What we offer 1. Includes Europe, Ireland and the Middle East.
Scandinavia In Scandinavia, we operate as Trygg-Hansa in Sweden, and Codan in Denmark and Norway. £1.8bn
Canada In Canada, our main brands are Johnson, RSA, Canadian Northern Shield and Western Assurance. £1.7bn
UK & International In the UK, we operate through our MORE TH>N and RSA brands. In Europe, we trade solely as RSA. In Ireland, we operate using 123.ie and RSA. In the Channel Islands, through the Insurance Corporation of the Channel Islands and Tower Insurance in the Isle of Man. In the Middle East, we operate through Al Alamiya and Al Ahlia.
Market regions 1. Excluding UK&I exit portfolios. 2. Total UK and International.
2019 saw continued turbulence in the political and economic environment. There were general elections in the UK and Canada, Brexit continued to dominate policymakers’ time in Europe and the new norm of low interest rates persisted. The impact on bond returns reinforces our goal to ensure RSA earns strong and consistent profits from underwriting.
Best-in-class strategy Our success in 2019 is particularly satisfying as it represents a return to form after some disappointments in 2018. A combination of decisive action and thoughtful investment has created a better, more resilient company in the long term.
We have exited certain portfolios to focus where we can generate real and sustainable value. Alongside this we have made significant underwriting capability improvements and invested in data, analytics and technology to increase efficiency and help secure good customer outcomes.
There is more to do: in 2020 we must continue our remediation efforts in parts of our Commercial Lines business and strengthen our digital and IT platforms to support growth.
Based Target to reduce the environmental impact of our operations. As members of ClimateWise, we are collaborating with industry peers on these issues, including supporting the introduction of climate-related disclosures.
Alongside this, we are continuously evolving our product and service propositions to deepen the support we offer customers. Across our regions we’ve introduced additional advice services to our customers, strengthened the rewards we offer loyal customers and implemented new guidance to help prevent underinsurance and ensure customers purchase products which suit their needs.
Our vision is to win for all our stakeholders, through striving to perform at best-inclass levels in our chosen markets.
How we work together We want RSA to be a place where fulfilling careers can be built. We can achieve this through success in our business goals and living our People Principles: building a culture of high performance, working together effectively and sustaining the diverse capabilities we require to succeed.
RSA’s people and culture are two of our most important assets which we must nurture and continue to invest in. We are committed to building a diverse, inclusive and supportive workplace so people can thrive in their careers at RSA. Improved flexible working and family friendly policies are supporting our people to balance home and work life.
As a Board, we have made stakeholder engagement throughout the year a key priority to inform our views. We visited several sites in RSA’s key regions, participating in employee town halls and other forums, attending customer meetings and undertaking an active and ongoing shareholder dialogue.
The members of the Board are very supportive of developments regarding stakeholder and workforce engagement; it is our collective responsibility to engage directly with RSA employees and we have developed a programme of activity designed to ensure that Directors have dialogue with as wide and diverse range of employees as possible.
We also appointed Clare Bousfield to the Board as a Non-Executive Director with effect from 1 April 2020. Clare brings in-depth experience of life and health insurance, asset management and reinsurance to the Board, as well as a deep understanding of the regulatory environment in the UK.
The Board remains committed to maintaining robust governance; the annual Board Evaluation was externally facilitated this year. I was pleased that the results were very positive, and the process demonstrated that the Board is highly engaged and operating effectively.
Finally, thank you to you, our shareholders, for your continued support. I look forward to welcoming you to our Annual General Meeting in May.
We have a strong capital base and are well reserved to maintain our ongoing resilience and continue to serve customers well. Our funds are prudently invested in low-risk assets, and reserves are available to pay claims when the worst happens.
Our commitment to our people has helped us build a strong, highperforming workforce that believes in teamwork and is determined to serve our customers in the best way possible.
Our aim is to deliver value to our shareholders by generating attractive and sustainable returns.
We have £4.7bn of capital, which we use to support our customers and generate returns for shareholders.
We use technology to support our customers, digitise our services and automate our operations to make them more efficient.
The quantity and quality of data are both constantly improving and we use this to price and underwrite more effectively and accurately. This improves outcomes and experiences for customers.
2 Efficient product distribution We need to reach our target customers effectively and efficiently to continue to develop as a business. Our products are distributed directly to customers, through brokers and affinity partnerships.
Proactively managing claims We aim to settle claims quickly and smoothly. We carefully manage our indemnity spend to keep the cost of claims efficient.
Board members meet with our brokers, affinity partners and corporate customers at various events throughout the year. This included two way dialogue with our brokers during the Board site visit to Manchester.
As well as this direct engagement, customer matters were a strong focus during the Board’s site visits in 2019. During these site visits, the Board met with frontline employees to discuss how the needs of our customers are being met and what customers care about the most. Whilst visiting the Manchester office, the Board participated in call listening with call handlers in the UK Commercial Lines business, which included a demonstration of the systems used.
The Board also receives periodic updates on customer and conduct matters, business reviews of different regions and management presentations, and an annual customer competitor pack to track customer trends by geographies.
Feedback from our customers suggests that their areas of priority include not only efficient underwriting and responsive customer service, but also corporate responsibility, use of technology, innovation and new and changing areas of risk such as cyber and climate change.
Our aim to be a best-in-class insurer means an intense focus on improving customer service and our underwriting and claims technical skills.
The Board recognises the importance of positive relationships between RSA, its shareholders and other stakeholders, and is committed to fostering and maintaining strong engagement with them. Open and collaborative dialogue and interaction is in the best interests of RSA and helps us to make a positive contribution to society.
The below table sets out some highlights from the Board’s engagement with key stakeholders during 2019, together with details of the actions taken as a result of this engagement.
The Board considered the workforce engagement models set out in the Corporate Governance Code and determined that the most effective engagement would result from all Board members maximising engagement with the workforce through the wide range of activities described in the adjacent column. The Board sought to meet employees from each of its regions at different levels of seniority and role type and discuss issues relevant to them.
Taken together, these engagement activities provided a meaningful and regular dialogue between the Board and the workforce and allowed for all members of the Board to be involved directly in workforce engagement matters, with the result that the Board as a whole has spent more time in the business than would otherwise have been possible.
During the course of 2019, the Board met with a range of employees and other members of the workforce to understand their roles within the business and their priorities. These meetings gave our workforce the forum to share concerns or opportunities they see, and discuss how their work influences Board decisions and vice versa.
The Board hosted ‘town hall’ meetings to hear directly from the workforce, as well as a number of events to discuss issues of importance to the Group. All members of the workforce are encouraged to attend these ‘town hall’ meetings, and arrangements are made for remote workers to dial in where practicable.
We also regularly undertake employee engagement and cultural surveys to gain insight into the opinions of our employees. These surveys address the medium and long-term aspects of employment relationship growth and are therefore targeted at people we directly employ. Other members of our workforce who may be with us on a shorter-term, contingent basis are encouraged to share their views at any time through their line managers or various online feedback tools.
The Board received regular updates on diversity and inclusion, culture and workforce, and regional employee engagement updates from UK & International, Scandinavia and Canada, as well as reports from the Ethics and Compliance team. These reports include the results of any relevant employee surveys.
The enthusiasm and passion displayed by our people during the Board site visits demonstrates the impact of our commitment to our people strategy, ‘Your Best U’. We know that it is vital to the long-term success of the Group that we invest in our people and that the Board sets and drives a good corporate culture. For further details on the steps taken by the Board in 2019 in connection with our people strategy and culture, see page 50.
· We have built on the training offered to, and leadership development opportunities for, our people.
Institutional investors During the year, members of the Board, senior management and the Investor Relations team had contact with hundreds of investors and analysts to discuss financial performance and the Group’s strategic ambition.
A new Remuneration Policy will be proposed for shareholder approval at the 2020 AGM. Ahead of this, the Chair of the Remuneration Committee wrote to our largest shareholders to explain our proposal in respect of remuneration and offered the opportunity for direct engagement on this topic. The Chairman and the Chair of the Remuneration Committee met with institutional investors to seek their views on the Group’s proposed approach to executive remuneration. The Chairman and Chair of the Remuneration Committee also met with a number of major investors to discuss a variety of other matters identified as being important to those investors, including environmental, social and governance matters and the Group’s financial performance.
The Group Chief Executive and Chief Financial Officer led quarterly presentations of the Group’s financial results and carried out extensive investor interaction in the UK, US and Europe. This ongoing engagement ensures two-way communication with shareholders on business performance and our strategy.
RSA’s shareholders have benefited from a strong combined operating ratio, dividend growth of 10%, and an increase in share price over the past five years of 29%. Our performance target of 13–17%, return on tangible equity represents an attractive shareholder return relative to both cost of capital and insurance industry norms. Underlying performance is critical to ensuring that we are in a position to continue to deliver attractive returns, and the Board takes this into account when determining the strategic focus of the Group and recommending dividends. The business model set out on pages 6 and 7 reflects that priority and provides the framework to deliver value to our shareholders.
For further information on the Board’s consideration of capital allocation and dividend policy, see page 13.
The Board receives periodic updates from the business on regulatory matters and priorities, including the priorities of the Group’s regulators in regions other than the UK.
Key topics for engagement included culture and governance, treatment of existing customers and technology resilience. Customer conduct, including pricing practices, has continued to be a focus of our regulators across the globe in 2019. The regulatory capital requirements of the Group are also monitored and discussed with the relevant regulators.
Open and constructive dialogue with our regulators has also helped to ensure that, in 2019, we received PRA approval for the latest enhancements to our internal model at a Group level, as well as model approval from the Danish regulator in respect of our Scandinavian entities to mitigate the risk of moving to the Standard Formula in the event of a ‘hard Brexit’.
As well as the key stakeholder groups listed above, the Board is committed to engaging with its other stakeholders in order to ensure that we maintain positive relationships and take account of their views and interests.
We also know that RSA plays an important role in supporting communities in their times of greatest need. We encourage our employees to get involved in and support our local communities in order to strengthen this connection. In 2019, the Group invested £1.9m in local communities through payments to charities, employee fundraising and supporting employee volunteering.
For further information on our Confident Futures strategy and how the Board has considered the impact of our operations on the community and the environment, see pages 44 to 49.
Setting our culture and people strategy Having a good corporate culture gives the Board confidence that everyday decisions are approached with the right mindset and taken in line with the Group’s values and objectives, in order to maintain our reputation and continue our progress to achieving best-in-class. It also helps to contribute to good outcomes for our customers. Our goal is a culture of high performance and engagement and this is reflected in every decision taken by the Board and senior management.
In late 2018, the Board discussed the cultural characteristics to be instilled in the business to deliver the Company’s purpose, values and strategy. It also discussed our senior leader expectations and people principles which underpin the people strategy in each region. Consistently developing the capabilities of our people is one of the core aspects of our strategy. During 2019, the Board took further steps to monitor and embed the Group’s corporate culture and ensure that it is aligned with our purpose, values and strategy. In particular, the following information was reported to the Board as part of a new biannual Groupwide culture and workforce board paper: · The results of a quarterly cultural health review process completed in each region to highlight any key people risks
Based on this information, the Board discussed and considered various cultural indicators and the people strategy and whether any further actions should be taken. Following feedback from the workforce, and taking into account how best to maintain good relationships with customers and a reputation for high standards of business conduct, the Board decided to progress with the people strategy and extend the workforce engagement plan to include additional direct and indirect channels for engagement. The Board Risk Committee also approved the Group’s refreshed ‘Speaking-Up and Whistleblowing’ policy, which encourages a culture of openness and enables individuals to raise concerns knowing that those concerns will be valued and treated seriously. The Board also used stakeholder engagement opportunities to actively promote RSA’s purpose, business values and desired culture.
Considering the long term and the interests of our stakeholders In making its decisions throughout the year, the Board has considered and balanced the views and interests gained through its stakeholder engagement as well as the need to promote the long-term success of the Company. For details of how we engaged with our key stakeholders, see pages 8 to 11
Decision-making and section 172 of the Companies Act 2006 The success of the Group depends on our ability to engage effectively with our stakeholders and take their views into account. Section 172 of the Companies Act 2006 requires directors, in making their decisions and choices, to have regard to a non-exhaustive list of factors to ensure that, in promoting the success of the Company for the benefit of its shareholders, broader implications of decisions are considered. Information on the issues, factors and stakeholders taken into account by the Board when complying with the provisions of section 172 of the Companies Act 2006, the methods used to engage with stakeholders and the effect of this engagement on the Board’s decision-making during 2019 are set out on pages 8 to 11.
Building up the Board’s expertise Sonia Baxendale was appointed to the Board with effect from 1 March 2019 and Clare Bousfield was appointed to the Board with effect from 1 April 2020, each as an independent NonExecutive Director. When planning for the succession of Board roles, the Nomination and Governance Committee considers not only the balance of skills and experience required for the Board to provide effective leadership and promote the long-term sustainable success of the Group, but also how to ensure that the Board as a whole has the necessary stakeholder awareness and expertise.
Taking a fresh approach to Environmental, Social and Governance (ESG) 2019 saw the launch of our Confident Futures strategy, which seeks to integrate responsible business practices into our everyday operations and marks a more integrated approach to managing environmental and social matters across the business. For further details, see pages 44 to 46. Throughout the year, we have seen growing stakeholder interest in our approach to responsible business issues, particularly among investors, regulators and the workforce, and we consider the proper management of ESG matters to be vital to the long-term sustainable prospects of the Group.
· Global insurance volumes are largely insensitive to normal fluctuations in GDP growth.
· Falling bond yields reduce investment income derived from our conservative investment portfolio and put greater emphasis on underwriting performance. As such, we are carefully looking at our investment strategy to respond to the changing economic environment.
· With a focus on a number of mature markets we have sufficient diversification and our low-risk businesses have a well-matched approach to investments; we remain resilient in the face of negative economic developments.
· We are also evolving our technical capability strategy and staff development programmes to build the skills required to address these new opportunities.
· We take the protection and integrity of customer data seriously and have a framework in place to understand and mitigate potential risks as cyber crime continues to grow in sophistication. We must continue to evolve to ensure data is protected.
· RSA’s purpose is to protect customers against risk and ensure the products and services we offer meet their changing needs. Our telematics, cyber insurance and e-trade propositions are examples of how we adapt to meet customer demand.
· As well as following ESG investment principles, our Confident Futures strategy ensures we act responsibly, while playing an active role in helping society manage risks in a smarter and safer way: – We increasingly focus on digital solutions and data to manage emerging risks – We’re building on our digital and product proposition in the commercial space to ensure we meet the changing needs of businesses. Meanwhile, our telematics product provides affordable insurance for young drivers.
· We are a leading insurer of offshore wind farms and provide cover for the world’s largest single-site solar energy plant.
· In investment terms, we are a relatively low-risk investor and monitor ESG factors within our portfolio where possible.
Customer conduct The insurance industry must respond to increasing focus from market regulators on ensuring that customers are treated fairly
· The UK regulator, the FCA, is increasing its focus on conduct towards customers, especially with regard to pricing within General Insurance.
Economic shocks Financial market volatility remains a risk with a persistent low bond yield environment impacting investment income
· Financial market conditions were volatile in 2019 impacted by political developments and their impacts upon monetary and economic trends. RSA is relatively well protected with a conservative bond portfolio and a broad array of internationally derived profits.
· The low bond yield environment continues to persist and as such investment income is forecast to fall if yields remain at today’s level. This is putting greater emphasis on underwriting discipline and control. We will continue to exit underperforming segments of business where we can’t generate longterm sustainable returns and seek to improve underwriting standards, pricing accuracy and risk management in areas where sustained profitability can be achieved.
Post-Brexit transition Leaving the European Union could bring unexpected challenges and extend economic uncertainties
Cyber risk The demand for cyber insurance is increasing as the frequency, severity and sophistication of attacks increase
· Our customers are increasingly expecting us to be able to serve them digitally, both through sales and service and claims processing. We are investing in new technology in all our regions to meet these emerging needs.
· Technology is also having an impact on claims patterns and risk management; for example, as a result of the shift to more automated vehicles or through the use of smart technology within modern factories.
Strategy and focus RSA is a focused international insurance group. We have complementary leadership positions in the large general insurance markets of the UK, Scandinavia and Canada together with supporting international business in Ireland, Continental Europe and the Middle East. The Group is well balanced between personal (57%) and business customers (43%), and across product lines and distribution channels.
The Group’s only ‘down year’ since 2013 came in 2018, driven particularly by marketwide losses and weaknesses in the London market portfolios of our UK & International division. In response, we announced the exit of c.£250m of business (NWP) which has been substantially completed. Extensive changes to leadership and management structure in this division were also made and a new programme is well advanced to bring structural costs down further.
1. Excluding UK&I exit portfolios, refer to pages 202 and 209 for further information.
Market conditions General insurance markets are relatively mature, consolidated and stable, though with natural intrinsic volatility. Strong levels of competition mean that profitable growth opportunities are modest, and require a continuous focus on strong underwriting discipline and cost efficiency. Nevertheless, well managed companies do produce returns well above cost of capital and RSA is clearly in that position. Despite competition, in those market segments challenged by negative loss trends, pricing has increased in 2019 which is helpful. Climate change is a key issue for insurers with heightened weather losses seen, notably in North America and certain international business lines.
2019 actions It was a busy year for RSA. Right across the business, improvement programmes continue in pursuit of “best in class” ambitions. They span customer service, underwriting & claims, cost efficiency, technology and people performance. Superimposed on these programmes were decisive actions to address problem areas from 2018 and correct performance. We are encouraged by the results to date.
Management: An important feature of 2019 was senior management change – to reward success and to bolster areas needing better performance. We recruited Charlotte Jones as Group CFO, Scott Egan moved to CEO UK&I Region and Ken Norgrove moved from CEO Ireland to CEO Scandinavia. In their regional executive committees there was also significant change. Christian Baltzer has joined as CEO Codan Denmark, new CEO’s of Ireland, Middle East and Europe were hired as was a new Group HRD and head of UK Personal Lines. It is an important measure of RSA’s progress that we are able both to internally develop leaders and to hire talented people from outside successfully. And beneath these changes, throughout the organisation professional development and performance delivery are advancing as part of our culture.
Underwriting & Pricing: At the heart of our business sit the data science driven disciplines of underwriting and claims handling. Every year we seek to move these forward, using modern techniques of analytics and AI, as well as focus on skills and training.
In general our Personal Lines capabilities are in a good place but need continued investment. Exceptions are motor underwriting in the UK where technology driven retooling is underway; and in parts of Canada where claims inflation challenges, especially weather related, are driving further action.
