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RSA Ins Grp (RSA)

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Wednesday 20 February, 2013

RSA Ins Grp

Final Results

Final Results

RSA Insurance Group Plc


20 February 2013


Solid performance, 5% growth1 in net written premiums

  • Net written premiums up 5% on constant exchange rate basis to £8,353m
  • Underwriting result flat at £375m (2011: £375m) including negative impact from UK adverse weather and Italian earthquakes in first half; combined operating ratio of 95.4% (2011: 94.9%)
  • Investment income of £515m (2011: £579m), ahead of 2012 guidance
  • Emerging Markets now represents 10% of insurance result
  • Acquisitions in Canada and Argentina completed
  • Operating profit of £684m (2011: £727m); Return on equity of 9.1% (2011: 11.5%)

Balance Sheet remains strong with healthy capital surplus

  • IGD surplus of £1.2bn; covering capital requirement 1.9 times
  • Economic capital surplus of £1.2bn at 99.5% calibration
  • Net asset value per share excluding pension deficit of 107p (2011: 108p)

Strategy is delivering – expecting to achieve 10-12% ROE in 2013

  • Continued growth in premiums as business expands in Emerging Markets, Canada and Global Specialty Lines
  • Further improvements to combined ratio anticipated as reshaping in UK, remediation in Italy and operating leverage in Emerging Markets deliver
  • Expect to deliver strong premium growth, a COR of better than 95%, around £470m of investment income and return on equity of between 10 and 12% in 2013
  • Confident in prospects for further improvements to ROE and COR in medium term

Recommendation to rebase dividend. Final dividend of 3.90p per share

  • Reflects prospects of prolonged low bond yield environment
  • Creates sustainable dividend and progressive dividend policy for the future consistent with the anticipated underlying growth in earnings
  • Final dividend of 3.90p per share (2011: 5.82p). Board anticipates similar percentage reduction in 2013 interim dividend

1 at constant exchange

Simon Lee, Group Chief Executive of RSA, commented:

“These are a solid set of results demonstrating strong progress in challenging market conditions. We've seen good growth in premiums up 5% to £8.4bn. Operating profits of £684m have been impacted by the Italian earthquakes, extreme wet weather in the UK in the first half of the year and falling bond yields.

“We are continuing to execute our strategy of global growth while maintaining profitability and underwriting quality. In 2012 over 65% of our premiums were from outside the UK and as we move more of the business towards higher growth and higher margin markets, we are optimistic about our future growth prospects.

“We are confident that we can deliver sustainable and ongoing improvements in the combined ratio and return on equity through management actions and we are not dependent on economic or market recovery to deliver these plans.

“We have leading market positions in Scandinavia, Canada, Latin America, Ireland and the UK. These are attractive general insurance markets where we are either already delivering or will deliver strong returns on capital. Where we do not see a route to achieve target returns on capital we will take decisive action.

“The Board's decision to rebase the dividend is a prudent move that will enable us to invest in the opportunities we see for growth and is in the best interests of our shareholders. It is absolutely the right thing to do for the business given the prospect of prolonged low bond yields. The new dividend is appropriate for the business today, sustainable into the future and will allow a progressive dividend policy going forward.”

  FINANCIAL HIGHLIGHTS                                                                                               12 Months                     12 Months
2012 2011
Net written premiums £8,353m £8,138m
Combined operating ratio 95.4% 94.9%
Operating result £684m £727m
Earnings per share 9.5p 11.9p
Final dividend for the year per ordinary share 3.90p 5.82p
Dividend for the year per ordinary share 7.31p 9.16p
ROE 9.1% 11.5%


2012 2012           2011
£m £m £m
Net written premiums Personal Commercial




Total Total
Scandinavia 973 589 229 1,791 1,824
Canada 1,090 280 244 1,614 1,483
Emerging Markets 530 514 193 1,237 1,103
UK & Western Europe 1,684 1,290 715 3,689 3,701
Group Re                   -       22       -                       22           27
Total net written premiums                   4,277       2,695       1,381                       8,353           8,138
Combined Operating Ratio (%) 2012 2011
Underwriting performance 2012 2011 £m £m
Scandinavia 86.6 85.4 237 264
Canada 93.7 91.6 98 116
Emerging Markets 96.9 98.7 33 3
UK & Western Europe 99.5 99.6 12 1
Group Re                           -       -                       (5)           (9)
Total underwriting performance                           95.4       94.9                       375           375
Investment result
Investment income 515 579
Unwind of discount                                                           (84)           (94)
Total investment result                                                           431           485
Insurance result                                                           806           860
Other activities (122) (133)
Operating result                                                           684           727
Profit before tax 479 613
Profit after tax                                                           351           427
Operating earnings per share – diluted (pence) 10.5 11.2
Operating earnings per share – basic (pence)                                 10.7           11.3
Earnings per share – diluted (pence)       9.4 11.8
Earnings per share – basic (pence)                                               9.5           11.9
Dividend per share (pence)                                               7.31           9.16
Net asset value per share – incl IAS19 pension deficit (pence) 101 104
Net asset value per share – excl IAS19 pension deficit (pence) 107 108
Tangible Net asset value per share – incl IAS19 pension deficit (pence) 60 66
Tangible Net asset value per share – excl IAS19 pension deficit (pence)                         65           70
Return on equity (%) 9.1 11.5
Return on tangible equity (%)                                               14.5           17.1
IGD Surplus (£bn) 1.2 1.3
IGD Coverage ratio (%)                                               1.9           2.0
ECA Surplus (1 in 200 year calibration) (£bn) 1.2 1.2
ECA Surplus (1 in 1,250 year calibration) (£bn)                                 0.7           0.8


12 months ended 31 December 2012                  








UK &












£m £m £m £m £m £m £m
Net written premiums       1,791       1,614       1,237       3,689       22       8,353       8,138
Underwriting result 237 98 33 12 (5) 375 375
Investment result       94       61       45       233       (2)       431       485
Insurance result 331 159 78 245 (7) 806 860
Other activities       (9)       (7)       (32)       (1)       (73)       (122)       (133)
Operating result (management basis)       322       152       46       244       (80)       684       727
Interest costs (115) (117)
Realised gains/(losses) 79 201
Unrealised (losses)/gains, impairments and foreign exchange (51) (44)
Amortisation and impairment of intangible assets (42) (114)
Solvency II costs (32) (30)
Acquisitions and disposals (20) (10)
Reorganisation costs                                               (24)       -
Profit before tax

