2017 INTERIM RESULTS. 2 August 2017

Transcription

1 207 INTERIM RESULTS 2 August 207

2 NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF THAT JURISDICTION 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 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 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. Basis of presentation This presentation uses alternative performance measures, including certain underlying measures, to help explain business performance and financial position. Further information on these is set out in the 207 Interim Results announcement.

3 AGENDA Introduction 2 Business Improvement Actions 3 Regional update Interim Results 5 Q&A

4 INTRODUCTION

5 Introduction THE RSA PROPOSITION Focused mid-cap, a proven value creation strategy in P&C Insurance 2 A self help story with high quality underpinnings 3 Resilient in challenging economic and financial market conditions 4 Attractive EPS & dividend increases delivered and in prospect Based on consensus and Company targets/ambitions 5

6 207 INTERIM RESULTS HIGHLIGHTS Introduction Winning for customers and for shareholders 2 Strategy & balance sheet where we want it. Restructuring complete Outperformance continues, driven by self-help actions 3 Record underwriting profits & combined ratio (93.2%) Written premiums up, underlying loss ratio and costs down again 4 EPS 2 up 3%, dividend up 32%, ROTE 2 6.6% 5 Focused on drive towards best in class performance levels Since 2005 on like-for-like basis 2 Refers to underlying measure 6

7 BUSINESS IMPROVEMENT ACTIONS

8 PURSUIT OF OUTPERFORMANCE Strategy Strong customer franchises 2 Disciplined strategy, focused on strengths, seeking to avoid mistakes 3 A balance sheet that protects customers and the company 4 Intense and accomplished operational delivery improving customer service, underwriting and costs 8

9 Performance PERFORMANCE IMPROVEMENT LEVERS Advance customer service Digital platforms for convenience, flexibility and speed Increase customer satisfaction and retention Sharpen customer acquisition tools Targets Best in class COR ambitions Scandinavia <85% UK & International <94% Canada <94% 2 Further improve underwriting Elevate underwriting disciplines Ongoing BAU portfolio re-underwriting Invest in tools and technology Optimise reinsurance Earnings High quality, repeatable earnings Attractive EPS increases ROTE 3-7% 3 Drive cost efficiency Deploy lean, robotics & process redesign Optimise overheads & procurement Site consolidation & outsourcing Automation Dividend Regular payout 40-50%, plus additional payouts as available and prudent Key enablers: Technology Focused performance culture Underpinned by strong balance sheet and capital management 9

10 CUSTOMER MEASURES SHOWING CONTINUED IMPROVEMENT Customer Examples Denmark Commercial: Denmark Commercial broker new business (DKKm) +84% Customer retention (%) Scandinavia Significant new business growth Improved risk selection Focus on sales capabilities 5 H 206 H 207 Canada Johnson (direct) YoY PIF change Canada Johnson (direct): H 207 first period of PIF growth since 204 Improved risk models & marketing Canada Personal Commercial Q2 4 Q2 5 Q2 6 Q2 7 UK Commercial Regions: Increased focus on new business pipeline >50% increase in new business per FTE UK Commercial Regions new business ( m) +5% UK Personal Commercial No. > 50k cases won up 25% H 206 H 207 Personal Commercial FY4 FY5 FY6 H 7 0

