REG-RSA Insurance Group Plc Half-yearly Report
LONDON--(Business Wire)--
HALF YEARLY FINANCIAL REPORT TO 30 JUNE 2008
Strong Group performance
-- Net written premiums of £3.4bn up 12%
-- Combined operating ratio (COR) of 93.0%
-- Operating result up 9% to £440m
-- Profit after tax up 23% to £292m
-- Interim dividend up 10% to 2.73p
Delivery against strategic objectives
-- Strong results in challenging trading and economic conditions
-- Results demonstrate the benefits of management actions and the strong
and diversified portfolio
-- Maintaining tight operational and financial management
-- Continuing to take the right action on rate
-- Delivered 2008 annualised expense savings target of £200m
Full year outlook
-- Combined operating ratio for 2008 now expected to be better than 95%
-0-
*T
6 Months 6 Months Movement*
2008 2007
Total Group
Net written premiums £3,364m £2,992m +12%
Underwriting result £179m £144m +24%
Combined operating ratio 93.0% 93.3% 0.3pts
Operating result (1) £440m £403m +9%
Profit after tax (1) £292m £237m +23%
30 June 31 December
2008 2007
Balance sheet
Shareholders' funds £3,221m £3,077m +5%
Net asset value per share 94p 91p +3%
Net asset value per share excluding IAS 19 85p 88p (3)%
Interim dividend per ordinary share 2.73p 2.48p +10%
*T
* Reported exchange rate
Andy Haste, Group CEO of RSA Insurance Group plc, commented:
"It has been another good first half and we have once again delivered strong
results in what are challenging trading and economic conditions. These results
continue to demonstrate the positive impact of our management actions and the
benefit of the Group's strong and diversified portfolio.
With these actions and the strength of the portfolio, we remain confident in the
Group's ability to continue to deliver sustainable profitable performance. As it
stands today, we now expect to achieve a combined operating ratio for 2008 of
better than 95%. The outlook for the Group is positive, and this is reflected in
the 10% increase in the interim dividend to 2.73p (H1 2007: 2.48p)."
-0-
*T
For further information:
Analysts Press
Shona Cotterill Thomas Coops
Tel: +44 (0) 20 7111 7212 Tel: +44 (0) 20 7111 7047
Mobile: +44 (0) 7894 938600 Mobile: +44 (0) 7834 005605
Wendy Hardy Simon Kutner
Tel: +44 (0) 20 7111 7140 Tel: +44 (0) 20 7111 7327
Mobile: +44 (0) 7917 092724 Mobile: +44 (0) 7795 445656
Simon Moyse (Finsbury)
Tel: +44 (0) 20 7251 3801
Mobile: +44 (0) 7810 505473
*T
CONTENTS
Interim management report
CEO review
Operations review
Summary consolidated income statement - management basis
Summary consolidated balance sheet - management basis
Other information - management basis
Regional analysis of insurance operations
Estimation techniques, risks, uncertainties and contingencies
Condensed financial statements
Responsibility statements
Independent review report to RSA Insurance Group plc
Shareholder information
Financial calendar
Important disclaimer
Visit www.rsagroup.com for more information. This half yearly report has been
prepared in accordance with the requirements of English Company Law and the
liabilities of the directors in connection with this half yearly report shall be
subject to the limitations and restrictions provided by such law. This document
may contain "forward-looking statements" (as defined in the US Private
Securities Litigation Reform Act of 1995) with respect to certain of the
Company's plans and its current goals and expectations relating to its future
financial condition, performance and results. By their nature, all
forward-looking statements involve risk and uncertainty because they relate to
future events and circumstances which are beyond the Company'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 the relevant industries, as well
as the impact of tax and other legislation and other regulations in the
jurisdictions in which the Company and its affiliates operate. As a result, the
Company's actual future financial condition, performance and results may differ
materially from the plans, goals and expectations set forth in the Company's
forward-looking statements. The Company undertakes no obligation to update any
forward-looking statements, save in respect of any requirement under applicable
law or regulation. Nothing in this document should be construed to as a profit
forecast.
(1) For a reconciliation of operating result to profit after tax see Summary
Consolidated Income Statement - Management basis.
INTERIM MANAGEMENT REPORT
CEO REVIEW
The Group continues to deliver strong results in challenging market conditions.
Net written premiums are up 12% to £3.4bn (5% on constant exchange), with strong
underlying growth and the benefits of foreign exchange in International and
Emerging Markets, and a disciplined approach in the UK. The underwriting result
is up by 24% to £179m, reflecting the benefit of management actions on rate and
expenses, and our tight financial and operational management, while improved
weather was partially offset by higher large losses. As expected, International
contributed the majority of the Group's underwriting result, with continued
profitable performance in the UK and Emerging Markets. The combined operating
ratio (COR) is 93.0% (H1 2007: 93.3%).
The investment result is up 3% to £311m and includes an 11% increase in
investment income to £323m, offset by the expected lower level of total gains
(£32m compared with £53m in H1 2007). The operating result is up 9% to £440m,
profit before tax has increased by 17% to £395m and includes profit on disposals
of £17m from recycled foreign exchange following the liquidation of a French
subsidiary. Profit after tax is up 23% to £292m and the underlying ROE is strong
at 17.9%.
Business Overview
Set out below are the net written premiums and combined operating ratios for our
regions:
-0-
*T
Net written premiums Combined operating ratio
6 Months 6 Months Movement Movement at 6 Months 6 Months Movement
2008 2007 as reported constant 2008 2007
exchange
£m £m % % % % Points
International 1,628 1,324 23 8 89.7 89.5 (0.2)
UK 1,377 1,365 1 1 96.2 96.1 (0.1)
Emerging Markets 351 294 19 9 96.2 94.8 (1.4)
Group Re 8 9 (11) (11) - - -
-----------------------------------------------------------------------------------------------------
Total Group 3,364 2,992 12 5 93.0 93.3 0.3
-----------------------------------------------------------------------------------------------------
*T
We have continued to drive profitable growth across the Group, with almost 60%
of net written premiums coming from International and Emerging Markets. In
International, net written premiums are up 23% to £1.6bn (8% on constant
exchange), driven by strong organic growth, the impact of acquisitions and
foreign exchange. In Scandinavia, premiums are up by 19% to £959m (5% on
constant exchange), driven by a good performance in Commercial in Denmark and
Norway, with particularly strong growth in Marine reflecting both organic
initiatives and the acquisition of the Pohjola Marine portfolio last year. In
Canada, premiums have increased by 36% to £428m (21% on constant exchange),
reflecting strong organic growth and the benefits of the CNS acquisition which
completed in December 2007. Johnson continues to perform strongly, increasing
premiums by 28% (14% on constant exchange). In Other Europe, premiums are up by
19% to £241m (3% on constant exchange), with strong double digit growth in Italy
offset by a disciplined approach in Ireland, reflecting competitive trading
conditions.
The UK market also remains competitive and premiums are up by 1% to £1.4bn. We
are maintaining our strategy of targeting profitable growth, taking the right
action on rate and selective capacity withdrawal. In Personal, premiums are in
line with last year at £548m, reflecting the inwards transfer of the
Paymentshield portfolio in the second quarter of 2007, and the impact of lower
mortgage originations and new car sales on Affinity business this year. MORE
TH>N continues to perform well, with premiums up 3%. In Commercial, overall
premiums are up by 1% to £829m, with good growth in specialty lines offsetting
the withdrawal of capacity in lines of business where we cannot achieve our
target returns. We have continued to take action on rate, increasing Personal
Household and Motor rates by 5%, and achieving increases in Commercial of 2% in
Liability, 4% in Property and 8% in Motor. Overall retention remains strong at
over 80%.
In Emerging Markets, while as expected, we've seen some signs of relative
economic slowdown, these markets remain attractive with good growth potential.
Premiums are up by 19% to £351m (9% on constant exchange) and increased by 27%
(15% on constant exchange) after excluding Venezuela, which we sold in December
2007. In Asia and the Middle East, premiums are up by 25% (23% on constant
exchange) with continued excellent growth in UAE Motor and the successful
expansion of our Construction and Engineering business. In Latin America,
premiums are up 24% (12% on constant exchange), after adjusting for the sale of
Venezuela, with good growth across all countries. In the Baltics, premiums are
up by 33% (16% on constant exchange), driven by a strong motor performance in
Latvia and Lithuania, and further growth from our start up in Estonia.
Our objective is sustainable profitable performance and each of our regions has
again delivered a strong result. In International, we have achieved a 27%
increase in the underwriting profit to £121m and a COR of 89.7%. In the UK, we
have maintained good profitability, with an underwriting profit of £48m and a
COR of 96.2%. Emerging Markets has delivered an underwriting result of £10m and
a COR of 96.2%.
Across the Group, we remain focused on increasing operational efficiency and
reducing costs. In the first half, we delivered on our 2008 expense savings
targets, and at our Investor Day in May, we announced a new £25m expense savings
target for Scandinavia.
