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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Rsa Insurance Group Ld | LSE:RSA | London | Ordinary Share | GB00BKKMKR23 | ORD GBP1.00 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 684.20 | 684.20 | 684.40 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
TIDMRSA
RNS Number : 8118M
RSA Insurance Group PLC
02 August 2017
RSA Insurance Group plc 2 August 2017
2017 INTERIM RESULTS
RSA announces strong first half results.
Underlying earnings per share up 31%; Interim dividend up 32%.
Return on Tangible Equity(1) 16.6%.
Stephen Hester, RSA Group Chief Executive, commented:
"RSA did well in the first half. We delivered outperformance, showing record underwriting results, attractive earnings and dividend growth with strong return on capital. Pleasingly, customers are also growing business volumes with us.
Across the Group the focus is on making progress towards our best-in-class ambitions. And while RSA is now measuring against higher performance standards, there is much more that can be done to improve."
Trading results
-- Group operating profit GBP360m up 15% (H1 2016: GBP312m): Scandinavia GBP202m; Canada GBP71m; UK & International GBP151m(2) .
-- Group underwriting profit of GBP222m, up 28% (H1 2016: GBP174m).
- Record(1) Group combined ratio of 93.2% (H1 2016: 94.7%). Scandinavia 81.9%; Canada 94.8%; and UK & International 95.4%(2) .
- Group attritional loss ratio of 54.9%, 0.3pts better than last year(3) ; weather and large losses 0.2pts worse.
- Group prior year underwriting profit of GBP79m (H1 2016: GBP55m).
-- Group premiums of GBP3.4bn up 11% at reported fx, and up 3% at constant fx. Volumes accounted for 1% and rate increases 2%.
-- Investment income of GBP171m (H1 2016: GBP187m) down 9% versus the same period last year reflecting the impact of disposals and ongoing reinvestment at lower yields.
-- Below the operating result there were lower interest costs following our debt restructuring, with other non-operating items largely as flagged.
-- Pre-tax profit of GBP263m, up 78% (H1 2016: GBP148m).
-- Underlying earnings per share (EPS) 23.3p up 31% (H1 2016: 17.8p). Stated EPS up 133% to 18.4p.
-- Interim dividend of 6.6p/ordinary share declared, up 32% (H1 2016: 5.0p).
(1) Underlying measure, please refer to pages 21-23 for further information.
(2) Excluding Ogden impact.
(3) At constant exchange, ex disposals
Capital & balance sheet
-- Solvency II coverage ratio of 163% after dividend accrual (31 December 2016: 158%), slightly above 130-160% target range.
-- Reserve margin returned to 5.0% target (31 December 2016: 5.5%) after release for Ogden rate change.
-- Tangible equity GBP2.8bn (31 December 2016: GBP2.9bn), 273p per share. -- Underlying return on opening tangible equity of 16.6% annualised (H1 2016: 12.8%).
Strategic update
-- Restructuring now complete. 2017 actions comprised the disposal of UK legacy liabilities (announced in February); the issuance of c.GBP300m of restricted tier 1 notes in Scandinavia and retirement of c.GBP600m of existing high coupon debt. These actions reduced risk, improved capital resilience, and lowered interest costs.
-- The Group's entire focus is now on the drive for outperformance. In that context, our many performance improvement initiatives continue to deliver progress, targeted at customer service, underwriting capabilities, and costs.
-- The improved premium trends we report for the first half reflect the service and capability enhancements we have been implementing. Pleasingly they are reflected in every region.
-- Underwriting capabilities continue to be refined across the Group. These include more sophisticated and agile pricing models, underwriter training and heightened discipline, and technology driven insights. Progress on loss ratios can be volatile but is on track overall with a couple of business line exceptions.
-- Group written controllable costs for H1 2017 were down 6% year-on-year at constant exchange to GBP723m (comprising 8% cost reductions, offset by 2% inflation). Group headcount down 8% versus H1 2016. Overall we remain on track to deliver >GBP400m gross annualised savings by 2018 (c.GBP330m achieved to date).
Alternative performance measures:
The Group uses alternative performance measures, including certain underlying measures, to help explain business performance and financial position. Where not defined in the body of this announcement, further information is set out in the appendix on pages 21-23.
MANAGEMENT REPORT - KEY FINANCIAL PERFORMANCE DATA
Management basis
Hot Features
Premium
GBPm (unless stated) H1 2017 H1 2016
Profit and loss
Group net written premiums 3,449 3,247
Group net written premiums ex disposals 3,121
Underwriting profit 222 174
Combined operating ratio 93.2% 94.7%
Investment result 148 150
Operating result 360 312
Profit before tax 263 148
Underlying profit before tax 327 258
Net attributable profit 188 80
Metrics
Stated earnings / share (pence) 18.4p 7.9p
Underlying earnings / share (pence) 23.3p 17.8p
Interim dividend / ordinary share (pence) 6.6p 5.0p
Underlying return on tangible equity, annualised
(%) 16.6% 12.8%
30 June 31 Dec
2017 2016
Balance sheet
Net asset value (GBPm) 3,651 3,715
Tangible net asset value (GBPm) 2,790 2,862
Net asset value per share 345p 352p
Tangible net asset value per share 273p 281p
Capital
Solvency II surplus (GBPbn) 1.1 1.1
Solvency II coverage ratio 163% 158%
CHIEF EXECUTIVE'S STATEMENT
RSA is pleased to report another half year of outperformance. But we are not relaxing. There is much more we aim to improve - for both customers and shareholders. Competitive markets and our own raised ambitions will demand no less.
Across RSA's markets, conditions are essentially unchanged versus 2016 though with many variations by business line and geography. We are carefully watching inflation trends, notably in the UK. Testing competition and, occasionally, volatile loss trends create underwriting challenges which we must continue to address more crisply as capabilities improve.
RSA's restructuring efforts were completed by the GBP834m sale of UK legacy liabilities announced in February, and the subsequent repurchase and refinancing of capital instruments. Taken together these actions reduced risk, boosted capital resilience and increased future earnings. They leave us with undiluted focus on the pursuit of high performance in our continuing businesses.
Our best-in-class ambitions are being pursued through companywide efforts to improve customer service and underwriting skills, and to reduce operating costs.
Net written premiums grew 11% in the period, with higher retention and new business adding to pricing and FX gains. Although top line growth is not our highest priority, it is nevertheless pleasing that customers are responding to the improved capabilities we are deploying.
While underwriting results will always be 'noisy' over short periods, we are pleased with continuing progress, and a combined ratio of 93.2% is our best on record. In terms of volatile items, better than planned weather costs were offset by higher than usual large losses. Attritional loss ratio improvement continued with an H1 ratio of 54.9% vs 55.2% for H1 2016 at constant FX.
Cost efficiency remains crucial for all businesses in our industry. RSA continues to track ahead of our plans in this regard, with gross cost reductions of 8% (CFX) vs prior year.
The strength of our regional line-up also showed well in the period. Our Scandinavian business contributed a majority of underwriting profits with strong underlying advances and above trend prior year profits. Canada did well also, despite higher large losses. Our Irish business returned to profit. Our UK business had the toughest time with Ogden costs, above plan large losses and challenges in household loss ratios. But, excluding Ogden, results were in-line with our plan even here.
Across RSA improvement programmes are continuing to deliver. Our digital capabilities are improving, with notable advances in digital claims and policy servicing. New, more sophisticated underwriting and pricing models continue to roll out. Cost programmes around automation, site consolidation, lean methodology, outsourcing and zero-based budgeting are all progressing.
Overall, RSA is in good health. We have much to do. We will fall short in areas. But we nevertheless expect to make continued good progress in pursuit of sustained outperformance.
Stephen Hester
Group Chief Executive
1 August 2017
MANAGEMENT REPORT
SEGMENTAL INCOME STATEMENT
Management basis - 6 months ended 30 June 2017
Scandinavia Canada UK & International Central Group Group Group
functions H1 2017 ex disposals H1 2016
H1 2016
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Net Written Premiums 1,064 728 1,628 29 3,449 3,121 3,247
Net Earned Premiums 896 777 1,586 (8) 3,251 3,083 3,271
Net Incurred Claims (575) (511) (1,014) (2) (2,102) (2,009) (2,108)
Commissions (24) (105) (312) - (441) (425) (480)
Operating expenses (135) (121) (228) (2) (486) (470) (509)
Underwriting result 162 40 32 (12) 222 179 174
Investment income 54 34 83 - 171 161 187
Investment expenses (2) (1) (3) - (6) (5) (6)
Unwind of discount (12) (2) (3) - (17) (15) (31)
Investment result 40 31 77 - 148 141 150
Central expenses - - - (10) (10) (12) (12)
Operating result 202 71 109 (22) 360 308 312
Interest (30) (54)
Other non-operating
charges (67) (110)
Profit before tax 263 148
Tax (57) (57)
Profit after tax 206 91
Non-controlling
interest (10) (6)
Other equity
costs(1) (8) (5)
Net attributable
profit 188 80
Underlying profit
before
tax 327 258
Loss ratio (%) 64.2 65.8 64.0 - 64.7 65.1 64.5
Weather loss ratio 0.0 2.7 1.1 - 1.2 3.5 3.3
Large loss ratio 5.8 8.2 15.3 - 11.4 8.9 8.4
Current year
attritional
loss ratio 63.1 57.9 48.9 - 54.9 55.0 54.7
Prior year effect
on
loss ratio (4.7) (3.0) (1.3) - (2.8) (2.3) (1.9)
Commission ratio (%) 2.7 13.4 19.6 - 13.6 13.9 14.6
Expense ratio (%) 15.0 15.6 14.4 - 14.9 15.2 15.6
Combined ratio (%) 81.9 94.8 98.0 - 93.2 94.2 94.7
Note:
UK & International comprises the UK (and European branches), Ireland and the Middle East
Please refer to appendix for H1 2016 comparatives
(1) Preference dividends of GBP5m and coupons of GBP3m paid on 2017 issued restricted tier 1 securities.
Premiums
First half 2017 Group net written premiums of GBP3.4bn were up 11% at reported FX and up 3% at constant fx (excluding the impact of disposals).
Foreign exchange provided an 8% benefit to first half premiums. At current exchange rate levels, this benefit will moderate by around half for full year 2017.
Scandinavia Canada UK & Int'l Central Total
Net Written Premiums (GBPm) 1,064 728 1,628 29 3,449
% changes in NWP
Volume change (including reinsurance
effects) (1) 4 1 - 1
Rate increases 2 1 2 - 2
Foreign exchange 9 15 4 - 8
Total Group H1 2017 movt. (ex
disposals) 10 20 7 - 11
We are pleased to report positive topline performance in the first half. Growth of 3% (at constant exchange) included 1% volume growth and 2% rate increases.
We have seen a strengthening of underlying customer activity as capability improvements take effect. Customer retention trends are improving and satisfaction levels remain good. Overall Group retention improved slightly to 81%.
Our goal is to serve customers well but profitably.
Regional trends for H1 2017 include:
-- Scandinavian premiums up 10% at reported fx, and up 1% at constant fx, with growth in Sweden and Norway partly offset by reductions in Denmark;
-- Canadian premiums up 20%, and up 5% at constant fx with Personal up 5% and Commercial also up 5%, reflecting good growth in the broker channel;
-- UK & International premiums were up 7%, and up 3% at constant fx. UK premiums were up 5% (at CFX) with Personal up 12% and Commercial up 1%. Premiums in Ireland were down 8%, whilst Middle East premiums were up 9%.
Underwriting result
Group underwriting profit of GBP222m was up 28% year-on-year.
Total UW result Current Year Prior Year
UW UW
GBPm H1'17 H1'16 H1'17 H1'16 H1'17 H1'16
Scandinavia 162 96 120 94 42 2
Canada 40 37 19 (2) 21 39
UK & International 32 82 22 54 10 28
Of which: UK 17 76 9 41 8 35
Group Re (12) (36) (18) (26) 6 (10)
Total Group ex. disposals 222 179 143 120 79 59
Disposals - (5) - (1) - (4)
Total Group 222 174 143 119 79 55
Current year profit of GBP143m (H1 2016: GBP119m):
-- The Group attritional loss ratio was 54.9% which showed a 0.3 point improvement from H1 2016 at constant exchange. Scandinavia was 1.4 points better. Canada was 0.2 points better after adjusting for the c.1 point of benign 'indirect' weather that we flagged in H1 2016. The UK & International was slightly better than a year ago and included good improvements in UK Commercial, Ireland and the Middle East, offset by a higher UK Personal attritional loss ratio driven by Household.
-- Total Group weather costs were GBP38m or 1.2% of net earned premiums (H1 2016: 3.5% ex disposals; five year average: 3.2%), with experience benign in the UK and Scandinavia.
-- Total Group large losses were GBP370m or 11.4% of net earned premiums (H1 2016: 8.9% ex-disposals; five year average: 8.6%). This elevated large loss experience was driven by higher than trend levels in the UK, Ireland and Canada. Our expectation is it will revert to normal patterns, but we are watching trends carefully.
Prior year profit was GBP79m, with prior year development providing a 2.8 point benefit to the Group combined ratio. This included positive development from each region.
As previously flagged, the Group booked a GBP42m net charge (after release of FY16 margin build) relating to the change in Ogden discount rate in the UK. GBP39m related to our UK business and GBP3m to Ireland.
Our assessment of the margin in reserves for the Group (the difference between our actuarial indication and the booked reserves in the financial statements) is 5% of booked claims reserves per our target. This follows the release of the additional 0.5% that was built at FY16 in anticipation of the Ogden discount rate change.
