For further details, reference should be made to the ‘important disclaimer’ on the inside back cover.
Review of RSA and are incorporated by reference into the Directors’ Report set out on pages 42 to 53. The Directors’
• 2010 was a tough year for the industry, with record levels of adverse weather and a large number of natural catastrophes, including the Chilean earthquake
• We also demonstrated the resilience of our underwriting performance and investment strategy, delivering an operating result of £636m after £255m of worse than normal weather losses
• We are confident of delivering premium growth and improved profitability with a targeted COR of better than 95% in 2011
• We expect Emerging Markets NWP to double to around £2.2bn by the end of 2015 and for International and Emerging Markets to be around 70% of Group premiums within the next five years.
04 RSA at a glance 06 What we do 08 Chairman’s statement 10 Group CEO’s review
38 Board of Directors 40 Executive team 42 Directors’ and corporate governance report 54 Remuneration report
Sun Alliance Group merges with Royal Insurance Holdings, to become Royal & Sun Alliance
Sun Fire Office. As we celebrated our 300th anniversary in 2010, we are believed to be among the world’s oldest insurers.
From the epic to the everyday, we continue to help people and businesses move forward. To learn more, visit www.rsa300.com
• 3rd largest general insurer in Denmark and Sweden where we operate as Codan and TryggHansa respectively
• Italian business focussed primarily in the north of the country.
• Provide bespoke insurance to multinational companies through our Risk Solutions network.
• NWP growth of 22% due to rate increases, strong retention and favourable exchange
• NWP growth of 3% in Ireland offset by 1% reduction in Italy
• NWP growth due to rate and increasing shares on targeted broker panels to market weighting
• COR of 101.1% impacted by weather and a £22m reserve strengthening in Motor.
• A leading insurer in Oman following the acquisition of Al Ahlia
REINSURANCE We maintain a conservative reinsurance programme to minimise volatility in earnings from large losses and catastrophe events. For example, as the largest general insurer in Chile, the recent earthquake resulted in a gross loss of around £1.4bn, which was reduced to a £30m net loss through our extensive reinsurance programme.
RESERVING Our policy is to reserve to the right side of best estimate, so that more often than not reserves develop positively over time. Our prudent approach can be seen in the sustained levels of prior year profits included in the underwriting result.
CAPABILITY Claims handling is a key differentiator for both customers and RSA. We have over 4,000 claims handlers across our businesses, around 500 of whom are devoted to handling large and complex claims.
We employ specialists such as engineers, surveyors and mariners and this depth of claim expertise is often key in our ability to win business.
SUPPLIERS We have close relationships with a network of experts including loss adjusters, engineers and solicitors who work with RSA’s own experts to deliver a high quality service to our customers.
of the portfolio and increasing our exposure to higheryielding equities and property.
“ We derive real advantage from being a pure-play general insurer. Our focus is on doing one thing and doing it well, with rigorous control, attention to detail and the commitment to take the right action where required.”
LEVERAGING GLOBAL CLAIMS EXPERTISE On 27 February 2010, Chile experienced the 5th largest earthquake on record. RSA’s local team was on site within hours, helping our customers deal with the aftermath of this tragic event. The Group also responded by sending 30 of our best claims people, with experience in dealing with large claims, from across the business to Chile to assist their colleagues.
CHAIRMAN’S STATEMENT A GREAT YEAR AS WE CELEBRATE OUR 300TH ANNIVERSARY
2010, our 300th anniversary year, proved to be a testing year of contrasts. The theme of our anniversary, chosen by our staff, was to focus it around a volunteering and support effort for those living less privileged lives.
The global response of our team was magnificent and in the three months from
The success of the year was such, that we now plan to hold an annual RSA Day to build on the momentum that was achieved.
The underlying strength, net of adverse weather, of the 2010 performance, however,
“ The support we provide to our customers is as important today as when we were formed 300 years ago.”
The detail behind this strong net revenue performance is set out more fully in the
process. The challenge remains of getting such regulatory decisions proportionate, competitively sustainable and implemented on a consistent basis in what is essentially a very ambitious and complex wider European framework. Requirements for life and non-life insurance businesses remain different and the insurance industry generally does not have the capacity for systemic failure demonstrated by the banks, a topic which continues to engage public opinion.
Board which has been very helpful. In 2009, we strengthened our governance process with the appointment of Noel Harwerth as a non-executive Chairman of an Independent
Risk Committee. In 2011, the Board has appointed a Senior Independent Director,
Although under the previous three year rule, no RSA Director would have been eligible for election this year, the Code now contains a recommendation for annual election of the
Board. Whilst continuing to have reservations about the wisdom of the annual re-election guideline, we will be contributing to the spirit of the intent of the new guidance by seeking the re-election as Directors of the newly appointed
SID, Edward Lea, the Group CEO, Andy Haste, and myself, John Napier as Chairman.
Moving on to the outlook, I have already commented on the underlying strength of the 2010 performance. In his annual report to shareholders the Group CEO sets out the outline of our strategic aspirations and commitment to sustained growth and increased profitability. Your Board affirms that
RSA has an extremely well-led, professional and dedicated management team, who continue to set demanding but deliverable performance challenges and improved standards of management.
It is against the underlying performance background of 2010 and confidence going forward, that the Board have recommended a final dividend of 5.70p making a full year dividend of 8.82p, a 7% increase. Our dividend policy of increasing the dividend at least in line with inflation remains unchanged.
“ 2010 was a tough year for the industry. With record levels of adverse weather and a large number of natural catastrophes, we delivered a robust performance and continued to drive the business forward.”
In 2010, we had strong top line growth and demonstrated the resilience of our underwriting performance. The business is in good shape and we look forward to the future with confidence. We expect to deliver continued premium growth and sustainable profitable performance.
• Delivering strong premium growth through good risk selection, disciplined underwriting and strong action on rate
In 2010, we increased premiums by 11% to £7.5bn, through a combination of acquisitions, business volume and rate, as well as the benefit of foreign exchange.
The investment result was £538m and includes investment income of £569m and total gains of £63m, both ahead of guidance.
International, our largest region, delivered good top line growth and an outstanding underwriting performance. Premiums increased by 9% to £3.5bn reflecting continued action on rate, targeted growth and the benefit of new deals across the region. The COR was an excellent 90.6% with the underwriting result up by 15% to £325m, despite adverse weather in Scandinavia and Ireland.
to £1.7bn, with good growth in Personal lines offsetting exposure reductions in
Commercial lines. In Personal lines, premiums were up by 7% to £1bn reflecting good growth in Norway, Swedish Personal
Commercial lines net written premiums were down 1% to £0.7bn, with strong growth in Renewable Energy and Norway offset by the impact of exposure reductions in other lines.
The Scandinavian underwriting result was an excellent £254m and the COR improved 0.8 points to 85.4%, with strong performances in
In Canada, top and bottom line performance was excellent, with premiums up by 22% to £1.2bn. In Personal, net written premiums increased by 20% to £932m with Johnson, our Direct business, up by 22% driven by excellent retention, rate and the addition of 25 new sponsorship groups during the year.
to £304m driven by positive rate action across all portfolios, including increases of 22% in Household and 20% in Personal
Motor and the benefit of recent affinity wins and acquisitions. RSA is now the second largest insurer in the Irish market and with the acquisition of 123 Money, has a leading direct presence to complement its existing intermediated distribution.
in Ireland, despite the adverse weather, and the reduced Motor losses in Italy.
With our focus on rate and risk selection, we are outperforming our peers in terms of profitability in Scandinavia, Canada and
In Personal, premiums were up by 13% to £1.2bn driven by growth in Personal Broker due to rating action and increased shares on targeted broker panels, with Personal Broker
In Commercial, we saw growth of 10% which was again driven by Specialty Lines and Motor.
December had a significant impact on the result and we reported an underwriting loss of £95m with a COR of 102.2%. Of this, weather was £139m worse than normal and accounted for 5 pts on the combined ratio.
It was also a challenging year for Motor and as disclosed at the half year, we have taken action to exit a number of unprofitable schemes. Additionally, following a deep dive review into bodily injury we strengthened prior year reserves by £25m, of which £22m was in Commercial Motor.
In 2010, Emerging Markets got back to double digit growth with total premiums, including our Indian associate, of close to £1.1bn.
Latin America once again delivered an outstanding result with premiums up by 35%
Engagement is a key focus for us – we want to create an emotional connection for our people with our brand, enabling them to consistently deliver brilliant service to customers. Participation in our annual engagement survey remained high at 92% and the Group’s overall average score rose from 3.99 to 4.21 out of 5. We are now in the top 30% of companies that Gallup measures globally and we’re on track to reach the top quartile. Gallup describes the progress RSA has made over the last three years as, “incredible, maybe record breaking progress”.
Our Corporate Responsibility Strategy underpins both our commitment to ‘Doing the Right Thing’ and our global business objectives. In 2010, our activities continued to focus on three key themes: road safety, social inclusion and the environment.
countries grew at 14% and we now insure over 340,000 vehicles.
Performance in Asia and the Middle East remained mixed, with premiums down 20%
to £187m due to the benefit of several large construction contract wins in 2009. Excluding these large contract wins, AME’s premiums were up by 10%. Our associate in India also continued to deliver excellent growth with premiums up by 35% to £116m due to another strong performance in Motor.
We also continue to benefit from our low risk investment strategy, with 86% of the total investment portfolio invested in high quality fixed income and cash assets. The fixed interest portfolio is concentrated on high quality short dated assets, with 98% of the bond portfolio investment grade and 78%
Our Technical Academy has been developing the next generation of talent for the past five years. It now has around 9,500 members across the Group, working in underwriting, claims and actuarial.
Middle East. In the UK, teams helped at local nature reserves and parks, with volunteers preparing a park in London to be the site of an urban river restoration project with WWF.
Our progress in 2010 was recognised by Goldman Sachs, who named RSA as one of the top fi ve global insurers in their
A record year for natural catastrophes with 950 recorded, the second highest number since 1980 and signifi cantly above the annual average. We saw earthquakes, fl oods and of course arctic conditions of record proportions.
While economic conditions started to improve during the last year, the global economy remains fragile and overall 2010 was a year of contrasting fortunes. Growth in many regions has been curtailed by necessary fi scal actions to address high debt positions. This impact was most visible within Ireland and certain other Euro area countries where governments were forced to make radical spending cuts and tax increases in order to secure continued funding of their debt.
Sweden and Canada generated stronger growth, assisted in part by a robust performance from net exports. Growth within many emerging economies has been particularly strong, with both China and India moving to tighten monetary policy in response to fears that the pace of economic activity was leading to a build of infl ationary pressures.
regulation remains an ongoing challenge for the industry. The Solvency II Directive is nearing completion and we are working hard to ensure its successful implementation across the Group. We are also actively engaged in the debate on the new EU and UK regulatory frameworks. In particular, we look forward to establishing a constructive relationship with
EIOPA and the Financial Conduct Authority and Prudential Regulation Authority in the UK.
More generally, we continue to lobby on issues of interest to our business such as fl ooding, a growing compensation culture and the need to ensure a competitive marketplace.
RSA Chile’s staff made their way to the office and were already processing claims when the sun came up.
We flew in claims experts from around the world to support our colleagues in
On 27 February 2010, an earthquake measuring 8.8 on the Richter scale struck central Chile, killing 500 people, injuring over 12,000 and leaving 800,000 homeless.
Around 90% of our employees have their pay linked to their performance.
We continue to retain and attract high calibre employees and have won several awards in 2010 including the CIPD People Management Award for our Leadership Development Programme.
We have continued to take action to mitigate falling yields, including a move into non government bonds, whilst maintaining the overall high credit quality and diversification of the portfolio.
Every one of our underwriters is licensed to write only business for which they have the relevant experience and regular reviews are undertaken to ensure compliance.
We have a strong track record of delivering on our cost savings targets.
The shape of our portfolio is deliberate, we derive real advantage from being a pure-play general insurer.
• We will continue to put through rate where it is required and to walk away from business where we cannot make our required return
• We will focus on integrating and extracting the value from our recent acquisitions
• We are confident of our ability to continue to deliver excellent results
• We will also continue to operate a high quality, low risk investment strategy and in 2011, expect investment income to be around £550m and total gains to be around £50m.
NWP has grown 3% to £1,724m with a particularly good underwriting result of £254m, up by 5% on 2009 and a COR of 85.4%.
Sveland is progressing as expected. Premiums have grown by 7% to £1,007m (4% at constant exchange) with a strong underwriting result of £211m and a COR of 78.8%.
In Commercial lines, premiums of £717m, are down 1% on 2009 (down 2% at constant exchange), with strong growth in Norway and Danish Renewables, offset by capacity withdrawal and exposure reduction in other lines. Our underwriting result has improved, growing 13% to £43m.
and an improved underwriting performance of £49m. Growth in our Intermediated business has been driven by the strength of new business wins. Johnson, our Direct brand, has also had another good year with growth of more than 22% (9% at constant exchange), due to excellent retention, rate and the addition of 25 new sponsorship groups during the year.
In Italy, it has been another tough year mainly due to a competitive Motor market following the Bersani decrees in 2006 and 2007 and
2010 was a diffi cult year in Ireland, due to the severe weather and the worsening economic
• Personal lines growth of 7%, driven by rate increases, Affi nity deals and acquisitions
• Commercial lines NWP growth of 29% with strong new business in Mid-Market and SME
• Ireland NWP grew by 3% due to signifi cant rate increases, recent Affi nity deals and acquisitions
• Acquired 123 Money giving us a Direct presence in Ireland
• In Italy, NWP has declined by 1%, following continued management action on risk selection
situation as the year progressed. 2011 will be another challenging year as the Government takes further austerity measures.