11 Customer CUSTOMER INITIATIVES DELIVERING Examples Automated claims handling in Sweden Johnson Canada digital platform Opportunity: Improve claims efficiency through automated settlement of single accident motor claims Approach: Automate end-to-end claims handling process Outcome: Customer self-serve and straight through processing. 70% of single vehicle claims notified on the web 80% damage estimates approved by decision logic Robotics handling data and processing payments 38k automatic SMS status sent (reducing incoming calls by 7%) High risk claims passed as exceptions to a claims handler Opportunity: Accelerate digital capability development to drive growth and improve customer satisfaction Approach: Deliver an effortless experience at every interaction: Digital elements to engage, attract and inform customers Combined customer portal for all digital sales ecare/online help using digital tools & concierge service online Self service transactions Analytics & insight Digital progress to date: Organic Growth Quote & Bind New policies sold originating in digital channels, up 27% YoY in 207 Completed online home and auto quotes, up 36% YoY Other initiatives Predictive analytics on quote conversion focuses on quoting and winning business with the highest propensity for success Customer Service Platform in Denmark invites customer into the claims process, giving full transparency and access Awarded Best digital customer experience in Danish insurance market Policy Servicing Customer Experience Affinity Partnerships Agile & Culture Fully embedded digital policy servicing to reduce 6% calls by year end 207 New online support hub to provide instant answers; 86% very satisfied with online chat experience Developing digital affinity platform & partnerships with top clients to increase penetration Highly functioning agile digital teams delivering new capabilities at rapid pace (every 4 weeks)

12 LOSS RATIO IMPROVEMENTS Underwriting Underwriting actions Ongoing BAU portfolio re-underwriting Tighten underwriting discipline 2 3 Invest in tools and technology Attritional loss ratio (%) Group Scandinavia H 205 H 206 H 207 H 205 H 206 H Canada 52.2 UK & International H 205 H 206 H 207 H 205 H 206 H 207 Group shown ex disposals and at constant exchange rates 2 Canada adjusted for c.pt benign indirect weather, as disclosed at H 206. More normal patterns in H 207 2

13 Underwriting IMPROVING UNDERWRITING CAPABILITIES Examples Machine learning Opportunity: Machine learning techniques and advanced analytics tools can rapidly process large datasets Approach: Use of algorithms to identify patterns and generate predictions and insights on structured data Outcome: Using traditional techniques, a typical postcode classification would take c.2 months to complete. Using machine learning, a new postcode classification is possible within 4 days and a refresh is possible in ½ day Implemented in the UK, with plans to incorporate in Ireland/Scandinavia, and possibly Canada too Positive results from Radar Live Pricing sophistication in Sweden Radar Live (real time price optimisation model) now live in Personal Motor Early results show increased hit rate within target segments, and new business starting to pick up New business growth on Radar Live 6% Claims Technology - Guidewire Implementation of Guidewire in Canada started in 206 with ambition to modernise claims technology and optimise operating models Guidewire ClaimCenter : First release of ClaimCenter now fully developed and going live in Q3, enabling end-to-end claims lifecycle management Best in class ambition: Continue move to a modern system integrated into digital portals with rules based logic to aid claims processing Impact of rate change seen in Canada Household In Canada in 206, Household books in Ontario, British Columbia and Alberta moved onto Radar Live. One year later, encouraging impacts seen in new business growth 73% New business growth since moving onto Radar Live (%) 5.9% 282% Q2 206 Q2 207 Ontario B.C. Alberta 3

14 REDUCING OPERATING COSTS A PERMANENT REQUIREMENT Costs Examples Robotics RSA s first process automation portal has been delivered in More Th>n Pet and Motor Legacy Robotics portal Wrap time 3 mins 40 secs Systems 3 Screens 6 3 Fields 20 6 Initial findings suggest that 30-40% of our processes could be semi or fully automated by 2020 Canada Lean Objective: deepen Lean capability across Canada to embed a continuous improvement minset. Progress: 60% of RSA Canada now has Lean practices in place Achieved over 20% efficiencies in some cases c.500 waste items identified in finance and HR processes Average personal lines policies underwritten per person per day more than doubled Ambition: Lean in place across all of RSA Canada by end of 208 Site consolidation for Swedish claims Pre-transformation: 5 operating sites for claims in Sweden Consolidate into 3 sites Sundsvall and Gothenburg to move to Malmo Deploying voice analytics to reduce call demand Deployed voice analytics in UK personal lines. Early findings show First Contact Resolution results in fewer calls More Th>n Monthly % of repeat callers Go forward claims sites to be in Malmo, Stockholm and Umea 32,5% -2.7p.p These changes principally cover routine high volume, low complexity claims 3,% 3,% 29,8% At the same time some non-core processes are being outsourced, e.g. scanning Jan-7 Feb-7 Mar-7 Apr-7 4