In Commercial Lines we saw the greatest re-underwriting activity in 2019 in addition to substantially completing the UK portfolio exits announced last year. In terms of actions taken, the year went even better than planned. However, while UK & International results improved strongly, Canada and Denmark remained disappointing and further action will need to continue into 2020.
Our additional reinsurance covers for 2019 proved valuable in both Canada and Scandinavia, though a better weather year at Group level meant no recoveries for our GVC layer. The coverage for 2020 is substantially unchanged.
Cost Efficiency & Technology: Data science and technology advancement are at the heart of all we do. We are progressively implementing “backbone” IT platform replacements in all regions whilst pursuing many smaller enhancements. Spend is likely to continue in excess of historic depreciation levels. Technology and better ways of working drive our efficiency efforts, whilst also enabling better underwriting and customer service. Cost efficiency is absolutely vital for any mature, competitive industry. RSA’s record is very good in this regard. However, our top line reductions in the UK necessitate a further targeted programme of >£50m p.a. cost saving by end 2021, which is well advanced.
Financial Results 2019: It was a strong year for RSA with total Group profits up on every measure. The best indicator of ongoing performance levels are our underlying results (ex. exits). These show EPS at 44.5p1 and return on tangible equity of 16.0%1 (vs 13-17% target). Statutory profit after tax was up 3% despite the impact of exits and restructuring costs in the UK. Proposed dividends are up 10% to 23.1p/share.
Driving our Group results were strong underwriting profits of £405m1 and combined ratio (‘COR’) of 93.6%1 (ex. exits). These were achieved on flat premium income with improvements in each of attritional loss ratio, weather and large loss costs, but a reduction in prior year development.
Looking forward RSA’s focused regional strategy is working well. Our ambition to drive towards “best in class” performance levels remains in place and we are optimistic about the ability of our business to improve further to that end. We target progress in each of our three regions in 2020. We have headwinds from lower investment income and adverse FX translation, but believe that EPS growth overall is again in prospect, subject to normal underwriting volatility.
Thanks RSA could not perform well for stakeholders, without their heartening and reciprocal support – for which we are very grateful. While customers and shareholders are our primary audience, we are also determined to serve the broader interest of RSA well. All we achieve is driven by the efforts of RSA’s people. I am proud to work with and to lead this group. And my sincere thanks go to them for 2019’s efforts.
Q You’ve been explicit around the financial expression for the businesses best-in-class combined ratio ambitions, but how would you describe a best-in-class performance culture? RSA’s best-in-class goals are far-reaching and ambitious. Just as our competitors keep improving, and new challenges and capabilities impact our markets, best-in-class is an ever-shifting destination. As such, it is essentially a cultural goal, with various (and changing) ‘hard data’ expressions. It demands an outward-looking culture, a culture driven to succeed, open to change and accountable for results. It is anchored in today, yet necessarily focused on actions to impact tomorrow. It’s a destination we may never fully reach, but good progress towards which will markedly improve our company to the benefit of all.
Q What role do you believe the insurance industry has in tackling climate change? Climate change is an absolutely central issue for general insurers. Our social and industrial purpose is to help society cope with risk and manage it better – and risk to property (and through it to livelihoods) is the biggest insured risk there is. We serve society by insuring customers against greater and more extreme weather patterns; by adapting our risk management advice to help our customers cope with changing threats. We play our own role by lowering our company’s carbon footprint in line with Paris goals. And our policies on investment, as well as our selection of insurance risks, encourage the shift to cleaner energy – not least through our marketleading role as an insurer of renewable energy, and especially wind power.
“ Best-in-class is an ever-shifting destination. As such, it is essentially a cultural goal, with various ‘hard data’ expressions. It demands an outwardlooking culture, a culture driven to succeed, open to change and accountable for results.”
· Invest in tools and technology · Provide training for our staff · Optimise reinsurance 3 Cost efficiency and productivity
· Optimise overheads and procurement · Continue site consolidation and outsourcing · Develop further automation to drive productivity improvements
We have several critical assets, which help us to create value: · Technology
The combination of which results in our ambition to achieve best-in-class combined operating ratio performance: With high-quality, repeatable earnings, and excellent returns for shareholders: <85% Scandinavia
Our progress · We sell a promise to our customers and are committed to ensuring good customer outcomes. Our Group Customer Policy outlines steps our businesses must take to ensure we treat customers fairly and provide them with products and services that meet their needs. Supporting this, our regional Customer Committees ensure we have effective oversight of customer risks.
· In April 2019, Johnson began the rollout its new distribution partnership with Scotiabank, one of the largest banks in Canada. The transfer continues to progress well.
· In Commercial Lines, RSA Pro2 user adoption continues to increase in Canada; up 5 points to 30% in 2019. Meanwhile in Sweden, commercial customers can now buy online bespoke insurance packages to comprehensively cover the needs of their business.
Performance improvement levers continued 1. Net promoter score. 2. Web-based application that enables direct submissions and servicing by brokers for SME policies.
We aim to help anyone impacted by flooding; whether they’re customers or not. In 2019, we mobilised our Emergency Response Vehicle in the UK, providing support for impacted communities by offering them advice on their insurance, or just somewhere to sit, have a cup of tea or charge their phone.
was £405m. The total Group underwriting result was £346m, which improved significantly versus prior year (2018: £250m), but there are still areas for improvement.
· We remain confident that we are taking the right underwriting and pricing actions. We will continue to exit underperforming segments of business where we can’t generate long-term sustainable returns and seek to improve underwriting standards, pricing accuracy and risk management in areas where sustained profitability can be achieved.
· The performance of the business that we exited in 2018 generated an underwriting loss of £59m1 in 2019, reaffirming our belief that the actions we have taken, and are taking, are the right ones.
Performance improvement levers continued employees completed our technical induction programme1. £8m of prior year GVC recoveries relating to UK&I
exited business has been reallocated from Central Functions to UK&I Exits and therefore to total UK&I.
of water’ claims inflation issue which presented in 2017. We continue to achieve good rate in each of our regions to combat ongoing claims inflation.
· Large losses improved by 1.6 points to 10.0% but remain elevated, particularly in Danish Commercial and Canada. All large losses over £1m across the Group undergo an independent ‘triage’ evaluation process to ascertain whether the risks were correctly evaluated and learnings from this embedded in underwriting. Pleasingly, underwriting quality has improved significantly since the introduction of this process in 2017.
c.1,100 Number of different variables analysed by our new Irish Motor pricing model
· The earned controllable expense ratio of 20.9% was up slightly versus 2018 (20.4%) mainly due to lower premiums resulting from UK business exits. The ratio is down by c.3.51 points since 2013
– In Scandinavia, the controllable expense ratio was up 0.6 points versus 2018, in part due to a flat topline and our continued investment in important areas of the business.
– In Canada, controllable costs improved again to 16.9%, below our target, despite the costs of capability investments coming through. In 2020, we expect this to rise, but remain below target, as technology-related amortisation builds.
– In the UK & International, the controllable expense ratio increased due to premium contraction after underwriting and portfolio actions, but is down c.21 points since 2013.
· Improved digital and online self-service capabilities continue to drive efficiency. In Sweden, the use of robotics is significantly reducing quote times for broker business. Meanwhile, in 2019, the number of Digital transactions increased 16% for Johnson, supported by our new chatbot tool.
Group earned controllable expense ratio c.3.5pts1 Reduction in the Group earned controllable expense ratio since 2013
Commentary Attritional loss ratios are a key lever in the Group’s financial performance. Improvements in the business mix, together with investments in digitally enabled underwriting and claims excellence, are targeted at reducing the attritional loss ratio.
Commentary The COR is used as a measure of underwriting effectiveness across the industry. The aim is to achieve a COR as sustainably low as possible – that is without uncompetitive pricing or compromising reserves.
We target continued growth in underlying EPS as performance improvement actions take effect.
For the executive remuneration, an underlying measure of profit before tax is used. See page 87 for further detail.
Outlook We target a 50% reduction in carbon emissions by 2030 with an interim target of 37% by 2025.
1. Calculations have been amended to include data that was not available at the time of publication and reflect improvements in methodology.
In 2018, targeted portfolio exits were announced as part of an ongoing strategic review of the UK & International business. This was in response to challenging market conditions as well as our own strategic reassessment. The strategic review concluded in 2019, with further portfolio exits announced. These exited portfolios represented c.£250m of premiums against a 2017 baseline. In 2019, the exited portfolios reported an underwriting loss of £59m1. As the majority of premiums associated with these portfolios have now earned through, the residual risk going into 2020 is much reduced.
· Underlying earnings per share (excluding exits) of 44.5p, underlying earnings per share (including exits) of 39.4p (2018: 34.1p).
· Net written premiums down 1% at constant FX but broadly flat2,3 excluding exits.
· Group written controllable costs were £1,346m (2018: £1,343m). Earned controllable cost ratio 20.9%.
· Capital levels remain strong with a Solvency II coverage ratio of 168%4 (31 December 2018: 170%) and tangible equity of £2.9bn (31 December 2018: £2.9bn).
· Final dividend of 15.6 pence per ordinary share bringing total 2019 dividends to 23.1 pence per ordinary share (up 10%) representing a 52% payout ratio of underlying EPS (excluding exits).
Premiums Group net written premiums of £6.4bn were down 1% in the period at constant FX. Underlying premiums were down 2%2 adjusted for reinsurance changes but broadly flat2,3 excluding the exit portfolios.
Scandinavian premiums were flat or up 1% excluding changes in reinsurance, both at constant FX. Personal Lines premiums were flat2,5 and included underlying growth of 2% in Sweden. Premiums were up 2%2 in Commercial Lines. Rate was ahead of our plans and last year, but was dampened by a reduction in volumes.
Charlotte Jones Group Chief Financial Officer Charlotte was appointed Group CFO on 31 July 2019
Net written premiums in the UK & International exit portfolios were £17m. Net earned premiums were higher at £88m reflecting the on-going run-off of exposures. Earned premiums will reduce to c.£15m in 2020.
Underwriting result The Group underwriting profit was £405m (excluding exits) with a combined ratio of 93.6% (excluding exits). Total Group underwriting profit was £346m (2018: £250m) with a combined ratio of 94.6% (2018: 96.2%).
Current year underwriting profit for the total Group was £314m (2018: £85m). The Group attritional loss ratio of 55.0% was 12 point better than 2018. Scandinavia improved by 0.4 points2 with improvements in Danish Personal and Norway, partly offset by Danish Commercial.
Large losses were £645m or 10.0% of net earned premiums (2018: 11.6%; five-year average: 10.0%6). This was 9.7% excluding UK&I exit portfolios. All regions reported improvements vs 2018, with Scandinavia and Canada each around 1 point better, and the UK & International 3 points better.
Our assessment of the Group reserve margin (the difference between our actuarial indication and booked reserves in the financial statements) remains at its target level of c.5% of best estimate claims reserves.
Underwriting expenses and commissions The Group underwriting expense ratio of 14.7% increased as expected. Scandinavian and Canadian expense ratios increased slightly vs 2018, while the expense ratio in UK & International increased by 1 point, in line with expectations and reflecting the contraction in premiums. We have commenced a further UK-focused cost programme to address this. The Group commission ratio of 12.9% decreased by 0.7 points (2018: 13.6%), mainly due to a higher proportion of Personal Lines in net earned premiums.
2. At constant FX and excluding changes in reinsurance. 3. Excluding UK & International exit portfolios. 4. The Solvency II capital position at 31 December 2019 is estimated. 5. Excluding a one-off adjustment in Swedish Personal
Other items Interest costs were £32m (£46m including the Tier 1 issuance), up from £25m (£39m including the Tier 1 issuance) in 2018. The increase reflects changes to lease accounting (IFRS 16), mainly on properties. Coupon costs of £14m (2018: £14m) for the 2017 Tier 1 issuance are presented at the bottom of the management basis: Income statement (shown in this section of the Annual Report) as ‘other equity costs’, as per accounting rules.
Other charges were £73m (2018: £12m), and included £19m of final costs relating to the disposal of UK Legacy liabilities to Enstar Group Limited. This follows the sanction of the Part VII transfer of these liabilities by the High Court of Justice of England and Wales on 13 June 2019. The completion of this transaction provided a net benefit to capital.
Net written premiums 1,764 1,735 2,864 17 2,881 37 6,400 6,417 6,470 Net earned premiums 1,767 1,723 2,893 88 2,981 (9) 6,374 6,462 6,537
Business Operating result ◊ 286 159 279 (59) 220 (68) 656 597 517 Interest (32) (25) Other charges (73) (12) Profit before tax 492 480 Tax (109) (108) Profit after tax 383 372 Non-controlling interest (24) (23) Other equity costsc (23) (23) Net attributable profit 336 326
Tangible net asset value (£m) ◊ 2,910 2,867 Underlying earnings per share (p) ◊ 44.5 39.4 34.1 Underlying return on tangible equity (%) ◊ 16.0 14.2 12.6 a. Exit portfolios in UK & International which have substantially run-off over the course of 2019. b. £8m of prior year GVC recoveries relating to UK&I exited business has been reallocated from Central Functions to UK&I Exits and therefore to total UK&I. Further details on page 209. c. Preference dividends of £9m (2018: £9m) and coupons on Tier 1 securities of £14m (2018: £14m).
We maintain a measured approach to capital management, targeting a single ‘A’ credit rating (the Group’s S&P rating is ‘A’ stable and its Moody’s rating is ‘A2’ stable). This involves considering a range of indicators relating to capital, to operating results and to qualitative factors.
The Solvency II coverage ratio of 168%4 was down 2 points in the year (2018: 170%).
In 2019, RSA successfully completed a £350m senior debt issue, to increase the resilience and financial flexibility of the Group in the event of negative economic influences from a ‘hard Brexit’.
Pensions At an aggregate level, the pension fund surplus under IAS 19 increased during 2019 from a £182m surplus at 1 January to a surplus of £211m at 31 December (net of tax).
Further details on RSA’s pension schemes and movements in the year can be found in Note 38 to the accounts.
Summary 2019 has been a year of intense activity, with many actions targeted at improved performance successfully completed, and with more still in progress. Although there is more to do, RSA’s strategy, performance potential and financial targets remain unchanged.
The insurance market is mature and consolidated, with growth driven largely by GDP and rate. A few major players dominate, with brand an important driver. While there is strong competition, long-term players have maintained their competitive position.
Regional net written premiums of £1,764m were flat at constant FX or up 1%3 on an underlying basis. Personal Lines premiums were flat3,4. This included Swedish Personal Lines growth of 2%3,4 with Household, Motor and Personal Accident all up. Commercial Lines premiums were up 2%3 on an underlying basis. Rate was ahead of our plans last year in all lines of business but was dampened by a 4% reduction in volumes.
The current year attritional loss ratio of 63.4% was flat versus 2018 or around half a point better excluding the impact of 2019 reinsurance changes. Large losses of 7.8% were 1.1 points better than 2018, but still elevated compared to the five-year average of 6.8%. This was dominated by Danish Commercial Lines; particularly Property. Sweden and Norway both reported lower large losses than 2018.
In Denmark, we launched a road safety campaign, to open up a dialogue with experienced drivers on unconscious bias and how it impacts their driving. A supporting film, released on social media, was seen by 2.4 million Danes. We also had our Annual Reflector Day at the end of October, where 35,000 reflectors were handed out to pedestrians and cyclists.
Growing in the right areas Our Personal Lines businesses continue to achieve profitability and we benefit from a strong market share. Our investments help us achieve greater scale in these lines, offer value to customers and remain competitive. Our 2018 and 2019 performance was impacted by poor performance in Danish Commercial Lines. In response to this, we have taken strong action to re-price, re-underwrite and lower capacity where required.
2. At constant FX. 3. At constant FX and excluding changes in reinsurance. 4. Excluding a one-off adjustment in Swedish Personal
“ We were pleased with performance, which improved sharply. We continue to grow our direct customer business as well as investing in systems and our people.” Martin Thompson President and CEO, RSA Canada
Our operations in Canada We are one of the leading insurers in Canada, operating across all provinces, offering a range of Personal and Commercial Lines products. In Personal Lines, which accounts for around 72% of our overall business, we operate under the leading brand Johnson, as well as the RSA brand via brokers. Our Commercial Lines business operates through brokers.
The weather loss ratio of 5.0% was 1.8 points lower than 2018 but remained elevated relative to the five-year average of 4.7 points. Insured damage for severe weather events in 2019 reached $1.3bn1 for the industry, the seventh-highest on record. The large loss ratio was 8.0% for 2019, despite improving 1.4 points versus 2018 it was still 0.7 points higher than the five-year average; particularly driven by Commercial Property. The attritional loss ratio of 56.0% improved by 2 points with improvements across most major lines of business.
Premiums in Commercial Lines decreased by 4%2 where a 13% reduction in volumes was partly offset by rate of 9%. Lower volumes were in line with our plans and mainly driven by targeted lapses. We expect to continue to prioritise profitability over volume in 2020.
Our affinity partnership with Scotiabank In April 2019, we launched an exclusive affinity partnership with Scotiabank to offer home and motor products. The partnership has so far outperformed our expectations. The roll-out has been underpinned by digital enhancements, including a white labelled website, live chat and an online quote facility.
Commercial Lines improvements Following a disappointing performance in our Commercial Lines business in both 2018 and 2019, we are focusing on prudent underwriting and pricing, enhancing our portfolio mix and better exposure management. This includes a thorough review of our portfolio, taking tough actions where appropriate and a more selective approach to new business in Property and Commercial Motor.
Resolving claims swiftly Following a successful trial in 2018, we launched a new claims portal, provided by Guidewire, which eliminates wait times and provides customers with immediate access to claims details. ‘First notice of loss’ notifications completed digitally through the portal are now at 5% of our new claims volume. Our launch to Johnson customers in late Q4 is making the process more efficient and speeding up the entire claims journey.
Our strategy is one of continuity – to pursue growth in the Johnson business, improve our digital capabilities and retain a focus on disciplined underwriting and pricing to maintain a strong commercial insurance footprint and improved profit contribution.
Resilience through conservation In 2019, RSA Canada partnered with the World Wildlife Fund as part of its effort to help customers become more flood resilient by playing a greater part in conservation.
Financial summary 2019 net written premiums Underwriting result ◊ COR ◊
Some 51% of our UK business is in Commercial Lines. In 2019, we substantially completed the run-off of several portfolio exits announced in 2018 (as well as some further portfolio exits in 2019), notably in the London Market, and simplified our business structure to better reflect our distinct markets and customer needs. This included creating a single Commercial insurance business for UK markets, and a separate European business. The latter is headquartered in Luxembourg, with a presence in Belgium, France, Spain and the Netherlands.