International is an important and growing part of the Group. We are outperforming our peers in the three largest markets and making good progress in Italy. We have built good momentum as we go into 2011, and expect to become the number 3 in Canada in 2011 and Johnson to achieve NWP of C$1bn in 2012. We expect Scandinavia to continue to deliver market leading profi tability and Italy to return to underwriting profi t in 2012. In
Ireland, we expect to be the largest general insurer in the market by the end of 2011.
Our strategy of targeting profitable growth, taking the right action on rate and withdrawing capacity from product lines where we cannot achieve our target returns is unchanged.
In Personal, we maintain a multi-channel distribution strategy with our Direct business
MORE TH>N® and use of the RSA brand to build strong relationships with Affinity partners and brokers.
(2009: 98%) were impacted by £139m more weather losses than normal levels, mainly driven by £110m of additional losses from the severe winter weather in November and December. It was also a challenging year in Motor, where we have exited a number of unprofitable schemes. Additionally, following a deep dive review into bodily injury we have strengthened prior year reserves by £25m.
Within Risk Solutions, we have seen continuing strong growth in our Specialty businesses.
In Europe, we have enjoyed 19% growth, with a particularly strong performance in France and in our Spanish Power and Engineering business, where we lead the global property programme for Iberdrola, the world’s biggest renewable power generator.
Broker driven by increased rates and shares on targeted broker panels in which we were previously underweight.
e-choice’ in August 2010. Since then, e-choice has delivered 15% of all new Motor business.
Our COR is 103.9% and our underwriting loss is £54m, reflecting the impact of the adverse weather in November and December, of which £72m related to Household and was driven by a significant increase in burst pipe claims.
• Risk Solutions up by 12% in the UK and by 19% in Europe
• Personal Broker Motor and Household premiums up 45% and 38% respectively, driven by rate and increased market share on targeted broker panels
• Won the E-Business Award and the Training Award for our Marketing Academy at the British Insurance Awards
The UK remains one of the Group’s most competitive markets due to the number of participants, the continued tough economic conditions, bodily injury issues and severe winter weather in 2010.
We will continue to take sustained action on rate, reduce expenses and maintain underwriting discipline. We expect to deliver targeted growth and a much improved underwriting performance in 2011.
Our organic strategy is supported by targeted acquisitions which bring us scale or enhanced technical capability in a market or segment.
Our strategy continues to focus on Large and Complex risks, Motor, Small and Medium
Across Emerging Markets, premiums are up by 16% to £964m (10% at constant exchange) and including our Indian associate total premiums are £1,080m.
to £575m (23% at constant exchange), with double digit growth in five countries and a strong performance in Affinity. In Central and Eastern Europe, premiums are up by 15% to £202m (17% at constant exchange)
due to the first full year of consolidation of our Direct operations in Poland, the Czech
Large and Complex risks we continue to grow profitably – our Engineering business in Latin
The strength of the RSA brand, along with our reputation for technical excellence, has been a key enabler for growth as clients value our strong financial position in the economic downturn more than ever.
In 2010, we were able to celebrate the Group’s 300th year anniversary with staff and clients from around the region.
Caribbean, severe hailstorms in Argentina and Cyclone Phet in Oman all impacted our underwriting result.
Most of our territories are showing signs of recovery from the global economic downturn. However, in places, conditions in the short term will remain tough.
• New target of £2.2bn NWP by the end of 2015.
LATIN AMERICA • Latin America Net Written Premiums growth of 35% (23% at constant exchange)
• Argentina, Brazil, Chile, Colombia and Uruguay all delivered double digit growth
• 93% of claims related to the earthquake paid by the end of the year.
• Oman grew at 91%, following the acquisition of Al Ahlia
• The Baltics remain impacted by the economic downturn, however we maintained our market leading position.
Latin America is recovering strongly, with all major economies showing strong GDP growth rates. As the biggest region in the Emerging
Emerging Markets offers huge growth potential for the Group. We will continue to invest in the region and aim to deliver double digit growth in 2011. We are also setting a new target of doubling net written premiums to around £2.2bn by the end of 2015.
with the impact of extreme weather on the underwriting result offset by a stronger than expected investment result.
(2009: £286m). As disclosed on 20 January 2011, the current year result reflects the impact of severe weather losses which were £175m more than 2009 and £255m worse than normal levels, as well as the Chilean earthquake at £30m.
The prior year result comes from all regions with another strong contribution from
Personal lines and Motor and General Liability in Canada, while in the UK we’ve primarily seen positive prior year from Commercial
Profit after tax from continuing operations 355 419 586 641 479
Loss after tax from discontinued operations – – – (13) (499)
We follow a high quality, low risk investment strategy. Our main focus is on high quality bonds and cash, with measured holdings in equities and property. We have taken action during 2010 to mitigate the impact of the low yield environment, including purchasing non government bonds and increasing our exposure to higher-yielding equities and property.
On investment income, the average underlying yield is 3.8%, with a 0.8%
Other Activities are £140m and comprise central expenses, which are in line with the prior year, investment expenses and the ongoing investments in our associate in India and Direct operations in Central and Eastern Europe.
As previously reported, we will continue to charge the investment in these Direct operations to Other Activities. In 2010, this investment is around £30m, compared with £29m in the prior year. In 2011, we would expect this investment to reduce to around £25m.
Other movements comprises interest and other costs of £147m, up from £141m primarily due to the higher coupon on the Sterling notes issued in May 2009.
The £10m cost of acquisitions and disposals represents transaction and integration costs on the acquisitions undertaken during the year.
Our government bond portfolio is high quality with the vast majority rated AAA.
Our exposure to the peripheral European economies of Greece, Ireland, Italy, Portugal and Spain is £321m, around 2% of the total portfolio. We have only £209m in Sovereign debt, of which, £119m is held in Ireland and £43m in Italy to back the liabilities of our operations in those countries. In respect of banks in these countries, we hold £105m of senior debt and £7m of subordinated debt.
We continue to take action to offset the fall in yields and, as previously reported, this includes the selective purchase of high quality non government bonds as well as a measured increase in higher-yielding equities and property holdings.
The Group has again maintained a strong capital position. Shareholders’ funds were £3.8bn up by 8% on 2009, with after tax profits, offset by the payment of dividends.
S&P, AM Best and Moody’s Investor Service provide insurance financial strength ratings for the Group and its principal subsidiaries.
A2 stable outlook by Moody’s and A stable outlook by AM Best.
The reduction in the pension deficit from £262m to £142m reflects changes in assumptions on the discount and inflation rate offset by a higher than expected return on the UK schemes’ assets.
We continue to take action to de-risk our pension schemes and this year, we made further significant changes to our UK defined benefit schemes. These included: • Reducing the future rate of pension accrual from 60ths to a choice of 80ths or 100ths
We expect to deliver targeted growth and a much improved underwriting result in the UK, around 10% growth and continued strong profitability in International and double digit growth in Emerging Markets. As it stands today, and assuming a return to more normal levels of weather losses across the Group, we expect to deliver a COR of better than 95% in 2011.
The Board is responsible for the Group’s risk management system and defining the Group’s risk appetite.
The Board Risk Committee ensures that material risks are identified and that appropriate arrangements are in place to manage and mitigate those risks effectively.
The Group risk appetite is set and monitored at both a Group and regional level and is annually reviewed and signed off by the Board
Risk Committee and Group Board. It sets business volumes for certain higher risk insurance classes, stipulates loss retention limits, reinsurance protection, targets for credit rating and solvency margins and other measures.
• Providing independent and objective assurance of the effectiveness of the
Our policy statements set out the minimum standards to be maintained by the Group’s operations to manage their risks in a way that is consistent with the risk appetite.
Senior Management Arrangements, Systems and Controls (SYSC). Additional information is provided in the Risk Management section on page 89. Some of the key current practices and tools for each risk category are set out overleaf alongside our risks and uncertainties.
• Putting the customer at the centre of what we do
• We actively responded to the changing insurance regulatory architecture across the UK and Europe
• We recruited a new Group Risk Director to develop and strengthen our risk capability
• We have developed formal processes to envisage and critically evaluate our emerging risks.
• Analysis of major treaty purchases using various sophisticated modelling tools
• Scenario analyses to assess operational events that have occurred elsewhere and potential exposure to the Group
• Monthly reporting of significant regulatory developments and mitigation of emerging risks.
OPERATIONAL RISK We have completed various Group wide assessments and roll-out activities to strengthen our operations.
• Reinsurance strategy and appetite recommended to the Board by the
• Purchase of the worldwide programme of global and local treaties.
• Diversified portfolio providing exposure to markets at different levels of development and insurance cycle
• Continue to invest in technical skills, sales and marketing capabilities.
• Emerging trends in large losses, frequency and severity are investigated and corrective action taken
• Conservative reserving policy ensuring that claims reserves will be more likely than not to result in positive prior year development.
• The Group operates under a clear risk appetite set by the Board which is monitored at Group and regional level
Goldman Sachs, who named RSA as one of the top five global insurers in their
Dow Jones Sustainability Investor Index, retaining ‘Platinum’ in the Times Top 100
Getting the Job Done, Positive People – to ensure that this forms part of the performance and remuneration structure at RSA.
Our approach is practical and focused on three key themes: road safety, social inclusion and the environment. These issues have been identified as important by our customers, investors and employees. Forum for the
Every country is required to confirm quarterly that they comply with our CR, environment, charity and human rights policies. Compliance with the policy framework is reviewed by the Group Executive Committee and
Executive Committee review of CR and the annual review by the Board. Briefings and training on specific CR issues are provided on an ongoing basis. CR targets and objectives are included in the Group CEO’s goals, which are also cascaded to direct reports and relevant business functions.
(AA1000, GRI, ISAE3000) with an extra audit of the Group’s carbon footprint
Carbon Reduction Commitment legislation, environmental impacts of shipping and flood risk in the UK. We set environmental improvement targets at a country level and
Further information on our approach, governance and policies can be found at: www.rsagroup.com
We incorporate the activities discussed below into our strategic priorities. For example, our work on flood mapping helps us identify the appropriate price for the risk accepted, driving sustainable earnings, while also allowing us to prioritise our claims approach.
paper consumption and energy and water usage, not only helps us meet environmental targets but reduces overall cost in our continued focus on operational excellence.
Our commitment to customers was underlined by the UK business wining the prestigious Insurance Times General
Product innovation is also key to our success and across the business we have created tailored and relevant products for specific customer groups. Social and environmental changes create demands for innovative insurance solutions.
As part of our 300th birthday celebrations employees were encouraged to volunteer and fundraise for the causes closest to their hearts. Over three months, every office was encouraged to take a day to help charities. With strong feedback internally and externally around 6,000 volunteers took part, donating 36,000 hours.
Our community strategy remains focused on issues that are important to our customers and where we feel we can achieve most through our skills and experience: Road safety
RSA employees from all over the Group are actively involved with poverty alleviation, education and crime reduction initiatives. Across Latin America, staff made donations to orphanages and helped build homes for the homeless. In the UK, employees helped to mentor teenagers aspiring to a career in business and launched a new youth-focused crime prevention scheme.
During 2010, we supported a number of environmental projects including planting trees and cleaning up polluted beaches in the Middle East. In the UK, teams helped at local nature reserves and parks, with volunteers preparing a park in London to be the site of an urban river restoration project with WWF.
In 2010, we gave over £2.4m in charitable donations (2009: £2.7m), with 58,000 volunteer hours (2009: 21,195) donated and 13,160 volunteers (2009: 10,127).
For example: • In Canada, our green home endorsement policy was launched for customers, any claim is carried out with environmentally friendly and healthy materials
We work closely with our business partners and intermediaries to grow a successful business while reducing our collective environmental and social impact. During 2010, in the UK we asked 184 of our suppliers about their management of CR
Broker satisfaction is also important and in Ireland we won the ‘Best Technical
Association. The award was in recognition of our Broker Academy which delivered over 50 sessions to 1,200 brokers in 2010.
A sustainable business needs to attract, develop and reward talented people, as well as making them accountable for their actions.
As an insurer, any change in the intensity or frequency of extreme weather conditions is a significant issue. We remain committed to leading the debate on climate change and collaborating with a range of forums, including the insurance working group of the United Nations Environment Programme for Financial Institutions and the ABI
Denmark and China a year ago. Focusing on the risks of environmental change, RSA
has been supporting conservation projects relevant to our business, developing new products and engaging our employees and external stakeholders on the environment.
and a range of stakeholders to develop renewable energy usage and energy efficiency.
Voluntary Carbon Standard. Our commitment to reducing our environmental impact is on track to achieve a 40% reduction in CO
We are actively working with WWF to integrate environmental risk considerations into our business.
F&C has one of the largest Governance and Sustainable Investment teams in Europe, enabling it to follow a policy of active engagement across its portfolios on environmental, social and governance issues.
Last year, F&C engaged with 94 companies on a wide range of issues from climate change to labour standards in our portfolios.
Our success has led customers to ask if we can help them and we have become a leading provider of renewable energy insurance and offer a range of services to reduce energy use.
Our role as a company is to keep people and businesses moving. But we won’t be able to do that if we forget the world we all live in.
Climate change is one of the great challenges for modern society.
We recorded our global footprint and in 2006 became the first UK insurer to achieve carbon neutrality.
(water utility), stepping down after its sale and subsequent de-listing from the London Stock
Chief Executive in April 2003 and is a member of the Group Executive Team, Investment
Director of RSA Canada. Previous roles include 17 years with the National
Senior Independent Director on 27 January 2011. He is Chairman of the Group
Committees. Edward is currently a Director of Powertraveller Limited and MacIntyre
Director of Prudential Group plc, Chairman of DXServices plc (mail), Director of
Director in March 2004, Malcolm is Chairman of the Investment Committee and a member of the Remuneration and Board Risk
Director in May 2008, Johanna is a member of the Group Audit, Investment and Nomination
Director for International in September 2003 and was appointed Group Human Resources
Head of Human Resources for AXA Sun Life and has worked at Walkers and Tesco in a variety of Human Resources management roles.
