RSA.L Regulatory News (RSA)

4 Aug 2016 07:00

2016 INTERIM RESULTS

RSA Insurance Group plc

4 August 2016

RSA is making excellent progress. Results are ahead of our plans.

Underwriting profit up 72%. Operating profit up 20%. Underlying EPS1 17.8p, up 29%. Basic EPS from continuing operations up 93% to 11.2p. Interim Dividend 5.0p / share, up 43%.

Return on Tangible Equity1 12.8% - within our 12-15% medium term target, a year ahead of our expectations.

Stephen Hester, RSA Group Chief Executive, commented:

“We are delighted with RSA’s progress towards our demanding ’best in class’ ambitions. In tough, competitive insurance markets and with significant financial market volatility, our results are even more satisfying. Particularly pleasing is the track record we are building of setting out plans and then achieving them in a high quality way.

“Strategic focus has now been achieved through completion of our principal disposal programmes. Performance improvement is coming through strongly, driven by underwriting gains and cost re-engineering. In fact our interim results were actually held back by volatile items in weather / large losses.

“The impact of Brexit will take time to play out. But RSA is well placed, with a majority of earnings in foreign currencies.

“Our agenda for the second half is clear; a continued drive to raise performance through better underwriting, lower costs and strong focus on customers. We expect that 2016 will be another year of great progress for RSA.”

Trading results

Group operating profit £312m up 20% (H1 2015: £259m): Scandinavia £131m; Canada £69m; UK £144m. Record1 H1 Group underwriting profit of £174m, up 72% (H1 2015: £101m). Core Group combined ratio of 94.3% (H1 2015: 96.4%). Scandinavia 88.5%; Canada 94.5%; and the UK 94.4%. Record1 H1 Group current year underwriting profit of £119m (H1 2015: £73m); Core Group current year attritional loss ratio 3.1pts better than last year. Weather and large losses £59m worse than planned and £49m worse than H1 2015; net claims cost of £39m for the Alberta wildfire and £35m for UK and European floods in June. Prior year underwriting profit of £55m (H1 2015: £28m), driven by Canada and the UK in particular. Ireland returned to operating profit (£3m vs £11m loss in H1 2015). Core Group premiums flat on an underlying basis1; up 3%2 headline. Investment income of £187m (H1 2015: £206m). Net gains include £169m tangible gains1 mainly from disposals completed in the year, offset by £188m intangible charges1, as previously flagged. Reorganisation costs of £70m. Post tax profit of £91m (H1 2015: £215m benefited from disposal gains). Solvency II coverage ratio of 158% (31 December 2015: 143%), towards upper end of our target range of 130-160%; now includes the full benefit of the completed Latin America disposals and pension de-risk. Tangible equity2 £3.3bn (31 December 2015: £2.8bn), 326p per share; increase driven by profits, positive mark-to-market and foreign exchange. Underlying return on opening tangible equity2 of 12.8% annualised (H1 2015: 9.7%). Underlying earnings per share2 (EPS) 17.8p (H1 2015: 13.8p). Interim dividend of 5.0p / ordinary share (H1 2015: 3.5p).

1Underlying or alternative performance measure, refer to pgs 27-28 for further explanation; 2 At constant FX.

Strategic update

Strategic actions to make RSA ‘focused, stronger and better’ continue apace. Successfully completed the disposals of our businesses in Latin America and Russia in the first half. This brings to a close our principal disposal programme (total proceeds £1.2bn 2014-16), with the desired strategic focus now achieved. With RSA stronger and more resilient, actions are now being taken to optimise the composition of capital. In July we completed the retirement of £200m of subordinated debt reducing both leverage and interest costs, with further actions in contemplation. During the first half we also completed, as previously flagged, a de-risking of the asset mix in our UK pension schemes. Our many performance improvement initiatives are proceeding well. These cover: Customer service, sales effectiveness and digitisation; Pricing and underwriting improvements; Expense reduction; Technology improvements in infrastructure, policy administration, claims and pricing. Core business controllable costs2 for H1 2016 were down 3% year-on-year at constant exchange to £702m (comprising 5% cost reductions, offset by 2% inflation). Group FTE down 39% since start of 2014 (13% down ex disposals), with Core Group FTE down 6% year-on-year to H1 2016. Our cost reduction programme remains on track to deliver in excess of £350m gross annualised savings by 2018 (c.£200m achieved to date, with proportionately more cost saves expected in H2). Medium term performance target of 12-15% underlying return on tangible equity2 remains, and we continue to target the upper half of this range in 2017. Dividend policy unchanged: medium term ordinary dividend payout of 40-50% with additional ‘special’ payouts where justified. RSA is insulated from Brexit impacts via non-Sterling profits and separate regulated European subsidiaries. However, the impacts on interest rates are negative for insurers generally and uncertainties remain in other dimensions.

Note: The Group uses alternative performance measures, including certain underlying measures, to help explain business performance and financial position. Further information on these is set out in the appendix.1 Refer to page 10 for further explanation.2Underlying or alternative performance measure, refer to pgs 27-28 for further explanation.

MANAGEMENT REPORT – KEY FINANCIAL PERFORMANCE DATA

Management basis

		H1 2016 £m						H1 2016 £m		H1 2015 £m Constant FX		H1 2015 £m Reported FX
Net Written Premiums		Personal				Commercial		Total		Total		Total
Scandinavia		500				465		965		1,003		949
Canada		420				189		609		627		637
UK		496				779		1,275		1,287		1,282
Ireland		90				61		151		136		130
Group Re1		-				29		29		(106)		(106)
Total Core Group		1,506				1,523		3,029		2,947		2,892
Discontinued & non-core2								218		498		551
Total Group net written premiums								3,247		3,445		3,443
		Combined operating ratio (%)						H1 2016 £m		H1 2015 £m		H1 2015 £m
Underwriting performance		H1 2016				H1 2015				Constant FX		Reported FX
Scandinavia		88.5				98.0		96		17		16
Canada		94.5				92.3		37		55		56
UK		94.4				94.4		76		77		77
Ireland		100.7				111.8		(1)		(17)		(16)
Group Re1		-				-		(36)		(25)		(25)
Total Core Group		94.3				96.4		172		107		108
Discontinued & non-core2		-				-		2		(11)		(7)
Total Group underwriting result		94.7				97.2		174		96		101
Investment result								150		167		167
Operating result								312		254		259
Profit before tax								148		281		288
Profit after tax								91		208		215
Underlying profit before tax3								258		200		205
Basic earnings per share (pence)								7.9p				20.4p
Basic earnings per share from continuing operations (pence)4								11.2p				5.8p
Underlying earnings per share (pence)3								17.8p				13.8p
Interim dividend per share (pence)								5.0p				3.5p
Return on tangible equity, annualised (%)								5.7%				14.3%
Underlying return on tangible equity, annualised (%)3								12.8%				9.7%
								30 June 2016				31 Dec 2015
Net asset value (£m)								4,136				3,642
Tangible net asset value (£m)3								3,324				2,838
Net asset value per share (pence)								394				346
Tangible net asset value per share (pence)3								326				279
Solvency II surplus (£bn)5								1.1				0.9
Solvency II coverage ratio5								158%				143%

1 Group Re premiums include £139m in H1 2015 for the purchase of a 3 year Group aggregate reinsurance cover.2 In H1 2016 discontinued operations comprised Russia and Latin America, and non-core operations included UK Legacy and the Middle East. In H1 2015 discontinued operations also included Italy, Hong Kong, Singapore, China, and India.3 Underlying or alternative performance measure, refer to pgs 27-28 for further explanation.4 Refer to consolidated income statement on pg 38.5 Capital positions are estimated.

CHIEF EXECUTIVE’S STATEMENT

We are delighted with RSA’s progress towards our demanding ‘best in class’ ambitions. In tough, competitive insurance markets and with significant financial market volatility, our results are even more satisfying.

In 2014 we laid out an Action Plan aimed at making RSA ‘Focused, Stronger, Better’. And in February this year we gave further definition, setting the future ambition of ‘best in class’ performance. How are we doing against this Plan?

1. RSA’s strategic refocus is essentially done. The last major element of this, our Latin American disposals, all completed this half. The Group is now set up to succeed, focused on our leadership positions in UK/Western Europe, Scandinavia and Canada. RSA is equipped with the combination of market scale and intense business focus that has been a winning formula for the highest performing and best valued companies in our industry.

2. Our balance sheet work has also gone very well. Solvency II capital ratio has built to 158%, towards the top end of our target range, and complements our stable A credit rating. We are seizing opportunities to improve both capital quality and earnings with subordinated debt retirement - £200m accomplished this July and more in contemplation. Our pension scheme risk reduction has also proven timely in the face of financial market volatility.

3. At the heart of our Action Plan is sustained performance improvement. Less than six months after raising market expectations materially, we are in the fortunate position of beating consensus again. We are doing this the ‘right’ way, focusing on high quality sustainable improvements - to customer capabilities and service, to underwriting loss ratios and to cost.

At the Group level the key financial measures show terrific progress in what is often our seasonally weaker half. ROTE1 (return on tangible equity) at 12.8% is in our 12-15% medium-term target range a full year ahead of our expectation. EPS1 17.8p / share, up 29%.

Operating Profits up 20%. Underwriting Profits up 72%. Combined ratio of 94.7%, a record1 for RSA.

Our advances are being achieved in the face of market headwinds to premiums and pricing as well as investment income. Underlying1 Core Group premiums were flat, with softness in Canada and Denmark particularly. While premium growth is not our top priority at present, serving customers better is. Right across our business new capabilities are being built, service channels and standards improved: there are good signs that these are reinforcing our strong existing franchise base, with more to come.

Current year underwriting profits are a record £119m, up 63%. This is driven by a 3.1pt improvement in the Core Group attritional loss ratio. Volatile underwriting results from weather / large losses were £49m worse than prior year (and £59m worse than plan) due notably to Fort McMurray fires in Canada and UK/European flash floods in June. Our reinsurance protection limited these loss areas considerably and provides good downside protection for the second half also. Prior year reserve releases at 1.9% of NEP were above plan.

Total Group controllable expenses1 fell 12% and our cost reduction is on a path to beat the increased 2018 target of £350 million.

‘Below the line’ our financials will be noisy in 2016 as flagged and for good reason. Non-cash accounting charges mask the capital and value accretive sale of our Latin American businesses. Restructuring charges are reflecting our cost improvement measures. And in the second half, debt retirement charges enable higher capital quality and lower future interest costs.

1 Underlying or alternative performance measure, refer to pgs 27-28 for further explanation.

We are not complacent. The external environment is tough. Brexit brings challenges yet to be fully clear. And our own ambitions call for substantial further performance improvements. One way or another we will have setbacks.

However we truly believe RSA can continue to make excellent progress along the path we have laid out. Ours is a self-help programme and we are building credentials in doing just that.

Stephen HesterGroup Chief Executive3 August 2016

MANAGEMENT REPORT

INCOME STATEMENT

Management basis – 6 months ended 30 June 2016

		Group H1 2016		Of which: ‘Core’4				Group H1 2015		Of which: ‘Core’4
		£m		£m				£m		£m
Net Written Premiums		3,247		3,029				3,443		2,892
Net Earned Premiums		3,271		2,990				3,579		3,010
Net Incurred Claims1		(2,108)		(1,954)				(2,356)		(2,027)
Commissions		(480)		(410)				(560)		(423)
Operating expenses		(509)		(454)				(562)		(452)
Underwriting result		174		172				101		108
Investment income		187		159				206		166
Investment expenses		(6)		(5)				(7)		(6)
Unwind of discount		(31)		(15)				(32)		(13)
Investment result		150		139				167		147
Central expenses		(12)		(12)				(9)		(9)
Operating result		312		299				259		246
Net gains/losses/exchange – tangible5		169						128
Net gains/losses/exchange – intangible5		(188)						41
Interest		(54)						(54)
Non-operating charges2		(9)						(17)
Non-recurring charges3		(82)						(69)
Profit before tax		148						288
Tax		(57)						(73)
Profit after tax		91						215
Underlying profit before tax6		258						205
Loss ratio (%)		64.5		65.3				65.8		67.3
Weather loss ratio		3.3		3.6				1.7		1.5
Large loss ratio		8.4		9.2				7.7		8.6
Current year attritional loss ratio		54.7		54.8				57.1		57.9
Prior year effect on loss ratio		(1.9)		(2.3)				(0.7)		(0.7)
Commission ratio (%)		14.6		13.8				15.7		14.1
Expense ratio (%)		15.6		15.2				15.7		15.0
Combined ratio (%)		94.7		94.3				97.2		96.4
Reported ROTE, annualised		5.7%						14.3%
Underlying ROTE, annualised6		12.8%						9.7%
Notes:
1 Of which: claims handling costs		(193)						(199)
2 Amortisation		(7)						(14)
2 Pension net interest costs		(2)						(3)
3 Solvency II costs		(6)						(14)
3 Reorganisation costs		(70)						(55)
3 Economic assumption changes		(6)						-

4 ‘Core’ comprises Scandinavia, Canada, UK (ex Legacy), Ireland, and central functions.5 Refer to pg 10 for further explanation.6 Underlying or alternative performance measure, refer to pgs 27-28 for further explanation.