Customer conduct has continued to be a focus in 2019, with the FCA investigating pricing practices in home and motor markets and taking steps to review commissions in partner and broker markets. The initial findings of an FCA market study led to criticism of dual pricing, the gap between pricing of new business and renewals. In 2018, insurers, including RSA, drew up principles to address this problem, and the continued concern of the regulators and our customers has further sharpened our focus on the issue.
UK financial performance The UK reported an underwriting profit of £50m and a combined ratio of 97.7%, excluding exit portfolios. This was driven by better current year results offset by lower prior year development. Including exits, the COR was 99.9%5.
Our strategy Our aim is to build a more balanced business in the UK & International, with all parts of the region contributing to underwriting profits. This requires further improvement to results in the UK, and investments to ensure that our excellent results in the Middle East and Ireland can be sustained. We will achieve this by stabilising and then strengthening our Commercial Lines business, growing our direct channel in UK Personal Lines and continuing to improve our productivity. We are therefore focused on simplifying our business, equipping it with the tools and digital capabilities required to serve customers efficiently and well, and building a culture that values high performance and develops talent.
Outlook Digital investment to support Personal Lines growth and continued portfolio actions to reshape our Commercial Lines business will help us to achieve consistent and sustainable profits in competitive markets. Our ambition is for a best-in-class combined ratio of <94% in UK & International by 2022-
Regional gains In 2019, we made numerous improvements to our regional trading sites aimed at making it easier for our brokers to do business with us.
In Personal Lines, our operations teams remain focused on creating better digital journeys and improving telephony and webchat systems, so our policyholders can communicate with us with ease and through the channel that best suits them. We are continuing work to bring all our Personal insurance customer policies and servicing onto one platform. This will bring a series of benefits for our business and customers, improving management information and enabling faster processing and response times, as well as introducing new features such as online claims tracking and video calling.
As part of efforts to recognise and reward loyalty among Personal Lines customers, we launched MORE TH>N Rewards. The scheme gives home, pet and car insurance customers unlimited cashback on purchases across a number of high street stores and household brands. At renewal, the cashback can either contribute to the cost of a new policy, making renewal cheaper, or be returned to the customer to spend elsewhere.
We have focused our efforts this year on boosting our involvement with local communities, resulting in an increase in volunteering hours and participation in the UK&I, as well as record engagement with our match-funding scheme.
To progress this agenda, we are now working alongside Neighbourly, an organisation that matches large companies with local good causes. We also strengthened our relationship with Enabling Enterprise, hosting events across the country, positively impacting young people and highlighting the opportunities available to them in the insurance industry.
Europe2 financial performance Europe delivered an underwriting profit of £17m (£5m including exits) and a combined ratio of 92.6% (97.6% including exits). Net written premiums decreased by 7%3 as a result of lower volumes in Property and Marine. Benign weather helped to reduce the combined ratio, while large losses and the attritional loss ratio both improved versus prior year.
Exit portfolios In 2018, we announced portfolio exits and changes in underwriting appetite for our London Market business. Additional exits included two UK generalist MGA schemes and certain European branch business. This was in response to challenging market conditions as well as our own strategic reassessment. The total net written premium we targeted for exit was c.£250m against a 2017 baseline, of which substantially all has been implemented.
The underwriting loss from these portfolios was £59m4 in 2019. Net written premiums were £17m. Net earned premiums were higher at £88m reflecting the ongoing run-off of exposures. A further c.£15m of exited premiums are expected to be earned out in 2020.
Martin Thompson We’re here to give our customers peace of mind and support them when the worst happens, so I’m particularly proud of an initiative we launched this year with Johnson. Customers with young children, who have suffered a traumatic event, whether it’s a serious auto accident or a house fire or flood, receive a Johnson the Dog stuffed mascot and a letter of care. The pilot of the programme was very successful and the feedback was overwhelmingly positive. Sometimes it’s the little things that show our customers that we’re there and that we care.
Q What does success look like for your business in 2020?
Ken Norgrove There are areas of the business where we need to improve profitability, such as Danish Commercial Lines, but we can’t lose sight of the things we’re really good at. We want to continue to be successful in our best performing businesses by growing market share and continuing to serve customers well. In 2020, our aim is to improve operational and financial stability while driving a focus on investment and transformation to become a leading digital insurance company.
Scott Egan Our challenges are not so different. We’re all grappling with how we make good use of technology to make our business more efficient and serve our customers well. We’re exploring the opportunities of data to drive continuous improvement, and we’re always looking to improve how we support and motivate our employees to attract and retain the best talent. There’s no magic formula to solve any of these issues – the key is to learn from best practice and those around you. That’s why it works so well to operate as RSA does as a group – our markets have many similar dynamics. We constantly leverage one another’s knowledge to hear what is working well and we steal with pride!
The Group’s operating plan provides a platform for ensuring the business remains aligned with its strategic goals, including strong delivery for our customers and sustainable performance while maintaining a robust capital base. Our risk function takes an active role in challenging the plan, informed by financial analysis, economic projections, peer reviews (e.g. by the underwriting and actuarial teams), expert judgement and current risk assessments.
Changes to risk management in 2019 · The Risk Policy Framework has been developed to enhance alignment between risk, requirements and controls, and to bring better definition to controls validation. The set of policies has been revisited to remove policies no longer needed and to identify any gaps requiring new policies. The number of policies has been reduced.
Senior debt issuance During August, the Group successfully completed a senior debt issue, with an intention to increase the internal resilience and financial flexibility of the Group. With interest rates remaining low and a range of economic stability risks on the horizon, this was a prudent decision to make. Risk appetite associated with senior debt leverage was also introduced.
Delivering for the customer The focus on ensuring good outcomes for our customers has continued into 2019. We have further enhanced and embedded the frameworks used to govern this in the UK, with a positive impact in many areas, from product and pricing to incident management, and with strong engagement at every level of the business. We have developed a comprehensive product oversight and governance approach, supported by leading-edge RegTech developed with a third party. Supporting this is a refreshed, forwardlooking approach to managing and monitoring conduct risk and compliance, which is also being rolled out overseas.
Climate change trends have been recognised as a key emerging risk for insurers for some time; however, the work of the Intergovernmental Panel on Climate Change has increased understanding.
Terrorist threats remain high. Attacks could impact on a large number of our customers and staff as well as broader society.
Continuing low interest rate environment may lead central banks and governments to adopt more unusual monetary policies with unforeseen economic outcomes.
A warming planet is resulting in more extreme weather with the potential for further worsening with more persistent patterns arising.
As economies shift to low-carbon emissions, the transition could have material micro- and macroeconomic implications, affecting asset values and economic growth.
Longevity risk can affect long-term annuity-like bodily injury claims and pensions risks. Several factors including medical advances could shift the risk in the future.
Pandemic events could lead to a fall in global economic performance, impact on supply chains and impact operational resilience.
Risk assessment and update internal model Significant changes in risk assessments are considered by the Internal Model Governance Committee and, where appropriate, the Group’s internal model is updated.
Board sets risk strategy and appetite Risk strategy defines the approach to managing principal risks and creates the overarching principles for setting the Risk Appetite Limits and Indicators.
E xp ec te d fu tu re co st s &
Commentary Consistent with our strategy and appetite for retaining risks that reside within our core expertise, where we are able to maximise risk-adjusted returns, our Solvency II Capital Requirement (SCR) primarily comprises insurance-related risks, including higher than anticipated underwriting losses, large retained catastrophe losses and deterioration in our stock of reserves for future claims.
While our investment strategy remains deliberately conservative, we continue to look for opportunities to increase returns through the purchase of less liquid high-quality assets as we are able to match the cash flow profile against that of our liabilities.
Management of operational risk is key to servicing and supporting our customers, as well as an SCR driver. Cyber remains one of our key operational risks. The last few years have seen the volume, nature and capabilities of would-be attackers increase significantly, meaning the risk is ever present. In response, RSA has been investing heavily in our technology and capability to counter such threats and building employee awareness through briefings and training. These efforts continue at pace driven by a refreshed Group Cyber Strategy.
The Viability Statement can be found in the Governance Report on page 111 considering the Group’s prospects over the next three years.
Catastrophe risk Arises from the risk of large natural disasters, with our main exposure being to North European windstorms and Canadian earthquakes.
· Our reinsurance programme significantly reduces our exposure to catastrophe risks, with historical losses being well covered by our programme. The programme is designed to cover at least 1-in-200-year events and is stress-tested for climate change scenarios.
· Reserves are reviewed and challenged at the Group Reserving Committee meeting, which is attended by the Group Chief Actuary, CRO, CUO, CFO and CEO.
Operational risk This risk relates to customer and/or reputational damage arising from operational failures, such as IT system failure.
· Control effectiveness monitored through formal validation and assurance. · Customer Policy being embedded across the Group. · IT and data risks remain a key focus, especially cyber threat.
We have also developed new partnerships to support our ambitions. In Canada, we refocused our partnership with WWF on improving flood resilience by educating communities on the value of nature-based flood defence measures. In the UK, we established a new partnership with the Royal Society for the Prevention of Accidents (RoSPA) to address safety on the roads and at home.
Building stronger relationships Our relationships with customers, employees and the communities we serve underpin our business.
Excellence in customer care During 2019, we reviewed our governance and oversight structures to ensure the fair treatment of customers – and consistently good customer outcomes – are at the heart of everything we do. This includes our proposition design, pricing and customer journeys.
Providing sustainable claims solutions Working in partnership with Autoglass to encourage windscreen chip repair over replacement. By conducting 10,000 chip repairs we’ve helped avoid 138 tonnes of waste glass and 450 tonnes of carbon emissions.
For more information on the actions we are taking, see pages 50 and 51.
RSA participates in the CRO Forum’s Emerging Risk Initiative and, as Chair, led its work to publish the paper ‘The heat is on: Insurability and resilience in a changing climate’.
Responsible supply chain In addition to the impact of our own operations, through our supply chain we have many opportunities to make a positive environmental and social impact.
Human rights RSA has been a signatory to the UN Global Compact since 2007, which helps companies align their operations with the ten universal principles covering the environment, human rights, labour and anti-corruption. In 2019, we refreshed our Human Rights Policy, which is based on the Universal Declaration of Human Rights, the International Labour Organization’s Fundamental Principles on Labour and the United Nations’ Guiding Principles on Business and Human Rights. It sets out the standards we expect for our employment practices, the actions of our supply chain, and principles we apply to our investment and underwriting portfolios.
Our aim is to raise awareness of issues, ensure that procedures are in place to prevent breaches and conduct appropriate due diligence. The introduction of our new supplier management information portal in the UK this year has improved our ability to monitor suppliers’ approaches to managing human rights and our ability to track performance over time. To date, 830 suppliers are registered on our supplier portal, with 47% of suppliers having a dedicated human rights policy in place. Our procurement team considers human rights when reviewing supplier tenders, as well as existing supplier contracts. Further information can be found in our Modern Slavery Statement on our website.
RSA Annual Report and Accounts 201946 rsagroup.com for payments to brokers and procurement activity. Directors, people leaders and others with supervisory responsibility must ensure that employees, contractors, business partners and suppliers are aware of these policies and comply with them. In 2019, all our employees completed mandatory eLearning modules on these topics. We encourage employees to identify and escalate concerns to management or our confidential thirdparty whistleblowing helpline in line with our Whistleblowing Policy. Operating countries complete risk assessments, which are reviewed and updated annually, supported by a central team enabling continuous improvement to controls. The Audit Committee periodically reviews Internal Audit findings in relation to our Anti-Bribery and Corruption and Whistleblowing policies.
Looking forward Over the coming year, we will be reviewing our position on responsible investment and underwriting across a broader set of environmental and social issues. We are seeking to grow our partnerships, products and services that demonstrate our commitment to shaping a smarter tomorrow.
We are also keen to work with our stakeholders to scale up our activities in support of local communities, a more responsible supply chain and reducing our environmental impact. To support and evidence these ambitions, we are committed to strengthening our overall measurement and reporting across all dimensions of our strategy.
The information contained in the Corporate Responsibility and People sections of this report on pages 44 to 51, together with the description of our business model on pages 6 and 7 and our principal risks on pages 40 to 43, form our non-financial information statement.
Shaping a smarter tomorrow Using partnerships and innovation to help people and businesses learn about the risks they face and how to manage them effectively.
· Expanded our TruceTO campaign promoting harmony among cyclists, pedestrians and motorists in Toronto, working with DriveWise to reach 6,000 people with educational materials.
· Promoted diversity and inclusion across our organisation, in talent development, succession planning and support for events including the annual Dive In festival.
· Implemented regional programmes with a focus on improving customer outcomes.
· Achieved a 45% uptake in employee volunteering, investing 11,911 hours supporting 610 organisations.
· Partnered with DaneAge to tackle loneliness among the elderly in Denmark.
· Introduced a new risk management tool covering 80% of our UK suppliers to improve monitoring of environmental and social issues.
· Engaged our key suppliers on reducing our environmental impact through promotion of ‘repair over replace’.
Pathway towards adopting TCFD recommendations In June 2017, the Task Force on Climaterelated Financial Disclosures (TCFD) published recommendations to encourage businesses to increase disclosure of climate-related information. These recommendations focus on governance, risk management and business strategies to manage climate-related risks and low-carbon opportunities, with an emphasis on financial disclosure and the use of scenario analysis.
In 2019, climate change featured as a key topic for discussion at the Board’s strategy away day; this included input from expert speakers and a discussion on issues such as trends in costs from weather-related events as well as the proactive role RSA can play in supporting the energy transition. Climate change is also specifically considered in Board discussions on the operating plan.
Responsibility for climate change is integrated into roles and responsibilities of senior managers across a number of key functions, including Finance, Underwriting, Investments and Risk. William McDonnell, our Group Chief Risk Officer, has overall responsibility for the environment and RSA’s overall response to the risks of climate change, chairing our ESG Committee which regularly updates the Group Corporate Responsibility Committee, Executive Committee and Group Board on activities and progress against targets. Within each region, country-level senior management is responsible for ensuring business strategy is executed and that our business plans take into consideration the operating environment and material risks.
As a result of our analysis on long-term weather trends, we have revised the weather assumptions included within our annual threeyear plan. These assumptions are normally based on a five-year historical analysis; however, forward-looking trend analysis can help to factor in more frequent weather extremes resulting from climate change. For example, our analysis suggests that extreme precipitation events are increasing by up to 3%. RSA’s reinsurance treaties are used to ensure exposure to weather events remains within our risk appetite.
Strategy · Defined specific position on climate change and our support for the transition to a low-carbon economy, and Climate Change Risk Action Plan
· Launched Confident Futures strategy, including focus on responsible underwriting and investments and sustainable operations
· Review how climate issues are integrated into regional and portfolio underwriting strategies
· Continue our engagement with forums, including ClimateWise, UN Principles for Sustainable Insurance and PRA/FCA Climate Financial Risk Forum
· Integrated climate change in Group Risk Appetite Statement and Own Risk and Solvency Assessment (ORSA)
· Converted long-term physical risks to short-term trends for use in risk management and planning
· Having articulated our risk appetite in 2019, ensure this is fully embedded through underwriting, asset and risk management processes
· Achieved a 15% reduction in carbon emissions compared with 2018
· Set new carbon emissions reduction target for our direct operations; and commitment to sourcing renewable energy for our operations
· Achieved a score of B in the 2019 CDP climate disclosure framework
Target: Carbon emissions (scopes 1, 2, 3) tCO2e reduction by 2030
£167m 2.6% of net earned premiums energy portfolio NWP in renewable energy
· We work with our customers to promote measures that improve resilience to extreme weather
Operating costs associated with weatherrelated events have potential impact through increased claims. In 2019, weatherrelated losses were £167m, which was an improvement compared to the prior year. Planning for changing weather patterns, using up-to-date catastrophe models and building identifiable trends into our weather planning, technical pricing and exposure management are a key part of our underwriting guidance. We also have an opportunity to influence our customers to improve their resilience through tools such as the RSA Risk Engineering Database, which enables our Commercial Lines customers to assess their exposure to weather-related perils and develop action plans to reduce these risks.
Notes: Based on Group permanent and non-permanent headcount. In line with FRC guidance, the headcount information shown in the table above covers RSA's wider workforce, including contractor, temporary and agency workers. Senior management reflects the same group reported in Women in Finance Charter goals. As at 31 December 2019, there were 135 males and 34 females who were directors of subsidiary undertakings included in the consolidation. This includes dormant companies. It is not a reference group that RSA uses and we do not believe it is an accurate indicator of diversity; however, it is disclosed to comply with regulatory requirements. Note that there are 110 independent contractors in Canada and 83 independent contractors in Scandinavia for whom gender data cannot be collected. These individuals have been excluded from the gender headcount analysis shown above.
Group-wide, our goal is a culture of high performance and engagement. We look to deliver this through the quality of our new hires, providing first-class technical and leadership development and ensuring that we have organisational efficiency. 2019 has been a year of stabilisation and building on the work that started in 2018. Our “Your Best U” programme has continued to be embedded in RSA, inspiring a working culture where people are able to bring their best selves to work every day.
Gender diversity remains important, and we have taken steps to improve diversity among senior management, where there has been an increased focus and attention on ensuring women have the requisite opportunities and support to progress their careers at RSA.
RSA sponsored the Dive In Festival in 2019, a pan-insurance initiative led by Lloyd’s of London focusing on inclusion. The vision for the insurance industry is to be recognised as a progressive industry, which can attract and support the best talent regardless of background. RSA also co-hosted successful events on inclusion in Dublin, on mental health and well-being in Manchester, and on social mobility in London. We continue to celebrate and recognise many different aspects of diversity across our regions, including supporting Pride in all regions and recognising World Mental Health Day.
We published our second Gender Pay Gap figures in the UK – the full report can be accessed via the following link www.rsagroup.com/media/3391/ rsa-gender-pay-gap-report-2018.pdf 2020 priorities In 2020, roll-out of our inclusive leadership and unconscious bias training will continue, supplemented by embedding unconscious bias learnings into our people processes.
A dialogue with the UK executive team and other senior leaders in September 2019 resulted in a clear vision for the culture we desire. Action plans are now in place to ensure we achieve this.
We have continued our focus on leadership development with the delivery of 41 resilience workshops, and selection skills for 400 employees, c.50% of the current leadership population.
Leadership development Leadership development has been at the centre of our work in Canada for the past two years. In 2018, we conducted a needs analysis and used the data from this to design a three-tier leader development programme in conjunction with the Ivey (University of Western Ontario).
Projects were based on current business problems and were presented back to the Executive team in November 2019. The feedback from the programme was very positive with an 86% overall satisfaction rating for the first two modules.
