3) New accounting standards, interpretations and amendments yet to be adopted IFRS 17 ‘Insurance Contracts’ The International Accounting Standards Board (IASB) issued IFRS 17 ‘Insurance Contracts’ in May 2017 to replace IFRS 4 ‘Insurance Contracts’ for annual reporting periods beginning, at the latest, on or after 1 January 2021. It has subsequently published an Exposure Draft (ED) proposing targeted amendments in response to concerns and challenges raised by stakeholders, including a proposal to defer the implementation of IFRS 17 by one year and to extend the exemption from applying IFRS 9 ‘Financial Instruments’ for the same period.
4) Significant accounting policies The significant accounting policies used in the preparation of these consolidated financial statements, as set out below, have been applied consistently to all periods presented in these consolidated financial statements, unless otherwise stated.
Apart from the implementation of IFRS 16 ‘Leases’, which replaced IAS 17 ‘Leases’ (as disclosed in note 2), there have been no other significant changes to the Group’s accounting policies during 2019.
Strategic report Governance Financials 4) Significant accounting policies continued Gross claims incurred and insurance contract liabilities Gross claims incurred represent the cost of agreeing and settling insurance claims on insurance contracts underwritten by the Group. Provisions for losses and loss adjustment expenses are recognised at the estimated ultimate cost, net of expected salvage and subrogation recoveries when a claim is incurred.
Reinsurers’ share of insurance contract liabilities within the consolidated statement of financial position includes the reinsurers’ share of provisions for losses and loss adjustment expenses and unearned premiums. The Group reports third party reinsurance balances on the consolidated balance sheets on a gross basis to present the exposure to credit risk related to third party reinsurance. The amount recoverable is reduced when there is an event arising after the initial recognition that provides objective evidence that the Group may not receive all amounts due under the reinsurance contract.
At initial measurement, the Group classifies its financial assets and financial liabilities in one of the following categories: · Designated at fair value through profit and loss (FVTPL); · Held for trading; · Available for sale (AFS); · Cash and cash equivalents; · Loans and receivables; · Financial liabilities; or
Financial assets with fixed or determinable payments not quoted in an active market
Hedge of a net investment in a foreign operation or hedge of future cash flows or hedge of fair value of fixed interest securities
Current taxation is based on profits and income for the year as determined in accordance with the relevant tax legislation, together with adjustments for prior years.
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which unused tax losses and temporary differences can be utilised.
RSA Annual Report and Accounts 2019134 rsagroup.com 4) Significant accounting policies continued Post-employment benefits and obligations continued The amounts charged (or credited where relevant) in the consolidated income statement relating to post-employment defined benefit schemes are as follows: · The current service cost: this is the present value of additional benefits payable for employees’ services provided during the reporting period; · The past service costs and gains or losses on settlement: these are changes to the obligations already established for past service costs that have arisen from an amendment to the terms of the scheme or a curtailment of the benefits payable by the scheme. These are recognised at the earlier of when the terms of the scheme are amended or the curtailment occurs or, where applicable, when the Group recognises related restructuring costs or termination benefits; · Net interest on the net defined benefit liability/asset: this is determined by applying the discount rate applied to the defined benefit obligation for the period to the net defined benefit liability/asset, and results in a net interest expense/income; · The administration costs of operating the pension schemes.
Goodwill and other intangible assets Goodwill Goodwill is the difference between the cost of a business acquisition and the net fair value of the identifiable assets, liabilities and contingent liabilities acquired. Goodwill is initially capitalised in the consolidated statement of financial position at cost and is subsequently recognised at cost less accumulated impairment losses (see below). The cost of the acquisition is the amount of cash paid and the fair value of other purchase consideration.
Customer related intangible assets comprise renewal rights and customer lists. The useful economic lives are generally between one and ten years and are estimated considering relevant metrics such as customer retention rates and contract length. The asset is amortised on a basis which reflects usage of economic benefit.
Assets and liabilities held for sale are each presented as a single line in the statement of financial position, at the lower of the carrying amount and fair value less costs to sell.
The majority of underwriting risk to which the Group is exposed is of a short-term nature, and generally does not exceed 12 months. The Group’s underwriting strategy aims to ensure that the underwritten risks are well diversified in terms of the type, amount of risk, and geography in order to ensure that the Group minimises the volatility of its insurance result.
There is a risk to the Group from the inherent uncertainty in estimating provisions at the end of the reporting period for the eventual outcome of outstanding notified claims as well as estimating the number and value of claims that are still to be notified. There is also uncertainty in the level of future costs of handling and settling the outstanding claims.
The Group seeks to reduce its reserving risk through the use of experienced, regional actuaries who estimate the actuarial indication of the required reserves based on claims experience, business volume, anticipated change in the claims environment and claims cost. This information is used by local reserving committees to recommend to the Group Reserving Committee the appropriate level of reserves for each region. This will include adding a margin onto the actuarial indication as a provision for unforeseen developments such as future claims patterns differing from historical experience, future legislative changes and the emergence of latent exposures. The Group Reserving Committee review these local submissions and recommend the final level of reserves to be held by the Group. The Group Reserving Committee is chaired by the Group Chief Financial Officer and includes the Group Chief Executive, Group Underwriting Director, Group Chief Actuary and Group Chief Risk Officer. A similar committee has been established in each of the Group’s primary operating segments. The Group Reserving Committee monitors the decisions and judgements made by the business units as to the level of reserves to be held. It then recommends to the Group Board via the Group Audit Committee the final decision on the level of reserves to be included within the consolidated financial statements. In forming its collective judgement, the committee considers the following information:
Strategic report Governance Financials 5) Risk and capital management continued · The actuarial indication of ultimate losses together with an assessment of risks and possible favourable or adverse developments that may not have been fully reflected in calculating these indications. At the end of 2019, 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 historical business; general uncertainty in the claims environment; the emergence of latent exposures; the outcome of litigation on claims received; failure to recover reinsurance and unanticipated changes in claims inflation; · The views of internal peer reviewers of the reserves and of other parties including actuaries, legal counsel, risk directors, underwriters and claims managers; · The outcome from independent assurance reviews performed by the Group actuarial function to assess the reasonableness of regional actuarial indication estimates; · How previous actuarial indications have developed.
The Group’s credit risk strategy appetite and credit risk policy are developed by the BRC and are reviewed and approved by the Board on an annual basis. This is done through the setting of Group policies, procedures and limits.