Outlook
We have again delivered strong results in challenging conditions. Our management
actions and strong portfolio are driving sustainable profitable performance and
we remain confident about the outlook for the Group. As it stands today, we now
expect to deliver a combined operating ratio for the full year of better than
95%. As a reflection of the Board's confidence in the future performance of the
Group, we are increasing the interim dividend by 10% to 2.73p (H1 2007: 2.48p).
Andy Haste, Group CEO, RSA Insurance Group plc
OPERATIONS REVIEW
Operating Result
The operating result is £440m (H1 2007: £403m) and benefits from both improved
underwriting and investment results. The underwriting result of £179m (H1 2007:
£144m) reflects another strong performance. As announced in February, we
expected a more balanced contribution from the current and prior year in the
2008 underwriting result. In the first half of 2008, the current year
underwriting profit is £56m (H1 2007: underwriting loss £31m) while the prior
year profit is £123m (H1 2007: £175m). The improvement in the current year
result includes improved weather (£83m better than 2007) partly offset by
adverse large loss experience (£41m worse than 2007), primarily in the UK. The
strong prior year result reflects continued positive run off from all three
regions.
The Group continues to adopt a prudent reserving policy for both current and
overall reserves and at 30 June 2008, reserves were ahead of the start of the
year, and significantly to the right side of best estimate.
- International
International continues to drive the Group forward and has again delivered a
strong top and bottom line performance. Net written premiums are up 23% to
£1,628m (8% on constant exchange). This reflects 36% growth in Canada (21% on
constant exchange), 19% growth in Scandinavia (5% on constant exchange) and 19%
growth in Other Europe (3% at constant exchange). As expected, International
contributed the majority of the Group's underwriting result, with a 27% increase
in underwriting profit to £121m.
In Scandinavia, Commercial performed strongly, delivering a 21% increase in net
written premiums to £477m (7% on constant exchange). This reflects good growth
in Denmark and Norway, while Marine grew by 18% at constant exchange as a result
of both organic initiatives and the acquisition of the Pohjola Marine portfolio
in 2007. In Personal lines, premiums are up 17% to £482m (3% on constant
exchange) reflecting strong retention and further growth from White Label in
Norway.
In Canada, Personal net written premiums increased by 38% to £311m (23% on
constant exchange). Growth in Personal Intermediated reflects positive rate,
improved retention and the CNS acquisition which completed in December 2007.
Johnson, our direct personal business, continued to perform strongly, delivering
28% growth (14% on constant exchange), and adding 12 new sponsorship groups in
the first half. In Commercial, net written premiums increased by 30% to £117m
(16% on constant exchange) reflecting the CNS acquisition and strong retention.
In Other Europe, premiums are up by 19% to £241m (3% on constant exchange),
primarily reflecting above market growth in Italy as we continue to expand our
agency network, adding 24 new agents in the first six months. In Ireland, market
conditions remain competitive and, as a result, premiums are down 2% on last
year at constant exchange. There are however, opportunities for profitable
growth and we were recently appointed the sole provider of household insurance
to Bank of Ireland and completed the acquisition of Sertus, the specialist motor
underwriter at the end of March. We are also taking action on rate in Ireland,
and have achieved increases across Personal lines, as well as in Commercial
Property and Motor.
The International COR was 89.7% (H1 2007: 89.5%). The Scandinavian COR improved
2.6 points to 87.3% driven by a strong increase in profitability in Personal
lines. In Canada, profitability remains strong with a COR of 93.7% (H1 2007
91.2%), despite adverse weather, with some of the worst winter storms in Ontario
for almost 70 years, while the COR for Other Europe was 94.8% (H1 2007: 90.3%).
The result has been underpinned by our continued focus on operational
excellence. In 2007 we achieved our target of reducing the Scandinavian expense
ratio to below 15% and in May, we announced a further cost savings target of
£25m.
- UK
The UK remains our toughest market and we are maintaining our strategy of
targeting profitable growth, taking the right action on rate and selective
capacity withdrawal. Premiums are up by 1% to £1.4bn, with a COR of 96.2% (H1
2007: 96.1%).
In Personal, premiums are in line with last year at £548m, reflecting the
inwards transfer of the Paymentshield portfolio in the second quarter of 2007 of
£22m, and the impact of lower mortgage originations and new car sales on
Affinity business this year. MORE TH>N continues to perform well, with premiums
up 3%, and new business sales and average motor premiums up by 10% and 11%
respectively.
In Commercial, overall premiums are up by 1% to £829m, with good growth in
specialty lines, including Marine which is up 9%, Risk Solutions up 4% and
targeted growth in Commercial Fleet, offsetting the withdrawal of capacity in
lines of business, such as small and mid corporate Property, where we cannot
achieve our target returns.
We have continued to take action on rate across the UK, increasing Personal
Household and Motor rates by 5%, and achieving increases in Commercial of 2% in
Liability, 4% in Property and 8% in Motor. Overall retention remains strong at
over 80%.
The underwriting result is £48m, compared with £51m in 2007, with the expected
lower level of prior year development and an increased level of large losses
offsetting the benefits of improved weather. In Commercial lines, the lower
prior year development reduced the Casualty underwriting result, however, this
has been offset by improved profitability in Motor and Other.
The UK expense ratio including commissions is 33.3%, compared with 33.5% in
2007, reflecting a 1.2% increase in the commission ratio (due to a one off
profit commission payment in 2008 versus a receipt in 2007), and a 1.4%
improvement in the expense ratio.
- Emerging Markets
In Emerging Markets, while as expected, we've seen some signs of relative
economic slowdown, these markets remain attractive with good growth potential.
Premiums are up by 19% to £351m (9% on constant exchange) and increased by 27%
(15% on constant exchange) after excluding Venezuela, which we sold in December
2007. The underwriting result is up 25% to £10m and the COR was 96.2% (H1 2007:
94.8%).
In Asia and the Middle East, premiums are up by 25% (23% on constant exchange)
with further excellent growth in UAE Motor. We have also successfully expanded
our specialist Construction and Engineering business and we now underwrite from
Singapore, Dubai, Shanghai, Hong Kong and Bahrain.
In Latin America, premiums are up 24% (12% on constant exchange), after
adjusting for the sale of our business in Venezuela, with good growth across all
countries. We continue to focus on building our presence in the Affinity market,
and in the first six months we have signed deals with seven retailers and
financial institutions in Brazil and Chile, where Marine also continues to
perform strongly.
In the Baltics, premiums are up 33% (16% on constant exchange) driven by a
strong motor performance in Latvia and Lithuania, and further growth from our
start up in Estonia. We also launched our new SME proposition in Lithuania which
will be rolled out across the Baltics later this year.
Our joint ventures in India and Central and Eastern Europe continue their good
momentum, and premiums are up 26% to £64m. These businesses are not consolidated
in our results, however, our ongoing investment in them is shown in 'Other
operating activities'.
The Emerging Markets' expense ratio including commission has increased by 3.9
points to 39.6% (H1 2007: 35.7%) reflecting investment in new capabilities
across the region, higher commission as a result of increased levels of Affinity
business, and a one off receipt of a profit commission in 2007.
We continue to leverage Group best practice to strengthen technical expertise,
including moving 50 senior staff and managers from our established businesses
into roles across the region.
- Rating movements
Rate movements achieved for risks renewing in June 2008 versus comparable risks
renewing in June 2007 are set out in the table below. Our action on rating
demonstrates our commitment to maintaining pricing discipline and to delivering
sustainable profitable performance.
-0-
*T
Personal Commercial
Motor Household Motor Liability Property
% % % % %
UK 5 5 8 2 4
Scandinavia - 3 2 5 3
Canada 2 7 (2) (1) (3)
*T
- Other activities
The analysis of the other activities result is as follows:
-0-
*T
6 Months 6 Months Movement
2008 2007
£m £m
Central expenses (29) (28) -4%
Investment expenses and charges (12) (11) -9%
Other operating activities (9) (4) -125%
-----------------------------------------------------------------------------------------------
Other activities (50) (43) -16%
-----------------------------------------------------------------------------------------------
*T
Expenses from other activities for the first six months have increased by £7m to
£50m. Other operating activities of £9m include the ongoing investment in our
joint ventures in India and Central and Eastern Europe, as well as business
development expenses for the Emerging Markets' region.
- Investment result
The analysis of the investment results is as follows:
-0-
*T
6 Months 6 Months Movement
2008 2007
£m £m
Bonds 228 187 +22%
Equities 30 28 +7%
Cash and cash equivalents 35 42 -17%
Land and buildings 5 8 -38%
Other 25 27 -7%
--------------------------------------------------------------------------------------------
Investment income 323 292 +11%
------------- ------------ ----------
Realised gains 36 63 -43%
Unrealised gains/(losses), impairments and foreign
exchange (4) (10) +60%
------------- ------------ ----------
Total gains 32 53 -40%
Unwind of discount including ADC (44) (43) -2%
--------------------------------------------------------------------------------------------
Investment result 311 302 +3%
--------------------------------------------------------------------------------------------
*T
The Group continues to maintain a low risk investment strategy with the
portfolio dominated by high quality fixed income and cash assets. The investment
result is up 3% to £311m, and reflects increased investment income offset by the
expected decrease in total gains from £53m in 2007 to £32m in the first half of
the year.