SEGMENTAL ANALYSIS

Management basis – 6 months ended 30 June 2016

		Scandinavia				Canada				UK				Ireland				Central functions				Total ‘non-core’1		Group H1 2016
		£m				£m				£m				£m				£m				£m		£m
Net Written Premiums		965				609				1,275				151				29				218		3,247
Net Earned Premiums		832				682				1,347				144				(15)				281		3,271
Net Incurred Claims		(582)				(437)				(806)				(110)				(19)				(154)		(2,108)
Commissions		(24)				(91)				(278)				(17)				-				(70)		(480)
Operating expenses		(130)				(117)				(187)				(18)				(2)				(55)		(509)
Underwriting result		96				37				76				(1)				(36)				2		174
Investment income		48				34				73				4				-				28		187
Investment expenses		(1)				(1)				(3)				-				-				(1)		(6)
Unwind of discount		(12)				(1)				(2)				-				-				(16)		(31)
Investment result		35				32				68				4				-				11		150
Central expenses		-				-				-				-				(12)				-		(12)
Operating result		131				69				144				3				(48)				13		312
Net gains/losses/exchange – tangible2																								169
Net gains/losses/exchange – intangible2																								(188)
Interest																								(54)
Non-operating charges																								(9)
Non-recurring charges																								(82)
Profit before tax																								148
Tax																								(57)
Profit after tax																								91
Underlying profit before tax3																								258
Loss ratio (%)		70.0				64.0				59.8				76.8										64.5
Weather loss ratio		0.3				6.6				4.3				0.0										3.3
Large loss ratio		5.4				6.3				12.2				4.8										8.4
Current year attritional loss ratio		64.5				57.1				46.5				65.3										54.7
Prior year effect on loss ratio		(0.2)				(6.0)				(3.2)				6.7										(1.9)
Commission ratio (%)		2.9				13.4				20.7				11.4										14.6
Expense ratio (%)		15.6				17.1				13.9				12.5										15.6
Combined ratio (%)		88.5				94.5				94.4				100.7										94.7

1 Total ‘non-core’ comprises discontinued operations of Russia and Latin America; and non-core continuing operations of UK Legacy and the Middle East.2 Refer to pg 10 for further explanation.3 Underlying or alternative performance measure, refer to pgs 27-28 for further explanation.

Note: please refer to appendix for H1 2015 comparatives

Market conditions

Insurance market conditions remain competitive. Slow growth and intense price competition drive sharp price/volume trade-offs and we have continued to prioritise profit over topline growth.

Interest rates, credit spreads, equity markets and foreign exchange have been volatile during the first half of the year. Five-year bond yields fell by 100bps in the UK, 60bps in Sweden and Denmark, and were down slightly in Canada. Overall, this has a negative impact on the outlook for investment returns and discount rates on liabilities, but increases tangible equity as unrealised bond gains rise.

Around two thirds of RSA's core premiums lie outside the UK and c.75% of operating profit is not in Sterling. The weakening of Sterling during the first half has benefited reported results (Core Group premiums up 3% at constant exchange rates, but up 5% at reported exchange rates), and this seems likely to continue into the second half as current rates further impact the average FX rate for the year. If 1 August 2016 spot rates had prevailed across the first half then H1 2016 underlying profit before tax would have been 7% higher.

Premiums

H1 2016 Core Group net written premiums were up 3% year-on-year at constant exchange rates. Excluding Group Re and one-offs elsewhere, Core Group premiums were flat on an underlying basis2.

		Scandi-navia		Canada		UK		Ireland		Total
Net Written Premiums (£m)		965		609		1,275		151
% changes in NWP
Volume change including portfolio actions		(7)		(4)		(3)		(7)		(5)
Rate increases		3		1		2		18		3
Core Group H1 2016 CFX movt.		(4)		(3)		(1)		11		31
Impact of non-core businesses/disposals										(9)
Total Group H1 2016 CFX movt.										(6)

Regional highlights (at constant FX) include:

Scandinavian premiums were down 4%. However, growth was flat on an underlying basis2 with positive growth in Sweden offsetting weakness in Denmark and Norway; Canadian premiums were down 3% with Personal down 5% and Commercial up 1%, reflecting underwriting discipline in competitive market conditions; UK premiums were down 1%. However, growth was flat on an underlying basis2. Commercial was up 2% underlying2 driven by growth in our target portfolios whilst Personal was down 3% underlying2 reflecting continued discipline in a competitive market; and Ireland premiums were up 11% due to strong price increases.

Retention trends remained broadly stable with overall retention across our Core regions of around 80%.

1 After impact of Group Re (NWP £135m lower in H1 2016 due to purchase of 3 year Group aggregate reinsurance cover for £139m in H1 2015)2 Underlying or alternative performance measure, refer to pgs 27-28 for further explanation.

Underwriting result

Group underwriting profit of £174m, up 72% year-on-year (H1 2015: £101m) and comprised £172m from core operations.

		Total UW result				Current Year UW				Prior Year UW
£m		H1’16		H1’15		H1’16		H1’15		H1’16		H1’15
Scandinavia		96		16		94		49		2		(33)
Canada		37		56		(2)		7		39		49
UK		76		77		41		59		35		18
Ireland		(1)		(16)		9		(14)		(10)		(2)
Group Re		(36)		(25)		(26)		(16)		(10)		(9)
Total Core		172		108		116		85		56		23
Non-core & discontinued		2		(7)		3		(12)		(1)		5
Total Group		174		101		119		73		55		28

Current year profit of £119m (H1 2015: £73m):

The Core Group current year attritional loss ratio was 54.8% which showed a 3.1 point improvement from H1 2015. There were good improvements across all core regions. The Canadian attritional loss ratio of 57.1% benefited by around 1 point due to benign ‘indirect’ winter weather. Total Group weather costs were £109m (H1 2015: £60m). Core Group weather costs were £107m representing a weather loss ratio of 3.6% (H1 2015: £45m or 1.5%; five year average: 3.2%).Included within this are net claims costs of £39m for the Alberta wildfires, and £35m for the UK & European floods in June. Total Group large losses were £277m (H1 2015: £277m). Core Group large losses were £276m or 9.2% of premiums (H1 2015: £261m or 8.6%), which was marginally above the five year average of 8.7%. Lower than trend levels in the UK were partly offset by more elevated levels in Canada and Ireland.

Prior year profit of £55m provided a 1.9 point benefit to the combined ratio and included positive prior year development from the UK, Canada and Scandinavia.

Our planning assumption continues to be for prior year profits to be around 1% of premiums, but there remains the potential for volatility given our commitment to transparent reserve margins.

Our assessment of the margin in reserves for the Group (the difference between our actuarial indication and the booked reserves in the financial statements) is slightly higher at 5.2% of booked claims reserves.

Investment result

The investment result was £150m (H1 2015: £167m) with investment income of £187m (H1 2015: £206m) partly offset by investment expenses of £6m (H1 2015: £7m) and the liability discount unwind of £31m (H1 2015: £32m).

Investment income is tracking slightly ahead of our guidance but down 9% on prior year, primarily reflecting the continued impact of the low bond yield environment with the average book yield across our major bond portfolios down slightly to 2.6% (H1 2015: 2.7%).

Total controllable costs1

As at the end of the first half of 2016 our cost reduction programme has delivered total gross annualised cost reductions of around £200m. We are on track to deliver around £250m cost reductions by the end of 2016 (with proportionately more cost saves expected in H2) and to beat our increased 2018 cost reduction target of £350m.

Total Group controllable costs1 were down 12% year-on-year at constant exchange to £778m. Core business controllable costs were down 3% in the same period at constant exchange to £702m (comprising 5% cost reductions, offset by 2% inflation).

The majority of the year-on-year core business cost reduction has come from our Scandinavian business (5% down) and our UK business (4% down). Canada delivered expense reductions of 2%.

Group FTE2 is down 39% since the start of 2014 to 13,822 at June 2016. Over the same period Core business FTE has fallen by 13% to 13,688, with FTE falling by 6% H1 2016 v H1 2015.

Non-operating items

Tangible net gains of £169m (H1 2015: £128m) include:

£157m of tangible disposal gains, of which £155m relates to the completed Latin America disposals; £12m of investment gains.

Intangible net losses were £188m. £165m relates to the Latin American disposal (£100m recycle of foreign exchange losses (in the FCTR3), and £65m of intangibles disposed, both as previously flagged). A further £11m relates to FCTR3 recycling in respect of the Russia disposal. These items are non-cash, non-capital impact and NAV neutral for the Group. There were also £12m of unrealised losses.

Non-cash non-operating charges of £9m (H1 2015: £17m) comprise £7m of amortisation of customer related intangible assets and £2m of pension net interest costs.

Non-recurring charges of £82m (H1 2015: £69m) include:

Reorganisation costs of £70m (H1 2015: £55m) were broadly in line with our expectations, and included £15m in respect of redundancy and £55m in respect of restructuring activities. We continue to expect 2016 to be the last major year of restructuring charges. Solvency II costs of £6m (H1 2015: £14m). As previously guided, in 2016 we expect a significantly reduced Solvency II cost (reflecting ongoing preparations for Pillar III reporting), falling to zero thereafter. Economic assumption changes - £6m charge relating to a change in the rate used to discount Danish long-tail liabilities (discount rate reduced from 1.75% to 1.5%) following a decline in market yields for the assets we hold backing these liabilities.

1 Underlying or alternative performance measure, refer to pgs 27-28 for further explanation.2 Full time equivalent employees3 Foreign currency translation reserve

Tax

The Group has reported a tax charge of £57m for the first half, giving an effective tax rate (ETR) of 39%. The Core Group underlying tax rate1 was 24%.

The £57m tax charge largely comprises tax on overseas profits and other overseas tax charges; net local tax cost of £16m on the Latin American disposals; and a £7m upward revaluation of the net UK deferred tax asset.

The carrying value of the Group’s net deferred tax asset at 30 June 2016 was £116m, of which £103m is in the UK. At current tax rates, a further c.£184m of deferred tax assets remain available for use but not recognised on balance sheet; these are predominantly in the UK.

As previously flagged, we continue to expect an optically higher ETR in 2016 of around 40%, due to the impact of disposals; higher taxed foreign profits; and UK reorganisation costs and one-off debt retirement costs that do not give an immediate tax benefit.

Dividend

We are pleased to declare an interim dividend of 5.0p per ordinary share, up 43% year-on-year (H1 2015: 3.5p).

Our medium term policy of between 40-50% ordinary dividend payouts remains, with additional payouts where justified. Potential for additional payouts should follow the completion of restructuring and progress in the unwind of unrealised bond gains.

1 Underlying or alternative performance measure, refer to pgs 27-28 for further explanation.

BALANCE SHEET

Movement in Net Assets

		Shareholders’ funds		Non controlling interests		Loan capital		Equity plus loan capital		TNAV1
		£m		£m		£m		£m		£m
Balance at 1 January 2016		3,642		129		1,254		5,025		2,838
Profit/(loss) after tax		85		6		-		91		195
Exchange gains/(losses) net of tax		287		10		1		298		215
Fair value gains/(losses) net of tax		219		-		-		219		219
Pension fund gains/(losses) net of tax		(22)		-		-		(22)		(22)
Repayment & amortisation of loan capital				-		6		6		-
Share issue		3		-		-		3		3
Changes in shareholders’ interests in subsidiaries		(10)		(5)		-		(15)		(10)
Share based payments		8		-		-		8		8
2015 final dividend		(71)		(2)		-		(73)		(71)
Preference dividend		(5)		-		-		(5)		(5)
Goodwill and intangible additions		-		-		-		-		(46)
Balance at 30 June 2016		4,136		138		1,261		5,535		3,324
Per share (pence)
At 1 January 2016		346								279
At 30 June 2016		394								326

Tangible net assets1 have increased by 17% to £3.3bn in the first half of 2016. The increase was driven by profits in the period (including tangible disposal gains), positive foreign exchange movements, and fair value mark-to-market gains due to lower bond yields, partly offset by the payment of the 2015 final dividend and intangible asset additions.

1 Underlying or alternative performance measure, refer to pgs 27-28 for further explanation.

CAPITAL POSITION

Solvency II position1:		Requirement (SCR)		Eligible Own Funds		Surplus		Coverage
		£bn		£bn		£bn		%
30 June 2016		1.9		3.0		1.1		158%
31 December 2015		2.0		2.9		0.9		143%

The Solvency II surplus1 increased to £1.1bn (31 December 2015: £0.9bn) during the first half with the coverage ratio of 158% up 15 points. The key drivers were as follows:

Underlying capital generation2 added 12 points of coverage; Restructuring costs and other non-operating/non-recurring charges reduced the ratio by 5 points; Pull-to-par on unrealised bond gains accounted for a 4 point reduction; 12 points of benefit from the Latin American and Russian disposals, completed in the period; Market movements added 5 points of coverage, mainly driven by positive foreign exchange movements. RSA has low exposure to yield movements due to matching of assets and liabilities. Equities and credit spreads were broadly flat over the period; Pension movements and the interim dividend reduced the coverage ratio by 2 points and 3 points respectively.

Please refer to Appendix (page 29) for further details on RSA’s Solvency II position.

Debt retirement

On 12 July we completed the retirement of £200m (nominal value) of subordinated debt (the target instrument was our £500m subordinated notes with 9.4% coupon).

The retirement was achieved at a small premium to the prevailing market value. It is Solvency II neutral as the market value of the debt has been replaced within eligible own funds by c.£130m of previously ineligible Tier 2 and c.£100m of Tier 3 capital (deferred tax asset).

