RSA CANADA INVESTOR & ANALYST BRIEFING 12 JUNE 2013
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 and Canadian 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, currency changes, 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. Forwardlooking 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. 2
RSA CANADA: A VALUABLE PART OF THE GROUP Group 2012 NWP: 8.4B Group 2012 insurance result: 806M 15% 19% Canada: 1.6B Canada: 159M 10% 20% UK: 36% Western Europe: 8% 22% 30% 40% Canada Scandinavia UK & Western Europe Emerging Markets Outlook: Continue to expect strong organic growth in mid-high single digits with CORs in the low 90s Canada NWP 19% of Group, up from 9% in 2004 Strong organic growth supplemented by well executed bolt-on acquisitions Consistent profitability with CORs in the low 90s for the last 7 years Consistently strong return on capital Strong capital flows back to Group Well regarded and long standing management team 3
INTRODUCTION Canada s 3 rd largest P&C insurer Best positioned distribution model Leading positions in chosen segments Proven track record of acquisitions and outperformance Positioned to take advantage of industry trends Market Overview RSA Canada Distribution & Portfolio Design Acquisitions Outperformance & Outlook Q&A
CANADA: ECONOMIC ENVIRONMENT - STABLE AND GROWING GDP Growth 4% 3% 2% 1% Canada G7 0% -1% Source: OECD and World Economic Outlook Database 2013-2% -3% -4% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F 2015F GDP: $1.8 TRILLION STABLE POLITICAL ENVIRONMENT HEALTHY ECONOMY 5
CANADA P&C LANDSCAPE: GEOGRAPHY AND BUSINESS MIX P&C Market Share by Region (2012) P&C Market Share by Line of Business (2012) 36% $43B 24% Personal Property Personal Auto Commercial 40% Atlantic Quebec Ontario 29% 49% 16% 6% Federal and provincial regulation Home and commercial rates unregulated Auto rate regulation varies by province West Source: MSA Researcher 2013. Excludes Genworth, Lloyd s and government insurers. 6 VARYING MARKET DYNAMICS REQUIRE A TAILORED APPROACH
CANADA P&C LANDSCAPE: DISTRIBUTION Personal Lines Market Share by Channel Canada 52% 48% UK 40% 60% 0% 25% 50% 75% 100% Broker Direct & Other Source: MSA Researcher 2013 and Datamonitor UK (2011) Broker the predominant channel in both commercial and personal lines Direct channel gained 3.3 pts of personal lines market share from 2008-2012 Online capabilities evolving across all channels 7 CONSUMER PREFERENCES SUPPORT MULTI-CHANNEL MODEL
CANADA P&C PERFORMANCE $33B Industry DWP and COR 101% 101% $43B Stable consolidating industry 10yr average COR: 96.6% 10yr average ROE: 11.8% 99% 100% 99% 97% 93% 93% 92% 91% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 DWP ($B) COR (%) 2012 Top 10 Written Premiums ($B) Intact $7.1 Aviva $3.6 RSA $3.0 TD Insurance $2.7 Cooperators $2.2 Wawanesa $2.2 Desjardins $2.0 State Farm $1.9 Economical $1.8 Dominion $1.3 Top 10 $27.8 Source: MSA Researcher 2013 Total Canadian P&C Industry. Excludes Genworth, Lloyd s and government insurers. Note: Results presented under Canadian IFRS. DWP = Direct Written Premiums, defined as gross written premiums less assumed premiums. Source: MSA Researcher 2013. Excludes Genworth, Lloyd s, and government insurers. Note: Intact results include pro forma JEVCO for a full year. RSA results include pro forma L Union Canadienne (UC) for a full year. 8 ATTRACTIVE MARKET THAT IS TRENDING FAVOURABLY
ONTARIO AUTO 25% of the Canadian P&C marketplace Highly cyclical environment 2010 reforms working well Government proposed 15% average rate reduction and additional reforms should be margin-neutral RSA has outperformed the Ontario auto industry by 5.4 pts over the past 5 years 9
RSA CANADA