Investment income is up 11% to £323m, reflecting an increase in bond and cash
yields as well as foreign exchange gains of £15m. The average underlying yield
on the portfolio (excluding the yield on the ADC funds withheld account) has
increased by 20 basis points to 4.6% (H1 2007: 4.4%).
Total gains were £32m (H1 2007: £53m). Within this, realised gains total £36m,
including £15m on equity hedges and other gains of £21m.
Unrealised gains and impairments total £4m (H1 2007: £10m) and include
unrealised gains on equity hedges of £45m, offset by the mark to market
movements on commercial property of £38m, and on CDO's of £5m. Impairments on
the UK equity portfolio total £6m.
The Group continues to have no holdings in monoline insurers and no exposure to
credit insured bonds, US municipal bonds or US sub prime Residential Mortgage
Backed Securities. The Group's CDO exposure has been further reduced, primarily
through selective disposals, and at the half year was £93m (31 December 2007:
£130m) including £82m of CLOs which have experienced no downgrades.
As at 30 June, the Group had no equity exposure to US Government Sponsored
Enterprises Fannie Mae and Freddie Mac, and fixed interest exposure of just £7m,
of which, £5m is due to mature in October 2008.
86% of the total investment portfolio is invested in high quality fixed income
and cash assets. The fixed interest portfolio remains concentrated on high
quality short dated assets, with 99% of the bond portfolio investment grade, and
86% rated AA or above. The bond holdings are well diversified, with 70% invested
in currencies other than Sterling, and 45% invested in corporate bonds. The
average duration is 2.6 years for the Group, and 1.8 years in the UK.
At the half year, equities (excluding preference shares and Collective
Investment Vehicles backed by fixed income and cash) comprised 8% of the
portfolio. Around 75% of the equity portfolio is protected from the full impact
of equity market falls with a rolling programme of put and call options, with
the nominal amount and strike levels of coverage adjusted at least quarterly.
The commercial property portfolio is only 3% of investment assets and comprises
high quality commercial properties, generating strong and sustainable rental
income and does not include any development properties.
The investment portfolio totalled £13.2bn at the half year compared with £13.3bn
at the year end, with the movement of £62m reflecting foreign exchange gains of
£366m offset by mark to market movements of £345m and other movements of £83m.
The foreign exchange benefit reflects the appreciation of the Euro and the
Danish and Swedish Kroner against Sterling. The mark to market movement on the
bond portfolio is a negative £137m, and the movement on equities a negative
£158m. This movement on equities is partially offset by the £60m gain on the
equity hedges, giving a net £98m movement.
In terms of the full year, our guidance was for total gains to be around £80m,
and as it stands today, that still remains our expectation. There may however be
opportunities in the second half of the year to take action within the portfolio
to lock in higher yields, and in which case, we would look to take advantage of
this.
At 30 June 2008, unrealised gains on the balance sheet were £141m (31 December
2007: £461m) which included £310m on the equity portfolio.
OTHER INFORMATION
Capital position
The regulatory capital position of the Group under the Insurance Groups
Directive (IGD) is set out below:
-0-
*T
30 June 30 June 31 December
2008 2008 2007
Requirement Surplus Surplus
£bn £bn £bn
Insurance Groups Directive 1.1 1.4 1.5
*T
The IGD surplus was £1.4bn compared with £1.5bn at 31 December 2007 and coverage
over the IGD requirement is 2.3 times (31 December 2007: 2.5 times). The
decrease in IGD surplus primarily reflects investment movements, dividend
payments and pension funding, offset by after tax profits for the period of
£292m.
At 30 June 2008, the Group had surplus economic capital of around £2.3bn, up
from £2.2bn at the start of the year, based on a risk tolerance consistent with
Standard & Poor's long term A rated bond default curve. This is equivalent to a
probability of solvency over 1 year of 99.94%.
The Group calculates its economic capital position using a global multi year
stochastic economic capital model. The model is a key decision making tool and
is used for a range of strategic, operational and financial management purposes
throughout the Group, and has also been the basis for the Group's Individual
Capital Assessment submissions to the FSA since the 2004 year end.
The Group is currently rated A, stable outlook by Standard & Poor's. The Group
is rated A3 positive outlook by Moody's and A- positive outlook by AM Best.
In June, S&P announced changes to their current capital model for non life
insurers regarding the treatment of the unearned premium reserve. We are
currently determining the impact of this change, however, it is expected to
significantly increase the level of surplus capital held with regard to the S&P
A rating requirement.
Our financing and liquidity position is strong. The next call on any external
financing is not until Q4 2009 and our committed £500m senior facility remains
undrawn.
Return on equity
Underlying return on equity is 17.9% and is calculated as the profit after tax
attributable to ordinary shareholders from continuing operations, excluding
gains and losses on disposals, 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 93% was based on
net written premiums of £3,364m and net earned premiums of £3,092m.
Net asset value per share
The net asset value per share at 30 June 2008 was 94p (31 December 2007: 91p).
At 1 August 2008, the net asset value per share was estimated at 96p.
The net asset value per share at 30 June 2008 was based on total shareholders'
funds of £3,221m, adjusted by £125m for preference shares, and shares in issue
at the period end of 3,293,779,795 (excluding those held in the ESOP trusts).
Dividend
The directors have declared an interim ordinary dividend of 2.73p per share. The
interim dividend will be payable on 28 November 2008 to shareholders on the
register at the close of business on 15 August 2008. Shareholders will be
offered a SCRIP dividend alternative. SCRIP dividend mandates need to be
received by Equiniti Limited before 31 October 2008. The second preference share
dividend for 2008 will be payable on 1 October 2008 to holders of such shares on
the register at the close of business on 29 August 2008.
Risks and uncertainties
There are a number of potential risks and uncertainties which could have a
material impact on the Group's performance over the remaining six months of the
financial year and could cause actual results to differ materially from expected
and historical results. The Board considers the risks and uncertainties
disclosed in the latest Annual Report and Accounts to continue to reflect the
principal risks and uncertainties of the Group over the remaining six months of
the financial year, except where specifically mentioned in this half yearly
financial report.
The principal risks and uncertainties of the Group, as per page 29 of the latest
Annual Report and Accounts, are: rating environment softens significantly in key
markets; insurance risks are accepted outside the Group's risk appetite or below
technical price; adverse loss experience through catastrophic losses arising
from an insurance event or series of events, increasing frequency and severity
of large losses or deterioration in long tail reserves and adverse financial
markets impact the investment portfolio and pension funds. Further information
on the risks and uncertainties of the Group is included in the latest Annual
Report and Accounts.
Related party transactions
In 2008, there have been no related party transactions that have materially
affected the financial position of the Group.
FURTHER INFORMATION
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 www.rsagroup.com. A live
audiocast of the analyst presentation, including the question and answer
session, will be broadcast on the website at 10.30am today and available via a
listen only conference call by dialling UK Freephone 0800 358 1448 or
International dial in: + 44 (0) 208 609 1270. 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
10.00am today.
A Q3 interim management statement will be released on 6 November 2008.
The full year 2008 results will be announced on 26 February 2009.
MANAGEMENT BASIS OF REPORTING
The following analysis on pages 10 to 13 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 and other activities. Estimation
