During 2009 the Group entered into arrangements that provide coverage against longevity risk for 55% of the retirement obligations relating to pensions in payment of the two largest UK schemes at that time. The arrangement provides for reimbursement of the covered pension obligations in return for the contractual return receivable on portfolios of assets (including some interest rate swaps) held by the pension funds at the inception of the arrangement. The arrangement is accounted for as a longevity swap. The pension schemes continue to hold the original assets used to fund the arrangements.
For the accounting periods ended 31 December 2012 and earlier, part of the arrangement had been measured in accordance with its legal form as an insurance contract. The premiums payable under the insurance contract were measured at fair value and the amounts receivable under the insurance contract were valued on the same basis as the insured retirement obligations.
The maturity profile of the undiscounted cashflows of the three main UK schemes is shown below: MATURITY PROFILE (UNDISCOUNTED CASHFLOWS)
For the three main UK defined benefit schemes, the level of contributions in 2013 were £92m (2012: £97m) of which £65m (2012: £72m) were additional contributions in line with the plan to reduce funding deficits. Expected contributions to the three schemes for the year ending 31 December 2014 are approximately £83m including £64m of additional contributions to reduce the deficit.
The Group also operates defined benefits schemes in other countries. The most significant of these schemes are in Canada and Ireland.
Net pension and post retirement deficit at 31 December (125) (207)
The following is a reconciliation of the Group’s retirement benefit obligations: 2013 £m
Return on schemes’ assets included in pension net interest cost 266 284
Assumptions used in calculation of pension net interest costs for the year: Notes: 1. For the UK the annual rate of increase in pensions shown is the rate that applies to pensions that increase at RPI subject to a cap of 5%. For other schemes the weighted average assumption is shown.
Reductions in future mortality rates are allowed for by using the Continuous Mortality Investigation (CMI) 2013 tables with a long-term rate of 1.00%. The weighted average assumptions imply that a current pensioner aged 60 has an expected future lifetime of 27.6 (2012: 27.6) years for males and 28.8 (2012: 28.2) years for females and a future pensioner aged 60 in 15 years time has a future expected lifetime from age 60 of 28.6 (2012: 28.3) years for males and 30.0 (2012: 28.7) years for females.
Sensitivity analysis Sensitivities for the defined benefit obligations of the three main UK schemes are shown below (net of tax): Changes in assumption £m £m
Notes: 1. The impact shown is for the appropriate increase in the revaluation of deferred pensions and the increases to pensions in payment resulting from the specified increase in RPI and CPI. 2. During the year the Group moved to the use of CMI projections for future improvements to mortality with a long-term rate of 1.0%.
Impact of adoption of the revised IAS 19 in the 2013 financial statements The Group has adopted the revised version of IAS 19 ‘Employee Benefits’ at 1 January 2013. The changes in the revised IAS 19 are described in the significant accounting policies.
The revised IAS 19 is applied retrospectively and consequently the results for 2012 have been restated. The effect of the restatement is to increase the charge previously recognised in the consolidated income statement by £31m (£24m net of taxes). This charge includes an £8m increase in the gross claims incurred, a £9m increase in underwriting and policy acquisition costs, an £8m increase in other operating expenses and a new charge of £6m for pension net interest included within finance costs in the consolidated income statement. There is a corresponding reduction in the actuarial losses recognised in other comprehensive income. The deferred tax of £7m generated on the charges is also a direct switch between the consolidated income statement and consolidated statement of comprehensive income. There is no impact on the net asset value of the Group.
28. SHARE BASED COMPENSATION The Group has four types of share based payment plans which are settled in the form of ordinary shares: the Long Term Incentive Plan (LTIP), the Sharesave Plan (SAYE), the Sharebuild Plan and the Executive Share Option Scheme (ESOS). Dilution levels for all schemes are held strictly within 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 consolidated income statement for all plans in 2013 is £9m (2012: £6m).
The structure of the plan allows for a number of different types of awards to be made.
