RSA vows to fix UK commercial book as profit drops 37%

RSA’s UK business made a 2012 underwriting profit of £39m, down 37% on the £62m it made in 2011.

The UK combined ratio increased 0.9 points to 98.2% (2011: 97.3%). Net written premiums increased 2% to £3bn (2011: £2.96bn).

RSA group chief executive Simon Lee said: “In the UK, we are reshaping the portfolio in a challenging environment and expect underlying growth in our chosen segments to be broadly offset by reductions in less profitable business lines. We expect this will lead to a trend of improving combined ratios in the UK over the next three years.”

RSA attributed the drop in underwriting performance to the flooding in the first half of the year and weaker performance in marine and commercial liability.

Commercial slump

The deteriorating performance was mainly evident in RSA’s UK commercial business. The unit made an underwriting loss of £31m in 2012, compared with a £2m profit in 2011. The combined ratio increased to a loss-making 100.4% from a profitable 98.7%.

The main drivers of the performance were commercial liability, which swung to a £21m underwriting loss from a £4m profit, and commercial motor, where the underwriting loss deepened to £44m from £37m.

RSA said the commercial liability slump was caused by a number of large losses and increasing frequency of ‘slip and trip’ claims. “We are addressing this trend through underwriting and rating action,” the company said.

Most of the commercial motor loss emanated from a single large contract, which is understood to be lease firm Motability.

RSA said: “We are working on the details of new arrangements for this contract, to be effective from October, however, commercial motor will continue to be negatively affected by the contract’s old tranches for the next few years.”

Excluding the large contract, commercial motor premiums were down 12% following the company’s exit from certain commercial motor lines, including  risk-managed motor and motor trade.

The company added that it is working  to fix its commercial lines business. It said: “We are actively dealing with the challenges in the UK commercial market. We remain selective regarding the brokers we want to work with and have driven rate increases across the business.”

Personal improvement

In contrast, RSA’s UK personal lines business improved its performance. Underwriting profit increased 17% to (£70m (2011: £60m) and the combined ratio improved slightly to 95.6% (2011: 95.7%).

This was despite a 3% drop in net written premium to £1.3bn from £1.4bn.

The bad weather cut household underwriting profit by 5% to £54m (2011: 57m). However this was offset by the motor business turning a £10m profit in 2012, after breaking even in 2012.

In addition, the pet business doubled its underwriting profit to £6m from £3m.

While motor helped lift the personal lines business in 2012, RSA warned that softening prices “year continue to make this a challenging market”.

Group results

RSA Group as a whole made a 2012 net profit after tax of £351m, down 18% on the £427m it reported in 2011.

The underwriting profit was flat at £375m, but the combined ratio deteriorated by 0.5 percentage points to 95.4% (2011: 94.9%).

The group results were affected by flooding in the UK as well as earthquakes in Italy and falling bond yields.

Net written premiums group-wide increased 5% to £8.4bn (2011: £8.1bn).

Lee said: “These are a solid set of results demonstrating strong progress in challenging market conditions.”

However, the company opted to cut its dividend to 3.90p a share (2011: 5.82p), surprising analysts.