We continue to build on our reward and performance strategy, and undertook a job-grading exercise to assess whether attraction levels and development strategies were fit for purpose. Our work on performance management evaluation methodology has provided our employees with a new performance scale of ‘what they are delivering’ and ‘how they are delivering’, providing them with a clearer link to the leadership behaviours that will enable them to be successful.
A two-pronged approach to development has seen us focus on building in-house change management capabilities, as well as developing a programme for specialists, from different functions and countries, so that we can improve cross-collaboration in order to drive innovation at speed.
Canada’s People Plan focus has been on working together effectively. The journey for 2019 included a strategy refresh, which was shared extensively with staff through townhalls and tailored executive communications.
Improving consistent communications and key messaging has also been important. We have delivered monthly CEO intranet messages to all employees, quarterly key messaging documents to senior leaders and monthly CEO-led calls with Vice Presidents. Feedback has been positive on all three and we are continuing to look for new and different ways to support engagement.
The Middle East region has focused on the performance and development of employees through an uplift in our technical development programme and the roll-out of a new performance management process, which brings it in line with the wider Group approach. The design of our new offices has enabled us to further foster a more collaborative and open working culture.
Learning and development will continue through the ramp-up of further core development for our leaders. We will also offer leadership apprenticeships to school/ college leavers to increase our attractiveness to different communities.
Canada’s focus for 2020 will be enhancing performance and continuing to build capability. We will refresh our employee value proposition, which will also include a review of employee incentives and benefits. To support this work, we will define improvements to our strategic workforce planning process and ensure the outputs from this link with capability planning, employee development and ongoing leadership development.
In the Middle East, development initiatives will continue in 2020 to further build performance strength. To grow the Middle East business requires a purpose-driven culture that embraces change and enables collaboration, innovation and accountability.
Dear reader The Group’s 2019 results reflect the strong progress towards our best-in-class ambitions and I am proud of the hard work and commitment which my Board colleagues, the management team and the Group’s employees have shown in the past year. The Group continues to work towards delivering improvements and efficiencies for its customers, particularly across underwriting effectiveness, and technology and digital.
The Board and its committees focused on the following key areas in 2019: · Strategy and execution
Having joined the Board as an independent Non-Executive Director in 2018, Charlotte Jones took up the role of Group Chief Financial Officer on 31 July 2019. Charlotte replaced Scott Egan who moved to become CEO of RSA’s UK & International region in February 2019.
Isabel Hudson retired from the Board on 31 July 2019. The Board would like to thank Isabel for her significant contribution over her tenure and the advice and guidance she has given the Board and management. I was delighted that Martin Strobel agreed to succeed Isabel as the Company’s Senior Independent Director and took up this position from 1 August 2019.
Also, as reported last year, Joseph Streppel stepped down from the Board with effect from 9 May 2019. Alastair Barbour intends to step down from the Board in October 2020, being the ninth anniversary of his appointment as a Non-Executive Director. On behalf of the Board, I would like to thank Alastair for his outstanding contribution both as a NonExecutive Director and as Chair of the Group Audit Committee and wish him every success for the future.
2019 saw the Board increase its direct engagement with the Group’s employees. This included employee ‘town halls’ and employee breakfasts and lunches, with participation from all members of the Board and all levels of seniority amongst colleagues. The Board views these as effective channels to gain a deeper understanding of the views of the workforce.
During the year, the Board approved a stand-alone Board Diversity Policy which outlines the importance of diversity of gender, social and ethnic backgrounds, and of cognitive and personal strengths to the Board. The Policy is available on our website www.rsagroup.com. For further information on our approach to succession planning, appointments and diversity, see pages 66 and 67.
This year, the performance and effectiveness evaluation of the Board and its committees was conducted externally by Lintstock, an independent external evaluation facilitator. The evaluation was conducted using online surveys completed by the Board and regular management attendees to Board and committee meetings, complemented by individual interviews with each director.
Remuneration Executive remuneration remains an important topic in the UK and is evaluated by the Board and the Remuneration Committee. Shareholders will be asked to vote on a resolution to approve the Directors’ remuneration policy at the AGM in 2020. Further information on the work of the Remuneration Committee can be found on pages 72 and 73 and the proposed remuneration policy can be found on pages 76 to 84.
Kath Cates Independent Non-Executive Director Appointment date: September 2013 Nationality: British Committee membership: R A B N
Kath has spent over 25 years in a variety of roles in global financial services, both in the UK and overseas. She was previously Chief Operating Officer, Wholesale Banking, for Standard Chartered Bank and spent 22 years at UBS. Kath has gained a deep knowledge of control, governance and risk management, working in emerging markets and across different sectors and cultures.
Non-executive director and Chair of the Board Risk Committee of Brewin Dolphin Holdings plc and non-executive director of Threadneedle Investment Services Limited, Threadneedle Pensions Limited and Threadneedle Asset Management Holdings Sàrl.
Scott has substantial financial services experience and understanding of the insurance sector, which he brings to the Board when setting the strategy and operations for the UK & International region. Scott held the position of Group Chief Financial Officer at RSA prior to his Chief Executive appointment. Before RSA, Scott was Interim Chief Executive Officer at Towergate Insurance, having previously held the post of Chief Financial Officer. Scott also held the post of Chief Financial Officer at Brit Insurance, after four years as Chief Financial Officer UK at Zurich Financial Services, and latterly as Group Financial Controller. He has also held various senior finance and non-finance roles at Aviva. Scott is a qualified accountant (ACMA) and has an MBA from Cranfield University.
Alastair Barbour FCA* Independent Non-Executive Director Appointment date: October 2011 Nationality: British Committee membership: A NIB
Alastair has extensive experience in advising on accounting and financial reporting, corporate governance and management issues in the financial sector. He brings in-depth knowledge and understanding of accounting and global governance. He is a Fellow of the Institute of Chartered Accountants in England and Wales. Alastair retired from KPMG in March 2011. In the last 20 years of his 36-year career with the firm, in the UK and overseas, he led its financial services team in Scotland with a primary focus on insurance and investment management.
Chairman of Liontrust Asset Management plc, Senior Independent Director and Audit Committee Chairman of Phoenix Group Holdings and director of The Bank of N.T. Butterfield & Son Limited (a company listed in Bermuda and New York).
Enrico Cucchiani Independent Non-Executive Director Appointment date: December 2014 Nationality: Italian Committee membership: RB
Stephen Hester Group Chief Executive Appointment date: February 2014 Nationality: British
Stephen has over 35 years’ experience in financial services and general management. He has been CEO of three FTSE 100 companies over the last 16 years. He is responsible for leadership of the executive management team, along with leading strategy and business plan development and execution for the Company and its major operating subsidiaries, having regard to the requirements of the Company’s shareholders and other stakeholders.
Martin has over 25 years’ experience in insurance and financial services. He was CEO of Baloise Group for seven years to 2015. Martin joined Baloise Group as the Head of IT at Basler Switzerland, responsible for major cross-functional insurance and finance projects. From 2003 to 2008, he was a member of the Corporate Executive Committee. From 1993 to 1999, Martin performed various roles at Boston Consulting Group, Düsseldorf, advising business in the banking and insurance sectors. Martin previously held a non-executive directorship at Anivo 360 AG for three years.
Chief Financial Officer of M&G plc, the international savings and investment company which recently demerged from Prudential plc, and Non-Executive Director and Chair of the Audit Committee at Pacific Life Re Limited, a role Clare will retire from before joining the RSA Board.
Sonia Baxendale Independent Non-Executive Director Appointment date: March 2019 Nationality: British/Canadian Committee membership: AI
The Executive Committee comprises Stephen Hester, Scott Egan and Charlotte Jones, Executive Directors of the Group Board, as well as Chief Executive Officers of the Canadian and Scandinavian regional businesses and senior management in key functional roles.
Ken Norgrove CEO RSA Scandinavia Ken was appointed CEO of RSA Scandinavia and joined the Executive Committee in August 2019. Ken joined RSA in 1986 and held several senior roles before becoming CEO of RSA Insurance Ireland in June 2014. Ken re-joined RSA in 2014 after three years as CEO of Zurich General Insurance (Ireland), before which he was Vice President of Travelers Insurance, responsible for International Strategic Development.
Before joining RSA, Charlotte worked at law firm Linklaters LLP, specialising in corporate advisory, public and private M&A and equity capital market transactions.
Ralph Daals Group Chief Auditor Ralph was appointed Group Chief Auditor in June 2015 with responsibility for leading the Group Internal Audit Function. Previously, he held the post of Chief Auditor for the UK and Western Europe.
William McDonnell Group Chief Risk Officer William was appointed Group Chief Risk Officer in 2014, responsible for Risk and Compliance groupwide. Since joining RSA in 2006, William has also held the roles of Group Financial Controller and Head of Corporate Finance.
Through regular review of the Board’s rolling agenda and previews of each Board meeting’s agenda, the Chairman ensures sufficient time is allowed for discussion and debate and ensures the provision of timely, accurate and clear information.
The Senior Independent Director supports the Chairman in the delivery of his responsibilities as required, ensuring the views of each of the non-executive directors are given due consideration, and serves as an intermediary for the other directors and shareholders.
The role of the non-executive directors is to challenge and approve the Group’s strategy and to assess and challenge performance against business plans, bringing an independent, objective view to the discussion.
Board Risk Committee (BRC) The BRC has a pivotal role in ensuring the key risks to the Group are identified and understood, are effectively managed within risk appetite with regard to the views and interests of stakeholders and are appropriately reflected in the Internal Model. It has oversight of customer and conduct risks.
Group Investment Committee (GIC) The GIC manages all aspects of the investment policy and strategy for the Company and provides oversight of the operation of the Company’s investment portfolios, including oversight of the defined benefit pension schemes, within established strategy and risk frameworks.
Group Nomination and Governance Committee (NomCo) The NomCo considers the structure, size and composition of the Board and committees and identifies and proposes candidates to the Group Board. It ensures appropriate succession plans are in place for the Board and reviews executive succession planning. The NomCo also focuses on Board effectiveness and oversees the ongoing suitability of the governance framework.
Board committee structure and membership In order that it can operate efficiently and give the right level of attention and consideration to relevant matters, the Board delegates authority to its Board committees, as set out below.
The System of Governance comprises three elements: 1. The Board and its committees: how the business is managed.
2. Risk Management System: how risks are identified, measured, managed, monitored and reported.
The Board and its committees The Board promotes high standards of corporate governance and conduct throughout the Group and is responsible for ensuring the effectiveness of the Group’s System of Governance, which is approved on an annual basis.
The Board Risk Committee has responsibility for reviewing and recommending the System of Governance to the Board and has specific responsibilities for the Group’s Risk Management System, including the Internal Model and Solvency II capital ratios, setting the Group’s overall risk strategy and risk appetite, and for approving the risk management policies. For further details, refer to the Board Risk Committee Report on pages 68 and 69.
The Board reviewed the effectiveness of the Company’s risk management and internal control systems including financial, operational and compliance controls and concluded that they were appropriate and had operated effectively during the year.
Risk Management System · A common framework through which risk management and control is embedded
· Risk Management System is underpinned by the ‘Three Lines of Defence’ model.
Implementation and maintenance of the Internal Control System is delegated to senior management.
The Internal Control System comprises three key elements: 1. Internal Control Framework · Policies establish standard controls, which are implemented and operated by the business
· The internal control framework includes financial controllership which is subject to assurance through the Financial Control Framework and its independent Quality Assurance process. Financial controllership is designed and operated to provide reasonable, but not absolute, assurance against material financial reporting misstatement or loss
· Onward delegation to senior management through ‘Executive Licences’ which set out specific limits of authority to ensure all employees execute their responsibilities within clearly defined limits in compliance with relevant regulatory and statutory requirements
· Mitigates risk of the Group being exposed or committed to material financial, operational, legal, reputational, regulatory risk and/or loss and provides clarity on who can make what type and level of decisions.
Board activities during 2019 The Board seeks to ensure that the views of its stakeholders are considered during Board discussions and decision-making. The principal decisions of the Board during the year include: · Setting our culture and people strategy
During the financial year, key activities of the Board included the following: Customers · Regular updates on customer metrics and quarterly updates from the Customer Committee were provided to the Board.
· Customer matters were discussed with management at every Board meeting. Further information on customer and conduct matters is available in the Board Risk Committee report on page 68.
· Further information on engagement with customers is available on page 8.
Strategy and execution · The Board approved the Group’s operational plan, which included regional operating plans and the strategic priorities to support achieving best-in-class status.
· At its annual two-day strategy meeting the Board discussed trends in the insurance market and the Group’s strategy. Senior management attended to present on business issues and various innovations in support of the long-term strategy and vision of the Group. This year, the presentations included: climate risks; the underwriting framework; customers’ demands and needs; technology and cyber; and our portfolio strategy.
· The Board met with management of each of the regional businesses to discuss business strategy, customers and people, progress towards our bestin -class ambitions, cyber and digital developments, developing market trends and emerging risks.
· Improved underwriting capability was a key focus of the Board in 2019. A triage process was used to identify improvements and learnings that have supported the solid underwriting results for 2019. Further information can be found on page 22.
· The Board approved the Company’s low-carbon policy position and carbon reduction targets of 37% by 2025 and 50% by 2030. See pages 47 to 49 for more information.
People and culture · The Board reviewed the development of diversity, inclusion and equal opportunities within the business and is supportive of an agreed programme of actions that focus on improving Group-wide diversity.
· The Investor Relations team presented twice during the year on investor sentiment, competitor trends and comparisons.
· The Board approved the Annual Report and Accounts 2018, as well as approving the preliminary results and trading updates in 2019.
Governance, controls, risk and regulatory · The Board participated in the annual Board and committee performance evaluation, this year facilitated externally. See pages 60 and 61 for more information.
· The Board also reviewed and challenged the Own Risk and Solvency Assessment prior to submission to the PRA.
· The Board received updates on compliance with the Code and approved the system of governance for the Company.
After discussion at the Group Nomination and Governance Committee, it was agreed that the 2019 evaluation would assess the performance of the Board as a whole, its committees and the individual directors. The evaluation process was designed to include: · Consideration of the balance of skills, experience and composition of the Board
· A 360-degree evaluation of the individual performance of all the Directors.
The review process was undertaken in two phases: Phase 1 – surveys All Board members were asked to complete an online survey covering the performance of the Board, its committees, the Chairman and fellow directors. The questions were developed by Lintstock in consultation with the Chairman and the Group Chief Legal Officer and Company Secretary and were designed to include consideration of the following themes: · Board composition and dynamics
· The understanding of stakeholder views and effectiveness of engagement mechanisms and
Phase 2 – interviews In phase 2, Lintstock interviewed each of the Directors, focusing on matters of particular interest to the Director as identified by the survey, as well as emerging themes. Areas of note in relation to the committee surveys were also discussed with the committee chair.
The results of the self-assessment element of the survey were shared with the Chairman and discussed at one-to-one discussions between the Chairman and individual Directors.
Maintain the momentum established in relation to stakeholder engagement and look to further improve the Board's understanding of stakeholder views
Continue to drive improvements to Board and committee papers and presentations
Group Chief Executive/Group Chief Financial Officer and the Group Chief Legal Officer and Company Secretary
Through the 2019 Board evaluation process, the Board confirmed it has the appropriate balance of skills, experience, independence and knowledge to enable it and its committees to discharge their duties and responsibilities effectively. Respondents unanimously concurred that the Board had performed well over the year and was operating effectively.
The Chairman confirmed that the individual Directors' performance continued to be effective and demonstrated commitment to the role.
Taking into consideration the Directors' time commitment and performance on the Board and its committees, the Board concluded that all the Directors continued to be effective, devoted sufficient time to discharging their duties and made valuable contributions to the Board. Therefore, the Board is proposing the election and reelections as set out in the 2020 Notice of Annual General Meeting.
The Senior Independent Director met with the Chairman privately to discuss the anonymised results of the Chairman review section of the survey and the output from non-executive only discussion. The overall effectiveness of the Chairman was rated as excellent and he was said to have a genuine focus on the best outcomes for the Company in all aspects of his role.
During the year, we received briefings and undertook deep dives on a number of matters, including long outstanding IT and underwriting matters raised by Internal Audit, our Scandinavian finance improvement programme and accounting developments, specifically IFRS 17. In December, we considered an externally commissioned assessment of substantially all of our UK reserves and assessed its recommendations.
The Group’s IT infrastructure, its development, remediation where necessary and enhancements, continues to be an area of particular focus for both the Group Audit and Board Risk Committees. The Committee received regular updates on enhancing general IT controls and remediation of issues raised by internal and external audit, with an emphasis on difficult and overdue issues.
In November, we held a meeting attended by all Committee members and the regional audit committee chairs on external audit. The session focused on the external audit market currently, the quality and effectiveness of our external audit and the approach to the audit tender which is required by 2023. The session also covered the effectiveness of the Group and regional audit committee operating and engagement model.
The members possess diverse experience, knowledge and skills, which enables them collectively to act as an effective committee.
I am confident that the Committee is well briefed and continues to fulfil its duties to shareholders and other stakeholders through an enquiring approach and high-quality management challenge throughout the year.
The Committee considered and challenged the significant accounting and actuarial judgements and estimates that it believed could be material to the 2019 Annual Report and Accounts and Solvency II reporting.
The significant issues considered relating to financial reporting for the year ended 31 December 2019 are set out below.
Insurance liabilities valuation The Committee ensured that management exercised appropriate judgement and control in estimating insurance contract liabilities. The key actuarial assumptions underpinning the valuation of insurance liabilities and associated risks and uncertainties were reviewed and challenged.
“I am confident that the Committee is well briefed and continues to fulfil its duties to shareholders and other stakeholders.” Alastair Barbour FCA Non-Executive Director and Chairman of the Group Audit Committee
The results of the internal reserving assurance programme which provide independent validation of reserves set at a regional level and which in 2019 covered Denmark, Ireland, Group Reinsurance and Canadian short-tail were reviewed by the Committee. In addition, the Committee commissioned an external review of UK business reserves and reserve adequacy, and concluded that the recorded reserves were within an acceptable range.
The Committee was satisfied that management exercised appropriate judgement and control in estimating insurance liabilities, reflecting available and reliable information when setting the reserves and that an appropriate margin of 5% for uncertainties is maintained.
The Committee reviewed the valuation methodology supporting the value of the pension scheme assets, specifically plan assets relating to the longevity swap. The Committee was satisfied with managements’ procedures to assess the independent asset valuations received from valuation specialists.
No impairments to goodwill were identified during the year. The Committee considered and approved the carrying value of other intangible assets and small impairments of software no longer in use.