The Group Reinsurance Credit Committee oversees the management of credit risk arising from the reinsurer failing to settle its liability to the Group. Group standards are set such that reinsurers that have a financial strength rating of less than ‘A-’ with Standard & Poor’s, or a comparable rating, are rarely used and are excluded from the Group’s list of approved reinsurers. The exceptions are fronting arrangements for captives, where some form of collateral is generally obtained, and some global network partners. At 31 December 2019 the extent of collateral held by the Group against reinsurers’ share of insurance contract liabilities was £36m (2018: £577m), which in the event of a default would be called and recognised on the balance sheet. The decrease is following the legal transfer of the UK Legacy business on 1 July 2019.
As at 31 December 2019 Credit rating relating to financial assets that are neither past due nor impaired
Of which would qualify for SPPI under IFRS 91 5,030 2,125 1,852 959 106 1 10,073 – 10,073
Reinsurers’ share of insurance contract liabilities – 670 1,495 78 60 23 2,326 – 2,326 1. The debt securities meeting SPPI criteria under IFRS 9 which are below investment grade are stated under IAS 39 at fair value. 2. Loans and receivables are measured using amortised cost and their carrying amounts are considered to be as approximate fair values. 3. The insurance and reinsurance debtors classified as not rated comprise personal policyholders and small corporate customers that do not have individual credit ratings.
As at 31 December 2018 Credit rating relating to financial assets that are neither past due nor impaired
Reinsurers’ share of insurance contract liabilities – 657 1,467 672 41 33 2,870 604 2,266 1. The debt securities meeting SPPI criteria under IFRS 9 which are below investment grade are stated under IAS 39 at fair value. 2. Loans and receivables are measured using amortised cost and their carrying amounts are considered to be as approximate fair values. 3. The insurance and reinsurance debtors classified as not rated comprise personal policyholders and small corporate customers that do not have individual credit ratings.
With the exception of government debt securities, the largest single aggregate credit exposure does not exceed 3% (2018: 3%) of the Group’s total financial assets.
Strategic report Governance Financials 5) Risk and capital management continued Ageing of financial assets that are past due but not impaired The following table provides information regarding the carrying value of financial assets that have been impaired and the ageing of financial assets that are past due but not impaired, excluding those assets that have been classified as held for sale.
Loans and receivables 25 338 – – – – – 338 –
Cash and cash equivalents 31 909 – – – – – 909 –
Market risk can be broken down into three key components: i. Equity and property risk The Group classifies its investment portfolio in debt securities and equity securities in accordance with the accounting definitions under IFRS.
At 31 December 2019 the Group held investments classified as equity securities of £673m (2018: £739m). These include interests in structured entities (as disclosed in note 27) and other investments where the price risk arises from interest rate risk rather than from equity market price risk. The Group considers that within equity securities, investments with a fair value of £218m (2018: £205m) may be more affected by equity index market price risk than by interest rate risk. On this basis a 15% fall in the value of equity index prices would result in the recognition of losses of £33m (2018: £31m) in other comprehensive income.
In addition the Group holds investments in properties and in group occupied properties which are subject to property price risk. A decrease of 15% in property prices would result in the recognition of losses of £45m (2018: £47m) in the income statement and £3m (2018: £3m) in other comprehensive income.
Risk and capital management continued 5) Risk and capital management continued ii. Interest rate risk Interest rate risk arises primarily from the Group’s investments in long-term debt and fixed income securities and their movement relative to the value placed on insurance liabilities. This impacts both the fair value and amount of variable returns on existing assets as well as the cost of acquiring new fixed maturity investments.
Decrease in other comprehensive income 2020 £m 2019 £m 2020 £m 2019 £m
The Group principally manages interest rate risk by holding investment assets (predominantly fixed income) that generate cash flows which broadly match the duration of expected claim settlements and other associated costs.
Operational currency risk is principally managed within the Group’s individual operations by broadly matching assets and liabilities by currency and liquidity. Operational currency risk is not significant.
Structural currency risk is managed at a Group level through currency forward contracts and foreign exchange options within predetermined limits set by the Group Board. In managing structural currency risk the needs of the Group’s subsidiaries to maintain net assets in local currencies to satisfy local regulatory solvency and internal risk based capital requirements are taken into account.
Strategic report Governance Financials 5) Risk and capital management continued The table below illustrates the impact of a hypothetical 10% change in Danish Krone/Euro, Canadian Dollar or Swedish Krona exchange rates on shareholders’ equity when retranslating into sterling: in Pounds Sterling against Danish
Movement in shareholders’ equity at 31 December 2019 (48) 59 (59) 72 (10) 13
Provisions for losses and loss adjustment expenses 37 2,878 1,761 1,160 713 514 1,149 966 9,141 9,141
Deposits received from reinsurers 40 11 – – – – – – 11 11
Guaranteed subordinated step-up notes due 20391 35 39 – – – – – – 39 39
Provisions for losses and loss adjustment expenses 37 3,081 1,610 1,021 717 542 1,247 1,250 9,468 9,468
Interest on perpetual bonds and notes 23 21 21 21 21 40 1 148 1. Maturity profile shown on an undiscounted basis.
Pension risk The Group is exposed to risks through its obligation to fund a number of schemes. These risks include market risk (assets not performing as well as expected), inflation risk and longevity risk over the lives of the members. The Group and trustees of the schemes work together to reduce these risks through agreement of investment policy including the use of interest rate, inflation rate and mortality swaps. Further information on the Group’s management of pension risk is included within note 38.
The Group’s overall capital position is primarily comprised of shareholders’ equity, Tier 1 notes, and subordinated loan capital and aims to maximise shareholder value, while maintaining financial strength and maintaining adequate regulatory capital. In addition the Group also aims to hold sufficient capital so as to maintain its single ‘A’ credit rating.
The Internal Model is used to support, inform and improve the Group’s decision making across the Group. It is used to inform the Group’s optimum capital structure, its investment and hedging strategy, its reinsurance programme and pricing and target returns for each portfolio.
1. The impact of pensions depends significantly on the opening position of the schemes and market conditions. As such the sensitivities shown are point in time estimates that will vary and should not be extrapolated.
RSA Annual Report and Accounts 2019144 rsagroup.com 5) Risk and capital management continued Own risk and solvency assessment (ORSA) The Solvency II directive introduced a requirement for undertakings to conduct an ORSA.
The Group defines its ORSA as a series of inter-related activities by which it establishes: · The quantity and quality of the risks which it seeks to assume or to which it is exposed; · The level of capital required to support those risks; · The actions it will take to achieve and maintain the desired levels of risk and capital.
Assets of operations classified as held for sale – 636 3 639
Net assets of operations classified as held for sale – – 3 3
The UK Noble Marine entities were disposed of in February 2019.
Loss on disposal of businesses In 2019, the net loss of £14m comprises a £19m loss relating to the disposal of the UK Legacy business, consisting of a £15m additional contribution to Enstar Group Limited and £4m costs of disposal, offset by a £4m gain on the sale of Caunce O’Hara & Company Limited.
