
4 3 1 - - - - (151) (143) - (12) (155)
Balance at
30 June 2019 1,031 1,090 - 125 304 389 51 881 3,871 297 171 4,339
The following explanatory notes form an integral part of these condensed
consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
STATUTORY BASIS
as at 30 June 2020
(Reviewed) (Audited)
30 June 31 December
2020 2019
Note GBPm GBPm
Assets
Goodwill and other intangible assets 11 869 837
Property and equipment 293 296
Investment property 295 300
Investments in associates 4 4
Financial assets 12 11,631 11,422
Total investments 11,930 11,726
Reinsurers' share of insurance contract liabilities 16 2,410 2,326
Insurance and reinsurance debtors 3,081 2,923
Deferred tax assets 13 202 209
Current tax assets 25 18
Other debtors and other assets 968 718
Other assets 1,195 945
Cash and cash equivalents 14 928 909
Total assets 20,706 19,962
Equity and liabilities
Equity
Shareholders' equity 4,165 3,872
Tier 1 notes 297 297
Non-controlling interests 194 173
Total equity 4,656 4,342
Liabilities
Issued debt 751 750
Insurance contract liabilities 16 12,805 12,307
Insurance and reinsurance liabilities 967 970
Borrowings 114 169
Deferred tax liabilities 13 102 84
Current tax liabilities 10 17
Provisions 135 147
Other liabilities 1,166 1,176
Provisions and other liabilities 1,413 1,424
Total liabilities 16,050 15,620
Total equity and liabilities 20,706 19,962
The following explanatory notes form an integral part of these condensed
consolidated financial statements.
The financial statements were approved on 29 July 2020 by the Board
of Directors and are signed on its behalf by:
Charlotte Jones
Group Chief Financial Officer
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
STATUTORY BASIS
for the 6 month period ended 30 June 2020
(Reviewed) (Reviewed)
6 months 6 months
30 June 30 June
2020 2019
Note GBPm GBPm
Cash flows from operating activities
Cash generated from operating activities 21 8 209
Tax paid (51) (44)
Net cash flows from operating activities (43) 165
Cash flows from investing activities
Proceeds from sales or maturities of:
Financial assets 1,560 1,495
Sale of subsidiaries (net of cash disposed of) - 2
Purchase of:
Financial assets (1,364) (1,409)
Property and equipment (10) (5)
Intangible assets (54) (66)
Net cash flows from investing activities 132 17
Cash flows from financing activities
Proceeds from issue of share capital 3 4
Dividends paid to ordinary shareholders - (141)
Coupon payment on Tier 1 notes (7) (7)
Dividends paid to preference shareholders (5) (5)
Dividends paid to non-controlling interests (5) (12)
Redemption of long-term borrowings - (39)
Payment of lease liabilities (21) (21)
Movement in other borrowings (42) 68
Interest paid (4) (8)
Net cash flows from financing activities (81) (161)
Net increase in cash and cash equivalents 8 21
Cash and cash equivalents at beginning of the
period 886 781
Effect of exchange rate changes on cash and cash
equivalents 27 10
Cash and cash equivalents at end of the period 14 921 812
The following explanatory notes form an integral part of these condensed
consolidated financial statements.
BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES
RSA Insurance Group plc (the Company) is a public limited
company incorporated and domiciled in England and Wales. The
Company through its subsidiaries and associates (together the Group
or RSA) provides personal and commercial insurance products to its
global customer base, principally in the UK, Europe, Ireland,
Middle East (together UK & International), Scandinavia and
Canada.
1. BASIS OF PREPARATION
The annual financial statements are prepared in accordance with
International Financial Reporting Standards (IFRSs) as adopted by
the European Union (EU). The condensed consolidated financial
information in this half yearly report has been prepared in
accordance with International Accounting Standard 34 'Interim
Financial Reporting' (IAS 34), as adopted by the EU, and the
Disclosure Guidance and Transparency Rules of the Financial Conduct
Authority.
The financial statements have been prepared on a going concern
basis. In adopting the going concern basis, the Board has reviewed
the Group's ongoing commitments for the next twelve months and
beyond. The Board's review included the Group's strategic plans and
updated financial forecasts including capital position, liquidity
and credit facilities, and investment portfolio.
In the context of the current challenging environment a range of
severe yet plausible downside scenarios have been considered. These
included scenarios which reflected:
-- Premium reductions from an economic downturn
-- Claims impacts from COVID-19 related claims and changes in claims frequency and severity
-- Financial relief measures for customers
-- Cost impacts responding to operational challenges from
COVID-19 and management actions to reduce costs and discretionary
spend
-- Ongoing COVID-19 impacts, including lower economic activity,
suppressed spending, business confidence, market volatility and
multiple future waves
In addition a reverse stress test exercise has been undertaken
to consider the impact on the Group's capital position including
the following one off type events: severe COVID-19 related claims,
including adverse outcomes of the FCA test case and a failure in
the Group's reinsurance programme, adverse CAT experience, severe
and sudden financial market movements. An aggregated scenario such
as this, and the sequence of events it involves, is considered to
be remote and there are mitigating recovery actions that can be
taken to restore the capital position to the Group's target
range.
As a result, the Board believes that the Group is well placed to
meet future capital requirements and liquidity demands. Based on
this review no material uncertainties that would require disclosure
have been identified in relation to the ability of the Group to
remain a going concern for at least the next twelve months, from
the date of the approval of the condensed consolidated financial
statements.
These condensed consolidated financial statements have been
prepared by applying the accounting policies used in the 2019
Annual Report and Accounts (see note 4 and Appendix A).
2. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS
In preparing these condensed consolidated financial statements,
management has made judgements in determining estimates in
accordance with Group's accounting policies. Estimates are based on
management's best knowledge of current circumstances and
expectation of future events and actions, which may subsequently
differ from those used in determining the accounting estimates. In
2020, the COVID-19 global pandemic has had a significant impact on
market conditions and our business. Estimates and their underlying
assumptions continue to be reviewed on an ongoing basis with
revisions to estimates being recognised prospectively. Where an
estimate has been made in response to COVID-19 additional
disclosure has been provided in the relevant note to provide
context to the figures presented:
-- Valuation of insurance contract liabilities: the assumptions
used in the estimation of the eventual outcome of the claim events
that have occurred that are expected to give rise to claims by the
end of the reporting period but remain unsettled have been adjusted
for the potential impact of COVID-19. This includes frequency,
severity and development pattern assumptions. Refer to note 16 for
additional information.
-- Measurement of defined benefit obligations: key actuarial
assumptions have remained consistent with those reported in the
2019 Annual Report and Accounts. These will be assessed later in
the year once the demographic impact is more understood.
-- Recognition of deferred tax assets: forecast future taxable
profits against which deductible temporary differences and tax
losses carried forward can be utilised has been adjusted to reflect
the potential impact of COVID-19. Refer to note 13 for additional
information.
-- Valuation of level 3 financial assets and investment
properties: the current ongoing economic uncertainty means that
asset valuation techniques that rely on unobservable inputs are
less certain. Whilst the valuation methodology for level 3 assets
remains consistent with those reported in the 2019 Annual Report
and Accounts, there is a greater degree of estimation uncertainty
with, for example, investment property valuations quoting a
'material uncertainty' clause. Refer to note 12 for additional
information.