The Committee reviews the carrying value assessments on an annual basis with a review for any indications of impairment performed on a quarterly basis.
IT systems and controls The Group’s IT infrastructure, including retained legacy systems, is complex and financial reporting is dependent on the operational and financial IT systems operating effectively and the control environment in which they operate. This is a key area of focus for both Group Audit and Board Risk Committees and during the year they received updates from accountable management, both in Finance and Technology, on progress to enhance IT general controls, the oversight of IT testing processes and improvements in documentation and standards, together with regular reporting from Internal Audit on the results of its reviews and testing.
Financial controls assurance reported to the Committee provided comfort that the financial results were free from material misstatement and additional financial controls were operated in areas where IT controls require strengthening.
Alternative Performance Measures (APMs) The Committee discussed and challenged management on the presentation of APMs in the half- and full-year results announcements and Annual Report and Accounts in line with external guidance and FRC expectations.
After due consideration, the Committee agreed with management’s use of APMs, which aim to provide clear information of the Group’s performance, including and excluding the impact of the exited UK&I portfolios in 2019, to enable users to understand and assess the performance of the continuing business and evaluate future performance potential.
The Committee also considered KPMG’s observations in respect of the presentation of APMs.
· Received quarterly updates on the assessment and testing of financial processes and controls as part of the Financial Control Framework (FCF), including any deficiencies and the actions taken to address. See page 58 for more information. The FCF was enhanced during 2019, developing the risk-based approach to process and controls assessment and further improving the robustness of key controls and assurances given. This will bring greater levels of insight to the Committee. The Group operates an external Quality Assurance (QA) programme, providing independent assurance over the FCF and its operation as well as bringing industry insight and benchmarking to support continual process improvement and control optimisation. An external review of the UK FCF operations was conducted in 2019 and reported satisfactory results.
· At the half year and year end, considered and discussed KPMG’s findings and opinions in relation to the key risk areas, judgements, changes to the audit plan and materiality, and discussed the underlying reasons.
· Received regular updates from the Group Chief Compliance Officer and Group Chief Legal Officer and Company Secretary on legal and regulatory developments and critical conduct risks issues. The Committee reviewed and approved the 2020 Group Compliance Plan which sets out the work to be undertaken in the upcoming year to ensure compliance with regulatory requirements and areas of legal risk, that critical conduct risk areas are managed and the maintenance of an open, constructive and cooperative relationship with the Group’s regulators.
· Reviewed and approved the Group Internal Audit Charter which sets out the function’s role, mandate and authority, and includes independence and objectivity criteria. The Charter included changes to reflect new Solvency II related guidance for internal audit functions.
· Held private meetings with the Group Chief Auditor, the Group Chief Compliance Officer, the Group Chief Financial Officer, the external auditor and the Group Chief Actuary without other members of management being present.
Internal Control The Internal Control System forms part of the System of Governance as set out on page 58. To continually assess the effectiveness of the Internal Control System, the Committee received regular reports from the Group Chief Auditor, external auditor and the Group Chief Risk Officer on the integrity of the control environment and Regulatory Compliance Framework and discussed and challenged the findings, recommendations and proposed control improvements set out in the reports. The Committee reviewed the effectiveness of the Internal Control System during 2019 and concluded that it was appropriate and operated effectively during the year.
The Committee considers that an effective and appropriate ongoing process for identifying, evaluating and managing the significant risks faced by the Group was in place during 2019 and for the purposes of approving the Annual Report and Accounts.
See pages 40 to 43 for more information on the Group’s Risk Management Framework.
GIA operates a six-monthly rolling riskbased audit plan, allowing for a frequent and dynamic risk assessment that includes emerging and systemic risks. The Committee may request additional audits as required. Rolling audit plans were approved by the Committee in May and December 2019 and their input was included in the plans.
GIA operates an ongoing QA programme that is performed by external specialists. A summary of the QA results is reported annually to the Committee. In addition, Deloitte performed an External Quality Assessment of GIA, evaluating the function’s conformance with all applicable professional standards, Group and local regulatory requirements, and adherence to relevant codes, including: the International
Auditor tenure The Committee is responsible for overseeing relations with the external auditor, including the proposed external audit plan and the approval of fees, and makes recommendations to the Board on their appointment or reappointment. KPMG was appointed as the Group’s external auditor in 2013 and has been re-appointed at each subsequent AGM.
During the year, the Committee considered its position on the external audit services contract and examined a number of options regarding the timing of tendering for the external audit, mindful of the mandatory tender of the Group’s audit firm which is required by 31 December 2023. When considering the timing of the external audit tender, the Committee took into account the quality and effectiveness of KPMG’s service currently, the Group’s ongoing change programmes, the services provided by other auditing firms and audit partner rotation. The Committee concluded that it was not appropriate to tender the audit at this time and will continue to review the position on an annual basis.
Auditor independence and objectivity The Committee attaches considerable importance to the work, opinions and findings of KPMG, which participate in all Committee meetings. The Committee has provided clear guidance to KPMG on the expectations of it as auditor: that the Committee on behalf of shareholders, not management, is KPMG’s client; that as a team they are expected to challenge appropriately; to raise issues and concerns with the Committee as soon as is appropriate; and, on material matters, indicate its agreement to the position taken by management, or to explain why it does not, and the implications.
Auditor independence and objectivity are safeguarded by a number of control measures, including: · Limiting the nature and value of non-audit services performed by the external auditor as set out in the non-audit services policy
· Ensuring that employees of the external auditor that have recently worked on the audit are not appointed to senior roles within the Group
KPMG presented to the Committee on the FRC’s inspection findings report on the KPMG 2018/19 audit cycle. The Committee discussed the actions taken by KPMG in response and how they impact the RSA audit.
If an engagement requires Committee approval but work needs to commence before the next meeting at which approval could be sought, the Chairman of the Committee and the Group Financial Controller may approve the engagements (up to £50,000 and £20,000 respectively). These are then reported to the following committee meeting for ratification.
· Considering and implementing changes required to support our compliance with the Code
· Implementation of a Board Diversity Policy, which aligns with the existing Group policy and
Appointments and role changes during the year The Committee oversaw a number of changes to the Board this year. As previously reported in the Company’s 2018 annual report, Charlotte Jones replaced Scott Egan as Group CFO on 31 July 2019. Scott moved into the role of Chief Executive of our UK & International division on 5 February 2019. We were delighted to be able to appoint internal candidates to these key executive roles and that our succession plans worked effectively to support this.
Following a recommendation from the Committee, Clare Bousfield was also appointed as a Non-Executive Director to the Board and as a member of the Group Audit Committee with effect from 1 April 2020.
The process for Clare’s appointment took place during 2019. Based on a candidate profile agreed by the Committee, the executive search firm, Russell Reynolds Associates, produced a long list of potential candidates.
The long list was reviewed by the Committee, and, after a thorough analysis, the Committee identified four prospective candidates to be shortlisted. Martin Strobel and I interviewed each shortlisted candidate. Interviews were subsequently conducted with Stephen Hester and Charlotte Jones which identified Clare as the preferred candidate. Clare had a final interview with Alastair Barbour and Kath Cates and also met with Scott Egan prior to her formal appointment.
Executive and senior management succession planning is also regularly reviewed by the Committee to ensure that a pipeline of high-performing, talented individuals across the Group is being maintained. Individuals identified as possible future candidates to join the Executive Committee team have tailored development plans and the Committee also seeks to ensure they are given appropriate opportunities to meet with Board members. Development themes and activities for possible future candidates to join the Executive Committee are reviewed annually by the Committee with input from the executive directors and an assessment of the strength of the succession pipeline is conducted to highlight areas where action may be required.
· Group-wide gender data was provided to the Hampton Alexander Review for a consecutive year, demonstrating our continued commitment to good governance and transparent reporting. The Board aspires to meet the recommendations of the Hampton Alexander Review and can report that, as at the date of this report, women make up 33% of the Board (at the date of the 2020 AGM this figure will be 40%).
· The Company remains a signatory to the ‘Women in Finance Charter’ through which the Group is committed to achieving a 33% representation of women in our management group by 2020, a target we exceed by achieving 34.6%.
We welcome the external focus on stakeholder engagement and have considered at length the different workforce engagement models proposed in the Code. The Committee and Board as a whole believe that meaningful engagement with our workforce is crucial to the success of our business and best owned by all Board members. Equally we have determined that we want to hear from as many of our workforce as possible both across our regions and at different levels of seniority and role type, and have designed our engagement plans to facilitate this.
The Committee was satisfied the stakeholder engagement undertaken by the Board during the year was appropriate and agreed that there had been substantive and constructive two-way dialogue with the Group’s employees through a variety of employee meetings, breakfasts and town halls.
Other activities · The Committee reviewed compliance against the Code and concluded that the Company has complied with the Principles and Provisions of the 2018 Code throughout the year.
· The Committee considered the nonexecutive directors’ external appointments and in each case was satisfied that the external appointments could be approved on the basis that they did not give rise to a conflict of interest and would not impact the director’s time commitment to the Company.
I, as the Chair of the Committee, attended a number of management and regional forums including the Customer Committee. I also attended the Scandinavian Risk Committee in May to further improve the knowledge exchange and collaboration within the Group. Topics discussed included the performance of the different insurance portfolios, the capital situation and the capital models, the status of IT risks and the project to improve our data management.
Customer and conduct risks in the UK have continued to be a substantial focus of the Committee in 2019. The Committee has devoted significant time to considering, challenging and supporting management on this. Committee members were informed about the topics covered by the Customer Committee during the year in order to understand and oversee the measures taken to further improve customer outcomes. This included case studies on our pricing in Pet Insurance and how we handle complaints in this area. We also had a deep dive into the organisational structure of our UK business and how customer and conduct risk management is embedded in the day-to-day operations, including how identified issues are investigated and resolved in a sustainable way.
IT and cyber security have been a key area of focus over the last few years for businesses and RSA, and will continue to be, given the pace and nature of technological change, and the evolving cyber threat landscape. These are extremely complex areas and have received significant attention from the Committee during the year. We received reports on our cyber improvement programmes and how we compare to industry standards and how we can achieve best practice. We also conducted mock ‘ethical hacking’ attacks on our systems to assure that our cyber capabilities also work in practice. The outcome of these exercises was used to validate and inform the remediation plans and they will also be a regular feature of our security testing programme going forwards.
“The Committee has a pivotal role in ensuring the key risks to the Group are identified, understood and effectively managed.” Martin Strobel Non-Executive Director and Chairman of the Board Risk Committee
Key enhancements during the year were: continued oversight of UK customer and conduct matters; increased prioritisation of and time spent on key topics, including risks and threats to the most profitable business areas in the Group; improvements to the horizon scanning processes, particularly in relation to customers, reserving and regulatory risk; IT and cyber; outputs and forward view from the newly created strategic portfolio tool; and management being engaged more directly and held accountable.
The Committee has also continued to oversee data management strategy and actions as a core driver for multiple risks and received regular updates on the implementation of a new data management policy. The Committee also received regular updates on data protection for regions subject to the General Data Protection Regulation.
Effective management of insurance risk is key to the Group’s performance and longer-term success. In 2019, the focus was on the monitoring and review of control oversight activity across the Group, as well as continued review and challenge on progress in enhancing underwriting quality and pricing sophistication. The Committee receives quarterly technical capability updates as appropriate, alongside regular insurance risk reporting. A deep dive on external delegation of authority was also undertaken to ensure risks were being managed and controls were operating appropriately. Other insurance risk deep dives covered large losses, construction and engineering risk (including renewable energy) and climate change liability, as well as considering the high-risk business lines written by the Group.
The Internal Capital Model (the model) and regulatory capital requirements of the Group are key topics at each meeting, with regular updates on current solvency position, including against risk appetite and consideration of model sensitivities. A major model change application was submitted to the PRA, and RSA received approval in December.
This model change focused mainly on changes to the insurance risk modelling, as well as updates to the Model Change Policy, and was informed by external review conducted in 2018. As part of the Committee’s review and challenge of the model change application, a separate and targeted briefing session was held in April.
In parallel, Scandinavia sought and received model approval from the Danish regulator in respect of our Scandinavian entities to mitigate the risk of moving to Standard Formula in the event of ‘hard Brexit’, which the Committee was regularly updated on.
The Committee considered and approved a climate change action plan for the effective management of financial and other risks from climate change. The action plan is structured around governance, management of risk and strategic implications. Climate change has also been integrated into existing risk plans and the System of Governance and the risk management framework. The risk appetite for underwriting and investments was revised accordingly. An ESG Committee was also established with responsibility for monitoring progress of the agreed action plan and will report on this to the Executive Committee and Board.
· The Committee received quarterly updates from the Group Chief Risk Officer on the key risks that potentially impact the Group, including an assessment of whether risks are within appetite and whether any mitigating actions are necessary. Horizon scanning reporting has been enhanced through a number of deliverables, including the introduction of a forward-looking regulatory risk radar.
· The Committee discussed a draft of the Chief Risk Officer’s annual risk and governance review, which is conducted to support the Group Remuneration Committee’s consideration of risk matters when agreeing executive variable pay awards. This process is a key link between the two committees and helps the Committee consider the effectiveness of the risk framework and the strength of risk culture within the Group.
· Actuarial Function Reports were provided by Group Actuarial in relation to Reinsurance, Underwriting and an outline of the actuarial function’s contribution to the risk management system.
· Group Risk Policies are reviewed on an annual cycle and any major changes are communicated to the Committee for its comment and approval. The Committee considered and approved a number of major changes to existing policies as well as new policies for operational resilience, pension risk and cloud. A number of enhancements were made to the policy management framework, including the refresh of control framework design principles and new policy templates to strengthen policy requirements. The suite of policies was also reviewed to ensure that the policy framework provided sufficient coverage of the key risk areas of the Group.
Looking forward Building on the progress made in 2019, we will continue to enhance the Committee while continuing to focus on the main risk categories such as insurance, financial, capital and operational risks with specific attention to risks and dependencies arising from the operational plan and the risks facing our key business areas. Customers will also remain high on our agenda. The Committee will monitor the embedding of new capabilities and will receive a deep dive on customer conduct. We also have deep dives planned on asset liability management, pensions risk and the internal model.
Our focus on IT and cyber will continue in 2020, including monitoring the progress and results of control validation and assurance and understanding the insights from the mock attacks.
Germany and China. Uncertainty created by Brexit was also seen as negatively impacting activity within Europe and more significantly within the UK.
Despite the weakening global growth environment and the general uncertainty created by the political environment, both corporate bond and equity markets remained well supported with growth rates generally still seen as sufficiently robust to underpin credit conditions. The continuation of the very low level of interest rate environment was more generally seen as encouraging investors to maintain exposure to equity and credit assets to support the returns generated by their investment portfolios.
Activity and performance During the year, the Committee managed all aspects of investment policy and strategy for the Group and provided oversight of the operation of the Group’s investment portfolios within established strategy and risk frameworks.
The Committee reviewed the overall asset allocation framework for the schemes and the associated implications for investment strategy and reaffirmed the Group’s core strategy, including the continued focus on high-quality cash and debt investments.
As with previous years, there has been a focus on development of exposure to investments within illiquid credit instruments. These investments, which include infrastructure loans, loans backed by property and trade receivables, have been targeted to take advantage of the additional yield offered for illiquidity relative to traditional quoted bonds. The total Group commitments to these assets now stand at c.£1.35bn of investments deployed. All investment into illiquid credit instruments continues to be very carefully managed and has been targeted so that it maintains the strong underlying credit quality of the Group’s investment portfolios. Performance of these investments continues to be in line with expectations, providing a valuable uplift to the Group’s investment income.
The Committee continued to also review the investment activity and strategy of the defined benefit pension schemes. While pension investment strategy is ultimately the responsibility of the scheme trustees, the Group actively monitors and inputs to the strategy process. Post completion of the triennial funding valuation in 2018, the Group has actively engaged with the schemes to consider longer-term strategy themes, including potential paths to future de-risking.
Looking forward The core, high-quality, low-risk investment structure of the Group is set to remain in place going forward, with asset allocation focused on debt investments. Within this framework the Group will continue to look for opportunities to enhance returns, with the allocation to illiquid credit assets likely to remain a particular area of focus over the coming year.
The Committee will, however, continue to monitor developments in market conditions and adjust strategy in light of the associated risks and opportunities that arise.
More broadly, the Committee will continue to review the governance framework for the portfolios and monitor developments in ESG issues and their implications for portfolio construction.
As at the date of this report, the Board is composed of 9 members: the Chairman, 5 non-executive directors and 3 executive directors. The table below shows the attendance at the Board and Committee meetings. The Chairman also met with the non-executive directors without management present four times during the year. Biographical information of the current directors can be found on pages 54 and 55.
Senior Independent non-executive director2 Martin Strobel 9/9 6/6 4/4 4/4 5/5 2/2
Policy’s application 80 6. Approach to recruitment remuneration 81 7. Service contracts and policy for payments on loss of office 82 8. Malus and clawback 83 9. Legacy incentive plans 83 10. Required shareholding 84 11. Policy for Non-Executive Directors 84
Renewing our Policy The Committee has undertaken a careful review of our Directors’ Remuneration Policy during the past year, ahead of its renewal at the AGM in May. In doing so, we actively sought views from the Group’s largest shareholders and proxy agencies, and I would like to thank everyone who provided feedback for their time and constructive comments.
As a result, the proposed 2020 Policy contains the following amendments linked to the UK Corporate Governance Code: · The maximum pension contribution rate for new executive directors will be aligned to the offering for new RSA employees. We have already put this into practice in the case of Charlotte Jones’ Group CFO appointment in 2019. Details of the steps being voluntarily taken by the other current directors on pension rates are set out below,
Aligning our executive pension rates Stephen Hester and Scott Egan have voluntarily committed to reduce their pension contribution rates to 10% of salary by the end of 2022, aligning to the offering for new UK-based colleagues and recent developments in UK corporate governance expectations. Last year it was announced Stephen would voluntarily reduce by 3% of salary from 1 April 2020, to 24% of salary. Further reductions will be to 21% from 1 April 2021, 18% from 1 April 2022 and 10% from 31 December 2022. Scott will reduce from 15% to 14% from 1 April 2020, 13% from 1 April 2021, 12% from 1 April 2022 and 10% from 31 December 2022.
Driving these improvements were a range of underlying actions that went well, as detailed in this Annual Report and the incentive scorecard narratives on pages 87 to 93. RSA’s total shareholder return for 2019 was 15%, well ahead of the average of other UK listed general insurers.