Notes to the income statement, other comprehensive income and distributions 8) Segmental information The Group’s primary operating segments comprise Scandinavia, Canada, UK & International and Central Functions which is consistent with how the Group is managed. The primary operating segments are based on geography and are all engaged in providing personal and commercial general insurance services. Central Functions include the Group’s internal reinsurance function and Group Corporate Centre.
Assessing segment performance The Group uses the following key measures to assess the performance of its operating segments: · Net written premiums; · Underwriting result; · Combined operating ratio (COR); · Business operating result.
Underwriting result, COR and business operating result are Alternative Performance Measures (APMs) and the key internal measures of profitability of the operating segments. The COR reflects the ratio of claims costs and expenses (including commission) to earned premiums, expressed as a percentage. Further information on APMs can be found on pages 201 to 210.
Total investment return 2019 £m 2018 £m 2019 £m 2018 £m 2019 £m 2018 £m 2019 £m 2018 £m 2019 £m 2018 £m
Deposits, cash and cash equivalents 9 10 – – – – – – 9 10
Direct operating expenses (including repairs and maintenance) arising from investment properties were not material in 2019 or 2018.
Net movement recognised in other comprehensive income 2019 £m 2018 £m 2019 £m 2018 £m 2019 £m 2018 £m 2019 £m 2018 £m 10) Net claims £m £m
Gross changes in provision for losses and loss adjustment expenses (137) (100)
Total finance costs 32 25 14) Employee expenses Staff costs for all employees comprise: 2019 £m 2018 £m
15) Related party transactions Key management personnel comprise members of the Group Executive Committee, executive directors, and non-executive directors.
Key management personnel transactions A number of key management personnel, or their related parties, hold positions in other companies that result in them having control or significant influence over these companies. A number of these companies transacted with the Group during the year. The terms and conditions of these transactions were no more favourable than those available, or which might reasonably be expected to be available, in similar transactions with non-key management personnel-related companies on an arm’s length basis.
A number of the directors, other key managers, their close families and entities under their control have general insurance policies with subsidiary companies of the Group. Such policies are available at discounted rates to all employees including executive directors.
Notes to the income statement, other comprehensive income and distributions continued 16) Auditor’s remuneration £m £m
Fees payable to the auditor and its associates for other services: The audit of the Company’s subsidiaries, pursuant to legislation 4.7 4.2
Included in the Audit related assurance services for 2019 is £0.9m (2018: £0.9m) of assurance work in respect of Solvency II reporting. The remainder of £0.4m (2018: £0.5m), together with Other services of £0.1m (2018: £0.1m), represents in aggregate 11% (2018: 11%) of the Group IFRS audit fee of £5.5m (2018: £5.1m).
Tax effect of: Income/gains not taxable (or taxed at lower rate) (15) (7)
Increase/(decrease) of deferred tax in respect of prior periods (other than losses) – (1)
The Group effective tax rate of 22% (2018: 23%) is higher than the UK statutory rate of 19% predominately due to unrecognised tax losses in the UK and Norway, higher statutory tax rates in the Group’s core overseas jurisdictions and non-creditable withholding tax. Income/gains not taxable largely comprises tax-exempt investment income and non-taxable foreign exchange.
Strategic report Governance Financials 17) Income tax continued The current tax and deferred income tax credited/(charged) to each component of other comprehensive income is as follows: Current Tax Deferred Tax Total 2019 £m 2018 £m 2019 £m 2018 £m 2019 £m 2018 £m
Remeasurement of net defined benefit pension liability – 14 (3) (30) (3) (16)
The balance of the value of the awards will be charged to the consolidated income statement during the remaining vesting periods.
Strategic report Governance Financials 19) Earnings per share (EPS) The earnings per ordinary share are calculated by reference to the profit attributable to the ordinary shareholders and the weighted average number of shares in issue during the year. These were 1,030,648,190 (2018: 1,026,040,413) for basic EPS and 1,033,077,874 (2018: 1,030,450,240) for diluted EPS (excluding those held in Employee Stock Ownership Plan (ESOP) and Share Incentive Plan (SIP) trusts). The number of shares in issue at 31 December 2019 was 1,031,523,544 (2018: 1,026,814,592) (excluding those held in ESOP and SIP trusts).
Weighted average number of ordinary shares in issue (thousands) 1,030,648 1,026,040
Adjustments for share options and contingently issuable shares (thousands) 2,430 4,410
Total weighted average number of ordinary shares for diluted earnings per share (thousands) 1,033,078 1,030,450
The Company’s preference shareholders receive a dividend at the rate of 7.375% per annum paid in two instalments on, or as near as practicably possible to, 1 April and 1 October each year, subject to approval by the Board.
Ordinary dividend: Final paid in respect of prior year 13.7 13.0 141 133
Interim paid in respect of current year 7.5 7.3 78 75
RSA Annual Report and Accounts 2019154 rsagroup.com 21) Total other comprehensive income Year ended 31 December 2019
Pension – remeasurement of net defined benefit liability net of tax and tax credit for scheme contributions – – – – – (86) (86) – (86)
Movement in property revaluation net of tax – 1 – 1 – – 1 – 1
Pension – remeasurement of net defined benefit liability net of tax and tax credit for scheme contributions – – – – – 161 161 – 161
Amortisation Amortisation expense of £72m (2018: £75m) has been charged to underwriting and policy acquisition costs with the remainder recognised in other operating expenses.
When testing for intangible asset impairment (including those not available for use), a consistent methodology is applied although future cash flow projection years are not extrapolated beyond the asset’s useful economic life.
Where the value in use is less than the current carrying value of the CGU in the statement of financial position, the goodwill or intangible asset is impaired in order to ensure that the CGU carrying value is not greater than its future value to the Group.
Goodwill is allocated to the Group’s CGUs, which are contained within the following operating segments: 2019 £m 2018 £m
In 2018, the goodwill allocated to the Norwegian CGU was impaired by £7m. This was recognised in other operating expenses.
Also in 2018, goodwill of £4m in respect of the UK Noble Marine entities was impaired prior to its classification as Held for Sale in order to write down the value of its net assets to fair value less costs to sell.
Strategic report Governance Financials 23) Property and equipment Property and equipment is split between property and equipment owned and right-of-use assets as follows: 2019 £m 2018 £m
Depreciation expenses of £14m (2018: £16m) have been charged to underwriting and policy acquisition costs.
The movement in the Group occupied property reserve is shown below: 2019 £m 2018 £m
RSA Annual Report and Accounts 2019158 rsagroup.com 24) Investment property Investment property of £300m (2018: £310m), relating to freehold and leasehold land and buildings, is held for long term rental yields and is not occupied by the Group.
