In Asia and the Middle East we operate as RSA in China, Hong Kong, Singapore, UAE and Bahrain and we operate as Al Alamiya in Saudi Arabia and as Al Ahlia in Oman.
Looking ahead, our financial performance, our culture and the quality of our people means we are well positioned for further success.
The decision to recommend rebasing our dividend means more of the capital we generate can be employed to pursue growth opportunities in the medium term while still rewarding our shareholders. It is in the best interests of both the Company and shareholders and will help us achieve the targets we have set. We expect to be recommending a similar change in the interim dividend.
ACHIEVE MARKET LEADING PROFITABILITY IN MATURE MARKETS RSA has leading positions in large, mature, sophisticated markets. We have strong positions in the attractive markets of Canada and Scandinavia. These businesses have driven the profitability of the Group and we will continue to defend the strong positions they currently enjoy. At the same time we will continue to search for further opportunities for profitable growth, as we have done in Quebec with the acquisition of L’Union Canadienne. In Ireland, we have a great business which has significantly outperformed its competition over a number of years and in 2012 became the country’s leading insurer.
Acquisition costs were £20m (2011: £10m) and include the integration costs for our 2012 acquisitions in Canada and Argentina.
CAPITAL POSITION The Group has again maintained a strong and resilient capital position. Shareholders’ funds are £3,750m, marginally down from the start of the year, with profits after tax offset by the increase in the pension deficit, dividends paid and foreign exchange movements. Net asset value per share was 101p (2011: 104p). If we were to add back the dividends which we have paid to shareholders in the year, then net asset value per share would have increased by 5%.
PENSION FUND The pension deficit of £207m deteriorated by £67m over the year.
Despite this environment, we are confident that we will deliver our strategy together with strong underwriting profitability in 2013.
In June we announced the acquisition of L’Union Canadienne, a Quebec-based intermediated insurer mainly focused on Personal lines. This moved us from the eleventh to the fifth largest insurer in that province. Quebec is the second largest private insurance market in Canada, and the most profitable, with a stable regulatory environment and opportunities for future growth. The acquisition closed on 1 October, and integration is progressing according to plan.
UK Personal The impact of delivering against our strategy is evident, with premiums shrinking by 3% to £1.3bn due to a deliberate reduction in our Motor top line partly offset by growth in Home and Pet.
Ireland We are now Ireland’s largest general insurer, with net written premiums growing by 5% to £348m at constant exchange (down 1% as reported) driven by a strong performance from 123.ie and wins in Commercial. This compares to a 6% contraction in market premiums in 2012. With an underwriting result of £25m (2011: £24m) and a COR of 94.2% (2011: 92.6%), we outperformed the market in terms of growth and profitability.
NWP growth of 5% at constant exchange due to 123.ie and Commercial lines
Exposure and accumulation management tools to monitor and control exposures in higher risk areas.
The Group operates under a clear risk appetite set by the Board which is monitored at Group and regional level
Road Safety In 2012 we extended our work on road safety around the world. As a significant motor insurer, we are committed to making roads safer for all users.
Corporate Officer of Royal Dutch Shell plc and a member of the Shell Executive Committee.
Currently Group Chief Risk Officer, David joined the Group in June 2007 and was
The schedule of matters reserved for the Board and the terms of reference for each of the Board Committees were reviewed in the year and are available on the Company’s website www.rsagroup.com. Further details on the principal duties of each of the Board Committees can be found under Accountability commencing on page 43, in the Group Audit
Notes: 1. John Napier retired from the Board with effect from 31 December 2012.
3. Richard Houghton was appointed to the Board on 12 June 2012.
The Executive Directors of the Company, Simon Lee, Richard Houghton and Adrian Brown, do not hold outside Directorships of FTSE 100 (or any other listed) companies but would be allowed to have one such appointment, subject to the approval of the Chairman.