Anne has been with the RSA Group since 2001. She was appointed Group Chief Auditor in September 2008, having been Regional
Claims Director in November 2007 when he joined the Group. Tim has over 30 years experience in the insurance industry. He joined RSA from Zurich Financial Services where senior underwriting roles included three years as Global Chief Underwriting
Offi cer for General Insurance. Tim has also held senior management roles at AIG and
Continental Insurance. Tim is a member of the Cheltenham Ladies College Council.
General Counsel at Benfi eld Group Limited, where he was responsible for the global legal, company secretarial and compliance teams.
Clare joined as Group Strategy, Marketing and Customer Director in June 2007.
and ten years at GE Capital, including work in Asia and Eastern Europe on acquisition integration and business development.
The Board is committed to maintaining high standards of corporate governance as it believes that a solid corporate governance framework leads to achievement of the Company’s objectives and delivery of long term value to shareholders.
The UK Corporate Governance Code published in 2010 applies to the
Company in 2011 and RSA will report on the status of its compliance with that Code in the 2011 Annual Report and Accounts.
Senior Independent Director. Edward Lea was therefore appointed to this position on 27 January 2011
• The Non-Executive Directors’ letters of appointment did not specify the length of the term for which each Director was appointed. This has now been addressed
Executive Directors being present. The Board have agreed that at least one such meeting will take place in 2011.
The Combined Code states that the Board’s role is to provide entrepreneurial leadership of the Company within a framework of prudent and effective controls. Matters reserved to the Board include: • Strategy and management of the Company
Responsible for organising and directing the affairs of the Company in a manner that is most likely to promote its success for the benefit of its members as a whole.
Determines the terms and conditions of employment, remuneration and benefits of the Executive Directors and the Chairman of the
Manages the process to advise and make recommendations to the Board on matters relating to the Board’s membership and related appointments.
Group framework of risk limits and risk appetite and oversees the risk management arrangements of the
Assists the Board in setting investment strategy and monitors execution of that strategy.
• Carried out the annual review of the Group’s governance framework
• Continued to work towards implementation of Solvency II in 2013
• Approved roll out of a global guide to business conduct
• Received regular updates on HR strategy and activities including the Executive Development
• Approved the 2009 full year results, Annual Report and other financial results
• Determining the remuneration policy for the Executive Directors, the Chairman, Company Secretary and senior executives
Each year the Board holds an in depth meeting to set the objectives for the year in line with the current Group strategy. The Board monitors progress towards these objectives throughout the year at its regular meetings. The diagram below illustrates the type of matters discussed by the Board during 2010.
Strategy, Marketing and Customer; IT and Operations; Investments; Corporate Responsibility; and Human Resources. The Board has a rolling agenda of items that regularly need to be considered by the Board and it is continually updated to include any topical matters that arise.
Not all Directors were available to attend all of these meetings and their views were canvassed by the Chairman prior to the meetings. Robust discussions were held and advice sought as required prior to decisions being made. In addition eight Board Committee meetings were held during the year to finalise matters discussed by the Board such as final approval of financial statements and large operational contracts.
• Ensuring adequate standards of financial management and control are in place and that the Company complies with relevant legal and regulatory requirements
Maxwell, Noel Harwerth and Malcolm Le May were all first elected at the 2004 AGM and are currently serving their third three year term. The Board considers that each of them remains independent.
The names of the Directors together with biographical details are set out on pages 38 and 39 and are incorporated into this Report by reference.
The Chairman’s responsibilities include: • Ensuring the Board operates effectively including that it receives accurate, timely and clear information
• Ensuring effective liaison with the Group CEO and continuity of communication on developments occurring between formal
Notes: * Chairman of the Board or Board Committee. ** Of these, six meetings were unscheduled and called at short notice to address matters requiring the Board’s immediate attention. Not all Directors were available to attend. *** In addition to attendance as above, by invitation Andy Haste and George Culmer regularly attend meetings of the Group Audit Committee. By invitation Andy Haste regularly attends meetings of the Remuneration Committee.
Each Director has stood for reelection within the last two years and therefore under the Articles no Director is obliged to retire and stand for reelection at the 2011 AGM. However, John Napier, the Chairman; Andy Haste, the Group CEO; and Edward Lea, the Chairman of the
Group Audit Committee and Senior Independent Director have offered themselves for reelection this year. The Company may
The monthly Board report includes an update from the Group CEO,
During the year Noel Harwerth visited the Latin American regional office to attend a regional Risk Committee meeting, attended a Codan
Audit Committee meeting in Denmark and visited the office in China.
Team. This gives participants the opportunity to meet and discuss the business.
The GAC is chaired by Edward Lea and its principal duties are: • To keep under review the effectiveness of the Company’s financial reporting, internal controls and financial and regulatory risk management systems
• To monitor compliance with all legal and regulatory requirements of each territory in which the Group transacts business
• To provide oversight of the external audit firm or firms
• To provide coordination and oversight of the integrity of the financial reporting process.
Group Company Secretary acts as the Secretary to the GAC. The
Head of Regulatory Risk & Compliance and representatives of the external auditor are regular attendees by invitation and the
annually reviews the policy and is satisfied that it meets the criteria set out in the Combined Code.
• Received regular reports from the CFO, Disclosure Committee, regional audit or management control committees, the external auditor, the Group Chief Auditor, and Regulatory Risk & Compliance
• Assessed the performance of each Director due for reelection and recommended their reelection at the 2010 AGM to the Board.
• Reviewed the quantum of the ICA and ECA capital models and made appropriate recommendations to the Board
• Monitored progress on Solvency II compliance and reviewed RSA’s Internal Model
• Reviewed the 2009 Remuneration Report to assess any implications of the Group’s remuneration policies on risk and risk management
Chairman. With reference to the protocol, the GAC is satisfied that there are no matters that would compromise the independence of the external auditor or affect the performance of its statutory duties.
recommended to the Board that a resolution be put to the 2011 AGM
for the reappointment of Deloitte LLP as external auditor and the Board has accepted this recommendation.
So far as each Director is aware, there is no relevant audit information
Company’s external auditor is unaware, and each Director has taken all steps that he ought to have taken as a Director in order to make himself aware of, and to establish that the external auditor is aware of, any relevant audit information.
Deloitte LLP has confirmed its willingness to continue in office as external auditor of the Company for the year ending 31 December 2011.
A resolution for its reappointment will be proposed at the 2011 AGM.
The GAC is responsible for ensuring that adequate access to information and resource is given to the Group Chief Auditor and for approving the appointment to, and removal of the holder from, that position.
GIA reports to management on the effectiveness of the Company’s systems of internal controls and the adequacy of these systems to manage business risk and to safeguard the Group’s assets and resources.
An independent assessment of the internal audit function’s effectiveness was carried out during the year by PwC and the report was discussed at a GAC meeting. The report concluded that the GIA was ‘generally conforming’ (the highest rating) with the standards of the Institute of
Following the review an updated strategic plan for the function was developed and presented to the GAC. The plan aims to further link the function’s objectives with the Group’s objectives, ensure sufficient coverage of key and emerging risks, and support the Group’s talent management programme. A recruitment campaign was launched internally and externally to ensure that the function has sufficient
In addition to the Board and Committee performance evaluation described on page 45, the GAC Chairman requested that
PricewaterhouseCoopers (PwC) give their view on the quality of the interaction between the GAC and the regional audit or management control committees at the same time as their review of the effectiveness of Group Internal Audit. Feedback from members of both the GAC and the regional audit or management control committees was that they interacted well and that the regional audit or management control committees valued the attendance of GAC members at their meetings and are sufficiently challenging.
for ensuring compliance with the Group’s UK insurance regulatory obligations. The Board attaches great importance to its regulatory responsibilities and is committed to dealing with the regulator in an open, cooperative and transparent manner. The FSA carries out regular reviews under its risk based regulation operational framework
(ARROW). All actions arising from the 2009 ARROW Risk Review due to be closed at the date of this report were closed to the satisfaction of the FSA by the due date. Ongoing queries continue to be reviewed and appropriate actions agreed with the FSA.
During 2010 the FSA conducted private meetings with several members of the Board and executive management as a part of their
Solvency II can be found in the financial review on page 27 and under the Board Risk Committee on page 48.
In addition, the Group includes a number of regulated entities which rely on various licences to carry out their business. Accordingly, maintaining effective relationships with the Group’s regulators across the world is integral to the success of the Group’s strategy and its long term value.
During the year Deloitte LLP was engaged as an adviser on a number of occasions. In order to maintain their independence, such appointments are only made in accordance with a protocol developed and embedded by the GAC. This provides that the external auditor should not carry out work where the output or recommendations are then subject to its review as external auditor. Work may be given to the external auditor where it is closely allied with the audit function or it is advantageous to the Group to use its external auditor in view of its knowledge and experience of RSA. This could include accounting advice, regulatory returns, tax advice or due diligence work. All non audit work over £100,000 must be approved in advance by the CFO and all non
Group CEO and CFO. The Group Operations and Risk Director, Group
Other senior management with experience that is relevant to specific agenda items are invited to attend from time to time.
The BRC has a standing agenda to ensure that all items within its terms of reference are covered by the Committee and this is regularly reviewed to ensure it reflects the requirements of the Group, meets current best practice and industry guidance and includes items of topical relevance.
Noel Harwerth attended a Risk Committee in the Latin America regional office and a Codan Audit Committee meeting to enhance her knowledge of local risk issues.
During the year the BRC has received regular updates from the Solvency II
Steering Committee on the Group’s preparation for the implementation of Solvency II and its impact on the business. Solvency II is a fundamental overhaul of the regulatory capital adequacy regime for insurers and reinsurers within the EU which is expected to be implemented from 1 January 2013. The BRC discussed the Company’s submission to enter the FSA’s pre application internal model approval process and participated in the European wide Quantitative Impact Study Five (QIS5), which was a test of the proposed solvency and valuation rules. Solvency II also requires regulated insurers and reinsurers to have an effective system of governance in place which provides for sound and prudent management of the business. This includes ensuring that board members possess sufficient relevant professional qualifications, knowledge and experience to ensure that collectively they provide sound and prudent management. There is an ongoing process to document the governance policy and processes within each Group company to ensure that a consistent and high standard of governance is maintained throughout the Group which includes ensuring that subsidiary Directors have suitable knowledge, skills and experience.
The Board has overall responsibility for the Group’s internal control systems and for monitoring their effectiveness. Implementation and maintenance of the internal control systems are the responsibility of the Executive Directors and senior management.
Board reviewed the systems of internal control in operation during 2010 and concluded that the controls were effective throughout the year.
A self certification process is completed by business managers across the
Report and Accounts. This process is regularly reviewed by the Board and accords with the Turnbull Guidance on the Combined Code.
The BRC is chaired by Noel Harwerth and its principal duties are: • To recommend the Group framework of risk limits and risk appetite to the Board
These tests involve exploring a range of scenarios which could adversely impact the Group’s assets, liabilities and/or operational performance.
In particular, the impact of a severe and prolonged economic downturn and the impact of a major pandemic have been explored. For both scenarios Group Risk quantified the size of potential impacts, speed of crystallisation and the impact of a single event across multiple risk types
A number of these risks are now being analysed in greater detail to enable appropriate and proportionate risk management plans to be prepared to mitigate the risks.
The Investment Committee is chaired by Malcolm Le May and comprises all of the Non-Executive Directors, the Group CEO and the CFO.
Board in setting the Group’s investment strategy and monitors the execution of that strategy and the Group’s investment performance.
In addition to his reports to the Investment Committee, the Group
Investments Director presented to the Investment Committee on investment strategy and performance in December 2010.
and on to other executives in the Group. Senior executives across the
Further detail on the overall risk framework is set out on pages 28 to 31.
Information Policy and the Disclosure and Transparency Rules to ensure that inside information is not disclosed prior to it being made available to shareholders generally. General shareholder information is also available on the Group’s website: www.rsagroup.com/rsa/pages/ir/shareholderservices
The AGM will be held at the Queen Elizabeth II Conference Centre,
Broad Sanctuary, Westminster, London SW1P 3EE on Monday, 23 May 2011 at 11.00am. A letter from the Chairman and the notice convening the AGM (Notice) is available to all ordinary shareholders
At any general meeting every ordinary shareholder present shall have one vote on a show of hands, and on a poll every ordinary shareholder present in person or by proxy shall have one vote for each share of which he is the holder. Each resolution was put to a poll at the AGM
in 2010. The results of the vote on each resolution are announced to the London Stock Exchange and on the Company’s website.
The Group’s employment policy reflects its belief that motivated and skilled employees are critical to the Group’s success.
The Group is committed to the promotion of equal opportunities for all employees including those with a disability. This involves recruiting, engaging, retaining, rewarding and developing people solely on the grounds of ability to carry out the role and establishing and promoting a working environment which is free from discrimination. In order to do this the Group ensures that any reasonable adjustments are made, where it is appropriate to do so, to provide equal opportunities to all in respect of recruitment, terms and conditions of employment, promotions, transfers, grievances, redundancies and vocational training.
The Group is committed wherever possible, to supporting the rehabilitation and return to work of employees who become disabled during their career with RSA. Information on the diversity of RSA’s workforce can be found in the Corporate Responsibilty Report available at www.corporateresponsibility.rsagroup.com/rsair/en/employees/
Association (TMA) represents managerial employees under a separate consultative agreement. The European Consultative Forum (ECF) is
This table shows the holdings of major shareholders in the Company in accordance with Disclosure and Transparency Rule five as at 31 December 2010 and the date of this Report: At 31 December 2010 At 23 February 2011
Newton Investment Management Ltd 168,455,475 4.88 Indirect as discretionary investment manager 168,455,475 4.88 Indirect as discretionary investment manager
Notes: *Of the holding disclosed 164,036,816 shares (4.76%) are under the control of Scottish Widows Investment Partnership Limited, a wholly owned subsidiary of Lloyds Banking Group plc.
a cross European body created to enable information sharing and consultation on transnational issues with the European workforce.
believes it can create real competitive advantage by building and maintaining a high performance culture across the Group.
