RSA INSURANCE GROUP: PURSUIT OF OUTPERFORMANCE · BAML BANKING & INSURANCE CONFERENCE Stephen Hester Group Chief Executive. 27 September 2016. RSA INSURANCE GROUP: PURSUIT OF OUTPERFORMANCE.

BAML BANKING & INSURANCE CONFERENCE

Stephen HesterGroup Chief Executive

27 September 2016

RSA INSURANCE GROUP:

PURSUIT OF OUTPERFORMANCE

This presentation may contain ‘forward-looking statements’ with respect to certain of the Group’s plans and itscurrent goals and expectations relating to its future financial condition, performance, results, strategic initiativesand objectives. Generally, words such as “may”, “could”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “aim”,“outlook”, “believe”, “plan”, “seek”, “continue” or similar expressions identify forward-looking statements. Theseforward-looking statements are not guarantees of future performance. By their nature, all forward-lookingstatements involve risk and uncertainty because they relate to future events and circumstances which arebeyond the Group’s control, including amongst other things, UK domestic and global economic businessconditions, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actionsof regulatory authorities (including changes related to capital and solvency requirements), the impact ofcompetition, inflation, deflation, the timing impact and other uncertainties of future acquisitions or combinationswithin relevant industries, as well as the impact of tax and other legislation or regulations in the jurisdictions inwhich the Group and its affiliates operate. As a result, the Group’s actual future financial condition, performanceand results may differ materially from the plans, goals and expectations set forth in the Group’s forward-lookingstatements. Forward-looking statements in this presentation are current only as of the date on which suchstatements are made. The Group undertakes no obligation to update any forward-looking statements, save inrespect of any requirement under applicable law or regulation. Nothing in this presentation should be construedas a profit forecast.

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN, INTO OR FROM ANYJURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONSOF THAT JURISDICTION

CONFERENCE THEME: “PRICED FOR UNCERTAINTY. LOOKING FOR ANSWERS”

RSA Insurance:

A ‘self help’ story

Resilient in challenging economic and financial market conditions

‘Focused mid-cap’, a proven value strategy in P&C Insurance

Unusually attractive EPS & dividend increases – delivered and in prospect1

Momentum ahead of ‘street’ expectations; good value entry point if progresscontinues

1

2

3

4

5

3

Introduction

1 Based on consensus and Company targets

RSA has successfully

completed its turnaround

phase

Now focused on move towards

‘best in class’ performance

1 2

4

Today’s presentation updates on

what we are doing to

achieve that goal

3

Introduction

PURSUIT OF OUTPERFORMANCE

To win in P&C insurance you need:

THESIS

5

Strong customer franchise(s)

Disciplined strategy that focuses on strengths and avoids mistakes

A balance sheet that protects customers and the company

Intense and accomplished operational delivery - across customers, underwriting and costs

Introduction

1

2

3

4

RSA’S STRATEGY & FRANCHISE

FOCUSED; STRONGER; BETTER

What is RSA?

A leading international general insurer, focused on Northern developed markets

Aiming to compete only where we can win. And to win where we compete

Well capitalised, achieving sustainable attractive returns

Strong operational delivery; transparent and easy to understand

Enduring customer appeal

1

2

3

4

5

In short, winning for customers and for shareholders

7

Strategy & Franchise

LEADERS IN OUR MARKETS, WITH ATTRACTIVE BUSINESS BALANCE

1 Includes Ireland, Specialty businesses in the Eurozone, and Middle EastNote: Split based on 2015 core Group NWP, except indicative profitability - based on target combined Underwriting and Investment result

By Customer…

ByProduct…

By distribution

channel…

Indicative target

profitability mix

Commercial

Personal

Affinity

Direct

Broker

Household

Motor

Other

Marine & other

CommercialMotor

Liability

Property

Scandinavia UK1

Canada

8

Strategy & Franchise

Aim to deliver superior performance and justify a superior P/E

Regional leadership positions

Intense performance focus

Operational and financial excellence

1 32

‘FOCUSED MID-CAP’ PROPOSITION

+++

9

Strategy & Franchise

ACTION PLAN

ACTION PLAN

Action Plan

Strategy implemented– Focus on strongest businesses– 19 disposals completed

Customer actions– Digital platforms for customer convenience, flexibility and speed– Improve service standards– Increase customer satisfaction and retention– Sharpen customer acquisition tools