In addition, for senior executives, the Remuneration Committee may defer a portion of an individual’s gross bonus (limited to 33% of that bonus) into an award over shares referred to for the purpose of the plan as Compulsory Deferred Shares. Compulsory Deferred Share 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 Voluntarily Invested and Compulsory Deferred Shares (‘Matching Shares’) up to a maximum of 2:1 and these are normally forfeited on an employee leaving the Group.
29. HEDGE ACCOUNTING The Group designates certain forward foreign exchange contracts and foreign exchange options as accounting hedges against the net investment in designated subsidiaries to reduce the foreign exchange risk exposure.
For forward foreign exchange contracts, on designation, the interest element is separated from the forward exchange rate and is excluded from the hedge relationship. Effectiveness of the hedge is then measured using the spot rate, which is also the exchange rate used when measuring the net investment in the designated subsidiaries.
For foreign exchange options the hedge designation is to hedge the value of the foreign operations at the strike price at the exercise date of the option.
The fair value of the accounting hedges at 31 December 2013 are a liability of £1m (2012: £6m) and an asset of £31m (2012: £14m). The hedge ineffectiveness recognised in the consolidated income statement during 2013 is £nil (2012: £nil).
31. BUSINESS COMBINATIONS During 2013 no significant acquisitions or disposals were completed by the Group. There were no significant changes in the recognised amounts of contingent consideration, and no changes in the range of outcomes, in respect of business combinations completed in earlier years.
Fair value gains (including gains on disposal) on financial assets (29) (70)
As at 31 December 2013, there are interest free loan totalling £5,000 (2012: £5,000) outstanding to members of the key management team under standard terms of the Group’s UK Car Ownership Scheme, which is open to all UK managers within a qualifying salary band.
34. COMMITMENTS Capital commitments The Group’s significant capital commitments in respect of property and equipment and intangible assets are detailed in the table below: 2013 £m 2012 £m
Operating lease commitments where the Group is the lessee The future aggregate minimum lease payments under non cancellable operating leases are as follows: Land and buildings Other 2013 £m 2012 £m 2013 £m 2012 £m
Operating lease commitments where the Group is the lessor The future aggregate minimum lease payments under non cancellable operating leases are as follows: Land and buildings 2013 £m 2012 £m
After five years 81 83 35. ASSETS HELD FOR SALE Assets held for sale comprises the Group’s Swedish headquarters. The property was designated as held for sale following a decision to make the disposal and the sale is considered highly probable.
• The Group purchased an adverse development cover contract (ADC). The ADC is underwritten by Berkshire Hathaway and covers the insurance liabilities in existence at 31 December 2012. It provides £550m of cover with an attachment point which is £550m above our undiscounted actuarial indication (excluding loss adjustment expenses). The Group retains 20% of the exposure. This cover protects shareholders from adverse reserve development and provides capital benefits
• In January 2014, the Group entered into a sale and leaseback agreement for the Group’s Swedish headquarters which was designated as held for sale at the year end. The Group is expected to realise a profit of £30m on the transaction which is expected to complete on 31 March 2014.
PARENT COMPANY STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2013 2013 £m 2012 £m
Reserve transfer (note 12) – (420) – – – 420 –
Fair value gains net of tax – – – 1,413 – – 1,413
Shares issued by scrip 12 (12) – – – 50 50
Profit for the year net of tax – – – – – 271 271
Total comprehensive (expense)/income for the year – – – (1,371) – 271 (1,100)
The movement in equity for the year net of tax includes a net tax charge of £1m (2012: £1m).
The separate financial statements were approved on 26 February 2014 by the Board of Directors and are signed on its behalf by: Richard Houghton Group Chief Financial Officer
PARENT COMPANY STATEMENT OF CASHFLOWS FOR THE YEAR ENDED 31 DECEMBER 2013
1. SIGNIFICANT ACCOUNTING POLICIES RSA Insurance Group plc, incorporated in England and Wales, is the ultimate Parent Company (‘the Company’) of the RSA group of companies. The principal activity of the Company is to hold investments in its subsidiaries and the receipt and payment of dividends.
