2011 Full Year Results Presentation - RSA Insurance Group · • Final dividend of 5.82p up by 2%...

23 February 2012

2011 Full Year

Results Presentation

AGENDA

Introduction John Napier, Chairman

Financials George Culmer, CFO

Business Review, Strategy & Outlook Simon Lee, CEO

Business Review

OutlookIntroduction Financials Strategy


Question & Answers

INTRODUCTION

• A year of challenging economic conditions, low-yields and record catastrophe losses for the industry

• Against this backdrop, the Group delivered a good set of results benefiting from improved weather and management actions

Business Review


• Maintained our robust financial and capital positions

• Final dividend of 5.82p up by 2% giving a full year dividend of 9.16p and growth of 4% on prior year (2010: 8.82p)

AGENDA

Business Review






Question & Answers

8,138

ANOTHER GOOD FINANCIAL PERFORMANCE

Net written premiums 7,455

Underwriting result 238

COR 96.4%

Investment result 538

9%

58%

1.5 pts

19%642

94.9%

375

(£m)NWP Growth Drivers (%)

7% 18%

2011 2010 Mvt.

Rate on renewals Deals FXVolume

Business Review


Group

UK

International

Emerging Markets

9%

11%

6%

14%

Growth

(8) 0 4 8 12 16(4)

Operating result 641

Profit before tax 474

38%

29%613

884Insurance Result by Region (£m)

Profit after tax 355 20%427

Underlying ROE (average)

9.9% 1.7pts11.6%

NAV per share 104p -104p

Insurance result 776 31%1,017

UKInternational Emerging Markets

2011

2010

0 350 700

+31%

1,050

UNDERWRITING PERFORMANCE

Business Review


Underwriting Result (£m)

Prior year Current year

2008 20102009 2011

0

400

300

200

100

(100)

• Underwriting profit of £375m comprises

£146m current and £229m prior year profit

• Positive run-off in all regions with another

strong contribution from International

• Reserves remain significantly to the right

side of best estimate

• Current year benefits from rate and

Group Loss Ratio (%)


2009 2010 20112008

70%

45%

20%

Underlying Large Weather Events


management actions of c£240m which

exceed claims inflation of c£140m

• Large losses represent c7pts of loss ratio;

£55m higher than 2010 despite Chile quake

• Weather events c2.4pts of loss ratio; £132m

better than 2010 but worse than expected

• Floods in Denmark, Ireland and Thailand

drive c3.4pts weather event impact in H2

UNDERWRITING PERFORMANCE

Business Review




2008 20102009 2011

0

400

300

200

100

(100)

• Underwriting profit of £375m comprises

£146m current and £229m prior year profit

• Positive run-off in all regions with another

strong contribution from International

• Reserves remain significantly to the right

side of best estimate


Group Loss Ratio (%)

H1 2011

H2 2011


60%40% 70%50%

Underlying Large Weather Events


management actions of c£240m which

exceed claims inflation of c£140m

• Large losses represent c7pts of loss ratio;

£55m higher than 2010 despite Chile quake

• Weather events c2.4pts of loss ratio; £132m

better than 2010 but worse than expected

• Floods in Denmark, Ireland and Thailand

drive c3.4pts weather event impact in H2

OPERATING RESULT

(£m) 2011 2010 Mvt.

Underwriting result

375 238 58%

Investment income

579 569 2%

Total gains 157 63 149%

Discount

Business Review


• Investment income includes

• £25m rent settlement in Denmark

• c£10m from Swedish index-linked

bonds and one-off dividends

• 2012 investment income to be c£500m; c7%

reduction (ex one-offs and ADC) reflects gap Discount unwind

(94) (94) -

Investment result 642 538 19%

Insurance result 1,017 776 31%

Other activities (133) (135) 1%

Operating result 884 641 38%

between maturing and reinvestment rates

• Total gains of £157m mainly comprise

gains on equity sales of £430m during 2011

• Other activities in line with 2010; include

central costs and ongoing investment in

Indian associate and CEE Direct operations

• Operating result up 38% to £884m

INCOME STATEMENT

• Interest costs of £117m; in line with 2010

• Solvency II implementation costs of £30m;

expect charge to be similar in 2012

• Amortisation of £114m includes goodwill

write-downs for businesses impacted by

the economic downturn

(£m) 2011 2010 Mvt.