2014 2015 2016 2017

11

Balance sheet fixed– £1.2bn disposal proceeds– £750m Rights Issue– Solvency II delivered– Debt restructuring actions

Performance restored– 2013: 99.6% COR; £244m pre-tax loss– 2015: 96.9% COR; £323m pre-tax profit;

ROTE > cost of equity

Foundations laid to power next phase

2018

Turnaround done Pursuit of outperformance

Underwriting actions– Elevate underwriting disciplines– Ongoing ‘BAU’ portfolio re-underwriting– Invest in tools and technology– Optimise reinsurance

Cost actions– Lean/robotics/process redesign– Procurement – Spans and layers– Simplify offerings– IT change

People, management and culture

PURSUIT OF OUTPERFORMANCE

Management Approach Improvement Actions

What is ‘best in class’ performance in our markets and how do we get there?

For each business:

• Compare to ‘best in class’ customer capabilities, underwriting excellence, costs and technology

• Identify capability gaps and roadmap to improve

• Validate and sequence change initiatives

1

2

3

Performance improvement actions in 5 areas:

• Customer capabilities

• Underwriting improvements

• Cost efficiency

• Technology enabling

• People and culture

1

2

3

4

5

Performance

12

13

SERVING CUSTOMERS BETTER

Customer Actions

Sales Actions

1

2

Customer

Multi-channeldistribution Enhance direct/broker/affinity choice for clients.

Speed, convenience & flexibility Digital trends at the forefront of customer evolution.

Proposition Drive to sharpen targeted customer propositions.

Service Differentiate on service standards and delivery.

Satisfaction Target strong positive NPS and effective brand promise.

Salesforce effectiveness Multiple disciplines to improve delivery to customers.

Trading capabilities Greater market responsiveness in pricing and policymake up.

Pricing expertise Richer risk segmentation.

E-trading Drive ‘industrialisation’ of B2B delivery for pricecompetitiveness and growth.

14

SERVING CUSTOMERS BETTER

Customer

38

3132

-3

-10

-26

1H132012 1H151H14 2H15

21

2H13 1H16

Example: UK Commercial NPS

Codan CSAT ranked 2nd

in SME in DenmarkCodan CSAT ranked 1st

overall in Norway

Customer Agent NPS +60, significantly ahead of benchmark

RSA 2nd most recommended in Canadian broker survey

RSA ranked 1st or 2nd in GSL European offices

1

2

Promoters spend more…

…And are more likely to convert

Average premium 1.4x higher

Total spend 2.6x higher

1.9x

Quote conversion almost double for promoters

+64

UNDERWRITING BETTER

Core Group attritional loss ratio progressionCY attritional loss ratio development, H1 2015 – H1 2016 (%)

Scandinavia

Canada

UK

Underwriting

Core Group-3.1

1H15-1H16

54.8

57.9-4.1

1H15 - 1H16

57.1

61.2

-2.0

1H15 - 1H16

64.5

66.5

-2.2

1H15 - 1H16

46.5

48.7

Key underwriting improvement actions

a

b

c

Portfolio re-underwriting

Tightening underwriting discipline

Investing in tools and technology

• Actions now largely complete• Exited UK Broker Motor• Exited certain municipality business in Sweden• Germany Commercial lines exited• Pruning of facilities business in Canada, plus revision of

Property appetite more broadly

• Improved rigor and intensity of portfolio management –disciplined decile analysis of renewal business to improve profitability and risk mix within portfolios

• Optimisation of final price to technical pricing

• Re-built technical pricing models across the Group’s Personal Lines businesses:–Increased sources, number and detail of rating factors–Greater granularity in customer segmentation

• Upgraded external rating engines utilising Radar Live & Earnix:–Enables use of more complex algorithms in rating–Significantly increases speed in bringing prices to

market• Building initiatives in data analytics

15

1H16 benefits c.1pt from benign indirect weather

LOWER COSTS – TARGET >£350m SAVINGS BY 2018

Costs

Simplify processes, IT changeCost reduction themes and progress

1 Simplify end-to-end processes– Lean operational excellence being deployed across

all regions– Digitisation and robotics initiatives in all regions

2 Optimise procurement– Procurement savings in-flight across the Group,

e.g. IT infrastructure, BPO transition

3 Streamline spans and layers– Wave one process achieved up-to 17%

improvement in spans of control by region– Further benefits anticipated

5

4 Simplify products– As we deliver technology and process

improvements, we will target the rationalisation of non-continuing product variants within our businesses.