Underwriting operating expenses
The Group underwriting expense ratio of 14.9% was 0.3 points better than a year ago (H1 2016: 15.2% ex disposals). There were improvements of 0.6 points in Scandinavia and 1.5 points in Canada, whilst the UK reported ratio was 0.4 points higher (though UK total controllable costs and cost ratio improved). We continue to work towards further improvements in the expense ratio in the coming years.
Commissions
The Group commission ratio in H1 2017 of 13.6% compared to 13.9% (ex disposals) in H1 2016. We expect the Group's commission ratio to be broadly similar in the second half of 2017.
Investment result
The investment result was GBP148m (H1 2016: GBP150m) with investment income of GBP171m (H1 2016: GBP187m), investment expenses of GBP6m (H1 2016: GBP6m) and the liability discount unwind of GBP17m (H1 2016: GBP31m).
Investment income was down 9% on prior year, primarily reflecting the impact of the disposal of Latin America and the UK Legacy business together with ongoing reinvestment at lower yields. The average book yield across our major bond portfolios was down slightly to 2.4% (H1 2016: 2.6%).
At current market forward rates, we expect investment income of c.GBP315m for the full year 2017.
Total controllable costs
As at the end of the first half of 2017 our cost reduction programme has delivered total gross annualised cost reductions of around GBP330m. Overall we remain on track to deliver >GBP400m gross annualised savings by 2018.
Group written total controllable costs were down 6% (ex disposals) year-on-year at constant exchange to GBP723m, and comprised 8% cost reductions, offset by 2% inflation.
Scandinavia delivered year-on-year 'real' cost reductions of 7%, with 12% in Canada and 7% in the UK.
Group FTE(1) is down 20% (ex disposals) since the start of 2014 to 13,200 at June 2017, and is down 8% H1 2017 v H1 2016.
Non-operating items
Interest costs:
-- Interest costs in H1 2017 were GBP30m (GBP33m including the new tier 1 issuance - see below), down from GBP54m a year ago. The reduction reflects debt restructuring actions over the past 12 months.
-- In the first half of 2017 the Group issued c.GBP300m of restricted tier 1 notes in Scandinavia; and retired c.GBP600m of existing high coupon debt. These actions supplemented the GBP200m debt retirement completed in July 2016.
-- Coupon costs for the new Scandinavian issuance are reflected at the bottom of the management P&L as 'other equity costs', as per accounting rules. The first half cost was GBP3m, with an annualised interest cost for this instrument of GBP14m.
(1) Full time equivalent employees.
Other non-operating charges:
GBPm H1 2017 H1 2016 Net gains/losses/exchange 44 (19) Debt buyback premium (59) - Restructuring costs (41) (70) Amortisation (8) (7) Pension net interest cost (3) (2) Other(1) - (12) Total (67) (110)
-- Net gains of GBP44m included a GBP66m gain relating to the Legacy disposal (mainly mark-to-market of the assets transferred to the buyer) and a GBP22m charge relating to the commutation of the Group's adverse development reinsurance cover, both as previously flagged at FY 2016.
-- There was a charge, as flagged at Q1 2017, of GBP59m relating to the premium paid on the debt buybacks completed at the end of March.
-- Restructuring costs were GBP41m in the first half and included GBP20m in respect of redundancy. 2017 is expected to be the last year of our restructuring costs and we continue to anticipate a full year charge of c.GBP100m.
Tax
The Group has reported a tax charge of GBP57m for H1 2017, giving an effective tax rate (ETR) of 21.6% (H1 2016: 39%). This charge largely comprises tax payable on Scandinavian and Canadian profits (at local statutory tax rates). We continue to expect the full year 2017 ETR to be in line with statutory tax rates in our local territories.
The Group underlying tax rate in the first half was 22.4% (H1 2016: 24%). Given the scale of unrecognised UK tax assets (which given expected changes in UK legislation are likely to last well over 10 years) this may trend towards 20% over the next few years.
The carrying value of the Group's net deferred tax asset at 30 June 2017 was GBP206m (of which GBP202m is in the UK). At current tax rates, a further c.GBP200m of deferred tax assets remain available for use but not recognised on balance sheet; these are predominantly in the UK and Ireland.
Dividend
We are pleased to declare an interim dividend of 6.6p per ordinary share, up 32% year-on-year (H1 2016: 5.0p).
Our medium term policy of between 40-50% ordinary dividend payouts remains, with additional distributions where justified.
(1) In H1 2016 'other' included Solvency II costs of GBP6m and a cost of GBP6m relating to a discount rate change on Danish claims liabilities.
BALANCE SHEET
Movement in Net Assets
Equity
&
Share-holders' Non controlling Tier Total Loan loan
funds(1) interests 1 notes equity capital capital TNAV
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1 January
2017 3,715 132 - 3,847 1,068 4,915 2,862
Profit/(loss) after
tax 196 10 - 206 - 206 196
Exchange gains/(losses)
net of tax (3) (6) - (9) - (9) (3)
Fair value gains/(losses)
net of tax (144) - - (144) - (144) (144)
Pension fund gains/(losses)
net of tax (5) - - (5) - (5) (5)
Repayment & amortisation
of loan capital - - - - (627) (627) -
Issue of Tier 1 notes - - 297 297 - 297 -
Share issue 4 - - 4 - 4 4
Share based payments 8 - - 8 - 8 8
Prior year final dividend (112) (4) - (116) - (116) (112)
Other equity costs(2) (8) - - (8) - (8) (8)
Goodwill and intangible
additions - - - - - - (8)
Balance at 30 June 2017 3,651 132 297 4,080 441 4,521 2,790
Per share (pence)
At 1 January 2017 352 281
At 30 June 2017 345 273
Tangible net assets(3) decreased by 3% to GBP2.8bn in the first half of 2017. Profits in the period were more than offset by fair value mark-to-market movements (partly reflecting the transfer of Legacy assets for which a corresponding gain was included within profit) and the payment of the 2016 final dividend. IAS 19 pension movements (excluding deficit funding contributions) were largely neutral (see page 25 for further detail).
(1) Ordinary shareholders' funds including preference share capital of GBP125m.
(2) Includes preference dividends of GBP5m and coupons of GBP3m paid on 2017 issued restricted tier 1 securities.
CAPITAL POSITION
Solvency II position(1) Requirement Eligible Surplus Coverage
: (SCR) Own Funds
GBPbn GBPbn GBPbn %
30 June 2017 1.8 2.9 1.1 163%
31 December 2016 1.8 2.9 1.1 158%
The Solvency II coverage ratio(1) increased to 163% in the first half (31 December 2016: 158%), with the key drivers as follows:
-- Underlying capital generation added 14 points of coverage;
-- Restructuring costs, net capital investments and other non-operating items reduced the ratio by 3 points;
-- Pull-to-par on unrealised bond gains accounted for a 4 point reduction; -- 18 points of benefit from the disposal of UK legacy liabilities, announced in February; -- 10 point reduction due to the debt restructuring actions taken in the first half of 2017;
-- Market movements, fx and IAS 19 were a small negative, reflecting the impact of narrower AA corporate bond spreads on IAS 19 pension accounting, offset mainly by a positive impact from equities. There was also a 3 point reduction due to the Ogden rate change;
-- 2017 dividend accruals(2) reduced the coverage ratio by 6 points.
Please refer to Appendix (page 24) for further Solvency II details (including sensitivities).
OUTLOOK
In the second half of 2017, our priorities are unchanged: the drive for further performance gains.
We aim for premium growth, however the priority is to maintain underwriting discipline.
We target a lower attritional loss ratio, and we expect further cost reduction and efficiency gains. Volatile items (weather, large losses and PYD) will remain just that.
In summary, we target attractive full year 2017 performance as we continue to build from the quality performance base now established.
(1) The Solvency II capital position at 30 June 2017 is estimated.
(2) Reflects 6 months accrual of a 'notional' dividend amount for the year. This 'notional' amount should not be considered in any way to be an indication of actual dividend amounts for 2017.
REGIONAL REVIEW - SCANDINAVIA
Management basis
Net written Change (%) Underwriting result
premiums
H1 2017 H1 2016 RFX CFX H1 2017 H1 2016
GBPm GBPm GBPm GBPm
Split by country
Sweden 563 520 8 1 123 76
Denmark 409 371 10 - 45 17
Norway 92 74 24 8 (6) 3
Total Scandinavia 1,064 965 10 1 162 96
Split by class
Household 183 166 10 1 25 19
Personal Motor 188 176 7 (2) 41 49
Personal Accident
& Other 179 158 13 5 58 7
Total Scandinavia
Personal 550 500 10 1 124 75
Property 210 183 15 5 23 1
Liability 99 90 10 (1) 11 10
Commercial Motor 135 124 9 - 3 7
Other 70 68 3 (5) 1 3
Total Scandinavia
Commercial 514 465 11 1 38 21
Total Scandinavia 1,064 965 10 1 162 96
Investment result 40 35
Scandinavia operating
result 202 131
Operating Ratios (%) Claims Commission Op Expenses Combined
H1'17 H1'16 H1'17 H1'16 H1'17 H1'16 H1'17 H1'16
Household 85.7 87.4
Personal Motor 75.9 69.5
Personal Accident
& Other 64.9 95.6
Total Scandinavia
Personal 59.5 68.2 3.0 2.8 13.1 13.0 75.6 84.0
Property 85.7 99.7
Liability 85.5 84.7
Commercial Motor 96.8 93.0
Other 98.2 93.1
Total Scandinavia
Commercial 70.2 72.3 2.3 3.0 17.6 19.0 90.1 94.3
Total Scandinavia 64.2 70.0 2.7 2.9 15.0 15.6 81.9 88.5
5yr
Of which: ave
Weather loss ratio 0.0 0.3 1.0
Large loss ratio 5.8 5.4 5.5
Current year
attritional
loss ratio 63.1 64.5
Prior year effect
on loss ratio (4.7) (0.2)
YTD rate changes(1)
(%) At June 2017 At Dec 2016
Personal Household 1 4
Personal Motor 1 2
Commercial Property - 3
Commercial Liability 2 3
Commercial Motor 1 3
(1) Rate changes reflect changes for risks renewing in the year-to-date versus comparable risks renewing in the same period the previous year
SCANDINAVIA
In H1 2017, Scandinavia delivered an excellent underwriting profit of GBP162m, up 56% (at constant fx) versus a year ago, with both strong current and prior year profitability.
We continue to make good progress with our customer agenda as we aim to deliver an 'effortless' customer experience. Our improvement initiatives continue with the launch of a 'chat bot' service in Sweden and a new customer service portal in Denmark that enhances the customer journey and claims handling process. Our overall retention rate improved slightly to 80%.
Net written premiums of GBP1,064m were up 10% at reported fx and up 1% at constant fx, driven by Norway and Sweden (H1 2016: GBP965m as reported). Rates were up 2% whilst volumes were down 1%.
The underwriting result was GBP162m (H1 2016: GBP96m as reported; GBP104m at constant fx) with current year profit of GBP120m and prior year profit of GBP42m.
The current year attritional loss ratio of 63.1% was 1.4 points better than H1 2016 reflecting underwriting discipline, ongoing capability improvements and lower claims handling costs. Benign weather experience (0.3 points better than last year) was offset by adverse large loss experience (0.4 points higher than last year). The prior year effect on the loss ratio was unusually positive, producing a benefit of 4.7%. The overall combined ratio was 81.9% (H1 2016: 88.5%).
After including an investment result of GBP40m (H1 2016: GBP35m), the total operating profit was GBP202m, up 54%.
The Scandinavian performance improvement programme has continued to deliver well, with particular focus on operational efficiency, e.g. process redesign, robotics and automation. We've also seen further site consolidation progress and IT cost reduction.
Total written controllable expenses were down 5% year-on-year, with 7% cost reductions offset by 2% inflation. The earned controllable cost ratio of 24.2% showed a 1.2 point reduction year-on-year. Headcount was down 10% in the first half of the year and is now down 18% since the end of 2013.
Scandinavia - Outlook
We continue to expect the Scandinavian P&C markets to grow in line with local GDP growth and we target medium-term growth broadly in line with the market, subject to maintaining underwriting discipline.
Our focus remains on further improving the underlying performance of the business, particularly customer volumes, attritional loss ratios and cost improvements. Our COR ambition for Scandinavia is <85%.
REGIONAL REVIEW - CANADA
Management basis
Net written premiums Change (%) Underwriting result
H1 2017 H1 2016 RFX CFX H1 2017 H1 2016
GBPm GBPm GBPm GBPm
Household 201 168 20 6 28 21
Personal Motor 301 252 19 5 4 28
Total Canada Personal 502 420 20 5 32 49
Property 89 73 22 7 (2) (16)
Liability 51 44 16 2 3 (2)
Commercial Motor 61 51 20 5 4 5
Marine & Other 25 21 19 4 3 1
Total Canada Commercial 226 189 20 5 8 (12)
Total Canada 728 609 20 5 40 37
Investment result 31 32
Canada operating
result 71 69
Operating Ratios
(%) Claims Commission Op Expense Combined
H1'17 H1'16 H1'17 H1'16 H1'17 H1'16 H1'17 H1'16
Household 88.3 90.1
Personal Motor 98.7 89.1
Total Canada Personal 67.3 61.5 11.2 11.4 15.5 16.6 94.0 89.5
Property 101.3 118.5
Liability 94.6 104.4
Commercial Motor 93.4 88.8
Marine & Other 89.2 95.5
Total Canada Commercial 62.5 69.7 18.4 18.0 15.7 18.2 96.6 105.9
Total Canada 65.8 64.0 13.4 13.4 15.6 17.1 94.8 94.5
5yr
Of which: ave
Weather loss ratio 2.7 6.6 4.8
Large loss ratio 8.2 6.3 4.1
Current year attritional
loss ratio 57.9 57.1
Prior year effect
on loss ratio (3.0) (6.0)
YTD rate changes(1) (%) At June 2017 At Dec 2016 Personal Household 9 5 Personal Motor (2) (1) Commercial Property 1 2 Commercial Liability 1 2 Commercial Motor - -
(1) Rate changes reflect changes for risks renewing in the year-to-date versus comparable risks renewing in the same period the previous year
CANADA
Canada delivered a first half underwriting profit of GBP40m despite higher large losses and lower prior year releases versus a year ago.