The Directors and shareholders by ordinary resolution may appoint a person who is willing to be a Director either to fill a casual vacancy or as an additional Director. In accordance with the Code, each Director will submit themselves for election or re-election, as appropriate, at each AGM. Resolutions to elect or re-elect Directors at the
2. Richard Houghton was appointed to the Committee with effect from 12 June 2012.
Reviewing risks facing the Group by type and region at each meeting
Underwriting & Claims Director and Regional Risk Directors are all regular attendees. The Committee Chairman may invite Directors, other executives of the Group or any external professional advisers to attend from time to time. The Chairman, Martin Scicluna, was appointed to the Committee with effect from 8 February 2013. With effect from 1 March 2013 Edward Lea and Alastair Barbour will become members of this Committee, with Edward Lea succeeding Noel
The BRC oversees and challenges the results of stress and scenario tests carried out by the Group Risk team and the business. These tests are carried out each year with the involvement of senior executives to assess the Group’s resilience in relation to extreme but plausible events that could have a material impact on the Group. The aim is to enable management and the BRC to better understand the dynamics of the
During the year, the BRC has received regular updates from the
Trustee. The Trustees may vote in respect of any shares held in the
The Directors’ responsibility statement appears on page 74 and is incorporated by reference into this Report.
The activities and effectiveness of the GIA are monitored and reviewed by the GAC. The GAC is responsible for ensuring that adequate access to information and resource is given to the Group Chief Auditor and for approving the appointment to and removal of the holder from, that position. In September 2012, Caroline Ramsay was appointed as
The current reporting framework delivers information to monitor the systems of internal control and to review their effectiveness as required by the Code. The Board therefore considers that an ongoing process for identifying, evaluating and managing the significant risks faced by the
Mr Houghton did not receive any sign-on payments or buyouts; however, his RSA bonus award was calculated according to the Group’s performance in 2012 and was not pro-rated for time. The Committee made this decision to ensure that he was covered by a bonus arrangement for the full financial year. Shortly after his appointment, he received an award of performance shares in the LTIP equal to 150% of his salary; the inclusion of new senior hires in the LTIP is normal practice.
Chairman, John Napier, retired from the Board on 31 December 2012 and he is succeeded by Martin Scicluna who commenced on 1 January 2013. Lastly, I was delighted to join RSA as a Non-Executive Director
Adrian Brown, Chief Executive: UK and Western Europe and a director of the Company, will be incentivised against regional Combined
Committee will also consider retention and shareholding guidelines in the context of emerging best practice.
Martin Scicluna may attend Committee meetings by invitation. With effect from 1 March 2013, Edward Lea ceases to be a member of the
As noted in the letter to shareholders on pages 55 to 56, several policy changes have been agreed for implementation in 2013 following a remuneration review and these are set out in the table on pages 60 to 61. The Committee will be further reviewing the LTIP, shareholding guidelines and holding policy during 2013 with a view to introducing a new LTIP in 2014, subject to shareholder approval.
All permanent employees are eligible to receive a cash bonus award
Guidelines. Under this policy (detailed on page 65) at least 50% of vested shares, net of statutory deductions, must be retained until the holding requirement has been achieved.
John Napier retired from the Board on 31 December 2012. During 2012, he received an annual fee of £400,000, which had remained unchanged since 2010, and an annual accommodation allowance of £33,000. Upon retirement, Mr Napier was paid £100,000 in lieu of his three months’ contractual notice period, plus a taxable lump sum of £16,500 in full and final settlement of the contractual obligation on
Notes 1. The aggregate gain made by Directors during the year on the exercise of share options amounted to £792.77.
Provide additional disclosures when compliance with the specific requirements in IFRS are insufficient to enable the users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance and
The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU). The consolidated financial statements are prepared under the historical cost convention as modified by the revaluation of available for sale financial assets, investment property, Group occupied property and financial assets and financial liabilities held for trading (which include all derivative contracts).
However, if the deferred tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting, nor taxable profit or loss, it is not accounted for. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred tax asset is realised or the related deferred tax liability is settled.