Operating result 884 641 38%

Interest (117) (118) 1%

Solvency II costs (30) (5) (500)%

Reorganisation costs - (5) 100%

Business Review


• £41m in UK Commercial lines

• £30m in Emerging Markets

• Tax charge of £186m; effective rate of 30%

or 27% excluding goodwill write-downs

• Profit after tax up 20% to £427m

Solvency II costs (30) (5) (500)%

Acquisitions and

disposals(10) (10) -

Profit before tax

Tax

613 474 29%

Profit after tax 427 355 20%

(186) (119) (56)%

Amortisation (114) (29) (293)%

CLAIMS DEVELOPMENT

Accident Year (AY)

After years

Prior 02 03 04 05 06 07 08 09 10

1 (287) 51 (30) 136 130 18 2 (3) (36) (36)

2 (86) 5 89 194 90 97 26 8 29

3 (358) 24 113 87 76 86 64 28

Loss Development* (£m) • £36m adverse on 2010 AY mainly due to UK

winter freeze of £13m and Italy at £17m

• Continued positive emergence from

earlier years including 2006 to 2009 after

initial small positive or adverse movements

• ‘2001 and prior’ development driven by

Scandinavian Personal lines and Workers

Business Review


4 (46) 84 61 68 85 54 45

5 (513) 23 61 50 64 22

6 60 34 23 36 26

7 76 35 60 45

8 51 31 13

9 51 20

>10 103

* Movement in estimated cumulative claims

Scandinavian Personal lines and Workers

Compensation and UK Marine

• In other years, as well as Scandinavia,

consistent positive contributors include

• Property, Motor and Liability in

UK Commercial lines

• Canadian Motor and General Liability

CLAIMS SETTLEMENT

Paid Claims Ratio* (%) • Paid claims ratio of 53% for 2010 AY is in

line with 2009 and 2008 years after

excluding winter freeze impact of 2pts

• Other factors influencing ratio include mix

changes over time and growing proportion

of shorter-tail Emerging Markets business

• Continue to drive faster claims settlement

Business Review


2008 AY

2009 AY

2010 AY

Impact of 2010 winter freeze

2%

50%

51%

51%

25% 35% 45% 55%

UK Claims Settlement Times+• UK achieved reductions of c40% in

Small Commercial Damage and Home

and c30% in Motor since start of 2009

• Canadian Personal Broker Motor

claims settlement times reduced by

c15% since the start of 2009

• Open Swedish BI claims reduced by

more than 50% since the end of 2007

60

50

70

80

90

100

110

Small Commercial Damage Household Motor

* Paid claims after one year as a percentage of the initial reserve

Impact of 2010 winter freeze

Q2 Q3 Q4Q1

2009 2010 2011

+ Indexed to 100

Q2 Q3 Q4Q1 Q2 Q3 Q4Q1

INVESTMENT PORTFOLIO

Investment Portfolio (%)

Bonds

Cash

Equities

Property

Other incl. prefs and CIVs

81%

5%

9%

3% 2%

• Total investment portfolio of £14.5bn

• c£430m of equities sold to lock in gains

• Minimal exposure to peripheral Europe

• Government bond exposure down

from £209m to £138m

• Bank debt also limited at £132m

Business Review


Bank Debt Portfolio (%)• Overall bank debt of £2.0bn comprises

• c£0.2bn sub debt; mostly Canadian

• c£1.8bn senior debt over 76 names

with a max exposure of c£100m

• Average duration increased to 3.4 years

• High quality, low risk strategy unchanged;

ongoing action to mitigate declining yieldsSenior Subordinated

Senior Debt by Region

UK US Canada

Europe GIIPS Other

Bank Debt by Type (%)

88%

12%

27%

17%

21%

19%

7%9%

ECONOMIC CAPITAL POSITION

Economic Capital Surplus (£bn)