We continue to work hard to enhance our customer offering. In Johnson we've made strong progress in digital capabilities, and customer scores have continued to improve and outperform benchmarks. In our broker distributed businesses, faster response times and new digital tools enable brokers to service their clients anywhere, anytime, reducing the time to quote from hours to minutes. Customer retention has improved to 86% (versus 84% a year ago).
Net written premiums of GBP728m were up 20% at reported fx and up 5% at constant fx (H1 2016: GBP609m as reported). Growth comprised 2% from increased volumes, 1% from rate increases and 2% from lower reinsurance costs. Growth was particularly good in the broker channel with Personal broker up 12% and Commercial up 5%. Johnson, our Personal direct business, returned to volume growth in the second quarter.
The underwriting profit was GBP40m (H1 2016: GBP37m) with current year profit of GBP19m and prior year profit of GBP21m.
The current year attritional loss ratio was 57.9%, versus 57.1% a year ago. However, H1 2016 was flattered by c.1pt due to benign indirect weather experience, as previously disclosed: excluding this the attritional loss ratio was c.0.2pts better than a year ago. Favourable weather experience (3.9 points better than last year due to Fort McMurray losses in H1 2016) was partly offset by adverse large loss experience (1.9 points higher). Prior year reserve releases, whilst still positive at 3.0%, were lower than last year (H1 2016: 6.0%). The overall combined ratio was 94.8% (H1 2016: 94.5%).
After including an investment result of GBP31m (H1 2016: GBP32m), the total operating profit was GBP71m, up 3%.
Our business improvement programme in Canada has continued well during the first half of the year, delivering further enhancements to pricing sophistication, process simplification, site consolidation. and the implementation of the Guidewire claims system proceeding as planned.
Total written controllable expenses were down 10% year-on-year, with 12% cost reductions offset by 2% inflation. The earned controllable cost ratio of 19.3% showed a 2.4 point reduction year-on-year. Headcount was down 5% in the first half of the year and is now down 16% since the end of 2013.
Canada - Outlook
We target a continuation of the positive premium trends we have seen in the first half of 2017 and continued progress towards our combined ratio ambition of <94%. Our focus is on customer delivery, operational improvement (in underwriting, claims, technology and process simplification) and cost reduction.
REGIONAL REVIEW - UK & INTERNATIONAL
Management basis
Net written premiums Change (%) Underwriting result
H1 2017 H1 2016 RFX CFX H1 2017 H1 2016
GBPm GBPm GBPm GBPm
Household 261 248 5 5 5 26
Personal Motor 149 110 35 35 1 (11)
Pet 144 138 4 4 1 (1)
Total UK Personal 554 496 12 12 7 14
Property 334 318 5 2 1 42
Liability 155 155 - (1) 8 12
Commercial Motor 114 131 (13) (13) (6) (2)
Marine & Other 207 175 18 9 7 10
Total UK Commercial 810 779 4 1 10 62
Total UK 1364 1,275 7 5 17 76
Ireland 152 151 1 (8) 2 (1)
Middle East 112 92 22 9 13 7
Total UK & International 1,628 1,518 7 3 32 82
Investment result 77 74
UK & International operating
result 109 156
Operating Ratios Claims Commission Op Expenses Combined
(%)
H1'17 H1'16 H1'17 H1'16 H1'17 H1'16 H1'17 H1'16
Household 98.0 91.0
Personal Motor 99.3 109.7
Pet 99.3 100.7
Total UK Personal 60.8 59.9 20.9 21.5 17.0 16.1 98.7 97.5
Property 99.5 86.8
Liability 95.1 91.8
Commercial Motor 105.1 101.6
Marine & Other 96.0 93.8
Total UK Commercial 65.9 59.8 20.5 20.1 12.3 12.3 98.7 92.2
Total UK 63.7 59.8 20.7 20.7 14.3 13.9 98.7 94.4
Ireland 74.5 76.8 11.6 11.4 12.7 12.5 98.8 100.7
Middle East 50.5 58.2 18.7 16.6 18.1 16.6 87.3 91.4
UK & International 64.0 61.3 19.6 19.6 14.4 13.9 98.0 94.8
5yr
Of which: ave
Weather loss ratio 1.1 3.8 3.8
Large loss ratio 15.3 10.8 11.9
Current year attritional
loss ratio 48.9 49.0
Prior year effect
on loss ratio (1.3) (2.3)
UK YTD rate changes(1)
(%) At June 2017 At Dec 2016
Personal Household 2 1
Personal Motor 12 9
Commercial Property (1) (1)
Commercial Liability 1 -
Commercial Motor 12 5
(1) Rate changes reflect changes for risks renewing in the year-to-date versus comparable risks renewing in the same period the previous year
UK & INTERNATIONAL
In H1 2017 the UK & International delivered a combined ratio of 95.4% (excluding the impact of Ogden; 98.0% including Ogden) despite a competitive landscape.
UK
In the UK our customer capabilities have continued to advance with improved satisfaction metrics for Personal Intermediated and Motability. Motability improved on their NPS score, increasing 10 pts to +86 for the half year.
First half net written premiums in the UK increased by 5% at constant exchange, with rate increases of 1% and volume increases of 4%. UK Personal growth of 12% was underpinned by continued growth in our motor telematics proposition. UK Commercial net written premiums grew by 1% at constant exchange. Targeted growth in our Marine and Property portfolios helped offset shrinkage in Commercial Motor as a result of strong underwriting actions.
The UK underwriting result of GBP56m excluding Ogden (GBP17m including the impact of the Ogden discount rate change) (H1 2016: GBP76m) was achieved despite difficult trading conditions. Weather and large losses taken together were 1.6 points worse than last year. The attritional loss ratio deteriorated mainly due to inflationary experience in Personal Household. Prior year reserve releases were positive but lower than last year due to the impact of Ogden.
Our transformation agenda continues to deliver benefits with increased process simplification and enhanced data analytics capabilities.
Total written controllable expenses were down 5% year-on-year, with 7% cost reductions offset by 2% inflation. The earned controllable cost ratio of 21.2% improved 0.6 points year-on-year. Headcount was down 10% in the first half of the year and is now down 22% since the end of 2013.
Ireland
Ireland returned to underwriting profit delivering a first half profit of GBP2m and combined ratio of 98.8% (96.7% ex Ogden), underpinned by disciplined underwriting actions. The attritional loss ratio of 60.9% was 4.4 points better than prior year. The result also includes a GBP3m cost due to the Ogden discount rate change. Net written premiums of GBP152m were down 8% at constant FX versus H1 2016 following targeted remediation activity.
Middle East
The Middle East region delivered an underwriting result of GBP13m (H1 2016: GBP7m) and combined ratio of 87.3% (H1 2016: 91.4%) driven by a 4.5 point improvement in the attritional loss ratio following underwriting actions taken across the portfolio. Premiums of GBP112m were up 9% at constant FX despite challenging trading conditions in Saudi Arabia.
UK & International - Outlook
We expect underlying premium trends to continue into the second half. Underwriting discipline and attritional loss ratios will be a key focus, resulting in some portfolio reductions coupled with targeted growth in stronger areas. Our transformation plans target further underwriting improvements, cost reductions and capability uplifts.
In Ireland we continue to target a return to operating profit for the full year 2017, although the market remains challenging, in particular for claims inflation. In the Middle East the medium term outlook remains positive and work is underway to further develop capabilities throughout the region including underwriting and pricing sophistication.
INVESTMENT PERFORMANCE
Management basis
Investment result H1 2017 H1 2016 Change
GBPm GBPm %
Bonds 136 153 (11)
Equities 16 14 14
Cash and cash equivalents 3 6 (50)
Property 11 11 -
Other 5 3 67
Investment income 171 187 (9)
Investment expenses (6) (6) -
Unwind of discount (17) (31) 45
Investment result 148 150 (1)
Balance sheet unrealised gains (pre-tax) 30 June 31 Dec Change
2017 (GBPm) 2016 (GBPm) %
Bonds 469 619 (24)
Equities 16 8 100
Other 2 2 -
Total 487 629 (23)
Investment Value Foreign Mark to Other Transfer Value
portfolio 31 Dec exchange market movements from assets 30 June
2016 held for 2017
sale
GBPm GBPm GBPm GBPm GBPm GBPm
Government bonds 3,713 12 (43) 161 - 3,843
Non-Government
bonds 7,832 34 (54) (672) 87 7,227
Cash 985 (12) - (215) 3 761
Equities 170 8 (3) 53 - 228
Property 333 - 2 1 - 336
Prefs & CIVs 522 (3) 13 10 - 542
Other 88 (1) - 67 - 154
Total 13,643 38 (85) (595) 90 13,091
Split by currency:
Sterling 3,994 3,582
Danish Krone 1,081 1,101
Swedish Krona 2,565 2,595
Canadian Dollar 3,232 3,071
Euro 1,345 1,407
Other 1,426 1,335
Total 13,643 13,091
Credit quality - bond Non-government Government
portfolio
30 June 31 Dec 30 June 31 Dec
2017 2016 2017 2016
% % % %
AAA 38 35 67 65
AA 18 22 28 30
A 30 30 4 4
BBB 12 11 1 1
< BBB 2 2 - -
Non rated - - - -
Total 100 100 100 100
INVESTMENT PERFORMANCE
Investment income of GBP171m (H1 2016: GBP187m) was offset by investment expenses of GBP6m (H1 2016: GBP6m) and the liability discount unwind of GBP17m (H1 2016: GBP31m). Investment income was down 9% on prior year, primarily reflecting the impact of the disposal of Latin America and the UK Legacy business together with ongoing reinvestment at lower yields.
The average book yield over the period on the total portfolio was 2.5% (H1 2016: 2.7%), with average yield on the bond portfolios of 2.4% (H1 2016: 2.6%). Reinvestment rates in the Group's major bond portfolios over the first half was approximately 1.6%.
Average duration of the Group's bond portfolios is marginally lower at 3.6 years (31 December 2016: 3.7 years).
The investment portfolio decreased by 4% during the first half to GBP13.1bn. The movement was driven primarily by cash outflows for corporate debt restructuring.
At 30 June 2017, high quality widely diversified fixed income securities represented 85% of the portfolio (31 December 2016: 85%). Equities (largely REITs) represented 2% (31 December 2016: 1%) and cash 6% of the total portfolio (31 December 2016: 7%).
The quality of the bond portfolio remains very high with 98% investment grade and 71% rated AA or above. We remain well diversified by sector and geography.
Unrealised bond gains and pull-to-par
Balance sheet unrealised gains of GBP487m (pre-tax) reduced by GBP142m or 23% during the first half, driven by realised gains from the UK Legacy disposal and bond pull-to-par.
We anticipate that the remaining gains will largely unwind over the next 3.5 years, based on current forward yields. We expect pull-to-par of c.GBP90m in H2 2017, c.GBP150m in 2018, and c.GBP110m in 2019.
Outlook
Based on current forward bond yields and foreign exchange rates it is estimated that investment income will be c.GBP315m for full year 2017. This projected income number is, however, sensitive to changes in market conditions. We continue to expect a discount unwind on long-tail liabilities in the range GBP30-35m per annum.
APPIX
UNDERLYING AND ALTERNATIVE PERFORMANCE MEASURES
The Group uses alternative performance measures, including certain underlying measures, to help explain business performance and financial position. Where not defined in the body of this announcement, further information is set out below.
Note 7 on pages 44-46 of the condensed consolidated financial statements presents a reconciliation of the management basis to statutory income statement.
Combined operating ratio
The Group's combined operating ratio (COR) is calculated on an 'earned' basis as follows:
COR = loss ratio + commission ratio + expense ratio
Where:
Loss ratio = net incurred claims / net earned premiums
Commission ratio = commissions / net earned premiums
Expense ratio = operating expenses / net earned premiums
Constant exchange (CFX)
Prior period comparative translated at current period exchange rates.
Controllable costs
Total controllable costs are stated on a 'written' basis, and include underwriting written controllable expenses of GBP520m, claims expenses of GBP187m (included within net incurred claims), investment expenses of GBP6m, and central expenses of GBP10m. These items are included within total expenses in the condensed consolidated income statement.
Current year underwriting result
The profit or loss earned from business for which protection has been provided in the current financial period.
Interest costs
Interest costs as shown on a management basis (GBP30m) comprise coupon costs only. On a statutory basis finance costs of GBP89m comprise coupon costs of GBP30m plus debt buyback costs of GBP59m.
Investment income
Investment income of GBP171m as shown in the management basis P&L compares to net investment return of GBP169m shown on a statutory basis. The difference of GBP2m relates to certain realised and unrealised net losses that are shown within net investment return within the statutory income statement.