Other new IFRSs that are not yet adopted by the EU
(issued by the IASB in June 2011). The revisions include the following changes to the Group’s existing accounting policies: Expected returns on plan assets will no longer be recognised in profit or loss. Expected returns are replaced by recording interest income in the income statement, which is calculated using the discount rate used to measure the pension obligation
The Group, in common with the insurance industry in general, is subject to litigation, mediation and arbitration, and regulatory, governmental and other sectoral inquiries and investigations in the normal course of its business. In addition, the Group is exposed to the risk of litigation in connection with its former ownership of the US operation. The directors do not believe that any current mediation, arbitration, regulatory, governmental or sectoral inquiries and investigations and pending or threatened litigation or dispute will have a material adverse effect on the Group’s financial position, although there can be no assurance that losses or financial penalties resulting from any current mediation, arbitration, regulatory, governmental or sectoral inquiries and investigations and pending or threatened litigation or dispute will not materially affect the Group’s financial position or cashflows for any period.
The current economic crisis adds further uncertainty and volatility to underlying levels of market and credit risk in the Eurozone.
The underwriting strategy aims to ensure that the underwritten risks are well diversified in terms of type and amount of risk, industry and geography.
Group’s financial results by either extending coverage beyond its underwriting intent or by increasing the number and size of claims.
The ability of the business units in each territory to assess the aggregation risk of a single event impacting on thousands of policyholders is vital. The Group employs proprietary exposure measurement systems to assess these risks. In some markets, particularly in the UK, the
Movement in shareholders’ equity at 31 December 2012 (57) 70 (52) 64 (51) 62
The analysis aggregates the Danish Krone exposure and the Euro exposure as the Danish Krone continues to be pegged closely to the Euro.
Liquidity risk is the risk that cash may not be available to pay obligations when due at a reasonable cost. The Group has no appetite for liquidity risk and is committed to meeting all liabilities as they fall due. The investment risk limits set by the BRC ensure that a large part of the Group’s portfolio is kept in highly liquid marketable securities sufficient to meet its liabilities as they fall due based on actuarial assessment and allowing for contingencies. The limits are monitored at a Group level as part of the Group Risk exposure monitoring and BRC reporting process.
Release of tax provided in respect of prior periods (21) (36)
Issued and fully paid 3,595,951,315 ordinary shares of 27.5p each (2011: 3,531,021,230 ordinary shares of 27.5p each) 989 971 125,000,000 preference shares of £1 each (2011: 125,000,000 preference shares of £1 each) 125 125
Issued in respect of employee share options and employee share awards 19,335,754 6 5
The Group’s borrowings of £296m (2011: £298m) primarily relate to loans from credit institutions under a repurchase agreement.
Total (charged)/credited to other comprehensive income 24 (21) 1 28 25 7
Costs of £68m (2011: £65m) were recognised in respect of defined contribution schemes by the Group. The Group’s Swedish subsidiaries are part of a multi-employer defined benefit scheme along with other financial institutions in Sweden. As it is not possible to determine the assets and liabilities in respect of any one employer under this scheme, it is included in these accounts as a defined contribution scheme.
Each of the UK defined benefit pension schemes has changed its rules to allow for increased commutation following ‘A day’ in April 2006.
The value of the awards granted during 2012 is £14m (2011: £25m) of which £2m (2011: £6m) is charged in the income statement.
Of the total goodwill recognised, £7m is expected to be deductible for income tax purposes.
Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s 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 Parent Company and the Parent Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the Parent Company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Parent
RSA Insurance Group plc, incorporated in England and Wales, 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.
Total other debtors and other assets 8 4 4. SHARE CAPITAL
RSA Insurance Group plc provides services and benefits to its subsidiary companies operating within the UK and overseas as follows: Provision of technical support in relation to risk management, information technology and reinsurance services. Services are charged for annually on a cost plus basis, allowing for a margin of 5% (2011: 5%)
Announcement of the half year results for the six months ended 30
Calculated as: Commission An amount paid to an intermediary such as a broker for generating business.
Earned Premium The portion of an insurance premium for which we have already provided protection.