(per condensed consolidated income statement)

                                              479       613
Combined operating ratio (%)       86.6       93.7       96.9       99.5       -       95.4       94.9

In 2012, net written premiums were up 5% at constant exchange rates (3% as reported) to £8,353m (2011: £8,138m as reported; £7,979m at constant exchange). Premium growth comprised 4% from rate increases on renewed business, 1% from inorganic activity offset by a 2% reduction from foreign exchange. On a reported basis, strong growth of 12% and 9% in Emerging Markets and Canada respectively was offset by a 2% reduction in Scandinavia (due exclusively to FX effects). Premiums were flat in UK and Western Europe, where underlying growth in the UK and Ireland was offset by targeted premium reductions in both UK personal motor and Italy. Our focus on Global Specialty Lines (GSL) in all regions continues with premiums up 8% to £1,381m and a combined ratio of 94.3% (2011: 94.7%).

Underwriting result is flat at £375m (2011: £375m) with a current year profit up 26% to £184m (2011: £146m) and a prior year result of £191m (2011: £229m). The Group combined operating ratio (COR) is 95.4% (2011: 94.9%) and includes adverse UK weather in the first half and earthquakes in Italy in May. The material adverse UK weather in the first half of 2012 was partly offset by benign weather experience in the rest of the Group during 2012. Taken together, weather and subsidence affected the COR by 2.2% (2011: 2.4%), including adverse UK weather which affected the COR by 0.8% (2011: nil). Whilst long term weather averages are largely unchanged, we have increased our planning assumptions for weather effects to 2.2% to reflect the relatively severe weather impact in more recent years. Large losses affected the COR by 7.0% (2011: 7.0%), which is in line with long term averages, even including the effect of the Italian earthquakes. Prior year profits benefited the COR by 2.2% (2011: 2.8%). We have maintained our prudent reserving policy and anticipate positive prior year development to continue to be a significant contributor to profit in the future.

The investment result is down 11% to £431m (2011: £485m) due to the continued effect of falling bond yields on investment income. Investment income of £515m (2011: £579m), is ahead of previous guidance.

The insurance result of £806m (2011: £860m) includes a significant 44% increase in the contribution from Emerging Markets to £78m (2011: £54m) which now represents 10% of the insurance result. The contribution from UK & Western Europe was flat at £245m (2011: 246m) and represented 30% of the insurance result. The contributions from Canada and Scandinavia were £159m and £331m (2011: £187m and £387m) which represented 19% and 41% of the insurance result respectively.

The operating result is £684m (2011: £727m). Profit before tax is £479m (2011: £613m), with 2011 reflecting high levels of realised gains on the sale of equity investments. Profit after tax is £351m (2011: £427m). The return on equity is 9.1% (2011: 11.5%)

The Group’s capital position remains healthy with an IGD surplus of £1.2bn (2011: £1.3bn) covering the capital requirement 1.9 times (2011: 2.0 times) and economic capital of £1.2bn (2011: £1.2bn) (on a 1 in 200 year calibration).


Our strategy is unchanged and we continue to deliver against it. We are a pure play general insurer and aim to outperform in each of our chosen markets through leveraging our strengths in our people, underwriting, distribution and claims management. The delivery of our strategy is based around some fundamental principles.

We manage the business with a firm operational grip. RSA is a diverse business with operations in 32 countries and sells insurance across multiple product lines in over 140 countries. Over many years we have created processes and systems which ensure that local, regional and central management have excellent visibility of and accountability for performance. This structure ensures that issues arising are dealt with quickly and decisively. At the centre we deploy rigorous performance management with each business subject to a detailed quarterly performance review and annual strategy review.

This approach to operational management is supplemented by our commitment to prudent financial management. We consistently reserve our business to create prudency in our insurance liabilities which has led to a consistent track record of positive prior year development. We apply a high quality, low risk investment strategy. We make prudent use of reinsurance, which protects the business from extreme natural catastrophes, such that combined ratios have been very stable over many years.

Our strategy is to maximise returns on capital in mature markets and to have the flexibility to increase capital allocation to growth markets. Our unique geographic footprint gives us exposure to some of the most attractive general insurance markets in the world. In many of these territories, we have achieved a leading market position which creates economies of scale and distribution strength. In other markets, we have opportunities to grow both organically and through selective bolt-on acquisitions. Furthermore, all of our businesses benefit from being part of a leading global insurer, which provides them with competitive advantage over local operators.

Outlook and Financial Targets

We are excited by the prospects for the business. We expect to continue to grow net written premiums across the business and anticipate strong premium growth in 2013. In Emerging Markets we continue to see opportunities to grow our franchises in Latin America, Asia, the Middle East and Central and Eastern Europe both organically and inorganically. Through organic growth, we expect to increase the size of our Emerging Markets business, including our associates, to £2.2bn of net written premiums by 2015, creating operational leverage and an improving expense ratio with a consequent improvement in combined ratio. Where we cannot see a route to outperformance we will take action to exit markets, as we have done in 2012 in the Czech Republic and Dutch Caribbean.

In Canada, we expect to see further market consolidation which will allow us to continue to grow market share and consolidate our position as one of the top three general insurers. We aim to grow the business both organically and through selective bolt on acquisitions. We expect the Scandinavian markets to grow in line with local economic growth and our businesses to grow in line with the market. We expect Canadian and Scandinavian combined ratios to continue at around current levels over the medium term.

In the UK, we are reshaping the portfolio in a challenging environment and expect underlying growth in our chosen segments to be broadly offset by reductions in less profitable business lines. We expect this will lead to a trend of improving combined ratios in the UK over the next three years. Italy is on track to be trading on a break even basis during 2013 and Ireland is expected to continue to grow both premiums and profit.