2010

Dividends

Capital Generated

• Calibrated to an S&P ‘A’ bond default

• Equivalent to a probability of

insolvency over 1 year of 1 in 1,250

• More prudent than 1 in 200 probability

used under ICA and Solvency II

• Model assumes 3 years of new business

and a multi-year run-off; sensitive to

Business Review


0 1.35 1.8

Yield Curve

Corporate Activity

0.90.45

and a multi-year run-off; sensitive to

investment yields and acquisitions

• Surplus is strong; up from £0.7bn at Q3 to

£0.8bn compared with £1.1bn at 1 Jan 2011

• Capital generated covers dividends

and corporate activity

• Downward movement in risk free

yield curves drives £0.4bn decline

2011

REGULATORY CAPITAL POSITION & SHAREHOLDERS’ FUNDS

2006 2007 2008 2009 2010

2.0

1.5

1.0

0

IGD Surplus Coverage Ratio

4x

3x

2x

IGD Capital Surplus (£bn)• IGD surplus of £1.3bn and coverage of

2.0x the requirement remain very strong

• Good progress on Solvency II continues

• Remain at the forefront of internal

model approval

• Rated ‘A’ (positive) S&P, will receive credit

for internal model going forward

Business Review


0.5

2011

1x

0

FX1 /1/11 Profits Pension Dividends Other 31/12/11

Movement in Shareholders’ Funds (£bn)

4.0

3.0

4.5

IGD Surplus Coverage Ratiofor internal model going forward

• Shareholders’ funds of £3.8bn

• Profits after tax offset by dividends

and exchange losses

• Pension deficit of £140m, broadly in line

with the start of the year

• Strong asset outperformance

3.5

AGENDA

Business Review






Question & Answers

SCANDINAVIA

• NWP growth of 2% (constant) to £1.8bn

• Personal up 1% due to Household, PA

and Danish Motor offset by Norway

• Commercial up 3%; Marine, Norway

and Renewables offset Property and

Workers Comp reductions in first half

Scandinavia Growth in NWP* (£m)

Business Review


0 1,000 2,000

CommercialPersonal

2011

2010

1% 3%

• An excellent underwriting result of £264m

and COR of 85.4%; reserves remain strong

• Personal COR of 75.0% driven by

Swedish Motor and Personal Accident

where retention remains strong

• Commercial COR of 98% with Property

impacted by July and November storms Underwriting Result COR %

U/W Result (£m) and COR (%)

2008 20102009 2011

95

90

85

80

%

0

300

200

100

£m

CommercialPersonal

* Reported FX

CANADA

Canada Growth in NWP* (£m)• NWP up by 19% (constant) to £1.5bn

• Total Personal NWP of £1,012m

• Personal Broker NWP up 7% driven

by strong rate and retention

• Johnson up 10% with 17 new affinity

partners and 2 acquisitions

Business Review


JohnsonPersonal Broker Commercial

0 500 1,000 1,500

2011

2010

7% 10% 50%

120

U/W Result (£m)

partners and 2 acquisitions

• Commercial NWP up 50% to £471m due to

GCAN, Risk Managed and SME

• Record underwriting profit of £116m up

45%; COR of 91.6% despite Slave Lake fire

• GCAN integration almost complete; 18%

year on year growth and a COR of 83.2%


0 40 80

2011

2010

* Reported FX


ITALY AND IRELAND

Italy U/W Result (£m)Italy

• Disappointing year with market conditions remaining difficult

• Underwriting loss of £63m driven by Motor and General Liability

• Taking extensive remediation action

• Expect losses to be significantly reduced

Business Review


TotalPersonal

MotorGeneral Liability

Other

Current Year (13) (12) (1) -

Prior Year (50) (29) (18) (3)

(63) (41) (19) (3)

Ireland NWP* (£m) and COR (%)

• Expect losses to be significantly reduced in 2012; will be close to breakeven in 2013

Ireland

• Another strong performance despite challenging local economic environment

• NWP up 15% to £353m; 123.Money well ahead of plan with growth of 33%

• Underwriting result of £24m; excellent COR of 92.6% despite November floods

180201120102009

£m120

90

60

%

CORNWP

* Reported FX

2008

270

360

UK

UK Growth in NWP (£m)