techniques, risks, uncertainties and contingencies are included on pages 16 to
18. Financial information on a statutory basis is included on pages 20 to 26.
SUMMARY CONSOLIDATED INCOME STATEMENT
MANAGEMENT BASIS
-0-
*T
6 Months 6 Months 12 Months
2008 2007 2007
£m £m £m
Continuing operations
Net written premiums 3,364 2,992 5,837
-----------------------------------------------------------------------------------------------
Underwriting result 179 144 278
------------ ------------ ---------------
Investment income 323 292 591
Realised gains 36 63 174
Unrealised gains/(losses), impairments and
foreign exchange (4) (10) (55)
Unwind of discount including ADC (44) (43) (81)
------------ ------------ ---------------
Investment result 311 302 629
-----------------------------------------------------------------------------------------------
Insurance result 490 446 907
Other activities (50) (43) (93)
-----------------------------------------------------------------------------------------------
Operating result 440 403 814
Interest costs (54) (52) (104)
Amortisation (9) (8) (18)
-----------------------------------------------------------------------------------------------
Profit before disposals 377 343 692
Profit/(loss) on disposals 18 (5) (22)
-----------------------------------------------------------------------------------------------
Profit before tax 395 338 670
Taxation (103) (88) (29)
-----------------------------------------------------------------------------------------------
Profit after tax from continuing operations 292 250 641
Discontinued operations
Loss after tax from discontinued operations - (13) (13)
-----------------------------------------------------------------------------------------------
Profit after tax 292 237 628
-----------------------------------------------------------------------------------------------
Earnings per share on profit from continuing operations attributable to the ordinary
shareholders of the Company:
Basic 8.7p 7.2p 19.3p
Diluted 8.6p 7.1p 19.0p
Earnings per share on profit attributable to the ordinary shareholders of the Company:
Basic 8.7p 6.7p 18.9p
Diluted 8.6p 6.6p 18.6p
*T
SUMMARY CONSOLIDATED BALANCE SHEET
MANAGEMENT BASIS
-0-
*T
30 June 30 June 31 December
2008 2007 2007
£m £m £m
Assets
Goodwill and other intangible assets 694 589 663
Property and equipment 422 366 377
Associated undertakings 106 28 105
Investments
-------------- ------------- -------------
Investment property 396 474 429
Equity securities 1,230 1,649 1,487
Debt and fixed income securities 10,148 8,850 9,581
Other 284 315 272
-------------- ------------- -------------
Total investments - management basis 12,058 11,288 11,769
Reinsurers' share of insurance contract
liabilities 1,832 1,935 1,872
Insurance and reinsurance debtors 2,747 2,881 2,579
Deferred acquisition costs 577 493 542
Other debtors and other assets 1,455 1,124 1,069
Cash and cash equivalents 1,158 1,173 1,509
---------------------------------------------------------------------------------------------
Assets associated with continuing operations 21,049 19,877 20,485
Assets associated with discontinued operations* 13 - 108
---------------------------------------------------------------------------------------------
Total assets 21,062 19,877 20,593
---------------------------------------------------------------------------------------------
Equity, reserves and liabilities
Equity and reserves
Shareholders' funds 3,221 2,704 3,077
Minority interests 68 66 67
---------------------------------------------------------------------------------------------
Total equity and reserves 3,289 2,770 3,144
Loan capital 1,221 1,165 1,194
---------------------------------------------------------------------------------------------
Total equity, reserves and loan capital 4,510 3,935 4,338
---------------------------------------------------------------------------------------------
Liabilities (excluding loan capital)
Insurance contract liabilities 14,107 13,749 13,727
Insurance and reinsurance liabilities 485 428 426
Borrowings 302 121 303
Provisions and other liabilities 1,658 1,644 1,734
---------------------------------------------------------------------------------------------
Liabilities associated with continuing operations 16,552 15,942 16,190
Liabilities associated with discontinued
operations* - - 65
---------------------------------------------------------------------------------------------
Total liabilities (excluding loan capital) 16,552 15,942 16,255
---------------------------------------------------------------------------------------------
Total equity, reserves and liabilities 21,062 19,877 20,593
---------------------------------------------------------------------------------------------
*T
These summary consolidated half yearly financial statements have been approved
for issue by the Board of Directors on 6 August 2008.
* Assets and liabilities associated with discontinued operations in 2008 relate
to property held for sale and in December 2007 to a UK subsidiary and property
held for sale.
OTHER INFORMATION
MANAGEMENT BASIS
Movement in net assets
-0-
*T
Shareholders' Minority Loan Net
funds interest capital assets
£m £m £m £m
Balance at 1 January 2008 3,077 67 1,194 4,338
Profit after tax 287 5 - 292
Exchange gains 35 - 28 63
Fair value losses net of tax (242) (2) - (244)
Pension fund actuarial gains and losses net
of tax 136 - - 136
Amortisation of loan capital - - (1) (1)
Share issue 69 - - 69
Changes in shareholders' interests in
subsidiaries (2) - - (2)
Share options 13 - - 13
Prior year final dividend (147) (2) - (149)
Preference dividend (5) - - (5)
-------------------------------------------------------------------------------------------------
Balance at 30 June 2008 3,221 68 1,221 4,510
-------------------------------------------------------------------------------------------------
*T
Net assets have increased by £172m to £4,510m. This increase primarily reflects
the profit after tax for the period of £292m, and pension fund actuarial gains
of £136m, offset by fair value losses of £244m and the 2007 final dividend of
£149m.
Pension fund surplus
The table below provides a reconciliation of the Group pension fund surplus (net
of tax) from 1 January 2008 to 30 June 2008.
-0-
*T
UK Other Group
£m £m £m
Pension fund at 1 January 2008 154 (38) 116
Actuarial gains/(losses) 139 (3) 136
Asset reallocation funding 26 - 26
Other movements 22 1 23
-------------------------------------------------------------------------------------------------
Pension fund at 30 June 2008 341 (40) 301
-------------------------------------------------------------------------------------------------
*T
The surplus on the pension scheme as at 30 June 2008 is £301m compared with
£116m at the year end. The movement reflects the change in discount rate for the
UK schemes from 5.6% to 6.5% in line with increases in bond yields during the
first six months, offset by the strengthening of the inflation assumption from
3.2% to 3.6% and lower asset values.
The Group uses medium cohort assumptions for mortality, using PFA92 and PMA92
tables. The life expectancy of a male pensioner aged 60 is assumed to be 85.8,
and 87.0 for a female pensioner.
Cashflow - management basis
-0-
*T
6 Months 6 Months
2008 2007
£m £m
Operating cashflow 344 350
Tax paid (50) (28)
Interest paid (42) (34)
Group dividends (88) (71)
Dividend to minorities (2) (31)
-----------------------------------------------------------------------------------------------
Net cashflow 162 186
Issue of share capital 5 301
Pension asset reallocation funding (37) (86)
Net movement of debt (5) 49
Corporate activity (91) (741)
-----------------------------------------------------------------------------------------------
Cash movement 34 (291)
-----------------------------------------------------------------------------------------------
Represented by:
Decrease in cash and cash equivalents (408) (680)
Purchase of other investments 442 389
-----------------------------------------------------------------------------------------------
34 (291)
-----------------------------------------------------------------------------------------------
*T
The Group's operating cashflow is £344m and is in line with 2007. Tax paid of
£50m is £22m higher than 2007, primarily due to a one off repayment received
last year. Interest paid of £42m is £8m up on 2007, reflecting repo activity and
the foreign exchange impact on Euro loans. The pension funding payment of £37m
is part of our pension scheme asset reallocation strategy. The issue of share
capital and corporate activity in 2007 primarily related to the purchase of the
Codan minority. Corporate activity in 2008 of £91m includes three small
acquisitions in the UK and International, further capital investment in our
Eastern Europe joint venture and the disposal of run off books in the UK and
Scandinavia.
REGIONAL ANALYSIS OF INSURANCE OPERATIONS
SIX MONTHS TO 30 JUNE
-0-
*T
Increase Increase at
Net written premiums as constant
2008 2007 reported exchange
£m £m % %
United Kingdom 1,377 1,365 1 1
International 1,628 1,324 23 8
Emerging Markets 351 294 19 9
Group Re 8 9 (11) (11)
------------------------------------------------------------------------------------------------
Total Group 3,364 2,992 12 5
------------------------------------------------------------------------------------------------
Underwriting result Investment result Insurance result
2008 2007 2008 2007 2008 2007
£m £m £m £m £m £m
United Kingdom 48 51 182 181 230 232
International 121 95 107 100 228 195
Emerging Markets 10 8 21 20 31 28
Group Re - (10) 1 1 1 (9)
------------------------------------------------------------------------------------------------
Total Group 179 144 311 302 490 446
------------------------------------------------------------------------------------------------
Operating ratios
2008 2007
Claims Expenses Combined Claims Expenses Combined
% % % % % %
United Kingdom 62.9 33.3 96.2 62.6 33.5 96.1
International 68.7 21.0 89.7 68.8 20.7 89.5
Emerging Markets 56.6 39.6 96.2 59.1 35.7 94.8
------------------------------------------------------------------------------------------------
Total Group 65.1 27.9 93.0 65.3 28.0 93.3
------------------------------------------------------------------------------------------------
*T
INVESTMENT RESULT BY REGION
SIX MONTHS TO 30 JUNE 2008
-0-
*T
UK International Emerging Group Group
Markets Re
£m £m £m £m £m
Investment income 177 112 19 15 323
Realised gains 20 13 2 1 36
Unrealised gains/(losses), impairments and foreign
exchange (3) (1) - - (4)
Unwind of discount including ADC (12) (17) - (15) (44)
----------------------------------------------------------------------------------------------------
Investment result 182 107 21 1 311
----------------------------------------------------------------------------------------------------
*T
The total investment income is allocated to the regions based on economic
capital requirements. Realised gains, unrealised gains and impairment losses are
allocated with reference to the above amounts. The unwind of discount is
attributed on an actual basis.