We will, however, continue to see the effect of falling investment yields on investment income and expect to deliver around £470m of investment income in 2013. Assuming the current yield environment persists beyond 2013, we expect the fall in investment income to continue, but to be less severe over the next three years.

Overall, we expect to achieve a combined ratio of better than 95% in 2013 and deliver return on equity of between 10 and 12% with further improvements in both of these metrics in the medium term.


Earnings in recent years have been reduced by the material fall in bond yields which has led to a situation where our dividend payout ratio was becoming unsustainable, and creating a constraint on our ability to invest in future growth opportunities.

After taking into consideration the expectation of a prolonged low bond yield environment, the need for a more sustainable dividend going forward and more opportunities to continue to develop and grow our businesses outside the UK in the coming years, the Board is recommending a final dividend for 2012 which will be 33% lower than that of the prior year. The Board expects to recommend a similar change in the interim dividend for 2013 versus 2012. Thereafter, the Group intends to pursue a progressive dividend policy in line with the anticipated underlying growth in earnings. We intend to continue to offer the option of a scrip dividend.

Simon Lee

Group Chief Executive


      Net written premiums       Underwriting result       Change1
2012       2011 2012       2011 NWP       U/W


£m £m £m £m % %
Household 298 309 (10) (35) 1 70
Motor 391 398 124 147 2 (13)
Personal Accident and Other       284       275       80       136       7       (39)
Total Scandinavia Personal       973       982       194       248       3       (20)
Property 306 328 (5) (20) (2) 74
Liability 126 128 44 17 4 175
Motor 218 227 (4) (3) - (33)
Marine and Other       168       159       8       22       11       (62)
Total Scandinavia Commercial       818       842       43       16       2       187
Total Scandinavia       1,791       1,824       237       264       3       (7)
Investment result 2012 2011 Change
£m £m %
Investment income 133 166 (20)
Unwind of discount                       (39)       (43)               9
Scandinavia investment result                       94       123               (24)
Scandinavia insurance result                       331       387               (14)
Operating Ratios (%) Claims Expenses Combined
2012 2011 2012 2011 2012 2011
Household 103.6 111.3
Motor 68.3 64.2
Personal Accident and Other 71.4 49.8
Total Scandinavia Personal 64.2 59.7 15.9 15.3 80.1 75.0
Property 102.0 105.7
Liability 64.3 86.7
Motor 102.1 101.8
Marine and Other 94.1 87.3
Total Scandinavia Commercial 71.9 77.2 22.7 20.8 94.6 98.0
Total Scandinavia       67.7       67.6       18.9       17.8       86.6       85.4
Rate Increases (%) Personal Commercial
Scandinavia Motor       Household Motor Liability Property
Dec 12 vs Dec 11 3 12 5 4 1
Sept 12 vs Sept 11 2 12 4 - 6
Jun 12 vs Jun 11 2 7 4 4 1
Mar 12 vs Mar 11 2 6 5 5 4
Dec 11 vs Dec 10       2       8       7       7       1

1 at constant exchange rate


RSA is the third largest P&C insurer in Sweden and Denmark, with a growing presence in Norway. In all three countries we offer a range of products across Personal and Commercial lines, with particular strengths in Swedish Personal Accident, Swedish Personal Motor, Danish Renewable Energy and Care.

Net written premiums in Scandinavia were up 3% on a constant exchange rate basis to £1,791m (2011: £1,824m as reported; £1,744m at constant exchange) with solid growth across most major product lines. New business volumes more than offset lapses which together with solid rate increases across all products led to the growth in premiums. Strong growth in Norway (premiums up 23% at constant exchange) and good growth in Sweden (up 3% at constant exchange) was partly offset by a decline in premiums in Denmark (down 2% at constant exchange) where we have been focused on improving profitability. Swedish underwriting profit was down but remained strong at £157m with a COR of 83.5%. We saw good improvements in Denmark with an underwriting result of £75m and a COR of 88.9%, whilst in Norway the underwriting result improved to £5m with a COR of 96.4%.

Scandinavian underwriting profit was £237m (2011: 264m). A strong current year underwriting result together with continued positive prior year development led to a combined operating ratio of 86.6% (2011: 85.4%). The claims ratio was stable at 67.7% (2011: 67.6%) whilst the expense ratio increased, primarily reflecting the investments we are making in new systems in Denmark. After including investment returns of £94m (2011: £123m), the insurance result was £331m (2011: £387m).

Personal net written premiums of £973m were up 3% on a constant exchange rate basis (2011: £982m as reported; £942 at constant exchange). Household premiums were up 1% with strong rate increases throughout the year, leading to an improved combined ratio of 103.6% (2011: 111.3%). Personal Motor premiums were up 2% to £391m (2011: £398m as reported; £382 at constant exchange) including 31% growth in Norway as we benefit from our distribution deal with the Norwegian Automobile Federation. The Personal Motor COR was 68.3% (2011: 64.2%) with continued strong performances in both current year and prior year in Sweden leading to a Scandinavian Personal Motor underwriting result of £124m (2011: £147m). In Personal Accident we have a leading position in Sweden. Premiums were up 7% but underwriting profits were down 39% to £80m (2011: £136m) due to lower positive prior year development.

Commercial net written premiums of £818m were up 2% on a constant exchange rate basis (2011: £842m as reported; £802 at constant exchange). Commercial Property premiums were down 2% whilst the underwriting result improved to a £5m underwriting loss (2011: £20m underwriting loss) due to fewer weather events and lower large losses in 2012. Commercial Liability premiums were flat at constant exchange but the underwriting result improved to £44m (2011: £17m) with improved contributions across all three markets. Commercial Motor premiums were flat at constant exchange and the combined ratio was stable at 102.1% (2011: 101.8%) as claims inflation was offset by rate increases. Marine performance was in line with 2011 whilst Care profitability was down mainly due to the exceptionally low COR in Danish Care in 2011.

Scandinavia – Outlook

We expect the Scandinavian markets to continue to grow in line with local GDP growth. We expect to grow in line with the market in Sweden and Denmark whilst continuing to build market share in Norway. We expect continued strong levels of profitability as we benefit from our established market positions across Personal, Commercial and Specialty.