Personal Lines Commercial Lines

800 1,600 2,4000

2010

2011 10%

• Total UK premiums up 6% to £3.1bn

• Personal NWP up 10% to £1.4bn with Pet

and Household offsetting a decline in Motor

• Tesco Pet ahead of plan with NWP

of c£130m in the first full year

• Commercial lines NWP up 2% to £1.7bn

• Risk Managed Europe up 19%;

Business Review


3,200

2%


• Risk Managed Europe up 19%;

Marine up 9%; Regions down 10%

• Underwriting profit of £40m; COR of 98.2%

• Strong Personal result of £60m, led by

Household with Motor at break-even

• In Commercial, Marine and Liability

offset by Property and Motor

• Expense ratio of c14% achieved a year early Personal Lines Commercial Lines

2010 20112009

Total UK

(50)

100

50

0

(100)

EMERGING MARKETS

Business Review


• NWP up by 15% (constant) to £1,103m and

by 17% to £1,241m including India

• COR of 98.7%; good performance in

Latin America offset by severe weather

in Thailand and the Baltics

• Asia & Middle East NWP up 16% to £214m

due to Specialty, Oman and Singapore

Emerging Markets Growth in NWP* (£m)

Latin America A&ME CEE India

0 325 650 975 1,300

17% 14% 8% 19%2011

2010

Latin America NWP Growth+ (%)

* Reported FX

• India NWP up 25% driven by Motor

• Central & Eastern Europe NWP up 8%;

retained leading position in Baltics; Direct

operations now insure c400,000 vehicles

• Latin America NWP up 18% to £670m;

double digit growth in five markets led

by Argentina and Brazil+ Constant FX

Chile

Mexico

Colombia

Uruguay

Brazil

Argentina 42%

22%

14%

13%

12%

7%

Net Written Premiums* (£bn)

Business Review


International UK Emerging Markets

2004 2006 2008 20102005 2007 2009 2011

17%

10%

2%

3

6

9 CAGR

0

• Transformed RSA into a high performing

company since 2003

• Remain a pure play general insurer with a

well diversified portfolio

• Continued rigorous focus on underwriting

discipline and control

RETAIN RSA FUNDAMENTAL STRENGTHS

COR (%)

International UK Emerging Markets

105

100

95

90

85H1 07

H2 07

H1 08

H2 08

H1 09

H2 09

H1 10

H2 10

H1 11

H1 05

H2 05

H1 06

H2 06

H2 11

H2 04

H1 04

* Reported FX

• Maintain our conservative reinsurance

and reserving policies

• High quality, low risk investment

strategy retained

• Continue to deliver sustainable

underwriting profitability

BUILDING ON FIRM FOUNDATIONS

RSA Portfolio

Business Review


2010 M

ark

et G

row

th*

• Unique portfolio of diversified businesses

has helped us outperform

• Leading positions in competitive home

market; outperforming peers in Ireland

• Strong positions in attractive markets

of Scandinavia and Canada

• Exciting Emerging Markets franchise

• Strong technical capability

High

Denotes RSA NWP

2010 Market COR

2010 M

ark

et G

row

th*

Data Source: Swiss Re. Sigma

* Local currency basis


• Reputation for high quality

underwriting and claims management

• Delivering operational efficiencies

• Generated significant annualised

cost savings since 2004

• Talented and experienced management;