As at 31 December 2019 At fair value through profit and loss (FVTPL)
The following table analyses the cost/amortised cost, gross unrealised gains and losses, and fair value of financial assets.
Strategic report Governance Financials 25) Financial assets continued Collateral At 31 December 2019, the Group had pledged £557m (2018: £550m) of financial assets as collateral for liabilities or contingent liabilities, consisting of government debt securities of £533m (2018: £475m) and cash and cash equivalents of £24m (2018: £75m). The assets pledged are included in the balance sheet as follows; available for sale debt securities of £533m (2018: £475m) and other assets of £24m (2018: £75m). The terms and conditions of the collateral pledged are market standard in relation to letter of credit facilities and derivative transactions.
Currency risk (net investment in foreign operation) 1,058 – – 1,058 31 3
Cross currency interest swaps (fair value/cash flow) – 49 155 204 – 27
Currency risk (net investment in foreign operation) 1,064 – – 1,064 18 11
Cross currency interest swaps (fair value/cash flow) 155 48 171 374 3 57
The use of derivatives can result in accounting mismatches when gains and losses arising on the derivatives are presented in the income statement and corresponding losses and gains on the risks being mitigated are not included in the income statement. In such circumstances the Group may apply hedge accounting in accordance with IFRS and the Group accounting policy on hedging.
The Group applies hedge accounting to derivatives acquired to reduce foreign exchange risk in its net investment in certain major overseas subsidiaries. There was no ineffectiveness recognised in the income statement in respect of these hedges during 2019 or 2018.
The Group also applies hedge accounting to specified fixed interest assets in its investment portfolio. In order to remove exchange risk from these assets the Group may also acquire cross currency interest rate swaps to swap the cash flows from the portfolio into cash flows denominated in pounds sterling or the functional currency of the entity acquiring the asset. The Group applies fair value hedge accounting when using ‘fixed to floating’ interest rate swaps and cash flow hedge accounting when using ‘fixed to fixed’ interest rate swaps. The interest rate swaps exactly offset the timing and amounts expected to be received on the underlying investments. The investments have a remaining term of between 1 and 36 years, with the substantial majority having a term of less than 10 years. There have been no defaults and no defaults are expected on the hedged investments. The Group also applies cash flow hedge accounting to certain foreign currency operating expense contracts in order to reduce foreign exchange risk on these contracts.
The total losses on the fair value hedge instruments recognised in the income statement were £52m (2018: £44m) and the offsetting gains related to the hedged risk were £45m (2018: £45m).
As at 31 December 2018 Amounts subject to enforceable netting arrangements
Cash received under repurchase arrangements 107 – 107 (107) – –
The fair value gains of SPPI financial assets and other financial assets during the year are £114m (2018: £123m losses) and £31m (2018: £35m losses) respectively.
Information on credit ratings relating to SPPI debt securities can be found in note 5.
When IFRS 9 is adopted by the Group (currently expected to be 2022) an expected credit loss provision will be recognised replacing the incurred credit loss provision under IAS 39, the impact of which will be determined by the financial instruments held at that time.
26) Fair value measurement Fair value is used to value a number of assets within the statement of financial position and represents their market value at the reporting date.
Cash and cash equivalents, loans and receivables, other assets and other liabilities For cash and cash equivalents, loans and receivables, commercial paper, other assets, liabilities and accruals, their carrying amounts are considered to be as approximate fair values.
Investment properties are valued using discounted cash flow models which take into account the net present value of cash flows to be generated from the properties. The cash flow streams reflect the current rent (the gross rent) payable to lease expiry, at which point it is assumed that each unit will be re-let at its estimated rental value. Allowances have been made for voids and rent free periods where applicable. The appropriate rent to be capitalised is selected on the basis of the location of the building, its quality, tenant credit quality and lease terms amongst other factors. The discount rate is determined by independent valuers who take into account a number of factors including transactions that have taken place recently of similar properties as well as other factors mentioned above such as the location of the building, its quality, tenant credit quality and lease terms amongst other factors.
RSA Annual Report and Accounts 2019162 rsagroup.com 26) Fair value measurement continued
A financial instrument is regarded as quoted in an active market (level 1) if quoted prices for that financial instrument are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis.
For level 1 and level 2 investments, the Group uses prices received from external providers who calculate these prices from quotes available at the reporting date for the particular investment being valued. For investments that are actively traded the Group determines whether the prices meet the criteria for classification as a level 1 valuation. The price provided is classified as a level 1 valuation when it represents the price at which the investment traded at the reporting date taking into account the frequency and volume of trading of the individual investment together with the spread of prices that are quoted at the reporting date for such trades. Typically investments in frequently traded government debt would meet the criteria for classification in the level 1 category. Where the prices provided do not meet the criteria for classification in the level 1 category, the prices are classified in the level 2 category.
Strategic report Governance Financials 26) Fair value measurement continued Fair value hierarchy
Total value of liabilities not measured at fair value – 814 – 814
RSA Annual Report and Accounts 2019164 rsagroup.com 26) Fair value measurement continued The movement in the fair value measurements of level 3 financial assets is shown in the table below: Available for sale investments Investments at FVTPL
Level 3 available for sale financial assets: Equity securities2 Cash flows; discount rate 279 (9) 355 (10)
Strategic report Governance Financials 27) Interests in structured entities A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements.
In addition, the Group has commitments for future undrawn subscriptions limited to the amounts set out in the subscription agreements. The Group has no obligations to provide any other additional funding or other financial support to these entities. The Group has determined that its maximum exposure to structured entities is the sum of the carrying value and the undrawn commitments. These exposures at 31 December 2019 are summarised in the table below: Class of investments Nature of the underlying investments of the vehicle
Mortgage backed securities Mainly consists of domestic mortgage backed securities 2,257 – 2,257 2,027 – 2,027
Cash money market funds Short term cash deposits 365 – 365 196 – 196
2. The comparatives for undrawn commitments has been re-presented following a review that resulted in £42m being re-classified from other to collateralised debt obligations.
Reinsurers’ share of provisions for losses and loss adjustment expenses 1,580 1,532
The following changes have occurred in the reinsurers’ share of provision for unearned premiums during the year: 2019 £m 2018 £m
Reinsurers’ share of provision for unearned premiums at 1 January 739 729
Reinsurers’ share of provisions for losses and loss adjustment expenses at 1 January 2,136 2,159
Reinsurers’ share of provisions for losses and loss adjustment expenses at 31 December 1,580 2,136
Total reinsurers’ share of provisions for losses and loss adjustment expenses at 31 December net of held for sale 1,580 1,532
Strategic report Governance Financials 29) Current and deferred tax Current tax
Deferred tax assets have been recognised on the basis that management consider it probable that future taxable profits will be available against which these deferred tax assets can be utilised. Key assumptions in the forecast are subject to sensitivity testing which, together with additional modelling and analysis, support management’s judgement that the carrying value of deferred tax assets continues to be supportable.