      Net written premiums       Underwriting result       Change1
2012       2011 2012       2011 NWP       U/W


£m £m £m £m % %
Household 396 349 26 (1) 13 n/a
Motor       694       663       17       75       4       (77)
Total Canada Personal       1,090       1,012       43       74       7       (42)
Property 233 208 - 1 11 (100)
Liability 139 127 38 29 9 27
Motor 95 85 11 8 10 38
Marine and other       57       51       6       4       12       50
Total Canada Commercial       524       471       55       42       11       28
Total Canada       1,614       1,483       98       116       8       (16)
Investment result 2012 2011 Change
£m £m %
Investment income 63 72 (13)
Unwind of discount                       (2)       (1)               (100)
Canada investment result                       61       71               (14)
Canada insurance result                       159       187               (15)
Operating Ratios (%) Claims Expenses Combined
2012 2011 2012 2011 2012 2011
Household 92.6 99.5
Motor 97.9 88.5
Total Canada Personal 72.0 67.9 24.1 24.4 96.1 92.3
Property 99.1 98.6
Liability 71.3 76.1
Motor 87.1 89.3
Marine and other 88.5 91.8
Total Canada Commercial 53.8 54.9 34.4 34.9 88.2 89.8
Total Canada       66.2       63.8       27.5       27.8       93.7       91.6
Rate Increases (%) Personal Commercial
Canada Motor Household Motor Liability Property
Dec 12 vs Dec 11 3 11 2 2 4
Sept 12 vs Sept 11 2 12 - 1 3
Jun 12 vs Jun 11 3 11 1 1 3
Mar 12 vs Mar 11 5 12 1 1 3
Dec 11 vs Dec 10       4       13       3       1       3

1 at constant exchange rate


RSA is the third largest general insurer in Canada with a market share of around 7%. RSA Canada comprises a leading Personal and Commercial broker business, our direct business, Johnson, and our commercial brokerage, Noraxis.

Net written premiums in Canada were up 8% on a constant exchange rate basis to £1,614m (2011: £1,483m as reported; £1,493m at constant exchange) driven predominantly by strong organic growth across Personal and Commercial broker product lines, supplemented by three months benefit from the acquisition of L’Union Canadienne in Quebec which contributed 2% of the growth. Underwriting profit was £98m (2011: £116m) including a specific strengthening of prior year reserves in Personal Motor. Consequently, combined ratios worsened to 93.7% (2011: 91.6%). After including investment returns of £61m (2011: £71m), the insurance result was £159m (2011: £187m).

Personal premiums were up 7% on constant exchange to £1,090m (2011: £1,012m as reported; £1,019m at constant exchange). In Personal Motor, premiums grew by 4% but underwriting profit was down to £17m (2011: £75m) due to the identification and resolution of adverse development in the bodily injury and accident benefits reserves in the pre-reform Johnson Ontario motor book. As a consequence the Personal Motor combined ratio was 97.9% (2011: 88.5%). A thorough review of motor reserves in Canada has been completed which has given comfort over the adequacy of current reserves.

Personal Household premiums were up 13% to £396m (2011: £349m as reported; £351 at constant exchange) with good growth in both Johnson and Personal Broker business driven by strong rating action across all provinces and continued good retention rates. The combined ratio improved to 92.6% (2011: 99.5%) generating an underwriting profit of £26m (2011: £(1)m underwriting loss).

In Commercial lines, premiums were up 11% at constant exchange to £524m (2011: £471m as reported; £474m at constant exchange) with strong growth across all product lines and significant new business wins amongst large commercial brokers. Our Commercial proposition continues to benefit from the acquisition of GCAN in 2011. Underwriting profits were up 28% to £55m (2011: £42m) with particular strength in Liability.

The acquisition of L’Union Canadienne (UC) was completed on 1 October 2012. Integration is underway and progressing in line with our business case assumptions. This acquisition, which is around 70% Personal lines and 30% Commercial lines, will increase RSA’s penetration in the attractive Quebec market (the second largest provincial market in Canada) and makes RSA the fifth largest insurer in Quebec. During the fourth quarter UC contributed £38m of net written premium.

Canada – Outlook

The Canadian P&C market will remain a highly attractive market for RSA. We expect continued single digit market growth led by a strong and stable economy and an established insurance market, characterised by underwriting discipline. We expect to outperform the market in terms of growth and profitability as we continue to drive organic growth from our unique distribution model, realise the benefits from the recent acquisitions we have made and look for further opportunities to participate in market consolidation.


      Net written premiums       Underwriting result       Change1
2012       2011 2012       2011 NWP       U/W Result
        £m       £m       £m       £m       %       %
Latin America 766 670 21 19 20 24
CEE 224 219 (2) (5) 9 60
Middle East 127 115 9 6 10 50
Asia       120       99       5       (17)       19        
Total Emerging Markets       1,237       1,103       33       3       17        
Asian Associates       303       292                       11        
Asia (incl Associates)       423       391                       13        
Emerging Markets (incl Associates)       1,540       1,395                       16        
Investment result 2012 2011 Change
£m £m %
Investment income 49 52 (6)
Unwind of discount                       (4)       (1)                
Emerging Markets investment result                       45       51               (12)
Emerging Markets insurance result                       78       54               44
Operating Ratios (%) Claims Expenses Combined
2012 2011 2012 2011 2012 2011
Latin America 96.0 95.7
CEE 100.6 101.4
Middle East 93.1 94.4
Asia 99.0 118.2
Total Emerging Markets       55.8       56.6       41.1       42.1       96.9       98.7

1 at constant exchange rate



Our Emerging Markets business operates in twenty countries across Latin America, Asia, the Middle East and Central and Eastern Europe. During the year we have materially strengthened our position in Argentina with the acquisitions of El Comercio and ACG and have taken steps to release capital by exiting the Czech Republic and selling our operation in the Dutch Caribbean.

