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Underwriting improvements help RSA to maintain steady profits

1st August 2019 - Author: Matt Sheehan

UK commercial insurer RSA Group has reported an increase in underwriting profit during the first half of 2019, which helped to keep the company’s overall underlying profit steady at £292 million.

RSAUnderwriting profit was recorded at £181 million in H1 2019, compared with £171 million for the same period last year. RSA noted that the performance was its best in the last 10 years.

Net written premiums also remained stable at €3.2 billion, with some increases in Scandinavia (2%), Canada (4%), and the UK & International (8%).

The Group’s combined operating ratio, meanwhile, improved marginally to 94.3%.

Attritional loss ratios also improved, and weather losses were lower but offset by weaker prior year development as 2018 actuarial estimates were refined.

RSA’s personal lines result was particularly strong (representing 57% of net written premiums), with a combined ratio of 89.9%, while commercial lines combined ratio came in at 98.8%.

Investment income decreased by 4% to £154 million, compared with £160 in H1 2019, in line with expectations.

Large losses amounted to £316 million or 9.9% of net earned premiums, versus 9.7% in H1 and a 9.6% five-year average.

RSA reported that retentions were not reached on Group Volatility Cover (GVC) or the new regional aggregate covers during H1. The percentage retention reached for each of its covers was: GVC 17%; Scandinavia 78%; Canada large 51%; Canada catastrophe 79%; and UK 22%.

In terms of reinsurance buying, RSA purchased some new coverage to provide additional protection for its short tail lines of business

Firstly, it reduced several of its retentions, including a £20 million reduction in its maximum property risk retention, down from a 2018 maximum of £50 million. It also reduced its non-core catastrophe retentions to a maximum of £25 million from a 2018 maximum of £50 million for all territories exlcuding Europe and Canada.

Secondly, it purchased new aggregate covers for the UK, Scandinavia and Canada for losses below £10 million. These covers provide protection for its short tail lines of business including property, marine and construction & engineering. 

For the UK, aggregate reinsurance cover protects large losses between £3 million and £10 million. Cover attaches when the total of the losses in this band exceeds £58m and the limit of cover is £30m

For Scandinavia, aggregate cover protects large losses between DKK 20 million and DKK 100 million and catastrophe losses between DKK 50 million and DKK 100 million, while for Canada aggregate cover protects large losses between C $2 million and C $10 million and catastrophe losses between C $5 million and C $17.5 million.

RSA’s main catastrophe retentions remain at £75 million for the UK and Europe combined, and at £50 million for Europe excluding the UK and $75m for Canada. The Group’s UK and Ireland motor retentions remain at the 2018 level of £1 million and €1 million, respectively.

“RSA is reporting a solid first half 2019,” said Stephen Hester, RSA Group Chief Executive. “Particularly pleasing is the improvement in current year underwriting results, which represent our best first half in the last 10 years. Our Personal Lines business continues to drive this performance.”

“While the full earned effect of underwriting, pricing and portfolio changes will show next year, at this stage we are on or ahead of schedule in each region for those planned actions,” he continued.

“There are some headwinds from lower bond yields and weaker prior year development and we have more to do in many areas. Nevertheless, we expect to make continued progress overall.”

For the UK & International region, RSA reported that its current year underwriting profits more than doubled, helped by unusually strong performance in Ireland and the Middle East.

The company added that its business exits and other underwriting actions in the region are on track, although it will take some years to get the business in line with RSA’s ambitions.

In Canada underwriting profits also rose substantially, but to a lesser degree than expected due to a particularly tough winter. Extensive pricing and underwriting actions market-wide are expected to continue the improvement.

RSA’s Scandinavian business produced the weakest performance, with Sweden and Danish personal lines performing well, Norway improving, but Danish commercial lines doing poorly.

The Group observed that insurance market conditions remain competitive across all of its territories, with significant price/volume trade-offs, although rate hardening and capacity adjustment is supporting performance in some areas.

RSA considers itself to be relatively well protected to wider financial market volatility, with conservative investment portfolios and a broad array of internationally derived profits.

However, bond yields fell by around 50bps in most of our territories in H1 2019 and, if sustained, will reduce future investment income.

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