In the second half we expect to show a one-off accounting charge of c.£39m below the Operating Result in the P&L. Annualised run-rate interest costs will be lower by c.£19m.

Our ambition is to further improve the quality of our capital mix and reduce the cost of our debt. We will continue to look for further opportunities to retire debt as and when circumstances and market conditions allow, as well as exploring other risk/capital efficiency options.

1 The Solvency II capital position at 30 June 2016 is estimated2 Operating profit less interest costs and tax

GROUP OUTLOOK

In the second half of 2016 we will continue to focus on raising performance levels.

Markets will remain competitive. Our priority is to maintain underwriting discipline.

In the first half attritional loss ratios were better than our expectations, although flattered in Canada by around 1 point due to benign ‘indirect’ weather. We expect the pace of improvement to moderate during the second half of the year.

We expect further cost reductions in the second half.

We are on track for a strong underwriting improvement in 2016 overall, subject to volatile items in weather, large losses and prior year reserving.

Based on current forward1 yields and FX, we expect investment income of c.£350m for 2016.

At current foreign exchange rates there should be meaningful benefits to earnings reported in Sterling terms.

1 If current yields and FX were kept flat, instead of using forward rates, our guidance would be unchanged. A +/-5% movement in Sterling against all other currencies would move investment income by around +/-£10m.

BUSINESS REVIEW – INVESTMENT PERFORMANCE

Management basis

Investment result											H1 2016 £m					H1 2015 £m				Change %
Bonds											153					164				(7)
Equities											14					14				-
Cash and cash equivalents											6					14				(57)
Property											11					11				-
Other											3					3				-
Investment income											187					206				(9)
Investment expenses											(6)					(7)				14
Unwind of discount											(31)					(32)				3
Investment result											150					167				(10)
Balance sheet unrealised gains (pre-tax)											30 June 2016 (£m)					31 Dec 2015 (£m)				Change %
Bonds											715					414				727
Equities											3					(1)				-
Other											1					2				-
Total											719					415				733
Investment portfolio		Value 31 Dec 2015		Foreign exchange					Mark to market				Other movements								Value 30 Jun 2016
		£m		£m					£m				£m								£m
Government bonds		3,707		315					97				(111)								4,008
Non-Government bonds		7,405		543					133				57								8,138
Cash		816		76					-				389								1,281
Equities		159		31					15				(21)								184
Property		365		-					-				(28)								337
Prefs & CIVs		426		21					(5)				65								507
Other		100		14					-				(3)								111
Total		12,978		1,000					240				348								14,566
Split by currency:
Sterling		4,543																			4,972
Danish Krone		936																			1,070
Swedish Krona		2,207																			2,473
Canadian Dollar		2,706																			3,147
Euro		1,247																			1,425
Other		1,339																			1,479
Total		12,978																			14,566
Credit quality – bond portfolio					Non-government												Government
					30 June 2016 %		31 Dec 2015 %										30 June 2016 %						31 Dec 2015 %
AAA					32		33										56						89
AA					22		19										39						6
A					31		33										4						5
BBB					13		14										1						-
< BBB					2		1										-						-
Non rated					-		-										-						-
Total					100		100										100						100

INVESTMENT PERFORMANCE

Investment income of £187m (H1 2015: £206m) was offset by investment expenses of £6m (H1 2015: £7m) and the liability discount unwind of £31m (H1 2015: £32m). Investment income of £187m is slightly ahead of our expectations but down 9% on prior year, primarily reflecting the continued impact of the low bond yield environment and the sale of Latin America.

The annualised average book yield over the period on the total portfolio was 2.7% (H1 2015: 3.0%), with annualised average yield on the bond portfolios of 2.6% (H1 2015: 2.7%). The average reinvestment rate in the Group’s major bond portfolios over the first six months was approximately 1.5%.

Average duration of the Group’s bond portfolios is 4.2 years (31 December 2015: 4.0 years).

The investment portfolio grew by 12% during the first half to £14.6bn. The movement was driven primarily by the impact of weakening of Sterling, positive mark-to-market on bond holdings, and positive cash flow, including proceeds from completed disposals in the period.

At 30 June 2016, high quality widely diversified fixed income securities represented 83% of the portfolio (31 December 2015: 86%). Equities represented 1% (31 December 2015: 1%) and cash 9% of the total portfolio (31 December 2015: 6%). The increased cash allocation is due to timing and is expected to reverse in the second half.

The quality of the bond portfolio remains very high with 98% investment grade and 68% rated AA or above. We remain well diversified by sector and geography.

Unrealised bond gains and pull-to-par

Balance sheet unrealised gains of £719m (pre-tax) increased by £304m during the first half (31 December 2015: £415m) driven by lower bond yields and positive foreign exchange movements, partly offset by the pull-to-par of existing bonds.

During the first half of the year yield curves flattened and, therefore, we expect these gains to largely unwind over the next 4 years, based on current forward yields.

Outlook

Based on current forward1 bond yields and foreign exchange rates, it is estimated that investment income will be c.£350m for 2016 (of which c.£15m relates to Latin America, now disposed), c.£320m for 2017 and c.£300m for 2018. These projected income numbers are, however, sensitive to changes in market conditions. We expect discreet H2 2016 discount unwind of c.£27m post disposals and FX movements.

1 If current yields and FX were kept flat, instead of using forward rates, our guidance would be unchanged. A +/-5% movement in Sterling against all other currencies would move investment income by around +/-£10m.

REGIONAL REVIEW – SCANDINAVIA

Management basis

		Net written premiums										Change				Underwriting result
		H1 2016 £m				H1 2015 £m						Constant FX (%)				H1 2016 £m						H1 2015 £m
Split by country
Sweden		520				476						3				76						3
Denmark		371				380						(8)				17						8
Norway		74				93						(20)				3						5
Total Scandinavia		965				949						(4)				96						16
Split by class
Household		166				153						2				19						20
Personal Motor		176				183						(9)				49						34
Personal Accident & Other		158				145						3				7						(37)
Total Scandinavia Personal		500				481						(2)				75						17
Property		183				175						(2)				1						12
Liability		90				94						(10)				10						2
Commercial Motor		124				116						2				7						3
Marine & Other		68				83						(21)				3						(18)
Total Scandinavia Commercial		465				468						(6)				21						(1)
Total Scandinavia		965				949						(4)				96						16
Investment result																35						39
Scandinavia operating result																131						55
Operating Ratios (%)		Claims						Commission						Op Expenses						Combined
		H1‘16		H1‘15				H1‘16		H1‘15				H1‘16				H1‘15		H1‘16				H1‘15
Household																				87.4				85.5
Personal Motor																				69.5				78.5
Personal Accident & Other																				95.6				127.5
Total Scandinavia Personal		68.2		79.4				2.8		3.4				13.0				13.2		84.0				96.0
Property																				99.7				91.4
Liability																				84.7				96.7
Commercial Motor																				93.0				96.8
Marine & Other																				93.1				130.0
Total Scandinavia Commercial		72.3		76.8				3.0		3.6				19.0				19.9		94.3				100.3
Total Scandinavia		70.0		78.3				2.9		3.5				15.6				16.2		88.5				98.0
Of which:								5yr ave
Weather loss ratio		0.3		0.6				1.4
Large loss ratio		5.4		7.0				5.6
Current year attritional loss ratio		64.5		66.5
Prior year effect on loss ratio		(0.2)		4.2
YTD rate increases1 (%)		At June 2016						At March 2016						At Dec 2015						At Sept 2015
Personal Household		4						3						5						4
Personal Motor		3						2						3						3
Commercial Property		2						(1)						1						2
Commercial Liability		3						8						5						5
Commercial Motor		4						2						4						4

1 Rating increases reflect rate movements achieved for risks renewing in the year-to-date versus comparable risks renewing in the same period the previous year

SCANDINAVIA

The Scandinavian transformation programme has delivered well in the first half, with particular success in pricing sophistication improvements, process automation, online quote capabilities, and customer satisfaction. In Denmark we’ve seen positive development in customer ‘trust’ scores, and we’ve increased our engagement with low ‘trust’ score customers to gain fresh insights. We’re ranked 2nd for SME customer satisfaction in Denmark, and first for overall customer satisfaction in Norway. Our retention rates across the region have remained steady at almost 80%.

First half net written premiums were down 4% year-on-year at constant exchange, with rate increases of 3% and volume reductions of 7%.

Excluding the impact of the transfer of the Marine portfolio to the UK and the non-repeat of two large multi-year deals from H1 2015, underlying1 Scandinavian premiums were flat, reflecting slow market conditions overall.

The underwriting result was a profit of £96m (H1 2015: £16m) with a combined ratio of 88.5% (H1 2015: 98.0%). Underlying profitability improved significantly with the attritional loss ratio 2.0 points better at 64.5%.

Weather experience in the first half was relatively benign (c.1.1 points better than long term averages) whilst large losses were broadly in line with expectations.

The prior year result was a profit of £2m (H1 2015: £33m loss).

Total written controllable expenses were down 3% year-on-year (comprising 5% cost reduction, partly offset by 2% inflation).

Scandinavia – Outlook

We continue to expect the Scandinavian P&C markets to grow in line with local GDP growth and we target growth broadly in line with the market, subject to maintaining underwriting discipline.

Our focus remains on further improving the underlying performance of the business, particularly attritional loss ratios and cost improvements.

1 Underlying or alternative performance measure, refer to pgs 27-28 for further explanation.

REGIONAL REVIEW – CANADA

Management basis

		Net written premiums				Change		Underwriting result
		H1 2016 £m		H1 2015 £m		Constant FX (%)		H1 2016 £m		H1 2015 £m
Household		168		173		(2)		21		24
Personal Motor		252		274		(6)		28		17
Total Canada Personal		420		447		(5)		49		41
Property		73		73		1		(16)		-
Liability		44		48		(6)		(2)		8
Commercial Motor		51		46		11		5		4
Marine & Other		21		23		(5)		1		3
Total Canada Commercial		189		190		1		(12)		15
Total Canada		609		637		(3)		37		56
Investment result								32		36
Canada operating result								69		92

Operating Ratios (%)		Claims				Commission				Op Expense				Combined
		H1‘16		H1‘15		H1‘16		H1‘15		H1‘16		H1‘15		H1‘16		H1‘15
Household														90.1		89.1
Personal Motor														89.1		94.2
Total Canada Personal		61.5		65.6		11.4		11.1		16.6		15.4		89.5		92.1
Property														118.5		99.8
Liability														104.4		85.9
Commercial Motor														88.8		90.0
Marine & Other														95.5		87.1
Total Canada Commercial		69.7		56.5		18.0		18.2		18.2		18.3		105.9		93.0
Total Canada		64.0		62.9		13.4		13.2		17.1		16.2		94.5		92.3
Of which:						5yr ave
Weather loss ratio		6.6		2.7		4.3
Large loss ratio		6.3		5.8		3.6
Current year attritional loss ratio		57.1		61.2
Prior year effect on loss ratio		(6.0)		(6.8)
YTD rate increases1 (%)		At June 2016				At March 2016				At Dec 2015				At Sept 2015
Personal Household		5				6				9				9
Personal Motor		-				-				(1)				(1)
Commercial Property		2				2				3				3
Commercial Liability		2				2				2				2
Commercial Motor		1				-				1				1

1 Rating increases reflect rate movements achieved for risks renewing in the year-to-date versus comparable risks renewing in the same period the previous year

CANADA

Our transformation programme in Canada has progressed well in the first half, delivering customer retention actions, deployment of new pricing tools, process simplification, and the implementation of the Guidewire claims system proceeding as planned.

We have been working hard to enhance our Customer offering. In Johnson our service and sales metrics have been outperforming benchmarks. Online quotes are up nearly ten-fold year-on-year. In our broker distributed businesses, faster response times and new digital tools are being offered with promising early results. Customer retention rates have improved by 3pts year-on-year to 84%.

First half net written premiums were down 3% year-on-year at constant exchange, with rate increases of 1% and volume reductions of 4%.

The portfolio actions of the last two years are now complete. However, conditions remain competitive, particularly in the Commercial Broker channel. Our priority is underwriting discipline, and we continue to see good rate increases in Household, flat rate in Personal Motor following a period of rate reductions, and consistent low single digit price rises in Commercial.

The underwriting result was a profit of £37m (H1 2015: £56m) with a combined ratio of 94.5% (H1 2015: 92.3%). Underlying profitability improved significantly with the attritional loss ratio 4.1 points better at 57.1%, although this benefited by around 1 point from benign ‘indirect’ weather experience.

The first half was impacted by the Alberta wildfires, the largest natural catastrophe in Canadian history. Our reinsurance programme limited our exposure to a net claims cost of CAD$75m/£39m. The weather ratio was therefore elevated at 6.6% (c.2.3 points worse than long term averages). Large losses were 6.3% driven by a higher than expected level of large claims in Commercial.

The prior year result was a profit of £39m (H1 2015: £49m).

Total written controllable expenses were down 1% year-on-year (comprising 2% cost reduction, partly offset by 1% inflation).

Canada – Outlook

In the second half of 2016 we expect premium reductions to moderate slightly, although we will continue to prioritise underwriting discipline.

We expect the attritional loss ratio improvement seen in the first half (which partly benefited from benign ‘attritional weather’) to moderate in the remainder of 2016.

Our focus continues to be on operational improvement (in underwriting, claims, technology and process simplification) and cost reduction.