Emerging Markets delivered strong premium growth of 17% at constant exchange to £1,237m (2011: £1,103m as reported; £1,061m at constant exchange). Including non-consolidated associates in India and Thailand, premiums were up 16% at constant exchange to £1,540m (2011: £1,395m as reported; £1,333m at constant exchange). As we build scale in Emerging Markets, we are starting to benefit from operating leverage on expenses. Underwriting expenses were up 6% leading to an improved expense ratio (excluding commissions) of 21.6% (2011: 22.8%) and improved combined ratio of 96.9% (2011: 98.7%) and a significantly better underwriting result of £33m (2011: £3m). The business delivered an investment result of £45m (2011: £51m) leading to an insurance result up 44% to £78m. Start-up costs of £19m in 2012 will fall to zero by 2014. Emerging Markets is already delivering attractive returns on capital given the low capital intensity of the products sold.

In Latin America, we have attractive and developing market positions which give us access to approximately 80% of the general insurance markets in the region. We are the number one general insurer in Chile, number one private general insurer in Uruguay and a leading insurer in Argentina. Latin American premiums were up 20% at constant exchange to £766m (2011: £670m as reported; £640m at constant exchange), including £43m from the acquisitions in Argentina which completed on 31 July 2012. Premiums were up in all territories including 7% growth in Chile and 79% growth in Argentina (36% growth excluding 2012 acquisitions). Underwriting profits were £21m (2011: £19m) with strong contributions from Argentina, Chile, Mexico and our leading Marine business in Brazil.

In Central and Eastern Europe (CEE) we are the leading insurer across the Baltic States and we have leading direct businesses in Poland and Russia. Premiums were up 9% at constant exchange to £224m with strong growth in Estonia (up 67%), Russia (up 25%) and Poland (up 11%). The underwriting result was a £2m loss (2011: £5m underwriting loss) with a combined ratio of 100.6% (2011: 101.4%). Economic conditions are improving and we expect the business to deliver a profit in 2013.

In Asia and the Middle East, RSA has a strong Specialty business with exposure across the region. In addition we have retail businesses in China, Singapore and Hong Kong and minority stakes in businesses in India and Thailand. We are one of the leading insurers in the Middle East with a number one position in Oman and have businesses in UAE, Bahrain and the Kingdom of Saudi Arabia. Asian premiums were up 19% at constant exchange to £120m (2011: £99m as reported, £101m at constant exchange) with strong growth in Specialty lines and up 13% to £423m including non-consolidated associates in India and Thailand. Underwriting profit in Asia improved to £5m (2011: £17m underwriting loss). In the Middle East we delivered 10% growth in premiums to £127m (2011: £115m as reported and at constant exchange) and an increase in the underwriting profit to £9m (2011: £6m).

Emerging Markets Outlook

We expect to continue to deliver strong growth from our Emerging Markets franchises and are on track to meet our target of £2.2bn of premiums (including our associates) in 2015. We anticipate achieving this target without further M&A activity, although we continue to seek opportunities to grow the business through selective bolt-on acquisitions. As we grow the scale of our Emerging Markets business, we expect further operating leverage to emerge in the expense line, leading to improved combined ratios, growth in underwriting profit and further improvement in return on capital.


      Net written premiums       Underwriting result       Change1
2012       2011 2012       2011 NWP       U/W


UK Personal £m £m £m £m % %
Household 670 653 54 57 3 (5)
Motor 416 514 10 - (19) -
Pet       233       197       6       3       18       100
Total UK Personal       1,319       1,364       70       60       (3)       17
UK Commercial
Property 491 453 22 12 8 83
Liability 280 276 (21) 4 1 (625)
Motor 598 572 (44) (37) 5 (19)
Marine       319       293       12       23       9       (48)
Total UK Commercial       1,688       1,594       (31)       2       6       (1,650)
Total UK       3,007       2,958       39       62       2       (37)
Western Europe
Ireland 348 353 25 24 5 14
Italy 200 261 (51) (63) (18) 14
European Specialty Lines       134       129       (1)       (22)       11       95
Total UK & Western Europe       3,689       3,701       12       1       1       140
Investment result 2012 2011 Change
£m £m %
Investment income 262 276 (5)
Unwind of discount                       (29)       (31)               6
UK & WE investment result                       233       245               (5)
UK & WE insurance result                       245       246               -
Operating Ratios (%) Claims Expenses Combined
Personal 2012 2011 2012 2011 2012 2011
Household 91.5 90.4
Motor 99.9 100.7
Pet 97.4 96.1
Total UK Personal 60.1 63.9 35.5 31.8 95.6 95.7
Property 94.6 99.1
Liability 107.1 99.7
Motor 106.8 105.9
Marine 96.2 91.1
Total UK Commercial 70.4 68.8 30.0 29.9 100.4 98.7
Total UK 65.7 66.5 32.5 30.8 98.2 97.3
Western Europe
Ireland 94.2 92.6
Italy 125.1 123.6
European Specialty Lines 100.4 118.3
Total UK & Western Europe       67.8       69.0       31.7       30.6       99.5       99.6
Rate Increases (%) Personal       Commercial
UK Motor       Household Motor       Liability       Property
Dec 12 vs Dec 11 (2) 3 10 6 4
Sept 12 vs Sept 11 1 4 9 4 4
Jun 12 vs Jun 11 4 5 9 6 3
Mar 12 vs Mar 11 8 7 9 2 3
Dec 11 vs Dec 10       17       6       7       5       4

1 at constant exchange rate


UK & Western Europe delivered a 1% increase in net written premiums to £3,689m (2011: £3,701m as reported; £3,654 at constant exchange) and underwriting profit of £12m (2011: £1m). With investment result of £233m (2011: £245m), the insurance result was £245m (2011: £246m).

In the UK we are a leading Commercial insurer and a top five Personal lines insurer through direct and affinity channels. In Commercial we offer a full suite of products across Property, Liability, Motor and Marine and distribute predominantly through insurance brokers. In Personal we provide Household, Motor and Pet insurance through insurance brokers and affinity partners as well as MORE THN and eChoice, our direct businesses.

UK premiums were up 2% to £3,007m (2011: £2,958m) as targeted reductions in Personal Motor (down 19%) were offset by growth in Household (up 3%), Pet (up 18%) and Commercial lines (up 6%). UK underwriting profits were £39m (2011: £62m) primarily driven by the impact of adverse weather in the first half and weaker performance in Marine and Commercial Liability leading to a combined ratio of 98.2% (2011: 97.3%).