In determining these incentive outcomes, the Committee considered the awards for other RSA employees, the external context in which the business is operating, customer and ESG factors, and a risk report prepared for the Committee by the Group Chief Risk Officer. Half of the bonus awards are deferred into shares for three years, and are therefore linked to the RSA
∙ New peer-to-peer recognition platform in the UK, with 4,000+ recognitions in six months.
Competitiveness and cost effectiveness ∙ We design pay and benefits to be competitive in the local talent market, tailored by job family. ∙ If possible we offer employees the chance to customise their reward package.
Pay for performance ∙ We recognise what and how everyone contributes to RSA and provide opportunities to share in its success, in line with our long-term strategy and risk management.
share price. Downwards discretion was applied to the Business Scorecard element of the bonus as the Committee took account of the impact of portfolio exits (albeit that the Group’s 2019 operating plans and targets were set on an excluding exits basis), as set out on page 88. While the Committee considered whether any issues warranted the application of malus or clawback, it concluded this was not the case.
Salaries for Executive Directors and the Chairman’s fee will increase by 2% from 1 April 2020, which is below the average salary increase levels for our UK based employees.
Shareholding and appointment terms Stephen Hester has exceeded his required shareholding level (508% of salary vs 300% target). Scott Egan is at 193% and set to meet the 200% target in March 2020 when the share award vests. Charlotte Jones will progressively build her holding within the five year build-up period, and all vested awards must be retained post-tax until the required level is reached.
As noted in last year’s report, Charlotte forfeited a number of incentive awards from her previous employer on appointment. The Committee has applied the Policy in determining compensatory awards, which are predominantly share awards, as described on page 94. These are subject to clawback should Charlotte resign within two years.
We continue to keep the pay ratios shown on page 98 under close review. These are calculated on the required basis and so reflect the range of job roles in our UK-based business. Similar factors are used in setting pay for all employees including executives, including performance, market positioning, job size and content, and individual experience. The Committee is satisfied the Directors’ remuneration in this report properly reflects these factors and is therefore appropriate.
Lastly, our progress in reducing our gender pay gap is reported at www.rsagroup.com/ responsibility.
Shareholder engagement We remain committed to listening to investor feedback, and I welcome any comments you may have. I trust you find this report useful, and hope to receive your support for it at the AGM.
Note: Financial measures, including ROTE, PBT and COR relate to the Group’s underlying performance which is the basis on which the Group’s plans and targets were set by the Board, in common with practice in prior years and which excludes exits for 2019.
Group underlying ROTE, UK & Intl Underwriting Result, UK & Intl COR
Consider risk factors, workforce remuneration, customer and shareholder experience – adjust if needed
Simplicity Policy consists of fixed remuneration, annual and long-term incentive components only.
Alignment to culture Financial and non-financial incentive goals reflect and support business strategy. Assessment considers both what is delivered and how.
∙ Sustain a platform of financial strength that enables our purpose
∙ Focus on continuously improving operational delivery, through better customer service, underwriting and cost efficiency
Performance targets, results and full remuneration tables on pages 86 to 93
50% deferred into a share award for 3 years (malus may apply)
Notes: 1. Includes shares owned outright, and awards not subject to performance conditions excluding estimated tax/statutory deductions. 2. Scott Egan is set to reach the target holding with the March 2020 Performance Shares vesting. Charlotte Jones was appointed in 2019 and is due to reach the target in the five-year build up period. Directors must retain all vesting shares post-tax until the holding level is met. 3. Estimated additional shareholding that could result assuming existing Performance Share awards vest at on-target (62.5% vesting), after tax and statutory deductions, not including dividend equivalents. 4. Valuation uses the 2019 average RSA share price and each individual’s salary at 31 December 2019.
RSA Annual Report and Accounts 201976 rsagroup.com 1. Introduction This Policy describes the framework that will be used to set and manage the Directors’ remuneration with effect from 7 May 2020, subject to shareholder approval at the AGM on that date.
There are limited changes compared to the existing Policy, which has been in place since it was approved by shareholders in May 2017, to further enhance alignment with shareholders and to adopt emerging best practice in a small number of areas: · The maximum pension contribution rate for new Executive Directors will be aligned to other new RSA employees (for pension details of existing Executive Directors please see page 78, note 1).
Simplicity The Committee believes the five remuneration components (base salary, benefits, pension, annual bonus and long-term incentive) offer appropriate simplicity. It believes it is important to have both an annual incentive (supporting the delivery of short-term goals) and an LTIP (supporting the long-term strategy), as this provides better scope to align reward to different aspects of performance.
Predictability The Executive Directors’ remuneration potential in threshold, target and maximum performance scenarios (including with a 50% share price increase) is noted on page 80. The Policy states the maximum bonus and LTIP grant values.
The Committee maintains an open dialogue with shareholders. In the course of reviewing the Policy in 2019, the Committee Chair wrote to RSA’s leading investors and proxy agencies. The resulting comments (from both written feedback and in person discussions) were taken on board when assessing whether any changes were needed to the Policy, and supported the conclusion that no major changes were needed. They also helped shape the Committee’s approach regarding key Corporate Governance Code provisions on pensions and shareholding.
Director and workforce remuneration The Committee Chair engaged with RSA employees during the year on executive remuneration, via the internal social network site and invited feedback. While employees are not specifically consulted on the Directors’ Remuneration Policy, this activity, as part of wider workforce engagement forums such as employee surveys and town halls, enables an ongoing dialogue between the Committee and RSA’s employees.
Pay for performance · Pay is linked to performance, with variable remuneration fully contingent on the achievement of stretching short- and longterm objectives which directly support the achievement of strategic priorities and are aligned to shareholders’ interests.
Base salary (fixed remuneration) This element is designed to attract and retain high calibre executives, essential for ensuring RSA’s ongoing success.
Benefits are valued and determined with reference to the benchmarking peer groups and other surveys reviewed by the Committee.
Dividend equivalents accrue on the deferred shares, and are awarded at the end of the deferral period.
The Committee can exercise discretion to change the bonus measures, how they are weighted, calculated and targeted. It can adjust bonus outcomes to reflect broader performance considerations if considered appropriate and in shareholders’ interests, including adjustment downwards for current or future risk exposure, and make such amendments as are necessary to respond to regulatory, legal or accounting requirements. Shareholders will be notified if this has been carried out by disclosure in the relevant Directors’ Remuneration Report.
Measures typically cover profit, underwriting performance, risk management, expenses, capital and balance sheet strength, customer and business sustainability, and objectives personal to the executive.
Vested shares must be retained until the relevant shareholding level is reached, excluding any sold to satisfy statutory deductions, as detailed on page 84.
Awards are subject to the Group’s malus and clawback provisions, noted on page 83.
Shareholders will be consulted if material changes to the measures are proposed by the Committee.
The measures and targets for the 2020-22 cycle are on page 100.
Notes: 1. Post-employment retention periods apply to awards granted from 2019 onwards. 2. The current LTIP, referred to as the Performance Share Plan 2014 (PSP), was approved by shareholders at the 2014 AGM. It is also used as a vehicle for granting deferred bonus shares, and restricted shares where these are awarded as part of an Executive Director buy-out as noted on page 81. The LTIP policy provisions are the same for all other participants who receive performance-based awards, with the exception of the two-year post-vesting retention period which only covers Executive Directors, and local regulatory requirements. LTIP award opportunities vary for individuals below the Board. Members of the Executive Team and selected senior leaders across the Group are also required to hold shares in RSA.
Notes: 1. Based on the value of base salary and pension for 2020, and benefits in the 2019 total remuneration single figure (for Charlotte Jones, a full-year benefits estimate is used). 2. Assumes 62.5% vesting of the award in the 2020-22 grant, i.e. half-way between the 25% threshold vesting and 100% maximum vesting. 3. Assumes 100% vesting of the award in the 2020-22 grant.
performance period, the maximum outcome from the 2020-22 LTIP would be £1.7m (Scott Egan), £3.6m (Stephen Hester) and £1.5m (Charlotte Jones). This is based on 100% of the granted awards vesting multiplied by 1.5. If this was coupled with a maximum bonus award as in the Maximum scenarios above, the total remuneration receivable would be £3.3m (Scott Egan), £6.7m (Stephen Hester) and £2.9m (Charlotte Jones).
· Benefits and contractual terms will be the same as those offered to current Executive Directors, however the Committee will have close regard for the benefits and contractual terms offered to other new RSA employees, and may exercise judgement to flex the package to accommodate any specific terms bespoke to the individual, e.g. related to health, annual leave, relocation or insurance benefits.
Incentive awards · Under normal circumstances, a new Executive Director will be eligible for incentive awards in line with the usual policy as detailed on page 79. However, in exceptional circumstances, a higher bonus opportunity of up to 200% of salary may be agreed and a performance-related LTIP award may be approved by the Committee in the Director’s first year of service up to the limit of 400% of salary.
· If the director is entered into an RSA LTIP and made an award of Performance Shares, these will be subject to the same performance conditions and vesting terms as applies to other plan participants.
- This will only be permitted on receipt of reasonable evidence of loss. - Typically, the form of award that is being forfeited (e.g. cash or shares) will be replaced by the same form of award at RSA. - Performance-linked awards will normally only be compensated with Restricted Shares where a performance condition has been achieved or is nearing testing and there is a reasonable expectation of the vesting level. - Cash bonuses may be bought out with Restricted Shares in order to give the Director an early ‘stake’ in RSA. - The Committee may agree to reduce the value of the compensatory award below the anticipated or actual loss value if the compensation is paid at an advanced date (i.e. early settlement).
RSA Annual Report and Accounts 201982 rsagroup.com 7. Service contracts and policy for payments on loss of office Each of the Executive Directors is employed under a service agreement, which contains a variety of contractual terms and conditions. Contracts are available for inspection by shareholders at the Company’s registered office. Terms are designed to ensure fair treatment for departing executives while avoiding reward for failure.
· Notice periods are approved by the Committee, and at its discretion, can be reduced in the event an Executive Director resigns and wishes to leave prior to the end of his or her contractual notice period.
· The Company can require accrued annual leave related to the year of termination to be used during a notice period or garden leave, although payment of untaken days can alternatively be made in lieu.
· Salary, benefits and pension contributions continue during garden leave, but this time will not count towards the calculation of any Annual Bonus award that may subsequently be due.
· A Director may be paid in lieu of an unexpired portion of their notice period, covering base salary, pension and benefits, regardless of which party has served notice.
· Generally, in the event of termination and in all cases of termination on performance grounds, PILON would be made on a phased basis subject to mitigation, and would be reduced or ceased if the Director starts to receive payment or remuneration from alternative employment.
· There are no pre-determined special provisions for Directors with regard to compensation for loss of office.
· In the normal course of events, reasonable professional fees may be paid in relation to a Director’s employment termination.
Leaving circumstances Approach to Annual Bonus Approach to Deferred Bonus Shares Approach to unvested LTIPs
· Not eligible if left or under notice at the date of payment.
Good leavers · At the Committee’s discretion, and normally including such circumstances as planned retirement, death, disability/ medical severance, transfers outside of the Group and redundancy1
· In cases of death and, with Committee discretion, medical severance, awards can vest sooner than the scheduled date.
· In cases of death and, with Committee discretion, medical severance, performance conditions can be tested early and awards vest sooner than the scheduled date.
Existing incentive awards granted under the Remuneration Policy approved by shareholders in 2017 will continue in place.
· Executive Directors must build up a shareholding in RSA according to specified levels, expressed as a salary multiple.
· The shareholding level (or the actual holding at termination, if lower) must be maintained for two years post-employment.
11. Policy for Non-Executive Directors The following table outlines the components of Non-Executive Directors’ remuneration: Purpose and Strategic Link Operation and maximum level of remuneration
Fees This element ensures competitive remuneration is paid to attract high calibre non-executives and recognise their time commitment on the Board.
Purpose The Committee determines the remuneration and contractual terms for the Executive Directors, Executive Committee and the Chairman (who are detailed on pages 54 to 56).
The decisions the Committee makes are intended to promote the ongoing success of the Group, whilst upholding the interests of shareholders, regulators, customers, employees and other stakeholders. Consequently, it pays close attention to the Group’s risk management policies, ensuring that these are considered alongside other relevant information so that its actions are balanced, appropriate and support the Group’s strategy.
Attendees At the invitation of the Committee, the Chairman, Group Chief Executive and designated representatives from functions within the business attend meetings where relevant to advise on Group strategy, risk, performance, and HR policies and practices, and support the Committee’s work. These Committee attendees during 2019 included the Group HR Director, Group Chief Legal Officer & Company Secretary and Group Reward Director. Additional written input was provided by the Group Chief Risk Officer.
Advisers PricewaterhouseCoopers (PwC) is appointed by the Committee as its independent adviser. It was selected following a market tender exercise. During 2019, PwC also provided advice and consultancy services across the Group globally on matters including data and analytics technologies, regulatory risk and compliance, financial reporting in preparation for IFRS 17, operations strategy, IT risk and governance, direct and indirect tax and compliance. PwC is a member of the Remuneration Consultants’ Group and a signatory to its Code of Conduct. In addition, the Committee has satisfied itself that the advice it receives is objective and independent as PwC has confirmed there are no conflicts of interest arising between it, its advisers and RSA. The fee paid for services to the Committee in the year was £80,000 excluding VAT, based on a fixed fee for a defined scope of work.
Meetings held in 2019 In 2019, the Committee met on five occasions and the table below summarises the matters it discussed.
· Approval of 2019 incentive plan performance conditions, and long-term incentive grant 2019-21 •
· Review of executives’ personal goals for 2019, base salaries and Chairman’s fee • •
· Approval to operate all-employee share plans (Sharesave and Sharebuild) and off-cycle long-term incentive grant •
· Review of Committee terms of reference, meeting planner and effectiveness • •
· Review of share grants made, all-employee share plan participation, and dilution levels • •
4. LTIP 2018: Actual value of Performance Shares and accrued dividend equivalents under the 2016-18 LTIP cycle that vested on 4 March 2019. The vesting was as disclosed in the 2018 Annual Report and Accounts on pages 73 to 74. Valuation has been restated using the vesting date share price of £5.194.
5. Pension 2019: Scott Egan received a taxable cash allowance of 15% of base salary. This will be voluntarily reduced to 14% from 1 April 2020, 13% from 1 April 2021, 12% from 1 April 2022 and 10% from 31 December 2022. Stephen Hester’s pension contribution has been voluntarily reduced from 30% of salary to 27% of salary from 1 April 2019, and will voluntarily reduce to 24% of base salary from 1 April 2020, 21% from 1 April 2021, 18% from 1 April 2022 and 10% from 31 December 2022. Charlotte Jones received a pension benefit of 10% of salary, which is aligned to that for other new UK-based employees. The aggregate value paid by the Company into the RSA Pension Scheme (a defined contribution plan) for the Executive Directors in 2019 was £3,479 (2018: £0). No Executive Director has a prospective entitlement to a defined benefit pension in respect of their service with RSA.
6. Other remuneration 2019: The figure for Charlotte Jones reflects compensatory awards made to replace those forfeited on leaving her previous employer, as referenced in last year’s report and detailed on page 94.
7. Scott Egan was appointed as an Executive Director effective 1 October 2015. In 2019 he received an annual base salary of £548,888 from 1 January to 31 March. His salary increased by 2% effective 1 April to £559,866. There was no change to the level of his remuneration as a result of his role change from Group CFO to CEO UK & International effective 5 February 2019.
8. Stephen Hester was appointed as an Executive Director effective 5 February 2014. In 2019 he received an annual base salary of £1,013,090 from 1 January to 31 March. This increased by 2% effective 1 April to £1,033,352.
9. Charlotte Jones was appointed as an Executive Director effective 31 July 2019 on an annual base salary of £500,000. Remuneration for her period as a Non-Executive Director of RSA prior to this is shown in the table on page 101.
Financial Performance (40% weighting) The measures applicable to the Group CEO and CFO for this component of the bonus plan are shown in the following table: Bonus Financials: Group CEO and CFO 2018 Actual 2019 Target1 2019 Actual1 Weighting (% of maximum) Achievement (% of maximum)
The measures applicable to the CEO UK & International for this component of the bonus plan are shown in the following table: Bonus Financials: CEO UK & International 2018 Actual 2019 Target1 2019 Actual1 Weighting (% of maximum) Achievement (% of maximum)
Business Scorecard (30% weighting) The Business Scorecard focuses on key areas of management activity essential to the success of the Company spanning underlying financial performance, risk and resilience (including capital) and business sustainability (including customer franchise). Achievement is measured against a range of objective measures, with the overall outcome being determined using judgement in the round. Absent unusual results, the highest Scorecard weightings are accorded to the Underlying Performance financial measures and as a result the majority of annual bonus awards overall are driven by financial measures. The Scorecard outcome will vary from the headline financial metrics’ outcome if these are over or underrepresentative of the underlying actions of management and their results.
The Committee assessed the Scorecard achievement, driven by its financial measures, to have been at the maximum. Taking account of the impact of portfolio exits on some metrics in the year however, discretion was used to adjust downwards the Business Scorecard outcome by 5% from 30/30 to 25/30.
Business Sustainability: Group policy/premium retention 80% Broadly in line with 2018 80%
Business Sustainability: UK policy/premium retention 74% Broadly in line with 2018 76%
Personal Scorecard (30% weighting) This component focuses on personal performance vs the priorities set by the Board for the Executive Directors in 2019. The Remuneration Committee considers their performance holistically in relation to the development and driving of strategy, financial performance, appropriate risk management, customer and people initiatives (both what was delivered and how). The Committee’s assessment for each Executive Director was as shown in the following tables: Bonus Personal Scorecard: Scott Egan Progress
· Progressed major capability improvement programs in line with plan, with emphasis on re-platforming in Personal Lines, Commercial Lines pricing & underwriting, as well as IS resilience and other regulatory related improvements.
· Financial delivery: Drive achievement of financial plans, focused on large loss underwriting, productivity and operational efficiency.
· Financials significantly improved, e.g. UK&I Underwriting Result of £144m and UK&I COR of 95.0% (excluding exits).
· Significant enhancements to pricing and underwriting grip achieved through regular Portfolio Review Groups and streamlining of pricing tools.
· Risk profile: Operate to good standards of risk/regulatory control, with focus on IT risk and audit outcomes.
· Strong customer focus, leading the response to the Whaley Bridge dam collapse and heading the UK Customer committee. Strengthened product advocacy among RSA employees with the launch of MORE TH>N Rewards.
· Reviewed the leadership of the business through restructuring and key appointments (CEOs in Ireland, Luxembourg and Middle East; new management line-up in the UK business).