Development Programme and Fast Track Programme the Group has three Academies: Sales, Marketing and Technical and has recently launched a Global Capability Framework.
The Executive Development Programme is a challenging, world class development programme for RSA’s top leaders which aims to build
The Leadership Development Programme aims to develop business, growth and people leadership skills in leaders with high potential to move into a country or regional senior leadership role. It is a nine month programme consisting of three modules, designed to build capability in core areas of leadership. This incorporates a strategic project based on current business challenges.
The Sales Academy was operational from 2010, creating a community of RSA sales people, recognising success and creating pride in what sales people deliver to the business. There are currently two modules running; the sales skills module creates value through consultative selling and has been rolled out in the UK business with over 180 sales staff attending. There is also a Sales Leadership module.
Over 200 marketers from 12 countries have attended the two day foundation course in the Marketing Academy which was set up in 2009 to train and develop RSA’s marketing staff and support RSA’s ambition of building a best in class marketing function.
Section 417 of the Companies Act 2006 requires the Directors to present a business review in this Report. The information that fulfils this requirement can be found on pages 4 to 35, and is incorporated by reference into this Report.
The Business Review has been prepared to the best of the Directors’
Information about the use of financial instruments by the Company and its subsidiaries and its financial risk management policies are disclosed in the Business Review, in the Significant Accounting Policies on pages 78 to 85, Risk Management on pages 89 to 98 and note 12 on pages 111 to 113.
The Directors recommend a final dividend of 5.70p per ordinary share to be paid on 3 June 2011 to holders of ordinary shares on the register at the close of business on 4 March 2011, subject to ordinary shareholder approval. This, together with the interim dividend of 3.12p per ordinary share, will make a total dividend for the year of 8.82p per ordinary share.
Details of the Company’s share capital, together with details of the movements in the Company’s issued share capital during the year are shown in note 18 on page 115. The Companies Act 2006 has abolished the requirement for a company to have an authorised share capital and the Articles adopted at the 2010 AGM reflect this. Directors are still limited as to the number of shares they can allot (save in respect of employee share schemes). The current authority allows Directors to allot securities up to a nominal amount of £315,750,151 and renewal of the Directors’ authority to allot shares will be sought at the 2011
The Company has two classes of shares: ordinary shares of 27.5p each and preference shares of £1 each. Each ordinary share carries the right to one vote at general meetings of the Company and no right to fixed income. The rights attaching to the preference shares are detailed in note 18 on pages 116 to 117. As at 31 December 2010 the ordinary shares represent 96.5% and the preference shares represent 3.5%
There are no specific restrictions on the size of a holding nor on the transfer of shares, which are both governed by the general provisions of the Articles and legislation. 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 344,454,710 of its own ordinary shares
(representing 10% of its issued share capital as at 18 March 2010)
It is the Group’s policy to agree appropriate terms and conditions in advance with its suppliers and to make payment in accordance with those terms and conditions, provided the supplier has complied with them. In most cases agreements for the supply of goods or services are made under standard terms of contract that lay down payment terms.
The Company’s outstanding indebtedness to trade creditors on 31 December 2010 amounted to £3.3m corresponding to 19 days’
Each Director is required to notify the Company Secretary when a conflict of interest arises and the Board reviews Directors’ conflicts of interest annually. Under the Articles, the Board may authorise any conflict of interest. The conflicted Director shall not count towards the quorum or vote on any resolution to authorise the conflict of interest and, at the Board’s discretion, may be excluded from any meeting at which the conflict is under consideration. Where a conflict of interests is authorised, the Board may impose such restrictions on the conflicted
Director as they deem appropriate, such as excluding the Director from receipt of information or discussions.
Company or any of its subsidiaries during 2010 save that a number of
Group is not, without the previous sanction of an ordinary resolution of the Company, more than one and a half times the aggregate of: • The amount paid up on the issued share capital of the Company; and
Fund Limited, a majority owned subsidiary of the Group, in relation to its role as Trustee of an occupational pension scheme. This indemnity constitutes a qualifying indemnity provision under section 236 of the
The continuing focus of the Committee is the maintenance of a strong link between performance and reward. It is the Committee’s view that the interests of shareholders are best served by ensuring a remuneration structure which has a significant element of deferred performance related pay and reinforces the culture of high performance and accountability that applies at all levels throughout the Group without undue risk.
The Committee is required by its terms of reference to meet at least twice each year, but meets as often as necessary throughout the year to ensure that it is able to fully report to the Board and shareholders on all relevant matters. In 2010, the Committee met eight times and discussed, amongst other things, the subjects described in the table on page 55.
(the Committee) has been approved by the Board for submission to shareholders at the 2011 AGM.
• The tables of defined benefit and defined contribution pensions on page 65 to 66 and associated footnotes
• The table of disclosure of Directors’ share options and share awards on pages 66 to 69 and associated footnotes.
The Committee’s responsibilities are set out in its terms of reference which are available to shareholders on request and on the Group’s website at www.rsagroup.com/rsa/pages/ir/governance/mgtcommittees.
Overseeing the operation of the Company’s share based long term incentive schemes, including approving the value and timing of awards and overseeing the operation of performance conditions.
Consideration of and advice to the Board on, the Group’s broader remuneration policy in relation to senior executives reporting to the Group CEO
Risk Committee for review in respect of risk and risk management (to the extent not reviewed by the Board as a whole).
The Committee Chairman presents a formal report on the Committee’s activities to the Board following each meeting. The Committee presents a summary of its principal activities to shareholders through this Report and the Committee Chairman attends the AGM to answer questions from shareholders on the Group’s remuneration policies.
• Determination and approval of the awards granted and performance conditions proposed under the Long Term
• Review of proposed changes to UK defined benefit pension plans
made in 2007, and approval of the vesting of those awards
• Review of the forecast of share usage for LTIP awards and approval of the grant of awards in April 2010
• Review of proposals for the annual bonus plan for 2010.
• Review of variable remuneration to ensure that the potential amount of remuneration and the stretch in performance targets do not implicitly encourage excessive risk taking.
JULY • Approval for the grant of LTIP awards in September 2010, and for the grant of awards under the employee plans Sharesave and Sharebuild in 2010.
Tim Rolfe Group Director, Reward and Pensions Attends by invitation as an executive responsible for advising on remuneration policy
The policies relating to each element of remuneration are set out in the remuneration policy summary table on page 57.
Base salary Base salary is set with reference to equivalent roles in similar companies and the sustained performance of the executive.
Annual performance bonus Bonus payments are related to stretching performance targets and are capped at 180%
of base salary. For maximum bonuses to be achieved outstanding performance must be demonstrated.
To provide annual share awards to executives to ensure alignment with shareholder interests solely through the LTIP. Other than in exceptional circumstances, no other discretionary share plan will be used to make awards.
• Benchmarked against equivalent roles in similar companies and with reference to the sustained performance of the executive.
Annual performance bonus To incentivise the delivery of annual goals at Group, business area and individual levels
• One third of the annual bonus received is to be in the form of compulsory Deferred Shares under the LTIP
• Full details of performance measures and vesting described on pages 60 and 61.
Base salaries for Executive Directors and members of the Executive Team are set on appointment with reference to market data.
Directors in light of both the market and individual and corporate performance. The Committee also has regard to the levels of pay increases available for all employees as well as other elements of pay including short and long term variable remuneration. The Committee is confident that the structures and processes in place for reviewing annual salary increases are robust.
The Executive Directors and the Executive Team participate in an annual bonus plan. If the stretching targets required to achieve on target level are achieved, Executive Directors receive a cash bonus of up to 60% of base salary and Deferred Shares (as defined on page 60) worth up to 30% of base salary.
For outstanding performance, a cash bonus of up to 120% of base salary and Deferred Shares worth up to 60% of base salary are achievable.
Financial targets in 2010 were measured against combined operating ratio (COR) and net written premium (NWP) targets which are the preferred measures for the Group. COR is a key indicator which captures the underlying strength and performance of an insurance business.
COR targets account for three quarters of the financial targets. NWP is an indicator of growth and accounts for one quarter of the financial targets. To achieve focused incentivisation financial targets for each Executive Director are weighted towards the area of the business for which they have primary responsibility.
The financial targets that applied to the annual performance bonus in 2010 for Andy Haste and George Culmer were a combination of targets relating to the overall Group COR and NWP results and the COR results of the regional operating businesses. The financial targets for Simon
Lee’s annual performance bonus are weighted towards the International business while also retaining a target for the Group COR result as a whole.
Personal targets are reviewed and approved by the Committee early in the financial year. The Group CEO’s performance is assessed annually by the Chairman of the Board and members of the Committee. The Group CEO carries out a similar assessment for each of his direct reports, subject to review and approval by the Committee in the case of Executive Directors. Assessments also take account of appropriate leadership style and each executive receives a performance rating against the standard scale used at all levels in the business.
Group throughout 2010, and the contribution made by each Executive Director.
Executives are also offered the opportunity to voluntarily invest up to 33% of the cash element of their bonus into Deferred Shares.
In 2010 (under the LTIP) an award of Matching Shares (as defined on page 60) was made on a pro rata basis to the Deferred Shares.
The Committee reserves the right to reduce the permissible investment below this level. However, the LTIP will continue to operate on the same terms in 2011.
value is based on the fair value of awards of Performance Shares (as defined on page 60) and half of the maximum potential number of Matching
Shares that may vest (subject to performance) relating to voluntary and compulsory Deferred Shares under the LTIP.
• The Executive Share Option Scheme (1999 ESOS). Regular awards under the 1999 ESOS were discontinued from 2006 and the scheme expired in 2009. A renewed Executive Share Option Scheme (new ESOS) was adopted by the Company and approved by shareholders at the 2009 AGM. As with the 1999 ESOS, it is intended that the new plan will initially be used only in exceptional circumstances, such as executive recruitment. Performance conditions will attach to all options granted under the new ESOS and will be determined by the
In 2011, awards of Performance Shares to Executive Directors and the Executive Team will be limited to a maximum face value of 150% of base salary, other than in exceptional circumstances. Account will be taken of personal performance in determining the scale of the award to each
Executive Director and members of the Executive Team. For executives below this level, awards are made based on a formula which relates the size of award to performance and potential, as measured through the annual performance appraisal process. In any year, the face value of Performance Shares granted to any individual will be limited to 150% of base salary in normal circumstances subject to an overriding cap of 250% of base salary in exceptional circumstances such as an executive recruitment.
Performance Shares will vest after three years subject to performance conditions (see below) and provided the individual remains in employment with the Group (other than in exceptional circumstances such as death or retirement at normal retirement age).
In addition executives may invest an additional portion of bonus in Deferred Shares on a voluntary basis (voluntary Deferred Shares). Voluntary
Deferred Shares are not at risk of forfeiture and may be withdrawn at any time (but the right to Matching Shares would lapse on those Deferred
Executives may receive a conditional award of matching shares pro rata to the number of Deferred Shares held (Matching Shares). At threshold performance the matching ratio will be 0.625:1. The maximum matching ratio for Matching Shares: Deferred Shares will be 2.5:1, calculated on the gross value of the bonus invested in Deferred Shares. Details of the performance condition used are set out below.
Matching Shares will vest after three years subject to performance conditions (see below) and provided the individual remains in employment with the Group (other than in exceptional circumstances such as death or retirement at normal retirement age).
The Committee will determine the performance condition for each grant of Performance Shares and Matching Shares, with performance measured over a single period of three years with no provision to retest. In 2011 grants of Performance Shares and Matching Shares related to compulsory Deferred Shares will be subject to a performance condition consisting of a combination of ROE and TSR targets.
The TSR performance condition has been designed to provide alignment between executive remuneration and shareholder interests and to ensure that an element of the package is linked directly to share price performance. The comparator group has been selected to ensure that performance is compared fairly against a group of similar companies operating in a similar competitive environment. The use of ROE and TSR
in combination provides a balanced approach to the measurement of Company performance over the longer term.
As in 2010 ROE will be given greater prominence than relative TSR, to underline our commitment to improving the returns that we generate on our balance sheet. The vesting of 70% of the LTIP awards will be based on reported ROE performance and 30% on relative TSR performance (with the exception of Matching Shares attaching to voluntary Deferred Shares, the vesting of which will remain dependent solely on the ROE performance condition). 70% of the shares comprising the award will vest according to ROE performance. For awards made in 2010, the ROE target range was 10% to 16%. The range of ROE performance targets has varied from year to year, and (for performance periods yet to conclude) is summarised below: Year of grant Range start Range end
For awards made in 2010, the ROE performance scale is: Underlying average annual ROE Proportion of this part of the award vesting
Between 10% and 16% Between 25% and 100% pro rata 30% of the shares comprising the award will vest according to TSR performance against a comparator group of UK and international financial services companies as shown below.
Between median and upper quintile Between 25% and 100% pro rata
Dilution levels for all schemes are held strictly within the Association of British Insurers (ABI) limits. The dilution levels compared to ABI limits as at 31 December 2010 were: ABI limit RSA dilution %
10% over 10 years for all share schemes 6.52 5% over 10 years for discretionary schemes 4.09
Directors have a target of 150% of base salary and other members of the Executive Team have a target of 75% of base salary. In order to ensure that progress is made towards this target, executives are required to retain shares to a value of 50% of the net of tax gain under all executive schemes until the relevant guideline is attained. This requirement will apply to awards under the LTIP and will continue to apply to awards under all existing long term incentive plans.
