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UK insurer RSA's commercial lines 'headache' continues

RSA Insurance Group PLC's commercial lines business "still is a headache," according to CEO Stephen Hester, but there are signs of improvement.

Speaking on a call to discuss RSA's first-half results, Hester called the 98.8% commercial lines combined ratio the group reported in the period, excluding exited business, "unsatisfactory."

RSA's commercial lines business was the company's "big headache" in 2018, according to Hester. This was in part because of poor performance in the London market business written in its U.K. and international segment. The company responded by announcing cutbacks to that business.

Hester said a large contributor to the first-half commercial underwriting performance was a lower level of reserve releases from prior years, which the company put down to a refinement of 2018 accident-year loss claims estimates.

Prior-year reserve releases improved the combined ratio by just 0.7 percentage points in the first half of the year, compared with a 4.6 point improvement in the first half of 2018.

Hester said he took the prior-year swing to be a "temporary thing," that large losses in the U.K. and international division's commercial business "behaved themselves" in the first half, and that the London market business that the company is keeping was "strongly profitable" in the period. Still, the company also had worse-than-planned large losses in Canadian and Danish commercial lines.

Attritional loss ratios, which measure the effect of smaller, business-as-usual claims on underwriting performance, have started to improve, Hester said. He expects that trend to continue through the rest of the year and into 2020.

RSA's commercial attritional loss ratio in the first half improved by 0.3 percentage points year over year to 50.1%. Hester said the company had now exited about 80% of the £250 million of net earned premium it planned to exit. The company expects to pull out of most of the remainder in the second half of 2019, with some still to be run off in 2020.

U.K. cost cutting

A lower premium base has pushed up RSA's U.K and international division's expense ratio, despite costs remaining flat. RSA's U.K. and International chief executive, Scott Egan, said his division is targeting cost reductions equivalent to two percentage points of its combined ratio by 2021 to correct this.

Egan said the company was "broadly done" with the large changes resulting from the U.K. and international portfolio review. He added that the areas that have hurt the company in the past, such as the marine and London market business, "will remain under continued vigilance."