-- Measurement and impairment of goodwill and intangible assets:
key assumptions applied in the valuation of the recoverable amount
have been adjusted, and the estimation of useful economic life has
been reviewed, to reflect the potential impact of COVID-19. Refer
to note 11 for additional information.
COVID-19 has also had an impact on areas where management have
applied judgement:
-- Classification of financial assets in fair value hierarchy:
management apply judgement when deciding to classify financial
instruments for which immediate prices are available as being level
1 in the fair value hierarchy and financial assets for which
observable prices are also available as level 2 on the basis of a
lower level of activity in the market from which those prices are
quoted. The level of trading activity in certain markets has been
impacted by COVID-19 and the classification has been reviewed.
Refer to note 12 for additional information.
-- Impairment of financial assets: determining if there is
objective evidence of impairment requires judgement and in the 6
months to 30 June 2020, GBP20m of impairments have been recognised
(note 8). The value of unrealised losses in the revaluation reserve
at 30 June 2020 is GBP124m (31 December 2019: GBP73m).
3. ADOPTION OF NEW AND REVISED ACCOUNTING STANDARDS
There are a small number of narrow scope amendments to standards
that are applicable to the Group for the first time in 2020, none
of which have had a significant impact on the condensed
consolidated financial statements.
4. ACCOUNTING STANDARDS ISSUED BUT NOT YET EFFECTIVE
IFRS 17 'Insurance Contracts'
The International Accounting Standards Board (IASB) issued IFRS
17 'Insurance Contracts' (IFRS 17) in May 2017, which was revised
in June 2020 (aimed at helping companies implement the Standard and
making it easier for them to explain their financial performance),
to replace IFRS 4 'Insurance Contracts' (IFRS 4) for annual
reporting periods beginning, at the latest, on or after 1 January
2023.
The effective date for IFRS 17 is two years later than in the
original previous version and an equivalent change has been made to
IFRS 4 to extend the exemption from applying IFRS 9 'Financial
Instruments'.
Legislation has been enacted to ensure that IFRS as endorsed by
the EU at the end of the Brexit transitional period on 31 December
2020 will be adopted for use in the UK as well as providing the
Secretary of State with the power to adopt and endorse subsequent
changes to IFRS for adoption and use in the UK. This power will be
delegated to a UK Endorsement Board (UKEB) which will be
responsible for the UK endorsement of the amended IFRS 17. The
Group is monitoring this closely.
Detailed build and testing of systems and processes to implement
IFRS 17 is in progress and is on track to complete in 2021.
Parallel run testing of reporting is scheduled to take place in
2022 to assure reporting compliance by 1 January 2023. The
implementation plans have taken into account the changes in the
revised standard issued in June and contingency planning has been
considered in the event that the endorsement process adds any
further delay to implementation after 2023.
It is not yet possible to quantify the impact that implementing
IFRS 17 will have on the measurement of insurance, reinsurance and
related transactions and balances.
IFRS 9 'Financial Instruments'
IFRS 9 'Financial Instruments' has been issued to replace IAS 39
'Financial Instruments: As described above the Group has elected to
implement IFRS 9 'Financial Instruments' alongside IFRS 17, which
is now for annual reporting periods beginning, at the latest, on or
after 1 January 2023.
Implementation plans have been updated to reflect the amended
effective date and are on track.
Other pronouncements
There are a number of amendments to IFRS that have been issued
by the IASB that become mandatory in a subsequent accounting
period. The Group has evaluated these changes and none are expected
to have a significant impact on the condensed consolidated
financial statements.
RISK MANAGEMENT
5. RISK MANAGEMENT
Details of the principal risks and uncertainties of the Group
and the management of these risks were included in the 2019 Annual
Report and Accounts; Risk Management information in note 5 on pages
136 to 142. The global outbreak of COVID-19 during the first half
of 2020 has had a significant impact on market conditions and the
insurance industry and has triggered the need to consider the
impact on the principal risks managed by the Group. A detailed
assessment of the risks faced specifically in relation to COVID-19
has, therefore, been undertaken and summarised in an ad hoc Own
Risk and Solvency Assessment (ORSA) report. This includes risks we
believe could threaten the Group's business model, future
performance, solvency or liquidity.
The Group has implemented a robust governance framework charged
with the definition and ongoing management of the strategies
designed to accelerate decision making and mitigate the increased
risk arising as a result of COVID-19 as far as possible. In
response to COVID-19, key mitigants and controls have been
considered and several key actions have been implemented to
mitigate the additional risks that have been identified:
Key risks and exposures Key mitigants and controls
Reserving There is a risk that
risk the Group's estimate * Experienced regional actuaries responsible for
of future claims payments estimation of the actuarial indication of the
is insufficient. COVID-19 required reserves based on claims experience,
has increased the risk business volume, anticipated change in the claims
of estimation uncertainty environment and claims cost.
as the impact on future
claims patterns such
as frequency and severity * This has involved extensive discussion with the
are just emerging. Underwriting department to understand the exposure,
with the Claims department to understand claims
The ongoing FCA 'test experience to date, and with the Legal department to
case' on business interruption confirm our position on cover.
coverage wording and
how the Group's reinsurance
programmes would react * Reserves are reviewed and challenged at the Group
in the event of an adverse Reserving Committee meeting which is attended by the
outcome further increases Group Chief Actuary, CRO, CUO, CFO and CEO.
the risk of estimation
uncertainty.
* Claims case reserves represent the best estimate of
outstanding value and are reviewed at quarterly case
reserving committees.
* Legal counsel supports the Group's view on business
interruption policy wording in response to COVID-19.
* Margin is held in accordance with Group policy for
uncertainties.
Underwriting There is a risk that
and claims underwritten business * Additional monitoring procedures have been
risk is not in line with implemented to track COVID-19 related claims
appetite or is less including frequency and changes in payment patterns.
profitable than planned
due to insufficient
pricing and settling * A continuous process has been initiated to identify
of claims case reserves. and assess potential COVID-19 underwriting impacts
and take necessary actions.
COVID-19 has increased
the risk of exposure
on some business interruption * Well defined risk appetite statements (including
policies and increased climate change factors), which are rigorously
the level of uncertainty monitored at quarterly portfolio reviews, with
over claims outcomes remediation action taken where deemed necessary.
given the FCA court
proceedings in relation
to business interruption * Brexit, risks to inflation and supply chain delays
policy wordings. were already being monitored closely. This monitoring
remains in place noting the heightened risk as a
result of COVID-19.
* Extensive control validation and assurance activities
are performed over underwriting pricing and claims.
Market, There is a risk to the
credit Group's insurance funds * RSA's prudent investment strategy favouring high
and currency arising from movements quality fixed income bonds and selected less liquid
risk in macroeconomic variables, assets reduces the risk of default.
including widening credit
spreads, fluctuating
bond yields and currency * Strategy continues to be reviewed in light of
fluctuations. COVID-19 developments and frequency of engagement
with the Group fund managers has been increased.
COVID-19 has generated
increased levels of
market volatility, in * RSA ensures assets are closely matched in duration
particular in late Q1/early and currency with insurance liabilities to hedge
Q2 2020 increasing the volatility.
risk of credit default
and downgrade.
