Overview
Chairman's statement
John Napier Chairman
In 2003 we set out on a journey to run a general insurance business that delivers sustainable profitable performance.
I am pleased to report continued excellent progress in the delivery of our detailed plans to improve the performance of your Company on a continuing and sustainable basis. Improvements include:
- A significant increase in year to year Group operating profit at £698m, including net written premium growth of 6%,
- Benefits in costs and efficiencies with a combined operating ratio for the Core Group of 94.1% compared to prior year 96.1%,
- Further strengthening of our capital position due to internal initiatives and improved results,
- Continuing progress in derisking our US business and reducing our exposures.
These results were achieved in a year of unprecedented natural disasters. Although the financial cost for the insurance industry have been substantial, it is such years that remind us of the social and economic benefits that insurance brings to society. Responding rapidly is, however, as important as meeting insured losses. Our customers need to get their businesses and homes back to normal as quickly as possible. In the UK, our loss adjusters and claims handlers were the first on the scene after the Carlisle floods; in Canada we acted immediately to provide emergency living expenses after storms swept Alberta; and after the January storms in Scandinavia we worked around the clock to handle over 22,000 calls. In what has been clearly a challenging year for the industry, our results confirm that we continue to make good progress. Over the last two years we have created a strong business foundation that enables us to deliver a sustainable and profitable future. We remain focused on driving performance forward in all areas.
Although the delivery of our investment in the operational improvement programme remains important, the key to our success remains the improved standards of management performance in all functions. We continue to invest in the formal training and development of our people, linked to detailed objective setting and rigorous performance assessment. Where necessary to meet resource gaps or accelerate the achievement of required performance standards, we make use of active external recruitment. It is against the above philosophies of detailed objective setting and measured management performance that we have developed a new long term incentive plan for approval at the Annual General Meeting. It is strongly performance and results orientated and supports the key outcomes that are beneficial to all shareholders.
TopWe have resolved the majority of our substantive strategic issues with the exception of the US. Here, our approach has been to stabilise the business and work through the portfolio to reduce our exposures, whilst simultaneously exploring opportunities to achieve an acceptable exit. This outcome requires us to resolve a number of highly complex issues on which we are making good headway, in an area which will remain difficult to predict.
We continue to strengthen our capital position in order to facilitate growth and meet any changing regulatory requirements. Improved profit performance is of course helpful as are the actions we have taken to restructure the nature of assets and liabilities to optimise our capital position. The sale of our Rothschilds holding helped to diversify our equity exposures, whilst important initiatives in the area of pension liabilities help address that specific issue and have further strengthened the balance sheet.
In the UK the scale and finance of future pension liabilities is a national issue and related to the whole economy and wider society. Independent of progress at national level, it is essential to work on industry and company solutions. After a long period of consultation with staff and unions we obtained an agreement, supported by an overwhelming majority of staff, on a revised arrangement which reduced the current deficit via accelerated payments by the Company, and reduced the scale of future liabilities by agreement to modify the scope of future benefits. We believe that this is an innovative and market leading initiative. As a consequence our pension deficit has been reduced by £266m gross of tax, £86m from accelerated funding and £180m from agreed changes in future benefits.
An important part of our approach continues to be to develop an open and constructive relationship with all regulatory agencies. This is particularly important given the pace of change and complexity of the legislative and regulatory environment both at a UK and European level. Where country of registration, regulatory interpretation and regulatory liability are intertwined, there is scope for significant competitive and commercial disadvantage unless there is an active and adequate company and industry dialogue with regulators.
More specifically, the industry is dealing with a number of issues, including a new solvency regime, the FSA's Treating Customers Fairly initiative and the broader issues of financial exclusion. In all these areas we continue to take an active role. On European regulation and issues, our input is more directly to Government, whilst on Treating Customers Fairly we have clear principles under which we conduct our business. On matters of financial exclusion we are a leading provider of insurance for social housing schemes helping many families who would otherwise find it difficult to find acceptable terms of protection. We continue to lobby for greater priority on this issue within the broader financial exclusion agenda.
Following an active period of restructuring and reshaping your Board, we have made a further appointment of an additional executive director, namely Bridget McIntyre, who is responsible for our UK business. The Board has settled well and works effectively as a compact unit. It is extremely active with the non-executive directors averaging 23 meetings per year, including formal Boards and key committees. In addition, the Board meets as required on single issue meetings to facilitate effective decision making on complex issues. Further details of the approach of the Board are given in the Corporate Governance section of the Report & Accounts.
At the beginning of 2005 the Chief Executive and his team set the following priority areas:
- To stabilise and restructure the US,
- Target profitable growth,
- Sustain strong results,
- Deliver our operational improvement programme,
- To embed our management performance culture.
The progress the management team has made on the Group's issues sees us in a much stronger position at the end of 2005. We continue to concentrate on making R&SA, one of the world's oldest insurance companies, an industry leader in each of our chosen markets. This emphasis brings new and exciting challenges and we proceed from a strong foundation and we are confident of our prospects to deliver sustainable profitable performance.
Against this background, the directors have recommended a final dividend of 3.05p per share, which if approved will be due for payment on 2 June 2006 to holders of ordinary shares on the Register at close of business on 17 March 2006. This payment, together with an interim dividend of 1.69p per share, will make a total dividend for the year of 4.74p per share, an increase of 2.8% on prior year. This is consistent with our dividend policy of maintaining the dividend in real terms.
Finally, I would like to thank all staff for their efforts and responses to date. In particular I would like to note the contribution and support of the Board and the all round performance of the Executive Team ably led by Andy Haste.