The majority of the deferred tax asset recognised based on future profits is that in respect of the UK. The evidence for the future taxable profits is a seven-year forecast based on the three year operational plans prepared by the relevant businesses and a further four years of extrapolation, which are subject to internal review and challenge, including by the Board. The four years of extrapolation assumes premium growth of 4% per annum and includes combined operating ratio improvements for specific lines of business where this is expected based on longer range projections. The value of the deferred tax asset is sensitive to assumptions in respect of forecast profits. The impact of downward movements in key assumptions on the value of the UK deferred tax asset is summarised below: 2019 £m 2018 £m 1% increase in combined operating ratio across all 7 years (15) (17)
The following table summarises the main categories of deferred tax assets/(liabilities) recognised by the Group: 2019 £m 2018 £m
The movement in the net deferred tax assets recognised by the continuing Group was as follows: 2019 £m 2018 £m
Effect of change in tax rates – income statement 1 1
Unrecognised tax assets/(liabilities) as at 31 December 2,313 454 2,203 440
The Group’s unrecognised trading losses are predominantly located in the UK and Ireland and represent losses which are not expected to be utilised within the forecast profit period. Unrecognised capital losses mainly relate to the UK and have not been recognised as it is not considered probable that they will be utilised in the future as most UK capital gains are exempt from tax. None of the Group’s unrecognised tax losses are subject to expiry.
Unremitted retained earnings relate to the Group’s subsidiaries in Canada. The Group can control the remittance of earnings to the UK and there is no intention to remit the retained earnings in the foreseeable future if the remittance would trigger a material incremental tax liability. As such the Group has not recognised any deferred tax in respect of the potential taxes on the temporary differences arising on unremitted earnings of continuing overseas subsidiaries.
30) Insurance, reinsurance and other debtors Insurance and reinsurance debtors 2019 £m 2018 £m
Strategic report Governance Financials 30) Insurance, reinsurance and other debtors continued Other debtors and other assets £m £m
Total other debtors and assets net of held for sale 718 673
During 2019, the Company issued a total of 4,707,366 new Ordinary Shares of £1 each ranking pari passu with Ordinary Shares in issue (2018: 4,102,889 new Ordinary Shares of £1 each), on the exercise of employee share options and in respect of employee share awards. The number of Ordinary Shares in issue, their nominal value and the associated share premiums are as follows: Number of shares
Issued in respect of employee share options and employee share awards 4,707,366 5 3
Notes to the statement of financial position continued 32) Share capital continued Rights attaching to the shares The rights attaching to each class of share may be varied with the consent of the holders of 75% of the issued shares of that class.
Full information on the rights attaching to shares is in the RSA Insurance Group plc Articles of Association which are available on the Group’s website.
Employee share schemes The Share Incentive Plan Trust is used to hold shares purchased or issued under the company’s all-employee Sharebuild plan. This includes unvested matching shares and unallocated shares which may subsequently be transferred to employees including Executive Directors to satisfy Sharebuild Matching Share awards. As at 31 December 2019, 121,750 Ordinary Shares (2018: 123,336 Ordinary Shares) are held by the Trust. These shares are presented as own shares. Own shares are deducted from equity. No gain or loss is recognised on the purchase, sale, issue or cancellation of the own shares. Any consideration paid or received is recognised directly in equity.
This Trust also holds shares that are beneficially owned by participants in the Plan.
33) Other equity instruments – Tier 1 notes On 27 March 2017, the Company issued two floating rate Restricted Tier 1 (RT1) notes totalling £297m in aggregate size and with a blended coupon of c.4.7%. The notes are as follows: Swedish Krona 2,500m at 3 month Stibor +525bps (equivalent to c.4.8% coupon on issue)
Interest on the notes is due and payable only at the sole and absolute discretion of the Company, subject to certain additional restrictions set out in the terms and conditions, and is non-cumulative. In addition the terms and conditions of the notes will require the Company to cancel interest payments in certain circumstances. The notes are redeemable (subject to certain conditions) at the option of the Company in whole but not in part on the first call date, being the fifth anniversary of the issue date, or any interest payment date thereafter or in the event of certain changes in the tax, regulatory or ratings treatment of the notes. Any redemption is subject, inter alia, to the Company giving notice to the relevant regulator and the regulator granting permission to redeem. The notes convert into ordinary shares of the Company, at a pre-determined price in the event that certain solvency capital requirements are breached, or in the event of a winding up occurring earlier, would be entitled to a return of capital in preference to ordinary shareholders but behind the rights of the existing preference shareholders, as more fully set out in the terms and conditions of the notes. Accordingly, the notes are treated as a separate category within equity and coupon payments are recognised as distributions, similar to the treatment of preference share dividends.
Loan capital The subordinated guaranteed US$ bonds were issued in 1999 and have a nominal value of $9m and a redemption date of 15 October 2029. The rate of interest payable on the bonds is 8.95%.
The dated guaranteed subordinated step-up notes were issued on 20 May 2009 with a redemption date of 20 May 2039 and at a fixed rate of 9.375%. On 20 May 2019 the Group exercised its right to call the bonds and accordingly redeemed the outstanding £39m nominal value of these step-up notes.
Senior notes The nominal £350m senior notes were issued on 28 August 2019 for consideration of £349m. Interest is payable on the notes at a fixed rate of 1.625%. The notes have a maturity date of 28 August 2024 and may be redeemed at any time from a period starting 3 months prior to the maturity date.
All issued debt There have been no defaults on any bonds or notes during the year.
The Group uses a number of commonly accepted actuarial projection methodologies to determine the appropriate provision to recognise. These include methods based upon the following: · The development of previously settled claims, where payments to date are extrapolated for each prior year
· Bespoke methods for specialist classes of business, for example for a Legacy Children’s PA product a frequency/severity model based upon transition matrices between the various stages of a claim.
Strategic report Governance Financials 37) Insurance contract liabilities continued Discount assumptions The total value of provisions for losses and loss adjustment expenses less related reinsurance recoveries before discounting is £8,081m (2018: £8,494m).