* Investment positions are regularly monitored to
RSA has provided payment ensure limits remain within quantitative appetite.
relief to customers
experiencing financial
difficulty as a result * Increased credit risk monitoring is in place to
of COVID-19. proactively manage financial risk arising from
payment relief measures offered to customers.
Key risks and exposures Key mitigants and controls
Operational This risk relates to
risk customers and/or reputational * Remote working across the Group was enabled rapidly
damage arising from in a controlled manner, through distribution of IT
operational failure equipment and home working control procedures to
such as IT system failure. continue servicing our customers during lockdown.
This included the repatriation of activity from some
The operational environment third party outsource providers. The return to office
as a result of government will be carefully planned to ensure operational
imposed lockdown measures impact is minimised and government guidelines are
has increased this risk met.
with new ways of working
and servicing the customer,
including the repatriation * IT services have been maintained across the Group
of some outsourced activities. with infrastructure continuing to support the remote
working environment.
* Operational risk and resilience processes and
procedures are in place, including incident
management.
* Enhanced Customer Policy being embedded across the
Group.
* IT and data risks remain under close monitoring,
especially cyber threat.
Market risk
The Group's exposure and sensitivity to equity, property and
interest rate risk have not materially changed since the year end
2019.
The Group's exposure to currency risk has changed during the
first half of 2020 to manage both the operational and structural
currency risk.
At 30 June 2020, the Group's total shareholders' equity and Tier
1 notes deployed by currency was:
Pounds Danish Canadian Swedish
Sterling Krone/Euro Dollar Krona Other Total
GBPm GBPm GBPm GBPm GBPm GBPm
Shareholders' equity at 30
June 2020 2,380 1,108 674 (1) 301 4,462
Shareholders' equity at 31
December 2019 2,496 531 645 114 383 4,169
Shareholders' equity is stated after taking account of the
effect of currency forward contracts and foreign exchange options.
The analysis aggregates the Danish Krone exposure and the Euro
exposure as the Danish Krone continues to be pegged closely to the
Euro. The Group considers this aggregate exposure when reviewing
its hedging strategy.
As disclosed in the 2019 Annual Report and Accounts, the
structural currency risk is managed at a Group level through
currency forward contracts and foreign exchange options within
predetermined limits set by the Group Board. On 3 July 2020, the
Group decreased its exposure to Danish Krone by GBP201m and
increased its exposure to Swedish Krona by GBP202m by entering
currency forward contracts.
The table below illustrates the impact of a hypothetical 10%
change in Danish Krone/Euro, Canadian Dollar or Swedish Krona
exchange rates on shareholders' equity when retranslating into
sterling:
10% strengthening 10% weakening 10% strengthening 10% weakening 10% strengthening 10% weakening
in Pounds in Pounds in Pounds in Pounds in Pounds in Pounds
Sterling Sterling Sterling Sterling Sterling Sterling
against against against against against against
Danish Danish Canadian Canadian Swedish Swedish
Krone/Euro Krone/Euro Dollar Dollar Krona Krona
GBPm GBPm GBPm GBPm GBPm GBPm
Movement in
shareholders'
equity at 30
June 2020 (101) 123 (61) 75 - -
Adjusted
movement in
shareholders'
equity at 30
June 2020(1) (83) 100 (61) 75 (18) 22
Movement in
shareholders'
equity at 31
December
2019 (48) 59 (59) 72 (10) 13
(1) Sensitivity to currency exposure including the Danish Krone and
Swedish Krona forward contracts entered on 3 July 2020.
Further sensitivities are considered in the relevant notes to the condensed
consolidated financial statements.
SIGNIFICANT TRANSACTIONS AND EVENTS
6. LOSS ON DISPOSAL OF BUSINESS
There have been no disposals in the six months to 30 June
2020.
In the six months to 30 June 2019, the loss of GBP17m related to
the disposal of the UK Legacy business (see below), consisting of a
GBP15m additional contribution to Enstar Group Limited and GBP2m
costs of disposal.
On 7 February 2017, the Group's UK Legacy liabilities were
disposed of to Enstar Group Limited. The transaction initially took
the form of a reinsurance agreement, effective from 31 December
2016, which substantially effected economic transfer. The legal
transfer of the business was completed on 1 July 2019. The Group's
UK Legacy business was managed as part of the UK operations. It was
not presented as a discontinued operation as it was neither a
separate geographic area nor a major line of business.
NOTES TO THE CONDENSED CONSOLIDATED INCOME STATEMENT, CONDENSED
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME AND
DISTRIBUTIONS
7. OPERATING SEGMENTS
The Group's primary operating segments comprise Scandinavia,
Canada, UK & International and Central Functions, which is
consistent with how the Group is managed and the segments disclosed
in the 2019 Annual Report and Accounts. The primary operating
segments are based on geography and are all engaged in providing
personal and commercial general insurance services. Central
Functions include the Group's internal reinsurance function and
Group Corporate Centre.
Each operating segment is managed by a member of the Group
Executive Committee who is directly accountable to the Group Chief
Executive and Board of Directors, who together are considered to be
the chief operating decision maker in respect of the operating
activities of the Group. The UK is the Group's country of domicile
and one of its principal markets.
Assessing segment performance
The Group uses the following key measures to assess the
performance of its operating segments:
-- Net written premiums;
-- Underwriting result;
-- Combined operating ratio (COR);
-- Business operating result.
Net written premiums is the key measure of revenue used in
internal reporting.
Underwriting result, COR and business operating result are
Alternative Performance Measures (APMs) and the key internal
measures of profitability of the operating segments. The COR
reflects the ratio of claims costs and expenses (including
commission) to earned premiums, expressed as a percentage. Further
information on APMs can be found on pages 33 to 42.
Transfers or transactions between segments are entered into
under normal commercial terms and conditions that would also be
available to unrelated third parties.
Segment revenue and results
Period ended 30 June 2020
Scandinavia Canada UK & International Central Total
Functions Group
GBPm GBPm GBPm GBPm GBPm
Net written premiums 1,012 795 1,291 37 3,135
Underwriting result 141 58 56 (48) 207
Investment result 23 30 59 - 112
Central costs and other activities - - - (3) (3)
Business operating result (management
basis) 164 88 115 (51) 316
Realised losses (1)
Unrealised losses, impairments and
foreign exchange (51)
Interest costs (17)
Amortisation of intangible assets (6)
Impairment of goodwill (note 11) (5)
Pension net interest and administration
costs (note 17) 1
Reorganisation costs (18)
Changes in economic assumptions (note
16) (8)
Profit before tax 211
Tax on operations (47)
Profit after tax 164
Combined operating ratio (%) 83.2% 93.2% 96.0% 93.3%
Period ended 30 June 2019
Scandinavia Canada UK & International Central Total
Functions Group
GBPm GBPm GBPm GBPm GBPm
Net written premiums 1,039 768 1,411 36 3,254
Underwriting result 96 19 58 (20) 153
Investment result 31 31 69 - 131
Central costs and other activities - - - (4) (4)
Business operating result (management
basis) 127 50 127 (24) 280
Realised gains 8
Unrealised losses and foreign exchange (9)
Interest costs (16)
Amortisation of intangible assets (6)
Pension net interest and administration
costs 2
Changes in economic assumptions(1) (15)
Loss on disposal of business (note
6) (17)
Profit before tax 227
Tax on operations (44)
Profit after tax 183
Combined operating ratio (%) 89.1% 97.8% 96.1% 95.2%
(1) Changes in economic assumptions represent a reduction in the discount
rate on long-term insurance liabilities in Denmark. This is reported
within unwind of discount and change in economic assumptions in the
condensed consolidated income statement.