Operating profit
Operating profit is calculated as the underwriting result, plus the investment result, less central costs. Note 7 on pages 44-46 of the condensed consolidated financial statements presents a reconciliation of operating profit to profit before tax.
Prior year underwriting result
The profit or loss arising from settling claims incurred in previous years at a better or worse level than the previous estimated costs.
'Record' underwriting performance
Record Group underwriting performance (combined ratio and/or underwriting profit) considers the periods for 2006-2017. In order to compare on a 'like-for-like' basis, historical periods have been adjusted for central expense reallocation changes made in 2015, Scandinavian discount rate changes made in 2014, and IAS 19 pension net interest cost changes made in 2012. In the case of the expense reallocations and IAS 19 changes, the restatement value applied in the year of change has been applied to all preceding years back to 2006.
Reported exchange (RFX)
Prior period comparative translated at the exchange rates reported at that time.
Tangible net asset value (TNAV)
Tangible net asset value of GBP2,790m at 30 June 2017 comprises shareholders' funds of GBP3,651m, less goodwill & intangible assets of GBP736m, less GBP125m preference share capital.
Underlying earnings per share (EPS)
Please refer to page 23 for calculation.
Underlying profit before tax
Underlying profit before tax is calculated as operating profit of GBP360m less interest costs of GBP30m less coupon costs of GBP3m on the 2017 issuance of restricted tier 1 securities (as shown in Note 9 of the condensed consolidated financial statements).
Reconciliation of underlying profit before tax to profit before tax:
H1 2017 H1 2016
Underlying profit before tax 327 258
Less non-operating charges (67) (110)
Add back coupon on 2017 issued tier
1 securities 3 -
Less profit before tax from discontinued
operations - (7)
Add back loss before tax on sale
of discontinued operations - 20
Profit before tax (statutory basis) 263 161
Underlying profit after tax attributable to ordinary shareholders
Reconciliation of underlying profit after tax attributable to ordinary shareholders to profit after tax:
H1 2017 H1 2016
Underlying PAT attributable to ordinary
shareholders 238 180
Add non-controlling interest 10 6
Add preference dividend 5 5
Less non-operating charges (67) (110)
Add back coupon on 2017 issued tier
1 securities 3 -
Add difference between underlying
and statutory tax 17 10
Profit after tax (statutory basis) 206 91
Underlying return on tangible equity (ROTE)
Please refer to page 23 for calculation.
Underlying tax rate
The underlying Core Group tax rate mainly comprises the local statutory tax rates in our territories applied to underlying regional profits (operating profits less interest costs).
Underwriting result
Comprise net earned premiums less net incurred claims (including claims handling expenses), less underwriting expenses less commission expenses.
Net asset value (NAV) and tangible net asset value (TNAV) per share
Net asset value per share data at 30 June 2017 was based on total ordinary shareholders' funds of GBP3,651m, adjusted by GBP125m for preference shares. Tangible net asset value per share was based on a tangible book value of GBP2,790m.
Return on equity and tangible equity, and earnings per share calculations
H1 2017 H1 2016
GBPm GBPm
Profit after tax 206 91
Less: non-controlling interest (10) (6)
Less: coupon on 2017 issued restricted (3) -
tier 1 instrument
Less: preference dividend (5) (5)
A Profit attributable to ordinary shareholders 188 80
Operating profit before tax 360 312
Less: interest costs (30) (54)
Less: coupon on 2017 issued restricted (3) -
tier 1 instrument
Underlying profit before tax 327 258
Less: underlying tax(1) (74) (67)
Less: non-controlling interest (10) (6)
Less: preference dividend (5) (5)
Underlying profit after tax attributable
B to ordinary shareholders 238 180
Opening shareholders' funds 3,715 3,642
Less: preference share capital (125) (125)
C Opening ordinary shareholders' funds 3,590 3,517
Less: goodwill & intangibles (728) (679)
Opening tangible ordinary shareholders'
D funds 2,862 2,838
Weighted average no. shares issue during
E the period (un-diluted) 1,020.3k 1,017.5k
Return on equity (annualised)
(2xA)/C Reported 10.5% 4.6%
(2xB)/C Underlying 13.3% 10.3%
Return on tangible equity (annualised)
(2xA)/D Reported 13.1% 5.7%
(2xB)/D Underlying 16.6% 12.8%
Earnings per share
A/E Basic earnings per share 18.4p 7.9p
B/E Underlying earnings per share 23.3p 17.8p
(1) Using underlying assumed tax rate of 22.4% in H1 2017 (applied to operating profits of GBP360m less interest costs of GBP30m) and 26% in H1 2016
We expect the underlying assumed tax rate to continue to fall to a rate broadly in line with the statutory tax rates in our operating territories. Given the scale of unrecognised UK tax assets it may trend towards 20% over the next few years.
DISPOSALS
H1 2016 net written premiums of GBP3,247m included GBP126m in respect of businesses now disposed (Latin America and Russia). The underwriting profit of GBP174m for the same period included a loss of GBP5m in respect of these disposed businesses. See page 26 for further detail.
CAPITAL
Solvency II sensitivities
H1 2017 coverage ratio 163% Sensitivities (change in coverage ratio): Incl. pensions Excl. pensions Interest rates: +1% non-parallel(1) shift +13% +5% Interest rates: -1% non-parallel(1) shift -12% -5% Equities: -15% -8% -2% Foreign exchange: GBP +10% vs all currencies -3% -3% Cat loss of GBP75m net -4% -4% Credit spreads: +0.25% parallel shift +4% -4% Credit spreads: -0.25% parallel shift -13% +4%
The above sensitivities have been considered in isolation. The impact of a combination of sensitivities may be different to the individual outcomes stated above.
Reconciliation of IFRS total capital to Eligible Own Funds
30 June
2017
GBPbn
Shareholders' funds (incl.
preference shares) 3.7
Loan capital 0.7
Non-controlling interests 0.1
Total IFRS capital 4.5
Less: goodwill & intangibles (0.7)
Adjust technical provisions
to SII basis (0.4)
Basic Own Funds 3.4
Tiering & availability restrictions (0.4)
Forseeable dividends (0.1)
Eligible Own Funds 2.9
(1) The interest rate sensitivity assumes a non-parallel shift in the yield curve. This is to reflect that the long end of the yield curve is typically more stable than the short end.
PENSIONS
The table below provides a reconciliation of the movement in the Group's pension fund position under IAS 19 (net of tax) from 1 January 2017 to 30 June 2017.
UK non-UK Group
GBPm GBPm GBPm
Pension fund surplus/(deficit) at
1 January 2017 (113) (84) (197)
Actuarial gains/(losses)(1) 2 (7) (5)
Deficit funding 54 - 54
Other movements(2) 3 2 5
Pension fund surplus/(deficit) at
30 June 2017 (54) (89) (143)
At an aggregate level the pension fund position under IAS 19 improved during the first half from a GBP197m deficit to a GBP143m deficit. This was driven by deficit funding contributions (GBP65m pre-tax). Market movements, in aggregate, were largely neutral.
(1) Actuarial gains/(losses) include pension investment expenses, variance against expected returns, change in actuarial assumptions and experience losses.
(2) Other movements include regular contributions, service/administration costs, expected returns and interest costs.
SEGMENTAL ANALYSIS
Management basis - 6 months ended 30 June 2016 (re-presented onto current segmental split)
Scandinavia Canada UK & International Central Group Disposals(1) Group
functions ex. disposals H1 2016
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Net Written Premiums 965 609 1,518 29 3,121 126 3,247
Net Earned Premiums 832 682 1,584 (15) 3,083 188 3,271
Net Incurred Claims (582) (437) (971) (19) (2,009) (99) (2,108)
Commissions (24) (91) (310) - (425) (55) (480)
Operating expenses (130) (117) (221) (2) (470) (39) (509)
Underwriting result 96 37 82 (36) 179 (5) 174
Investment income 48 34 79 - 161 26 187
Investment expenses (1) (1) (3) - (5) (1) (6)
Unwind of discount (12) (1) (2) - (15) (16) (31)
Investment result 35 32 74 - 141 9 150
Central expenses - - - (12) (12) - (12)
Operating result 131 69 156 (48) 308 4 312
Interest (54)
Other non-operating
charges (110)
Profit before tax 148
Tax (57)
Profit after tax 91
Underlying profit before
tax 258
Loss ratio (%) 70.0 64.0 61.3 - 65.1 - 64.5
Weather loss ratio 0.3 6.6 3.8 - 3.5 - 3.3
Large loss ratio 5.4 6.3 10.8 - 8.9 - 8.4
Current year attritional
loss ratio 64.5 57.1 49.0 - 55.0 - 54.7
Prior year effect on
loss ratio (0.2) (6.0) (2.3) - (2.3) - (1.9)
Commission ratio (%) 2.9 13.4 19.6 - 13.9 - 14.6
Expense ratio (%) 15.6 17.1 13.9 - 15.2 - 15.6
Combined ratio (%) 88.5 94.5 94.8 - 94.2 - 94.7
(1) Disposals comprise Latin America and Russia, both completed during H1 2016.
COMBINED RATIO DETAIL
Group ex. disposals
GBPm unless stated Current Prior H1 2017 Current Prior H1 2016
year year total year year total
Net Written Premiums 1 3,430 7 19 13 3,449 3,118 3 3,121
Net Earned Premiums 2 3,236 8 15 14 3,251 3,094 (11) 3,083
Net Incurred Claims 3 (2,186) 9 84 15 (2,102) (2,085) 76 (2,009)
Commissions 4 (424) 10 (17) 16 (441) (422) (3) (425)
Operating expenses 5 (483) 11 (3) 17 (486) (467) (3) (470)
Underwriting result 6 143 12 79 18 222 120 59 179
CY attritional claims 19 (1,778) (1,700)
Weather claims 20 (38) (109)
Large losses 21 (370) (276)
Net incurred claims 22 (2,186) (2,085)
=15 /
Loss ratio (%) 14 23 64.7 65.1
=20 /
Weather loss ratio 2 24 1.2 3.5
=21 /
Large loss ratio 2 25 11.4 8.9
Current year attritional =19 /
loss ratio 2 26 54.9 55.0
=23 -
Prior year effect 24 - 25
on loss ratio - 26 27 (2.8) (2.3)
Commission ratio =16 /
(%) 14 28 13.6 13.9
=17 /
Expense ratio (%) 14 29 14.9 15.2
=23 +
Combined ratio (%) 28 + 29 30 93.2 94.2
Scandinavia
GBPm unless stated Current Prior H1 2017 Current Prior H1 2016
year year total year year total
Net Written Premiums 1,066 (2) 1,064 965 - 965
Net Earned Premiums 896 0 896 832 - 832
Net Incurred Claims (617) 42 (575) (584) 2 (582)
Commissions (24) 0 (24) (24) - (24)
Operating expenses (135) 0 (135) (130) - (130)
Underwriting result 120 42 162 94 2 96
CY attritional claims (565) (537)
Weather claims 0 (2)
Large losses (52) (45)
Net incurred claims (617) (584)
Loss ratio (%) 64.2 70.0
Weather loss ratio - 0.3
Large loss ratio 5.8 5.4
Current year attritional
loss ratio 63.1 64.5
Prior year effect
on loss ratio (4.7) (0.2)
Commission ratio
(%) 2.7 2.9
Expense ratio (%) 15.0 15.6
Combined ratio (%) 81.9 88.5
Canada
GBPm unless stated Current Prior H1 2017 Current Prior H1 2016
Year year total year year total
Net Written Premiums 728 - 728 612 (3) 609
Net Earned Premiums 777 - 777 685 (3) 682
Net Incurred Claims (535) 24 (511) (479) 42 (437)
Commissions (105) - (105) (94) 3 (91)
Operating expenses (118) (3) (121) (114) (3) (117)
Underwriting result 19 21 40 (2) 39 37
CY attritional claims (450) (391)
Weather claims (21) (45)
Large losses (64) (43)
Net incurred claims (535) (479)
Loss ratio (%) 65.8 64.0
Weather loss ratio 2.7 6.6
Large loss ratio 8.2 6.3
Current year attritional
loss ratio 57.9 57.1
Prior year effect
on loss ratio (3.0) (6.0)
Commission ratio
(%) 13.4 13.4
Expense ratio (%) 15.6 17.1
Combined ratio (%) 94.8 94.5
Total UK
GBPm unless stated Current Prior H1 2017 Current Prior H1 2016
year year total year year total
Net Written Premiums 1,343 21 1,364 1,269 6 1,275
Net Earned Premiums 1,317 13 1,330 1,348 (1) 1,347
Net Incurred Claims (858) 10 (848) (849) 43 (806)
Commissions (260) (15) (275) (271) (7) (278)
Operating expenses (190) 0 (190) (187) - (187)
Underwriting result 9 8 17 41 35 76
CY attritional claims (621) (627)
Weather claims (17) (58)
Large losses (220) (164)
Net incurred claims (858) (849)
Loss ratio (%) 63.7 59.8
Weather loss ratio 1.3 4.3
Large loss ratio 16.8 12.2
Current year attritional
loss ratio 47.1 46.5
Prior year effect
on loss ratio (1.5) (3.2)
Commission ratio
(%) 20.7 20.7
Expense ratio (%) 14.3 13.9
Combined ratio (%) 98.7 94.4
UK Personal
GBPm unless stated Current Prior H1 2017 Current Prior H1 2016
year year total year year total
Net Written Premiums 549 5 554 496 - 496
Net Earned Premiums 549 9 558 553 - 553
Net Incurred Claims (329) (10) (339) (334) 3 (331)
Commissions (116) (1) (117) (119) - (119)
Operating expenses (95) 0 (95) (89) - (89)
Underwriting result 9 (2) 7 11 3 14
CY attritional claims (298) (282)
Weather claims (13) (33)
Large losses (18) (19)
Net incurred claims (329) (334)
Loss ratio (%) 60.8 59.9
Weather loss ratio 2.4 6.1
Large loss ratio 3.3 3.5
Current year attritional
loss ratio 54.3 50.8
Prior year effect
on loss ratio 0.8 (0.5)
Commission ratio
(%) 20.9 21.5
Expense ratio (%) 17.0 16.1
Combined ratio (%) 98.7 97.5
UK Commercial
GBPm unless stated Current Prior H1 2017 Current Prior H1 2016
year year total year year total
Net Written Premiums 794 16 810 773 6 779
Net Earned Premiums 768 4 772 795 (1) 794
Net Incurred Claims (529) 20 (509) (515) 40 (475)
Commissions (144) (14) (158) (152) (7) (159)
Operating expenses (95) 0 (95) (98) - (98)
Underwriting result - 10 10 30 32 62
CY attritional claims (323) (345)
Weather claims (4) (25)
Large losses (202) (145)
Net incurred claims (529) (515)
Loss ratio (%) 65.9 59.8
Weather loss ratio 0.5 3.0
Large loss ratio 26.4 18.2
Current year attritional
loss ratio 42.0 43.6
Prior year effect
on loss ratio (3.0) (5.0)
Commission ratio
(%) 20.5 20.1
Expense ratio (%) 12.3 12.3
Combined ratio (%) 98.7 92.2
REPORTING AND DIVID TIMETABLE
Reporting: Q3 2017 trading update 2 November 2017 Dividend: Interim ordinary dividend for the period ended 30 June 2017 Announcement date 2 August 2017 Ex-dividend date 7 September 2017 Record date 8 September 2017 Dividend payment date 13 October 2017 2(nd) Preference Dividend Announcement date 2 August 2017 Ex-dividend date 10 August 2017 Record date 11 August 2017 Dividend payment date 2 October 2017
Note: a scrip dividend alternative is not being offered for the 2017 interim ordinary dividend payment.