Average number of years to settlement from reporting date 2019 Years 2018 Years
Notes to the statement of financial position continued 37) Insurance contract liabilities continued Provision for unearned premiums, gross of acquisition costs 2019 £m 2018 £m
Provision for unearned premiums (gross of acquisition costs) at 1 January 3,919 3,986
Provisions for losses and loss adjustment expenses The following changes have occurred in the provisions for losses and loss adjustment expenses during the year: 2019 £m 2018 £m
Provisions for losses and loss adjustment expenses at 1 January 10,072 10,113
Provisions for losses and loss adjustment expenses at 31 December 9,141 10,072
Current year provision before discounting 725 77 184 188 323 251 397 595 946 1,760 3,162 8,608
Present value recognised in the consolidated statement of financial position 9,141
Notes to the statement of financial position continued 37) Insurance contract liabilities continued Consolidated claims development table net of reinsurance prior £m 2010 £m 2011 £m 2012 £m 2013 £m 2014 £m 2015 £m 2016 £m 2017 £m 2018 £m 2019 £m
At end of accident year 7,521 2,449 2,517 2,580 2,824 2,482 2,440 2,242 2,278 2,440 2,229
The Group’s Swedish subsidiaries are part of a multi-employer defined benefit scheme along with other financial institutions in Sweden. As it is not possible to determine the assets and liabilities in respect of any one employer under this scheme, it is included in these accounts as a defined contribution scheme. Contributions of £5m (2018: £6m) were paid to this scheme during 2019 and are included in the costs shown above. The expected contributions in 2020 are £5m. Total estimated contributions to the scheme from all employers in 2019 were £50m. The latest information regarding the funding of this scheme is taken from the interim report for the first half of 2019, when the scheme funding rate was 118% (2018: 122%).
Fair value of plan assets 8,549 467 9,016 7,841 424 8,265
Independent actuaries calculate the value of the defined benefit obligations for the larger schemes by applying the projected unit credit method. The future expected cash outflows (calculated based on assumptions that include inflation and mortality) are discounted to present value, using a discount rate determined at the end of each reporting period by reference to current market yields on high quality corporate bonds (‘AA’ rated) identified to match the currency and term structure of the obligations.
Notes to the statement of financial position continued 38) Post-employment benefits and obligations continued UK Schemes The major defined benefit pension schemes are located in the UK. The assets of these schemes are mainly held in separate trustee administered funds. The UK defined benefit schemes were effectively closed to new entrants in 2002 and subsequently closed to future accruals with effect from 31 March 2017. UK schemes in surplus have been reduced for the 35% tax cost of an authorised return of surplus, classified as ‘Other net surplus remeasurements’. Our opinion is that the authorised refund tax charge is not an income tax within the meaning of IAS12 and so the surplus is recognised net of this tax charge rather than the tax charge being included within deferred taxation.
The profile of the members of the two main UK schemes at 30 September 2019 (the latest date at which full information is available) is as follows: Deferred members – members no longer accruing and not yet receiving benefits 23,639
The UK schemes are managed through trusts with independent trustees responsible for safeguarding the interests of all members. The trustees meet regularly with Group management to discuss the funding position and any proposed changes to the schemes. The schemes are regulated by The Pensions Regulator.
At the most recent funding valuations, the main UK funds had an aggregate funding deficit of £468m, equivalent to a funding level of 95%. The Group and the Trustees have agreed funding plans to eliminate the funding deficits by 2026. Details of the deficit contributions paid in 2019 and that are due to be paid in 2020 under these plans are disclosed below. The funding plans will be reviewed again following the next triennial valuations which will have an effective date of 31 March 2021.
For the two main UK defined benefit schemes, the level of contributions in 2019 was £96m (2018: £120m) of which £86m (2018: £110m) were additional contributions to reduce funding deficits. Expected contributions to the two schemes for the year ending 31 December 2020 are approximately £83m including £75m of additional contributions to reduce the deficit.
Notes to the statement of financial position continued 38) Post-employment benefits and obligations continued All schemes The estimated discounted present values of the accumulated obligations are calculated in accordance with the advice of independent, qualified actuaries.
Return on scheme assets less amounts in interest income – 775 – 775
Strategic report Governance Financials 38) Post-employment benefits and obligations continued The values of scheme assets are as follows: UK £m
Total assets in the schemes 8,549 467 9,016 7,841 424 8,265
Value of asset and longevity swaps – (2,791) (2,791) – (2,506) (2,506)
Total assets in the schemes 8,152 864 9,016 7,270 995 8,265
Assumptions used in calculation of pension net interest costs for the year: 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 CMI 2018 tables (2018: CMI 2017 tables) with a long term improvement rate of 1.25% (2018: 1.25%). The weighted average assumptions imply that a current pensioner aged 60 has an expected future lifetime of 27.0 (2018: 27.2) years for males and 28.5 (2018: 28.7) years for females and a future pensioner aged 60 in 15 years’ time has a future expected lifetime from age 60 of 28.0 (2018: 28.2) years for males and 29.7 (2018: 29.9) years for females.
2. Reducing the core mortality rates by 12% is the equivalent of increasing the life expectancy of a male aged 60 years by 1 year.
Other provisions includes £14m (2018: £13m) held relating to property 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.
See note 38 for further information regarding the pensions and post-employment benefit obligations.
Additional provisions during the year 21 19 40) Other liabilities £m £m
Other creditors of £387m (2018: £399m) mainly includes payroll and other indirect taxes £167m (2018: £146m), outstanding settlements for investment purchases £63m (2018: £60m) and other creditors £157m (2018: £193m).
Information about leases for which the Group is a lessee is presented below.
Additions to right-of-use assets 28 3 31 1. Other includes the impact of contract modifications, impairments and foreign exchange.
Lease liabilities Lease liabilities of £258m are included within other liabilities in the consolidated statement of financial position (see note 40). The maturity analysis of this balance can be found in note 5 on page 141.
Balance at 31 December 2019 258 1. Other includes the impact of contract modifications, impairments and foreign exchange.
Strategic report Governance Financials 41) Leases continued Leases as a lessor The Group leases out its investment property consisting of freehold and leasehold land and buildings as disclosed in note 24. All leases are classified as operating leases from a lessor perspective with the exception of sub-leases, which the Group has classified as finance sub-leases.
RSA Annual Report and Accounts 2019186 rsagroup.com 42) Reconciliation of cash flows from operating activities The reconciliation of net profit before tax to cash flows from operating activities is as follows: Note £m £m
Strategic report Governance Financials 43) Other commitments Capital commitments The Group’s significant capital commitments in respect of property and equipment and intangible assets are detailed in the table below: 2019 £m 2018 £m
44) Other contingent liabilities In Canada the Group has purchased annuities from regulated Canadian life insurers in order to pay fixed and recurring payments to certain claimants. This arrangement exposes the Group to a credit risk that the life insurers are unable to make these payments, which is mitigated by an industry compensation scheme which in that event would assume a significant majority of the remaining outstanding obligations. The likelihood of both a Canadian regulated life insurer and the industry compensation scheme being unable to pay their obligations is considered very remote and so no provision has been recognised in respect of this risk. There are no such industry compensation schemes in other regions.