8. NET INVESTMENT RETURN
A summary of the net investment return in the income statement is given
below:
Investment Net realised Net unrealised Total investment
income (losses)/gains losses Impairments return
30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June
2020 2019 2020 2019 2020 2019 2020 2019 2020 2019
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Investment
property 9 9 - - (14) (7) - - (5) 2
Equity
securities
Available
for sale 15 18 3 6 - - (18) - - 24
At FVTPL - - - - - - - - - -
Debt
securities
Available
for sale 99 113 - 1 - - (2) - 97 114
At FVTPL - - - - (1) - - - (1) -
Other loans
and
receivables
Loans
secured by
mortgages 1 1 - - - - - - 1 1
Other loans 4 6 - 1 - - - - 4 7
Deposits,
cash and
cash
equivalents 3 4 (4) - - - - - (1) 4
Derivatives 1 - - - (21) (5) - - (20) (5)
Other 2 3 - - - - - - 2 3
Total net
investment
return 134 154 (1) 8 (36) (12) (20) - 77 150
Unrealised gains and losses recognised in other comprehensive income
for available for sale assets are as follows:
Net realised
(gains) Net movement
transferred Impairments recognised
Net unrealised to income transferred in other comprehensive
gains/(losses) statement to income statement income
30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June
2020 2019 2020 2019 2020 2019 2020 2019
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Equity
securities (84) 15 (3) (6) 18 - (69) 9
Debt
securities 108 177 - (1) 2 - 110 176
Other - 1 - (1) - - - -
Total 24 193 (3) (8) 20 - 41 185
9. Earnings per share
The earnings per ordinary share are calculated by reference to
the profit attributable to the ordinary shareholders and the
weighted average number of shares in issue during the period.
The number of shares used in the calculation on a basic and
diluted basis were 1,033,482,021 (30 June 2019: 1,029,839,011) and
1,035,216,192 (30 June 2019: 1,031,676,076) respectively (excluding
ordinary shares purchased by various employee share trusts and held
as own shares).
Basic earnings per share are calculated by dividing the profit
attributable to the ordinary shareholders of the Parent Company by
the weighted average number of ordinary shares in issue during the
period, excluding ordinary shares purchased by various employee
share trusts and held as own shares.
Diluted earnings per share are calculated by dividing the profit
attributable to the ordinary shareholders of the Parent Company by
the diluted weighted average number of ordinary shares in issue
during the period, excluding ordinary shares purchased by various
employee share trusts and held as own shares.
10. DISTRIBUTIONS PAID AND DECLARED
30 June 30 June 30 June 30 June
2020 2019 2020 2019
p p GBPm GBPm
Ordinary dividend:
Final paid in respect of prior year - 13.7 - 141
Preference dividend 5 5
Tier 1 notes coupon payment 7 7
12 153
As announced on 8 April 2020, the proposed final dividend to
equity holders in respect of the year ended 31 December 2019 of
15.6p per ordinary share (amounting to a total dividend of
GBP161m), as disclosed in the 2019 Annual Report and Accounts, was
suspended.
Consistent with the 2019 final dividend suspension in April, an
interim dividend for 2020 is not presently being announced. RSA
expects to resume dividends as soon as judged prudent, which absent
unforeseen events should be by the time of full year results 2020.
We also aim to catch up on missed dividend payments over time
consistent with prudent capital management.
NOTES TO THE CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL
POSITION
11. GOODWILL AND INTANGIBLE ASSETS
31 December
30 June 2020 2019
GBPm GBPm
Goodwill 347 337
Externally acquired software 2 3
Internally generated software 476 446
Customer related intangibles 44 51
Total goodwill and other intangible assets 869 837
Customer related intangibles includes customer lists, renewal
rights and acquired brands.
Impairment assessments
COVID-19 has been deemed an indication of impairment and
therefore a full impairment assessment has been performed on
goodwill and intangible assets not yet available for use. The
carrying value of intangible assets not yet available for use is
GBP180m (2019: GBP164m).
When testing for goodwill impairment, the carrying value of the
Cash Generating Unit (CGU) to which goodwill has been allocated is
compared to the recoverable amount as determined by a value in use
calculation. The calculations have used cash flow projections based
on forecasts covering a 3 year period; these forecasts have been
adjusted to reflect the potential impact of COVID-19 on future
premiums, claims, investment income and operating expenses. Cash
flows beyond this period are extrapolated using estimated growth
rates which management deem appropriate for the CGU. The cash flow
forecasts are adjusted by appropriate discount rates. Where a sales
price has been agreed for a CGU, the sales proceeds less costs to
sell are considered the best estimate of the value in use.
When testing for intangible asset impairment (including those
not available for use), a consistent methodology is applied
although future cash flow projection years are not extrapolated
beyond the asset's useful economic life.
The range of discount rates used for goodwill and intangibles
impairment testing which reflect specific risks relating to the CGU
at the date of evaluation and weighted average growth rates remain
consistent with those used in 2019. In determining a cost of
capital, data over a period of time is utilised to avoid short term
market volatility.
Where the value in use is less than the current carrying value
of the CGU in the statement of financial position, the goodwill or
intangible asset is impaired to ensure that the CGU carrying value
is not greater than its future value to the Group.
During the impairment testing it was identified that the
carrying value of Norway goodwill was greater than the CGU value in
use. As a result, an impairment of GBP5m has been recognised in
other operating expenses. The remaining carrying value is GBP8m and
remains sensitive to changes in key assumptions. The key
assumptions used in determining the value in use for the Norway CGU
and changes therein required to reduce the remaining carrying value
to nil are as follows:
Change required
for carrying
value to
Assumption be fully
Norway CGU used impaired
Pre-tax discount rate 10.5% +1.3
Weighted average growth
rate 2.5% -1.5
A 2.4% increase in the forecast COR would also reduce the
carrying value to nil.
No other impairments have been identified, with recoverable
value sufficiently exceeding carrying value elsewhere in the Group.
The table below shows the impact of a 1% increase in the cost of
capital and a 1% decrease in future growth rates, neither of which
would result in an impairment.
