RSA Group saw its underlying results decline in 2018 when compared with the previous year, but the firm remains confident it can bounce back in 2019 as it embarks on further, extensive underwriting action.
Despite reporting an underlying dip in results, RSA remained profitable in 2018, posting a pre-tax profit of £480 million, Group operating profit of £517 million, and an underwriting profit of £250 million.
For 2018, RSA’s combined ratio totalled 96.2%, compared with 94% in 2017.
Group weather costs had a larger impact in 2018, at 3.7% of premiums, which is £76 million higher than in 2017, with large losses increasing to 11.6% of premiums.
RSA Group Chief Executive Officer (CEO), Stephen Hester, commented: “In 2018 RSA increased headline profits and dividends with a still attractive return on capital. At an underlying level however, the results represent RSA’s first down year since 2013. We believe strongly that 2019 will show a bounce back and are taking decisive action to that end.
“Much went well in 2018, with excellent results in many of RSA’s Personal Lines businesses and good progress on expenses and other strategic initiatives. However, adverse weather costs and challenging Commercial Lines results exposed us to more volatility than expected. This was most intense in the ‘London Market’ business which accounted for substantially all our underperformance in the second half.
“We announced significant portfolio exits and initiated major pricing and re-underwriting programmes during the year. We have also made management changes and increased reinsurance coverage for 2019. Our performance ambitions for RSA are high, and unchanged. We recognise the need to demonstrate resumed progress against them.”
RSA’s London Market Specialty and Wholesale business experienced “unusually difficult conditions” in 2018, which includes the impacts of natural catastrophe losses. While the unit recorded premium income of £265 million, it fell to an underwriting loss of £109 million after net group volatility cover (GVC) reinsurance recoveries of £13 million. The firm attributes this to the unusual conditions and also its own underwriting shortcomings.
Throughout the firm’s 2018 results, it highlights a continuation of underwriting actions to address market volatility and its own shortcomings, which includes exiting certain lines of business and also a restructured reinsurance programme.
Within its London Market Specialty and Wholesale unit, RSA has announced a number of portfolio exits and adjustments in underwriting appetite, which, reduced its activity by c.50% when compared with 2017, and the firm is reviewing more businesses in order to identify other portfolio exits to further lower volatility and increase profits.
Furthermore, RSA explains that it’s also taking additional underwriting actions across its broader Commercial Lines businesses, with intense programmes being underway, while at the same time the re-underwriting and re-pricing of business is taking place where needed and where possible. RSA notes that c.55% of both the pricing and underwriting actions targeted have already been implemented.
RSA stresses that its underwriting results, combined with its London Market losses experienced in the second-half of 2018, “demonstrate too much exposure to market volatility”, and, one of the ways it’s looking to address this is with the addition of greater reinsurance protection.
The firm’s reinsurance programmes have performed well, says RSA, but in response to a dip in its underlying results, RSA has decided to supplement its existing reinsurance cover with the addition of new aggregate covers for losses of between £1 million and £10 million in each of its three regions for 2019.
Interestingly, RSA claims that had these aggregate covers been in place for 2018, they would have lowered its losses by c.£30 million net, of which £12 million would have been on continuing portfolios.
“2018’s challenges have not changed our view of RSA’s attractive performance potential or any of our targeted financial metrics. We recognise the importance of demonstrating resumed progress in 2019 and believe the actions are in place to support that.
“No business is free of challenge, and the insurance industry will undoubtedly continue to present volatility. We nevertheless are confident that good improvement can be achieved,” said Hester.
