RSA makes third quarter progress despite weather events

RSA Insurance Group reported “continued progress” at the end of its third quarter, despite hurricane costs in the period, with group premium income up 8% in the year-to-date or 3% at constant exchange rates.

The FTSE 100 company said other trends were “broadly in line” with those reported at the end of the first half, excluding recent weather impacts.

“The progress at RSA overall leaves group profits ahead of the same period in 2016 though by less than we had targeted,” said CEO Stephen Hester.

“We are continuing to drive business enhancements across the group, whilst taking further underwriting action in some portfolios to improve performance for 2018.”

Looking at market conditions in the quarter, RSA said conditions in both the insurance and financial markets were “largely unchanged” with the exception of challenges in wholesale and international commercial markets from US and Caribbean Cat activity.

The impact on market pricing trends from those events was as yet unclear.

Year-to-date group net written premiums stood at £5.077bn at the end of the third quarter - growth of 8% as reported, and 3% at constant exchange rates when compared to the same time last year.

Volumes accounted for 1% growth in the quarter, with rate increases adding 2%.

On a regional basis, Scandinavian premiums of £1.444bn were up 8% as reported and flat at constant currency.

Rates there were up 2%, offsetting volume reductions of 2%, with growth in Sweden and Norway offset by lower premiums in Denmark.

Premiums in Canada of £1.194bn were up 16% as reported and up 5% at constant exchange rates.

Canadian growth comprised 2% from increased volumes, 2% from rate increases, and 1% from lower reinsurance costs.

“Growth continues to be strong in the personal broker channel, and Johnson, our personal direct business, is now reporting year-to-date volume growth,” RSA’s board said of Canada performance.

In the UK, premiums of £2.022bn were up 5% as reported, and up 4% at constant currency with volume growth of 3% and rating increases adding 1%.

Volumes were reportedly driven by continued growth in RSA’s motor telematics proposition, whilst commercial volumes were flat overall.

In the smaller markets, premiums in Ireland of £232m were flat as reported and down 7% at constant exchange rates, and Middle East premiums of £158m were up 17% as reported and up 7% at constant currency.

Looking at profitability, RSA said year-to-date earnings per share were ahead of 2016, although they were “held back” by third quarter underwriting results.

Underwriting results for Scandinavia, Canada, Ireland and the Middle East in the year-to-date were ahead of 2016, and the company’s plans overall, continuing first half trends.

“UK reported results have been impacted by US [and] Caribbean hurricane costs as well as continuing adverse household and large loss experience,” the board explained.

“Overall group underwriting results are therefore slightly weaker than prior year.”

The group year-to-date attritional loss ratio overall was said to be “slightly better” than the prior year at constant exchange rates.

RSA said year-to-date attritional loss ratios were improved compared to last year in all regions, with the exception of the UK.

“The UK continues to see the impact of the adverse household trends reported in [the first half].

“Strong pricing and other actions are expected to improve this position during 2018.”

Year-to-date weather and large loss ratios were 2.4% and 11.3% respectively, compared to 1.2% and 11.4% for the first half.

RSA said weather losses in the third quarter included a provision of £50m against US and Caribbean Cat events, booked in the UK business segment.

“Claims notifications for these events are still developing, and we expect this provision to increase somewhat,” the board explained.

“Our reinsurance protection provides good cover for fourth quarter 'event' losses overall.”

The board added that the discrete third quarter weather ratio was 4.7%.

It said the third quarter discrete large loss ratio was 10.9% - slightly better than the first half experience.

Regional trends were said to be “broadly in line” with RSA’s own expectations, except in the UK where they were improved from second quarter levels, but still worse than long-term averages.

UK year-to-date large losses were elevated in the marine and international portfolios, which constitute around 25% of UK reported net written premiums, and “certain” UK domestic broker schemes.

Underwriting actions were said to be underway to improve performance for 2018.

RSA added that prior year releases were in line with first half trends, with the investment result “consistent” with current year guidance, as were other items below the operating result.

On the balance sheet, RSA said tangible shareholders' equity at 30 September was £2.81bn, up from £2.79bn on 30 June, and tangible net asset value per share was 275p.

Balance sheet unrealised gains were £431m at the end of the third quarter - down £56m or 11% since the half year.

The movement, which was in line with previous guidance, reflected the impact of market movements and the 'pull to par' of unrealised gains in the quarter, the board explained.

Its Solvency II coverage ratio was 161% as at 30 September, compared to 163% on 30 June.