Note: the interim ordinary dividend is conditional upon the directors being satisfied, in their absolute discretion, that the payment of the interim ordinary dividend would not breach any legal or regulatory requirements, including Solvency II regulatory capital requirements.
DISCLOSURE CHANGE
To better align with reporting practice across the European insurance sector, we intend to continue the provision of class of business premium information and performance trend commentary in our disclosures, but to report combined ratios at total Personal and total Commercial level only for each region.
Our intention is that this will apply for full year 2017 disclosures and reporting periods thereafter.
Enquiries:
Investors & analysts Press Rupert Taylor Rea Alice Hunt Director of Investor Relations Director of External Communications Tel: +44 (0) 20 7111 7140 Tel: +44 (0) 20 7111 7305 Email: rupert.taylorrea@gcc.rsagroup.com Email: alice.hunt@gcc.rsagroup.com Laura de Mergelina Eilis Murphy & Robin Wrench Investor Relations Manager Brunswick Group Tel: +44 (0) 20 7111 7243 Tel: +44 (0) 20 7404 5959 Email: laura.demergelina@gcc.rsagroup.com Email: emurphy@brunswickgroup.com
Further information
A live webcast of the analyst presentation, including the question and answer session, will be broadcast on the website at 09:00am on 2 August 2017. A webcast and transcript of the presentation will be available via the company website (www.rsagroup.com).
Important disclaimer
This press release and the associated conference call may contain 'forward-looking statements' with respect to certain of the Group's plans and its current goals and expectations relating to its future financial condition, performance, results, strategic initiatives and objectives. Generally, words such as "may", "could", "will", "expect", "intend", "estimate", "anticipate", "aim", "outlook", "believe", "plan", "seek", "continue" or similar expressions identify forward-looking statements. These forward-looking statements are not guarantees of future performance. By their nature, all forward-looking statements are inherently predictive and speculative and involve risk and uncertainty because they relate to future events and circumstances which are beyond the Group's control, including amongst other things, UK domestic and global economic business conditions, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities, the impact of competition, inflation, deflation, the timing impact and other uncertainties of future acquisitions or combinations within relevant industries, as well as the impact of tax and other legislation or regulations in the jurisdictions in which the Group and its affiliates operate. As a result, the Group's actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in the Group's forward-looking statements. Forward-looking statements in this press release are current only as of the date on which such statements are made. The Group undertakes no obligation to update any forward-looking statements, save in respect of any requirement under applicable law or regulation. Nothing in this press release shall be construed as a profit forecast.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Table of contents
Primary Statements
Basis of Preparation and Significant Accounting
Policies
1. Basis of preparation
2. Adoption of new and revised standards
3. Recently issued accounting pronouncements
Risk Management
4. Risk management
Significant Transactions and Events
5. Discontinued operations and disposals
6. Reorganisation costs
Notes to the Condensed Consolidated Income
Statement and Condensed Consolidated Statement
of Other Comprehensive Income
7. Operating segments
8. Earnings per share
9. Distributions paid and declared
Notes to the Condensed Consolidated Statement
of Financial Position
10. Goodwill and intangible assets
11. Financial assets and fair value measurements
12. Cash and cash equivalents
13. Share capital
14. Tier 1 notes
15. Loan capital
16. Insurance contract liabilities
17. Retirement benefit obligations
18. Related party transactions
19. Results for the year 2016
Appendix
A. Exchange rates
Responsibility Statement of the Directors
in respect of the half-yearly financial report
Independent Review Report to RSA Insurance
Group plc
CONDENSED CONSOLIDATED INCOME STATEMENT
STATUTORY BASIS
for the 6 month period ended 30 June 2017
(Reviewed) (Reviewed)
6 months 6 months
30 June 30 June
2017 2016
Note GBPm GBPm
Income
Gross written premiums 4,026 3,726
Less: reinsurance premiums (577) (647)
================================================= ===== ========== ==========
Net written premiums 7 3,449 3,079
========== ==========
Change in the gross provision for unearned
premiums (295) (169)
Less: change in provision for unearned
reinsurance premiums 97 174
========== ==========
Change in provision for unearned premiums (198) 5
================================================= ===== ========== ==========
Net earned premiums 3,251 3,084
Net investment return 169 144
Other operating income 76 61
================================================= ===== ========== ==========
Total income 3,496 3,289
================================================= ===== ========== ==========
Expenses
========== ==========
Gross claims incurred (2,584) (2,420)
Less: claims recoveries from reinsurers 482 408
========== ==========
Net claims (2,102) (2,012)
Underwriting and policy acquisition costs (1,002) (961)
Unwind of discount (17) (32)
Other operating expenses (76) (69)
================================================= ===== ========== ==========
Total expenses (3,197) (3,074)
================================================= ===== ========== ==========
Finance costs 15 (89) (54)
Net gains related to business disposals 5d 52 -
Net share of profit after tax of associates 1 -
================================================= ===== ========== ==========
Profit before tax 7 263 161
Income tax expense (57) (36)
================================================= ===== ========== ==========
Profit after tax from continuing operations 206 125
Loss from discontinued operations, net
of tax 5a - (34)
================================================= ===== ========== ==========
Profit for the period 206 91
================================================= ===== ========== ==========
Attributable to:
Equity holders of the Parent Company 196 85
Non-controlling interests 10 6
================================================= ===== ========== ==========
206 91
================================================= ===== ========== ==========
Earnings per share on profit attributable to the ordinary shareholders
of the Parent Company:
Basic
From continuing operations 8 18.4p 11.2p
From discontinued operations 8 - (3.3)p
================================================= ===== ========== ==========
18.4p 7.9p
================================================= ===== ========== ==========
Diluted
From continuing operations 8 17.9p 11.1p
From discontinued operations 8 - (3.3)p
================================================= ===== ========== ==========
17.9p 7.8p
================================================= ===== ========== ==========
Ordinary dividend
Final paid in respect of prior year 9 11.0p 7.0p
Interim proposed/paid in respect of current
year 9 6.6p 5.0p
================================================= ===== ========== ==========
The following explanatory notes form an integral part of these condensed
consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
STATUTORY BASIS
for the 6 month period ended 30 June
2017
(Reviewed) (Reviewed)
6 months 6 months
30 June 30 June
2017 2016
GBPm GBPm
(Re-presented(1)
Note )
Profit for the period 206 91
Items from continuing operations that
may be reclassified to the income statement:
=========== =================
Exchange (losses)/gains net of tax on
translation of foreign operations (9) 179
Fair value (losses)/gains on available
for sale financial assets net of tax (144) 215
=========== =================
(153) 394
Items from continuing operations that
will not be reclassified to the income
statement:
=========== =================
Pension - remeasurement of net defined
benefit liability net of tax (5) (22)
=========== =================
(5) (22)
Other comprehensive (expense)/income
for the period from continuing operations (158) 372
Other comprehensive income for the period
from discontinued operations 5a - 122
================================================ ==== =========== =================
Total other comprehensive (expense)/income
for the period (158) 494
================================================ ==== =========== =================
Total comprehensive income for the period
from continuing operations 48 497
Total comprehensive expense for the
period from discontinued operations 5a - 88
================================================ ==== =========== =================
Total comprehensive income for the period 48 585
================================================ ==== =========== =================
Attributable to:
Equity holders of the Parent Company
=========== =================
From continuing operations 44 478
From discontinued operations - 91
=========== =================
44 569
Non-controlling interests
=========== =================
From continuing operations 4 19
From discontinued operations - (3)
=========== =================
4 16
=============================================== ==== =========== =================
48 585
=============================================== ==== =========== =================
(1) On a basis consistent with FY 2016 the HY 2016 Other Comprehensive
Income exchange gains and losses have been reclassified resulting in
a total net impact of nil and a reclassification of GBP94m income from
continuing to discontinued operations.
The following explanatory notes form an integral part of these condensed
consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
STATUTORY BASIS
for the 6 month period ended 30 June 2017
(Reviewed)
Foreign
Ordinary Ordinary Capital currency Share- Tier
share share Own Preference Revaluation redemption translation Retained holders' 1 Non-controlling Total
capital premium shares shares reserves reserve reserve earnings equity notes interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=============== ======== ======== ====== ========== =========== ========== =========== ======== ======== ===== =============== =======
Balance at
1 January
2017 1,020 1,080 (1) 125 496 389 78 528 3,715 - 132 3,847
Total comprehensive
income for the
period
======== ====== ========== =========== ========== =========== ======== ======== ===== =============== =======
Profit for
the period - - - - - - - 196 196 - 10 206
Other
comprehensive
expense - - - - (141) - (7) (4) (152) - (6) (158)
======== ======== ====== ========== =========== ========== =========== ======== ======== ===== =============== =======
- - - - (141) - (7) 192 44 - 4 48
Transactions with owners
of the Company
Contributions and
distribution
======== ====== ========== =========== ========== =========== ======== ======== ===== =============== =======
Dividends
(note 9) - - - - - - - (120) (120) - (4) (124)
Shares issued
for cash 1 3 - - - - - - 4 - - 4
Share based
payments 2 - - - - - - 6 8 - - 8
Issue of Tier
1 notes (note
14) - - - - - - - - - 297 - 297
Other reserve
transfer - - - - (7) - - 7 - - - -
======== ======== ====== ========== =========== ========== =========== ======== ======== ===== =============== =======
Total
transactions
with owners
of the Company 3 3 - - (7) - - (107) (108) 297 (4) 185
Balance at
30 June 2017 1,023 1,083 (1) 125 348 389 71 613 3,651 297 132 4,080
================ ======== ======== ====== ========== =========== ========== =========== ======== ======== ===== =============== =======
Balance at
1 January
2016 1,017 1,077 (1) 125 293 389 (221) 963 3,642 - 129 3,771
Total comprehensive
income for the
period
======== ====== ========== =========== ========== =========== ======== ======== ===== =============== =======
Profit for
the period - - - - - - - 85 85 - 6 91
Other
comprehensive
income for
the period - - - - 243 - 263 (22) 484 - 10 494
======== ======== ====== ========== =========== ========== =========== ======== ======== ===== =============== =======
- - - - 243 - 263 63 569 - 16 585
Transactions with owners
of the Company
Contribution and
distribution
======== ====== ========== =========== ========== =========== ======== ======== ===== =============== =======
Dividends
(note 9) - - - - - - - (76) (76) - (2) (78)
Shares issued
for cash 2 2 - - - - - - 4 - - 4
Share based
payments - - - - - - - 8 8 - - 8
2 2 - - - - - (68) (64) - (2) (66)
Changes in
shareholders'
interests
in
subsidiaries - - - - (11) - - - (11) - (5) (16)
================ ======== ======== ====== ========== =========== ========== =========== ======== ======== ===== =============== =======
Total
transactions
with owners
of the Company 2 2 - - (11) - - (68) (75) - (7) (82)
================ ======== ======== ====== ========== =========== ========== =========== ======== ======== ===== =============== =======
Balance at
30 June 2016 1,019 1,079 (1) 125 525 389 42 958 4,136 - 138 4,274
================ ======== ======== ====== ========== =========== ========== =========== ======== ======== ===== =============== =======
The following explanatory notes form an integral part of these condensed
consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
STATUTORY BASIS
as at 30 June 2017
(Reviewed) (Audited)
30 June 31 December
2017 2016
Note GBPm GBPm
Assets
Goodwill and other intangible assets 10 737 728
Property and equipment 105 109
========== ===========
Investment property 336 333
Investments in associates 13 12
Financial assets 11 11,994 12,325
========== ===========
Total investments 12,343 12,670
Reinsurers' share of insurance contract liabilities 16 2,454 2,252
Insurance and reinsurance debtors 3,112 2,823
========== ===========
Deferred tax assets 262 270
Current tax assets 37 65
Other debtors and other assets 567 430
========== ===========
Other assets 866 765
Cash and cash equivalents 12 761 985
===================================================== ==== ========== ===========
20,378 20,332
Assets of operations classified as held for
sale 5b 677 807
===================================================== ==== ========== ===========
Total assets 21,055 21,139
===================================================== ==== ========== ===========
Equity and liabilities
Equity
Shareholders' equity 13 3,651 3,715
Tier 1 notes 14 297 -
Non-controlling interests 132 132
===================================================== ==== ========== ===========
Total equity 4,080 3,847
===================================================== ==== ========== ===========
Liabilities
Loan capital 15 441 1,068
Insurance contract liabilities 16 13,032 12,676
Insurance and reinsurance liabilities 1,041 954
Borrowings 225 251
========== ===========
Deferred tax liabilities 56 54
Current tax liabilities 23 32
Provisions 390 420
Other liabilities 1,090 1,087
========== ===========
Provisions and other liabilities 1,559 1,593
===================================================== ==== ========== ===========
16,298 16,542
Liabilities of operations classified as held
for sale 5b 677 750
===================================================== ==== ========== ===========
Total liabilities 16,975 17,292
===================================================== ==== ========== ===========
Total equity and liabilities 21,055 21,139
===================================================== ==== ========== ===========
The following explanatory notes form an integral part of these condensed
consolidated financial statements.