UNITED KINGDOM INSURANCE OPERATIONS
SIX MONTHS TO 30 JUNE
-0-
*T
Net written premiums Underwriting result Operating ratio
2008 2007 2008 2007 2008 2007
£m £m £m £m % %
Personal
Household 279 298 3 3 95.8 98.9
Motor 234 227 6 15 97.3 91.3
Other 35 23 (3) 1 99.6 91.7
------------------------------------------------------------------------------------------------
Total UK Personal 548 548 6 19 96.5 96.0
------------------------------------------------------------------------------------------------
Commercial
Property 316 340 (17) (9) 109.6 102.0
Casualty 147 147 8 23 99.3 86.2
Motor 258 230 25 11 87.7 95.7
Other 108 100 26 7 71.6 92.0
------------------------------------------------------------------------------------------------
Total UK Commercial 829 817 42 32 96.0 96.2
------------------------------------------------------------------------------------------------
Total UK 1,377 1,365 48 51 96.2 96.1
------------------------------------------------------------------------------------------------
*T
INTERNATIONAL INSURANCE OPERATIONS
SIX MONTHS TO 30 JUNE
-0-
*T
Net written premiums Underwriting result Operating ratio
2008 2007 2008 2007 2008 2007
£m £m £m £m % %
Personal
Scandinavia 482 413 58 31 86.0 90.2
Canada 311 225 13 22 95.7 90.5
Other Europe 140 115 3 11 97.9 89.1
------------------------------------------------------------------------------------------------
Total Personal 933 753 74 64 91.0 89.7
------------------------------------------------------------------------------------------------
Commercial
Scandinavia 477 394 23 17 89.2 89.8
Canada 117 90 13 6 87.9 92.5
Other Europe 101 87 11 8 91.7 91.9
------------------------------------------------------------------------------------------------
Total Commercial 695 571 47 31 87.8 89.1
------------------------------------------------------------------------------------------------
Total
Scandinavia 959 807 81 48 87.3 89.9
Canada 428 315 26 28 93.7 91.2
Other Europe 241 202 14 19 94.8 90.3
------------------------------------------------------------------------------------------------
Total International 1,628 1,324 121 95 89.7 89.5
------------------------------------------------------------------------------------------------
*T
ESTIMATION TECHNIQUES, RISKS, UNCERTAINTIES AND CONTINGENCIES
Introduction
One of the purposes of insurance is to enable policyholders to protect
themselves against uncertain future events. Insurance companies accept the
transfer of uncertainty from policyholders and seek to add value through the
aggregation and management of these risks.
The uncertainty inherent in insurance is inevitably reflected in the financial
statements of insurance companies. The uncertainty in the financial statements
principally arises in respect of the insurance liabilities of the company.
The insurance liabilities of an insurance company include the provision for
unearned premiums and unexpired risks and the provision for outstanding claims.
Unearned premiums and unexpired risks represent the amount of income set aside
by the company to cover the cost of claims that may arise during the unexpired
period of risk of insurance policies in force at the balance sheet date.
Outstanding claims represent the company's estimate of the cost of settlement of
claims that have occurred by the balance sheet date but have not yet been
finally settled.
In addition to the inherent uncertainty of having to make provision for future
events, there is also considerable uncertainty as regards the eventual outcome
of the claims that have occurred by the balance sheet date but remain unsettled.
This includes claims that may have occurred but have not yet been notified to
the company and those that are not yet apparent to the insured.
As a consequence of this uncertainty, the insurance company needs to apply
sophisticated estimation techniques to determine the appropriate provisions.
Estimation techniques
Claims and unexpired risks provisions are determined based upon previous claims
experience, knowledge of events and the terms and conditions of the relevant
policies and on interpretation of circumstances. Particularly relevant is
experience with similar cases and historical claims payment trends. The approach
also includes the consideration of the development of loss payment trends, the
potential longer term significance of large events, the levels of unpaid claims,
legislative changes, judicial decisions and economic and political conditions.
Where possible, the Group adopts multiple techniques to estimate the required
level of provisions. This assists in giving greater understanding of the trends
inherent in the data being projected. The Group's estimates of losses and loss
expenses are reached after a review of several commonly accepted actuarial
projection methodologies and a number of different bases to determine these
provisions. These include methods based upon the following:
-- the development of previously settled claims, where payments to date are
extrapolated for each prior year;
-- estimates based upon a projection of claims numbers and average cost;
-- notified claims development, where notified claims to date for each year
are extrapolated based upon observed development of earlier years; and
-- expected loss ratios.
In addition, the Group uses other methods such as the Bornhuetter-Ferguson
method, which combines features of the above methods. The Group also uses
bespoke methods for specialist classes of business. In selecting its best
estimate, the Group considers the appropriateness of the methods and bases to
the individual circumstances of the provision class and underwriting year. The
process is designed to select the most appropriate best estimate.
Large claims impacting each relevant business class are generally assessed
separately, being measured either at the face value of the loss adjusters'
estimates or projected separately in order to allow for the future development
of large claims.
Provisions are calculated gross of any reinsurance recoveries. A separate
estimate is made of the amounts that will be recoverable from reinsurers based
upon the gross provisions and having due regard to collectability.
The claims provisions are subject to close scrutiny both within the Group's
business units and at Group Corporate Centre. In addition, for major classes
where the risks and uncertainties inherent in the provisions are greatest,
regular and ad hoc detailed reviews are undertaken by advisers who are able to
draw upon their specialist expertise and a broader knowledge of current industry
trends in claims development. As an example, the Group's exposure to asbestos
and environmental pollution is examined on this basis. The results of these
reviews are considered when establishing the appropriate levels of provisions
for outstanding claims and unexpired periods of risk.
It should be emphasised that the estimation techniques for the determination of
insurance liabilities involve obtaining corroborative evidence from as wide a
range of sources as possible and combining these to form the overall estimate.
This technique means that the estimate is inevitably deterministic rather than
stochastic. A stochastic valuation approach, whereby a range of possible
outcomes is estimated and probabilities assigned thereto, is only possible in a
limited number of situations.
The pension assets and pension and post retirement liabilities are calculated in
accordance with International Accounting Standard 19 (IAS 19). The assets,
liabilities and income statement charge, calculated in accordance with IAS 19,
are sensitive to the assumptions made from time to time, including inflation,
interest rate, investment return and mortality. IAS 19 compares, at a given
date, the current market value of a pension fund's assets with its long term
liabilities, which are calculated using a discount rate in line with yields on
'AA' rated bonds of suitable duration and currency. As such, the financial
position of a pension fund on this basis is highly sensitive to changes in bond
rates and will also be impacted by changes in equity markets.
Uncertainties and contingencies
The uncertainty arising under insurance contracts may be characterised under a
number of specific headings, such as:
-- uncertainty as to whether an event has occurred which would give rise to
a policyholder suffering an insured loss;
-- uncertainty as to the extent of policy coverage and limits applicable;
-- uncertainty as to the amount of insured loss suffered by a policyholder
as a result of the event occurring; and
-- uncertainty over the timing of a settlement to a policyholder for a loss
suffered.
The degree of uncertainty will vary by policy class according to the
characteristics of the insured risks and the cost of a claim will be determined
by the actual loss suffered by the policyholder.
There may be significant reporting lags between the occurrence of the insured
event and the time it is actually reported to the Group. Following the
identification and notification of an insured loss, there may still be
uncertainty as to the magnitude and timing of the settlement of the claim. There
are many factors that will determine the level of uncertainty such as inflation,
inconsistent judicial interpretations and court judgments that broaden policy
coverage beyond the intent of the original insurance, legislative changes and
claims handling procedures.
The establishment of insurance liabilities is an inherently uncertain process
and, as a consequence of this uncertainty, the eventual cost of settlement of
outstanding claims and unexpired risks can vary substantially from the initial
estimates, particularly for the Group's long tail lines of business. The Group
seeks to provide appropriate levels of claims provision and provision for
unexpired risks taking the known facts and experience into account.
The Group has exposures to risks in each class of business within each operating
segment that may develop and that could have a material impact upon the Group's
financial position. The geographic and insurance risk diversity within the
Group's portfolio of issued insurance policies make it not possible to predict
whether material development will occur and, if it does occur, the location and
the timing of such an occurrence. The estimation of insurance liabilities
involves the use of judgments and assumptions that are specific to the insurance
risks within each territory and the particular type of insurance risk covered.
The diversity of the insurance risks results in it not being possible to
identify individual judgments and assumptions that are more likely than others
to have a material impact on the future development of the insurance
liabilities.
The sections below identify a number of specific risks relating to asbestos and
environmental claims. There may be other classes of risk which could develop in
the future and that could have a material impact on the Group's financial
position.
The Group evaluates the concentration of exposures to individual and cumulative
insurance risk and establishes its reinsurance policy to reduce such exposure to
levels acceptable to the Group.
Asbestos and environmental claims
The estimation of the provisions for the ultimate cost of claims for asbestos
and environmental pollution is subject to a range of uncertainties that is
generally greater than those encountered for other classes of insurance
business. As a result it is not possible to determine the future development of
asbestos and environmental claims with the same degree of reliability as with
other types of claims, particularly in periods when theories of law are in flux.
Consequently, traditional techniques for estimating claims provisions cannot
wholly be relied upon and the Group employs specialised techniques to determine
provisions using the extensive knowledge of both internal asbestos and
environmental pollution experts and external legal and professional advisors.