The following table shows the number of shares (including voluntary Deferred Shares held under the LTIP and Matching Shares and Dividend
Shares held under Sharebuild) held by each Executive Director as at 31 December 2010 and the increase in shareholding over the year: Shares held Increase % Salary %*
George Culmer receives a taxable cash allowance of 15% of base salary, in order to bring his overall pension provision closer to the market median.
They also have a choice between a company car and a monthly cash car allowance. In common with other employees, the Executive Directors are eligible to participate in Sharesave and Sharebuild.
Where appropriate, the Group encourages Directors and other senior managers to accept, subject to the approval of the Chairman and the
In these circumstances, they are permitted to retain any remuneration from the non-executive appointment. For Executive Directors and other members of the Executive Team, external appointments are limited to one.
Andy Haste is a Non-Executive Director of ITV plc. During the year he received a fee of £68,827 which he is permitted to retain.
Following a review during the year the base fee was revised from 1 October 2010 to £60,000 in order to align fees with current market rates.
This is the first increase to the base fee for Non-Executive Directors since 2005: Base fee 60,000 45,000
Additional fee for sitting on one or more Committees in a capacity other than Chairman 5,000 5,000
Non-Executive Directors are not entitled to bonus payments or pension arrangements, nor do they participate in the Group’s long term incentive plans.
The Committee determines the Chairman’s remuneration. The fee payable to John Napier in respect of his appointment as Chairman of the
V al u e o f hy p o th et ic al £
RSA FTSE World Europe Non Life Insurance Index FTSE 100 Index
Historical TSR performance growth in the value of a hypothetical £100 holding over five years
4. Andy Haste’s allowances include an age related percentage of base salary as a retirement allowance, paid monthly. During 2010 the allowance was 36% and the amount paid was £344k.
He also received car benefits and additional taxable travel benefits worth £40k and medical and life assurance benefits worth £9k.
Non-Executive Directors are not entitled to any pension benefits. The pension benefits earned by the Executive Directors, as members of Group defined benefit schemes, were as follows: Change in accrued pension in year3 £
2. The figures set out in the table above provide information as required by Regulation 11 and Schedule 8 to the Large and Medium-Sized Companies and Group (Accounts and Reports) Regulations 2008. The Listing Rules require the change in accrued pension to be shown excluding the effects of inflation and the transfer value of this increase. These figures are shown in the notes below.
4. The benefits shown above in respect of Andy Haste relate to his membership of a defined benefit pension scheme up to the earnings cap for benefits accrued prior to 28 February 2010, and up to a cap of £75k for benefits accrued from 1 March 2010. Andy Haste was a member of the defined contribution scheme for benefits between £75k and the earnings cap for the period from 5. For Andy Haste the increase in his accrued pension during the year, excluding the effects of inflation, was £1k p.a and the transfer value in respect of this less his contributions was £17k at 31 December 2010.
The Company contributions paid in respect of Executive Directors who are members of Group defined contribution schemes, were as follows: Company contributions paid in 2010 £
The interests of Directors in ordinary shares of 27.5p each of the Company, as declared and recorded in accordance with the FSA Listing Rules, are as follows: Shares held at 31 December
2. As at 23 February 2011, the interests in ordinary shares of the Non-Executive Directors remained unchanged. Simon Lee’s holding increased to 766,906 following an exercise of
Movements in option holdings during 2010 were as follows: Options held at
Notes: 1. The aggregate gain made by Directors during the year on the exercise of share options amounted to £3.9m.
Options granted following the AGM in May 2003 are exercisable as at the end of the period of three business years starting with the business year in which the options were granted the Group achieved a return on capital (ROC) of at least 6% per annum (after inflation and excluding items of an exceptional nature which in the view of the Committee do not reflect the underlying performance of the business) when averaged over the period.
The official closing middle market price at its highest during the year was 136.6p per share and at its lowest was 114.8p per share. On the last dealing day of the year it was 125.2p per share.
Unexpired options held during 2010 in respect of the ordinary shares of the Company as a result of executive and Sharesave share option schemes are shown below. All options were granted for nil consideration.
Sharebuild (an HM Revenue & Customs approved Share Incentive Plan) was adopted by shareholders at the 2009 AGM and launched in August 2009 with the first Partnership Shares purchased in December 2009. Sharebuild is available to all UK based employees employed at 30 June each year. In 2010 one Matching Share was allotted and held in trust for every one Partnership Share acquired with participants’ contributions.
Long term incentive scheme interests held during 2010 in respect of the ordinary shares of the Company are as follows: Share Matching Plan vested awards
Notes: 1. The market price of ordinary shares on 8 April 2005, the date on which the above Share Matching Plan awards were granted, was 81.25p.
2. Matching Share awards are capable of vesting in respect of a maximum of three times the number of Deferred Shares awarded, subject to the achievement of TSR targets over a single two year period. TSR performance is measured relative to other companies specified by the Remuneration Committee. For awards granted in 2004 and 2005, TSR was measured partly relative to FTSE 100 companies and partly relative to the following financial services comparator group companies: Aegon, Legal & General Group, Allianz Group, Old Mutual,
AXA, Prudential, AVIVA, RAS, Generali and Zurich Financial Services Group. For 50% of the Matching Share awards, where TSR is measured against the FTSE 100, full vesting will only occur at upper decile performance, vesting will occur in the ratio of shares under Matching Share awards to shares under Deferred Share awards of 2:1 at upper quartile performance and vesting in the ratio 1:1 will occur at median performance. For the other 50% of the Matching Share awards, where TSR is measured against the financial services comparator group, full vesting will occur if TSR is highest in the comparator group, vesting in the ratio 2:1 will occur at upper quartile performance and vesting in the ratio 1:1 will occur at median performance. Matching Share awards will not vest at below median performance. For awards granted in 2005, the targets were measured over the period from 1 April 2005 to 31 March 2007. The relevant TSR figures were averaged over the three months before the beginning and end of this performance period. Additionally, no Matching Shares vest unless the Committee is satisfied that there has been a sustained improvement in the underlying performance of the Company over the performance period.
3. The aggregate gain on Share Matching Plan awards exercised during 2010 was £146k.
Notes: 1. The market price of ordinary shares on 7 April 2010, the date on which long term incentive scheme interests were granted during the year, was 129.1p.
5. The date by which qualifying conditions for LTIP awards must be met is as follows: Year of grant Date by which qualifying conditions must be fulfilled 6 The market price on the date of grant of awards (16 April 2007) was 164.6p, the market price on date of vesting of awards (8 March 2010) was 124.5p.
7. The aggregate value of share awards vested for Directors during the year under the long term incentive plan amounted to £3.3m. Voluntary Deferred Shares which are shown in the table above are not included in this value.
8. No other Directors of the Company held long term incentive scheme interests during 2010.
Over time, they found a solution to address every problem they encountered and a viable design was created. We collaborated with them throughout this process, to
In 1991, Siemens Wind Power was asked to build the world’s first offshore wind farm at Vindeby, a remote region of the Baltic Sea.
Accounts in accordance with applicable laws and regulations. Company law requires the Directors to prepare such financial statements for each financial year. Under that law the Directors are required to prepare group financial statements in accordance with International
European Union. Under company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the
International Accounting Standard 1 requires that Directors: • Properly select and apply accounting policies
• Provide additional disclosures when compliance with the specific requirements in IFRS are insufficient to enable the users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance and
EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group
International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical
In our opinion the consolidated financial statements: • Give a true and fair view of the state of the Group’s affairs as at 31 December 2010 and of its profit for the year then ended
• Have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation.
Less: change in provision for unearned premiums, reinsurers’ share (26) 50
Net share of loss after tax of associates 11 (5) (18)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2010
(expense) for the year (note 17) – – – – 185 – (105) (273) (193) (3) (196)
Treasury shares utilised – – 7 – – – – (7) – – –
interests in subsidiaries – – – – – – – – – 22 22
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2010
The attached notes form an integral part of these consolidated financial statements. The financial statements were approved on 23 February 2011 by the Board of Directors and are signed on its behalf by: George Culmer
CONSOLIDATED STATEMENT OF CASHFLOWS for the year ended 31 December 2010
The Directors believe that presenting the insurance contract liabilities on this basis provides a more relevant measure of the insurance obligations than the recognition of a gross provision for unearned premium with a separate disclosure of the related deferred acquisition costs. In determining the greater relevance of the presentation, the
Solvency II, the proposed treatment of acquisition costs in the IASB’s exposure draft on insurance contracts that was published in July 2010, and the basis for the liability adequacy test under IFRS 4
Directors to present financial statements that they consider provide the most relevant information. For certain accounting policies there are different accounting treatments that could be adopted, each of which would be in compliance with IFRS and would have a significant influence upon the basis on which the financial statements are presented. The bases of selection of the accounting policies for the accounting for financial assets and for the recognition of actuarial gains and losses related to pension obligations are set out below: • The Group designates financial assets that are held as investments on the basis on which the investment return is managed and the performance is evaluated internally. Where the investment return is managed on the basis of the periodic cashflows arising from the investment, a financial asset is designated as an available for sale financial asset with unrealised gains recognised in the statement of comprehensive income. Where the investment return is managed on the basis of the total return on the investment (including unrealised investment gains), the financial asset is designated as at fair value through the income statement
Subsidiaries are entities over which the Group has the power to govern the financial and operating policies so as to obtain benefits from their activities, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights
The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU). The consolidated financial statements are prepared under the historical cost convention as modified by the revaluation of available for sale financial assets, investment property,
Group occupied property and financial assets and financial liabilities held for trading (which include all derivative contracts).
Financial Statements’. The revised standards change certain aspects of accounting for business combinations including those described below: • An equity interest in a subsidiary entity that is not held by the reporting and controlling entity is now described as a non controlling interest
• In a business combination, the acquiring company must measure the non controlling interest at either fair value or as the non controlling interest’s proportionate share of the identifiable net assets. Previously only the second basis was permitted
• All consideration (including contingent consideration) transferred in a business combination is measured at fair value at the acquisition date.
Changes in the value of contingent consideration are measured in accordance with the relevant accounting treatment under IFRS
• Pre-existing equity interests in an acquiree are remeasured to fair value at the date of, and immediately before, the business combination and any resulting gain or loss is recognised in the income statement.
These changes have been applied prospectively from 1 January 2010 and do not impact on the results and the earnings per share of the comparative period or earlier periods and on the Group’s financial position at the end of each such period, and therefore comparative information has not been restated for these changes.
The Group has changed the presentation of deferred acquisition costs in the statement of financial position. Deferred acquisition costs have previously been disclosed as a discrete asset but under the revised presentation are now deducted from the provision for unearned premiums within insurance contract liabilities, as shown in note 20.
are measured using the currency of the primary economic environment in which the entity operates (the functional currency).
The results and financial position of those Group entities whose functional currency is not Sterling are translated into Sterling as follows: • Assets and liabilities for each statement of financial position presented are translated at closing exchange rates at the end of the period
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions.
The cost of the acquisition is the amount of cash paid and the fair value of other purchase consideration. For business combinations completed prior to 31 December 2009, the cost also includes costs directly attributable to the acquisition and the value of contingent consideration on settlement. Goodwill is allocated to cash generating units for the purpose of impairment testing. Goodwill is subject to an impairment review at least annually. An impairment review is also carried out whenever there is an indication that goodwill or other intangible assets are impaired. Where the carrying amount is more than the recoverable amount, an impairment is recognised in the income statement.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non controlling interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recognised as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.
Changes in the ownership interests of a subsidiary between shareholders of the Group and shareholders holding a non controlling interest are accounted for as transactions between equity holders of the Group. Any difference between the fair value of the consideration given by the transferee and the carrying value of the ownership interest transferred is recognised directly in equity.
Associates are entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for by the equity method of accounting and are initially recognised at cost.
The Group’s share of its associates’ post acquisition profits or losses are recognised in the income statement and its share of post acquisition movements in reserves are recognised in the statement of comprehensive income. The cumulative post acquisition movements are adjusted in the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.
An impairment review is carried out whenever there is an indication that the assets are impaired. An asset’s carrying amount is written down to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
The intangible asset is amortised over the expected run off period and is tested in the context of the liability adequacy test of insurance contract liabilities where the balances of intangible assets associated with insurance contracts is deducted from the carrying amount of the insurance contract liabilities. The run off period is normally between five and 11 years.
Property and equipment comprise Group occupied land and buildings, fixtures, fittings and equipment (including computer hardware and motor vehicles). These assets are depreciated over their estimated useful life after taking into account residual values.
Group occupied property is stated at fair value, less subsequent depreciation for buildings. All other assets are stated at depreciated cost. Fair value movements are recorded in equity.
Cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset only when it is probable that future economic benefits associated to the item will flow to the Group and the cost can be measured reliably.
• For cashflow hedges, a forecast transaction that is the subject of the hedge must be highly probable and must present an exposure to variations in cashflows that could ultimately affect profit or loss
The methods and assumptions used by the Group in estimating the fair value of financial assets and liabilities are: • For fixed maturity securities, fair values are generally based upon quoted market prices. Where market prices are not readily available, fair values are estimated using either values obtained from quoted market prices of comparable securities or estimated by discounting expected future cashflows using a current market rate applicable to the yield, credit quality and maturity of the investment
• For equity securities fair values are based upon quoted market prices
Loan capital is carried at amortised cost and, when different, fair value is shown in the relevant note. For borrowings that carry a variable rate of interest (other than loan capital), carrying values approximate to fair values
• Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly
Derivatives are recognised in the statement of financial position on a trade date basis and are carried at fair value. Derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and the nature of the item being hedged. Where a derivative is not designated as a hedging instrument, changes in its fair value are recognised in the income statement.
they are settled or in which the provisions for losses and loss adjustment expenses are re-estimated.
