The insurer added within its H1 trading results that although ‘business interruption coverages are not expected to be eligible for Covid-19 claims, there are a number of areas where claims are being paid’

Insurer RSA has improved its group underwriting profit by 33%, reporting a figure of £240m – excluding UK and London Market exit portfolios – within its 2020 H1 financial results, published on 30 July.

The total group underwriting profit amounts to £207m, compared to 2019’s £153m result.

The insurer’s group net written premiums, excluding exits, amounts to £3,136m versus £3,242m for the same period last year, again excluding portfolio exits.

Combined operating ratio figures have also taken a dip for 2020’s H1, from 95.2% to 93.3%, or from 94.3% to 92.2% excluding UK and London Market exit portfolios. Profit before tax and excluding any exits amounts to £244m in H1 of 2020, compared to £255m in 2019.

For RSA’s UK and international divisions specifically, net written premiums in H1 of 2020, excluding exits, amounted to £1,292m. In the six months to 30 June, net incurred claims dropped to £808m, also excluding exits. The combined ratio for this division is 93.6%.

Personal lines, which account for 55% of RSA’s net written premiums, reported a combined ratio of 86% compared to 96.8% for commercial lines.

Covid-19 impact

RSA estimated that the impact of the Covid-19 pandemic has reduced its net written premiums (NWP) by £110m “consisting of price reductions, refunds, coverage changes and specific business line volume impacts”. Aside from coronavirus, NWP was down 8% for RSA’s UK and international division.

The insurer added that the pandemic’s impact on claims is “complex to interpret as claims patterns are distorted by the impact of lockdowns”.

The report continued: “For the second quarter 2020 non-Covid-19 claims frequency was down versus prior year in a range 15-60%, mostly reflecting lower economic activity levels.

“Frequencies increased in June as lockdown easings began. It is not yet possible to fully assess the impact on claims severity of disrupted supply chains or on timing of claims notifications. However, we can see that frequency effects overall will provide a material offset to areas of negative Covid-19 impact on premiums, costs and claims.”

Despite its involvement in the FCA’s test case surrounding business interruption (BI) claims, RSA said it “is working hard to settle claims promptly and fairly and where relevant to offer interim payment to support customers, as well as sustaining supply chains similarly”. The insurer has also been providing customer relief measures to mitigate policyholders’ financial hardship, using steps such as “coverage adjustments and waivers, payment timing relief and discount or price capping of rates”.

Regarding the unprecedented FCA case, RSA’s update read: “Most business interruption coverages are not expected to be eligible under their terms for Covid-19 claims. However, there are a number of areas where claims are being paid.

“In addition, RSA is one of eight participants in the FCA test case on business interruption coverage wordings in the UK, the result of which may also have wider implications for the industry in this sector. We are not able to comment on this process at present, beyond confirming that RSA’s position on its BI wordings is supported by external legal advice.”

In H1 of 2020, RSA booked 39,000 travel claims at an estimated cost of £26m (with £1m net of reinsurance) as well as 2,700 wedding cancellation claims, amounting to an estimated £9m.

The majority of its non-travel claims here relate to the UK and international division.

‘Good prospects’

RSA’s group chief executive Stephen Hester said the firm faces “good prospects” following on from its 2020 first half results.

He said: “RSA is reporting good growth in underwriting profits for the first half from continued business improvement actions. Covid-19 impacts on operating profits were broadly neutral in H1, though related financial market charges reduced our statutory results.

“Each region of RSA contributed in line or better than our plans, driven by improved attritional loss ratios. We are pleased with progress towards our ‘best in class’ ambitions, and the underwriting performance which is a first half record for RSA.

Covid-19 has dominated recent months. Uncertain times put a special premium on sustaining customer service whilst operating safely and securely for our people and other stakeholders. This has been our focus and will remain so over the rest of the year.

“The recovery path from the pandemic itself is not yet certain, as well as its human and economic consequences. Nevertheless, we see good prospects for RSA remaining resilient and emerging strongly from this period.”

Philip Kett, equity analyst at Jefferies International, believes RSA has also been prudent in terms of its reserving.

He explained: “We were pleased that RSA has added £25m to the reserves to form a precautionary Covid-19 reserve. Given that this equates to 80bps on the 1H 2020 combined ratio, the underlying underwriting performance was even better than the headline figure suggests.

“It also de-risks 2H 2020 earnings, as there is an inbuilt buffer to offset any claims deterioration. At any of RSA’s peers we believe this would have been lauded as an example of prudence and attract a higher P/E. Instead, this attracted little attention and the cost may have been seen negatively.”