Factors contributing to this higher degree of uncertainty include:
-- the long delay in reporting claims from the date of exposure (for
example, cases of mesothelioma can have a latent period of up to 40
years). This makes estimating the ultimate number of claims we will
receive particularly difficult;
-- issues of allocation of responsibility among potentially responsible
parties and insurers;
-- emerging court decisions and the possibility of retrospective
legislative changes increasing or decreasing insurer liability;
-- the tendency for social trends and factors to influence court awards;
-- developments pertaining to the Group's ability to recover reinsurance
for claims of this nature; and
-- for US liabilities from our London market business, developments in the
tactics of US plaintiff lawyers and court decisions and awards.
Acquisitions and disposals
The Group makes acquisitions and disposals of businesses as part of its normal
operations. All acquisitions are made after due diligence, which will include,
amongst other matters, assessment of the adequacy of claims reserves, assessment
of the recoverability of reinsurance balances, inquiries with regard to
outstanding litigation and inquiries of local regulators and taxation
authorities. Consideration is also given to potential costs, risks and issues in
relation to the integration of any proposed acquisitions with existing RSA
operations. The Group will seek to receive the benefit of appropriate
contractual representations and warranties in connection with any acquisition
and, where necessary, additional indemnifications in relation to specific risks
although there can be no guarantee that such protection will be adequate in all
circumstances. The Group may also provide relevant representations, warranties
and indemnities to counterparties on any disposal. While such representations,
warranties and indemnities are essential components of many contractual
relationships, they do not represent the underlying purpose for the transaction.
These clauses are customary in such contracts and may from time to time lead to
us receiving claims from counterparties.
Contracts with third parties
The Group enters into joint ventures, outsourcing contracts and distribution
arrangements with third parties in the normal course of its business and is
reliant upon those third parties performing their obligations in accordance with
the terms and conditions of the contracts.
Litigation, disputes and investigations
The Group, in common with the insurance industry in general, is subject to
litigation, mediation and arbitration, and regulatory, governmental and other
sectoral inquiries and investigations in the normal course of its business. In
addition the Group is exposed to the risk of litigation in connection with its
former ownership of the US operation. The directors do not believe that any
current mediation, arbitration, regulatory, governmental or sectoral inquiries
and investigations and pending or threatened litigation or dispute will have a
material adverse effect on the Group's financial position, although there can be
no assurance that losses or financial penalties resulting from any current
mediation, arbitration, regulatory, governmental or sectoral inquiries and
investigations and pending or threatened litigation or dispute will not
materially affect the Group's financial position or cash flows for any period.
Reinsurance
The Group is exposed to disputes on, and defects in, contracts with its
reinsurers and the possibility of default by its reinsurers. The Group is also
exposed to the credit risk assumed in fronting arrangements and to potential
reinsurance capacity constraints. In selecting the reinsurers with whom we do
business our strategy is to seek reinsurers with the best combination of credit
rating, price and capacity. We publish internally a list of authorised
reinsurers who pass our selection process and which our operations may use for
new transactions.
The Group monitors the financial strength of its reinsurers, including those to
whom risks are no longer ceded. Allowance is made in the financial position for
non recoverability due to reinsurer default by requiring operations to provide,
in line with Group standards, having regard to companies on the Group's 'Watch
List'. The 'Watch List' is the list of companies whom the directors believe will
not be able to pay amounts due to the Group in full.
Changes in foreign exchange rates may impact our results
We publish our consolidated financial statements in Pounds Sterling. Therefore,
fluctuations in exchange rates used to translate other currencies, particularly
other European currencies and the US dollar, into Pounds Sterling will impact
our reported consolidated financial condition, results of operations and cash
flows from period to period. These fluctuations in exchange rates will also
impact the Pound Sterling value of our investments and the return on our
investments.
Income and expenses for each income statement item are translated at average
exchange rates. Balance sheet assets and liabilities are translated at the
closing exchange rates at the balance sheet date.
Investment risk
The Group is exposed to credit risk on its invested assets. Credit risk includes
the non performance of contractual payment obligations on invested assets and
adverse changes in the credit worthiness of invested assets including exposures
to issuers or counterparties for bonds, equities, deposits and derivatives. Our
insurance investment portfolios are concentrated in listed securities with very
low levels of exposure to assets without quoted market prices. We use model
based analysis to verify asset values when market values are not readily
available.
We use derivative financial instruments to reduce our exposure to adverse
fluctuations in interest rates, foreign exchange rates and equity markets. We
have strict controls over the use of derivative instruments.
Rating agencies
The ability of the Group to write certain types of insurance business is
dependent on the maintenance of the appropriate credit ratings from the rating
agencies. The Group has the objective of maintaining single 'A' ratings. At the
present time the ratings are 'A' (stable) from S&P upgraded from 'A-' in
December 2007, 'A-' (positive outlook) from AM Best and 'A3' (stable) from
Moody's. Any worsening in the ratings could have an adverse impact on the
ability of the Group to write certain types of general insurance business.
Regulatory environment
The legal, regulatory and accounting environment is subject to significant
change in many of the jurisdictions in which we operate. We continue to monitor
the developments and react accordingly.
In particular the Group is continuing to monitor and respond to ongoing
consultation following publication of the Solvency II Framework Directive, which
is intended, in the medium term, to achieve greater harmonisation of approach
across European member states to assessing capital resources and requirements.
The directors are confident that the Group will continue to meet all future
regulatory capital requirements.
Condensed Financial Statements
-0-
*T
Condensed consolidated income statement
Condensed statement of recognised income and expense
Condensed consolidated balance sheet
Condensed cashflow statement
Explanatory notes to the condensed consolidated financial statements
*T
CONDENSED CONSOLIDATED INCOME STATEMENT
STATUTORY BASIS
-0-
*T
6 Months 6 Months 12 Months
2008 2007 2007
(audited)
£m £m £m
Continuing operations
Income
Gross written premiums 3,767 3,438 6,596
Less: reinsurance premiums (403) (446) (759)
------------------------------------------------------------------------------------------------
Net written premiums 3,364 2,992 5,837
----------- ---------- ------------
Change in the gross provision for unearned premiums (294) (275) (235)
Less: change in provision for unearned premiums,
reinsurers' share 22 14 5
----------- ---------- ------------
Change in provision for unearned premiums (272) (261) (230)
------------------------------------------------------------------------------------------------
Net earned premiums 3,092 2,731 5,607
Net investment return 355 346 709
Other operating income 54 50 113
------------------------------------------------------------------------------------------------
Total income 3,501 3,127 6,429
------------------------------------------------------------------------------------------------
Expenses
----------- ---------- ------------
Gross claims incurred (2,118) (2,025) (4,044)
Less: claims recoveries from reinsurers 106 239 387
----------- ---------- ------------
Net claims and benefits (2,012) (1,786) (3,657)
Underwriting and policy acquisition costs (950) (845) (1,776)
Unwind of discount including ADC (44) (43) (81)
Other operating expenses (54) (59) (119)
------------------------------------------------------------------------------------------------
Total expenses (3,060) (2,733) (5,633)
------------------------------------------------------------------------------------------------
Results of operating activities 441 394 796
Finance costs (54) (52) (104)
Profit/(loss) on disposals 18 (5) (22)
Net share of (loss)/profit after tax of associates (10) 1 -
------------------------------------------------------------------------------------------------
Profit before tax 395 338 670
Income tax expense (103) (88) (29)
------------------------------------------------------------------------------------------------
Profit after tax from continuing operations 292 250 641
------------------------------------------------------------------------------------------------
Discontinued operations
Loss after tax from discontinued operations - (13) (13)
------------------------------------------------------------------------------------------------
Profit after tax 292 237 628
------------------------------------------------------------------------------------------------
Attributable to:
Equity holders of the Company 287 208 596
Minority interests 5 29 32
------------------------------------------------------------------------------------------------
Profit after tax 292 237 628
------------------------------------------------------------------------------------------------
Earnings per share on profit from continuing operations attributable to the ordinary
shareholders of the Company:
Basic 8.7p 7.2p 19.3p
Diluted 8.6p 7.1p 19.0p
Earnings per share on profit attributable to the ordinary shareholders of the
Company:
Basic 8.7p 6.7p 18.9p
Diluted 8.6p 6.6p 18.6p
*T
The attached notes are an integral part of these condensed consolidated
financial statements. For dividend information refer to note 8.
CONDENSED STATEMENT OF RECOGNISED INCOME AND EXPENSE
STATUTORY BASIS
-0-
*T
6 Months 6 Months 12 Months
2008 2007 2007
(audited)
£m £m £m
Exchange gains 35 21 140
Fair value losses net of tax (244) (55) (67)
Pension fund actuarial gains/(losses) net of tax 136 88 (16)
-----------------------------------------------------------------------------------------------
Net (losses)/gains recognised in equity (73) 54 57
Profit after tax 292 237 628
-----------------------------------------------------------------------------------------------
Total recognised income for the year 219 291 685
-----------------------------------------------------------------------------------------------
Attributable to:
Equity holders of the Company 216 279 670
Minority interests 3 12 15
-----------------------------------------------------------------------------------------------
219 291 685
-----------------------------------------------------------------------------------------------
*T
The attached notes are an integral part of these condensed consolidated
financial statements.