Change in recoverable amount
less carrying value
Recoverable
amount less Weighted average
carrying Discount rate growth rate
Goodwill value +1% - 1%
GBPm GBPm GBPm GBPm
Scandinavia (Sweden, Norway,
Denmark) 142 3,040 (531) (412)
Canada (Commercial, Johnson,
Personal, Travel) 162 1,308 (339) (274)
UK and International (Ireland,
Oman) 43 216 (74) (59)
Total goodwill 347 4,564 (944) (745)
12. FINANCIAL ASSETS AND FAIR VALUE MEASUREMENTS
Financial assets
30 June 31 December
2020 2019
GBPm GBPm
Equity securities 635 673
Debt securities 10,628 10,411
Financial assets measured at fair value 11,263 11,084
Loans and receivables 368 338
Total financial assets 11,631 11,422
IFRS 9 'Financial Instruments'
The Group qualifies for temporary exemption from applying IFRS 9
'Financial Instruments' on the grounds that it has not previously
applied any version of IFRS 9 and its activities are predominantly
connected with insurance, with the carrying amount of its
liabilities within the scope of IFRS 4 and debt instruments
included within regulatory capital being greater than 90% of the
total carrying amount of all its liabilities at 31 December 2015
and with no subsequent change in its activities.
The fair value at 30 June 2020 and change during the period of
financial assets that are held to collect cash flows on specified
dates that are solely for payment of principle and interest (SPPI)
and are not held for trading as defined under IFRS 9, nor are
managed or evaluated on a fair value basis, is set out below,
together with the same information for other financial assets:
As at 30 June 2020
SPPI financial Other financial
assets assets Total
GBPm GBPm GBPm
Available for sale equity securities - 635 635
Available for sale debt securities 10,313 301 10,614
Debt securities at FVTPL - 14 14
Loans and receivables 368 - 368
Derivative assets held for trading - 84 84
Total 10,681 1,034 11,715
As at 31 December 2019
SPPI financial Other financial
assets assets Total
GBPm GBPm GBPm
Available for sale equity securities - 673 673
Available for sale debt securities 10,073 323 10,396
Debt securities at FVTPL - 15 15
Loans and receivables 338 - 338
Derivative assets held for trading - 66 66
Total 10,411 1,077 11,488
The fair value gains/losses of SPPI financial assets and other
financial assets during the six months to 30 June 2020 are GBP111m
gains (31 December 2019: GBP114m gains) and GBP94m losses (31
December 2019: GBP31m gains) respectively.
When IFRS 9 is adopted by the Group (currently expected to be
2023) an expected credit loss provision will be recognised
replacing the incurred credit loss provision under IAS 39, the
impact of which will be determined by the financial instruments
held at that time.
Companies within the Group that are applying IFRS 9 and disclose
relevant information in their own published financial statements in
addition to that already included in these condensed consolidated
financial statements are indicated in Appendix B of the 2019 Annual
Report and Accounts .
Fair value measurements recognised in the statement of financial
position
The following table provides an analysis of financial
instruments and other items that are measured subsequent to initial
recognition at fair value as well as financial liabilities not
measured at fair value, grouped into Levels 1 to 3. The table does
not include financial assets and liabilities not measured at fair
value if the carrying value is a reasonable approximation of fair
value.
Fair value hierarchy
30 June 2020
Level Level Level
1 2 3 Total
GBPm GBPm GBPm GBPm
Group occupied property - land and buildings - - 19 19
Investment property - - 295 295
Available for sale financial assets:
Equity securities 177 152 306 635
Debt securities 3,565 6,677 372 10,614
Financial assets at fair value through
the income statement:
Debt securities - - 14 14
3,742 6,829 1,006 11,577
Derivative assets:
At fair value through the income statement - 84 - 84
Designated as hedging instruments - 1 - 1
Total assets measured at fair value 3,742 6,914 1,006 11,662
Derivative liabilities:
At fair value through the income statement - 104 - 104
Designated as hedging instruments - 76 - 76
Total liabilities measured at fair value - 180 - 180
Issued debt - 803 - 803
Total liabilities not measured at fair
value - 803 - 803
Fair value hierarchy
31 December 2019
Level Level Level
1 2 3 Total
GBPm GBPm GBPm GBPm
Group occupied property - land and buildings - - 19 19
Investment property - - 300 300
Available for sale financial assets:
Equity securities 394 - 279 673
Debt securities 3,725 6,296 375 10,396
Financial assets at fair value through
the income statement:
Debt securities - - 15 15
4,119 6,296 988 11,403
Derivative assets:
At fair value through the
income statement - 66 - 66
Designated as hedging instruments - 32 - 32
Total assets measured at fair
value 4,119 6,394 988 11,501
Derivative liabilities:
At fair value through the
income statement - 65 - 65
Designated as hedging instruments - 30 - 30
Total liabilities measured
at fair value - 95 - 95
Issued debt - 814 - 814
Total liabilities not measured
at fair value - 814 - 814
Estimation of the fair value of assets and liabilities
Fair value is used to value a number of assets within the
statement of financial position and represents their market value
at the reporting date.
Group occupied property and investment property
Group occupied properties are valued annually on a vacant
possession basis using third party valuers. Investment properties
are valued, at least annually, at their highest and best use.
The fair value of property has been determined by external,
independent valuers, having appropriate recognised professional
qualifications and recent experience in the location and category
of the property being valued.
The valuations of Group occupied properties and investment
properties are based on the comparative method of valuation with
reference to sales of other comparable buildings. Fair value is
then determined based on the locational qualities and physical
building characteristics (principally condition, size,
specification and layout) together with factoring in the
occupational lease terms and tenant covenant strength as
appropriate.
COVID-19 is impacting the property market activity in many
sectors. The report received from the independent valuers as at 30
June 2020 notes that they can attach less weight to previous market
evidence for comparison purposes, to inform opinions of value, and
that they are facing an unprecedented set of circumstances on which
to base a judgement. The valuations across 62% of the portfolio are
therefore reported on the basis of "material valuation uncertainty"
as per VPS 3 and VPGA 10 of the RICS Red Book Global. The inclusion
of the "material valuation uncertainty" declaration does not mean
that valuations cannot be relied upon. Rather, the phrase is used
in order to be clear and transparent with all parties, in a
professional manner, that less certainty can be attached to
valuations than would otherwise be the case. The sensitivity of the
portfolio to property price risk is provided in this note on page
65.
There has been no change in the valuation methodology used for
investment property as a result of COVID-19.
Derivative financial instruments
Derivative financial instruments are financial contracts whose
fair value is determined on a market basis by reference to
underlying interest rate, foreign exchange rate, equity or
commodity instrument or indices.
Issued debt
The fair value measurement of the Group's issued debt
instruments, with the exception of the subordinated guaranteed US$
bonds, are based on pricing obtained from a range of financial
intermediaries who base their valuations on recent transactions of
the Group's issued debt instruments and other observable market
inputs such as applicable risk free rate and appropriate credit
risk spreads.
The fair value measurement of the subordinated guaranteed US$
bonds is also obtained from an indicative valuation based on the
applicable risk-free rate and appropriate credit risk spread.
Fair value hierarchy
Fair value for all assets and liabilities, which are either
measured or disclosed, is determined based on available information
and categorised according to a three-level fair value hierarchy as
detailed below:
-- Level 1 fair value measurements are those derived from quoted
prices (unadjusted) in active markets for identical assets or
liabilities;
-- Level 2 fair value measurements are those derived from data
other than quoted prices included within level 1 that are
observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices);
-- Level 3 fair value measurements are those derived from
valuation techniques that include significant inputs for the asset
or liability valuation that are not based on observable market data
(unobservable inputs).
