reGIonAL FootPrInt emerging markets operates across 21 developing insurance markets, spanning latin America, Asia and the middle east and central and eastern europe.
in 2009, we have experienced an unprecedented market environment where the impact of failures in the finance and banking markets have fuelled recession. in 2010, we will be celebrating 300 years of existence providing sustainable insurance services that, by pooling individual and business risks, benefit the economy and society as a whole. A key skill throughout has been our ability to measure and price risk. Some of the failures in banks have been caused by neglect of that capacity and a pattern over a period of years where a significant number of individuals have been able to take unsustainable personal benefits from short term business practices, producing consequences detrimental to society as a whole.
one of the consequences of the monetary effects of the bank rescue has been to reduce the returns available from long term secure investments, particularly government bonds, which we require to match and balance our long term liabilities. our overriding policy is to keep that balance but it has had the predicted impact on our year-on-year results. the management of our funds continues to have significant Board oversight.
While we welcome impending european regulatory changes, particularly relating to solvency, when linked with an over-cautious regulatory response, in-country “gold plating” and variations in interpretation these may
in our 300th year, there is cause for optimism, although significant uncertainties remain. We will continue to be watchful, diligent and hard working. We have good products in leading market positions and a strong global footprint. We are well placed therefore to exploit any small upturn that may occur and remain confident of delivering another excellent performance. this confidence is reflected in our recommendation of an increase in the final dividend to 5.33p, giving a total increase for 2009 of 7%.
our capital position remains strong and we have taken further action to de-risk our pension schemes in the uK and ireland.
PRogReSS AgAinSt Key StRAtegieS International continues to drive the Group forward and has again delivered an outstanding performance. Net written premiums are up by 8% to £3.2bn (in line with 2008 at constant exchange), reflecting continued action on rate, targeted growth and the benefit of new deals offsetting the impact of the downturn. The COR was an excellent 91.7% and International again contributed the majority of the Group’s underwriting result at £282m (2008: £262m).
Our strong balance sheet and reputation for technical excellence have proved crucial to us, as clients and brokers continue to put great importance on the security and quality of companies where they place business.
ReinSuRAnce RiSK The Group’s reinsurance strategy and appetite are recommended to the Board by the Board Risk Committee and published and disseminated via the Group reinsurance policy statement. The reinsurance team monitors and controls the Group’s reinsurance activity and has responsibility for the purchase of the worldwide programme of treaties. All major treaty purchases are analysed using various sophisticated modelling tools to ensure that the level of cover purchased is capital efficient and aligned with the Group risk appetite and strategy.
Annual Report and Accounts 2009 | RSA | 33 coRPoRAte ReSPonSiBility
Helping local communities forms a strong part of being a responsible business. It benefits those around us, helps build our reputation and motivates our employees.
It’s a solution that reduces pollution, keeps the city and businesses moving by keeping cars off the roads and helps thousands avoid an expensive fine.
8. John MAxwell Age 65. Appointed as a Non-Executive Director in July 2003, John is Chairman of the Remuneration Committee and a member of the Audit, Nomination and Investment Committees. John is a Director of London Finance and Investment Group plc and the Motor Sports Association. John’s previous roles include Executive Director of Prudential Group plc, Chairman of Dx Services plc (mail), Director of Provident Financial plc (financial services) and Homeserve plc (support services) and Director General of The Automobile Association Limited.
The Company may purchase any of its own shares (including any redeemable shares). An authority from ordinary shareholders for the Company to purchase up to 333,110,115 of its own ordinary shares (representing 10% of its issued share capital as at 16 March 2009) remained in force at 31 December 2009.