RSA CANADA JOURNEY 2007 2012 5yr CAGR: 13% 102.9% 2.5 3.0 1.8 1.9 2.1 1.5 1.4 1.4 1.5 1.6 96.6% 94.8% 92.0% 92.4% 92.9% 93.5% 92.8% 91.6% 93.7% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 DWP ($B) COR Note: Results presented under UK IFRS. RSA DWP in 2012 includes pro forma UC for a full year. 11 TRANSFORMATION FROM GENERALIST TO SEGMENTED SPECIALIST
DWP Growth (%) Industry Average Growth: 3.8% RSA CANADA: STRATEGIC ADVANTAGES MULTI-CHANNEL DISTRIBUTION Top 10 Insurers 5yr Average Performance PORTFOLIO COMPOSITION 14 ACQUISITION CAPABILITIES Wawanesa TD Intact 9 TECHNICAL EXPERTISE Dominion Desjardins Co-operators State Farm COR 128% Growth 3.9% Aviva 4 BROKER RELATIONSHIPS Economical -1 LOWEST COST DIRECT WRITER LEVERAGE GROUP CAPABILITIES 108 106 104 102 100 COR (%) Industry Average COR: 100% 98 96 94-6 92 Note: RSA results presented on a consolidated basis. Intact results sourced from 2012 and 2011 annual reports. All other results sourced from MSA Researcher 2013. All results presented under Canadian IFRS. 12
DISTRIBUTION AND PORTFOLIO DESIGN
MULTI-CHANNEL DISTRIBUTION Direct Home Auto Plan Benefits 2012 NWP: $928M Combines online, call center, and branch distribution Top 3 affinity insurer in Canada Personal Broker Home Auto Personal Specialty 2012 NWP: $933M* Select broker partners Targeted customer and product segments Commercial Broker Commercial Global Specialty Lines 2012 NWP: $881M* Focused global and national broker distribution Expertise-led and specialty segments Affiliated Broker One of Canada s largest broker networks Commercial lines focus * Note: RSA NWP in 2012 includes pro forma UC for a full year. 14 UNIQUE MULTI-CHANNEL, MULTI-BRAND STRATEGY TO OUTPERFORM
JOHNSON 2007 2012 5yr CAGR: 9% 604 23% 27% 50% 685 22% 25% NWP by Region ($M) 740 21% 25% 53% 54% 805 21% 22% 57% 883 21% 21% 58% 928 21% 22% 57% 2007 2008 2009 2010 2011 2012 Top 3 affinity insurer in Canada Strong track record of acquisitions Highly scalable Industry-leading low cost platform Flexible and efficient operating model combining personalized service, branch network, call centers and online Distributor of a broad product range drives growth, penetration and retention Low Cost Platform 5yr Average Expense Ratio Johnson 19.8% Direct Peer Group * 26.1% Total Personal Lines * 28.1% Ontario West Atlantic *Source: MSA Researcher 2013 15 AFFINITY-ORIENTATED DIRECT WRITER
JOHNSON: AFFINITY GROUPS Number of Affinity Groups Added # of New Groups 358 397 39 420 23 437 32 2007 2008 2009 2010 2011 2012 17 Affinity Group Sectors 476 39 500 24 Affinity market: Est. $5B affinity market with 5yr CAGR of 6.5% Johnson: Affinity premium 5yr CAGR of 11% 500+ groups with access to 4M+ members 15% penetration with Top 20 groups Plan benefits administration drives penetration and retention with core group sectors 12% 9% 8% 25% $631M 12% 18% 16% Educator Alumni Prof. Assoc. Health Care Retirees Public Sector Other Efficient to target Higher retention Higher profitability 16 PLATFORM FOR FURTHER PENETRATION AND CORPORATE PARTNERSHIPS
JOHNSON: ACQUISITIONS Accelerated Growth Completed 16 deals 2007-2012 Disciplined Process Highly selective Transition to direct model Preferred Brokers Portfolio quality Targeted geographies Comprehensive Integration Dedicated integration teams Expense and productivity synergies 2007 2012 CUMULATIVE ACQUIRED PREMIUMS $204M AVG. POLICIES PER CUSTOMER SERVICE REP Pre Acquisition Post Acquisition 1,100 3,200 AVG. ACQUISITIONS IRR 18% 17 INDUSTRY LEADING CAPABILITY IN IDENTIFYING, CLOSING AND INTEGRATING BROKER ACQUISITIONS
TOTAL BROKER BUSINESS 2007 2012 5yr CAGR: 15% 900 44% NWP by Line of Business ($M) 1,047 1,078 41% 40% 1,175 42% 1,475 51% 1,814 49% 4 th largest intermediated player Emphasis on specialty portfolios that produce higher margin: Global Specialty Lines (GSL) Personal Specialty Insurance Deep broker relationships with a focus on tailored propositions by segment 51% 59% 60% 58% 49% 56% 2007 2008 2009 2010 2011 2012 Personal Commercial RSA Growth With: 5yr CAGR Global Brokers 28% Preferred Partners 13% Affiliated Network 12% Note: RSA NWP in 2012 includes pro forma UC for a full year. 18 PORTFOLIO WEIGHTED TOWARDS CHOSEN SEGMENTS