REGIONAL REVIEW – UK

Management basis

		Net written premiums				Change		Underwriting result
		H1 2016 £m		H1 2015 £m		Constant FX (%)		H1 2016 £m		H1 2015 £m
Household		248		271		(8)		26		53
Personal Motor		110		127		(13)		(11)		(18)
Pet		138		138		-		(1)		1
Total UK Personal		496		536		(7)		14		36
Property		318		324		(3)		42		54
Liability		155		153		1		12		(12)
Commercial Motor		131		116		13		(2)		2
Marine & Other		175		153		14		10		(3)
Total UK Commercial		779		746		4		62		41
Total UK		1,275		1,282		(1)		76		77
Investment result								68		67
UK operating result								144		144

Operating Ratios (%)		Claims				Commission				Op Expenses				Combined
		H1‘16		H1‘15		H1‘16		H1‘15		H1‘16		H1‘15		H1‘16		H1‘15
Household														91.0		83.0
Personal Motor														109.7		113.6
Pet														100.7		99.5
Total UK Personal		59.9		56.5		21.5		22.0		16.1		15.3		97.5		93.8
Property														86.8		82.4
Liability														91.8		108.0
Commercial Motor														101.6		99.0
Marine & Other														93.8		102.4
Total UK Commercial		59.8		63.2		20.1		19.1		12.3		12.5		92.2		94.8
Total UK		59.8		60.4		20.7		20.3		13.9		13.7		94.4		94.4
Of which:						5yr ave
Weather loss ratio		4.3		1.1		3.6
Large loss ratio		12.2		11.6		13.6
Current year attritional loss ratio		46.5		48.7
Prior year effect on loss ratio		(3.2)		(1.0)
YTD rate increases1 (%)		At June 2016				At March 2016				At Dec 2015				At Sept 2015
Personal Household		1				-				1				1
Personal Motor		9				9				5				4
Commercial Property		-				(2)				(1)				-
Commercial Liability		-				(1)				2				1
Commercial Motor		5				4				2				2

1 Rating increases reflect rate movements achieved for risks renewing in the year-to-date versus comparable risks renewing in the same period the previous year

UK

In the first half, our transformation agenda in the UK has seen the delivery of process simplification, site closures, deployment of new pricing tools, and the successful transition of IT infrastructure to our new provider.

We have been making good progress on our Customer initiatives. We’ve seen improving net promotor scores (NPS) in Commercial and Personal (MORE TH>N). In Commercial we’ve now taken our NPS from -26 in 2012 to +38 at H1 2016, with steady improvements each year. Customer ‘journeys’ are being re-modelled in Personal and our Commercial salesforce strengthened. UK retention rates have remained steady at around 80%.

First half net written premiums were down 1% year-on-year at constant exchange, with rate increases of 2% and volume reductions of 3%.

Excluding the impact of our decision last August to exit Personal Broker Motor and the transfer in of the Scandinavian Marine portfolio, underlying1 UK premiums were flat (with underlying Personal premiums down 3% and underlying Commercial premiums up 2%).

Household reductions mainly reflect our decision to exit certain unprofitable schemes. Personal Motor premiums reflect our exit of Broker business; excluding this premiums were up 10% driven by strong growth in Telematics. Pet premiums were flat despite competitive market conditions.

In Commercial, Property was down 3% due to a disciplined underwriting approach in Regions and Delegated Business, with Motor up 13% due to increased new business in SME, higher volumes in Motability and rate increases of 5% across the portfolio. Marine premiums were driven by the transfer in of the Scandinavian Marine business (£16m).

The underwriting profit was £76m (H1 2015: £77m) with a combined ratio of 94.4% (H1 2015: 94.4%). Underlying profitability was strong with the attritional loss ratio 2.2 points better at 46.5%.

Household and Property were impacted by the flash floods in the UK and Europe in June (£35m). The overall UK weather ratio was therefore elevated at 4.3% (c.0.7 points worse than long term averages).

Commercial profitability was particularly good with an underwriting profit of £62m and combined ratio of 92.2%, with a return to profitability in Liability and positive prior year development in Marine.

The prior year result was a profit of £35m (H1 2015: £18m), helped by £14m of positive development from the December 2015 storm events. Excluding this, the prior year result was broadly flat.

Total written controllable expenses were down 2% year-on-year (comprising 4% cost reduction, partly offset by 2% inflation).

UK – Outlook

We expect underlying premium trends to continue into the second half of 2016, with a continued focus on underwriting discipline.

Our focus continues to be on the delivery of our transformation plans, including further underwriting improvements and cost reduction.

1 Underlying or alternative performance measure, refer to pgs 27-28 for further explanation.

REGIONAL REVIEW – IRELAND

Management basis

		Net written premiums				Change		Underwriting result
		H1 2016 £m		H1 2015 £m		Constant FX (%)		H1 2016 £m		H1 2015 £m
Personal		90		78		8		-		(9)
Commercial		61		52		15		(1)		(7)
Total Ireland		151		130		11		(1)		(16)
Investment result								4		5
Ireland operating result								3		(11)

Operating Ratios (%)		Claims				Commission				Op Expenses				Combined
		H1‘16		H1‘15		H1‘16		H1‘15		H1‘16		H1‘15		H1‘16		H1‘15
Personal														99.7		110.1
Commercial														102.3		114.9
Total Ireland		76.8		85.3		11.4		12.6		12.5		13.9		100.7		111.8
Of which:						5yr ave
Weather loss ratio		-		-		4.3
Large loss ratio		4.8		2.1		3.8
Current year attritional loss ratio		65.3		81.5
Prior year effect on loss ratio		6.7		1.7
YTD rate increases1 (%)		At June 2016				At March 2016				At Dec 2015				At Sept 2015
Personal Household		14				14				1				1
Personal Motor		35				37				19				19
Commercial Property		2				1				1				2
Commercial Liability		22				21				13				12
Commercial Motor		25				18				14				15

1 Rating increases reflect rate movements achieved for risks renewing in the year-to-date versus comparable risks renewing in the same period the previous year

IRELAND

In the first half, our transformation and simplification agenda in Ireland has seen the opening of a new operations centre, technology upgrades, further progress on cost reduction, and the exits of non-performing portfolios.

We also reviewed the strength of our customer orientation during the first half, in order to develop plans to enhance our customer franchise. The strategy will centre around simple products and processes which are easy for our customers to navigate, together with digital and operational excellence. Customer retention rates held up well in the first half, at around 75% overall, notwithstanding the need to continue to prioritise rate.

First half net written premiums were up 11% year-on-year at constant exchange, with rate increases of 18% and volume reductions of 7%. Premiums were up strongly in both Personal and Commercial lines driven by the strong rate increases.

The underwriting loss was £1m (H1 2015: £16m loss) with a combined ratio of 100.7% (H1 2015: 111.8%), and included a current year profit £9m and a prior year loss of £10m.

Importantly, the business delivered a current year combined ratio of 93.8% with the attritional loss ratio 16.2 points better at 65.3%. The business also returned to operating profit in the first half.

Total written controllable expenses were down 12% year-on-year (comprising 14% cost reduction, partly offset by 2% inflation).

Ireland - Outlook

We expect underlying premium trends to continue into the second half of 2016. The challenging market environment, in particular for claims inflation, demands that securing adequate rate remains a key focus area for the business. The delivery of our ongoing transformation plans is also a priority, including those relating to underwriting and pricing excellence, and cost reduction.

DISCONTINUED & NON-CORE OPERATIONS

		Net written premiums				Underwriting result
		H1 2016 £m		H1 2015 £m		H1 2016 £m		H1 2015 £m
Latin America1		125		333		-		(2)
Middle East2		93		105		7		1
UK Legacy2		-		2		(5)		(14)
Other1, 3		-		111		-		8
Total Discontinued & Non-Core		218		551		2		(7)

1 Discontinued.2 Non-core.3 Includes Hong Kong, Singapore, China, India, Italy, UK Engineering, and Russia.

Disposal programme

In 2014 we commenced a major disposal programme with the intention of focusing RSA on its strongest businesses. Significant progress has been made to date, as follows:

Completed disposals:

Baltics (Lithuania, Latvia, Estonia): announced 17 April 2014, completed 30 June 2014 Latvia, 31 October 2014 Lithuania and Estonia. Total proceeds: £215m. Gain on sale: £124m. Poland: announced 17 April 2014, completed 15 September 2014. Total proceeds: £74m. Gain on sale: £29m. Noraxis: announced 19 May 2014, completed 2 July 2014. Total proceeds: £220m. Gain on sale: £164m. Thailand associate: announced and completed 19 December 2014. Total proceeds: £37m. Gain on sale: £21m. Hong Kong & Singapore: announced 21 August 2014, completed 31 March 2015. Total proceeds: £123m. Gain on sale: £103m. China: announced 3 July 2014, completed 14 May 2015. Total proceeds: £69m. Gain on sale: £28m. India associate: announced 18 February 2015, completed 29 July 2015. Total proceeds: £46m. Gain on sale: £21m. Italy: announced 17 October 2014, completed 31 December 2015. Total proceeds: £18m. Gain on sale: £29m. UK Engineering Inspection: Completed 1 November 2015. Gain on sale: £2m. Russia: announced 9 December 2015, completed 29 January 2016. Total proceeds: £5m. Tangible gain on sale: £1m. Latin America: announced 8 September 2015, completed during H1 2016. Total proceeds: £432m. Tangible gain on sale: £139m.

Remaining non-core operations (which will not necessarily be disposed):

Middle East UK Legacy

UK Legacy

Our UK Legacy portfolio comprises exposure to asbestos and other long term liabilities arising from Employers’ and Public Liability policies written over the past 50 years. The UK Legacy underwriting result for H1 2016 was a loss of £5m (H1 2015: £14m loss) primarily reflecting operating expenses incurred.

APPENDIX

UNDERLYING AND ALTERNATIVE PERFORMANCE MEASURES

The Group uses alternative performance measures, including certain underlying measures, to help explain business performance and financial position. Where not defined in the body of this announcement, further information is set out below.

Note 7 on pages 47-49 of the condensed consolidated financial statements presents a reconciliation of the Management basis to Statutory income statement.

Underlying Core Group premiums

Underlying growth rates exclude Group Re, and have been calculated by adjusting Scandinavian H1 2015 premiums downwards by £26m for the non-repeat of two large multi-year deals; UK H1 2015 premiums downwards by £27m for the exit of Personal Broker Motor; and reversing the transfer of Marine from Scandinavia to the UK in H1 2016 (£16m).

Combined operating ratio

The Group’s combined operating ratio (COR) is calculated on an ‘earned’ basis as follows:

COR = loss ratio + commission ratio + expense ratio

Where:

Loss ratio = net incurred claims / net earned premiums

Commission ratio = commissions / net earned premiums

Expense ratio = operating expenses / net earned premiums

Underlying profit before tax

Underlying profit before tax is calculated as operating profit less interest costs.

Underlying Core Group tax rate

The underlying Core Group tax rate mainly comprises the local statutory tax rates in our territories applied to underlying regional profits (operating profits less interest costs).

Net asset value and tangible net asset value per share

Net asset value per share data at 30 June 2016 was based on total shareholders’ funds of £4,136m, adjusted by £125m for preference shares. Tangible net asset value per share was based on a tangible book value of £3,324m (equal to shareholders’ funds of £4,136m, less goodwill & intangible assets of £687m, less £125m preference share capital).

Earnings per share

The earnings per share (EPS) is calculated using the result attributable to the ordinary shareholders of the Parent Company and the weighted average number of shares in issue during the period. On a basic and diluted basis these were 1,017,522k and 1,021,501k respectively (net of RSA owned shares). The number of shares in issue at 30 June 2016 was 1,019,108k (net of RSA owned shares).

Headline EPS uses profit attributable to ordinary shareholders (profit after tax less non-controlling interests and preference share dividends). Underlying EPS uses an underlying profit measure calculated as operating profit less interest costs taxed at an underlying tax rate of 26% for H1 2016, less non-controlling interests and preference share dividends.

Controllable costs

Total controllable costs are stated on a ‘written’ basis, and include underwriting operating expenses, claims expenses, investment expenses, central expenses, and Solvency II costs.

Current year underwriting result

The profit or loss earned from business for which protection has been provided in the current financial period.

Prior year underwriting result

The profit or loss arising from settling claims incurred in previous years at a better or worse level than the previous estimated costs.

‘Record’ underwriting performance

Record H1 Group underwriting profit and combined ratio considers the H1 periods for 2006-2016. In order to compare on a ‘like-for-like’ basis, historical periods have been adjusted for central expense reallocation changes made in 2015, Scandinavian discount rate changes made in 2014, and IAS 19 pension net interest cost changes made in 2012. In the case of the expense reallocations and IAS 19 changes, the restatement value applied in the year of change has been applied to all preceding years back to 2006.

Record H1 Group current year underwriting profit considers stated current year underwriting profits for 2006-16.