UK Personal premiums were down 3% to £1,319m (2011: £1,364m), whilst underwriting profit improved by 17% to £70m (2011: £60m). Following poor weather in the first half, Personal Household underwriting profit was down 5% to £54m (2011: £57m). The focus on profit over volume in Personal Motor delivered £10m of underwriting profit (2011: break even) although softening prices throughout the year continue to make this a challenging market. Pet insurance delivered a stronger underwriting profit of £6m (2011: £3m).

We are actively dealing with the challenges in the UK Commercial Market. We remain selective regarding the brokers we want to work with and have driven rate increases across the business. Premiums were up 6% to £1,688m (2011: £1,594m). Commercial Property performed well with premiums up 8% and underwriting profits of £22m (2011: £12m) benefitting from sustained rating activity. Liability premiums were up 1% to £280m (2011: £276m) but an underwriting loss of £21m (2011: £4m underwriting profit) reflected a number of large losses and an increase in the frequency of “slip and trip” claims. We are addressing this trend through underwriting and rating action. Included in the Commercial Motor result is a large Commercial Motor contract which represents the majority of Commercial Motor premiums and the underwriting loss. We are working on the details of new arrangements for this contract, to be effective from October 2013, however, Commercial Motor will continue to be negatively affected by the contract’s old tranches for the next few years. We are confident that we are making progress in the Commercial Motor market. Excluding the large contract, Commercial Motor premiums were down 12%. During the year we have exited a number of Commercial Motor markets including Risk Managed Motor and Motor Trade which represented the balance of the Commercial Motor underwriting loss. Marine premiums grew by 9% to £319m (2011: £293m) but the underwriting result suffered from large losses including the Costa Concordia and Superstorm Sandy leading to a profit of £12m (2011: £23m).


Premiums in Ireland of £348m (2011: £353m as reported; £331m at constant exchange) were up 5% in a market that was expected to contract by 6% in 2012. Underwriting profits were up 14% driven by continued impressive performance from, our direct insurer acquired in 2010, leading to a combined ratio of 94.2% (2011: 92.6%). In Italy, remediation is on track with premiums down 18% to £200m (2011: £261m as reported; £244m at constant exchange). Including the impact of the Italian earthquakes and some adverse weather in the first half, the underwriting loss was £51m (2011: £63m). Importantly, the Italian underwriting loss in the second half has reduced to £10m. European Specialty delivered 11% growth in premiums and an underwriting loss of £1m (2011: £22m underwriting loss).

Outlook – UK and Western Europe

Our focus will continue to be on underwriting profit over volume. We will continue with our intensive approach to portfolio management and expect only modest growth in premiums. Italy is on track to be trading on a break even basis during 2013. We expect year on year improvements in combined ratios as we deliver the strategy in UK and Western Europe.

Investment Result 12 Months 12 Months Change
2012 2011
£m £m %
Bonds 403 446 (10)
Equities 57 63 (10)
Cash and cash equivalents 15 15 -
Land and buildings 28 37 (24)
Other       12       18       (33)
Investment income 515 579 (11)
Unwind of discount including ADC       (84)       (94)       11
Investment result       431       485       (11)
Attributed to
Scandinavia 94 123 (24)
Canada 61 71 (14)
Emerging Markets 45 51 (12)
UK & Western Europe 233 245 (5)
Realised and Unrealised Gains
Realised gains 79 201 (61)
Unrealised (losses)/gains, impairments and foreign exchange       (51)       (44)       (16)
Total gains       28       157        
Balance sheet unrealised gains at 31 December
Bonds 638 507 26
Equities 86 93 (8)
Other       6       3       100
Total       730       603       21
Portfolio Composition      





Mark to






£m £m £m £m £m
Government bonds 4,707 (52) (3) (445) 4,207
Non government bonds 6,967 (90) 99 541 7,517
Cash 1,258 (29) - 100 1,329
Equities 771 (3) 64 (279) 553
Property 362 (1) (24) 3 340
Prefs & CIVs 289 (6) (3) 6 286
Other       104       (2)       (14)       9       97
Total       14,458       (183)       119       (65)       14,329


The Group continued to execute a low risk investment strategy which delivered £515m of investment income in 2012 (2011: £579m). After accounting for the unwind of discount, the investment result was down 11% to £431m (2011: £485m).

The 11% fall in investment income primarily reflects the impact of falling sovereign and corporate bond yields partly offset by a number of factors. Income from equities in 2012 was enhanced by both the weighting of our holdings to higher yielding stocks and the receipt of a number of one-off equity dividends which we do not expect to be repeated in 2013. Investment income in 2011 was enhanced by around £25m following the settlement of a rental dispute in Denmark.

The average underlying yield on the portfolio was 3.6% (2011: 3.9%). Reinvestment rates in the Group’s main bond portfolios at 31 December 2012 were around 150bps lower than the underlying portfolio yield.

Total gains of £28m (2011: £157m) reflected realised gains from the sale of equities and bonds during the year partly offset by a decline in the value of investment properties.

Balance sheet unrealised gains of £730m (2011: £603m) primarily relate to unrealised gains on the bond portfolio which we expect to reduce over time as our bond holdings reach maturity. Balance sheet unrealised equity gains amounted to £86m (2011: £93m).

The portfolio decreased marginally in value over the year due to negative FX and cash flow used to fund corporate activity.

The portfolio is invested in widely diversified fixed income securities, with 4% in equities, 9% in cash and 2% in property. During 2012 we increased investments in longer duration assets with average duration increasing to 3.8 years (2011: 3.4 years). In addition, we reduced our sovereign debt holdings and purchased increased levels of non-government bonds which now make up 64% of the bond portfolio (2011: 60%). The quality of the bond portfolio remains very high with 98% investment grade and 69% rated AA or above. We are well diversified by sector and geography. Peripheral European sovereign debt amounts to less than 1% of the portfolio and is primarily backing the liabilities of our insurance operations in Ireland and Italy.

During the year we reduced our equity exposure by £279m which now represent 4% of the portfolio (2011: 5%). Around 65% of the equity portfolio is hedged providing protection down to a FTSE100 level of 4,400.