The financial statements were approved on 1 August 2017 by the Board
of Directors and are signed on its behalf by:
Scott Egan
Group Chief Financial Officer
CONDENSED CONSOLIDATED STATEMENT OF CASHFLOWS
STATUTORY BASIS
for the 6 month period ended 30 June 2017
(Reviewed) (Reviewed)
6 months 6 months
30 June 30 June
2017 2016
(Re-presented(1)
)
Note GBPm GBPm
Cashflows from operating activities
Net profit for the year before tax from continuing
operations 263 161
Adjustments for non-cash movements in net profit
for the period
Depreciation 11 10
Amortisation and impairment of intangible assets 45 40
Amortisation of available for sale investments 31 35
Fair value gains on disposal of financial assets - 26
Impairment charge on available for sale financial
assets - 2
Share of profit of associates (1) -
Net gains related to business disposals (52) -
Foreign exchange loss/(gain) 9 (68)
Other non-cash movements(1) 16 17
Changes in operating assets/liabilities
Loss and loss adjustment expenses (96) (156)
Unearned premiums 182 (12)
Movement in working capital(1) (326) 183
Reclassification of investment income and interest
paid (72) (122)
Tax paid (35) (63)
Dividend income 16 15
Interest and other investment income 141 159
Dividends received from associates 14 1
Pension deficit funding (65) (65)
========================================================= ==== =========== =================
Net cashflows from operating activities - continuing
operations 81 163
========================================================= ==== =========== =================
Net cashflows from operating activities - discontinued
operations - (9)
========================================================= ==== =========== =================
Cashflows from investing activities
Proceeds/(cash outflows) from sales or maturities
of:
Financial assets 1,992 2,085
Investment property - 28
Disposals of businesses not classified as discontinued (3) 2
Disposal of UK Legacy liabilities (101) -
Purchase of:
Financial assets (1,654) (2,081)
Property and equipment (7) (18)
Intangible assets (54) (45)
Net cashflows from investing activities - continuing
operations 173 (29)
========================================================= ==== =========== =================
Net cashflows from investing activities - discontinued
operations - 333
========================================================= ==== =========== =================
Cashflows from financing activities
Proceeds from issue of share capital 4 4
Proceeds from issue of Tier 1 notes 297 -
Dividends paid to ordinary shareholders (112) (71)
Coupon payment on Tier 1 notes (3) -
Dividends paid to preference shareholders (5) (5)
Dividends paid to non-controlling interests (4) (2)
Redemption of long term borrowings (607) -
Movement in other borrowings (39) -
Interest paid (110) (80)
========================================================= ==== =========== =================
Net cashflows from financing activities - continuing
operations (579) (154)
========================================================= ==== =========== =================
Net (decrease)/increase in cash and cash equivalents (325) 304
Cash and cash equivalents at beginning of the
period 1,087 902
Effect of exchange rate changes on cash and cash
equivalents (12) 75
========================================================= ==== =========== =================
Cash and cash equivalents at end of the period 12 750 1,281
========================================================= ==== =========== =================
(1) Following a review of other non-cash movements, specific balances
have been further analysed and classified as movements in working capital
for HY 2016. These adjustments have no impact on the overall reported
cash flow from operating activities in either year, or any other notes
to the financial statements.
BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES
RSA Insurance Group plc (the 'Company') is a public limited company incorporated and domiciled in England and Wales. The Company through its subsidiaries and associates (together the 'Group' or 'RSA') provides personal and commercial insurance products to its global customer base, principally in the UK, Ireland, Middle East (together 'UK & International'), Scandinavia and Canada.
1. BASIS OF PREPARATION
The annual financial statements are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The condensed consolidated financial information in this half yearly report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' (IAS 34), as adopted by the European Union, and the Disclosure and Transparency Rules of the Financial Conduct Authority.
The Board has reviewed the Group's ongoing commitments for the next twelve months and beyond. The Board's review included the Group's strategic plans and updated forecasts, capital position, liquidity and credit facilities and investment portfolio. Based on this review no material uncertainties that would require disclosure have been identified in relation to the ability of the Group to remain a going concern for at least the next twelve months, from both the date of the Condensed Statement of Financial Position and the approval of the Condensed Consolidated Financial Statements.
These Condensed Consolidated Financial Statements have been prepared by applying the accounting policies used in the Annual Report and Accounts 2016 (see note 4 and Appendix A).
2. ADOPTION OF NEW AND REVISED STANDARDS
There are only a small number of narrow scope amendments arising from annual improvement projects that are applicable to the Group for the first time in 2017, none of which have had a significant impact on the Condensed Consolidated Financial Statements.
3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'
The IASB published IFRS 17 'Insurance Contracts' on 18 May 2017 which will change the way in which insurance contracts are accounted for and presented. The latest adoption date for the new standard will be 2021 and it still has to be endorsed by the EU. Work has already commenced on assessing the impact of the new standard.
The Group plans to take advantage of the deferral approach available under IFRS 4 for adopting IFRS 9 'Financial Instruments', thereby adopting it from 1 January 2021, at the same time as IFRS 17.
IFRS 16 'Leases'
In January 2016, the IASB issued IFRS 16 'Leases' to replace the existing standard IAS 17, which will be effective from 1 January 2019 but with earlier adoption permitted.
The main change under IFRS 16 is that it requires the recognition of all lease obligations, together with an asset representing the right to the use of the leased asset during the term of the lease. Under IAS 17, for leases qualifying as operating leases, the lease obligations are not recognised in the Statement of Financial Position.
The Group has completed its initial assessment of the impact of IFRS 16 on the financial statements and is in the process of considering the options available on transition to the new standard.
IFRS 15 'Revenue Recognition'
IFRS 15 'Revenue Recognition' becomes effective from 1 January 2018. Revenue arising from insurance contracts and financial instruments is outside the scope of IFRS 15. Work is progressing on preparing for the adoption of IFRS 15 which is not expected to have a significant impact for the Group.
Other pronouncements
There are a number of amendments to IFRS that have been issued by the IASB that become mandatory during 2017 or in a subsequent accounting period. The Group has evaluated these changes and none are expected to have a significant impact on the consolidated financial statements.
4. RISK MANAGEMENT
The principal risks and uncertainties of the Group and the management of these risks have not materially changed since the year ended 31 December 2016.
Details of the principal risks and uncertainties can be found in the Annual Report and Accounts 2016; Risk Management information in Note 5 on pages 120 to 126 and the estimation techniques and uncertainties in the specific disclosures to which they relate.
SIGNIFICANT TRANSACTIONS AND EVENTS
5. DISCONTINUED OPERATIONS AND DISPOSALS
a) Discontinued operations
During the six months to 30 June 2017, no operations have been classified as discontinued.
During 2016, the Group classified the following operations as discontinued on the basis that they represented a separate geographical area of operation. The sales all completed during 2016.
Operation Date of disposal Acquirer
Russia 29 January 2016 Joint Stock Insurance
Company Blagosostoyanie
Brazil 29 February 2016 Suramericana S.A.
Colombia 31 March 2016 Suramericana S.A.
Chile 30 April 2016 Suramericana S.A.
Argentina 30 April 2016 Suramericana S.A.
Mexico 31 May 2016 Suramericana S.A.
Uruguay 30 June 2016 Suramericana S.A.
The revenue, expenses and related income tax expense in 2016 relating to these discontinued operations are set out in the comparatives below.
DISCONTINUED INCOME STATEMENT
for the period ended 30 June 2017
(Reviewed) (Reviewed)
6 months 6 months
30 June 30 June
2017 2016
Note GBPm GBPm
Income
Gross written premiums - 254
Less: reinsurance premiums - (86)
====================================================== ===== =========== ===========
Net written premiums 7 - 168
=========== ===========
Change in the gross provision for unearned premiums - 38
Less: change in provision for unearned reinsurers'
premiums - (19)
=========== ===========
Change in provision for unearned premiums - 19
====================================================== ===== =========== ===========
Net earned premiums - 187
Net investment return - 16
Total income - 203
====================================================== ===== =========== ===========
Expenses
=========== ===========
Gross claims incurred - (311)
Less: claims recoveries from reinsurers - 215
=========== ===========
Net claims - (96)
Underwriting and policy acquisition costs - (88)
Unwind of discount - (5)
Other operating expenses - (7)
====================================================== ===== =========== ===========
Total expenses - (196)
====================================================== ===== =========== ===========
Profit from discontinued operations before tax - 7
Loss on disposal after tax 5c - (36)
Loss before tax - (29)
Income tax expense - (5)
====================================================== ===== =========== ===========
Loss after tax - (34)
====================================================== ===== =========== ===========
5. DISCONTINUED OPERATIONS AND DISPOSALS (CONTINUED)
DISCONTINUED STATEMENT OF COMPREHENSIVE INCOME
for the period ended 30 June 2017
(Reviewed) (Reviewed)
6 months 6 months
30 June 30 June
2017 2016
GBPm GBPm
(Re-presented(1)
)
Loss for the period from discontinued operations
net of tax - (34)
Items from discontinued operations that may be
reclassified to the income statement:
Exchange gains recycled on disposal of discontinued
operations net of tax - 111
Exchange gains net of tax - 7
- 118
Fair value losses recycled on disposal of discontinued
operations net of tax - (1)
Fair value gains on available for sale financial
assets net of tax - 3
=========== =================
- 2
Items from discontinued operations that will
not be reclassified to the income statement:
============ =================
Movement in property revaluation, net of tax - 2
============ =================
Other comprehensive income for the year from
discontinued operations - 122
============================================================= ============ =================
Total comprehensive expense for the year from discontinued
operations - 88
============================================================== ============ =================
(1) On a basis consistent with FY 2016 the HY 2016 Other Comprehensive
Income exchange gains and losses have been reclassified resulting
in a total net impact of GBPnil and a reclassification of GBP94m income
from continuing to discontinued operations.
5. DISCONTINUED OPERATIONS AND DISPOSALS (CONTINUED)
b) Held for sale disposal
groups
30 June 2017 31 December 2016
UK Legacy(1) Total UK Legacy(1) Oman(2) UK Other Total
GBPm GBPm GBPm GBPm GBPm GBPm
============================ ============= ========= ================= ======== ========= ======
Assets classified as held
for sale
Property and equipment - - - - 4 4
Investments - - 689 87 - 776
Reinsurers' share of
insurance
contract liabilities 677 677 90 6 - 96
Insurance and reinsurance
debtors - - - 15 - 15
Other debtors and other
assets - - 9 6 1 16
Cash and cash equivalents - - 101 3 - 104
============================ ============= ========= ================= ======== ========= ======
Total assets of disposal
groups 677 677 889 117 5 1,011
============================ ============= ========= ================= ======== ========= ======
Remeasurement of disposal
groups to fair value less
costs to sell - - (204) - - (204)
============================ ============= ========= ================= ======== ========= ======
Assets of operations
classified
as held for sale 677 677 685 117 5 807
============================ ============= ========= ================= ======== ========= ======
Liabilities directly
associated
with assets classified
as held for sale
Insurance contract
liabilities 677 677 685 50 - 735
Insurance and reinsurance
liabilities - - - 5 - 5
Provisions and other
liabilities - - - 10 - 10
============================ ============= ========= ================= ======== ========= ======
Liabilities of disposal
groups 677 677 685 65 - 750
============================ ============= ========= ================= ======== ========= ======
Total net assets of disposal
groups - - - 52 5 57
============================ ============= ========= ================= ======== ========= ======
(1) The UK Legacy investments presented as held for sale at 31 December
2016 have been disposed of and the proceeds used to acquire reinsurance
for the gross legacy liabilities pending completion of a subsequent
legal transfer of the business.
(2) It is no longer expected that RSA will lose control over its Oman
business as a result of an initial public offering of its shares that
is taking place during the third quarter of 2017 and as a consequence
the assets and liabilities of this business were reclassified out of
held for sale.