AFFILIATED BROKER NETWORK: NORAXIS One of Canada s largest broker networks Strategy: Sustain long-term distribution Generate sustainable, predictable revenues Significant volume to RSA National footprint with regional focus Commercial lines specialization Employee ownership promotes entrepreneurship ANNUAL PREMIUM VOLUME 5yr CAGR >$500M 10% EBITA MARGIN c.28% 19 RSA VALUE PROPOSITION TO PARTICIPATE IN BROKER CONSOLIDATION
BROKER BUSINESS: PERSONAL 2007 2012 5yr CAGR: 13% 508 621 NWP by Region ($M) 645 677 726 933 Segmented strategy that focuses on specific customers and products Growing focus on high net worth product Leverage global UW and pricing knowledge 69% 48% 2007 2008 2009 2010 2011 2012 Ontario Atlantic West Quebec Note: RSA NWP in 2012 includes pro forma UC for a full year. Consumer product offering goes beyond home and auto to include travel, credit card, warranty and pet Top 3 travel underwriter in Canada with affiliated distribution channel Auto: 46% Property: 36% Specialty: 18% 2012 NWP by Segment 27% 19% 9% 27% 13% 5% Auto 50+ Auto High Value Homes Property Travel Other Specialty 20 PORTFOLIO BENEFITING FROM DIVERSIFICATION
BROKER BUSINESS: COMMERCIAL Commercial NWP ($M) 2007 2012 5yr CAGR: 18% 392 28% 72% 426 433 25% 27% 75% 73% 2007 2008 2009 2010 2011 2012 Commercial 498 29% 749 49% 71% 51% Note: RSA NWP in 2012 includes pro forma UC for a full year. GSL 881 44% 56% Top 5 commercial player with the most comprehensive product offering in the market Provides insurance to >50% of Top 100 TSX companies Leading edge technology in SME segment to drive pricing and risk selection advantage Strong positions in our chosen specialty portfolios Leading underwriter in marine, equipment breakdown, construction, renewable energy, retail and realty Leverage global capacity and expertise to enhance our proposition in the marketplace 18% GSL by Segment 3% 8% 6% $385M 27% 38% Property Liability C&E Marine Renewables Other 21 UNIQUE PROPOSITION IN THE CANADIAN MARKETPLACE
ACQUISITIONS
CANADIAN P&C LANDSCAPE: CONSOLIDATION Market Share by Industry Rank 44% 37% 60% 37% 56% 21% 23% 19% 22% 22% 22% 18% 18% 17% 2002 2007 2012 Top 5 Top 6-10 Top 11-20 Other 65% Industry leaders driving consolidation 100+ P&C groups in the market Wide variance in performance Regulatory roadmap for demutualization in progress Source: MSA Researcher 2013. Excludes Genworth, Lloyd s and public insurers. Note: Market share based on DWP. 23 CONSOLIDATION ACCELERATING
ACQUISITION TRACK RECORD SINCE 2007 3 Company 32 Broker ACQUISITIONS INCREASED PRESENCE IN TARGETED MARKETS c.$1b IN ACQUIRED PREMIUM VOLUME CAPABILITIES IN COMMERCIAL SPECIALTY AVERAGE IRR OF 15% GEOGRAPHIC DIVERSIFICATION Focus on bolt-on acquisitions A proven market consolidator 24
ACQUISITION EXECUTION Aligned to business strategy Expertise in due diligence, execution and integration Dedicated corporate development team Leadership positions Geographic diversification Specialty lines Optimize portfolio shape Targeted territories Low risk Leverages low cost platform Commercial lines focus Supports RSA broker proposition Provides solution for broker succession 25 M&A DESIGNED TO SUPPORT STRATEGIC PRIORITIES
RSA CANADA: 2007 vs. 2012 Premium by Region Premium by Line of Business Personal Auto (ex Ontario) 19% 17% Personal Auto (Ontario) 30% 23% Personal Property Global Specialty Lines 22% 8% 25% 15% Commercial 20% 20% 2007 2012 7% 12% 22% 18% 49% 44% 5% 14% 17% 12% 2007 2012 Market Share 2007 2012 4.4% 7.0% Rank 7th 3rd Note: RSA in 2012 includes pro forma UC for a full year. 26 UNDERWEIGHT IN ONTARIO, TOP 3 IN B.C., TOP 5 IN QUEBEC AND COMMERCIAL