5 IT change– Transition to new WIPRO IT infrastructure

arrangements in UK and Scandinavia completed in H1.

– Introduction of Guidewire in Canada, new policy system (Duck Creek) in the UK and TIA in Scandinavia.

Example

1

Opportunity: Potential to increase scale and efficiency of transformation through investment in robotic automation and digital self-service.

UK Personal Lines pilot results

Approach: Robotic automation offers benefits through process simplification and digital self-service. Ambition to utilise robotics to deliver and accelerate transformation programme benefits.

Initial pilot programmes have been run in UK PL and elsewhere with positive early results.

16

8 511

User inputs

>50

User input Screens

28

Applications used

As-is To-be

Simplified IT architecture

Simplified call centre agent

navigation

Simplified process

Below is ‘before and after’ for a customer agent in a UK Home renewal enquiry:

MANAGEMENT RENEWAL

Management

17

30%

70%

28%

36%

36%

Group Executive Management Team

All of our Group Executive and 64% of our Senior Leaders have been newly appointed since January 2014

New to RSA New to Role Unchanged

Group Senior Leaders

FINANCIAL AMBITION: DRIVEN BY CLOSING GAPS TO BEST IN CLASS COMBINED RATIO PERFORMANCE

Ambition

181 UK includes Ireland, Specialty businesses in the Eurozone, and Middle East2 Annualised, based on current FX rates

Scandinavia

< 85%Net written premium (£bn)(CFX)

Attritional loss ratio2 (%) Operating expense ratio 1 (%)

1.61.6

2014 20152013

1.5

Ambition

+2-4%

20142013

64.867.5

-2-3pts

Ambition2015

64.5 17.0 16.9 16.4

Ambition

-2-3pts

201520142013

63.7 pre Impact of discount adj2.

Canada

< 94%Net written premium (£bn)(CFX)

Attritional loss ratio (%) Operating expense ratio 1 (%)

2013

1.4

+0-3%

Ambition2015

1.4

2014

1.4

2014

62.8

2013

62.1

-1.5-2.5pts

Ambition2015

60.315.1 15.9 16.8

Ambition201520142013

-1-2pts

UK1

< 94%Net written premium (£bn)(CFX) +2-4%

Ambition2015

2.6

2014

2.6

2013

3.0

2015

48.1

2014

49.0

2013

50.2

-2-3pts

Ambition

15.2 14.1 13.7

2013

-0.5-1pts

Ambition20152014

Attritional loss ratio (%) Operating expense ratio 1 (%)

Investment incomeConservative, high quality fixed income portfolio

FX translationc.75% profits are non-Sterling. Recent weakening worth 3p2 EPS

Cost reduction>£350m by 2018

Interest costsFurther debt actions = lower interest costs

Reorganisation costs Materially taken by end of 2017

TaxUnderlying tax rate falling to low 20s (%)

Major ‘jumps’ in EPS

Sustainable high quality cash flows

Capacity for attractive ‘total’ dividend payouts

‘Best in class’ underwriting Operational & financial optimisation Attractive investment case

Current consensus dividend yield in line with FTSE 100 in 2017 and ahead in 2018

19

REASONS TO BELIEVE

Scandinavia

Canada

UK

99.9

RSAAmbition

< 94.0

Best-in-class H1 2016

89.5

RSA H1 2016

94.4

Market median H1 2016

95.9

RSA 2013

Combined ratio performance

Benchmarking

Source: As reported in published H1 2016 financial statements. Peer group consists of: UK: Aviva, DLG, AXA, Allianz, Zurich, and Ageas. Scandinavia: Top, Tryg, If, LF, Folksam, Gjensidige and Alm Brand Canada: Intact, Aviva, Cooperators, Desjardins, TD, Wawanesa, and Economical. Note that there are some differences in accounting treatment for reported COR between local peers and RSA.