The Group receives liability claims and may also become involved in actual or threatened litigation during the ordinary course of its business operations. The Group reviews and, in the opinion of the directors, maintains sufficient provisions, capital and reserves in respect of such claims.
Subsidiaries are fully consolidated from the date on which control is entitled by the Group. They are deconsolidated from the date that control ceases.
The estimated useful lives of property and equipment are as follows: Group occupied buildings normally 30 years Fixtures and fittings 10 years Equipment 3 – 5 years
Appendix A: Other accounting policies continued The useful economic life and residual value are reviewed on an annual basis. Where the carrying value of an asset is deemed to be greater than its recoverable amount the asset is impaired. Gains and losses on disposal are recognised based on the carrying amount of the asset. On disposal of buildings, any associated revaluation surplus is transferred to retained earnings.
Other operating income Other operating income is comprised principally of: · Administration fee income: is received from policyholders in order for certain changes to their policy or policyholder details within their period of cover and is recognised in full on the date that the change is made.
Dividends The final dividend is recognised as a liability when approved at the Annual General Meeting.
Impact House, Building, office no. 21, 2nd floor, Building no. 662, Road no. 2811, Black no. 428, Al Seef, Manama, Kingdom of Bahrain 50.00002
Canada 10622923 Canada Limited 18 York Street, Suite 800, Toronto ON M5J 2T8, Canada Common 10622923 Canada Limited4 18 York Street, Suite 800, Toronto ON M5J 2T8, Canada Preferred 3342484 Canada Limited 18 York Street, Suite 800, Toronto ON M5J 2T8, Canada 8301140 Canada Limited 18 York Street, Suite 800, Toronto ON M5J 2T8, Canada Common 8301140 Canada Limited4 18 York Street, Suite 800, Toronto ON M5J 2T8, Canada Preferred
Royal & Sun Alliance Insurance Company of Canada 18 York Street, Suite 800, Toronto ON M5J 2T8, Canada
Western Assurance Company 18 York Street, Suite 800, Toronto ON M5J 2T8, Canada
Coast Underwriters Limited4 208-4940 No. 3 Road, Richmond BC V6X 3A5, Canada Class B3
Canadian Northern Shield Insurance Company 555 West Hastings Street, Suite 1900, Vancouver BC V6B 4N6, Canada
Fort William Building, 10 Factory Lane, St. John’s Newfoundland A1C 6H5, Canada Common
Class A Common 2029974 Ontario Inc.7 90 Allstate Parkway Suite 500 Markham ON L3R 6H3 Canada
Class B Common 2029974 Ontario Inc.4 90 Allstate Parkway Suite 500 Markham ON L3R 6H3 Canada
Class C Special 2029974 Ontario Inc.4 90 Allstate Parkway Suite 500 Markham ON L3R 6H3 Canada
Class D Special 2029974 Ontario Inc.4 90 Allstate Parkway Suite 500 Markham ON L3R 6H3 Canada
Class S Special 2029974 Ontario Inc.7 90 Allstate Parkway Suite 500 Markham ON L3R 6H3 Canada
Deeks Investments Inc.4 90 Allstate Parkway Suite 500 Markham ON L3R 6H3 Canada Common
GDII – Rus L.L.C.8 Sadovay Square, 3 Office 667, 121099, Moscow, Russia
St Mark’s Court, Chart Way, Horsham, West Sussex, RH12 1XL, United Kingdom 64.00
St Mark’s Court, Chart Way, Horsham, West Sussex, RH12 1XL, United Kingdom 99.99
Wall Street Plaza, 88 Pine Street, New York, NY 10005, United States 1. Directly owned by the parent company RSA Insurance Group plc. 2. No subsidiary holds a disclosable interest in the shares of RSA Insurance Group plc.
3. Indicates that the holding represents an Investment or is an Associate of the
There are no entities where the Group holds more than 50% of the voting rights which are not subsidiaries other than Punchbowl and Hempton Court Manco.
6. In relation to Al Ahlia Insurance Company SAOG (listed on the Muscat Securities Market, Oman Stock Exchange) and Al Alamiya for Cooperative Insurance Company (listed on the Tadawul, Saudi Stock Exchange), the percentage held relates to the actual percentage of the share capital held and not the effective percentage held (which is 26.25% and 25.04% respectively).
The profit for the year net of tax includes a tax credit of £4m (2018: charge £1m). There is no tax relating to fair value gains/(losses).
Profit for the year net of tax – – – – – – 213 – 213
Share-based payments (note 4) 3 – – – – – 9 – 12
Dividends – paid (note 5) – – – – – – (242) – (242)
Parent company statement of comprehensive income For the year ended 31 December 2019
Parent company statement of changes in equity for the year ended 31 December 2019
The profit for the year net of tax was £351m (2018: £213m profit).
RSA Annual Report and Accounts 2019196 rsagroup.com 2019 £m 2018 £m
Cash and cash equivalents at the end of the year 5 3
Notes to the parent company financial statements 1) Significant accounting policies RSA Insurance Group plc (‘the Company’) is incorporated in England and Wales and is the ultimate Parent 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.
Significant accounting estimates In preparing these parent company financial statements, management has made judgements in determining estimates in accordance with Group’s accounting policies. Estimates are based on management’s best knowledge of current circumstances and expectation of future events and actions, which may subsequently differ from those used in determining the accounting estimates.
Investment in subsidiaries The Company designates its investments in directly owned subsidiaries at fair value through other comprehensive income. The fair value is determined having regard to the Company’s market capitalisation at the reporting date.
There are no other new and revised accounting standards which are expected to have an impact on the Company.
Notes to the parent company financial statements continued 2) Risk and capital management The risks faced by the Company are derived from its investment in subsidiaries and debt securities and are therefore the same as those of the RSA Group of companies. Details of the key risks to the Group and the steps taken to manage them are disclosed in the risk and capital management section (note 5) of the consolidated financial statements.
3) Related party transactions The following transactions were carried out with related parties: 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 6% (2018: 6%).
Royal & Sun Alliance Insurance plc (RSAI), a subsidiary of the Company, has provided guarantees to the Company’s creditors for amounts arising from its issued debt agreements (as set out in note 35 to the consolidated financial statements) and for amounts arising from its committed credit facilities (as set out in note 36 to the consolidated financial statements). The guarantees relating to the issued debt agreements are subordinated to all other creditors of RSAI.