15 REGIONAL UPDATE

16 Ambition AMBITION FOCUSED ON CLOSING GAPS TO BEST IN CLASS CAPABILITIES AND PERFORMANCE OVERALL Financial Ambition best in class combined ratios Scandinavia Canada UK & International < 85% < 94% < 94% Net written premium ( bn) (CFX) +2-4% Attritional loss ratio 2 (%) Operating expense ratio (%) 63.7 pre Impact -2-3pts of discount adj pts Net written premium ( bn) (CFX) +0-3% Attritional loss ratio (%) Operating expense ratio (%) pts --2pts Net written premium ( bn) (CFX) +2-4% Attritional loss ratio (%) Operating expense ratio (%) -2-3pts -0.5-pts Ambition Ambition Ambition Ambition Ambition Ambition Ambition Ambition Ambition 6

17 Regional update REGIONAL UPDATE Scandinavia Canada UK & International NWP H 7 v H 6,064m +0%RFX +%CFX COR 8.9% -6.6pts Attr. loss ratio 63.% -.4pts Controllable cost ratio 24.0% -.pts Key achievements in H 7 Better top line trend due to customer initiatives across the region. Ambition to improve further. Good underwriting progress driven by rating models, disciplined application and claims savings. Denmark off plan in H however. Strong progress on costs in Sweden and Denmark. Programmes delivering across the board, notably from automation, site consolidation and overheads. 0% year-onyear FTE reduction. More needed and to come. COR reflects strong underlying progress but flattered by unusually positive PYD. NWP 728m H 7 v H 6 Key achievements in H 7 +20%RFX +5%CFX COR 94.8% +0.3pts Attr. loss ratio 57.9% -0.2pts 2 Controllable cost ratio 9.% -2.4pts Pleasing top line improvement. Reflects customer and capability initiatives in all divisions. Volumes up 2% from both retention and new business. Loss ratio progress positive, benefiting from new risk models, pricing engines and claims savings. Comparisons impacted by 206 benign winter and Ontario motor rating changes. Strong cost progress. Cost ratio in medium term target zone now. Lean, digital, and site consolidation driving it. More to go for. COR closing in on target zone with less reliance on PYD as planned. Nature of Canadian market more volatile than others however. NWP COR Attr. loss ratio H 7 v H 6,628m 95.4% ex Ogden +7%RFX +4%CFX +0.6pts 48.9% -0.pts Controllable cost ratio 2.4% -0.3pts Key achievements in H 7 Good work on top line from both retention and new business initiatives. Portfolio changes continue to distort trends a little. Loss ratio progress off plan overall driven by poor household attritionals and elevated commercial large losses. The majority of business performing well as planned on underlying basis. Cost progress on plan though impact offset by top line portfolio pruning. More progress needed enabled by but also impacted by technology investment. COR moved backwards vs 206 mainly due to Ogden. Need more work to resume trend towards medium term target. Ireland showing H COR of 98.8%, a positive. Earned controllable expenses 2 Canada comparative adjusted for c.pt benign indirect weather in H 206, as previously disclosed 7

18 SUMMARY Summary Winning for customers and for shareholders 2 Strategy & balance sheet where we want it. Restructuring complete Outperformance continues, driven by self-help actions 3 Record underwriting profits & combined ratio (93.2%) Written premiums up, underlying loss ratio and costs down again 4 EPS 2 up 3%, dividend up 32%, ROTE 2 6.6% 5 Focused on drive towards best in class performance levels Since 2005 on like-for-like basis 2 Refers to underlying measure 8