A financial instrument is regarded as quoted in an active market
(level 1) if quoted prices for that financial instrument are
readily and regularly available from an exchange, dealer, broker,
industry group, pricing service or regulatory agency, and those
prices represent actual and regularly occurring market transactions
on an arm's length basis.
For level 1 and level 2 investments, the Group uses prices
received from external providers who calculate these prices from
quotes available at the reporting date for the particular
investment being valued. For investments that are actively traded,
the Group determines whether the prices meet the criteria for
classification as a level 1 valuation. The price provided is
classified as a level 1 valuation when it represents the price at
which the investment traded at the reporting date taking into
account the frequency and volume of trading of the individual
investment together with the spread of prices that are quoted at
the reporting date for such trades. Typically investments in
frequently traded government debt would meet the criteria for
classification in the level 1 category. Where the prices provided
do not meet the criteria for classification in the level 1
category, the prices are classified in the level 2 category.
In certain circumstances, the Group does not receive pricing
information from an external provider for its financial
investments. In such circumstances the Group calculates fair value
which may use input parameters that are not based on observable
market data. Unobservable inputs are based on assumptions that are
neither supported by prices from observable current market
transactions for the same instrument nor based on available market
data. In these cases, judgement is required to establish fair
values. Valuations that require the significant use of unobservable
data are classified as level 3 valuations. In addition, the
valuations used for investment properties and for Group occupied
properties are classified in the level 3 category. Given the
current ongoing economic uncertainty, asset valuation techniques
that rely on unobservable inputs are less certain, and additional
sensitivity has been applied to the valuation of level 3 assets in
this note on page 65.
COVID-19 has impacted financial markets with price volatility
and changes in trading volumes. A review of the assets' fair value
and their classification on the fair value hierarchy has been
performed. As a result of this review, Canadian preference shares
of GBP152m (31 December 2019: GBP176m) have been transferred from
level 1 to level 2 of the fair value hierarchy in recognition of
the relatively low volume of trading.
A reconciliation of Level 3 fair value measurements of financial
assets is shown in the table below. There are no Level 3 financial
liabilities.
Investments
at fair
value
through
Available for the income
sale investments statement
Group
Equity Investment occupied
securities Debt securities Debt securities property property Total
GBPm GBPm GBPm GBPm GBPm GBPm
Level 3 financial assets
at 1 January 2019 355 410 19 310 19 1,113
Total gains/(losses) recognised
in:
Income statement 3 3 (6) (10) (1) (11)
Other comprehensive income (6) (11) - - 1 (16)
Purchases 35 134 2 9 - 180
Disposals (96) (157) - (9) - (262)
Exchange adjustment (12) (4) - - - (16)
Level 3 financial assets
at 1 January 2020 279 375 15 300 19 988
Total gains/(losses) recognised
in:
Income statement (2) (1) (1) (14) - (18)
Other comprehensive income 5 6 - - - 11
Purchases 29 43 - 9 - 81
Disposals (17) (60) - - - (77)
Exchange adjustment 12 9 - - - 21
Level 3 financial assets
at 30 June 2020 306 372 14 295 19 1,006
Unrealised losses of GBP1m (2019: GBP6m losses) attributable to
FVTPL debt securities recognised in the condensed consolidated
income statement relate to those still held at the end of the
period.
The following table shows the level 3 available for sale
financial assets, investment properties and Group occupied property
carried at fair value as at the balance sheet date, the main
assumptions used in the valuation of these instruments and
reasonably possible decreases in fair value based on reasonably
possible alternative assumptions.
Reasonably possible alternative
assumptions
31 December
30 June 2020 2019
Current Decrease Current Decrease
fair in fair fair in fair
value value value value
Available for sale financial Main assumptions
assets and property GBPm GBPm GBPm GBPm
Group occupied property -
land and buildings (1) Property valuation 19 (3) 19 (3)
Cash flows; discount
Investment properties (1) rate 295 (45) 300 (48)
Level 3 available for sale
financial assets:
Cash flows; discount
Equity securities (2) rate 306 (9) 279 (9)
Cash flows; discount
Debt securities (2) rate 372 (12) 375 (11)
Total 992 (69) 973 (71)
(1) The Group's property portfolio (including the Group occupied
properties) is almost exclusively located in the UK. Reasonably
possible alternative valuations have been determined using an
increase of 100bps in the discount rate used in the valuation. This
increase has been considered in light of the current level of
uncertainty and a change of 100bps is considered a reasonably
possible scenario. A similar sensitivity was applied at 31 December
2019 which, with hindsight, was more severe than market conditions
at that time warranted.
(2) The Group's investments in financial assets classified at
level 3 in the hierarchy are primarily investments in various
private fund structures investing in debt instruments where the
valuation includes estimates of the credit spreads on the
underlying holdings. The estimates of the credit spread are based
upon market observable credit spreads for what are considered to be
assets with similar credit risk. Reasonably possible alternative
valuations have been determined using an increase of 100bps in the
credit spread used in the valuation. This increase has been
considered in light of the current level of uncertainty and a
change of 100bps is considered a reasonably possible scenario. A
similar sensitivity was applied at 31 December 2019 which, with
hindsight, was more severe than market conditions at that time
warranted.
13. DEFERRED TAX
Asset Liability
30 June 31 December 30 June 31 December
2020 2019 2020 2019
GBPm GBPm GBPm GBPm
Deferred tax position 202 209 102 84
Of the GBP202m (31 December 2019: GBP209m) deferred tax asset
recognised by the Group, GBP180m (31 December 2019: GBP180m)
relates to the UK.
Deferred tax assets have been recognised on the basis that
management consider it probable that future taxable profits will be
available against which these deferred tax assets can be utilised.
Key assumptions in the forecast are subject to sensitivity testing
which, together with additional modelling and analysis, support
management's judgement that the carrying value of deferred tax
assets continues to be supportable. The recognition approach is
consistent with that applied at the year ended 2019 but the
relevant forecasts have been updated to reflect the latest view,
including the impact of COVID-19, as well the change in the future
tax rate to 19%.
The majority of the deferred tax asset recognised based on
future profits is that in respect of the UK. The evidence for the
future taxable profits is a seven-year forecast based on the three
year operational plans prepared by the relevant businesses and a
further four years of extrapolation, which are subject to internal
review and challenge, including by the Board. The four years of
extrapolation assumes premium growth of 4% per annum, combined
operating ratio improvements for specific lines of business where
this is expected based on longer range projections and the
achievement of cost savings in the operating plans. Updated
forecasts have been prepared by the relevant businesses in the 6
months to 30 June 2020 reflecting the latest view, including the
impact of COVID-19 on future taxable profits. The latest valuation
also incorporates the impact of the UK corporation tax rate
remaining at 19% as this is the substantively enacted rate. All
other modelling assumptions remain consistent with the 2019
year-end valuation.
The value of the deferred tax asset is sensitive to assumptions
in respect of forecast profits. The impact of downward movements in
key assumptions on the value of the UK deferred tax asset is
summarised below:
30 June 31 December
2020 2019
GBPm GBPm
1% increase in combined operating ratio
across all 7 years (16) (15)
1 year reduction in the forecast modelling
period (25) (23)
50 basis points decrease in bond yields (8) (7)
1% decrease in annual premium growth (1) (1)
50% cost savings achieved(1) (12) (10)
(1) Cost savings included in the operational plans from 2022
onwards which are probable but where there is not yet a firm
commitment.