Return on equity and tangible equity

				H1 2016		H1 2015
				£m		£m
		Profit after tax		91		215
		Less: non-controlling interest		(6)		(3)
		Less: preference dividend		(5)		(5)
A		Profit attributable to ordinary shareholders		80		207
		Operating profit before tax		312		259
		Less: interest costs		(54)		(54)
		Underlying profit before tax		258		205
		Less: tax1		(67)		(57)
		Less: non-controlling interest		(6)		(3)
		Less: preference dividend		(5)		(5)
B		Underlying profit after tax attributable to ordinary shareholders		180		140
		Opening shareholders’ funds		3,642		3,825
		Less: preference share capital		(125)		(125)
C		Opening ordinary shareholders’ funds		3,517		3,700
		Less: goodwill & intangibles		(679)		(800)
D		Opening tangible ordinary shareholders’ funds		2,838		2,900
		Return on equity (annualised)
(2xA)/C		Reported		4.6%		11.2%
(2xB)/C		Underlying		10.3%		7.6%
		Return on tangible equity (annualised)
(2xA)/D		Reported		5.7%		14.3%
(2xB)/D		Underlying		12.8%		9.7%

1 Using underlying assumed tax rate of 26% in H1 2016 and 28% in H1 2015

We expect the underlying assumed tax rate to continue to fall next year to a rate broadly in line with the statutory tax rates in our Core territories.

CAPITAL

Solvency II approach

Internal Model approval received on 5 December 2015. Fully consolidated Internal Model tailored to RSA’s risk profile (benefiting from having been part of the PRA’s ICA regime for the past 11 years). The SCR (Solvency Capital Requirement) represents the Value-at-Risk of basic own funds subject to a confidence level of 99.5 % over a one-year period. Covers existing business and all new business expected to be written over the next 12 months. No transitional measures utilised, except for grandfathering of debt.

Target operating range

We maintain a measured approach to capital management, targeting a single ‘A’ capital rating. This involves considering a range of indicators relating to capital, to operating results, and to qualitative factors. RSA is a diversified, multi-channel, multi-product general insurer and its business mix reduces exposure to significant volatility. However, the UK pension scheme provides a degree of IAS 19 volatility under Solvency II for RSA. As Solvency II beds in across the industry, we will assess target coverage ratios. But based on current knowledge, we consider a target operating range of 130-160% to be appropriate for the Group’s risk profile. Our previous guidance with respect to tangible net assets : premium ratio is superseded by Solvency II but will continue to be a comparative tool we analyse.

Reconciliation of IFRS total capital to Eligible Own Funds

		30 June 2016
		£bn
Shareholders’ funds (incl. preference shares)		4.1
Loan capital		1.3
Non-controlling interests		0.1
Total IFRS capital		5.5
Less: goodwill & intangibles		(0.7)
Adjust technical provisions to SII basis		(0.9)
Basic Own Funds		3.9
Tiering & availability restrictions		(0.8)
Forseeable dividends		(0.1)
Eligible Own Funds		3.0

PENSIONS

The table below provides a reconciliation of the movement in the Group’s pension fund position under IAS 19 (net of tax) from 1 January 2016 to 30 June 2016.

			UK		non-UK		Group
			£m		£m		£m
Pension fund surplus/(deficit) at 1 January 2016			117		(53)		64
Actuarial gains/(losses)1			5		(27)		(22)
Deficit funding			53		-		53
Other movements2			13		(11)		2
Pension fund surplus/(deficit) at 30 June 2016			188		(91)		97

At an aggregate level the pension fund surplus under IAS 19 improved during the first half year from £64m to £97m.

The UK position improved by £71m driven largely by the annual deficit repair contribution (£65m gross of tax). The UK schemes are broadly hedged for interest rate and inflation movements. Other market movements, equities and credit spreads in particular, were broadly flat over the first half.

The non-UK schemes deficit deteriorated by £38m in the first half, mainly driven by market movements, in particular yields and foreign exchange.

1 Actuarial gains/(losses) include pension investment expenses, variance against expected returns, change in actuarial assumptions and experience losses.2 Other movements include regular contributions, service/administration costs, expected returns and interest costs.

SEGMENTAL ANALYSIS

Management basis – 6 months ended 30 June 2015 (re-presented onto current segmental split)

		Scandinavia		Canada		UK		Ireland		Central functions		Total ‘non-core’1		Group H1 2015
		£m		£m		£m		£m		£m		£m		£m
Net Written Premiums		949		637		1,282		130		(106)		551		3,443
Net Earned Premiums		782		722		1,378		134		(6)		569		3,579
Net Incurred Claims		(613)		(454)		(832)		(114)		(14)		(329)		(2,356)
Commissions		(27)		(95)		(281)		(17)		(3)		(137)		(560)
Operating expenses		(126)		(117)		(188)		(19)		(2)		(110)		(562)
Underwriting result		16		56		77		(16)		(25)		(7)		101
Investment income		50		38		73		5		-		40		206
Investment expenses		(1)		(1)		(4)		-		-		(1)		(7)
Unwind of discount		(10)		(1)		(2)		-		-		(19)		(32)
Investment result		39		36		67		5		-		20		167
Central expenses		-		-		-		-		(9)		-		(9)
Operating result		55		92		144		(11)		(34)		13		259
Net gains/losses/exchange – tangible														128
Net gains/losses/exchange – intangible														41
Interest														(54)
Non-operating charges														(17)
Non-recurring charges														(69)
Profit before tax														288
Tax														(73)
Profit after tax														215
Underlying profit before tax2														205
Loss ratio (%)		78.3		62.9		60.4		85.3						65.8
Weather loss ratio		0.6		2.7		1.1		-						1.7
Large loss ratio		7.0		5.8		11.6		2.1						7.7
Current year attritional loss ratio		66.5		61.2		48.7		81.5						57.1
Prior year effect on loss ratio		4.2		(6.8)		(1.0)		1.7						(0.7)
Commission ratio (%)		3.5		13.2		20.3		12.6						15.7
Expense ratio (%)		16.2		16.2		13.7		13.9						15.7
Combined ratio (%)		98.0		92.3		94.4		111.8						97.2

1 Total ‘non-core’ comprises discontinued operations of Italy, Hong Kong, Singapore, China, India, Russia and Latin America; and non-core continuing operations of UK Legacy and the Middle East.2 Underlying or alternative performance measure, refer to pgs 27-28 for further explanation.

COMBINED RATIO DETAIL

Core Group

£m unless stated		Current year				Prior year				H1‘16 total				Current year		Prior year		H1‘15 total
Net Written Premiums		1		3,026		7		3		13		3,029		2,892		-		2,892
Net Earned Premiums		2		3,001		8		(11)		14		2,990		3,016		(6)		3,010
Net Incurred Claims		3		(2,028)		9		74		15		(1,954)		(2,052)		25		(2,027)
Commissions		4		(406)		10		(4)		16		(410)		(429)		6		(423)
Operating expenses		5		(451)		11		(3)		17		(454)		(450)		(2)		(452)
Underwriting result		6		116		12		56		18		172		85		23		108
CY attritional claims		19		(1,645)										(1,746)
Weather claims		20		(107)										(45)
Large losses		21		(276)										(261)
Net incurred claims		22		(2,028)										(2,052)
Loss ratio (%)						=15 / 14				23		65.3						67.3
Weather loss ratio						=20 / 2				24		3.6						1.5
Large loss ratio						=21 / 2				25		9.2						8.6
Current year attritional loss ratio						=19 / 2				26		54.8						57.9
Prior year effect on loss ratio						=23 - 24 - 25 - 26				27		(2.3)						(0.7)
Commission ratio (%)						=16 / 14				28		13.8						14.1
Expense ratio (%)						=17 / 14				29		15.2						15.0
Combined ratio (%)						=23 + 28 + 29				30		94.3						96.4

Scandinavia

£m unless stated		Current year		Prior year		H1‘16 total		Current year		Prior year		H1‘15 total
Net Written Premiums		965		-		965		949		-		949
Net Earned Premiums		832		-		832		782		-		782
Net Incurred Claims		(584)		2		(582)		(580)		(33)		(613)
Commissions		(24)		-		(24)		(27)		-		(27)
Operating expenses		(130)		-		(130)		(126)		-		(126)
Underwriting result		94		2		96		49		(33)		16
CY attritional claims		(537)						(521)
Weather claims		(2)						(4)
Large losses		(45)						(55)
Net incurred claims		(584)						(580)
Loss ratio (%)						70.0						78.3
Weather loss ratio						0.3						0.6
Large loss ratio						5.4						7.0
Current year attritional loss ratio						64.5						66.5
Prior year effect on loss ratio						(0.2)						4.2
Commission ratio (%)						2.9						3.5
Expense ratio (%)						15.6						16.2
Combined ratio (%)						88.5						98.0

COMBINED RATIO DETAIL

Canada

£m unless stated		Current year		Prior year		H1‘16 total		Current year		Prior year		H1‘15 total
Net Written Premiums		612		(3)		609		637		-		637
Net Earned Premiums		685		(3)		682		722		-		722
Net Incurred Claims		(479)		42		(437)		(503)		49		(454)
Commissions		(94)		3		(91)		(98)		3		(95)
Operating expenses		(114)		(3)		(117)		(114)		(3)		(117)
Underwriting result		(2)		39		37		7		49		56
CY attritional claims		(391)						(442)
Weather claims		(45)						(19)
Large losses		(43)						(42)
Net incurred claims		(479)						(503)
Loss ratio (%)						64.0						62.9
Weather loss ratio						6.6						2.7
Large loss ratio						6.3						5.8
Current year attritional loss ratio						57.1						61.2
Prior year effect on loss ratio						(6.0)						(6.8)
Commission ratio (%)						13.4						13.2
Expense ratio (%)						17.1						16.2
Combined ratio (%)						94.5						92.3

Total UK (excluding Legacy)

£m unless stated		Current year		Prior year		H1‘16 total		Current year		Prior year		H1‘15 total
Net Written Premiums		1,269		6		1,275		1,283		(1)		1,282
Net Earned Premiums		1,348		(1)		1,347		1,377		1		1,378
Net Incurred Claims		(849)		43		(806)		(845)		13		(832)
Commissions		(271)		(7)		(278)		(285)		4		(281)
Operating expenses		(187)		-		(187)		(188)		-		(188)
Underwriting result		41		35		76		59		18		77
CY attritional claims		(627)						(671)
Weather claims		(58)						(14)
Large losses		(164)						(160)
Net incurred claims		(849)						(845)
Loss ratio (%)						59.8						60.4
Weather loss ratio						4.3						1.1
Large loss ratio						12.2						11.6
Current year attritional loss ratio						46.5						48.7
Prior year effect on loss ratio						(3.2)						(1.0)
Commission ratio (%)						20.7						20.3
Expense ratio (%)						13.9						13.7
Combined ratio (%)						94.4						94.4

COMBINED RATIO DETAIL

UK Personal

£m unless stated		Current year		Prior year		H1‘16 total		Current year		Prior year		H1‘15 total
Net Written Premiums		496		-		496		536		-		536
Net Earned Premiums		553		-		553		582		-		582
Net Incurred Claims		(334)		3		(331)		(341)		13		(328)
Commissions		(119)		-		(119)		(126)		(2)		(128)
Operating expenses		(89)		-		(89)		(90)		-		(90)
Underwriting result		11		3		14		25		11		36
CY attritional claims		(282)						(307)
Weather claims		(33)						(11)
Large losses		(19)						(23)
Net incurred claims		(334)						(341)
Loss ratio (%)						59.9						56.5
Weather loss ratio						6.1						1.9
Large loss ratio						3.5						3.9
Current year attritional loss ratio						50.8						52.9
Prior year effect on loss ratio						(0.5)						(2.2)
Commission ratio (%)						21.5						22.0
Expense ratio (%)						16.1						15.3
Combined ratio (%)						97.5						93.8

UK Commercial

£m unless stated		Current year		Prior year		H1‘16 total		Current year		Prior year		H1‘15 total
Net Written Premiums		773		6		779		747		(1)		746
Net Earned Premiums		795		(1)		794		795		1		796
Net Incurred Claims		(515)		40		(475)		(504)		-		(504)
Commissions		(152)		(7)		(159)		(159)		6		(153)
Operating expenses		(98)		-		(98)		(98)		-		(98)
Underwriting result		30		32		62		34		7		41
CY attritional claims		(345)						(364)
Weather claims		(25)						(3)
Large losses		(145)						(137)
Net incurred claims		(515)						(504)
Loss ratio (%)						59.8						63.2
Weather loss ratio						3.0						0.4
Large loss ratio						18.2						17.3
Current year attritional loss ratio						43.6						45.6
Prior year effect on loss ratio						(5.0)						(0.1)
Commission ratio (%)						20.1						19.1
Expense ratio (%)						12.3						12.5
Combined ratio (%)						92.2						94.8

REPORTING AND DIVIDEND TIMETABLE

Reporting:
Q3 trading update		3 November 2016
Dividend:
Interim ordinary dividend for the period ended 30 June 2016
Announcement date		4 August 2016
Ex-dividend date		8 September 2016
Record date		9 September 2016
Dividend payment date		14 Oct 2016
2nd Preference Dividend
Announcement date		4 August 2016
Ex-dividend date		11 August 2016
Record date		12 August 2016
Dividend payment date		3 October 2016

Note: the scrip dividend alternative is not being offered for the 2016 interim ordinary dividend payment

Note: the interim ordinary dividend is conditional upon the directors being satisfied, in their absolute discretion, that the payment of the interim ordinary dividend would not breach any legal or regulatory requirements, including Solvency II regulatory capital requirements.

Enquiries:
Investors & analysts		Press
Rupert Taylor Rea		Hilary Douglas
Director of Investor Relations		Head of Media & Public Affairs
Tel: +44 (0) 20 7111 7140		Tel: +44 (0) 20 7111 7213
Email: rupert.taylorrea@gcc.rsagroup.com		Email: hilary.douglas@gcc.rsagroup.com
		Deepa Bose
		Media Relations Manager
		Tel: +44 (0) 20 7337 5710
		Email: deepa.x.bose@uk.rsagroup.com

Prior to publication, the information contained within this announcement was deemed to constitute inside information under the Market Abuse Regulations (EU) No 596/2014 (“MAR”).