RSAAmbition

< 85.0

Best-in-class H1 2016

83.3

RSA H1 2016

88.5

Market median H1 2016

84.9

RSA 2013

89.7

RSAAmbition

< 94.0

Best-in-class H1 2016

94.5

RSA H1 2016

94.5

Market median H1 2016

101.2

RSA 2013

100.0

1 RSA figures presented on a ‘like-for-like’ basis.

FINANCIAL MOMENTUM

20

Financials

1 Presented on a ‘like-for-like’ basis.

-4.5

H1 2016

54.7

2013

59.2

-3.7

H1 2016

64.5

2013

68.2

-4.3

46.5

2013

50.8

H1 2016 2013

-5.2

62.3

H1 2016

57.1

84.2

65.3

2013

-18.9

H1 2016

100.1

2013 H1 2016

94.7

-5.4 -1.2

2013 H1 2016

88.5

89.7 99.9

H1 2016

94.4

2013

-5.5

100.0

2013

-5.5

H1 2016

94.5

-65.1

100.7

2013 H1 2016

165.8

Scandinavia UK Canada IrelandGroup

Attritionalloss ratio (%)

Combined ratio1 (%)

200180

120

>350

2018target

FY 2016guidance

c.250

HY2016

FY2014

FY2015

Cumulative gross cost

savings (£m)

SUMMARY

Summary

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Winning for customers and for shareholders

Strategic refocus now completed & balance sheet fixed

Excellent performance progress, ahead of our plans

Record half year 2016 underwriting profits

1

Underlying ROTE in our target range of 12-15% a year early

– good prospects of further upside

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3

4

Q&A

APPENDIX

24

WHAT MAKES RSA ATTRACTIVE

Leading market positions in stable

markets

Well balanced business by geography, customer,

channel and product

Capital efficiency from diversification

Cash generative business model

Group synergies of expertise, cost and

revenues

Disciplined and focused execution

Strong brands and market reputation

Appendix

25

Appendix

GENERAL INSURANCE MARKETS

Scale important, but principally at a market level,

not globally

Large, enduring and stable markets

Competitive and challenging markets, consolidated

structure, no patents, so most players doing similar things

1 2 3

Proactive mainstream players holding their own vs specialists / disruptors

4

Important evolutions in customer expectations,

regulation and technology, as in other industries

5

Few existential threats or transformative

opportunities

Business models need to cope with market cycles and

underwriting volatility

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7

MARKET CHARACTERISTICS INFORMING RSA’S STRATEGY

CAPITAL

Targeting single ‘A’ category ratings, and 130% – 160% operating range under Solvency II

Metric Appetite

Credit rating •Target single A category ratings (S&P, Moody’s)

Solvency II coverage

ratio•Target coverage 130% - 160%•Coverage at 30 June 2016: 158%

Pillar II •Full economic capital position consistent with other measures

TNAV:NWP •Reasonableness test against other metrics

• A measured approach to capital risk appetite, targeting a minimum buffer above the SCR in addition to capital resilience based on a range of sensitivities

• RSA is a diversified, multi-channel, multi-product general insurer and is not normally exposed to significant volatility from the business mix

• Pension scheme provides a degree of IAS 19 volatility under Solvency II, though not in cash terms

Solvency II Appetite

26

Appendix

CAPITAL GENERATION

27

• Gross capital generation annually closely equivalent to net earnings. No obstacles to cash dividends to Group centre from subsidiaries.

• SCR increase from targeted growth expected to be marginal due to benefit of increased profitability and diversification of insurance risks.

• Pension contributions neutral to capital unless schemes are in surplus greater than the SCR allocation to pension risk.

• In steady state, great majority of earnings available for shareholder distributions subject to any inorganic capital needs and any bond pull-to-par.

• Dividend policy of 40-50% regular dividend payout; additional surpluses considered for share buybacks or special dividends once steady state capital and operating earnings achieved.

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2

3

4

5

Appendix