RSA 2018 Preliminary Results Presentation 28th February 2019 RSA - PDF document

RSA 2018 Preliminary Results Presentation 28th February 2019

RSA Stephen Hester, Group Chief Executive Scott Egan, Group Chief Financial Officer Questions From Andy Sinclair, Bank of Am erica Merrill Lynch Fahad Changazi, Mediobanca Andreas Van Em bden, Peel Hunt Greig Paterson, KBW I van Bokhm at, Barclays Dhruv Gahlaut, HSBC Jam es Shuck, Citi Jonny Urw in, UBS Andrew Crean, Autonom ous Barrie Cornes, Panm ure Gordon Edw ard Morris, JP Morgan Jam es Pearse, RBC Dom inic O'Mahony, Exane BNP Paribas

Business Review Stephen Hester, Group Chief Executive Good m orning. Thank you very much for joining us all. The format of this morning will be exactly as normal. I will go through a few things. Scott will go through the numbers and then we’ll do Q&A. A number of m y colleagues, as always, are here, m ostly on the front row. And I’d like to pick out in particular Charlotte Jones who you will have read is becoming our new CFO. We’ve managed to get an upgrade in my view [ Laughter] and so she’s here to see what she can improve upon next time. Welcom e Charlotte. So just running through the headlines, which most of you will have already seen. At the headline levels are pre-tax profits are up 7% , our dividends are up 7% . But the underlying results are down for the first time since 2013, driven essentially by higher weather costs and by large loss challenges in our Comm ercial Lines businesses. And so that gave the underlying earnings per share of 34p and the underlying return on tangible equity of 12.6% . I know lots of financial institutions that would die to have a 12.6% return on tangible equity but obviously we aspire to do better and intend to do better. Capital positon is in good shape which we’ll talk more about. Both in relation to Solvency II and the pension settlement and we continue to have an impressive record of improving competiveness in cost terms. We also are today, hopefully not surprisingly, reaffirming all of our key targets. We, notwithstanding the disappointments of last year, believe that our business is capable of doing exactly the performance that we believe it was capable of doing in the past; we’ve just got to make that happen of course. And it’s worth saying, although we’ll spend most of our time today on the things that we need to particularly improve, that right across the Group there are many, many things going on that are making us a better company, a more competitive com pany and capable of higher performance in the areas that we’ve talked about before relating to custom ers, underwriting and cost. We will talk about the results in part regionally but in part also drawing a distinction between Personal Lines and Comm ercial Lines. And our Personal Lines businesses are in pretty good shape although of course they did take a weather knock last year but fundamentally in pretty good shape. The principle issues for us in terms of last year’s performance that we need sharp corrections to, were the Comm ercial Lines which you can see had a negative combined ratio overall. We have taken a lot of action, we’ve announced a lot of action and we’ll go through that with you. And two of the, if you like, the headline pieces of that action, the exits that we’ve announced in our London Market business and some new reinsurance programm es we’d taken out. Had those been in place a year ago, of course they weren’t, our earnings per share would have been 42p, which is about the sam e as last year, if you

adjust for FX. And that’s despite the rest of our business being hit by weather and large losses away from the exit portfolio. So I think it gives us a platform to build higher from. Let’s just then run through if you like in more detail some of those elements. And as I said I think the key feature from our standpoint was disappointing underwriting results last year. And as I m entioned that was partly weather above its normal trends and partly Commercial Lines and especially London Market losses. Which of course is a market wide phenom enon, not just us; we were hit maybe harder than som e because of our concentration with in the London Market on Marine which was probably the worst area but be that as it may. Away from those two issues which we’ll come back to, we believe that the overall strategy is valid. Both when we look at our own operating plan and we look at the best in class competitors in each of our markets we believe that both of those things support our targets and our am bitions. And we also would note, and you’ll see it in the slides, that if you go back over the last five years, in what I’d call repeatable competitiveness both in terms of expense ratios and attritional loss ratio we have improved the fundamental competitiveness by 7 or 8 points of combined ratio. Which is, I think a really, really important platform from which we need to build and get a better job done in terms of our volatile items. And so in response to the challenges, what are our responses? Our basic response is we’re sticking to our road map, we’re sticking to our plan and our strategy and we intend to keep improving the company. But we are on top of that taking specific action, have taken specific action to address the areas of particular weakness that we saw last year. That’s around portfolio exits, additional reinsurance purchases we’ll talk about, we’ve made management changes. If we take the UK obviously there’s Scott who will now run the UK but we also have new heads in the last year of both our Commercial Lines businesses and a new underwriting director in the UK. And then in the rest of the company, because Commercial Lines underperformance was not just London Market, although it was mostly London Market, there’s a whole bunch of other things happening on repricing and re-underwriting, what you might call an intense business as usual manner. I won’t dwell on the next two slides, but simply to repeat, this is our strategy and this is the basis on which we are trying to build our performance. And it remains the case, clearly the slides don’t change by very much year on year, that RSA has got a well-balanced business; roughly 60% Personal Lines, 40% Comm ercial Lines. Well balanced by geography, clearly Scandinavia likely to be, over the m edium term, half or so of our profits and by distribution channel. And as I also m entioned this slide is again one we show every year, but simply because while it may not be eye catching there is a perm anent amount of intense activity throughout our company trying to improve what we do. Bucketed around custom er service, underwriting and cost efficiency and that continues apace.