19 207 INTERIM RESULTS

20 Interim Results STRONG FIRST HALF RESULTS m (unless stated) H 7 H 6 Key comments Net written premiums 3,449 3,247 NWP ex disposals 3,2 Underwriting result COR (%) % 94.7% 2 Net written premiums up % 2, with % volume growth Underwriting result, up 28% with COR of 93.2% Operating result Underlying PBT Operating result up 5% on prior year Profit after tax Profit after tax up 26% and includes lower interest costs and nonoperating charges Underlying EPS p 7.8p Underlying ROTE, annualised 6 6.6% 2.8% 5 Underlying EPS up 3% Interim dividend 7 6.6p 5.0p 3 6 Underlying ROTE of 6.6% H 7 FY6 Tangible net asset value 2.8bn 2.9bn 7 Interim dividend 6.6p, up 32% Note: H 206 comparative figures shown at reported exchange Operating result less interest costs and coupon cost on newly issued RT securities 2 Compared to H 206 NWP ex disposals 20

21 Interim Results PREMIUM GROWTH H growth Growth drivers Retention Net written premiums up % at reported fx, and up 3% at constant fx Volume growth added %; rate increases added 2% Overall Group retention improved slightly to 8% NWP walk H 206 to H 207 Growth drivers: rate and volume 3,2m 8% 2% % 3,449m Region Rate Volume Scandinavia +2% -% Canada +% +2% UK & Int l +2% +% H 206 Group ex disposals FX Rate Volume H 207 Group Canada overall growth of 5% at CFX also included a 2 point benefit from lower reinsurance costs, not shown here. 2

22 Interim Results UNDERWRITING PERFORMANCE Group COR walk (%) Attritional loss ratio 0.3pts better at CFX Scandinavia 88.5% 8.9% 0.2 (0.3) 0.0 (0.3) H 6 Canada 94.5% H % (0.2) 94.2 Driven by cost ratio improvements in Scandinavia and Canada 93.2 H 6 UK & International 94.8% H % 2.6 Ogden impact 95.4 Excl. Ogden H 6 ex disposals FX Attritional loss ratio Commission Expenses Volatile items H 7 H 6 H 7 22

23 Interim Results LOSS RATIOS Loss ratio walks H 206 to H 207 (%) Group Scandinavia (0.3) 0.3 (0.5) (.4) 0. (4.5) H 6 ex disposals Attritional loss ratio Weather & large Prior year H 7 loss ratio H 6 Attritional loss ratio Weather & large Prior year H 7 loss ratio Canada UK & International 65.0 c..0pt (0.2) (2.0) 3.0 (0.).6 (.9) c.pt benign indirect weather flagged at H Elevated large losses in UK Commercial H 6 Attritional loss ratio (underlying 2 ) Weather & large Prior year H 7 loss ratio H 6 Attritional loss ratio Weather & large Prior year H 7 loss ratio ex Ogden Ogden H 7 loss ratio At constant exchange 2 Underlying improvement of c.0.2pts after adjusting for c..0pt benign indirect weather flagged at H

24 Interim Results VOLATILE UNDERWRITING ITEMS Weather Large losses Prior year Relatively benign event weather in UK & International and Scandinavia Elevated large loss activity, particularly in the UK & International and Canada Strong positive PYD. All regions contributing Weather ratio Large loss ratio Prior year ratio 3.5%.2% 8.8%.4% (2.3)% (2.8)% H 6 H 7 H 6 H 7 H 6 5 year average : 3.2% 5 year average : 8.6% Reserve margin 5% H 7 5 year averages are for the full year periods inclusive Note: H 206 ratios are shown for the Group ex disposals and at constant exchange rates 24

25 Interim Results COST REDUCTIONS CONTINUE AHEAD OF PLAN H reductions Total reductions Outlook Controllable cost reductions of 8% H 207 versus H 206 Total programme cost reductions of c. 330m as at H 207, up from 290m at FY6 On track to achieve > 400m by 208 Group controllable cost base walk, H 6 H 7 ( m) % reduction (62) 723 Group (ex disposals) earned controllable expense ratio (%) 25.8% 24.4% 23.9% 23.6% -.4pts 23.0% 22.2% Ambition <20% H 6 Cost Base 2 Inflation Cost Reduction H 7 Cost Base H H 7 Based on written controllable costs 2 On like-for-like basis, adjusted for disposals and cumulative FX 25