· Chaired the Group Corporate Responsibility Committee including the launch of the Confident Futures strategy. Enhanced female representation on UK leadership team. Launched inclusive culture training for UK leaders. Over 150 mental health first aiders trained.
· Re-insurance strategy continued to provide good protection from super-large losses and natural catastrophes. New regional aggregate covers added to protect from more mid-size losses, which generated £32m in recoveries across Canada and Scandinavia.
· Financial delivery: Manage company to meet planned targets within the context of market conditions and with particular regard to controllable and qualitative factors: P&L targets; capital and balance sheet; costs; and underwriting improvements.
· Continued focus on cost efficiency to meet <20% controllable cost ratios for each region plus initiated a new >£50m UK programme.
· Risk profile: Set and deliver good standards of risk/ regulatory control and capital resilience.
· Successful pricing of £350m of Senior Notes to ensure liquidity pre-Brexit. · Completed Part VII transfer of c.£800m of liabilities in Legacy Book. · Drove re-balancing of portfolio to divest where exceeding risk appetite, maintained focus on regulatory practices.
· Stakeholders/Customer: Sustain strong stakeholder relations and drive initiatives to improve customer service.
· Led the importance of customer across RSA with 80% retention, enhanced Board reporting on customer KPIs, driving key initiatives.
Charlotte’s objectives included: · Strategy: Ensure the Group’s three-year plan is monitored to a high standard, with detailed strategy and performance benchmarking. Enhancements to corporate structure.
· Oversaw regular, high quality, detailed strategy and performance benchmarking vs. competitors.
· Financial delivery: Strong driver of Group performance vs plan, and investment returns. Embed zero-based budgeting and delivery of IFRS 17.
· Strong and effective risk framework for Investment function. · Drove a high standard of financial analysis and reporting, across accounting, reconciliations, capital and balance sheets etc.
· Stakeholders/Customer: High satisfaction from internal users of Finance. Strong contribution to key customer relationships (e.g. investors, regulators, key brokers).
· Successfully immersed into the business, visiting six sites in first five months. · Maintained market leading investor relations, attending two investor conferences and attending 45 investor meetings.
Note: 1. Charlotte began her CFO role on 31 July 2019 and hence personal achievements relate to the last 5 months of the year.
Overall achievement The resulting overall bonus calculations are shown in the following table.
Notes: 1. For the period 1 Jan – 4 Feb 2019. 2. For the period 5 Feb – 31 Dec 2019. 3. For the period 31 Jul – 31 Dec 2019. 4. Half of the bonus is awarded in Deferred Bonus Shares which vest three years from the grant date, and are subject to malus adjustment as noted on page 83.
Long-term incentive performance measures 2017-19 Threshold target: 25% vesting Maximum target: 100% vesting Actual Weighting
A straight-line calculation is applied to determine the portion of awards that vest for performance between the threshold and maximum targets. 2. Group underlying ROTE is calculated on a three-year average basis. A straight-line calculation was applied to determine the portion of awards that vest for performance between threshold and on-target, and between on-target and maximum. The average required for on-target vesting (62.5% vesting) in this cycle was 15.9%.
Note: 1. ‘Best’ refers to the highest underwriting result when comparing underwriting performance on a like for like basis (with central costs consistently allocated to the underwriting result pre 2013 back to 2000).
The vesting awarded in this category reflects the above considerations, and is consistent with the methodology applied in past years.
2. Estimate includes the vesting 192,486 Performance Shares valued at £1,036,444 (of which none is attributable to share price appreciation), and accrued dividend equivalents valued at £103,797 that will be added to the awards that vest. Valued as in note 1.
(one-third weighting each). 2. If threshold performance is achieved, 25% of the number of shares shown will vest. 3. The face value of the award is calculated as the maximum number of shares that would vest if all performance measures and targets are met at maximum, multiplied by the mid-market closing price of an RSA ordinary share averaged over the five business days preceding the date of grant (in Scott Egan and Stephen Hester’s case, 8 March 2019, averaged share price £5.198; and in Charlotte Jones’ case, 2 September 2019, averaged share price £5.2532).
Group CFO compensatory awards As noted in last year’s report, Charlotte Jones forfeited a number of incentive awards from her previous employer on her appointment as Group CFO. In line with the Policy, a compensatory package has been constructed, to match the timing and nature of awards forfeited. The Committee ensured the buyouts were a fair reflection of awards forfeited, and no more than necessary, by: · Obtaining evidence of the amount of bonus and LTIP forfeited; · Conducting a detailed assessment of the award terms, and compensating with RSA equivalents (e.g. performance shares compensated with performance shares on similar vesting timelines); and
· 122,090 Restricted Shares to replace forfeited deferred bonus shares (face value £641,363). These awards vest in tranches between 2019 and September 2022 subject to continued employment as detailed on page 96, with 75% (91,980) of the shares subject to additional six-month retention periods following vesting.
Strategic report Governance Financials 5. Executive Director Shareholding (audited) The table below shows the interests of Executive Directors in Ordinary Shares of £1.00 each of the Company, including those of closely associated persons. Non-Executive Director holdings are shown on page 102.
Notes: 1. As at 26 February 2020, the interests in Ordinary Shares of the current Directors have not changed since 31 December 2019. 2. Charlotte Jones was appointed as an Executive Director effective 31 July 2019. The table above shows her holding as at that date and not 1 January 2019. Her holding as a Non-Executive Director up to 31 July 2019 is shown on page 102.
Number of shares owned outright as at 31 Dec 2019 Valuation1
Charlotte Jones 11,319 £61,144 100,675 £288,231 £349,375 70% 200% Building holding in targeted five–year period
Notes: 1. The valuation is against an average mid-market closing price of an RSA ordinary share during 2019 of £5.402. 2. Includes Deferred Bonus Shares and Restricted Shares (awarded as part of a buyout). 3. Estimates the potential additional Shareholding that could result from these awards at vesting, after statutory deductions. 4. Calculated using the gross annual base salary as at 31 December 2019. 5. Includes Performance Shares as detailed in the following table.
6. Performance Shares granted in 2017, 2018 and 2019 have performance conditions of Group underlying ROTE, Relative TSR and a Business Scorecard (one-third weighting each). The date by which performance conditions are to be met is as follows: 2017 awards by 31 December 2019, 2018 awards by 31 December 2020, 2019 awards by 31 December 2021.
7. Loss of office and former director payments (audited) There were no payments to Directors for loss of office in 2019.
Historical TSR and executive remuneration The following graph shows the TSR of the Group over the ten years from 31 December 2009 to 31 December 2019, with reference to the FTSE 100 Index and a peer group comprised of those companies included in the LTIP’s Relative TSR component (which are noted on pages 94 and 100). The FTSE 100 Index is included as it comprises the 100 most highly capitalised companies in the UK market, of which RSA was a member in 2019.
The graph reflects the change in value of Ordinary Shares in a company over time, as represented by a hypothetical £100 holding in the shares. Any distribution of dividends is included.
Single figure of total remuneration (£’000) 4,024 2,488 311 2,164 1,011 21 39 2,118 2,469 4,478 5,077 3,996 4,060
LTIP vesting rates (% of maximum) 66% 31% 34% 34% 0% n/a n/a n/a n/a 43% 58% 74% 50%
Relative importance of spend on pay The table below shows the all-employee pay spend and returns to shareholders by way of dividends for 2019. Figures from 2018 are provided for comparison. The employee pay data covers the Group’s employees globally, and therefore includes the impact of exchange rate changes.
The following table compares the 2019 total remuneration single figure for the Group Chief Executive with the Group’s UK-based employees at the 25th percentile, median and 75th percentile.
A range of factors are taken into account in setting pay across the organisation, such as market positioning, inflation, job scale and content, and individual experience. The Group Chief Executive’s remuneration is weighted relatively more towards variable pay due to the responsibility of the role, and therefore the ratio for any given year will shift according to incentive plan outcomes for that year, including multi-year long-term incentive awards. Further, since the majority of profits, revenues and employees of RSA lie outside the UK, the Group Chief Executive total remuneration will move in line with the total Group performance which may differ from UK employee averages that will primarily reflect UK performance. Nevertheless, the Committee is mindful of the importance of monitoring and assessing pay relativities, and ratios will be kept under review. Given the factors described above, the Committee is satisfied that the pay ratios for 2019 are consistent with the relevant UK HR policies. While there was a slight increase in the Group CEO’s total remuneration from 2018 to 2019 (+1.6%), this was relatively smaller than that of the employees at the relevant percentiles, and due to this the 2019 pay ratios show a slight decrease compared to 2018.
Notes: 1. The Company determined the remuneration figures for the employee at each quartile with reference to a date of 31 December of the year shown. 2. This calculation method was used as it provides a fair representation of the pay ratios given RSA’s remuneration structures. In the business context where multiple HR
Fixed remuneration The Policy will be implemented consistently with the approach used in 2019. The Committee reviewed the Executive Director salary levels, taking into account the average reviews applied elsewhere in the Group, including those for employees subject to collective bargaining agreements, and UK inflation figures. It referenced a range of information including market data from two benchmarking peer groups of listed international insurers and FTSE companies of a broadly comparable market capitalisation to RSA, excluding banks and heavy industries.
Note: 1. As at appointment effective date of 31 July 2019.
Stephen Hester’s voluntary pension contribution rate reduction will continue, with payments from 1 April 2020 to reduce by 3% of salary, to 24% of salary (as announced last year), and to 21% of salary from 1 April 2021, 18% from 1 April 2022 and 10% from 31 December 2022. Scott Egan will voluntarily reduce his current 15% of salary rate to 14% from 1 April 2020, 13% from 1 April 2021, 12% from 1 April 2022 and 10% from 31 December 2022. This will align them to the rate offered to new UK-based employees, reflecting recent developments in UK corporate governance.
· Underlying Performance: Attritional loss ratio, total controllable costs/cost ratios, key business improvement projects; · Risk and Resilience: Regulatory capital ratios, credit rating, capital actions, risk management; · Business Sustainability: Customer franchise and other relevant actions related to the Company’s long-term success including People and Corporate Responsibility
Long-term incentive 2020-22 The plan directly supports the building of shareholder value by targeting Group underlying ROTE, relative Total Shareholder Return (TSR) and a Business Scorecard.
The Relative TSR target requires RSA’s performance to be equal to or better than the index of comparator companies. The Group underlying ROTE target is set in line with the Group’s operating plan for the three year period.
Long-term incentive performance measures 2020-22 Weighting Threshold target: 25% vesting Maximum target: 100% vesting
RSA’s TSR outperforms the unweighted index of comparators by 22.5% compound over three years (i.e. at least 7% per annum) or exceeds the TSR of the highest performing company in the index
Zurich. A straight-line calculation is applied to determine the portion of awards that vest for performance between the threshold and maximum targets. 2. Group underlying ROTE will be calculated on a three-year average basis. A straight-line calculation is applied to determine the portion of awards that vest for performance between threshold and on-target, and between on-target and maximum. The average required for on-target vesting (62.5% vesting) is set in line with, and therefore signals, the Group’s forward plan for the period and for this reason is considered commercially sensitive. Disclosure will be provided retrospectively following the end of the performance period.
Notes: 1. Taxable benefits: This includes reimbursement in respect of travel and accommodation related to the director’s role. Alastair Barbour received benefits of £20,763 and
Enrico Cucchiani £11,470 for taxable travel and subsistence where relief under HMRC rules is not available. The corresponding 2018 figure for Enrico Cucchiani in the table has been restated for travel expenses incurred in the year.
4. Charlotte Jones was appointed as a Non-Executive Director effective 1 April 2018 until 30 July 2019. She became an Executive Director on 31 July 2019 at the effective date of her appointment as Group CFO. Figures shown here relate to her Non-Executive appointment only. Remuneration related to her executive role is on page 86. 5. Hugh Mitchell resigned as a Non-Executive Director effective 11 May 2018. 6. Joseph Streppel resigned as a Non-Executive Director effective 9 May 2019.
4. Figures relate to Charlotte Jones’ Non-Executive remuneration. She became an Executive Director effective 31 July 2019. The above changes are presented on an annualised basis. On an actual earnings basis, the change in Charlotte’s fees was -27.8%.
Under the Company’s Articles of Association, the Non-Executive Directors’ remuneration is determined by the Board (minus the Non-Executive Directors), within limits set by shareholders. The Non-Executive Directors’ fees were reviewed in accordance with the Remuneration Policy and the fees effective from 1 April 2020 are shown in the following table. The base fee change is below the average salary increase levels for our UK employees, while other fees are unchanged.
Notes: 1. As at 26 February 2020, the interests in Ordinary Shares of the current Directors have not changed since 31 December 2019. 2. Sonia Baxendale was appointed as Non-Executive Director effective 1 March 2019. The table above shows her shareholding as at that date and not 1 January 2019. 3. Isabel Hudson resigned as a Non-Executive Director effective 31 July 2019. The table above shows her shareholding as at that date and not 31 December 2019. 4. Charlotte Jones’ shareholding is shown for her period as a Non-Executive Director, 1 January to 30 July 2019, and not 31 December 2019. Her holding as an Executive
Note: 1. In November 2019, it was announced that Clare Bousfield has been appointed as a Non-Executive Director with effect from 1 April 2020.
The table below sets out where the reporting on the provisions can be located together with supplementary disclosures to explain how we have applied the principles of the Code.
A The primary responsibility of the Board is to provide effective leadership to ensure that it promotes the long-term sustainable success of the Company, generating value for our shareholders and other stakeholders, and contributing to wider society.
The role of the Board and its committees is set out on page 57. The business model on pages 6 and 7 sets out what we do and how we create value for our stakeholders. How we respond to changing market dynamics and the opportunities and risks that these present is set out on page 14.
RSA is a people-centred business which aims for a culture of high performance, where working together as a team is valued and the business invests in its people.
More information on our purpose, ambition, strategy and values can be found on page 5.
Further information on the Board’s activities in respect of monitoring and assessing corporate culture and workforce engagement is included at pages 9 and 12.
Enabling our employees to flourish by providing training and development, promoting diversity and inclusion and providing the right supporting policies and environment is incredibly important; see pages 50 and 51 for more details.
The Board, supported by its committees, provides leadership within a framework of prudent and effective controls.
How we manage and assess risk to achieve our goals is set out on pages 40 to 43.
D The Board recognises the importance of positive relationships between RSA, its shareholders and other stakeholders, and is committed to fostering and maintaining strong engagement with them.
We encourage employees to identify and escalate concerns to management or our confidential third-party whistleblowing helpline in line with our Whistleblowing Policy.
More information on our people strategy, progress made in 2019 and our 2020 priorities is provided on pages 50 and 51.
The Group Audit Committee reviewed and considered the arrangements for monitoring and reporting of whistleblowing activities; see page 64.
The Board reviews the schedule of directors’ conflicts of interest on an annual basis and considers potential conflicts of interest when these arise; see page 108 for more information.
Page 57 provides further details of the division of responsibilities and the roles within the Board. Role statements for the Chairman, CEO, non-executive directors and the company secretary are available on our website.
The Board took into consideration the circumstances which could potentially impair a non-executive director’s independence as set out in the Code. The Board determined that, with the exception of the Chairman, all the non-executive directors remained independent in character and judgement throughout the year as defined by the Code.
H The role of the non-executive director is to challenge and approve the Group’s strategy and to assess and challenge performance against business plans, bringing an independent, objective view to the discussion.
Martin Strobel has been appointed Senior Independent Director. In this role, he supports the Chairman in the delivery of his responsibilities as required, ensuring the views of each of the non-executive directors are given due consideration and serves as an intermediary for the other directors and shareholders. He also led a meeting of the non-executive directors, without the Chairman present, to appraise the Chairman’s performance, see pages 60 and 61 for more details.
I The Chairman, supported by the Group Chief Legal Officer and Company Secretary, makes sure that appropriate and timely information is provided to the Board and its committees.
J The Board recognises the importance and beneficial impact of diversity of gender, social and ethnic backgrounds and cognitive and personal strengths on Board effectiveness and values the breadth of perspective that such diversity can bring.
Executive and senior management succession planning is regularly reviewed by the NomCo to ensure that a pipeline of high-performing, talented individuals across the Group is being maintained.
All Directors proposed for re-election have been subject to formal performance evaluation in relation to the fulfilment of their s.172 duties. The Board believes that it is of a size appropriate to the needs of the business and that it has the appropriate balance of skills, experience, independence and knowledge to enable it and its Committees to discharge their duties and responsibilities effectively, and that each Director provides a contribution which is, and continues to be, important to the Company’s long-term sustainable success. Therefore, the Board is proposing the election and re-elections as set out in the 2020 Notice of Annual General Meeting.
M The GAC plays an important role assisting the Board in its oversight and monitoring of the Company’s financial statements, the robustness of the Group’s systems of internal control and its financial and regulatory risk management, and oversees the effectiveness and objectivity of the internal and external auditors.
The report of the GAC is set out on pages 62 to 65 and describes the work of the Committee, including the significant issues considered during the year, an explanation of how it has assessed the independence and effectiveness of the external audit process, how auditor independence and objectivity are safeguarded, the approach taken to the re-appointment of the external auditor and information on the tenure of the current audit firm.
The emerging and principal risks identified are set out on page 41, including a description of its principal risks and an explanation of how these are being managed or mitigated, and what procedures are in place to identify emerging risks.
The Remuneration Committee carefully considers the remuneration policies and practices of the Group to ensure they are designed to support the Company’s strategy and promote its long-term sustainable success. The factors considered and principles followed are set out on pages 76 and 77 of the Remuneration Report.
Q The Directors’ Remuneration Policy is determined by the Remuneration Committee by reviewing the impact of the existing policy, key governance factors, and taking account of stakeholder feedback. It also follows RSA’s remuneration principles, applied consistently across the Group. Independence is ensured whereby no director is involved in deciding their own remuneration outcome.
The policy for executive pensions, as set out on page 78 of the Remuneration Report, is that for newly appointed Executive Directors they will be aligned to the offering for new RSA employees in their country (currently 10% of salary for UK new hires and the majority of UK employees). The approach for existing directors is noted on pages 78 and 99.
Details of the Committee’s engagement with shareholders and the workforce in 2019 are included on page 77.
Dividends In accordance with regulatory requirements, in order for the Company’s Ordinary Shares to be counted towards the new Group capital requirements, any dividends declared by the Company must be capable of being cancelled and withheld or deferred at any time prior to payment, if the relevant capital requirements have been breached or payment of the dividend would lead to non-compliance with those requirements. The Directors have no current intention of exercising this cancellation right, other than where required to do so by the PRA or necessary or desirable for regulatory capital purposes.
More information on employees can be found on pages 50 and 51.