Market soundings, as defined in MAR, were taken in respect of this announcement prior to its release with the result that certain persons became aware of inside information, as permitted by MAR. Those persons that received inside information in a market sounding are no longer in possession of inside information relating to the Company and its securities following this announcement.

Further information

A live webcast of the analyst presentation, including the question and answer session, will be broadcast on the website at 10:30am on 4 August 2016. A webcast and transcript of the call will be available via the company website (www.rsagroup.com).

Important disclaimer

This press release and the associated conference call may contain ‘forward-looking statements’ with respect to certain of the Group’s plans and its current goals and expectations relating to its future financial condition, performance, results, strategic initiatives and 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. These forward-looking statements are not guarantees of future performance. By their nature, all forward-looking statements are inherently predictive and speculative and involve risk and uncertainty because they relate to future events and circumstances which are beyond the Group’s control, including amongst other things, UK domestic and global economic business conditions, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities, the impact of competition, inflation, deflation, the timing impact and other uncertainties of future acquisitions or combinations within relevant industries, as well as the impact of tax and other legislation or regulations in the jurisdictions in which the Group and its affiliates operate. As a result, the Group’s actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in the Group’s forward-looking statements. Forward-looking statements in this press release are current only as of the date on which such statements are made. The Group undertakes no obligation to update any forward-looking statements, save in respect of any requirement under applicable law or regulation. Nothing in this press release shall be construed as a profit forecast.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Table of contents
		38
Primary Statements
Basis of Preparation and Significant Accounting Policies
1. Basis of preparation		43
2. Adoption of new and revised standards		43
3. Re-presentation of financial statements		43
Risk Management
4. Risk management		43
Significant transactions and events
5. Discontinued operations and disposals		44
6. Reorganisation costs		46
Notes to the Condensed Consolidated Income Statement and Condensed Consolidated Statement of Other Comprehensive Income
7. Operating segments		47
8. Earnings per share		49
9. Distributions paid and declared		50
Notes to the Condensed Consolidated Statement of Financial Position
10. Goodwill and intangible assets		51
11. Financial asset and fair value measurement		51
12. Cash and cash equivalents		55
13. Share capital		55
14. Retirement benefit obligations		56
15. Related party transactions		55
16. Results for the year 2015		56
17. Events after the reporting period		56
Appendix
A. Exchange rates		57
Responsibility Statement of the Directors in respect of the half-yearly financial report		58
Independent Review Report to RSA Insurance Group plc		59

CONDENSED CONSOLIDATED INCOME STATEMENT
STATUTORY BASIS
for the 6 month period ended 30 June 2016
																	(Reviewed)		(Reviewed)
																	6 months		6 months
																	30 June 2016		30 June 2015
																	£m		£m
											Notes								Re-presented1
Income
Gross written premiums																	3,726		3,712
Less: reinsurance premiums																	(647)		(705)
Net written premiums											7						3,079		3,007
	Change in the gross provision for unearned premiums																(169)		(254)
	Less: change in provision for unearned reinsurance premiums																174		375
Change in provision for unearned premiums																	5		121
Net earned premiums																	3,084		3,128
Net investment return																	144		228
Other operating income																	61		78
Total income																	3,289		3,434
Expenses
	Gross claims incurred																(2,420)		(2,219)
	Less: claims recoveries from reinsurers																408		106
Net claims																	(2,012)		(2,113)
Underwriting and policy acquisition costs																	(961)		(995)
Unwind of discount																	(32)		(25)
Other operating expenses																	(69)		(127)
Total expenses																	(3,074)		(3,260)
Finance costs																	(54)		(54)
Gains on disposals of businesses																	-		1
Profit before tax																	161		121
Income tax expense																	(36)		(54)
Profit/(loss) after tax from continuing operations																	125		67
(Loss)/ profit from discontinued operations, net of tax											5a						(34)		148
Profit for the period																	91		215
Attributable to:
Equity holders of the Parent Company																	85		212
Non-controlling interests																	6		3
																	91		215
Earnings per share on profit/(loss) attributable to the ordinary shareholders of the Parent Company:
Basic
From continuing operations											8						11.2p		5.8p
From discontinued operations											8						(3.3)p		14.6p
																	7.9p		20.4p
Diluted
From continuing operations											8						11.1p		5.8p
From discontinued operations											8						(3.3)p		14.5p
																	7.8p		20.3p
Ordinary dividend
Final paid in respect of prior year											9						7.0p		2.0p
Interim proposed/paid in respect of current year											9						5.0p		3.5p
The following explanatory notes form an integral part of these condensed consolidated financial statements.
1 For information about the re-presentation applied to these financial statements, please see note 3.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
STATUTORY BASIS
for the 6 months period ended 30 June 2016
																	(Reviewed)		(Reviewed)
																	6 months		6 months
																	30 June 2016		30 June 2015
																	£m		£m
										Note									Re-presented1
Profit for the period																	91		215
Items from continuing operations that may be reclassified to the income statement:
	Exchange gains/(losses) net of tax on translation of foreign operations																273		(126)
	Fair value gains/(losses) on available for sale financial assets net of tax																215		(147)
																	488		(273)
Items from continuing operations that will not be reclassified to the income statement:
	Pension - remeasurement of net defined benefit liability net of tax																(22)		26
																	(22)		26
Other comprehensive income/(expense) for the period from continuing operations																	466		(247)
Other comprehensive income/(expense) for the period from discontinued operations										5a							28		(61)
Total other comprehensive income/(expense) for the period																	494		(308)
Total comprehensive income/(expense) for the period from continuing operations																	591		(180)
Total comprehensive (expense)/income for the period from discontinued operations																	(6)		87
Total comprehensive income/(expense) for the period																	585		(93)
Attributable to:
Equity holders of the Parent Company
from continuing operations																	572		(182)
from discontinued operations																	(3)		88
																	569		(94)
Non-controlling interests
from continuing operations																	19		2
from discontinued operations																	(3)		(1)
																	16		1
																	585		(93)
The following explanatory notes form an integral part of these condensed consolidated financial statements.
1 For information about the re-presentation applied to these condensed financial statements, please see note 3.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
STATUTORY BASIS
for the 6 month period ended 30 June 2016
					(Reviewed)								(Reviewed)						(Reviewed)
					Share- holders' equity								Non-controlling interests						Total equity
			Note		£m								£m						£m
Balance at 1 January 2016					3,642								129						3,771
Total comprehensive income for the period
Profit for the period					85								6						91
Other comprehensive income for the period					484								10						494
					569								16						585
Transactions with owners of the Company
Contributions and distribution
Dividends			9		(76)								(2)						(78)
Shares issued for cash					4								-						4
Share based payments					8								-						8
Changes in shareholders' interests in subsidiaries					(11)								(5)						(16)
Total transactions with owners of the Company					(75)								(7)						(82)
Balance at 30 June 2016					4,136								138						4,274
Balance at 1 January 2015					3,825								108						3,933
Total comprehensive income for the period
Profit for the period					212								3						215
Other comprehensive income for the period					(306)								(2)						(308)
					(94)								1						(93)
Transactions with owners of the Company
Contribution and distribution
Dividends			9		(25)								(1)						(26)
Shares issued for cash					1								-						1
Share based payments					15								-						15
Changes in shareholders' interests in subsidiaries					-								16						16
Total transactions with owners of the Company					(9)								15						6
Balance at 30 June 2015					3,722								124						3,846
The following explanatory notes form an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
STATUTORY BASIS
as at 30 June 2016
															(Reviewed)						(Audited)
															30 June 2016						31 December 2015
										Notes					£m						£m
Assets
Goodwill and other intangible assets										10					687						616
Property and equipment															112						109
	Investment property														337						365
	Investments in associates														12						13
	Financial assets									11					12,948						11,797
Total investments															13,297						12,175
Reinsurers’ share of insurance contract liabilities															2,449						1,988
Insurance and reinsurance debtors															2,950						2,653
	Deferred tax assets														164						163
	Current tax assets														63						51
	Other debtors and other assets														758						693
Other assets															985						907
Cash and cash equivalents										12					1,281						816
															21,761						19,264
Assets held for sale and disposal groups										5b					10						1,347
Total assets															21,771						20,611
Equity and liabilities
Equity
Shareholders’ equity										13					4,136						3,642
Non-controlling interests															138						129
Total equity															4,274						3,771
Liabilities
Loan capital															1,261						1,254
Insurance contract liabilities															13,453						12,191
Insurance and reinsurance liabilities															1,118						945
Borrowings															-						11
	Deferred tax liabilities														48						40
	Current tax liabilities														23						31
	Provisions														329						261
	Other liabilities														1,265						1,017
Provisions and other liabilities															1,665						1,349
															17,497						15,750
Liabilities of disposal groups										5b					-						1,090
Total liabilities															17,497						16,840
Total equity and liabilities															21,771						20,611
The following explanatory notes form an integral part of these condensed consolidated financial statements.
The financial statements were approved on 3 August 2016 by the Board of Directors and are signed on its behalf by:
Scott Egan
Chief Financial Officer
CONDENSED CONSOLIDATED STATEMENT OF CASHFLOWS
STATUTORY BASIS
for the 6 month period ended 30 June 2016
																	(Reviewed)		(Reviewed)
																	6 months		6 months
																	30 June 2016		30 June 2015
																	£m		£m
								Note											Re-presented1
Cashflows from operating activities
Net profit for the year before tax from continuing operations																	161		121
Adjustments for non-cash movements in net profit for the period
Depreciation																	10		10
Amortisation and impairment of intangible assets																	40		40
Amortisation of available for sale investments																	35		32
Fair value gains/(losses) on disposal of financial assets																	26		(34)
Fair value (losses) on disposal of investment property																	-		(15)
Impairment charge on available for sale financial assets																	2		2
Foreign exchange (gain)/loss																	(68)		17
Other non-cash movements																	(121)		6
Changes in operating assets/liabilities
Loss and loss adjustment expenses																	(156)		(1)
Unearned premiums																	(12)		(128)
Movement in working capital																	321		345
Reclassification of investment income and interest paid																	(122)		(130)
Tax paid																	(63)		(60)
Dividend income																	15		14
Interest and other investment income																	159		166
Dividends received from associates																	1		-
Pension deficit funding																	(65)		(65)
Net cashflows from operating activities - continuing operations																	163		320
Net cashflows from operating activities - discontinued operations																	(9)		(51)
Cashflows from investing activities
Proceeds from sales or maturities of:
	Financial assets																2,085		1,740
	Investment property																28		-
	Investment in subsidiaries (net of cash disposed of)																2		-
Purchase of:
	Investment property																-		(1)
	Financial assets																(2,081)		(1,891)
	Investment in subsidiaries (net of cash acquired)																-		(20)
	Property and equipment																(18)		(6)
	Intangible assets																(45)		(22)
Net cashflows from investing activities - continuing operations																	(29)		(200)
Net cashflows from investing activities - discontinued operations2																	333		178
Cashflows from financing activities
Proceeds from issue of share capital																	4		1
Dividends paid to ordinary shareholders																	(71)		(20)
Dividends paid to preference shareholders																	(5)		(5)
Dividends paid to non-controlling interests																	(2)		(1)
Redemption of long term borrowings																	-		(299)
Interest paid																	(80)		(81)
Net cashflows from financing activities - continuing operations																	(154)		(405)
Net increase/(decrease) in cash and cash equivalents																	304		(158)
Cash and cash equivalents at beginning of the period																	902		1,135
Effect of exchange rate changes on cash and cash equivalents																	75		(46)
Cash and cash equivalents at end of the period								12									1,281		931

1 For information about the re-presentation applied to these condensed financial statements, please see note 3.2 Cash proceeds from the disposal of subsidiaries is presented net of £98m (30 June 2015: £19m) of cash balances in the subsidiaries

BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES

RSA Insurance Group plc (the ‘Company’) is a public limited company incorporated and domiciled in England and Wales. The Company through its subsidiaries and associates (together the ‘Group’ or ‘RSA’), provides personal and commercial insurance products to its global customer base, principally the UK & Ireland, Scandinavia and Canada.

1. BASIS OF PREPARATION

The annual financial statements are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The condensed consolidated financial information in this half yearly report has been prepared in accordance with International Accounting Standard 34 ‘Interim Financial Reporting’ (IAS 34), as adopted by the European Union, and the Disclosure and Transparency Rules of the Financial Conduct Authority.

The Board has reviewed the Group's ongoing financial commitments for the next twelve months and beyond. The Board's review included consideration of the Group's underwriting plans, projected regulatory capital surplus, diverse insurance risk profile, considerable undrawn financing facilities and highly liquid investment portfolio. As a result of this review, the directors have satisfied themselves that it is appropriate to prepare these financial statements on a going concern basis.

These condensed consolidated financial statements have been prepared by applying the accounting policies used in the Annual Report and Accounts 2015 (see note 16).

2. ADOPTION OF NEW AND REVISED STANDARDS

There are only a small number of narrow scope amendments arising from annual improvement projects that are applicable to the Group for the first time in 2016, none of which have had a significant impact of the condensed consolidated financial statements.

