RSA Group Issues Chief Executive’s Message on 2017 Preliminary Results
In 2017, RSA delivered growth in premiums, profits and dividends and an improved 15.5 percent return on tangible equity1 - all compared to an extremely strong 2016 result.
We are pleased to report record underwriting profits. However, the year also had some disappointment relative to our ambitions. Excellent underwriting results in Scandinavia,
Strategy and focus
RSA is a focused international insurer. We have complementary leadership positions in the major general insurance markets of the
Our business strategy is to sustain a disciplined focus on RSA's existing areas of market leadership, whilst driving intense operating improvement in pursuit of best-in-class performance levels.
External conditions
General insurance markets are relatively mature, consolidated and stable, though with some inevitable underwriting volatility. Attractive performance can be achieved through intense operational focus within a disciplined strategic framework.
For the insurance industry, 2017 was a year with some major external underwriting challenges. At a global level, it seems likely to have been one of the worst loss years in recent times due particularly to three major US/
Conversely, financial markets during 2017 were more stable, at least as impacting RSA. Bond yields are off their lows and global central bank action to wean markets off QE gives some optimism that coming years might offer return upside for insurers' portfolios. However, tight credit spreads continue to hurt, especially on
2017 Actions
2017 was another year of intense activity at RSA. The great majority of our efforts were focused on operational improvement in pursuit of our best-in-class ambitions. We also delivered the final pieces of RSA's balance sheet restructuring successfully. We look forward to 2018 as the first clean 'business as usual' year since 2012.
Financial strength: RSA's 'A' grade credit ratings are where we want them. The Solvency II capital ratio at 163 percent (2016: 158 percent) is in a good place. The
Business improvement: Our goal is to systematically and determinedly hunt down performance improvement opportunities across the business to move RSA's capabilities and then outcomes towards best-in-class levels. This involves particular focus on improving three areas; service to customers, underlying underwriting results and cost efficiency.
Personal Lines policy count rose at RSA in 2017 for the first time in four years as customers reacted positively to the many improvements we are putting through. The important home partnership with Nationwide commenced business in December. Operational initiatives also contributed, spanning service improvements via digital capabilities in claims and policy servicing, through to capability and proposition uplifts across our business lines. RSA will not chase unprofitable growth. We prize quality of customer relationship over quantity. But nevertheless, serving customers well remains at the heart of all we seek to achieve.
RSA's most important capability lies in our underwriting judgement. Across the Group multiple improvements continued in areas like portfolio discipline, data and model improvement, machine learning and skills enhancement. Attritional loss ratios improved in every business except the
Cost efficiency remains a critical performance lever. We have now achieved
Financial results 2017
Underlying earnings per share rose 10 percent to 43.5p. This produced a return on tangible equity2 of 15.5 percent (2016: 14.2 percent), versus our target range of 13-17 percent.
At a statutory level, net profit before tax rose to
Premium income was up 4 percent, in line with our plan, featuring modest policy count increases together with price and FX benefits.
Underwriting profits posted a new record at
Excellent underwriting results were achieved in absolute and relative terms across many of our businesses. Scandinavia led the way with a combined ratio of 82.9 percent.
The disappointment was our
Reflecting RSA's overall progress in 2017, a final dividend of 13.0p per share is proposed, making 19.6p per share total for 2017, up 23 percent. This represents a 45 percent payout of underlying EPS (higher than 2016 but in line with stated policy). RSA's focused business strategy is designed to generate attractive levels of free cash flow, after meeting organic growth needs. With rising earnings targeted, no more restructuring costs and as bond pull-to-par impacts recede in coming years, RSA should have the potential for attractive further growth in shareholder distributions.
Looking forward
Our performance target of 13-17 percent return on tangible equity represents attractive shareholder return both relative to cost of capital and insurance industry norms. To the extent that RSA's underwriting performance progresses well towards our best-in-class combined ratio ambitions, even better returns are possible. We will try to achieve just that. For 2018, the key tasks are to re-establish respectable performance in our
Thanks
Footnotes:
1 Underlying measure, please refer to pages 30 to 36 of the full press release (PDF) for further explanation.
2 Underlying measure, please refer to pages 30 to 36 of the full press release (PDF) for further explanation.
3 Proforma for share of aggregate reinsurance recoveries and excludes the impact of the Ogden rate change.
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