Essential contracts and change of control The Company does not consider that there are any significant agreements to which the Company is a party that take effect, alter or terminate upon a change of control of the Company following a takeover bid, that are required to be disclosed pursuant to paragraph 13(2) (j) of Schedule 7 of the Large and Medium Sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended).
The Company does not have agreements with any director or employee that would provide compensation for loss of office or employment resulting from a takeover, except that provisions of the Company’s share schemes and plans may cause some options and awards granted to employees under such schemes and plans to vest in such circumstances.
The Board has reviewed the Group’s ongoing commitments for the next 12 months and beyond. The Board’s review included the Group’s strategic plans and updated forecasts, capital position, liquidity including credit facilities and investment portfolio.
Based on this review, no material uncertainties that would require disclosure have been identified in relation to the ability of the Group to remain a going concern for at least the next 12 months, from both the date of the Statement of Financial Position and the approval of the Consolidated Financial Statements.
Notes: The emissions reported above have been restated versus numbers previously disclosed, in accordance with GHG protocol guidelines. 1. Calculations have been amended to include data that was not available at the time of publication and reflect improvements in methodology.
Scope 1: Direct emissions from the Group’s activities, including use of Company-owned vehicles and onsite thermal energy.
As at 31 December 2019, the Ordinary Shares and Preference Shares represented 89% and 11% respectively of the Company’s total issued share capital. Directors are limited as to the number of shares they can allot (save in respect of employee share schemes). Renewal of the directors’ authorities to allot shares will be sought at the 2020 AGM. In addition, directors are restricted by the limits set out by the Investment Association. During 2019, the directors exercised their authorities to allot shares only in respect of employee share schemes.
The directors are not aware of any agreements between the Company’s shareholders that may result in restrictions on the transfer of securities or on voting rights. 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 103,092,221 of its own Ordinary Shares (representing 10%
During the year, the Company operated two employee benefit trusts to hold Ordinary Shares in the Company which are used to satisfy grants under the Company’s share incentive schemes. The trustees are Link Market Service Trustees Limited (for the Share Incentive Plan Trust) and Apex Financial Services (Trust Company) Limited (for the Royal and Sun Alliance ESOP Trust No.2), respectively. The Trustees may vote in respect of any shares held in the trusts but have no obligation to do so, and the Trustees may have regard to the financial interests of the beneficiaries in exercising their voting rights over the Company’s shares. Standard dividend waiver agreements are in place for the for RSA ESOP Trust No.2, an employee benefit trust, to receive dividends of 0.01 pence per share. Further information can be found on page 170 in the Notes to the Financial Statements.
Viability statement In accordance with the UK Corporate Governance Code, the Directors have performed a robust assessment of the viability of the Group over an initial three year period and beyond after considering the longer term risks to the prospects of the business and mitigating actions that are in place.
The three year cash flow forecast supports the Group’s ability to sustain positive cash flows in its businesses through targeted underwriting, portfolio and distribution actions, and to pay dividends as forecast. This is further supported by the Group’s credit facilities and highly liquid investment portfolio which provide further sources of short term cash if needed.
The directors have also considered the prospects of the Group through review of the longer term strategy as set in the Strategic Report on pages 2 to 51 and the principal risks and uncertainties that are of a longer term nature (set out on pages 40 to 43), including the impact of Brexit. In their judgement the potential impacts such as claims inflation and supplier disruption would be covered by the circumstances envisaged under the stress test scenarios detailed above.
Based on the results of these reviews, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three year period of their assessment.
Statement by directors Section 414A of the Companies Act 2006 requires the directors to present a Strategic Report of the Company for the financial year ended 31 December 2019. The information that fulfils the requirements of the Strategic Report set out in section 414C of the Companies Act 2006 can be found on pages 2 to 51.
The Companies Act 2006 and the UK Listing Authority’s Listing Rules and Disclosures and Transparency Rules also require the Company to provide a Directors’ Report for the year ended 31 December 2019. The information that fulfils this requirement and which is incorporated by reference into, and forms part of, this report is set out on pages 2 to 111 and includes the information on financial risk management objectives and policies contained in Note 5 in the consolidated financial statements.
A balanced and understandable assessment of the Group’s position and prospects, and an explanation of its strategy for delivering the objectives of the Company are contained in the Strategic Report on pages 2 to 51 which includes: · Use of financial instruments by the Company and details of financial risk management objectives and policies of the Company, including the policy for hedging each major type of forecasted transaction for which hedge accounting is used
There are no activities relevant for disclosure in respect of research and development of the Company.
A full list of the Group’s subsidiaries and related undertakings is in Appendix B on page 191. Further explanation of the assurances undertaken by the Group Audit Committee on behalf of the Board are set out in the Group Audit Committee Report found on pages 62 to 65. A report from the external auditor can be found on pages 114 to 121.
Basis of preparation and significant accounting policies 1 Basis of preparation 127 2 Adoption of new and revised standards 128 3 New accounting standards, interpretations and amendments yet to be adopted 130 4 Significant accounting policies 130
Significant transactions and events 6 Held for sale disposal groups and loss on disposal of businesses 145 7 Reorganisation costs 145
Notes to the statement of financial position 22 Goodwill and intangible assets 155 23 Property and equipment 157 24 Investment property 158 25 Financial assets 158 26 Fair value measurement 161 27 Interests in structured entities 165 28 Reinsurers’ share of insurance contract liabilities 166 29 Current and deferred tax 167 30 Insurance, reinsurance and other debtors 168 31 Cash and cash equivalents 169 32 Share capital 169 33 Other equity instruments – Tier 1 notes 170 34 Non-controlling interests 171 35 Issued debt 171 36 Other borrowings 172 37 Insurance contract liabilities 172 38 Post-employment benefits and obligations 177 40 Other liabilities 183
Notes to the statement of cash flows 42 Reconciliation of cash flows from operating activities 186
Other commitments and contingent liabilities 43 Other commitments 187 44 Other contingent liabilities 187
The directors are responsible for preparing the Annual Report and the Group and Parent Company financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare Group and Parent Company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU) and applicable law and have elected to prepare the Parent Company financial statements on the same basis.
Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of their profit or loss for that period. In preparing each of the Group and Parent Company financial statements, the directors are required to: · Select suitable accounting policies and then apply them consistently
· State whether they have been prepared in accordance with IFRSs as adopted by the EU
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
· The Strategic Report on pages ifc to 51 includes a fair review of the development and performance of the business and the position of the Parent Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
Strategic report Governance Financials 2. Key audit matters: including our assessment of risks of material misstatement Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarise below the key audit matters, in decreasing order of audit significance, in arriving at our audit opinion above, together with our key audit procedures to address those matters and, as required for public interest entities, our results from those procedures.
In the prior year, we reported a key audit matter in respect of the impact of uncertainties due to the UK exiting the European Union. As a result of developments since the prior year report, including the Group’s own preparation, the relative significance of this matter on our audit work, including in relation to the valuation of insurance liabilities, valuation of post-employment benefits and obligations and valuation of deferred tax assets, which remain key audit matters, has reduced. Accordingly, we no longer consider this a key audit matter.
Valuation of insurance liabilities Insurance contract liabilities 2019: £9,141 million gross, £7,561 million net; 2018: £9,468 million gross, £7,936 million net, including provision for losses and loss adjustment expenses)
Refer to page 62 (Audit Committee Report), page 131 (accounting policy) and pages 172 to 177 (financial disclosures)
Subjective valuation Insurance liabilities represent the single largest liability for the Group. Valuation of these liabilities is highly judgmental because it requires a number of assumptions to be made with high estimation uncertainty such as loss ratios, estimates of the frequency and severity of claims and, where appropriate, the discount rates for longer tail classes of business, by territory and line of business. The determination and application of the methodology and performance of the calculations are also complex. In addition, the determination of the valuation of individual large losses can be particularly subjective as it is based on estimated settlement amounts which are inherently uncertain, especially for recently reported claims.
Certain lines of business have greater inherent uncertainty, for example those where claims emerge more slowly over time, or where there is greater variability in claim settlement amounts and potential exposure to large losses due to the effect of uncertain or unknown future events. This includes Abuse, Deafness classes; UK Professional and Financial Risk Classes; the Danish Workers Compensation class; the Swedish Personal Accident classes; and the Canadian General Liability class; and associated reinsurance recoveries in relation to these areas.
The effect of these matters is that, as part of our risk assessment, we determined that the valuation of insurance liabilities has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole and possibly many times that amount. The financial statements (note 37) disclose the sensitivity estimated by the Group.
· Sensitivity analysis: Evaluation of sensitivity analysis over key judgments and assumptions, such as large claims and the discount rates for longer tail classes of business.
· Assessing transparency: Considering the adequacy of the Group’s disclosures in respect of the sensitivity of the insurance liabilities to key assumptions.
In addition to the above we performed procedures to assess the completeness and accuracy of the data used in the calculations to estimate insurance liabilities: · Control observation and operation: Evaluation and testing of key controls designed to ensure the integrity of the data used in the actuarial reserving process (including both current and prior year case reserve data). The controls included reconciliations between data in the actuarial reserving systems and data in the policy administration systems. We tested controls through inspecting or re-performing the Group’s reconciliations.
· Test of detail: We compared samples of claims case reserves, including large loss reserves, to appropriate documentation, such as reports from loss adjusters in order to test the valuation of individual claims reserves, particularly where such claims may be subject to recovery under reinsurance arrangements.
Our results We found the valuation of the insurance liabilities to be acceptable (2018 result: acceptable).
IT systems and control environment Refer to page 63 (Group Audit Committee Report).
· Extended scope: Where general IT controls and compensating manual controls did not operate to mitigate a risk, we performed additional substantive testing, such as using extended sample sizes and performing data analysis routines over impacted accounts to test the integrity of the transactional level data that is flowing into the Group financial statements.
Our results Where we tested general IT controls, we identified deficiencies in the design and operation of these controls. In response to weaknesses in general IT controls we expanded the extent of our detailed testing over and above that originally planned, and this work was completed satisfactorily (2018 result: Our testing identified deficiencies in the design and operation of controls. As a result we expanded the extent of our detailed testing over and above that originally planned, and this work was completed satisfactorily).
Refer to page 63 (Group Audit Committee Report), page 133 (accounting policy) and pages 177 to 182 (financial disclosures).
The valuation of defined benefit pension obligations is dependent upon the data in respect of the members of the pension scheme being complete and accurate.
· Assessing valuer’s credentials: Evaluating the Group’s external valuer’s competence, objectivity, capability and scope of work.
The effect of these matters is that, as part of our risk assessment, we determined that the recoverable amount of deferred tax assets has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole. The financial statements (note 29) disclose the sensitivity estimated by the Group.
· Sensitivity analysis: Sensitivity analysis of taxable profits to assumptions such as expected weather losses, the development of claims reserves, projected future expense levels and future investment returns.
· Assessing transparency: Assessing the adequacy of the Group’s disclosures in respect of the assumptions applied in the calculation and the adequacy of the Group’s disclosures in respect of the sensitivity of the valuation of the deferred tax asset to key assumptions.
Our results As a result of our work we found the level of deferred tax assets recognised to be acceptable (2018 result: acceptable).
Refer to page 197 (accounting policy, Investments in Subsidiaries) and page 199 (financial disclosures).
· Historical comparisons: In respect of the adjusting items, we compared the expected cash flows to the Group’s operating plan, and considered the historical accuracy of previous projections.
We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £1.75m, in addition to other identified misstatements that warranted reporting on qualitative grounds.
The components within the scope of our work accounted for the percentages illustrated opposite. For the remaining components we performed analysis at an aggregated Group level to re-examine our assessment that there were no significant risks of material misstatement within these.
The Group team instructed component auditors as to the significant areas to be covered, including the relevant risks detailed above and the information to be reported back. The Group team approved the component materiality's, which ranged from £8m to £28m (2018: £15m to £28m), having regard to the mix of size and risk profile of the Group across the components. All (2018: all) of the audits of reporting components were performed by the component auditors.
The Group audit team visited four (2018: four) component locations, being those in the UK, Ireland, Canada and Denmark (2018: UK, Ireland, Canada and Denmark) to assess the audit risk and planned audit approach. The work on four of the nine components (2018: four of the nine components) was performed by component auditors and the rest, including the audit of the parent company, was performed by the Group team. Telephone conference meetings were also held with these component auditors and at these visits and meetings, the findings reported to the Group team were discussed in more detail, and any further work required by the Group team was then performed by the component auditor.
Group materiality £28m Range of materiality at four components £8m to £28m (2018: £15m to £28m)
£1.75m Misstatements reported to the audit committee (2018: £1.72m)Net Earned Premium
Strategic report Governance Financials 4. We have nothing to report on going concern The Directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Company or the Group or to cease their operations, and as they have concluded that the Company’s and the Group’s financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over their ability to continue as a going concern for at least a year from the date of approval of the financial statements (“the going concern period”).
In our evaluation of the Directors’ conclusions, we considered the inherent risks to the Group’s and Company’s business model and analysed how those risks might affect the Group’s and Company’s financial resources or ability to continue operations over the going concern period. The risks that we considered most likely to adversely affect the Group’s and Company’s available financial resources over this period were: · adverse insurance reserves development; · a deterioration in claims experience, potentially caused by market wide catastrophe event(s); · a deterioration in the valuation of the Group’s investments arising from a significant change in the economic environment; and
As these were risks that could potentially cast significant doubt on the Group’s and the Company's ability to continue as a going concern, we considered sensitivities over the level of available financial resources indicated by the Group’s financial forecasts taking account of reasonably possible (but not unrealistic) adverse effects that could arise from these risks individually and collectively and evaluated the achievability of the actions the Directors consider they would take to improve the position should the risks materialise. We also considered less predictable but realistic second order impacts, such as the impact of Brexit and the erosion of customer or supplier confidence, which could result in a rapid reduction of available financial resources.
Based on this work, we are required to report to you if: · we have anything material to add or draw attention to in relation to the directors’ statement in Note 1 to the financial statements on the use of the going concern basis of accounting with no material uncertainties that may cast significant doubt over the Group and Company’s use of that basis for a period of at least twelve months from the date of approval of the financial statements; or
· in our opinion those reports have been prepared in accordance with the Companies Act 2006.
Corporate governance disclosures We are required to report to you if: · we have identified material inconsistencies between the knowledge we acquired during our financial statements audit and the directors’ statement that they consider that the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy; or
6. We have nothing to report on the other matters on which we are required to report by exception Under the Companies Act 2006, we are required to report to you if, in our opinion: · adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from branches not visited by us; or
Unwind of discount and change in economic assumptions 37 (46) (33)
Items that may be reclassified to the income statement: Exchange losses net of tax on translation of foreign operations 21 (85) (13)
Movement in property revaluation surplus net of tax 21 1 2
Profit for the year – – – – – – – 349 349 – 23 372
Shares issued for cash (note 32) 1 4 – – – – – – 5 – – 5
Share-based payments (note 18/32) 3 – – – – – – 9 12 – – 12
Changes in shareholders’ interests in subsidiaries – – – – 4 – – – 4 – – 4
Profit for the year – – – – – – – 359 359 – 24 383
Share-based payments (note 18/32) 4 – – – – – – 6 10 – – 10
Cash and cash equivalents at the beginning of the year 781 1,049
Cash and cash equivalents at the end of the year 31 886 781 1. Reported separately following transition to IFRS 16. Payment of lease liabilities previously reported within cash flow from operating activities.
1) Basis of preparation The consolidated financial statements have been prepared on a going concern basis and in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) and the Companies Act 2006 where applicable. The consolidated financial statements are prepared on an historical cost basis. Where other bases are applied, these are identified in the relevant accounting policy.
Estimates and their underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.
· Recognition of deferred tax assets: availability of future taxable profits against which deductible temporary differences and tax losses carried forward can be utilised – refer to note 29 for additional information
· Measurement and impairment of goodwill and intangible assets: key assumptions applied in the valuation of the recoverable amount and the estimation of useful economic life – refer to note 22 for additional information
Management have applied judgement when deciding to classify sovereign debt and bonds for which immediate prices are available as being level 1 in the fair value hierarchy (see note 26) and other debt securities for which observable prices are also available as level 2 on the basis of a lower level of activity in the market from which those prices are quoted.
Transition The Group elected to use the standard’s modified retrospective approach. The right-of-use asset on transition is recognised at a value equal to the lease liability before adjustment for any prepaid or accrued rent payments recognised immediately prior to transition using a discount rate at the date of the initial application. This has been applied using the exemption not to re-present the prior reporting period.
· Recognition exemptions for lease contracts that at the transition date have a remaining lease term of 12 months or less
· The use of hindsight in determining the lease term for contracts containing options to extend or terminate the lease
Recognition and measurement The Group recognises a lease liability and right-of-use asset for all lease obligations as a lessee, except for the following recognition exemptions that the Group has elected to use: lease contracts that at the commencement date have a lease term of 12 months or less and that do not contain a purchase option; lease contracts for which the underlying asset is of low value; and lease contracts in relation to intangible assets which will be expensed on a straight line basis over the life of the contract.
The right-of-use asset is initially measured as the value of the lease liability, adjusted for any indirect costs incurred to obtain the lease (except on transition), restoration provisions and any lease payments made before the commencement of the lease.
Where the Group act as a lessor the lease will be classified as a finance lease if it transfers substantially all the risk and rewards incidental to ownership of the underlying asset, or otherwise as an operating lease.
A reconciliation to the operating commitments disclosed at 31 December 2018 is as follows: £m
Less: contract elements reassessed as service agreements, VAT and other2 (24)
2. Right-of-use asset impairment. 3. Lease interest which would have been recognised as part of the lease cost within underwriting and policy acquisition costs in accordance with IAS 17.
Lease payments in 2018 were reported in operating activities in accordance with IAS 17, now presented within financing activities.
Basis of preparation and significant accounting policies continued 2) Adoption of new and revised standards continued IAS 19 ‘Employee Benefits’ An amendment to IAS 19: Plan Amendment, Curtailment or Settlement issued by the IASB on 7 February 2018 was endorsed by the European Union on 13 March 2019 and became effective from 1 January 2019. This requires a net defined benefit asset or liability to be remeasured using the current assumptions and fair value of plan assets at the time of the amendment. Current service cost and net interest for the remainder of the period are remeasured using the same assumptions and the same fair value of plan assets.
IFRIC 23 ‘Uncertainty over Income Tax Treatment’ IFRIC 23 ‘Uncertainty over income tax treatment’ specifies how to reflect the effect of uncertainty in accounting for income taxes where it may be unclear how tax law applies to a particular transaction or circumstance, or whether a taxation authority will accept a tax treatment.