3. RE-PRESENTATION OF FINANCIAL STATEMENTS

During the second half of 2015, the Group reclassified a number of its businesses as held for sale when it became highly probable that their values would be recovered principally through sale rather than through continuing operations. Each of these sales has completed during the first six months of 2016. As these businesses each represented a separate geographical area of operation, they have been classified as discontinued operations (see note 5).

Accordingly, this has resulted in the re-presentation of the comparatives for the allocation of the profit after tax from continuing operations, the other comprehensive income, the earnings per share (‘EPS’) and diluted EPS between the amounts from continuing and discontinued operations.

RISK MANAGEMENT

4. RISK MANAGEMENT

The principal risks and uncertainties of the Group and the management of these risks have not materially changed since the year ended 31 December 2015.

The EU referendum result presents uncertainties to the financial markets and UK economic growth prospects. The risk to RSA is mitigated through non-Sterling profits earned outside of the UK and having separate regulated EU entities.

Details of the remaining principal risks and uncertainties can be found in the Annual Report and Accounts 2015; Risk Management information in Note 6 on pages 116 to 123 and the estimation techniques and uncertainties in the specific disclosures to which they relate.

SIGNIFICANT TRANSACTIONS AND EVENTS

5. DISCONTINUED OPERATIONS AND DISPOSALS

a) Discontinued operations

The Group classified the following operations as discontinued as they have been sold and represented a separate geographical area of operation.

Operation		Date of disposal		Acquirer
Hong Kong		31 March 2015		Allied World Assurance Company
Singapore		31 March 2015		Allied World Assurance Company
Labuan		12 May 2015		Allied World Assurance Company
China		14 May 2015		Swiss Re Corporate Solutions
Indian associate		29 July 2015		Sundaram Finance Ltd
Italy		31 December 2015		ITAS Mutua
Russia		29 January 2016		Joint Stock Insurance Company Blagosostoyanie
Brazil		29 February 2016		Suramericana S.A.
Colombia		31 March 2016		Suramericana S.A.
Chile		30 April 2016		Suramericana S.A.
Argentina		30 April 2016		Suramericana S.A.
Mexico		31 May 2016		Suramericana S.A.
Uruguay		30 June 2016		Suramericana S.A.

The revenue, expenses and related income tax expense in 2016 and 2015 (re-presented subsequent to the reported period to recognise operations reclassified as discontinued) relating to these discontinued operations is set out below.

DISCONTINUED INCOME STATEMENT
for the period ended 30 June 2016
												6 months					6 months
												30 June 2016					30 June 2015
										Note		£m					£m Re-presented1
Income
Gross written premiums												254					626
Less: reinsurance premiums												(86)					(190)
Net written premiums										7		168					436
	Change in the gross provision for unearned premiums											38					25
	Less: change in provision for unearned reinsurers premiums											(19)					(10)
Change in provision for unearned premiums												19					15
Net earned premiums												187					451
Net investment return												16					30
Total income												203					481
Expenses
	Gross claims incurred											(311)					(380)
	Less: claims recoveries from reinsurers											215					137
Net claims												(96)					(243)
Underwriting and policy acquisition costs												(88)					(201)
Unwind of discount												(5)					(7)
Other operating expenses												(7)					(3)
Total expenses												(196)					(454)
Profit from discontinued operations before tax												7					27
(Loss)/gain on disposal after tax										5c		(36)					139
(Loss)/profit before tax												(29)					166
Income tax expense												(5)					(18)
(Loss)/profit after tax												(34)					148
5. DISCONTINUED OPERATIONS AND DISPOSALS (CONTINUED)
DISCONTINUED STATEMENT OF COMPREHENSIVE INCOME
for the period ended 30 June 2016
													(Reviewed)				(Reviewed)
													6 months				6 months
													30 June 2016				30 June 2015
													£m				£m Re-presented1
(Loss)/profit for the period from discontinued operations net of tax													(34)				148
Items from discontinued operations that may be reclassified to the income statement:
	Exchange losses recycled on disposal of discontinued operations net of tax												(111)				(39)
	Exchange gains/(losses) net of tax												135				(18)
	Exchange losses on non-controlling interests net of tax												-				(1)
													24				(58)
	Fair value losses recycled on disposal of discontinued operations net of tax												(1)				-
	Fair value gains/(losses) on available for sale financial assets net of tax												3				(3)
													2				(3)
Items from discontinued operations that will not be reclassified to the income statement:
Movement in property revaluation, net of tax													2				-
Other comprehensive income/(expense) for the year from discontinued operations													28				(61)
Total comprehensive (expense)/income for the year from discontinued operations													(6)				87
1 For information about the re-presentation applied to these condensed financial statements, please see note 3.
b) Held for sale disposal groups
						30 June 2016				31 December 2015
						UK1		Total1		Latin America2					Russia2				Total2
						£m		£m		£m					£m				£m
Assets classified as held for sale:
Goodwill and intangibles						-		-		63					-				63
Property and equipment						10		10		21					-				21
Investments						-		-		380					-				380
Reinsurers’ share of insurance contract liabilities						-		-		237					-				237
Insurance and reinsurance debtors						-		-		468					1				469
Other debtors and other assets						-		-		77					3				80
Cash and cash equivalents						-		-		77					20				97
Total assets of disposal groups						10		10		1,323					24				1,347
Liabilities directly associated with assets classified as held for sale:
Insurance contract liabilities						-		-		699					12				711
Insurance and reinsurance liabilities						-		-		175					-				175
Provisions and other liabilities						-		-		200					4				204
Liabilities of disposal groups						-		-		1,074					16				1,090
Total net assets of disposal groups						10		10		249					8				257
1Prior to 30 June 2016, the UK acquired a £10m non-current asset from IBM as part of the transfer of infrastructure services to Wipro who in turn acquired the asset from RSA two weeks later on 9 July. These non-current assets have been classified as HFS as they meet the IFRS 5 requirement that non-current assets acquired exclusively with a view to their subsequent disposal should be reclassified as HFS.
2The sale of the Latin American and Russian businesses completed during the first half of 2016 (see note 5a).
5. DISCONTINUED OPERATIONS AND DISPOSALS (CONTINUED)
c) Discontinued operations disposed of during the period
			6 months ended 30 June 2016							6 months ended 30 June 2015
			Latin America			Russia		Total		Hong Kong, Singapore and Labuan					China				Total
			£m			£m		£m		£m					£m				£m
Consideration received			432			5	437			128					68				196
Less: transaction costs			(20)			(1)	(21)			(10)					(2)				(12)
Net proceeds from sales			412			4	416			118					66				184
Less: Carrying value of net assets disposed of1			(321)			(3)	(324)			(34)					(48)				(82)
Gains on sale before recycling of items from other comprehensive income			91			1	92			84					18				102
Recycle of items from other comprehensive income on disposals:
- Foreign currency translation reserve			(100)			(11)	(111)			28					10				38
- Unrealised loss on available for sale investments			(1)			-	(1)			-					-				-
(Loss)/profits on sales of discontinued operations before tax			(10)			(10)	(20)				112				28				140
Tax on disposal			(16)			-	(16)				-				(1)				(1)
(Loss)/profits on sales of discontinued operations after tax			(26)			(10)	(36)				112				27				139

1includes £98m (30 June 2015: £19m) of cash balances in the disposed businesses.

6. REORGANISATION COSTS

Reorganisation costs represent external and clearly identifiable internal costs that are necessarily incurred and directly attributable to the Group’s restructuring programme. The aim of the restructuring programme is to both reduce operating costs and improve profitability.

In the six months to 30 June 2016, the reorganisation costs of £70m included £15m in respect of redundancy and £55m in respect of other restructuring activities. The Group continues to expect 2016 to be the last major year of restructuring charges.

NOTES TO THE CONDENSED CONSOLIDATED INCOME STATEMENT AND CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME

7. OPERATING SEGMENTS

The Group’s operating segments are split between core and non-core businesses which is consistent with how the Group is managed.

These operating segments are based on geography and each is engaged in providing personal and commercial general insurance services. Central Functions is a separate operating segment and includes the Group’s internal reinsurance function and Group Corporate Centre.

Core businesses

The Group’s core businesses are Scandinavia, Canada, and UK & Ireland. These represent three separate operating segments, and the major geographical areas in which the Group continues to operate through established businesses in mature markets. Each operating segment is managed by a member of the Group Executive Committee who is directly accountable to the Group Chief Executive and Board of Directors, who together form the central decision making function in respect of the operating activities of the Group. The UK is the Group’s country of domicile and one of its principal markets.

Amounts attributable to Central Functions are also included within the core business results.

Non-core businesses

The Group’s non-core businesses comprise the Group’s UK legacy business and Middle East operation.

The results of the businesses in Latin America and Russia previously presented within core and non-core businesses respectively at 30 June 2015 have been re-presented as discontinued businesses in the comparative information (see note 5 for details).

Assessing segment performance

The Group uses the following key measures to assess the performance of its operating segments:

Net written premiums; Underwriting result; Combined operating ratio (‘COR’); Operating result.

Net written premiums is the key measure of revenue used in internal reporting.

Underwriting result, COR and Operating result are the key internal measures of profitability of the operating segments. The COR reflects the ratio of claims costs and expenses (including commission) to earned premiums, expressed as a percentage.

Transfers or transactions between segments are entered into under normal commercial terms and conditions that would also be available to unrelated third parties.

Impact of change in the discount rate

In 2016, there has been a reduction in the discount rate from 1.75% to 1.50% on certain classes of long tail insurance liabilities in Scandinavia. The impact is £6m presented as an economic assumption change on a management basis outside of the operating result. On an IFRS basis, the change in economic assumption is included within the unwind of discount heading on the Condensed Consolidated Income Statement.

7. OPERATING SEGMENTS (CONTINUED)
Segment revenue and results
Period ended 30 June 2016
		Core
										UK & Ireland
		Scandinavia				Canada				UK (excl. Legacy)				Ireland				Central Functions		Non-core		Continuing operations per income statement		Discontinued operations (note 5)		Total Group
		£m				£m				£m				£m				£m		£m		£m		£m		£m
Net written premiums		965				609				1,275				151				29		50		3,079		168		3,247
Underwriting result		96				37				76				(1)				(36)		(1)		171		3		174
Investment result		35				32				68				4				-		2		141		9		150
Central costs and other activities		-				-				-				-				(12)		-		(12)		-		(12)
Operating result (management basis)		131				69				144				3				(48)		1		300		12		312
Realised gains																						10		2		12
Unrealised (losses), impairments and foreign exchange																						(11)		-		(11)
Interest costs																						(54)		-		(54)
Amortisation of intangible assets																						(7)		-		(7)
Pension net interest and administration costs																						(2)		-		(2)
Solvency II costs																						(6)		-		(6)
Reorganisation costs																						(63)		(7)		(70)
Economic assumption changes																						(6)		-		(6)
Loss on disposal of businesses																						-		(20)		(20)
Profits before tax																						161		(13)		148
	Tax on operations																					(36)		(5)		(41)
	Tax on disposals of discontinued operations																					-		(16)		(16)
Profits after tax																				125				(34)		91
Combined operating ratio (%)		88.5%				94.5%				94.4%				100.7%												94.7%
7. OPERATING SEGMENTS (CONTINUED)
Segment revenue and results
Period ended 30 June 2015 – Re-presented
				Core
												UK & Ireland
				Scandinavia				Canada				UK (excl. Legacy)				Ireland		Central Functions		Non-core		Continuing operations per income statement		Discontinued operations (note 5)		Total Group
				£m				£m				£m				£m		£m		£m		£m		£m		£m
Net written premiums				949				637				1,282				130		(106)		115		3,007		436		3,443
Underwriting result				16				56				77				(16)		(25)		(14)		94		7		101
Investment result				39				36				67				5		-		1		148		19		167
Central costs and other activities				-				-				-				-		(9)		1		(8)		(1)		(9)
Operating result (management basis)				55				92				144				(11)		(34)		(12)		234		25		259
Realised gains																						21		3		24
Unrealised gains, impairments and foreign exchange																						2		2		4
Interest costs																						(54)		-		(54)
Amortisation of intangible assets																						(13)		(1)		(14)
Pension net interest and administration costs																						(3)		-		(3)
Solvency II costs																						(14)		-		(14)
Reorganisation costs																						(53)		(2)		(55)
Gains on disposal of businesses																						1		140		141
Profits before tax																						121		167		288
	Tax on operations																					(54)		(18)		(72)
	Tax on disposals of discontinued operations																							(1)		(1)
Profits after tax																				67				148		215
Combined operating ratio (%)				98.0%				92.3%				94.4%				111.8%										97.2%

8. EARNINGS PER SHARE

The earnings per ordinary share are calculated by reference to the profit/(loss) attributable to the ordinary shareholders and the weighted average number of shares in issue during the period. On a basic and diluted basis these were 1,017,521,731 and 1,021,500,912 respectively (excluding those held in Employee Stock Ownership Plan (ESOP) and Share Incentive Plan (SIP) trusts). The number of shares in issue at 30 June 2016 was 1,018,533,324 (excluding those held in ESOP and SIP trusts).

Basic earnings per share are calculated by dividing the profit attributable to the ordinary shareholders of the Parent Company by the weighted average number of ordinary shares in issue during the period, excluding ordinary shares purchased by various share trusts and held as own shares.