The Companies Act 2006 abolishes the requirement for a company to have an authorised share capital and the new articles of association proposed for adoption at the 2010 AGM reflect this. Directors will still be limited as to the number of shares they can at any time allot (save in respect of employee share schemes) and, as in previous years, authority to allot will be sought at the 2010 AGM.
rights and obligations attaching to shares The rights attaching to the ordinary shares and preference shares are set out in the Company’s Articles of Association (the ‘Articles’). Details of the rights and obligations attaching to shares as at 31 December 2009 are incorporated into this report by reference and are set out in note 18 on pages 110 to 112.
auditor Deloitte LLP (Deloitte) was appointed as auditor of the Company in 2007 and reappointed at each subsequent AGM. So far as each Director is aware, there is no relevant audit information (as defined in section 418(3) of the Companies Act 2006) of which the Company’s auditor is unaware, and each Director has taken all steps that he ought to have taken as a Director in order to make himself aware of, and to establish that the auditor is aware of, any relevant audit information.
Deloitte have confirmed their willingness to continue in office as auditor of the Company for the year ending 31 December 2010. A resolution for their reappointment will be proposed at the 2010 AGM.
This report sets out the Company’s approach to corporate governance in 2009. The report has been prepared in accordance with the Code of Best Practice set out in section 1 of the 2008 FRC Combined Code on Corporate Governance (the ‘Combined Code’) and sets out the extent of our compliance with the Combined Code.
notes: 1. In addition to attendance as above, Andy Haste and George Culmer regularly attend, by invitation, meetings of the Group Audit Committee. Andy Haste regularly attends meetings of the Remuneration Committee.
Any form of proxy sent by the Company to shareholders in relation to any general meeting must be delivered to the Company, whether in written or electronic form, not less than 48 hours before the time for holding the meeting (or, in the case of a poll taken otherwise than at or on the same day as the meeting, not less than 24 hours before the time appointed for the taking of the poll).
internal control The Board has overall responsibility for the Group’s internal control systems and for monitoring effectiveness. Implementation and maintenance of the internal control systems are the responsibility of the Executive Directors and senior management.
elements of remuneration Remuneration for Executive Directors in 2010 will consist of the four principal elements described in the table on page 54, of which only base salary is pensionable.
This structure is replicated for other members of the Executive Team. As an indication of the balance of remuneration, including long term incentives (LTIs), the charts on page 56 illustrate the remuneration attributable to the Executive Directors over the year excluding allowances and pension provision.
John Napier’s initial letter of appointment was effective 9 January 2003 and the term of his appointment was three years. At the beginning of 2006 it was extended until 31 December 2008, and was extended again with effect from 1 January 2009, until 31 December 2011.
opinion on other matters prescribed by the companies Act 2006 In our opinion: The part of the directors’ remuneration report to be audited has been • properly prepared in accordance with the Companies Act 2006 The information given in the directors’ report for the financial year • for which the financial statements are prepared is consistent with Group statements.
consolidation Subsidiaries Subsidiaries are entities over which the Group has the power to govern the financial and operating policies so as to obtain benefits from their activities, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.
Other intangible assets comprise renewal rights, customer lists, brands and other acquired identifiable non monetary assets without physical form.
Differences between the estimated cost and subsequent settlement of claims are recognised in the income statement in the year in which they are settled or in which the provisions for claims outstanding are re-estimated.
The insurance liabilities of an insurance company include the provision for unearned premiums and unexpired risks and the provision for outstanding claims. Unearned premiums and unexpired risks represent the amount of income set aside by the company to cover the cost of claims that may arise during the unexpired period of risk of insurance policies in force at the end of the reporting period. Outstanding claims represent the company’s estimate of the cost of settlement of claims that have occurred by the end of the reporting period but have not yet been finally settled.
Where possible, the Group adopts multiple techniques to estimate the required level of provisions. This assists in giving greater understanding of the trends inherent in the data being projected. The Group’s estimates of losses and loss expenses are reached after a review of several commonly accepted actuarial projection methodologies and a number of different bases to determine these provisions. These include methods based upon the following: The development of previously settled claims, where payments • to date are extrapolated for each prior year Estimates based upon a projection of claims numbers and average cost• Notified claims development, where notified claims to date for each year • are extrapolated based upon observed development of earlier years Expected loss ratios.•
Investment risk The Group is exposed to market risk and credit risk on its invested assets. Market risk includes the risk of potential losses from adverse movements in market rates and prices including interest rates, equity prices, property prices and foreign currency exchange rates. The Group’s exposure to market risks is controlled by the setting of investment limits in line with the Group’s risk appetite. From time to time the Group also makes use of derivative financial instruments to reduce exposure to adverse fluctuations in interest rates, foreign exchange rates and equity markets. The Group has strict controls over the use of derivative instruments.