CONDENSED CONSOLIDATED BALANCE SHEET
STATUTORY BASIS
-0-
*T
30 June 30 June 31 December
2008 2007 2007
(audited)
£m £m £m
Assets
Goodwill and other intangible assets 694 589 663
Property and equipment 422 366 377
------------ ------------ ---------------
Investment property 396 474 429
Investments in associates 106 28 105
Financial assets 11,662 10,814 11,340
------------ ------------ ---------------
Total investments 12,164 11,316 11,874
Reinsurers' share of insurance contract liabilities 1,832 1,935 1,872
Insurance and reinsurance debtors 2,747 2,881 2,579
Deferred acquisition costs 577 493 542
------------ ------------ ---------------
Current tax assets 26 21 19
Deferred tax assets 140 18 87
Other debtors and other assets 1,289 1,085 963
------------ ------------ ---------------
1,455 1,124 1,069
Cash and cash equivalents 1,158 1,173 1,509
-----------------------------------------------------------------------------------------------
21,049 19,877 20,485
Non current and disposal group assets held for sale* 13 - 108
-----------------------------------------------------------------------------------------------
Total assets 21,062 19,877 20,593
-----------------------------------------------------------------------------------------------
Equity, reserves and liabilities
Equity and reserves
Shareholders' funds 3,221 2,704 3,077
Minority interests 68 66 67
-----------------------------------------------------------------------------------------------
Total equity and reserves 3,289 2,770 3,144
-----------------------------------------------------------------------------------------------
Liabilities
Loan capital 1,221 1,165 1,194
Insurance contract liabilities 14,107 13,749 13,727
Insurance and reinsurance liabilities 485 428 426
Borrowings 302 121 303
------------ ------------ ---------------
Current tax liabilities 133 126 92
Deferred tax liabilities 277 269 224
Provisions 287 286 331
Other liabilities 961 963 1,087
------------ ------------ ---------------
Provisions and other liabilities 1,658 1,644 1,734
-----------------------------------------------------------------------------------------------
17,773 17,107 17,384
Non current and disposal group liabilities held for
sale* - - 65
-----------------------------------------------------------------------------------------------
Total liabilities 17,773 17,107 17,449
-----------------------------------------------------------------------------------------------
Total equity, reserves and liabilities 21,062 19,877 20,593
-----------------------------------------------------------------------------------------------
*T
These condensed consolidated half yearly financial statements have been approved
for issue by the Board of Directors on 6 August 2008.
The attached notes are an integral part of these condensed consolidated
financial statements.
* Non current and disposal group assets and liabilities held for sale in 2008
relate to property and in December 2007 relate to a UK subsidiary and property.
CONDENSED CASHFLOW STATEMENT
STATUTORY BASIS
-0-
*T
6 Months 6 Months 12 Months
2008 2007 2007
(audited)
£m £m £m
Cash generated from continuing operations 48 (158) 66
Tax paid (50) (28) (127)
Interest received 320 283 587
Interest paid (42) (41) (101)
Dividends received 1 1 1
Pension asset reallocation funding (37) (86) (86)
Cashflows from discontinued operations - (37) (37)
------------------------------------------------------------------------------------------------
Net cashflows from operating activities 240 (66) 303
------------------------------------------------------------------------------------------------
Proceeds from sales or maturities of:
Investment contracts 2,805 4,111 8,672
Investment property 1 3 18
Property and equipment 2 5 26
Intangible assets 2 22 1
Investments in subsidiaries (net of cash disposed of) (21) (255) (407)
Investments in associates - - 22
Purchase or settlement of:
Investment contracts (3,246) (4,438) (8,878)
Investment property (1) (5) (8)
Property and equipment (31) (11) (28)
Intangible assets (23) (66) (66)
Investments in subsidiaries (net of cash acquired) (21) (10) (52)
Investments in associates (25) - (64)
Cashflows from discontinued operations - 83 83
------------------------------------------------------------------------------------------------
Net cashflows from investing activities (558) (561) (681)
------------------------------------------------------------------------------------------------
Proceeds from issue of share capital 5 297 304
Purchase of shares from minorities - (554) (616)
Dividends paid to ordinary shareholders (83) (66) (102)
Dividends paid to preference shareholders (5) (5) (9)
Dividends paid to minority interests (2) (31) (31)
Net movement in long term borrowings - (24) (25)
Net movement in other borrowings (5) 118 293
------------------------------------------------------------------------------------------------
Net cashflows from financing activities (90) (265) (186)
------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents and bank
overdrafts (408) (892) (564)
Cash and cash equivalents and bank overdrafts at beginning
of the year 1,538 2,040 2,040
Effect of exchange rate changes on cash and cash
equivalents 24 25 62
------------------------------------------------------------------------------------------------
Cash and cash equivalents and bank overdrafts at end of
the period 1,154 1,173 1,538
------------------------------------------------------------------------------------------------
*T
A reconciliation of cash and cash equivalents and bank overdrafts at the end of
the period to the condensed consolidated balance sheet is included in note 7.
The attached notes are an integral part of these condensed consolidated
financial statements.
EXPLANATORY NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Changes in significant accounting policies
The annual financial statements are prepared in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European Union. The
condensed financial information in this half yearly report has been prepared in
accordance with International Accounting Standard 34 (IAS 34). There have been
no significant changes in accounting policy and methods of computation in the
six months to 30 June 2008. A full list of accounting policies can be found in
the 2007 Annual Report and Accounts (see note 10 below).
2. Operating segments
6 months ended 30 June 2008
-0-
*T
UK International Emerging Central Group
Markets functions
£m £m £m £m £m
Net written premiums 1,377 1,628 351 8 3,364
----------------------------------------------------------------------------------------------------
Underwriting result 48 121 10 - 179
Investment result 182 107 21 1 311
----------------------------------------------------------------------------------------------------
Insurance result 230 228 31 1 490
Other activities 1 (2) (11) (38) (50)
----------------------------------------------------------------------------------------------------
Operating result (management basis) 231 226 20 (37) 440
Amortisation (9)
Net share of loss after tax of associates 10
------------------------------------------------------------------------------ ---------------------
Results of operating activities
(per condensed consolidated income statement) 441
------------------------------------------------------------------------------ ---------------------
Combined operating ratio (%) 96.2 89.7 96.2 - 93.0
----------------------------------------------------------------------------------------------------
Segment assets (£m) 8,845 9,547 1,545 1,006 20,943
----------------------------------------------------------------------------------------------------
*T
6 months ended 30 June 2007
-0-
*T
UK International Emerging Central Group
Markets functions
£m £m £m £m £m
Net written premiums 1,365 1,324 294 9 2,992
---------------------------------------------------------------------------------------------------
Underwriting result 51 95 8 (10) 144
Investment result 181 100 20 1 302
---------------------------------------------------------------------------------------------------
Insurance result 232 195 28 (9) 446
Other activities (1) (5) (3) (34) (43)
---------------------------------------------------------------------------------------------------
Operating result (management basis) 231 190 25 (43) 403
Amortisation (8)
Net share of profit after tax of associates (1)
---------------------------------------------------------------------------------------------------
Results of operating activities
(per condensed consolidated income statement) 394
---------------------------------------------------------------------------------------------------
Combined operating ratio (%) 96.1 89.5 94.8 - 93.3
---------------------------------------------------------------------------------------------------
Segment assets (£m) 9,128 7,923 1,356 1,442 19,849
---------------------------------------------------------------------------------------------------
*T
The Group's half yearly results are not subject to any significant impact
arising from the seasonality or cyclicality of operations, although there is
some seasonality in the regions within which the Group operates.
The information above (including the 2007 comparative data) has been prepared on
the same basis as reported in the 2007 Annual Report and Accounts. The segment
assets exclude investment in associates and non current and disposal group
assets held for sale.
3. Earnings per share
The earnings per share is calculated by reference to the result attributable to
the equity shareholders and the weighted average number of shares in issue
during the period. On a basic and diluted basis this was 3,244,352,809 and
3,279,798,363 respectively (excluding those held in ESOP trusts). The number of
shares in issue at 30 June 2008 was 3,293,779,795 (excluding those held in ESOP
trusts).
4. Changes in estimates of amounts reported in prior financial years
During the first half of the year, changes to claims reserve estimates made in
prior years as a result of reserve development is included in the prior year
profit of £123m (H1 2007: £175m).
The Group pension fund surplus as at 30 June 2008 is £301m (31 December 2007:
£116m). Further information on the pension fund surplus is included on page 12.
5. Business combination and other changes in the structure of the Group
On 11 February 2008, the Group acquired 100% of the share capital of Fyfe Group
Limited in the UK. On 31 March 2008, the Group acquired 100% of the share
capital of Sertus Underwriting Limited in Ireland. The total consideration was
£20m and goodwill of £19m arose. The acquisitions do not have a material impact
on the Group's results for the first half of 2008.
