RSA Group reports strongest first half underwriting performance in Canada in 10 years

RSA Group has reported an underwriting profit for Canada of 56 million pounds (£) for the first half of the year, ending June 30, with a combined ratio of 92.3% from 100.7% in the first half of 2014.

Underwriting profit for the first half of 2015 was £56 million, compared to a £4m loss in the second half of 2014 – “the strongest first half performance in Canada for 10 years,” RSA Group said in its 2015 Interim Results, released on Thursday. Current year underwriting produced a profit of £7m with a prior year profit of £49m. [click image below to enlarge]

Rowan Saunders, president and CEO of RSA Canada, told Canadian Underwriter that the strong results “were driven by a combination of mild weather in the first half of the year and the accumulation of the strong underwriting actions we have taken to improve our book of business over the last few years. We have worked hard, exiting unprofitable segments and making changes to our portfolios. Our transformation efforts are also beginning to take hold. We have significantly reduced expenses in the business by creating operational efficiencies and eliminating unnecessary costs.”

In particular, RSA Canada has undergone a major review of its business to determine areas where it needed to improve for its brokers and customers, Saunders said. The company is also investing about $300 million in new technologies, including a new claims system, policy administration and billing systems, broker and pricing tools and digital enhancements.

“Some of the key changes include decisions to consolidate some of our operations across the country into larger operating centres, and we have launched a new underwriting service model in our Personal Insurance divisions in key areas,” Saunders said. “Additionally, we launched a new operating model for auto claims to improve customer service and achieve faster response times. We also began the implementation of building a more efficient system for Property claims which will be launched in Q4 2016.”

For the first half, RSA reported that net written premiums in Canada were down 4% on a constant exchange rate basis to £637 million (H1 2014: £680 million as reported; £662 million at constant exchange) with 6% volume reductions partly offset by 2% rate growth. Personal premiums were down 2%, with a 6% reduction in Motor offset by growth of 5% in Household.

“Household premiums included continued rate increases, whilst lower Motor premiums were primarily driven by the government mandated rate reductions in Ontario,” the report said. In Commercial, premiums were down 8% during the first half, reflecting the continued impact of the actions RSA has taken on the portfolio, particularly where it has been re-underwriting or exiting poorer performing accounts.

After including an investment result of £36m (H1 2014: £38m), the operating result was £92m (H1 2014: £34m), RSA said. Weather losses were 2.7% for the first half compared to 6.1% for H1 2014 and a five year average for RSA’s Canadian business of 4.4%. Large losses, at 5.8%, were adverse to both prior year (4.4%) and the five year average (3.2%), reflecting a number of large losses in the Commercial portfolios. [click image below to enlarge]

In addition, the current year attritional loss ratio for Canada showed an encouraging improvement of 1.5 points from the prior year to 61.2%. The prior year effect on the loss ratio was a benefit of 6.8% with prior year profits arising from the Personal and Commercial Property, Personal Auto and General Liability books.

“Following a challenging 2014 for RSA in Canada, the business is beginning to deliver better performance patterns,” the report said. “We expect this trend to continue, subject to volatile items such as weather events. Our focus continues to be on delivering operational improvement, particularly underwriting and claims improvements, process simplification and modernization of technology and infrastructure.”

Regarding RSA Canada’s new Personal Insurance service model approach, Saunders said the company is investigating how the approach may be leveraged to benefit commercial brokers. “We are also well underway in building a competitive flood coverage offering, which will be launched nationally later this year,” he said.

On a Group basis, the operating profit was £259 million (compared to £141 million in the first half of 2014). Overall Group net written premiums of £3.4bn were down 3% year-on-year post disposals.

The core Group combined ratio was 96.9%, compared to 100.3% for the first half of 2014.