Note: The relationship between the UK deferred tax asset and the
above sensitivities is not always linear. Therefore, the cumulative
impact on the deferred tax asset of combined sensitivities or
longer extrapolations based on the above numbers will be indicative
only.
In addition to the impact on the deferred tax asset of downwards
movements in the key assumptions set out above, further specific
downside scenarios have been modelled at 30 June 2020:
-- A mild downside scenario reflecting modestly increased
impacts of COVID-19 in 2020 and 2021 as well as some worsening of
other key assumptions such as weather and large losses. The outcome
of this scenario was a reduction in forecast profits of GBP43m
which would reduce the deferred tax asset by GBP5m.
-- A more severe downside scenario reflecting increased impacts
of COVID-19 in 2020 and 2021 as well as worsening of other key
assumptions such as weather and large losses. The outcome of this
scenario was a reduction in forecast profits of GBP90m which would
reduce the deferred tax asset by GBP11m.
14. CASH AND CASH EQUIVALENTS
30 June 31 December 30 June
2020 2019 2019
GBPm GBPm GBPm
Cash and cash equivalents and bank overdrafts
(as reported within the condensed consolidated
statement of cash flows) 921 886 812
Add: Bank overdrafts reported in Borrowings 7 23 10
Total cash and cash equivalents 928 909 822
Less: Assets classified as held for sale - - 4
Total cash and cash equivalents net of
held for sale (as reported within the
condensed consolidated statement of financial
position) 928 909 818
15. share capital
The issued share capital at 30 June 2020 consists of
1,034,529,845 ordinary shares of GBP1.00 each and 125,000,000 of
preference shares of GBP1.00 each (31 December 2019: 1,031,645,294
ordinary shares of GBP1.00 each and 125,000,000 preference shares
of GBP1.00 each).
The issued share capital of the Parent Company is fully
paid.
16. INSURANCE CONTRACT LIABILITIES
Estimation techniques and uncertainties
Estimation methodologies and reserving processes remained
consistent and are discussed in note 37 on page 172 of the 2019
Annual Report and Accounts. The ultimate costs of claims are always
uncertain, increasingly so at present given the impact of the
COVID-19 pandemic. Materially different outcomes to those we assume
are possible. Current year claims exhibit different characteristics
to those normally observed. Open claims from prior periods before
the pandemic are also impacted by changing circumstances during the
claim settlement period. Assumptions have been made in key areas in
order to estimate the ultimate cost of claims, such as:
-- Frequency, based on different levels of reported claim counts
observed thus far during the six months to 30 June 2020
-- Severity, based on different average claims costs observed
thus far during the six months to 30 June 2020
-- Claims development patterns, taking into account both
internal operations and external impacts
-- Direct COVID-19 ultimate claims costs, including the outcome of legal proceedings
The heightened level of uncertainty around the estimates of
ultimate claim costs will persist for some time.
Details of the Group accounting policies in respect of insurance
contract liabilities can be found in note 4 on page 131 of the 2019
Annual Report and Accounts.
Sensitivities
Sensitivities in the table below show the impact on the net
claims reserves of changes to key assumptions in relation to
reserving risk and underwriting and claims risk. Whilst the range
on the sensitivities was wider in the 2019 Annual Report and
Accounts, the new set of metrics shown below are more tailored to
the increased uncertainties and more aligned to the key risks as
described in note 5 .
2020 2019
Impact on net claims reserves GBPm GBPm
Current year attritional loss ratios frequency or severity
assumptions +5% 75 - 80 85 - 90
Current year large loss ratios frequency or severity
assumptions +5% 15 - 20 15 - 20
Inflation being 1% higher than expected for the next
2 years 100 - 120 100 - 120
Discount assumptions
The total value of provisions for losses and loss adjustment
expenses less related reinsurance recoveries before discounting at
30 June 2020 is GBP8,373m (31 December 2019: GBP8,081m).
Claims on certain classes of business have been discounted as follows:
Average number
of years to settlement
from reporting
Discount rate date
30 June 31 December 30 June 31 December
2020 2019 2020 2019
Category % % Years Years
UK Asbestos and environmental 4 4 8 8
UK Periodic Payment Orders 4 4 19 19
Scandinavia Disability 1.1 1.2 5 6
Scandinavia Annuities 2.3 2.4 14 14
Canada Excess casualty 3.5 3.5 7 7
The impact of the reduction in the discount rate on long-term
insurance liabilities in Denmark (GBP8m) has been recognised in
unwind of discount and change in economic assumptions in the
consolidated income statement.
In determining the average number of years to ultimate claims
settlement, estimates have been made based on the underlying claims
settlement patterns.
Gross insurance contract liabilities and the reinsurers' share
of insurance contract liabilities
The gross insurance contract liabilities and the reinsurers'
(RI) share of insurance contract liabilities presented in the
condensed consolidated statement of financial position comprise the
following:
As at 30 June 2020
Gross RI Net
GBPm GBPm GBPm
Provision for unearned premiums 3,377 (829) 2,548
Provision for losses and loss adjustment expenses 9,428 (1,581) 7,847
Total insurance contract liabilities 12,805 (2,410) 10,395
As at 31 December 2019
Gross RI Net
GBPm GBPm GBPm
Provision for unearned premiums 3,166 (746) 2,420
Provision for losses and loss adjustment expenses 9,141 (1,580) 7,561
Total insurance contract liabilities 12,307 (2,326) 9,981
Provisions for losses and loss adjustment expenses
The following changes have occurred in the provisions for losses and
loss adjustment expenses during the period:
30 June 31 December
2020 2019
GBPm GBPm
Provisions for losses and loss adjustment expenses
at 1 January 9,141 10,072
Gross claims incurred and loss adjustment expenses 2,261 5,059
Total claims payments made in the year net of salvage
and other recoveries (2,334) (5,196)
Disposal of UK Legacy - (572)
Exchange adjustment 334 (283)
Other movements 26 61
Provisions for losses and loss adjustment expenses
at 30 June/31 December 9,428 9,141
17. RETIREMENT BENEFIT OBLIGATIONS
Defined benefit pension schemes and other post-retirement
benefits
The amounts recognised in the condensed consolidated statement
of financial position are as follows:
30 June 2020 31 December 2019
UK Other Total UK Other Total
GBPm GBPm GBPm GBPm GBPm GBPm
Present value of funded obligations (8,706) (429) (9,135) (8,147) (435) (8,582)
Present value of unfunded obligations (7) (92) (99) (7) (92) (99)
Fair value of plan assets 9,260 482 9,742 8,549 467 9,016
Other net surplus remeasurements (193) - (193) (141) - (141)
Net IAS 19 surplus/(deficits) in the
schemes 354 (39) 315 254 (60) 194
Defined benefit pension schemes 354 6 360 254 (15) 239
Other post-retirement benefits - (45) (45) - (45) (45)
Schemes in surplus 361 49 410 261 29 290
Schemes in deficit (7) (88) (95) (7) (89) (96)
Movement during the period:
30 June 2020
Present Fair value Other net
value of plan surplus Net surplus
of obligations assets remeasurements / (deficit)
GBPm GBPm GBPm GBPm
At 1 January (8,681) 9,016 (141) 194
Current service costs (3) - - (3)
Termination payments (1) - - (1)
Interest (expense)/income (90) 94 - 4
Administration costs - (3) - (3)