5. DISCONTINUED OPERATIONS AND DISPOSALS (CONTINUED)
c) Discontinued operations disposed of during the period
6 months 6 months
30 June 30 June 2016
2017
Latin
Total America Russia Total
GBPm GBPm GBPm GBPm
=========================================== ========= ================= ======== =========
Consideration received - 432 5 437
Less: transaction costs - (20) (1) (21)
=========================================== ========= ================= ======== =========
Net proceeds from sales - 412 4 416
Less: carrying value of net assets
disposed of(1) - (321) (3) (324)
=========================================== ========= ================= ======== =========
Gains on sale before recycling of items
from other comprehensive income - 91 1 92
Recycle of items from other comprehensive
income on disposals:
- Foreign currency translation reserve - (100) (11) (111)
- Unrealised loss on available for
sale investments - (1) - (1)
=========================================== ========= ================= ======== =========
Loss on sales of discontinued operations
before tax - (10) (10) (20)
Tax on disposal - (16) - (16)
=========================================== ========= ================= ======== =========
Loss on sales of discontinued operations
after tax - (26) (10) (36)
=========================================== ========= ================= ======== =========
(1) Includes GBPnil (30 June 2016: GBP98m) of cash balances in the
disposed businesses.
d) Gain/(loss) related to business disposals not classified as discontinued
In the six months to 30 June 2017 the net gain related to business disposals within continuing operations was GBP52m comprised of GBP66m mainly relating to the realised gain on the mark-to-market of the bonds transferred to the UK Legacy buyer, GBP(22)m on the commutation of the Group's Adverse Development Cover reinsurance protection that was bought in 2014 to partly protect the UK Legacy book and GBP8m from the sale of the UK Accident and Repair business.
At full year 2016, the assets and liabilities of the Oman and UK Legacy business were classified as held for sale. Upon classification as held for sale, the net assets were measured at the lower of carrying amount and fair value less costs to sell. The valuation adjustment resulted in a GBP234m loss which was recognised in the continuing income statement for full year 2016.
6. REORGANISATION COSTS
Reorganisation costs represent external and clearly identifiable internal costs that are necessarily incurred and directly attributable to the Group's restructuring programme. The aim of the restructuring programme is to both reduce operating costs and improve profitability.
In the six months to 30 June 2017, the reorganisation costs of GBP41m (30 June 2016: GBP70m) comprised of GBP20m (30 June 2016: GBP15m) of redundancy costs and GBP21m (30 June 2016: GBP55m) of other restructuring activities.
NOTES TO THE CONDENSED CONSOLIDATED INCOME STATEMENT AND CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
7. OPERATING SEGMENTS
Group excluding disposals
The Group's primary operating segments comprise Scandinavia, Canada, UK & International and Central functions which is consistent with how the Group is managed. The primary operating segments are based on geography and are all engaged in providing personal and commercial general insurance services. Central functions include the Group's internal reinsurance function and Group Corporate Centre.
Each operating segment is managed by a member of the Group Executive Committee who is directly accountable to the Group Chief Executive and Board of Directors, who together form the central decision making function in respect of the operating activities of the Group. The UK is the Group's country of domicile and one of its principal markets.
During 2016, following a reorganisation change, the Middle East was combined with the UK and Ireland regions to form the 'UK & International' segment. Previously the Middle East operations were reported under 'non-core'. The 2016 half year segmental results have been re-presented accordingly.
Disposals
Disposals are categorised between disposals of continuing operations and discontinued operations:
Disposals of continuing operations
On 7 February 2017, the Group's UK Legacy liabilities were disposed of to Enstar Group Limited. The transaction initially takes the form of a reinsurance agreement, effective from 31 December 2016, which substantially effects economic transfer, to be followed by completion of a subsequent legal transfer of the business. The Group's UK Legacy business is managed as part of the UK operations. It is not presented as a discontinued operation as it is neither a separate geographical area nor a major line of business.
Discontinued operations
During 2015, the Group classified the Latin American and Russian operations as discontinued as they were held for sale at 31 December 2015 and represented a separate geographical area of operation. The sale of these operations completed in the first six months of 2016 and they are therefore classified as discontinued at 30 June 2016 (see note 5 for further details).
During the six months to 30 June 2017, no further operations have been classified as discontinued and as such, the 2016 comparatives do not require re-presentation.
Assessing segment performance
The Group uses the following key measures to assess the performance of its operating segments:
-- Net written premiums;
-- Underwriting result;
-- Combined operating ratio ('COR');
-- Operating result.
Net written premiums is the key measure of revenue used in internal reporting.
Underwriting result, COR and Operating result are the key internal measures of profitability of the operating segments. The COR reflects the ratio of claims costs and expenses (including commission) to earned premiums, expressed as a percentage.
7. OPERATING SEGMENTS (CONTINUED)
Segment revenue and results
Period ended 30 June 2017
Scandinavia Canada UK & International Central Total
Functions Group
GBPm GBPm GBPm GBPm GBPm
========================================== ============ ======= =================== =========== =======
Net written premiums 1,064 728 1,628 29 3,449
========================================== ============ ======= =================== =========== =======
Underwriting result 162 40 32 (12) 222
Investment result 40 31 77 - 148
Central costs and other activities - - - (10) (10)
Operating result (management basis) 202 71 109 (22) 360
Realised gains 4
Unrealised losses, impairments
and foreign exchange (12)
Interest costs (89)
Amortisation of intangible assets (8)
Pension net interest and administration
costs (3)
Reorganisation costs (41)
Net gains related to business disposals 52
========================================== ============ ======= =================== =========== =======
Profit before tax 263
Tax on operations (57)
Profit after tax 206
========================================== ============ ======= =================== =========== =======
Combined operating ratio (%) 81.9% 94.8% 98.0% 93.2%
==========================================
7. OPERATING SEGMENTS (CONTINUED)
Segment revenue and results
Period ended 30 June 2016 - Re-presented
Scandinavia Canada UK & Central Group Disposals Continuing Discontinued Total
International Functions excluding of operations operations Group
disposals continuing per income (note
operations statement 5)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Net written
premiums 965 609 1,518 29 3,121 (42) 3,079 168 3,247
Underwriting
result 96 37 82 (36) 179 (8) 171 3 174
Investment
result 35 32 74 - 141 - 141 9 150
Central costs
and
other
activities - - - (12) (12) - (12) - (12)
Operating result
(management
basis) 131 69 156 (48) 308 (8) 300 12 312
Realised gains 10 2 12
Unrealised
losses,
impairments and
foreign
exchange (11) - (11)
Interest costs (54) - (54)
Amortisation of
intangible
assets (7) - (7)
Pension net
interest
and
administration
costs (2) - (2)
Solvency II
costs (6) - (6)
Reorganisation
costs (63) (7) (70)
Economic
assumption
changes (6) - (6)
Loss on disposal
of
businesses - (20) (20)
Profit/(loss)
before
tax 161 (13) 148
Tax on
operations (36) (5) (41)
Tax on
disposals of
discontinued
operations - (16) (16)
Profit/(loss)
after
tax 125 (34) 91
Combined
operating
ratio (%) 88.5% 94.5% 94.8% 94.2% 94.7%
8. Earnings per share
The earnings per ordinary share are calculated by reference to the profit attributable to the ordinary shareholders and the weighted average number of shares in issue during the period.
The number of shares used in the calculation on a basic and diluted basis were 1,020,292,327 and 1,065,655,658 respectively (excluding ordinary shares purchased by various employee share trusts and held as own shares). The weighted average number of diluted shares recognises that the Tier 1 loan notes issued in the period (note 14), are convertible in the event that certain regulatory capital measures are breached.
Basic earnings per share are calculated by dividing the profit attributable to the ordinary shareholders of the Parent Company by the weighted average number of ordinary shares in issue during the period, excluding ordinary shares purchased by various employee share trusts and held as own shares.
Diluted earnings per share are calculated by dividing the profit attributable to the ordinary shareholders of the Parent Company by the diluted weighted average number of ordinary shares in issue during the period, excluding ordinary shares purchased by various employee share trusts and held as own shares.
9. DISTRIBUTIONS PAID AND DECLARED
30 June 30 June 30 June 30 June
2017 2016 2017 2016
p p GBPm GBPm
Ordinary dividend:
Final paid in respect of prior year 11.0 7.0 112 71
Preference dividend 5 5
Tier 1 notes coupon payment 3 -
120 76
Subsequent to 30 June 2017, the directors declared an interim dividend
of 6.6p (30 June 2016: 5.0p) per ordinary share amounting to a total
of GBP67m (2016: GBP51m). The proposed dividend will be paid on X 2017
and accounted for in shareholders' equity as an appropriation of retained
earnings in the year ending 31 December 2017.
The Tier 1 coupon payment relates to the two floating rate notes issued
on 27 March 2017 (note 14).
NOTES TO THE CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
10. GOODWILL AND INTANGIBLE ASSETS
30 December
30 June 2017 2016
GBPm GBPm
Goodwill 345 345
Externally acquired software 9 14
Internally generated software 311 287
Other 72 82
Total goodwill and other intangible
assets 737 728
Other includes customer lists, renewal rights
and acquired brands.
The following impairment charges and write-offs have been recognised
in the period.
30 June 2017 30 June 2016
GBPm GBPm
Other intangible asset
write-offs - 1
- 1
The software impairment charge of GBPnil during the six months to 30 June 2017 (30 June 2016: GBP1m) was recognised within underwriting and policy acquisition costs.
11. FINANCIAL ASSETS AND FAIR VALUE MEASUREMENTS
Financial assets
30 June 31 December
2017 2016
GBPm GBPm
Equity securities 770 692
Debt securities 11,070 12,321
Financial assets measured at fair value 11,840 13,013
Loans and receivables 154 88
Total financial assets 11,994 13,101
Less: Assets classified as held for sale
Debt securities - 776
Total financial assets net of held for sale 11,994 12,325
11. FINANCIAL ASSETS AND FAIR VALUE MEASUREMENTS (CONTINUED)
Fair value measurements recognised in the statement of financial position
The following table provides an analysis of financial instruments and
other items that are measured subsequent to initial recognition at
fair value as well as financial liabilities not measured at fair value,
grouped into Levels 1 to 3. The table does not include financial assets
and liabilities not measured at fair value if the carrying value is
a reasonable approximation of fair value.
Fair value hierarchy
30 June 2017
Less: Assets
of operations
classified
Level Level Level as held
1 2 3 for sale Total
GBPm GBPm GBPm GBPm GBPm
Group occupied property - land
and buildings - - 34 - 34
Investment property - - 336 - 336
Available for sale financial
assets:
Equity securities 403 - 366 - 769
Debt securities 3,802 6,934 316 - 11,052
Financial assets at fair value
through the income statement:
Equity securities - - 1 - 1
Debt securities - - 18 - 18
4,205 6,934 1,071 - 12,210
Derivative assets:
At fair value through the
income statement - 39 - - 39
Designated as hedging instruments - 18 - - 18
Total assets measured at fair
value 4,205 6,991 1,071 - 12,267
===============
Derivative liabilities:
At fair value through the
income statement - 40 - - 40
Designated as hedging instruments - 74 - - 74
Total liabilities measured
at fair value - 114 - - 114
Loan capital - 464 9 - 473
Total value of liabilities not
measured at fair value - 464 9 - 473
11. FINANCIAL ASSETS AND FAIR VALUE MEASUREMENTS (CONTINUED)
Fair value hierarchy
31 December 2016
Less:
Assets
of operations
classified
Level Level Level as held
1 2 3 for sale Total
GBPm GBPm GBPm GBPm GBPm
Group occupied property - land
and buildings - - 34 4 30
Investment property - - 333 - 333
Available for sale financial
assets:
Equity securities 323 - 363 - 686
Debt securities 4,256 7,780 266 776 11,526
Financial assets at fair value
through the income statement:
Equity securities - - 6 - 6
Debt securities - - 19 - 19
4,579 7,780 1,021 780 12,600
Derivative assets:
At fair value through the
income statement - 47 - - 47
Designated as hedging instruments - 9 - - 9
Total assets measured at fair
value 4,579 7,836 1,021 780 12,656
Derivative liabilities:
At fair value through the
income statement - 38 - - 38
Designated as hedging instruments - 129 - - 129
Total liabilities measured
at fair value - 167 - - 167
===============
Loan capital - 1,129 8 - 1,137
Fair value of liabilities not
measured at fair value - 1,129 8 - 1,137
During 2016, the Group re-evaluated the basis of valuation of certain
investments. As a consequence during 2016 the Group transferred GBP3,074m
of debt securities from a classification of Level 1 to a classification
of Level 2.
Estimation of the fair value of assets and liabilities
Fair value is used to value a number of assets within the Statement of Financial Position and represents market value at the reporting date.
Group occupied property and investment property
Group occupied properties are valued on a vacant possession basis using third party valuers. Investment properties are valued, at least annually, at their highest and best use.
The fair value of property has been determined by external, independent valuers, having appropriate recognised professional qualifications and recent experience in the location and category of the property being valued.
The valuations of buildings with vacant possession are based on the comparative method of valuation with reference to sales of other vacant buildings. Fair value is then determined based on the locational qualities and physical building characteristics (principally condition, size, specification and layout) as appropriate.