Diluted earnings per share are calculated by dividing the profit attributable to the ordinary shareholders of the Parent Company by the diluted weighted average number of ordinary shares in issue during the period, excluding ordinary shares purchased by various share trusts and held as own shares.

9. DISTRIBUTIONS PAID AND DECLARED
						30 June 2016		30 June 2015			30 June 2016				30 June 2015
						p		p			£m				£m
Ordinary dividend:
	Final paid in respect of prior year					7.0		2.0			71				20
Preference dividend											5				5
											76				25
Subsequent to 30 June 2016, the directors declared an interim dividend of 5.0p (30 June 2015: 3.5p) per ordinary share amounting to a total of £51m (2015: £36m). The proposed dividend will be paid on 14 October 2016 and accounted for in shareholders' equity as an appropriation of retained earnings in the year ending 31 December 2016.
NOTES TO THE CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
10. GOODWILL AND OTHER INTANGIBLE ASSETS
									30 June 2016				31 December 2015
									£m				£m
Goodwill									363				363
Intangible assets arising from acquired claims provisions									2				1
Externally acquired software									17				22
Internally generated software									228				204
Other									77				89
Total goodwill and other intangible assets									687				679
Less: Assets classified as held for sale									-				63
Carrying amount of goodwill net of held for sale									687				616
In the table above, other includes customer lists, renewal rights and acquired brands.

The following impairment charges and write-offs have been recognised in the period:
				30 June 2016		30 June 2015
				£m		£m
Other intangible asset write-offs				1		-
				1		-

The software impairment charge of £1m during the first half of 2016 was recognised within underwriting and policy acquisition costs.

11. FINANCIAL ASSETS AND FAIR VALUE MEASUREMENTS
Financial assets
		30 June 2016		31 December 2015
		£m		£m
Equity securities		691		585
Debt securities		12,146		11,488
Financial assets measured at fair value		12,837		12,073
Loans and receivables		111		100
Total financial assets		12,948		12,173
Less: Assets classified as held for sale
Debt securities		-		376
Total financial assets net of held for sale		12,948		11,797

11. FINANCIAL ASSETS AND FAIR VALUE MEASUREMENTS (CONTINUED)
The following table provides an analysis of financial instruments and other items that are measured subsequent to initial recognition at fair value as well as financial liabilities not measured at fair value, grouped into Levels 1 to 3. The table does not include financial assets and liabilities not measured at fair value if the carrying value is a reasonable approximation of fair value.
				Fair value hierarchy
				30 June 2016
				Level 1		Level 2		Level 3		Less: Assets of operations classified as held for sale		Total
				£m		£m		£m		£m		£m
Available for sale financial assets:
	Equity securities			306		-		355		-		661
	Debt securities			4,619		7,258		252		-		12,129
Financial assets at fair value through the income statement:
	Equity securities			-		-		30		-		30
	Debt securities			-		-		17		-		17
				4,925		7,258		654		-		12,837
Derivative assets:
	At fair value through the income statement			-		54		-		-		54
Total assets measured at fair value				4,925		7,312		654		-		12,891
Derivative liabilities:
	At fair value through the income statement			-		80		-		-		80
	Designated as hedging instruments			-		183		-		-		183
Total liabilities measured at fair value				-		263		-		-		263
Loan capital				-		1,353		9		-		1,362
Total value of liabilities not measured at fair value				-		1,353		9		-		1,362

During the first half of 2016, the Group re-evaluated the basis of valuation of certain investments. As a consequence, the Group transferred £1,053m of debt securities from a classification of Level 1 to a classification of Level 2.

11. FINANCIAL ASSETS AND FAIR VALUE MEASUREMENTS (CONTINUED)
				Fair value hierarchy
				31 December 2015
				Level 1		Level 2		Level 3		Less: Assets of operations classified as held for sale		Total
				£m		£m		£m		£m		£m
Available for sale financial assets:
	Equity securities			278		-		269		-		547
	Debt securities			6,988		4,331		154		376		11,097
Financial assets at fair value through the income statement:
	Equity securities			-		-		38		-		38
	Debt securities			-		-		15		-		15
				7,266		4,331		476		376		11,697
Derivative assets:
	At fair value through the income statement			-		31		-		-		31
	Designated as hedging instruments			-		7		-		-		7
Total assets measured at fair value				7,266		4,369		476		376		11,735
Derivative liabilities:
	At fair value through the income statement			-		42		-		-		42
	Designated as hedging instruments			-		47		-		-		47
Total liabilities measured at fair value				-		89		-		-		89
Loan capital				-		1,361		8		-		1,369
Fair value of liabilities not measured at fair value				-		1,361		8		-		1,369

During 2015, the Group re-evaluated the basis of valuation of certain investments. As a consequence during 2015 the Group transferred £3,369m of debt securities from a classification of Level 1 to a classification of Level 2.

Estimation of the fair value of assets and liabilities

Fair value is used to value a number of assets within the Statement of Financial Position and represents its market value at the reporting date.

Cash and cash equivalents, loans and receivables

For cash, loans and receivables, commercial paper, other assets, liabilities and accruals, their carrying amounts are considered to be as approximate fair values.

Derivative financial instruments

Derivative financial instruments are financial contracts whose fair value is determined on a market basis by reference to underlying interest rate, foreign exchange rate, equity or commodity instrument or indices.

Loan capital

The fair value measurement of the Group’s loan capital instruments, with the exception of the subordinated guaranteed US$ bonds, are based on pricing obtained from a range of financial intermediaries who base their valuations on recent transactions of the Group’s loan capital instruments and other observable market inputs such as applicable risk free rate and appropriate credit risk spreads.

The fair value measurement of the subordinated guaranteed US$ bonds is obtained from an indicative valuation based on the applicable risk free rate and appropriate credit risk spread.

Fair value hierarchy

Fair value for all assets and liabilities which are either measured or disclosed is determined based on available information and categorised according to a three-level fair value hierarchy as detailed below.

11. FINANCIAL ASSETS AND FAIR VALUE MEASUREMENTS (CONTINUED)

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 fair value measurements are those derived from data other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); Level 3 fair value measurements are those derived from valuation techniques that include significant inputs for the asset or liability valuation that are not based on observable market data (unobservable inputs).

A financial instrument is regarded as quoted in an active market (Level 1) if quoted prices for that financial instrument are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis. Where prices are available for a financial instrument but these instruments are not traded on an active market, the valuation is classified as a Level 2 valuation.

Quoted prices are not always available, or the asset may not be traded very often or not at all on a market. In these instances, the use of the following observable data is used to estimate the fair value of Level 2 assets and liabilities.

Quoted prices for similar assets or liabilities in active markets. Quoted prices for identical or similar assets or liabilities in markets that are not active. Inputs other than quoted prices that are observable for the asset or liability, for example Interest rates and yield curves observable at commonly quoted intervals; implied volatilities; credit spreads. Inputs that are derived principally from or corroborated by observable market data by correlation or other means ('market-corroborated inputs').

In limited circumstances, the Group uses input parameters that are not based on observable market data. Unobservable inputs are based on assumptions that are neither supported by prices from observable current market transactions for the same instrument nor based on available market data. In these cases, judgment is required to establish fair values. Valuations that require the significant use of unobservable data are considered Level 3 valuations.

A reconciliation of Level 3 fair value measurements of financial assets is shown in the table below. There are no Level 3 financial liabilities.

			Available for sale investments				Investments at fair value through the income statement
			Equity securities		Debt securities		Equity securities		Debt securities		Total
			£m		£m		£m		£m		£m
Level 3 financial assets at 1 January 2015			129		2		43		18		192
Total (losses) recognised in:
	Income statement		-		-		(7)		(1)		(8)
	Other comprehensive income		(4)		3		-		-		(1)
Purchases			152		149		7		14		322
Disposals			(4)		-		(5)		(17)		(26)
Exchange adjustment			(4)		-		-		1		(3)
Level 3 financial assets at 1 January 2016			269		154		38		15		476
Total gains/(losses) recognised in:
	Income statement		-		-		(1)		-		(1)
	Other comprehensive income		9		(4)		-		-		5
Purchases			62		95		3		-		160
Disposals			(1)		-		(10)		-		(11)
Exchange adjustment			16		7		-		2		25
Level 3 financial assets at 30 June 2016			355		252		30		17		654

The Group investments in financial assets classified at Level 3 in the hierarchy are primarily investments in various private fund structures investing in debt instruments where the valuation includes estimates of the credit spreads on the underlying holdings. The estimates of the credit spread are based upon market observable credit spreads for what are considered to be assets with similar credit risk. The aggregate value of these holdings included in the table above at 30 June 2016 is £627m (31 December 2015: £404m). An increase in the estimate of the credit spread of the underlying holdings of 100bps would result in a reduction in the fair value of these investments at 30 June 2016 of £25m (31 December 2015: £19m).

12. CASH AND CASH EQUIVALENTS

		30 June 2016		30 June 2015		31 December 2015
		£m		£m		£m
Cash and cash equivalents and bank overdrafts (as reported within the Condensed Consolidated Statement of Cashflows)		1,281		931		902
Add: Bank overdrafts reported in Borrowings		-		-		11
Total cash and cash equivalents		1,281		931		913
Less: cash and cash equivalents reported in assets held for sale		-		50		97
Total cash and cash equivalents (as reported in the Condensed Consolidated Statement of Financial Position)		1,281		881		816

13. SHARE CAPITAL

The issued share capital at 30 June 2016 consists of 1,019,108,046 ordinary shares of £1.00 each and 125,000,000 preference shares of £1.00 each (31 December 2015: 1,017,059,842 ordinary shares of £1.00 each and 125,000,000 preference shares of £1 each).

The issued share capital of the Parent Company is fully paid.

14. RETIREMENT BENEFIT OBLIGATIONS

The table below provides a reconciliation of the movement in the Group’s pension fund position under IAS 19 (net of tax) from 1 January 2016 to 30 June 2016.

		UK		Other		Group
		£m		£m		£m
Pension fund at 1 January 2016		117		(53)		64
Re-measurements1		5		(27)		(22)
Deficit funding		53		-		53
Other movements2		13		(11)		2
Pension fund at 30 June 2016		188		(91)		97
		UK		Other		Group
		£m		£m		£m
Pension fund at 1 January 2015		33		(105)		(72)
Re-measurements1		26		39		65
Deficit funding		52		-		52
Other movements2		6		13		19
Pension fund at 31 December 2015		117		(53)		64

1Re-measurements include investment expenses, variance against net interest, change in actuarial assumptions and experience losses.2Other movements include regular contributions, service/administration costs and net interest costs.

The Group’s IAS 19 pension position has improved during the first half of 2016 from a surplus of £64m to a surplus of £97m.

The UK pension position has improved by £71m during the first half of the year to a surplus of £188m. The movement in the period is driven by gains on scheme assets of £818m, contributions of £73m, experience gains of £26m, changes to actuarial assumptions of £(836)m and service costs of £(10)m.

A full actuarial review of the overseas pension positions will be carried out at the year end.

15. RELATED PARTY TRANSACTIONS

During the first half of 2016, no related party transactions took place that have materially affected the financial position or the results for the period. There have also been no changes in the nature of the related party transactions as disclosed in Note 16 on page 134 of the Annual Report and Accounts for the year ended 31 December 2015.

16. RESULTS FOR 2015

The financial information relating to the year ended 31 December 2015 and included in the condensed consolidated financial statements does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006, but has been abridged from the statutory accounts. The statutory accounts of RSA Insurance Group plc for the year ended 31 December 2015 have been delivered to the Registrar of Companies. The independent auditor’s report on the Group accounts for the year ended 31 December 2015 is unqualified, does not draw attention to any matters by way of emphasis and does not include a statement under section 498(2) or (3) of the Companies Act 2006.

17. EVENTS AFTER THE REPORTING PERIOD

On 7 July 2016, the Group bought back £200m of its holding of 9.375% Lower Tier 2 guaranteed subordinated step-up notes.

APPENDIX A: EXCHANGE RATES
Local currency/£		6 months 30 June 2016				6 months 30 June 2015				12 months ended 31 December 2015
		Average		Closing		Average		Closing		Average		Closing
Canadian Dollar		1.91		1.74		1.88		1.96		1.95		2.05
Danish Krone		9.57		8.98		10.18		10.53		10.27		10.13
Swedish Krona		11.95		11.38		12.75		13.01		12.88		12.47
Euro		1.28		1.21		1.37		1.41		1.38		1.36

RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE HALF-YEARLY FINANCIAL REPORT

We confirm that to the best of our knowledge:

The condensed set of financial statements has been prepared in accordance with IAS 34 ‘Interim Financial Reporting’ as adopted by the EU.

The interim management report includes a fair review of the information required by:

(a)DTR 4.2.7R of the Disclosure and Transparency Rules , being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b)DTR 4.2.8R of the Disclosure and Transparency Rules , being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

Signed on behalf of the Board

Stephen Hester					Scott Egan
Group Chief Executive					Chief Financial Officer
3 August 2016					3 August 2016

INDEPENDENT REVIEW REPORT TO RSA INSURANCE GROUP PLC

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2016 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated statement of changes in equity, the condensed consolidated statement of financial position, the condensed consolidated statement of cashflows and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the Disclosure and Transparency Rules (“the DTR”) of the UK’s Financial Conduct Authority (“the UK FCA”). Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.

Directors’ responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2016 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FCA.

Stuart Crispfor and on behalf of KPMG LLP

Chartered Accountants15 Canada SquareLondon, E14 5GL

3 August 2016

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