The directors believe that the methodology used supports the inclusion of the investments in subsidiaries in the statement of financial position, at the fair values ascribed to them. The market value of the Company’s ordinary shares at 31 December 2013 was 91.4p. A movement of 1% in the share price would have an impact of £34m on the fair value.
Total other debtors and other assets 10 8 4. SHARE CAPITAL Full details of the share capital of the Company are set out in note 19 to the consolidated financial statements.
The aggregate current tax relating to items that are credited to equity is £2m (2012: £2m).
Deferred tax assets Deferred tax for the current year is based on a rate of 20.0% (2012: 23.0%). The following are the major deferred tax assets recognised by the Company and movements during the year: 2013 £m 2012 £m
The movement in the net deferred tax assets recognised by the Company was as follows: 2013 £m 2012 £m
Effect of change in tax rates – income statement (2) (1)
The Company has recognised a deferred tax asset of £2m (2012: £10m) in other temporary differences in respect of deferred tax reliefs of £52m (2012: £45m). No deferred tax has been recognised in respect of £43m (2012: £nil) of deferred tax reliefs due to the unpredictability of future profits streams.
Net deferred tax assets of £11m (2012: £22m), that relate to tax jurisdictions in which the Company has suffered a loss in either the current or preceding period, have been recognised on the basis that future taxable profits will be available against which these can be utilised. The evidence for the future taxable profits is a forecast consistent with the three year operational plans prepared by the relevant businesses, which are subject to internal review and challenge. Where relevant, the forecast includes extrapolations of the operational plans using assumptions consistent with those used in the plans.
7. DIVIDENDS Full details of the dividends paid and proposed by the Company are set out in note 7 to the consolidated financial statements.
The following transactions were carried out with related parties: Provision of services and benefits RSA Insurance Group plc provides services and benefits to its subsidiary companies operating within the UK and overseas as follows: • Provision of technical support in relation to risk management, information technology and reinsurance services. Services are charged for annually on a cost plus basis, allowing for a margin of 5% (2012: 5%).
As at 31 December 2013, there are interest free loans totalling £5,000 (2012: £5,000) outstanding to members of the key management team under the standard terms of the Group’s UK Car Ownership Scheme, which is open to all UK managers within a qualifying salary band.
Interest is charged on interest bearing loans, which are repayable on 24 hours written notice. This is comprised of £745m (2012: £706m) at three months LIBOR plus 0.6% and £271m (2012: £270m) at three months LIBOR plus 2.0%.
Loans to subsidiaries of £963m (2012: £1,004m) as disclosed within note 2 have been made. Of this, £304m (2012: £319m), £80m (2012: £81m) and £579m (2012: £604m) are subordinated loans on which interest is charged at 8.5%, 6.701% and 9.375% respectively.
Royal & Sun Alliance Insurance plc (RSAI), a subsidiary of the Company, has provided guarantees to the Company’s creditors for amounts arising from its loan capital agreements (as set out in note 20 to the consolidated financial statements) and for amounts arising from its committed credit facilities (as set out in note 23 to the consolidated financial statements). The guarantees relating to the loan capital agreements are subordinated to all other creditors of RSAI.
10. SHARE BASED COMPENSATION Full details of share based compensation plans are provided in note 28 to the consolidated financial statements.
GROUP WEBSITE The Company’s corporate website provides shareholders with a broad range of information about the Company’s heritage, social and environmental responsibilities and investor information such as the Group’s financial statements, current and historic share prices, Annual General Meeting (AGM) materials, events, governance information and answers to frequently asked questions in respect of shareholder matters. Visit the investor website at www.rsagroup.com/investorrelations for further information.