have driven success and provide continuity

Low

High Low


RSA Portfolio

Business Review


2010 M

ark

et G

row

th*

High









UKIreland

Italy

Denotes RSA NWP

2010 Market COR

2010 M

ark

et G

row

th*



Low

High Low









Canada


RSA Portfolio

Business Review


2010 M

ark

et G

row

th*

High









Denmark

UKIreland

Canada

Sweden

ItalyNorway

Denotes RSA NWP

2010 Market COR

2010 M

ark

et G

row

th*



Low

High Low









Canada

Latin America

Central &

Asia & Middle East **


RSA Portfolio

Business Review


2010 M

ark

et G

row

th*

High









Denmark

UKIreland

Canada

Sweden

Italy

Central & Eastern Europe

Norway

Denotes RSA NWP

2010 Market COR

2010 M

ark

et G

row

th*


* Local currency basis ** Excludes China

Low

High Low









Canada

Latin America

Central &



RSA Portfolio

Business Review


2010 M

ark

et G

row

th*

High









Denmark

UKIreland

Canada

Sweden

Italy


Norway

Denotes RSA NWP

2010 Market COR

2010 M

ark

et G

row

th*



Low

High Low









Canada

Latin America

Central &



RSA Portfolio

Business Review


2010 M

ark

et G

row

th*

High









Denmark

UKIreland

Canada

Sweden

Italy


Norway

Denotes RSA NWP

2010 Market COR

2010 M

ark

et G

row

th*



Low

High Low









Canada

Latin America

Central &



RSA Portfolio

Business Review


2010 M

ark

et G

row

th*

High









Denmark

UKIreland

Canada

Sweden

Italy


Norway

Denotes RSA NWP

2010 Market COR

2010 M

ark

et G

row

th*



Low

High Low









DRIVING RSA FORWARD

Business Review


2012 Structure

ScandinaviaNWP £1.8bnCOR 85.4%

SwedenDenmarkNorway

Mike Holliday-Williams

CanadaNWP £1.5bnCOR 91.6%

RSAJohnson

GCAN

Rowan Saunders

• Continued growth and strong profitability in overseas businesses

• Customer-led strategy in Scandinavia

• Protect leadership positions

• Drive improved profitability in Denmark and Norway

• Capitalise on global presence

* Includes consolidated businesses only

Emerging Markets

NWP £1.2bnCOR 98.7%*

Latin AmericaAsia & Middle EastCentral & Eastern

EuropeIndia

Paul Whittaker

UK & Western Europe

NWP £3.7bnCOR 99.6%

UKIreland

ItalyEuropean Specialty

Adrian Brown

• Continued strong growth in Canada

• Extract value from GCAN

• Bolster geographic footprint

• Build on Johnson track record

• Build scale in Emerging Markets

• Both organically and through M&A

• On track for c£2.2bn of NWP in 2015

DRIVING RSA FORWARD

Business Review


2012 Structure


SwedenDenmarkNorway



RSAJohnson

GCAN

Rowan Saunders







Emerging Markets



EuropeIndia

Paul Whittaker

UK & Western Europe


UKIreland


Adrian Brown








DRIVING RSA FORWARD

Business Review


2012 Structure


SwedenDenmarkNorway



RSAJohnson

GCAN

Rowan Saunders







Emerging Markets



EuropeIndia

Paul Whittaker

UK & Western Europe


UKIreland


Adrian Brown








DRIVING RSA FORWARD

Business Review


2012 Structure


SwedenDenmarkNorway



RSAJohnson

GCAN

Rowan Saunders







Emerging Markets



EuropeIndia

Paul Whittaker

UK & Western Europe


UKIreland


Adrian Brown








DRIVING RSA FORWARD

Business Review


2012 Structure


SwedenDenmarkNorway



RSAJohnson

GCAN

Rowan Saunders

• Reposition the UK as a more focused and

targeted business

• Grow in Home, Pet and Risk Managed

• Focus on fewer Motor segments

• Convert leading Property market

share into sustainable profit

• More targeted broker distribution

Emerging Markets



EuropeIndia

Paul Whittaker

UK & Western Europe


UKIreland


Adrian Brown


• Continue remediation in Italy

• In Ireland, drive value from 123 Money;