Investment Income: Outlook

In 2013, we will continue to follow our high quality, low risk strategy. Given current portfolio disposition and market levels further increases in bond duration and non-government bond holdings are likely to be modest. We will however continue to seek opportunities to enhance yield within our low risk framework and would anticipate income of around £470m in 2013. Assuming the current yield environment persists beyond 2013, we expect the fall in investment income to continue but to be less severe over the following three years.


Movement in net assets





£m £m £m £m
Balance at 1 January 2012 3,801 114 1,313 5,228
Profit after tax 344 7 - 351
Exchange losses net of tax (66) (4) - (70)
Fair value gains net of tax 115 1 - 116
Pension fund actuarial losses net of tax (161) - - (161)
Amortisation and repayment of loan capital - - (2) (2)
Share issue 58 4 - 62
Changes in shareholders’ interests in subsidiaries (11) 10 - (1)
Share based payments 6 - - 6
Prior year final dividend (206) (3) - (209)
Current year interim dividend (121) - - (121)
Preference dividend (9) - - (9)
Balance at 31 December 2012       3,750       129       1,311       5,190

Pension fund position

The table below provides a reconciliation of the Group’s pension fund position (net of tax) from 1 January 2012 to 31 December 2012.

                                                      UK             Other           Group
£m £m £m
Pension fund at 1 January 2012 (65) (75) (140)
Actuarial losses (124) (37) (161)
Deficit funding 54 - 54
Other movements 24 16 40
Pension fund at 31 December 2012                                                       (111)             (96)           (207)

The UK pension fund position has deteriorated by £46m since 31 December 2011 to a deficit of £111m. This is driven by a decrease in the discount rate partly offset by greater than expected returns on assets and a reduction in the pension inflation rate.

Within actuarial assumptions, the discount rate decreased to 4.3% (31 December 2011: 4.9%) reflecting the yield on duration adjusted AA corporate bonds, whilst the pension inflation rate decreased to 2.6% (31 December 2011: 2.8%). Consequently the yield gap has decreased from 2.1% to 1.7%.

The overseas pension deficit has deteriorated by £21m since 31 December 2011 to a deficit of £96m principally due to a fall in the discount rate on the Canadian pension scheme from 5.3% to 4.4%, reflecting the AA corporate bond yield in Canada.


The capital position of the Group is set out below:
31 December 2012 31 December 2012 31 December 2011
Requirement Surplus Surplus
£bn £bn £bn
Insurance Groups Directive 1.3 1.2 1.3
Economic Capital (1in 200 Calibration) 1.2 1.2
Economic Capital (1in 1,250 Calibration) 0.7 0.8

The IGD surplus is unchanged since the end of the third quarter at £1.2bn (31 December 2011: £1.3bn) and coverage over the IGD requirement remains strong at 1.9 times (31 December 2011: 2.0 times). The reduction in the surplus over the year reflects profits offset by dividends and the acquisitions in Argentina and Canada.

When calibrated to a risk tolerance consistent with the expected Solvency II calibration of 1 in 200 per annum, the ECA surplus was £1.2bn (31 December 2011: £1.2bn). When calibrated to Standard & Poor’s long term A rated bond default curve, equivalent to a probability of insolvency over one year of 1 in 1,250 the ECA surplus was £0.7bn at 31 December 2012 (31 December 2011: £0.8bn). The decline in risk free yields and the impact of goodwill from acquisitions have been largely offset by capital generated, improved modelling of our assets in run-off, and the impact of the proposed new dividend policy.

The further delay in the implementation date for Solvency II is frustrating. We have rephased our implementation project to minimise costs whilst ensuring that we remain on track for implementation. In 2012 Solvency II costs were £32m (2011: £30m). We expect the costs of Solvency II to fall by around 50% from their 2012 level for the next two years. We still do not anticipate that Solvency II will cause any fundamental change to the way we run the business.

Capital sensitivities                                   IGD           ECA Surplus           ECA Surplus
Surplus 1 in 200 year 1 in 1,250 year
£bn £bn £bn
Increase in risk free yields by 100bps (0.2) 0.3 0.3
Equity markets rise by 10% 0.0 0.1 0.1
FX declines by 10% (0.1) 0.0 0.0

Our financing and liquidity position remains strong. The next call on any external financing is on the £450m subordinated guaranteed perpetual notes in December 2014 and our committed £500m senior facility has remained and continues to remain undrawn.

The Group is currently rated A+ (negative outlook) by Standard & Poor’s and A2 by Moody’s.


                                      12 Months           12 Months                 Change
2012 2011
£m £m %
Central expenses (59) (63) 6
Investment expenses and charges (33) (34) 3
Other operating activities                                       (30)           (36)                 17
Other activities                                       (122)           (133)                 8

Other operating activities include the ongoing investment in our associate in India and our direct operations in Central and Eastern Europe, for which the charge in 2012 reduced by £7m to £19m and is expected to fall further in 2013 and to zero in 2014.


The effective tax rate for the year was 27% (2011: 30%).


Return on equity

Underlying return on equity is 10.0% (2011: 11.6%) and is calculated as the profit after tax attributable to ordinary shareholders from continuing operations, excluding acquisitions, disposals and reorganisation costs expressed in relation to opening shareholders’ funds attributable to ordinary shareholders.

Combined operating ratio

The combined operating ratio represents the sum of expense and commission costs expressed in relation to net written premiums and claim costs expressed in relation to net earned premiums. The calculation of the COR of 95.4% is based on net written premiums of £8,353m and net earned premiums of £8,167m.

Net asset value per share

The net asset value per share at 31 December 2012 excluding IAS 19 was 107p (31 December 2011: 108p) and including the pension deficit was 101p (31 December 2011: 104p).

The net asset value per share at 31 December 2012 was based on total shareholders’ funds of £3,750m, adjusted by £125m for preference shares.