When contacting Equiniti, please quote your shareholder reference number which can be found on your share certificate or dividend tax voucher. Calls cost 8p per minute plus network extras. Telephone lines are open from 8.30am to 5.30pm Monday to Friday. Overseas callers should use +44(0) 121 415 7064. Shareholders with a text phone facility should use +44(0) 871 384 2255 or alternatively use the Text Relay service by dialling 18001 0121 415 7064 directly from the text phone. To securely email Equiniti with an enquiry visit
AMERICAN DEPOSITARY RECEIPTS The Company operates a sponsored American Depositary Receipts (‘ADR’) programme which is managed by JPMorgan Chase NA. The programme allows shareholders to invest in the Company through US dollar denominated funds. Any enquiry relating to the sponsored ADR programme should be addressed to: JPMorgan Chase & Co PO Box 64504 St Paul MN 55164-0504 USA
Please note that rates quoted are as at February 2014 and may be subject to change. Please contact either provider for further guidance on their full terms and conditions.
SHARE REGISTER FRAUD: PROTECTING YOUR INVESTMENT UK law requires that our shareholder register is available for public inspection. We are unable to control the use of information obtained by persons inspecting the register. Details of any share dealing facilities that the Company endorses will be included in Company mailings or on our website.
WEDNESDAY 5 MARCH 2014 Ex dividend date for the first preference dividend for 2014.
THURSDAY 7 AUGUST 2014* Announcement of the half year results for the six months ended 30 June 2014, the ordinary interim dividend for 2014 and the second preference dividend for 2014.
FRIDAY 15 AUGUST 2014* Record date for the second preference dividend for 2014.
WEDNESDAY 24 SEPTEMBER 2014* Ex dividend date for the ordinary interim dividend for 2014.
FRIDAY 26 SEPTEMBER 2014* Record date for the ordinary interim dividend for 2014.
WEDNESDAY 1 OCTOBER 2014* Payment date for the second preference dividend for 2014.
Capacity • Largest amount of insurance available from a company. • Can also refer to the largest amount of insurance or reinsurance available in the marketplace.
Combined Operating Ratio (COR) • The sum of the Claims Ratio and Expense Ratio. • 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: Net Incurred Claims % +
IGD Capital Requirement • Insurance Groups Directive capital is the capital the Group is required to hold based on standard calculations defined by the FSA under the EU Solvency 1 directive.
Net Incurred Claims (NIC) • 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.
• Property insurance covers loss or damage through fire, theft, floods, storms and other specified risks. Casualty insurance primarily covers losses arising from accidents that cause injury to other people or damage to the property of others.
Prudential Regulation Authority (PRA) • The regulatory authority with responsibility for the prudential regulation and supervision of the UK financial services industry.
Scrip Dividend • Where shareholders choose to receive the dividend in the form of additional shares rather than cash. The Group issues new shares to meet the scrip demand.
Underlying Return on Average Equity • A measure of the profits the Group earns, adjusted for profit/loss on disposal of subsidiaries, reorganisation and integration costs and acquisition costs, relative to average funds attributable to ordinary shareholders.
Underwriting Result • This is a measure of how well the Group has done excluding its investment performance and is calculated as: NEP – Claims (including Claims Handling Expenses) – Expenses (including commissions).
Important disclaimer This document contains ‘forward-looking statements’ with respect to certain of the Group’s plans and its current goals and expectations relating to its future financial condition, performance, results, strategic initiatives and objectives. Generally, words such as ‘may’, ‘could’, ‘will’, ‘expect’, ‘intend’, ‘estimate’, ‘anticipate’, ‘aim’, ‘outlook’, ‘believe’, ‘plan’, ‘seek’, ‘continue’, ‘potential’ or similar expressions, identify forward-looking statements.
The Group’s actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in the Group’s forward-looking statements and, as a result, these forward-looking statements are not guarantees of future performance of the Group and undue reliance should not be placed on them. The Group undertakes no obligation to update any forward-looking statements, save in respect of any requirement under applicable law or regulation. Neither the content of RSA’s website nor the content of any other website accessible from hyperlinks on RSA’s website is incorporated into, or forms part of, this document.