Cash and cash equivalents are short term, highly liquid investments that are subject to insignificant changes in value and are readily convertible into known amounts of cash. Cash equivalents comprise financial assets with less than three months’ maturity from the date of acquisition.
Treasury shares are deducted from equity. No gain or loss is recognised on the purchase, sale, issue or cancellation of the treasury shares.
Differences between the estimated cost and subsequent settlement of claims are recognised in the income statement in the year in which
Post retirement benefits (including pension schemes and post retirement health schemes)
Past service costs arise where additional benefits are granted. The cost of providing additional benefits is recognised on a straight line basis over the remaining period of service until such benefits vest. The cost of providing additional benefits that vest on their introduction are recognised immediately.
The change in the present value of the defined benefit obligations and the changes in the fair value of scheme assets resulting from any curtailments and settlements of scheme liabilities during the period are recognised in the income statement.
If an exchange of loan capital or modification of terms is accounted for as an extinguishment, any costs or fees incurred are recognised as part of the gain or loss on the extinguishment. If it is accounted for as an exchange, any costs or fees incurred adjust the carrying amount of the liability and are amortised over the remaining term of the modified liability and no adjustment is made to the carrying value of the liability to reflect its fair value at the date of exchange.
The final dividend is recognised as a liability when approved at the
Assets are classified as held for sale if their carrying amount is to be recovered principally through a sale transaction, that is highly probable to complete within one year from the date of classification, rather than through continuing use. Such assets are measured at the lower of carrying amount and fair value less costs to sell and are classified separately from other assets in the statement of financial position.
Assets and liabilities of a disposal group are not netted. In the period where a non current asset or disposal group is recognised for the first time, the statement of financial position for the comparative prior period presented is not restated.
Actuarial gains and losses arise from changes to actuarial assumptions when revaluing future benefits and from actual experience in respect of scheme liabilities and investment performance of scheme assets being different from previous assumptions. Actuarial gains and losses are recognised in the statement of comprehensive income.
Termination benefits are payable when employment is terminated before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either: terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after the end of the reporting period are discounted to present value.
Vesting conditions, which comprise service conditions and performance conditions, other than those based upon market conditions, are not taken into account when estimating the fair value of such awards but are taken into account by adjusting the number of equity instruments included in the ultimate measurement of the transaction amount.
On 28 October 2010 the requirements for classifying and measuring financial liabilities were added to IFRS 9. The majority of the requirements were carried forward unchanged from IAS 39. However, the requirements related to the fair value option for financial liabilities were changed to address the issue of own credit risk in order that the effects of changes in a liability’s credit risk ought not to affect profit or loss unless the liability is held for trading.
It is expected that the IASB will issue the new standard covering the remaining parts of the project during 2011.
The new standard comes into effect for the annual periods beginning on or after 1 January 2013, but early adoption is permitted. The new standard has not yet been adopted by the EU. The new standard relies on the Group business model objective and may also be influenced by the basis of the measurement of the Group’s insurance contract liabilities at the time that the new standard is adopted. The latter may change prior to adoption of IFRS 9 and so it is not possible to determine the overall impact on the results and the earnings per share of the current period, the comparative period or earlier periods, and on the Group’s financial position at the end of each such period.
• Revised IAS 24 ‘Related Party Disclosures’ (issued 4 November 2009)
IFRS 7 Disclosures for First Time Adopters’ (issued 28 January 2010)
• Amendments to IFRS 1 ‘Removal of Fixed Dates For First-time
Adopters’ and ‘Additional exemption for entities ceasing to suffer from severe hyperinflation’ (issued 20 December 2010)
• All other financial assets are measured at fair value in the statement of financial position. Subject to an optional treatment for an equity investment, changes in fair value during the reporting period are recognised in the income statement. The option in IAS 39 allowing entities to classify financial instruments as available for sale is not available in IFRS 9
• An entity can elect on initial recognition to present the fair value changes on an equity investment that is not held for trading directly in other comprehensive income. The dividends on such investments must be recognised in the income statement but gains or losses are not recycled when the equity investment is derecognised
• If a financial asset is eligible for amortised cost measurement, an entity can elect to measure it at fair value if it eliminates or significantly reduces an accounting mismatch.
The insurance contract liabilities of an insurance company include the provision for unearned premiums and unexpired risks and the provisions for losses and loss adjustment expenses. Unearned premiums and unexpired risks represent the amount of income set aside by the company to cover the cost of claims that may arise during the unexpired period of risk of insurance policies in force at the end of the reporting period. Outstanding claims represent the company’s estimate of the cost of settlement of claims that have occurred by the end of the reporting period but have not yet been finally settled.
Claims and unexpired risks provisions are determined based upon previous claims experience, knowledge of events and the terms and conditions of the relevant policies and on interpretation of circumstances. Particularly relevant is experience with similar cases and historical claims payment trends. The approach also includes the consideration of the development of loss payment trends, the potential longer term significance of large events, the levels of unpaid claims, legislative changes, judicial decisions and economic and political conditions.
In addition, the Group uses other methods such as the Bornhuetter -Ferguson method, which combines features of the above methods.
The Group also uses bespoke methods for specialist classes of business.
In selecting its best estimate, the Group considers the appropriateness of the methods and bases to the individual circumstances of the provision class and underwriting year. The process is designed to select the most appropriate best estimate.
The uncertainty arising under insurance contracts may be characterised under a number of specific headings, such as: • Uncertainty as to whether an event has occurred which would give rise to a policyholder suffering an insured loss
Group. Following the identification and notification of an insured loss, there may still be uncertainty as to the magnitude and timing of the settlement of the claim. There are many factors that will determine the level of uncertainty such as inflation, inconsistent judicial interpretations and court judgments that broaden policy coverage beyond the intent of the original insurance, legislative changes and claims handling procedures.
The Group has exposures to risks in each class of business within each operating segment that may develop and that could have a material impact upon the Group’s financial position. The geographic and insurance risk diversity within the Group’s portfolio of issued insurance policies make it not possible to predict whether material development will occur and, if it does occur, the location and the timing of such an occurrence. The estimation of insurance contract liabilities involves the use of judgments and assumptions that are specific to the insurance risks within each territory and the particular type of insurance risk covered. The diversity of the insurance risks results in it not being possible to identify individual judgments and assumptions that are more likely than others to have a material impact on the future development of the insurance contract liabilities.
The estimation of the provisions for the ultimate cost of claims for asbestos and environmental pollution is subject to a range of uncertainties that is generally greater than those encountered for other classes of insurance business. As a result it is not possible to determine the future development of asbestos and environmental claims with the same degree of reliability as with other types of claims, particularly in periods when theories of law are in flux. Consequently, traditional techniques for estimating provisions for losses and loss adjustment expenses cannot wholly be relied upon and the Group employs specialised techniques to determine provisions using the extensive knowledge of both internal asbestos and environmental pollution experts and external legal and professional advisors.
Factors contributing to this higher degree of uncertainty include: • The long delay in reporting claims from the date of exposure
• The tendency for social trends and factors to influence court awards
The Group makes acquisitions and disposals of businesses as part of its normal operations. All acquisitions are made after due diligence, which will include, amongst other matters, assessment of the adequacy of claims reserves, assessment of the recoverability of reinsurance balances, inquiries with regard to outstanding litigation and inquiries of local regulators and taxation authorities. Consideration is also given to potential costs, risks and issues in relation to the integration of any proposed acquisitions with existing RSA operations. The Group will seek to receive the benefit of appropriate contractual representations and warranties in connection with any acquisition and, where necessary, additional indemnifications in relation to specific risks although there can be no guarantee that these processes and any such protection will be adequate in all circumstances. The Group may also provide relevant representations, warranties and indemnities to counterparties on any disposal. While such representations, warranties and indemnities are essential components of many contractual relationships, they do not represent the underlying purpose for the transaction.
Group’s overall credit profile and specific concentrations within risk appetite. The Group’s insurance investment portfolios are concentrated in listed securities with very low levels of exposure to assets without quoted market prices. The Group uses model based analysis to verify asset values when market values are not readily available.
The ability of the Group to write certain types of insurance business is dependent on the maintenance of the appropriate credit ratings from the rating agencies. The Group has the objective of maintaining single
‘A’ ratings. At the present time the ratings are ‘A’ (positive outlook)
(stable outlook) from AM Best and ‘A2’ (stable outlook) from Moody’s.
In assessing credit risk in relation to reinsurance and investments, the
If any such rating changes, or is otherwise reassessed, this has potential implications for the related exposures.
Dollar, into Pounds Sterling will impact the reported consolidated financial position, results of operations and cashflows from period to period.
These fluctuations in exchange rates will also impact the Pound Sterling value of, and the return on, the Group’s investments.
The legal, regulatory and accounting environment is subject to significant change in many of the jurisdictions in which the Group operates, including developments in response to changes in the economic and political environment and the recent financial crisis. The Group continues to monitor the developments and react accordingly.
regulators and industry bodies. The Group is actively progressing its implementation plans and the Directors are confident that the Group will continue to meet all future regulatory capital requirements.
These clauses are customary in such contracts and may from time to time lead to the Group receiving claims from counterparties.
The Group has a Group Reserving Committee consisting of the Group Chief Executive Officer, Chief Financial Officer, Group Underwriting and
Reserving Committee’s aim is that, over the longer term, reserves should be more likely to run off favourably than adversely. However, there can be no assurance that reserves will not develop adversely and exceed the Management Best Estimate. In making its judgment of the Management Best
Estimate of reserves to include in the consolidated financial statements, the Group Reserving Committee adopts the following approach: • The Group’s actuaries provide an indication of ultimate losses together with an assessment of risks and possible favourable or adverse developments that may not have been fully considered in calculating these indications. At the end of 2010 these risks and developments include: the possibility of future legislative change having retrospective effect on open claims; changes in claims settlement procedures potentially leading to future claims payment patterns differing from historical experience; the possibility of new types of claim, such as disease claims, emerging from business written several years ago; general uncertainty in the claims environment; the emergence of latent exposures such as asbestos; the outcome of litigation on claims received; failure to recover reinsurance and unanticipated changes in claims inflation
The Group is exposed to multiple insured losses arising out of a single occurrence, whether a natural peril event such as a hurricane, flood or an earthquake, or man made catastrophes such as an explosion or fire at a major industrial facility. Any such catastrophic event could generate insured losses under one or more of its policies.
The ability of the business units in each territory to assess the aggregation risk of a single event impacting on thousands of policyholders is vital.
Centre reviews the operations’ proposed catastrophe purchases to check that they at least meet the Group’s ‘1 in 200 year’ standard. Group
Operational risk is the risk of direct or indirect losses resulting from human factors, external events and inadequate or failed internal processes and systems. Operational risks are inherent in the Group’s operations and are typical of any large enterprise. Major sources of operational risk include operational process reliability, information security, outsourcing of operations, dependence on key suppliers, implementation of strategic change, integration of acquisitions, fraud, human error, customer service quality, inadequacy of business continuity arrangements, recruitment, training and retention of staff, and social and environmental impacts.
Continuity Plans. Quantitative analysis of operational risk exposures material to the Group is used to inform decisions on the overall amount of capital held and the adequacy of contingency arrangements.
Credit risk is the risk of loss of value of the financial assets due to counterparties failing to meet all or part of their obligations. The Board Risk
Notes: 1. The insurance and reinsurance debtors classified as not rated comprise personal policyholders and small corporate customers that do not have individual credit ratings. The overall credit risk to the Group is deemed to be low as the cover could be cancelled if payment were not received on a timely basis.
Group’s reinsurance assets and the limits are set such that in a catastrophic event, the exposure to a single reinsurer is estimated not to exceed 2%
As of 31 December 2010 the largest pool (by premium volume) is Pool Re operated by the UK Government to provide terrorism cover.
Loans and receivables 140 – – – – – 140 –
Cash and cash equivalents 996 – – – – – 996 –
Local credit committees are responsible for ensuring these exposures are within the risk appetite of the local operations within the overall financial control framework. Exposure monitoring and reporting is embedded throughout the organisation with aggregate credit positions reported and monitored at Group level.
The Group is permitted to sell or repledge collateral held in the event of default by the owner, the fair value of which has been noted above at £1,094m. The terms and conditions of the collateral held are market standard. The assets held as collateral are readily convertible into cash.
The Group Investment Committee (GIC), on behalf of the Group Board, is responsible for reviewing and approving the investment strategy for the
The fair value of the Group’s portfolio of fixed income securities is inversely correlated to changes in the market interest rates. Thus if interest rates fall, the fair value of the portfolio would tend to rise and vice versa as set out in the sensitivity analysis on page 96.
The Group’s portfolio of equity securities is subject to equity risk arising from changes in market price. Thus if the value of equities rise so will the fair value of its portfolio and vice versa as set out in the sensitivity analysis on page 96.
The Group operates in 34 countries. Accordingly, its net assets are subject to foreign exchange rate movements. The Group’s primary foreign currency exposures are to the Danish Krone, Canadian Dollar, Swedish Krona and the Euro. If the value of Sterling strengthens then the value of non Sterling net assets will decline when translated into Sterling and consolidated.
The Group incurs exposure to foreign exchange risk in two ways: • Operational foreign exchange risk – by underwriting liabilities in currencies other than the currency of the primary environment in which the business units operate (non functional currencies)
• Structural foreign exchange risk – by investing in overseas subsidiaries and operating an international insurance group.
Operational foreign exchange risk is managed within the Group’s individual operations by broadly matching assets and liabilities by currency.