In assessing credit risk in relation to reinsurance and investments, the Group takes into account a variety of factors, including credit rating. If any such rating changes, or is otherwise reassessed, this has potential implications for the related exposures.
In forming its collective judgment, the Committee considers this information as a whole.
credit risk Credit risk is the risk of loss of value of the financial assets due to counterparties failing to meet all or part of their obligations. The Board Risk Committee (BRC) is responsible for ensuring that the Board approved Group credit risk appetite is not exceeded, through the setting and imposition of Group policies, procedures and limits. In defining its risk appetite for credit risk the Group looks at exposures at both an aggregate and business unit level distinguishing between credit risks incurred as a result of offsetting insurance risks or operating in the insurance market (e.g. reinsurance credit risks and insurance operations credit risks) and credit risks incurred for the purposes of generating a return (e.g. invested assets credit risk).
Interest rate risk The fair value of the Group’s portfolio of fixed income securities is inversely correlated to changes in the market interest rates. Thus if interest rates fall, the fair value of the portfolio would tend to rise and vice versa as set out in the sensitivity analysis on page 92.
property price risk The Group’s portfolio of properties is subject to property price risk arising from changes in the market value of properties. Thus if the value of property falls so will the fair value of the portfolio as set out in the sensitivity analysis on page 92.
Krona £m £m £m £m £m £m movement in shareholders' equity at 31 december 2009 (82) 99 (31) 38 (24) 29 Movement in shareholders' equity at 31 December 2008 (68) 84 (26) 32 (39) 48
derivatives The Group may use derivative financial instruments for the purpose of reducing its exposure to adverse fluctuations in interest rates, foreign exchange rates and equity price risk. The Group does not use derivatives to leverage its exposure to markets and does not hold or issue derivative financial instruments for speculative purposes. Forward contracts are used to reduce the risk of adverse currency movements on certain forecast future cash transactions and for structural hedging. The policy on use of derivatives is approved by the BRC.
Regulatory solvency position The Group remains fully compliant with both the FSA’s risk based ICA methodology and Solvency I, which is used to calculate the Insurance Groups Directive (IGD) requirement.
The net investment return on equity and debt securities comprises the return on available for sale investments. The net investment return on derivatives represents the investment return on financial assets that the Group is required to classify as held for trading investments. The derivatives are used to provide an economic hedge for fair value changes of assets held within the investment portfolio.
Accumulated impairment net book amount at 31 december 2008 187 122 309
The Group’s portfolio of equity securities comprises ordinary shares and unit trusts of £987m (2008: £780m) and other equity instruments of £265m (2008: £160m). Other equity instruments include preference shares of £128m (2008: £97m) and collective investment vehicles primarily invested in cash and bond assets of £137m (2008: £63m). The performance of these assets is typically not expected to correlate strongly to the performance of ordinary shareholdings.
20. InSuRAnce contRAct lIAbIlItIeS contInued provision for losses and loss adjustment expenses The following changes have occurred in the provision for losses and loss adjustment expenses during the year: £m £m
Annual Report and Accounts 2009 | RSA | 117 22. boRRowInGS The Group’s borrowings of £295m (2008: £300m) primarily relate to loans from credit institutions under a repurchase agreement. Further information is contained in the risk management section.
The ultimate Parent Company of the Group is RSA Insurance Group plc which is incorporated in Great Britain and registered in England and Wales.
Graham Richardson (Senior Statutory Auditor) for and on behalf of deloitte llp Chartered Accountants and Statutory Auditors London, UK
RSA Insurance Group plc, domiciled in the United Kingdom is the ultimate Parent Company (‘the Company’) of the RSA group of companies. The principal activity of the Company is to hold investments in its subsidiaries and the receipt and payment of dividends.
The aggregate current and deferred tax relating to items that are credited to equity is £2m (2008: £2m).