26 Interim Results INVESTMENT INCOME Investment income H 6 v H 7 Lower investment income reflects Latin America and Legacy disposals together with ongoing reinvestment at lower yields Key Comments Investment strategy unchanged: High quality, low risk fixed income portfolio Average yield on bond portfolios over H 207 of 2.4% 87m 7m Reinvestment rate of.6% Unrealised gains 487m. Down 23% in H 207 due to Legacy disposal and bond pull-to-par. Remainder should largely unwind over next 3.5 years at current forward yields. Expecting pull-to-par of c. 90m in H2 207, c. 50m in 208 and c. 0m in 209. H 6 H 7 Expect investment income of c. 35m for full year

27 Interim Results OPERATING PROFIT 360M, UP 5% m H 7 H 6 Operating result Interest (30) (54) Other non-operating charges 2 (67) (0) Profit before tax Tax 3 (57) (57) Profit after tax Non-controlling interest (0) (6) Other equity costs 4 (8) (5) Net attributable profit Key comments Interest costs down following debt deleveraging. 2 H 207 includes: 66m gain on transfer of Legacy assets 22m cost of adverse development cover commutation 59m debt buyback costs 4m restructuring costs 3 Effective tax rate 2.6% largely reflects tax on overseas profits. Underlying tax rate of 22.4%, trending down towards 20% over next few years. 4 Includes 3m coupon costs for new c. 300m Scandinavian restricted tier issue, reflected in statement of changes in equity (as per accounting rules). 27

28 SOLVENCY II POSITION Capital Movement in Solvency II coverage ratio (%) Solvency II coverage by tier 4 (3) (4) (0) 4 (4) (6) 58% 50% 22% 63% 5% 30% 24% 58% 63% 86% 94% FY6 Underlying capital generation Restructuring costs & net capex Bond pull-to-par Legacy disposal Net debt refinancing Other incl. market, fx, IAS9 & Ogden Dividend accrual 2 H 7 FY 206 H 207 Core Tier Tier (restricted) Tier 2 Tier 3 Key comments Restructuring costs, net capital investments, and other non-operating items 2 Benefit of disposal of UK legacy liabilities 3 Net impact of first half debt retirements and new debt issue in Scandinavia 4 Impact of narrower AA corporate bond spreads on IAS 9 pension accounting, offset mainly by positive equities impact. Ogden impact of 3 points. Target range 30-60% - prefer to operate towards top end of range The Solvency II capital position at 30 June 207 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

29 Dividend INTERIM DIVIDEND Dividend progress Dividend policy & payout +32% 6.6 Interim dividend declared of 6.6p per ordinary share (H 206: 5.0p) Up 32% from H 206. Continue to target a growing dividend and payout ratio in line with our policy of distributing between 40-50% of earnings, plus additional payouts as available and prudent. 0.0 H 4 H 5 H 6 H 7 Interim dividend (pence/share) 29

30 H2 OUTLOOK Outlook H2 priorities Our priorities for H2 are unchanged: drive for further performance gains Premiums Aim for premium growth, but underwriting discipline remains the priority Loss ratios Aim for attritional loss ratio to improve again. Volatile items (weather, large losses & PYD) will remain unpredictable Costs Further cost reduction and efficiency gains Performance Targeting attractive full year 207 performance, as we continue to build from quality base now established 30

31 Q&A

32 APPENDIX

33 LEADERS IN OUR MARKETS, WITH ATTRACTIVE BUSINESS BALANCE Commercial Commercial Motor 0% Marine & other 8% 23% Household Appendix 47% By Customer 53% Liability 0% By Product Personal Property 20% 0% 9% Motor Other Scandinavia UK & International Direct Affinity 28% 8% By distribution channel 54% 40% Indicative target profitability mix 40% Broker 20% Canada Includes Ireland, Specialty businesses in the Eurozone, and Middle East Note: Split based on 206 Core Group NWP, except indicative profitability - based on operating profit ambitions 33