Structural foreign exchange risk is managed at a Group level through forward foreign exchange contracts. Derivatives are used to manage exposures within the limits that have been set. In managing structural foreign exchange risk, net assets maintained by the Group’s subsidiaries in local currencies are taken into account to satisfy local regulatory solvency and internal risk based capital requirements. These assets should prove adequate to support local insurance activities irrespective of foreign exchange rate movements. Consequently, this may affect the value of the consolidated shareholders’ equity expressed in Sterling.
Apart from the impact on derivative financial instruments covered below, the changes arise from retranslation of foreign subsidiaries’ net asset positions from their functional currencies into Sterling, with movements being taken through the translation reserve. These movements in exchange rates therefore have no impact on profit.
At 31 December 2010 the Group held forward foreign exchange contracts that are designated as hedging instruments to reduce structural foreign exchange risk. The derivatives are included in the table above. Further information on designated hedges can be found in note 28.
Impact on loan capital of increase in interest rates of 100bps – – – –
3. The impact on the fair value of the loan capital is a decrease of £64m (2009: £69m).
4. The effect of movements in equity and property markets is reflected as a one time decrease of worldwide equity and property markets on 1 January 2011 and 1 January 2010 which results in a 15% decline in the value of the Group’s assets in these investment categories.
5. This analysis has not considered the impact of the above market changes on the valuation of the Group’s insurance contract liabilities or retirement benefit obligations.
With reference to sensitivity analysis within insurance risk, the Group has exposures to risks in each class of business within each operating segment that may develop and that could have a material impact upon the Group’s financial position. The geographical and insurance risk diversity within the
Group’s portfolio of issued insurance policies makes it not possible to predict whether material development will occur and, if it does occur, the location and timing of such an occurrence.
Liquidity risk is the risk that cash may not be available to pay obligations when due at a reasonable cost. The Group has no tolerance for liquidity risk and is committed to meeting all liabilities as they fall due. The investment risk limits set by the BRC ensure that the Group’s portfolio is kept in highly liquid marketable securities sufficient to meet its liabilities as they come due based on actuarial assessment. The limits are monitored at a Group level as part of the Group Risk exposure monitoring and BRC reporting process.
Interest on perpetual bonds and notes 112 112 112 112 112 268 13 841
The maintenance of a capital position in excess of regulatory requirements is an absolute requirement for all of the Group’s regulated entities.
There is no tolerance for breaching capital requirements for any regulated entity.
The economic capital analysis compares the economic value of the Group’s assets with the total resources required in a range of adverse scenarios, calibrated to a defined risk tolerance consistent with the Group’s ‘A’ rating which is in line with target. The economic capital surplus is the amount by which the economic assets exceed the total resources required. The total resources required is the amount of assets the Group needs today to meet its liabilities under the defined risk tolerance. The Group defines the economic capital required as the difference between the total resource requirement and the accounting value of liabilities. At 31 December 2010, the Group’s surplus economic capital is approximately £1.1bn (2009: £1.8bn).
The reduction in the year is mainly the result of falling yield curves in the territories in which the Group operates and the impact of increased acquisitions during the year.
Group’s optimum capital structure, its investment strategy, its reinsurance programme and to determine the pricing and target returns for each portfolio. The economic capital model is also used for the Group’s ICA. The only adjustment made is to use the FSA’s required calibration.
As at 31 December 2010 the Group has an IGD surplus of approximately £1.5bn (2009: £1.7bn). Whilst the IGD surplus remains strong it has experienced a small decrease in the year with retained earnings being offset by an increase in intangible assets. The coverage ratio stood at 2.3 times at 31 December 2010 (2009: 2.4 times).
The Group is also continuing to implement a number of capital management initiatives, including optimising its regulatory structure and improving the capital efficiency of its discontinued lines of business.
The management basis reflects the way management monitor the business. Operating result on a management basis comprises the underwriting result, the investment result and other activities.
Other activities primarily comprise administration expenses, ongoing investment in the Group’s operations in Central and Eastern Europe and other expenses of £102m (2009: £84m), the Group share in the loss after tax of its associates of £5m (2009: £18m) and investment expenses and charges of £33m (2009: £30m).
Other segment items included in the income statement: Investment expense and charges (10) – (10) (10) (30)
During 2010 the accrued interest income on impaired financial assets was £nil (2009: £nil).
Direct operating expenses (including repairs and maintenance) arising from investment properties were not material in 2010 and 2009.
Reinsurance recoveries on losses and loss adjustment expenses paid (1,035) (504)
Fees payable to Deloitte LLP for audit of the Company's annual accounts 0.9 0.9
Other includes fees payable to the Company’s auditor in respect of consultancy services relating to business transformation processes and regulatory development projects.
The aggregate emoluments of the Directors, including amounts received from subsidiaries, were as follows: Emoluments of Executive Directors 4,270 4,599
UK corporation tax is calculated at 28.0% (2009: 28.0%) of the estimated assessable profit for the year. Since the Group operates around the world, it is subject to income taxes in many different jurisdictions. Taxation for jurisdictions other than the UK is calculated at the rates prevailing in those jurisdictions. Of the above taxation attributable to the Group £(35)m (2009: £(34)m) relates to UK corporation tax and £154m
Tax at the UK rate of 28.0% (2009: 28.0%) 133 155
Release of tax provided in respect of prior periods (20) (28)
Different tax rates of subsidiaries operating in other jurisdictions (1) (4)
Income tax expense 119 135 6. EARNINGS PER SHARE ATTRIBUTABLE TO THE ORDINARY SHAREHOLDERS OF THE PARENT COMPANY
Weighted average number of ordinary shares in issue (thousands) 3,441,243 3,349,321
Adjustments for share options and contingently issuable shares (thousands) 22,501 33,890
At the Annual General Meeting (AGM) on 23 May 2011, a final dividend in respect of the year ended 31 December 2010 of 5.70p per share amounting to a total dividend of £198m is to be proposed. The proposed dividend will be paid and accounted for in shareholders’ equity as an appropriation of retained earnings in the year ending 31 December 2011.
The trustees of the Royal & Sun Alliance ESOP Trust and the Royal & Sun Alliance ESOP Trust No 2 waived their entitlement to (except for a nominal amount) dividends which reduced the total dividend paid by £1m (2009: £1m).
Goodwill is allocated to the Group’s cash generating units (CGUs) as follows: £m £m
A number of other assumptions and estimates are involved in the application of a cashflow model to forecast operating cashflows, premium volumes, expenses and working capital requirements. Forecasts of future cashflows are based on the best estimates of future premiums, operating expenses using historical trends, general geographical market conditions, industry trends and forecasts and other available information.
These assumptions are subject to review by management and the Group Audit Committee. The cashflow forecasts are adjusted by appropriate discount rates. Discount rates used are within a range of 9% to 15% (2009: 8% to 14%), are pre tax and reflect specific risks relating to the relevant segments at the date of evaluation. The weighted average growth rates used in 2010 are within a range of 2% to 5% (2009: 1% to 4%).
Group occupied property reserve at 31 December 33 33 10. INVESTMENT PROPERTY
Summarised below are the assets, liabilities, revenue and profit and loss of the companies above.
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable: Fair value hierarchy
None of the Group’s insurance contract liabilities are measured at fair value. There were no transfers between Level 1 and Level 2 during the year.
Total gains/(losses) recognised in: Level 3 financial assets at 31 December 2009 26 18 8 81 133
Total gains/(losses) recognised in: Level 3 financial assets at 31 December 2010 28 23 13 71 135
Reinsurers’ share of provisions for losses and loss adjustment expenses 2,353 1,494
Reinsurers’ share of portfolio transfers and acquisitions of subsidiaries 16 –
Reinsurers’ share of provision for unearned premiums at 31 December 299 301
Reinsurers’ share of provisions for losses and loss adjustment expenses at 1 January 1,494 1,500
Reinsurers’ share of portfolio transfers and acquisitions of subsidiaries 16 6
Total insurance and reinsurance debtors 3,137 2,812 15. OTHER DEBTORS AND OTHER ASSETS
Less: cash and cash equivalents reported in assets held for sale – (109)
The interest bearing financial assets included in cash and cash equivalents had an effective interest rate of 1.05% (2009: 1.09%) and had an average maturity of 19 days (2009: 25 days).
Total comprehensive income for the year 58 40 404 502 10 512
Other comprehensive income/(expense) for the year 185 (105) (691) (611) (4) (615)
Total comprehensive income/(expense) for the year 185 (105) (273) (193) (3) (196)
During the year 34,641,792 (2009: 28,969,400) ordinary shares were issued on the exercise of employee share options and awards for a cash consideration of £15m (2009: £11m). The Parent Company also issued 41,135,898 (2009: 61,767,996) ordinary shares during the year under the scrip scheme as approved by shareholders. The total nominal value of ordinary shares issued during the year was £21m (2009: £26m).
With effect from 17 May 2010 when new Articles of Association were adopted in the Annual General Meeting to bring them into line with the
Shares under the Long Term Incentive Plan. The remaining 97,933 ordinary shares (2009: 144,039) may subsequently be transferred to employees, including Executive Directors, under one of the Group’s employee share plans.
The RSA Share Incentive Plan Trust holds 3,040,752 ordinary shares (2009: 253,364) in the Parent Company at 31 December 2010 with a nominal value of £1m (2009: £nil) and a mid market value of £4m (2009: £nil) based on the mid market closing value of the Company’s shares on 31 December 2010. Of this, 1,553,451 ordinary shares (2009: 126,682) are beneficially owned by Group employees as Partnership Shares and Dividend Shares under Sharebuild. The remaining 1,467,533 ordinary shares (2009: 126,682) may subsequently be transferred to employees, including Executive Directors, under Sharebuild.
• A resolution is proposed varying the rights attached to preference shares, for the winding up of the Parent Company or for a reduction of capital in the Parent Company (in which case preference shareholders may only vote on such resolution)
• In such other circumstances as the Directors may determine prior to the allotment of any preference shares.
Provided a resolution of the Board exists, and in priority to any payment of dividend to other shareholders (other than any dividend not exceeding 0.1p per share), holders of preference shares are entitled to a cumulative preferential dividend of 7.375% per annum, payable out of the profits available for distribution, to be distributed in half yearly instalments and the shares are not redeemable. Preference shareholders have no further right to participate in the profits of the Parent Company. In addition, preference shares do not confer: • Any right to participate in any offer by way of rights or otherwise to subscribe for additional shares in the Parent Company
The Directors may deduct from any dividend or other monies payable to any shareholder all sums of money presently payable by him to the
Parent Company on account of calls or otherwise in relation to his shares in the Parent Company.
On a return of capital on a winding up (liquidation), preference shareholders are entitled, in priority to holders of ordinary shares of the Parent
The Parent Company has a first and paramount lien on every share that is not fully paid for all monies called or payable in respect of such share.
The Parent Company may sell any share on which the Parent Company has a lien passed following service of a notice on the shareholder demanding payment of the sum and giving notice of the Parent Company’s intention to sell in default of such payment.
No shareholder is, unless the Directors otherwise determine, entitled to attend or vote either personally or by proxy at any general meeting if: • Any call or any sum presently payable by him to the Parent Company in respect of such share remains unpaid or
Further, if a shareholder who holds 0.25% or more (in nominal value) of the issued shares is in default of a section 793 notice then the Directors may also withhold the payment of any dividend and restrict the transfer of shares held by such shareholder.
Save with the consent of preference shareholders, the Directors shall not increase the amount of any shares of any class (or any securities convertible into any shares of any class), ranking as regards participation in the profits or assets of the Parent Company (otherwise than on a redemption or purchase by the Parent Company of any such share) in priority to the preference shares.
The Directors can require a shareholder to provide evidence that shares held by such shareholder are not held by or on behalf of a US Holder
(as defined in the Articles of Association). The Directors may require a US Holder to sell its shares to a non US resident, failing which the Parent
Company may effect a sale of such shares. The Directors may refuse to register a transfer by a US Holder where it is made to a US resident.
The subordinated guaranteed perpetual bonds have a nominal value of £375m and the rate of interest payable is 6.701% of the nominal value.
The Group has the option to repay the bonds on specific dates starting 12 July 2017. If the bonds are not repaid, from that date, the interest rate payable would be LIBOR plus 2.51%.
There have been no defaults on any of the bonds or notes during the year. The Group has the option to defer interest payments on the bonds and notes but to date has not exercised this right.
The provision for unearned premiums is shown net of deferred acquisition costs of £783m (2009: £721m). The movement in deferred acquisition costs during 2010 is attributed to £964m (2009: £932m) acquisition costs deferred during the year, £922m (2009: £906m) amortisation charged during the year, £20m exchange gains (2009: £4m exchange losses), £nil (2009: £6m) due to acquisition of subsidiaries and £nil (2009: £2m) of other movements.
Provisions for losses and loss adjustment expenses at 1 January 10,613 11,220
Total claims payments made in the year, net of salvage and other recoveries (6,112) (5,294)
At end of accident year 7,592 2,672 2,454 2,301 2,466 2,490 2,588 2,644 2,530 2,699
The Group’s borrowings of £298m (2009: £295m) primarily relate to loans from credit institutions under a repurchase agreement. Further information is contained in the risk management section.
At 31 December 2010 the Group had in place a US$1bn (2009: US$1bn) Euro commercial paper program. There are no amounts outstanding at 31 December 2010 (2009: £nil).
(Charge)/credit to the income statement for the year – (21) (9) 20 (6) (16)
Charge to equity for the year (2) – – – (3) (5)
Net debit arising on acquisition/disposal of subsidiaries and other transfers – – – – 9 9
The current tax and deferred income tax (charged)/credited to each component of other comprehensive income is as follows: Current tax Deferred tax Total £m £m £m £m £m £m
Available for sale financial assets (19) (53) 4 (13) (15) (66)
Fair value gains and losses (19) (53) 5 (10) (14) (63)
The aggregate current and deferred tax relating to items that are credited/(charged) directly to equity is £1m (2009: £(1)m).