On 29 February 2008 the Group obtained regulatory approval for the disposal of
Guildhall Insurance Company Limited. The disposal generated a £1m pre tax
profit. The net assets were classified as held for sale at 31 December 2007. On
18 May 2008 the Group dissolved a French subsidiary, Royal & Sun Alliance SA,
that generated a £17m pre tax profit. The profits on disposal represent foreign
exchange, which is recycled from shareholders' funds and does not impact total
equity.
6. Changes in total equity and reserves for the period to 30 June
-0-
*T
Total
Shareholders' Minority equity and
funds interest reserves
£m £m £m
Balance at 1 January 2008 3,077 67 3,144
Total recognised income for the year 216 3 219
Share issue 69 - 69
Changes in shareholders' interests in subsidiaries (2) - (2)
Share options 13 - 13
Prior year final dividend (147) (2) (149)
Preference dividend (5) - (5)
------------------------------------------------------------------------------------------------
Balance at 30 June 2008 3,221 68 3,289
------------------------------------------------------------------------------------------------
Total
Shareholders' Minority equity and
funds interest reserves
£m £m £m
Balance at 1 January 2007 2,561 331 2,892
Total recognised income for the year 279 12 291
Share issue 354 - 354
Changes in shareholders' interests in subsidiaries (368) (246) (614)
Share options 6 - 6
Prior year final dividend (123) (31) (154)
Preference dividend (5) - (5)
------------------------------------------------------------------------------------------------
Balance at 30 June 2007 2,704 66 2,770
------------------------------------------------------------------------------------------------
*T
During the six months to 30 June 2008, 6,631,414 (H1 2007: 2,539,009) ordinary
shares were issued on the exercise of employee share options. The Company also
issued 50,784,107 (H1 2007: 35,178,729) ordinary shares under the scrip scheme
approved by the shareholders at the 2008 Annual General Meeting. During 2007,
the Company issued 186,350,000 ordinary shares in a placing to fund the
acquisition of Codan A/S.
7. Cashflow
-0-
*T
6 Months 2008 6 Months 2007
£m £m
Cash and cash equivalents and bank overdrafts (as reported within
the condensed
cashflow statement) 1,154 1,173
Add: bank overdrafts 4 -
-------------------------------------------------------------------------------------------------
Total cash and cash equivalents 1,158 1,173
-------------------------------------------------------------------------------------------------
*T
8. Dividends
-0-
*T
30 June 2008 30 June 2007
Per share Total Per share Total
p £m p £m
Ordinary dividend
Final paid in respect of prior year 4.53 147 4.12 123
Interim proposed/paid in respect of
current year 2.73 90 2.48 79
-------------------------------------------------------------------------------------------------
7.26 237 6.60 202
Preference dividend 5 5
-------------------------------------------------------------------------------------------------
242 207
-------------------------------------------------------------------------------------------------
*T
9. Exchange rates
-0-
*T
£/local currency 6 Months 2008 6 Months 2007 12 Months 2007
Average Closing Average Closing Average Closing
Canadian Dollar 1.99 2.02 2.23 2.13 2.14 1.96
Danish Kroner 9.63 9.42 11.04 11.05 10.88 10.15
Euro 1.29 1.26 1.49 1.47 1.46 1.36
*T
10. Results for 2007
The financial information for the year ended 31 December 2007 does not
constitute statutory accounts as defined in Section 240 of the Companies Act
1985, but has been abridged from the statutory accounts. The statutory Group
financial statements of RSA Insurance Group plc (previously Royal & Sun Alliance
Insurance Group plc) for the year ended 31 December 2007 have been delivered to
the Registrar of Companies. The independent auditors' report on the Group
financial statements for the year ended 31 December 2007 is unqualified and does
not contain a statement under Section 237(2) or (3) of the Companies Act 1985.
RESPONSIBILITY STATEMENTS
We confirm that to the best of our knowledge:
a) The condensed set of financial statements on pages 20 to 26 has been prepared
in accordance with IAS 34 'Interim Financial Reporting',
b) The interim management report on pages 3 to 18 includes a fair review of the
information required by DTR 4.2.7R (indication of important events during the
first six months and description of principal risks and uncertainties for the
remaining six months of the year), and
c) The interim management report on pages 3 to 18 includes a fair review of the
information required by DTR 4.2.8R (disclosure of related party transactions and
changes therein).
Signed on behalf of the Board
-0-
*T
Andy Haste George Culmer
Chief Executive Officer Chief Financial Officer
6 August 2008 6 August 2008
*T
INDEPENDENT REVIEW REPORT TO RSA INSURANCE GROUP PLC
Introduction
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
2008 which comprises the condensed consolidated income statement, the condensed
statement of recognised income and expense, the condensed consolidated balance
sheet, the condensed cashflow statement and related notes 1 to 10. We have read
the other information contained in the half yearly financial report and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial
statements.
This report is made solely to the Company in accordance with International
Standard on Review Engagements 2410 issued by the Auditing Practices Board. Our
work has been undertaken so that we might state to the Company those matters we
are required to state to them in an independent review 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 formed.
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 Disclosure and Transparency Rules of the
United Kingdom's Financial Services Authority.
As disclosed in note 1, the annual financial statements of the Group are
prepared in accordance with IFRSs as adopted by the European Union. The
condensed set of financial statements included in this half yearly financial
report has been prepared in accordance with International Accounting Standard 34
'Interim Financial Reporting', as adopted by the European Union.
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.
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 United Kingdom. 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. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) 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.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe
that the condensed financial statements in the half yearly financial report for
the six months ended 30 June 2008 is not prepared, in all material respects, in
accordance with International Accounting Standard 34 as adopted by the European
Union and the Disclosure and Transparency Rules of the United Kingdom's
Financial Services Authority.
-0-
*T
Deloitte & Touche LLP
Chartered Accountants and Registered Auditor
6 August 2008
London, UK
*T
SHAREHOLDER INFORMATION
Registered office and Group Corporate Centre
9th Floor, One Plantation Place, 30 Fenchurch Street, London EC3M 3BD.
Telephone: +44 (0)20 7111 7000. Registered in England No. 2339826.
Company website
The Annual Report and Accounts, half yearly results and other useful information
about the Company, such as the current share price, is available on our website
www.rsagroup.com. Frequently asked questions and answers in respect of
shareholding matters are detailed on the Company's website.
Registrar
The Company's share register is maintained by Equiniti Limited.
Queries regarding your shareholding should be addressed to Equiniti at the
following address: Equiniti Limited, Aspect House, Spencer Road, Lancing, West
Sussex, BN99 6DA. Telephone: +44 (0)871 384 2048. Overseas callers should use
+44 (0)121 415 7064. Shareholders with a text phone facility should use +44
(0)871 384 2255.
Please quote the company reference number 0059 and your shareholder account
number (on your share certificate and dividend tax vouchers) when contacting or
corresponding with Equiniti.
Low cost share dealing facilities
A telephone and internet dealing service is available through Equiniti which
provides a simple way of buying and selling RSA shares. Commission is 1.5% with
a minimum charge of £25 for telephone dealing and 1% with a minimum charge of
£20 for internet dealing. For telephone sales, call +44 (0)845 6037 037 between
8.00am and 4.30pm, Monday to Friday, and for internet sales log on to
www.shareview.co.uk/dealing. You will need your shareholder reference number as
shown on your share certificate. Share dealing services are also widely provided
by other organisations.
Scrip dividend
The Company operates a Scrip Dividend Scheme whereby ordinary shareholders can
receive dividends in the form of shares. The Scheme enables shareholders to
increase their holding in the Company without incurring dealing costs or stamp
duty. The price of the shares for the 2008 interim dividend is fixed by
reference to the average of the Company's middle market closing price for the
five consecutive dealing days commencing on the ex dividend date of 13 August
2008.
If you wish to participate in the Scheme please contact Equiniti Limited, either
by telephone or by writing to them at the contact details. Mandate forms with
respect to the 2008 interim dividend should be returned to Equiniti Limited to
arrive no later than 31 October 2008.
FINANCIAL CALENDAR
-0-
*T
13 August 2008
Ex dividend date for the ordinary interim dividend for 2008
15 August 2008
Record date for the ordinary interim dividend for 2008
21 August 2008
Announcement of the scrip dividend price for the ordinary interim dividend for 2008
27 August 2008
Ex dividend date for the second preference dividend for 2008
29 August 2008
Record date for the second preference dividend for 2008
1 October 2008
Payment date for the second preference dividend for 2008
31 October 2008
Deadline for the receipt of scrip dividend mandates by Equiniti Limited in relation to ordinary interim dividend 2008
6 November 2008
Announcement of Q3 interim management statement
28 November 2008
Payment of the ordinary interim dividend for 2008
26 February 2009
Announcement of the full year results for 2008, the ordinary final dividend for 2008 and the first preference dividend
for 2009
*T
RSA Insurance Group Plc
Copyright Business Wire 2008
© Thomson Reuters 2009 All rights reserved
Millions of Brazilians in the dark