CANADIAN NORTHERN SHIELD CNS NWP ($M) Acquisition 178 180 Fastest growing region Top 3 player in British Columbia Better products and broker management Leveraged Group reinsurance programs to create margin 2007 2012 5yr CAGR: 13% 96 97 111 98 156 163 156 Technical expertise to bring COR down Utilizing global capacity to win new business 2004 2005 2006 2007 2008 2009 2010 2011 2012 IRR: 17% 3PT COR IMPROVEMENT 27 DOUBLED BUSINESS AND INCREASED PROFITABILITY POST-ACQUISITION
GCAN Exceptional historic operating performance 9 th to 5 th commercial market share Deeper expertise in chosen segments 2007-2011 5yr AVG. COR 82% Broadened segment offering: Risk Managed Energy Profin Excess Liability Doubled volume with global brokers IRR: 15% GCAN Acquired Premium 4% 8% 7% 39% $255M 42% Property Liability EBI Auto Other 28 A COMPLEMENTARY ASSET THAT ACCELERATED COMMERCIAL STRATEGY
L UNION CANADIENNE Second largest and most profitable P&C market Immediate presence as a Top 5 Quebec insurer Increased market share from 2 6% Completes national proposition Taking advantage of market disruption Diversifies personal lines portfolio Projected IRR: 15% 35% Quebec DWP Market Share 6% $7.1B 59% UC Acquired Premium Top 4 RSA Other Industry 5yr Average Loss Ratio Quebec Total Canada Variance 31% $270M 40% Personal Auto Personal Property Auto 60% 76% -16 pts Commercial Overall 60% 68% -8 pts 29% 29 RARE OPPORTUNITY TO ACQUIRE SCALE IN THE PROVINCE OF QUEBEC
OUTPERFORMANCE
OUTPERFORMANCE RSA Canada UW Result ($M) 127 107 112 112 49 36 39 52 185 155 67 87 118 68 76 60 78 68 2007 2008 2009 2010 2011 2012 Personal Commercial Note: Results presented under UK IFRS. RSA Outperformance vs. Industry DWP Growth 5yr CAGR RSA 13% Industry 4% COR 9 pts 5yr Average RSA 96.6% Industry 99.9% 3.3 pts Note: RSA results presented on a consolidated basis. RSA DWP in 2012 includes pro forma UC for a full year. Industry results sourced from MSA Researcher 2013, and exclude Genworth, Lloyds and public insurers. All results presented under Canadian IFRS. 2008 2012 RETURNED CAPITAL / DIVIDENDS OF $620M TO RSA GROUP 31 CONTINUED STRONG UNDERWRITING PERFORMANCE
RESERVING APPROACH Canada adopts a prudent initial reserving approach Reserves significantly to the right side of best estimate Strong and consistent margin Canada has delivered positive prior year development for 8 consecutive years Positive prior year reserve development despite specific strengthening of prior year reserves in Ontario Auto Underpins confidence for continued positive prior year development in Canada going forward 32
LEVERAGING THE RSA GLOBAL GROUP Capital Management Reinsurance Underwriting and Claims Expertise Centers of Excellence / Best Practice Sharing Risk Management Brand and Customer Strategy Talent Development and Performance Management 33
OUTLOOK
OUTLOOK Personal INDUSTRY - Low single digit growth - Ontario auto - Shift towards direct channel - E-trading - Evolving demographic trends RSA CANADA Johnson: - Penetrate further in affinity - Leverage platform to execute corporate partnerships - Refine e-business capabilities Personal Broker: - Continue Advice Based Customer strategy - Greater emphasis on high net worth product - Grow travel, pet and lifestyle offerings - Further advancement in Quebec Commercial Market Consolidation - Rates firming over time - Insurers accelerating - Brokers continuing - Selectively deploy capacity - Expand Global Specialty Lines - Enhance transactional sophistication in SME - Advance strategic broker partnerships - Targeted bolt-on acquisitions that advance our strategy - Continued broker acquisitions in Johnson and Noraxis 35 CONTINUE TO EXPECT STRONG ORGANIC GROWTH IN MID-HIGH SINGLE DIGITS, WITH CORs IN THE LOW 90 s
Q&A