RSA Insurance Group PLC now expects its U.K. and international division to hit its targeted underwriting profitability a year earlier than originally planned.
The insurer also aims to cut more costs at the unit after meeting its previous target of £50 million savings on a run-rate basis compared with 2018 costs, according to CEO Stephen Hester.
RSA's full-year 2019 earnings presentation stated that the company wanted its U.K. and international division, the largest of its three units by net written premium, to hit a combined ratio of less than 94% by 2022-2023, but Hester pointed out that this had been brought forward a year to 2021-2022. The dates for Scandinavia and Canada to reach their combined ratio targets remain at 2020-2021.
Speaking to analysts about RSA's first-half 2020 earnings, Hester said all three divisions had achieved their target numbers in the first half, but added that this performance "may not be completely sustainable."
The CEO also said "we do need to take out more cost" from the U.K. and international division, and to do so would be "expanding and extending" the cost-saving initiative in the second half. He did not give numbers for the new cost-cutting target because "obviously we talk to our people first."
Hester confirmed there would be "a people element" to the cost cutting, and that savings would come from "the same stuff that we have been doing before," including improving productivity, simplification and technology. He also said some savings might come from the company requiring less office space, "some of which will arise from flexible working and so on."
'Cautious, but not alarmed'
RSA's first-half profit attributable to equity holders fell to £152 million from £170 million in the same period of 2019. However, operating profit increased to £316 million from £280 million and the combined ratio improved to 93.3%, including business exits, from 95.2%.
Hester said the impact of coronavirus-related claims was "neutral" from an underwriting result perspective as reduced claims frequency offset coronavirus-related claims, for which RSA set aside a £56 million net provision in the first half. Noting the ongoing uncertainty given the continuing coronavirus pandemic, Hester said RSA was "cautious, as you would expect us to be, about the second half, but not alarmed."
He said there could be further claims from a second wave of infection or local lockdowns, but also that "frequency benefits could still be present in Q3 but at a lower level."
RSA's reserve for business interruption claims increased to £47 million, including provisioning for incurred-but-not-reported, or IBNR, claims. The insurer said in the first quarter that it had set aside £17 million for business interruption and related claims. Hester said actual, validated business interruption claims had only increased by about £5 million since the last reporting date and therefore much of the increase was down to IBNR claims provisioning.
He said that leaving aside the U.K. Financial Conduct Authority's ongoing test case about disputed business interruption claims, which Hester said he could not discuss as RSA is one of the defendants in the case, the flow of business interruption claims is "very, very low today." He added: "At the moment, we have no reason to believe ... that we are going to have an ugly second half in terms of BI."
The wedding's off
Hester also revealed that RSA would likely be pulling out of wedding cover as a result of the coronavirus pandemic. RSA has set aside £9 million of reserves for coronavirus-related wedding insurance claims. Hester said it was "most unlikely we will do more of that" because "the risk-reward doesn't look very good to us." He added that the business line was "tiny" for RSA.