At the end of the reporting period, the Group has unused tax losses of £1,835m (2009: £1,584m) and unused tax credits of £15m (2009: £11m)
Other provisions includes £32m (2009: £57m) held relating to vacant property leases, dilapidations and refurbishments, the costs relating to which will be borne across the period over which the leases expire, which is up to 20 years. Other provisions also includes Motor Insurance Bureau provision of £25m (2009: £25m).
The insurance component is accounted for within insurance contract liabilities and the deposit component, offset by the value of the funds held in the trust account, is recognised under other liabilities.
UK schemes. The arrangements comprise of assets and interest rate swaps combined with an insurance contract that provide for the full payment of the pensions in return for the actual investment return on a segregated portfolio of assets held by the pension funds at the inception of the arrangement. The pension schemes continue to benefit from the assets held in the portfolio and retain the obligation to meet the insured pension obligations. The assets and pension obligations are therefore not derecognised in the financial statements and an asset (representing the recovery of the insured pension obligations) and a liability (to pay the investment return on the portfolio of assets to the insurer) are recognised.
Expected contributions to pension and post retirement benefit schemes for the year ending 31 December 2011 are approximately £52m, including a further £37m of additional contributions, following the funding valuation in March 2009.
The Group also provides post retirement healthcare benefits to certain current and retired Canadian employees. The benefits are not prefunded.
The estimated discounted present values of the unfunded accumulated obligations are calculated in accordance with the advice of independent, qualified actuaries.
Net pension and post retirement deficit at 31 December (142) (262)
The accumulated actuarial losses since 1 January 2004 are £529m (2009: £613m).
Present value of obligations not covered by insurance arrangement 3,611 425 4,036 3,742
Total assets in the schemes (excluding those used to fund insurance arrangement) 3,493 340 3,833 3,374
Assumptions used in calculation of retirement benefit obligations: Annual rate of general inflation 3.1 3.3 2.2 2.1
Assumptions used in calculation of income statement credit/charge in the year: Expected return on: Expected return on schemes’ assets
The weighted average expected return on schemes’ assets across the Group for 2010 was 6.4% (2009: 5.5%). The expected return on schemes’
The mortality assumptions are set following investigations of the main schemes’ recent experience by the schemes’ actuaries for the funding valuations. At the funding valuation in March 2009, the mortality assumptions adopted for the main UK schemes used the SAPS Light Normal base table with percentage adjustments to reflect the schemes’ recent experience compared with that expected under these tables. The next funding valuation is not due until 2012.
Reductions in future mortality rates are allowed for by using 80% (males) and 60% (females) of the long cohort improvements. The weighted average assumptions imply that a current pensioner aged 60 has an expected future lifetime of 27.5 (2009: 27.5) years (males) and 28.1 (2009: 28.1)
years (females) and a future pensioner aged 60 in 15 years time has a future expected lifetime from age 60 of 28.3 (2009: 28.2) years (males) and 28.7 (2009: 28.6) years (females).
The discount rate, the assumed inflation rate and the mortality assumptions all have a significant effect on the IAS 19 accounting valuation. A 0.1%
increase in the discount rate would reduce the defined benefit obligations in the UK not covered by the insurance arrangement by £48m (2009: £49m).
A 0.1% increase in the inflation rate assumption would increase the defined benefit obligations in the UK not covered by the insurance arrangement by £44m (2009: £43m). An increase of one year in life expectancy would increase the defined benefit obligations in the UK not covered by the insurance arrangement by approximately £65m (2009: £68m). The Group has no material exposure to the effect of changes in medical costs.
Association of British Insurers limits. Further information on the LTIP scheme is included below and information on the other share schemes can be found in the remuneration report.
The total employment cost recorded in the income statement for all plans is £28m in 2010 (2009: £27m).
The Long Term Incentive Plan (LTIP) for Executive Directors and other selected executives was adopted following approval obtained at the 2006
AGM. Awards have been made each year since 2006 following shareholder approval.
Compulsory Deferred Shares. Voluntary Deferred Shares are held in trust for three years. Compulsory Deferred Shares awards are normally forfeited on an employee leaving the Group. No further performance conditions apply. The Remuneration Committee may make a conditional award of shares on a ‘matched’ basis to Voluntary and Compulsory Deferred Shares (‘Matching Shares’) up to a maximum of 2.5:1 and these are normally forfeited on an employee leaving the Group.
Awards of Performance Shares and Matching Shares related to Compulsory Deferred Shares are subject to a performance condition consisting of a combination of a return on equity target and a total shareholder return target (with performance measured by comparison against other
Republic of Ireland RSA Insurance Ireland Limited General insurance 123 Money Limited General insurance
2. A full list of Group subsidiaries is attached to the Company’s latest Annual Return, available from Companies House.
The goodwill arising from purchases in earlier years consists of the revision of the valuation of contingent consideration on acquisitions prior to 2009.
Of the total goodwill recognised, £43m is expected to be deductible for income tax purposes.
Due to the timing of acquisitions the valuations disclosed above are provisional pending the completion of the review of valuation of certain assets and liabilities, in particular the actuarial review of insurance contract liabilities and the determination of the fair value of intangible assets.
Disposals completed during the period resulted in a loss to the Group of £1m. The principal disposal was that of British Engine Insurance Limited, which was classified as held for sale at the previous year end, at a loss of less than £1m.
The fair value of the financial assets acquired includes premiums and insurance balances receivable of £23m, there has been no deduction for amounts expected to be uncollectable.
Acquisition related costs (included in other operating expenses in the income statement for the year ended 31 December 2010) amounted to £3m.
The goodwill recognised on this acquisition is not expected to be deductible for income tax purposes.
The valuations disclosed above are provisional due to the timing of the acquisition and the acquisition accounting not yet having been finalised.
Adjustments for: Fair value losses (including loss on disposal) on property and equipment – 1
Fair value gains (including gain on disposal) on investment property (27) (7)
The Group’s significant capital commitments in respect of property and equipment and intangible assets are detailed in the table below: £m £m
The Group has a number of guarantees and commitments, as set out below.
The future aggregate minimum lease payments under non cancellable operating leases are as follows: Land and buildings Other £m £m £m £m
In 2009, a UK subsidiary was classified as a disposal group and office property within the UK and International operating segments as assets held for sale. The sale of the subsidiary has been completed during 2010 and the Group is actively marketing the properties. No material gain or loss has been recognised in the income statement since the reclassification.
Our audit work has been undertaken so that we might state to the Parent Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Parent Company and the Parent Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
As explained more fully in the Directors’ responsibilities statement, the Directors are responsible for the preparation of the Parent Company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Parent
• Have been properly prepared in accordance with IFRS as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006
• Certain disclosures of Directors’ remuneration specified by law are not made or
We have reported separately on the consolidated financial statements of RSA Insurance Group plc for the year ended 31 December 2010 and on the information in the Directors’ remuneration report that is described as having being audited.
The profit for the year net of tax includes a tax credit of £3m (2009: £12m). There is no tax relating to fair value gains.
Profit for the year net of tax – – – – – 345 345
Dividends – paid (note 7) – – – – – (273) (273)
Fair value gains net of tax – – – 69 – – 69
The separate financial statements were approved on 23 February 2011 by the Board of Directors and are signed on its behalf by: George Culmer
PARENT COMPANY STATEMENT OF FINANCIAL POSITION as at 31 December 2010
Cash and cash equivalents at beginning of the year 1 4
Cash and cash equivalents at end of the year 3 1
RSA Insurance Group plc, incorporated in England and Wales, is the ultimate Parent Company (‘the Company’) of the RSA group of companies.
These separate financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the
Where there is a decline in the fair value of a directly owned subsidiary below cost, and there is objective evidence that the investment is impaired, the cumulative loss that has been recognised in equity is removed from equity and recognised in the income statement.
The investments in subsidiaries are recognised in the statement of financial position at fair value measured in accordance with the Company’s accounting policies. Fair value of the Company’s significant subsidiary is determined by reference to the market value (derived from relevant indices)
The adjusting items have been fair valued by determining the present value of future cashflow projections, using an appropriate arm’s length discount rate. The remaining subsidiaries are held at fair value which has been determined to be net asset value.
Total other debtors and other assets 4 5 4. SHARE CAPITAL
The current tax relating to items that are credited to equity is £2m (2009: £2m).
Deferred tax assets at 31 December 2009 7 14 2 23
At the end of the reporting period, the Company has unused tax losses of £nil (2009: £nil) available for offset against future profits. No deferred tax asset has been recognised in respect of the tax losses of £nil (2009: £nil) due to the unpredictability of future profit streams.
Interest is charged on interest bearing loans, which are repayable on 24 hours written notice, at three months LIBOR plus 0.6%.
(2009: £78m) and £492m (2009: £492m) are subordinated loans on which interest is charged at 8.5%, 6.701% and 9.375% respectively with the remaining loan balance interest free with no specified repayment date.
The astonishing result was a greener, more efficient and more sustainable building, able to continue providing food to over 200 facilities that assist over 112,000 people.
But then a local construction company stepped in with a radical idea to completely renovate the facility, reducing operating costs and turning it into a leader in energy efficiency, and they would do this on a ‘pro-bono’ basis without disrupting the centre’s work.
Overseas callers should use +44 (0)121 415 7064. Shareholders with a text phone facility should use +44 (0)871 384 2255.
General Meeting (AGM), which will be held at The Queen Elizabeth II
Chairman an email via the Company’s website or to write to the
Annual Report and Accounts by writing to or telephoning the Registrar.
Company without incurring dealing costs or stamp duty. If you wish to receive a scrip dividend instead of a cash dividend for future dividends on which a scrip alternative is offered, please contact Equiniti.
The average total daily trading volume during 2010 was approximately 10.1m ordinary shares. The closing market price of an ordinary share on 4 January 2010 was 119.7p and the closing market price on 31 December 2010 was 125.2p. The highest daily closing price of an ordinary share was 136.6p on 9 August 2010 and the lowest daily closing price was 114.8p on 25 May 2010. Further details of the ordinary and preference shares are found in note 18 on pages
It is required by law that our shareholder register is available for public inspection and we are unable to control the use of information obtained by persons inspecting the register. Shareholders are advised to be wary of any unsolicited advice, offers to buy shares at a discount, or offers of free reports about the Company. Details of any share dealing facilities that the Company endorses will be included in
• Keep any documentation that contains your shareholder reference number in a safe place and destroy any documentation which you no longer need by shredding it
Shareholders who receive duplicate sets of Company mailings owing to multiple accounts in their name should contact Equiniti to request that their accounts be amalgamated.
Commission is currently 1.5% with a minimum charge of £25 for telephone dealing and currently 1% with a minimum charge of £20 for internet dealing. For telephone sales call +44 (0)845 6037 037 between 8.30am and 4.30pm, Monday to Friday. For internet sales log on to www.shareview.co.uk/dealing. You will need your shareholder reference number as shown on your share certificate.
Stocktrade offer a telephone dealing service. Commission is currently 0.5% on amounts up to £10,000 and 0.2% on the excess thereafter, all of which are subject to a minimum charge of £17.50. A postal dealing service is also available upon request. For telephone sales call
Please quote reference: Low Cost 331. Alternatively visit their website www.stocktrade.co.uk.
Please note that rates are as at February 2011 and may be subject to change. Please contact either provider for further guidance on their full terms and conditions.
Shareholders with a small number of shares, the value of which makes it uneconomic to sell them, may wish to consider donating them to charity through ShareGift, a registered charity administered by The Orr
Announcement of the scrip dividend price for the ordinary final dividend for 2010.
Deadline for the receipt of scrip dividend mandates by Equiniti Limited in relation to the ordinary final dividend for 2010.
Payment date for the ordinary final dividend for 2010 (subject to shareholder approval at the AGM).
Ex dividend date for the ordinary interim dividend for 2011 and the second preference dividend for 2011.
Deadline for the receipt of scrip dividend mandates by Equiniti Limited in relation to the ordinary interim dividend for 2011.
• Can also refer to the largest amount of insurance or reinsurance available in the marketplace.
• Measures how much we pay out in claims and expenses for each unit of net premium received
• A COR of less than 100% indicates that we are writing profitable business
• Calculated as: Commission • An amount paid to an intermediary such as a broker for generating business.
Expense Ratio • Percentage of Net Written Premiums which is paid out in operating expenses e.g. salaries, premises costs, etc.
This represents the funds that would be available to ordinary shareholders if the Group were wound up.
• The total claims cost incurred in the period less any share to be paid by reinsurers. It includes both claims payments and movements in claims reserves in the period.
• Net Written Premium is premium written or processed in the period, irrespective of whether it has been paid, less the amount paid out in reinsurance premiums.
Operating Profit • The profit generated by the ordinary activities of the Group including both insurance and investment activity.
Prior Year Result • Profit or loss generated by settling claims incurred in a previous year at a better or worse level than the previous estimated cost.
QIS 5 • Quantitative Impact Study 5. Part of the development process of Solvency II, it was designed to test the financial impact and suitability of the proposed requirements.
Rate • The price of a unit of insurance based on a standard risk for one year. Actual premium charged to the customer may differ from the rate due to individual risk characteristics and marketing discounts.
• A measure of the profits the Group earns relative to funds attributable to ordinary shareholders.
Scrip Dividend • Where shareholders choose to receive the dividend in the form of additional shares rather than cash.
Director’s photography by Homer Sykes and Liam Bailey Executive Team by Liam Bailey Photography for the front cover supplied by Reuters Photography for pages 2 and 3, 14 and 15 and 36 and 37 supplied by Alamy and Getty Images Photography for pages 70 and 71 supplied by Siemens AG Photography for pages 146 and 147 supplied by Corbis Images
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