maintain market leading position

• Confident that UK and Western Europe

will contribute greater levels of profitability

• Target was for overseas NWP to be c70%

by end of 2015, now expect to be close by

end of 2014 and then move beyond 70%

DRIVING RSA FORWARD

Business Review


2012 Structure


SwedenDenmarkNorway



RSAJohnson

GCAN

Rowan Saunders


targeted business







Emerging Markets



EuropeIndia

Paul Whittaker

UK & Western Europe


UKIreland


Adrian Brown









DRIVING RSA FORWARD

Business Review


2012 Structure


SwedenDenmarkNorway



RSAJohnson

GCAN

Rowan Saunders


targeted business






Emerging Markets



EuropeIndia

Paul Whittaker

UK & Western Europe


UKIreland


Adrian Brown










DRIVING RSA FORWARD

Business Review


2012 Structure


SwedenDenmarkNorway



RSAJohnson

GCAN

Rowan Saunders


targeted business






Emerging Markets



EuropeIndia

Paul Whittaker

UK & Western Europe


UKIreland


Adrian Brown










DRIVING RSA FORWARD

Business Review


2012 Structure


SwedenDenmarkNorway



RSAJohnson

GCAN

Rowan Saunders


targeted business






Emerging Markets



EuropeIndia

Paul Whittaker

UK & Western Europe


UKIreland


Adrian Brown










18%

28%

9%

13%

6%

16%

Group NWP by Product (%)

Business Review


STRENGTH THROUGH PRODUCT DIVERSIFICATION

• Personal has grown by c50% since 2007

with more modest growth in Commercial

• Aim to capitalise on Commercial Specialty

• Leverage global network and

technical expertise

• Build on strengths in Marine,

Renewables, Construction &

Home

PL Motor

Pet

Property

Liability

CL Motor

SpecialtyPL other

CL other

2%4%

4%

Specialty Lines NWP (£m)

Renewables, Construction &

Engineering and Risk Managed

• Focus of M&A will be bolt-on acquisitions

• Take decisive action where no viable route

to outperformance exists

• Strong platform and strategic actions give

confidence in continued outperformanceMarine C&E Risk Managed Renewable Energy

0 325 650 975 1,300

2011

2007CAGR = 15%

23%

18%

36%

9%

14%23%

9%

53%

8%7%

CONFIDENT OUTLOOK FOR 2012 …..

• Environment remains tough with subdued

growth in some markets and low yields

• Expect to deliver continued strong

operating performance in 2012 with

• Good premium growth

• COR to be better than 95%

• Investment income to be c£500m

Diversified Portfolio NWP (%)

20112004

Business Review


Scandinavia Canada UK Emerging Markets

Western Europe

• Investment income to be c£500m

• Prudent to grow the dividend at more

modest rate in current market conditions

• Final dividend increased by 2% to 5.82p

giving a full year dividend of 9.16p

• Well placed to return to higher dividend

growth when yields move to more normal

levels and economic growth returns

Insurance Result (£m)

Scandinavia Canada UK & Western Europe

Emerging Markets

2011

2004

275 550 8250 1,100

CAGR6%

Markets Europe

…. AND THE LONGER TERM

• Excited to be leading the Group; benefit

from strong foundations and

• Successful and diversified portfolio

• High quality, low risk

investment strategy

Business Review


23%

18%

36%

9%

14%23%

9%

53%

8%7%

Diversified Portfolio NWP (%)

20112004

Scandinavia Canada UK Emerging Markets

Western Europe

• Excellent and experienced team

• Clear strategy to drive Group forward

• Resilient business which is strongly

placed as economic growth returns

and yields improve

2011

2004

275 550 8250

CAGR6%

1,100

Insurance Result (£m)

Markets Europe

Scandinavia Canada UK & Western Europe

Emerging Markets

23 February 2012

2011 Full Year

Results Presentation

This presentation may contain ‘forward-looking statements’ with respect to certain of the Group’s plans

and its current goals and expectations relating to its future financial condition, performance, results,

strategic initiatives and objectives. Generally, words such as “may”, “could”, “will”, “expect”, “intend”,

“estimate”, “anticipate”, “aim”, “outlook”, “believe”, “plan”, “seek”, “continue” or similar expressions

identify forward-looking statements. These forward-looking statements are not guarantees of future

performance. By their nature, all forward-looking statements involve risk and uncertainty because they

relate to future events and circumstances which are beyond the Group’s control, including amongst

other things, UK domestic and global economic business conditions, market-related risks such as

fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities

(including changes related to capital and solvency requirements), the impact of competition, inflation,

deflation, the timing impact and other uncertainties of future acquisitions or combinations within

relevant industries, as well as the impact of tax or 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 presentation 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 presentation should be construed as a profit forecast.

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2011 Full Year Results Presentation - RSA Insurance Group · • Final dividend of 5.82p up by 2%...

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