Investment properties are valued using discounted cashflow models which take into account the net present value of cashflows to be generated from the properties. The cashflow streams reflect the current rent (the gross rent) payable to lease expiry, at which point it is assumed that each unit will be re-let at its estimated rental value. Allowances have been made for voids and rent free periods where applicable. The appropriate rent to be capitalised is selected on the basis of the location of the building, its quality, tenant credit quality and lease terms amongst other factors.
These cashflows are discounted at an appropriate rate of interest to determine their present value.
11. FINANCIAL ASSETS AND FAIR VALUE MEASUREMENTS (CONTINUED)
In both cases the estimated fair value would increase/(decrease) if:
-- The estimated rental value is higher/(lower); -- Void periods were shorter/(longer); -- The occupancy rates were higher/(lower); -- Rent free periods were shorter/(longer); -- The discount rates were lower/(higher).
Derivative financial instruments
Derivative financial instruments are financial contracts whose fair value is determined on a market basis by reference to underlying interest rate, foreign exchange rate, equity instrument or indices.
Loan capital
The fair value measurement of the Group's loan capital instruments, with the exception of the subordinated guaranteed US$ bonds, is based on pricing obtained from a range of financial intermediaries who base their valuations on recent transactions of the Group's loan capital instruments and other observable market inputs such as applicable risk free rate and appropriate credit risk spreads.
The fair value measurement of the subordinated guaranteed US$ bonds is also obtained from an indicative valuation based on the applicable risk free rate and appropriate credit risk spread.
Fair value hierarchy
Fair value for all assets and liabilities which are either measured or disclosed is determined based on available information and categorised according to a three-level fair value hierarchy as detailed below.
-- Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
-- Level 2 fair value measurements are those derived from data other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices);
-- Level 3 fair value measurements are those derived from valuation techniques that include significant inputs for the asset or liability valuation that are not based on observable market data (unobservable inputs).
A financial instrument is regarded as quoted in an active market (Level 1) if quoted prices for that financial instrument are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm's length basis.
The Group uses prices received from external providers who calculate these prices from quotes available at the reporting date for the particular investment being valued. For investments that are actively traded the Group determines whether the prices meet the criteria for classification as a Level 1 valuation. The price provided is classified as a Level 1 valuation when it represents the price at which the investment traded at the reporting date taking into account the frequency and volume of trading of the individual investment together with the spread of prices that are quoted at the reporting date for such trades. Typically investments in frequently traded government debt would meet the criteria for classification in the Level 1 category. Where the prices provided do not meet the criteria for classification in the Level 1 category, the prices are classified in the Level 2 category.
In limited circumstances, the Group does not receive pricing information from an external provider for its financial investments. In such circumstances the Group calculates fair value which may use input parameters that are not based on observable market data. Unobservable inputs are based on assumptions that are neither supported by prices from observable current market transactions for the same instrument nor based on available market data. In these cases, judgment is required to establish fair values. Valuations that require the significant use of unobservable data are classified as Level 3 valuations. In addition, the valuations used for investment properties and for Group occupied properties are classified in the Level 3 category.
11. FINANCIAL ASSETS AND FAIR VALUE MEASUREMENTS (CONTINUED)
A reconciliation of Level 3 fair value measurements of financial assets
is shown in the table below. There are no Level 3 financial liabilities.
Investments at
Available for fair value through
sale investments the income statement
Equity Equity
securities Debt securities securities Debt securities Total
GBPm GBPm GBPm GBPm GBPm
Level 3 financial assets at 1 January
2016 269 154 38 15 476
Total gains/(losses) recognised
in:
Income statement 1 - 1 (9) (7)
Other comprehensive income 16 1 - - 17
Purchases 49 96 5 28 178
Disposals 7 - (38) (15) (46)
Exchange adjustment 21 15 - - 36
Level 3 financial assets at 1 January
2017 363 266 6 19 654
Total losses recognised in:
Income statement - - - (1) (1)
Other comprehensive income (4) (1) - - (5)
Purchases 12 54 - - 66
Disposals (7) (2) (5) - (14)
Exchange adjustment 2 (1) - - 1
Level 3 financial assets at 30
June 2017 366 316 1 18 701
The Group's property portfolio (including the Group occupied properties) is almost exclusively located in the UK. An increase of 100bps in the discount rate used to value the UK property portfolio would result in a decrease of GBP51m (31 December 2016: GBP72m) in the fair value of the portfolio.
The Group investments in financial assets classified at Level 3 in the hierarchy are primarily investments in various private fund structures investing in debt instruments where the valuation includes estimates of the credit spreads on the underlying holdings. The estimates of the credit spread are based upon market observable credit spreads for what are considered to be assets with similar credit risk. The aggregate value of these holdings included in the table above at 30 June 2017 is GBP701m (31 December 2016: GBP654m). An increase in the estimate of the credit spread of the underlying holdings of 100bps would result in a reduction in the fair value of these investments at 30 June 2017 of GBP22m (31 December 2016: GBP29m).
12. CASH AND CASH EQUIVALENTS
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
Cash and cash equivalents and bank overdrafts
(as reported within the Condensed Consolidated
Statement of Cashflows) 750 1,281 1,087
Add: Bank overdrafts reported in Borrowings 11 - 2
Total cash and cash equivalents 761 1,281 1,089
Less: cash and cash equivalents reported
in assets held for sale - - 104
Total cash and cash equivalents (as reported
in the Condensed Consolidated Statement
of Financial Position) 761 1,281 985
13. share capital
The issued share capital at 30 June 2017 consists of 1,022,652,327 ordinary shares of GBP1.00 each and 125,000,000 of preference shares of GBP1.00 each (31 December 2016: 1,019,554,986 ordinary shares of GBP1.00 each and 125,000,000 preference shares of GBP1.00 each).
The issued share capital of the Parent Company is fully paid.
14. TIER 1 NOTES
On 27 March 2017, the Group issued two floating rate Restricted Tier 1 (RT1) Notes totalling GBP297m in aggregate size and with a blended coupon of c.4.7%. The Notes are as follows:
Swedish Krona 2,500m at 3 month Stibor +525bps (equivalent to c.4.8% coupon on issue)
Danish Krone 650m at 3 month Cibor +485bps (equivalent to c.4.6% coupon on issue)
Proceeds of this issuance have been on-lent within the Group to finance our Scandinavian business.
The Tier 1 notes are treated as a separate category within Equity and future coupon payments recognised outside of the Profit after Tax result, similar to the treatment of preference dividends.
15. LOAN CAPITAL
30 June 31 December
2017 2016
GBPm GBPm
====================
Subordinated guaranteed US$ bonds 6 6
Guaranteed subordinated step-up notes
due 2039 40 298
Guaranteed subordinated notes due 2045 395 395
====================
Total dated loan capital 441 699
Perpetual guaranteed capital securities - - 369
Total loan capital 441 1,068
The subordinated guaranteed US$ bonds were issued in 1999 and have a nominal value of $9m and a redemption date of 15 October 2029. The rate of interest payable on the bonds is 8.95%.
The dated guaranteed subordinated step-up notes were issued on 20 May 2009 at a fixed rate of 9.375%. The nominal GBP500m bonds have a redemption date of 20 May 2039. On 7 July 2016, the Group bought back GBP200m in nominal value of these step-up notes, with a further GBP245m being bought back on 29 March 2017 and GBP15m in Q2 2017. The remaining GBP40m has a first call date of 20 May 2019.
The dated guaranteed subordinated notes were issued on 10 October 2014 at a fixed rate of 5.125%. The nominal GBP400m bonds have a redemption date of 10 October 2045. The Group has the right to repay the notes on specific dates from 10 October 2025. If the bonds are not repaid on that date, the applicable rate of interest would be reset at a rate of 3.852% plus the appropriate benchmark gilt for a further five year period.
The perpetual guaranteed subordinated capital securities issued on 12 May 2006 have a nominal value of GBP375m and the rate of interest payable is 6.701% of the nominal value. On 29 March 2017, the Group bought back GBP347m of the outstanding principal amount. The remaining GBP28m has been called and is therefore presented within other creditors in the Consolidated Statement of Financial Position.
The bonds and the notes are contractually subordinated to all other creditors of the Group such that in the event of a winding up or of bankruptcy, they are able to be repaid only after the claims of all other creditors have been met.
There have been no defaults on any bonds or notes during the year. The Group has the option to defer interest payments on the bonds and notes but has to date not exercised this right.
Finance costs of GBP89m include GBP59m relating to debt buyback premium.
16. INSURANCE CONTRACT LIABILITIES
Gross insurance contract liabilities and the reinsurers' share of insurance
contract liabilities
Details of the Group accounting policies in respect of insurance contract
liabilities can be found in Note 4 on page 115 of the Annual Report
and Accounts 2016.
The gross insurance contract liabilities and the reinsurers' share
of insurance contract liabilities presented in the Statement of Financial
Position are comprised as follows:
Gross RI Net
Period ended 30 June 2017 2017 2017 2017
GBPm GBPm GBPm
Provision for unearned premiums 3,580 (886) 2,694
Provision for losses and loss adjustment expenses 10,129 (2,245) 7,884
Total insurance contract liabilities 13,709 (3,131) 10,578
Less: Held for sale provision for unearned premiums - - -
Less: Held for sale provisions for losses and loss
adjustment expenses 677 (677) -
Less: Total liabilities held for sale 677 (677) -
Provision for unearned premiums at 30 June net
of held for sale 3,580 (886) 2,694
Provision for losses and loss adjustment expenses
at 30 June net of held for sale 9,452 (1,568) 7,884
Total insurance contract liabilities excluding
held for sale 13,032 (2,454) 10,578
Gross RI Net
Period ended 31 December 2016 2016 2016 2016
GBPm GBPm GBPm
Provision for unearned premiums 3,328 (818) 2,510
Provision for losses and loss adjustment expenses 10,083 (1,530) 8,553
Total insurance contract liabilities 13,411 (2,348) 11,063
Less: Held for sale provision for unearned premiums 17 (2) 15
Less: Held for sale provisions for losses and loss
adjustment expenses 718 (94) 624
Less: Total liabilities held for sale 735 (96) 639
Provision for unearned premiums at 31 December
net of held for sale 3,311 (816) 2,495
Provision for losses and loss adjustment expenses
at 31 December net of held for sale 9,365 (1,436) 7,929
Total insurance contract liabilities excluding
held for sale 12,676 (2,252) 10,424
17. RETIREMENT BENEFIT OBLIGATIONS
The table below provides a reconciliation of the movement in the Group's pension fund position under IAS 19 (net of tax) from 1 January 2017 to 30 June 2017.
UK Other Group
GBPm GBPm GBPm
Pension fund at 1 January 2017 (113) (84) (197)
Re-measurements(1) 2 (7) (5)
Deficit funding 54 - 54
Other movements(2) 3 2 5
Pension fund at 30 June 2017 (54) (89) (143)
UK Other Group
GBPm GBPm GBPm
Pension fund at 1 January 2016 117 (53) 64
Re-measurements(1) (295) (20) (315)
Deficit funding 54 - 54
Other movements(2) 11 (11) -
Pension fund at 31 December 2016 (113) (84) (197)
(1) Remeasurements include investment expenses, variance against net
interest, change in actuarial assumptions and experience losses.
(2) Other movements include regular contributions, service/administration
costs and net interest costs.
The Group's IAS 19 pension position has improved in the first half of 2017 from a deficit of GBP197m to a deficit of GBP143m.
The UK pension position has improved by GBP59m during the first half of 2017 to a deficit of GBP54m. The movement in the period is driven by gains on scheme assets of GBP32m, contributions of GBP64m, experience losses of GBP(12)m, changes to actuarial assumptions of GBP(14)m and service costs of GBP(11)m.
A full actuarial review of the overseas pension positions will be carried out at the year end.
18. RELATED PARTY TRANSACTIONS
During the first half of 2017, no related party transactions took place that have materially affected the financial position or the results for the period. There have also been no changes in the nature of the related party transactions as disclosed in Note 15 on page 137 of the Annual Report and Accounts for the year ended 31 December 2016.
19. results for THE YEAR 2016
The statutory accounts of RSA Insurance Group plc for the year ended 31 December 2016 have been delivered to the Registrar of Companies. The independent auditor's report on the Group accounts for the year ended 31 December 2016 is unqualified, does not draw attention to any matters by way of emphasis and does not include a statement under section 498(2) or (3) of the Companies Act 2006.
APPIX A: EXCHANGE RATES
6 months 6 months 12 months
31 December
Local currency/GBP 30 June 2017 30 June 2016 2016
Average Closing Average Closing Average Closing
Canadian Dollar 1.68 1.69 1.91 1.74 1.79 1.66
Danish Krone 8.64 8.47 9.57 8.98 9.11 8.71
Swedish Krona 11.14 10.98 11.95 11.38 11.59 11.19
Euro 1.16 1.14 1.28 1.21 1.22 1.17
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE HALF-YEARLY FINANCIAL REPORT
We confirm that to the best of our knowledge:
The condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the EU and gives a true and fair view of the assets, liabilities, financial position and result of the Group.
The interim management report includes a fair review of the information required by:
-- DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
-- DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.
Signed on behalf of the Board
Stephen Hester Scott Egan
Group Chief Executive Group Chief Financial
Officer
1 August 2017 1 August 2017
INDEPENDENT REVIEW REPORT TO RSA INSURANCE GROUP PLC
Conclusion
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2017 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated statement of changes in equity, the condensed consolidated statement of financial position, the condensed consolidated statement of cashflows and the related explanatory notes.
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2017 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the EU. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.
Stuart Crisp
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
1 August 2017
This information is provided by RNS
The company news service from the London Stock Exchange
END
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