Earnings per share

Earnings per share on profit attributable to the ordinary shareholders of the Parent Company:
Basic       9.5p     11.9p
Diluted 9.4p 11.8p
Operating earnings per share on profit attributable to the ordinary shareholders of the Parent Company:
Basic 10.7p 11.3p
Diluted 10.5p 11.2p

The earnings per share is calculated by reference to the result attributable to the ordinary shareholders of the Parent Company and the weighted average number of shares in issue during the period. Operating earnings per share is calculated by reference to the after tax result attributable to the equity shareholders excluding amortisation, reorganisation costs, Solvency II costs and acquisitions and disposals and the weighted average number of shares in issue during the period. On a basic and diluted basis these were 3,534,577,360 and 3,576,531,553 respectively (excluding those held in ESOP and SIP trusts). The number of shares in issue at 31 December 2012 was 3,589,761,696 (excluding those held in ESOP and SIP trusts).


In 2012, there have been no related party transactions that have materially affected the financial position of the Group.


At the 2013 Annual General Meeting we intend to recommend to shareholders that they appoint KPMG as auditors for 2013. This follows the impending appointment of our current auditors, Deloitte, to undertake additional consultancy work in Scandinavia which we and they felt could impair the perception of their independence.

              12 Months       12 Months
2012 2011
£m £m
Net written premiums               8,353       8,138
Underwriting result 375 375
Investment income 515 579
Unwind of discount (84)       (94)
Investment result               431       485
Insurance result 806 860
Other activities               (122)       (133)
Operating result 684 727
Realised gains 79 201
Unrealised (losses)/gains, impairments and foreign exchange (51) (44)
Interest costs (115) (117)
Amortisation and impairment of intangible assets (42) (114)
Solvency II costs (32) (30)
Reorganisation costs (24) -
Acquisitions and disposals               (20)       (10)
Profit before tax               479       613
Taxation               (128)       (186)
Profit after tax               351       427
                      31 December       31 December
2012 2011
£m £m
Goodwill and other intangible assets 1,489 1,359
Property and equipment 272 275
Associated undertakings 40 29
Investment property 340 362
Equity securities 839 1,060
Debt and fixed income securities 11,724 11,674
Other 97       104
Total investments - management basis 13,000 13,200
Reinsurers' share of insurance contract liabilities 1,949 2,073
Insurance and reinsurance debtors 3,592 3,328
Other debtors and other assets 1,114 1,059
Cash and cash equivalents                       1,329       1,258
22,785 22,581
Assets held for sale*                       -       17
Total assets                       22,785       22,598
Equity and liabilities
Shareholders' funds 3,750 3,801
Non controlling interests                       129       114
Total equity 3,879 3,915
Loan capital                       1,311       1,313
Total equity and loan capital                       5,190       5,228
Liabilities (excluding loan capital)
Insurance contract liabilities 14,854 14,766
Insurance and reinsurance liabilities 558 602
Borrowings 296 298
Provisions and other liabilities                       1,887       1,704
Total liabilities (excluding loan capital)                       17,595       17,370
Total equity and liabilities                       22,785       22,598

* Assets held for sale relate to property in Canada and Scandinavia.

                                    12 Months       12 Months
2012 2011
£m £m
Operating cashflow 552 530
Tax paid (201) (227)
Interest paid (115) (116)
Pension deficit funding                                     (73)       (56)
Cash generation 163 131
Group dividends (286) (303)
Dividend to non controlling interests (2) (18)
Issue of share capital 12 4
Net movement of debt (1) 1
Corporate activity                                     (116)       (302)
Cash movement                                     (230)       (487)
Represented by:
Movement in cash and cash equivalents 100 (31)
Sales of other investments                                     (330)       (456)
                                      (230)       (487)


Analysts & Investors



Matt Hotson Louise Shield
Investor Relations Director Director of External Communications
Tel: +44 (0) 20 7111 7212 Tel: +44 (0) 20 7111 7047

Email: [email protected]

Email: [email protected]

Rupert Taylor Rea Bart Nash
Investor Relations Manager Head of Media Relations
Tel: +44 (0) 20 7111 7140 Tel: +44 (0) 20 7111 7336

Email: [email protected]

Email: [email protected]



The full text of the above is available to the public at 1 Leadenhall Street, London EC3V 1PP. The text is also available online at A live audiocast of the analyst presentation, including the question and answer session, will be broadcast on the website at 9.30am today and is available via a listen only conference call by dialling UK Freephone 0800 358 5256 or International dial in: + 44 (0) 208 515 2313. Participants should quote conference ID 4593638. An indexed version of the audiocast will be available on the website by the end of the day. Copies of the slides to be presented at the analyst meeting will be available on the site from 9.00am today. Scanning the QR code opposite will download details of the conference call to a smart phone.

An interim management statement will be released on 2 May 2013.

The Annual General Meeting will take place on 15 May 2013.

The 2013 interim results will be released on 1 August 2013.


The analysis on pages 16 and 21 to 23 has been prepared on a non statutory basis as management believe that this is the most appropriate method of assessing the financial performance of the Group. The management basis reflects the way management monitor the business. The underwriting result includes insurance premiums, claims and commissions and underwriting expenses. In addition, the management basis also discloses a number of items separately such as investment result, interest costs, reorganisation costs and other activities. Estimation techniques, risks, uncertainties and contingencies are included on pages 25 to 28. Financial information on a statutory basis is included on pages 30 to 38.


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This press release (together with the Annual Report and Accounts referred to herein) has been prepared in accordance with the requirements of English company law and the liabilities of the directors in connection with this press release (together with the Annual Report and Accounts referred to herein) shall be subject to the limitations and restrictions provided by such law. This press release may contain ‘forward-looking statements’ with respect to certain of the Group’s plans and its current goals and expectations relating to its future financial condition, performance, results, strategic initiatives and objectives. Generally, words such as “may”, “could”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “aim”, “outlook”, “believe”, “plan”, “seek”, “continue” or similar expressions identify forward-looking statements. These forward-looking statements are not guarantees of future performance. By their nature, all forward-looking statements 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 (including changes related to capital and solvency requirements), 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. The Group undertakes no obligation to update any forward-looking statements, save in respect of any requirement under applicable law or regulation. Nothing in this press release (together with the Annual Report and Accounts referred to herein) should be construed as a profit forecast.

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