34 FOCUSED MID-CAP PROPOSITION Appendix 2 3 Regional leadership positions Intense performance focus Operational and financial excellence +++ Aim to deliver superior performance and justify a superior P/E 34

35 PERFORMANCE IMPROVEMENT Appendix Management Approach What is best in class performance and how do we get there in our markets? For each activity: Compare to best in class in customer capabilities, underwriting excellence, costs and technology 2 Identify capability gaps and roadmap to improve 3 Validate and sequence change initiatives Improvement Actions Performance improvement actions in 5 areas: Customer capabilities 2 Underwriting improvements 3 Cost efficiency Technology 4 People 5 35

36 Appendix SUCCESSFUL COMPLETION OF PLANNED CAPITAL ACTIONS RSA s debt instruments as at August 207 Annual interest costs ( m) Instrument Call date Coupon Interest cost 300m Tier R March % 4m c.55 c.40 40m Tier 2 May % 4m guidance 208 guidance 2 400m Tier 2 Oct % 2m Key comments At the end of March, we announced the successful completion of our planned capital actions for 207. These actions comprised the disposal of our UK Legacy liabilities (announced in February); issuance of c. 300m of restricted tier notes in Scandinavia; and retirement of 592m of existing high coupon debt. Since March we have retired a further 5m of the 9.4% coupon Tier 2 instrument. Blended coupon 2 Includes cost of newly issued Scandavian tier notes which will be shown separately in the statement of changes in equity, as per accounting rules 36

37 CAPITAL TIERING Appendix Solvency II capital tiering Core Tier Tier (restricted) Tier 2 Tier 3 2.9bn 0.3 9% Element of tier debt restricted as tier % 4% Instrument MTM 30 June 300m Scandi tier c. 35m.7 Pref. shares 40m tier 2 c. 74m c. 45m 58% 300m tier 2 c. 48m Core Tier Tier restricted Tier 2 Tier 3 H

38 Appendix SOLVENCY II: AVAILABLE CAPITAL RECONCILIATION Reconciliation from IFRS capital at 3 December 206 ( bn) NCI Loan capital (0.7) (0.4) 3.4 (0.4) (0.) 2.9 Shareholders equity, including prefs 3.7 IFRS Total Capital 3 Dec 206 Remove goodwill & intangibles Move to SII basis for technical provisions SII Basic Own Funds Tiering & availability restrictions Dividend SII Eligible Own Funds Including DAC 38

39 INVESTMENT PORTFOLIO COMPOSITION & CREDIT QUALITY Appendix Investment portfolio, June 207 ( m) Bond portfolio credit quality (at June 207) 3.bn 00% Government bonds 00% Non-government bonds 00% Government Bonds 30% AAA 35% 38% AAA 65% 67% AA 22% 8% Non-government Bonds 55% Cash Other 6% 9% Asset Portfolio AA A BBB < BBB Total portfolio rated AA and above: 30% 28% % 4% 0% % 4% Dec-6 Jun-7 95% 95% 0% A BBB < BBB Non rated 30% 30% % 2% 0% 2% Dec-6 Jun-7 57% 56% 2% 0% Includes equities, property, prefs and loans 39

40 207 REINSURANCE PROGRAMME Appendix Key comments Various layers providing cover up to:.55bn for UK/Europe C$3.3bn for Canada 400m all other territories C$400m for US/Caribbean Various layers providing cover up to 400m Various layers providing cover up to US $275m Group aggregate reinsurance cover 3 year aggregate cover that commenced in 205 remains in place Events or individual net losses > 0m ( franchise level ) are added together across our financial year (when a loss exceeds 0m or local currency franchise level it is included in full) Cover attaches when total of these retained losses is greater than 50m Limit of cover 50m in m retention 50m retention (C$75m in Canada/US) 50m retention 20m retention UK Cat Rest of World Cat Property Risk Marine Risk & Event Group aggregate cover 50m xs 50m 40