Gains on settlements/curtailments 1 - - 1
Total (expenses)/income recognised
in income statement (93) 91 - (2)
Return on scheme assets less amounts
in interest income - 720 - 720
Effect of changes in financial assumptions (669) - - (669)
Experience gains 41 - - 41
Investment expenses - (5) - (5)
Other net surplus remeasurements - - (52) (52)
Remeasurements recognised in other
comprehensive income (628) 715 (52) 35
Employer contribution - 89 - 89
Benefit payments 182 (182) - -
Exchange adjustment (14) 13 - (1)
At 30 June (9,234) 9,742 (193) 315
Deferred tax 13
IAS 19 net surplus net of deferred
tax 328
31 December 2019
Present Fair value Other net
value of plan surplus Net surplus
of obligations assets remeasurements / (deficit)
GBPm GBPm GBPm GBPm
At 1 January (7,974) 8,265 (129) 162
Current service costs (5) - - (5)
Termination payments (1) - - (1)
Interest (expense)/income (225) 235 - 10
Administration costs - (6) - (6)
Gains on settlements/curtailments 14 - - 14
Total (expenses)/income recognised
in income statement (217) 229 - 12
Return on scheme assets less amounts
in interest income - 775 - 775
Effect of changes in financial assumptions (888) - - (888)
Effect of changes in demographic assumptions 32 - - 32
Experience gains 18 - - 18
Investment expenses - (8) - (8)
Other net surplus remeasurements - - (12) (12)
Remeasurements recognised in other
comprehensive income (838) 767 (12) (83)
Employer contribution - 107 - 107
Benefit payments 352 (352) - -
Exchange adjustment (4) - - (4)
At 31 December (8,681) 9,016 (141) 194
Deferred tax 17
IAS 19 net surplus net of deferred
tax 211
Over the period a change was made to our actuarial provider of
IAS 19 discount rate. The underlying principles of this assumption
remain unchanged and, while the impact will vary slightly at
different dates, it is expected to remain broadly neutral (1bp at
31 December 2019, which is equivalent to less than a GBP5m decrease
in net IAS 19 surplus).
18. Related party Transactions
During the first half of 2020, there have been no related party
transactions that have materially affected the financial position
or the results for the period. There have also been no changes in
the nature of the related party transactions as disclosed in note
15 on page 149 of the 2019 Annual Report and Accounts.
19. EVENTS AFTER THE REPORTING PERIOD
On 1 May 2020, the Financial Conduct Authority (FCA) announced
that whilst in most cases business interruption (BI) policies are
focussed on property damage, there are some BI policy wordings that
the FCA considered unclear in how insurers should respond to
COVID-19. On 1 June 2020, the FCA published the set of wordings
they intend to review. RSA were 1 of the 16 insurers listed who
underwrite policies with this wording and are 1 of 8 participants
in the proceedings. Court hearings began after the balance sheet
date on 20 July 2020 and are expected to conclude at the end of the
month with a decision then expected during the second half of
2020.
A small number of litigation claims for unpaid BI claims have
been filed outside of the UK FCA test case in other regions. RSA
conducts a thorough claims assessment process for all BI claims
received. Most BI coverages are not expected to be eligible under
their terms for COVID-19 claims. In areas of litigation, the claims
assessment is supported with legal advice and consequently claims
reserves are not held in respect of adverse outcomes beyond the
cost of litigation.
20. results for THE YEAR 2019
The statutory accounts of RSA Insurance Group plc for the year
ended 31 December 2019 have been delivered to the Registrar of
Companies. The independent auditor's report on the Group accounts
for the year ended 31 December 2019 is unqualified, does not draw
attention to any matters by way of emphasis and does not include a
statement under section 498(2) or (3) of the Companies Act
2006.
NOTES TO THE CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
21. RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES
The reconciliation of net profit before tax to cash flows from
operating activities is as follows:
30 June 30 June
2020 2019
GBPm GBPm
Cash flows from operating activities
Profit for the year before tax 211 227
Adjustments for non-cash movements in net profit for
the year
Amortisation of available for sale assets 26 21
Depreciation of tangible assets 28 29
Amortisation and impairment of intangible assets 42 44
Fair value losses/(gains) on disposal of financial assets 19 (3)
Impairment charge on available for sale financial assets 20 -
Share of profit of associates - (1)
Loss on disposal of business - 17
Other non-cash movements (29) 30
Changes in operating assets/liabilities
Loss and loss adjustment expenses (24) 3
Unearned premiums 41 28
Movement in working capital (255) (106)
Reclassification of investment income and interest paid (156) (142)
Pension deficit funding (75) (88)
Cash generated from investment of insurance assets
Dividend income 16 18
Interest and other investment income 144 132
Cash flows from operating activities 8 209
APPENDIX A: EXCHANGE RATES
6 months 6 months 12 months
31 December
Local currency/GBP 30 June 2020 30 June 2019 2019
Average Closing Average Closing Average Closing
Canadian Dollar 1.72 1.68 1.72 1.66 1.70 1.72
Danish Krone 8.55 8.20 8.55 8.34 8.52 8.82
Swedish Krona 12.21 11.51 12.05 11.81 12.08 12.40
Euro 1.15 1.10 1.15 1.12 1.14 1.18
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE
HALF-YEARLY FINANCIAL REPORT
We confirm that to the best of our knowledge:
The condensed set of financial statements has been prepared in
accordance with IAS 34 'Interim Financial Reporting' as adopted by
the EU and gives a true and fair view of the assets, liabilities,
financial position and profit or loss of the Group.
The interim management report includes a fair review of the
information required by:
a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party transactions that have taken place in the first
six months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
Signed on behalf of the Board
Stephen Hester Charlotte Jones
Group Chief Executive Group Chief Financial Officer
29 July 2020 29 July 2020
INDEPENDENT REVIEW REPORT TO RSA INSURANCE GROUP PLC
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2020 which comprises the condensed
consolidated income statement, the condensed consolidated statement
of comprehensive income, the condensed consolidated statement of
changes in equity, the condensed consolidated statement of
financial position, the condensed consolidated statement of
cashflows and the related explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2020 is not prepared, in all material respects, in accordance
with IAS 34 Interim Financial Reporting as adopted by the EU and
the Disclosure Guidance and Transparency Rules ("the DTR") of the
UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards as adopted by the EU. The directors are
responsible for preparing the condensed set of financial statements
included in the half-yearly financial report in accordance with IAS
34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have
reached.
Salim Tharani
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
29 July 2020
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR KKLFLBDLFBBQ
(END) Dow Jones Newswires
July 30, 2020 02:00 ET (06:00 GMT)
Grafico Azioni Rsa Insurance Group Ld (LSE:RSA)
Storico
Da Mar 2024 a Apr 2024
Grafico Azioni Rsa Insurance Group Ld (LSE:RSA)
Storico
Da Apr 2023 a Apr 2024