Related party balances Year end balances with related parties are set out below: 2019 £m 2018 £m
Investment in debt securities The investment in debt securities, all of which are listed, are classified at fair value through other comprehensive income (FVOCI) and at 31 December were neither past due nor impaired and comprise of securities with the following investment grades.
Details about the methods and assumptions used to fair value debt securities are provided in note 26 to the consolidated financial statements. Under the fair value hierarchy, £3m of the investment in debt securities are classified as level 1 financial assets and £338m are classified as level 2.
The current tax relating to items that are credited to equity is £nil (2018: £nil).
Deferred tax Deferred tax for the current year is based on a rate of 17% (2018: 17%). The following are the major deferred tax assets recognised by the Company and movements during the year: 2019 £m 2018 £m
No deferred tax has been recognised in respect of £21m (2018: £23m) of deferred tax reliefs due to the unpredictability of future profits streams.
Other prepayments and accrued income - to be settled within 12 months 5 –
9) Share capital Full details of the share capital of the Company are set out in note 32 to the consolidated financial statements.
Alternative Performance Measures Alternative performance measures (‘APMs’) are complementary to measures defined within International Financial Reporting Standards (‘IFRS’) and are used by management to explain the Group’s business performance and financial position. They include common insurance industry metrics, as well as measures management and the Board consider are useful to enhance the understanding of its performance and allow meaningful comparisons between periods and business segments. The APMs reported are monitored consistently across the Group to manage performance on a monthly basis. They are reviewed across various functions and undergo rigorous internal quality assurance.
Occasionally management may also report additional or adjusted APMs when circumstance requires. Reasons for doing so, definitions and reconciliations are provided in this appendix. In Q4 2018 targeted portfolio exits were announced as part of an ongoing strategic review of the UK & International business (UK&I). Proforma APMs were therefore provided in the 2018 Annual Report excluding the impact of these exits to aid readers understanding and assessment of future performance potential. The strategic review concluded in 2019, with further portfolio exits announced. Given the changes in the exit portfolios during 2019, the 2018 reported proforma impact of the UK&I exited portfolio is no longer a comparable measure. As hindsight should not be used when presenting restated comparatives, restated 2018 APMs excluding the impact of UK&I exits have not been provided given that the information was not available on this basis in 2018 and the action to exit these portfolios was taken during 2019.
2019 APMs have been reported both including and excluding the impacts of the UK&I exited portfolios to provide measures that allow users to assess the future performance of UK&I and the Group.
The adoption of IFRS 16 on 1st January 2019 had an immaterial impact on the 2019 APMs. Details on the impact of transition can be found in note 2 of the Group Consolidated Financial Statements.
Available for Sale (AFS) A class of financial asset that is neither held for trading nor held to maturity. Best ‘Best’ refers to the highest underwriting result when comparing underwriting performance on a like for like basis (with central costs consistently allocated to the underwriting result pre 2013 back to 2000).
Business Operating Result Business operating result represents profit before tax adjusted to add back other charges (previously referred to as operating result).
Claims Severity Average cost of claims incurred over the period. Combined Operating Ratio (COR) A measure of underwriting performance being the ratio of underwriting costs
(claims, commissions and expenses) expressed in relation to earned premiums: COR = loss ratio + commission ratio + expense ratio, where
Constant Exchange (CFX) Prior period comparative retranslated at current period exchange rates. ◊ 4 Controllable Costs/Expenses A measure of operating expenses incurred by the Group in undertaking business activities, predominantly underwriting and policy acquisition costs, excluding commission and premium related costs such as levies. They are adjusted to include claims handling costs that are reported within net claims incurred.
Customer Retention A measure of the amount of business that is renewed with us each year. Ex. Exits Excluding exits refers to financial results adjusted for the impact of UK&I portfolio exits and business lapses targeted as part of the UK&I strategic review. The action to exit these portfolios was taken during 2019.
Expense Ratio Underwriting and policy expenses expressed as a percentage of net earned premium.
Financial Conduct Authority (FCA) The regulatory authority with responsibility for the conduct of the UK financial services industry.
Group Volatility Cover (GVC) Reinsurance purchased by the Group to protect against large losses. Individual losses are covered in full when they exceed a certain amount and the aggregate of such losses over the financial year exceed an agreed limit.
Costs that are dependent on the level of defined benefit pension scheme plan funding and arise from servicing past pension commitments.
Policies in Force The number of active insurance policies for which the Group is providing cover. Prior Year Underwriting Result Updates to premium, claims, commission and expense estimates relating to prior years. ◊ 1 P
Pull to Par The movement of a bond’s price toward its face value as it approaches its maturity date.
Underlying profit after tax expressed in relation to opening tangible net asset value. ◊* 2 I
Investment income 306 D 306 Realised gains on investments 15 15 Gains on forex derivatives 1 1 Unrealised losses (26) (26) Net investment return 296 Other insurance income 135 E 135 Pension net interest and administration costs 4 4 Foreign exchange gain 1 1 Other operating income 140 Total income 6,898 Expenses Gross claims incurred (5,059) (5,059) Less: claims recoveries from reinsurers 727 727 Net claims, analysed as (4,332) F (4,332)
Income tax expense (108) Z AA AB AC AD Profit for the year 372 C+J+L+N P 165 PY Underwriting Z – P Q 85 CY Underwriting
Attritional loss ratio G/B R 55.8% Weather loss ratio H/B S 3.7% Large loss ratio I/B T 11.6% Prior year effect on loss ratio V-R-S-T U (2.6%) Loss ratio F/A V 68.5% Commission ratio (K+L)/A W 13.6% Expense ratio (E+M+N)/A X 14.1% Combined operating ratio V+W+X Y 96.2%
Alternative Performance Measures Reconciliations continued 2. Metric calculations 2019 £m 2018 £m
E Weighted average no. share issue during the period (un-diluted) 1,031 1,026
APM Rec 7 M Underlying earnings per share ex exits 44.5
Alternative Performance Measures Reconciliations continued 3. Balance sheet reconciliations 2019 £m 2018 £m
C/D F Tangible net asset value per share 282 279 4. Net written premium movement and constant exchange £m £m
Impact of UK&I exits The UK, Europe, UK & International and Group results for the 12 months ended 31 December 2019 have been presented excluding the impact of the strategic portfolio exits, primarily including London Market portfolios and a number of UK MGA schemes.
K GVC recoveries in relation to UK exit portfolio 8 8 (8)
E+F G 2018 attritional claims at constant exchange (1,108) (953) (1,560) (3,620)
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Financial calendar 5 March 2020 Ex-dividend date for the ordinary final dividend for 2019 and the first preference dividend for 2020 6 March 2020 Record date for the ordinary final dividend for 2019 and the first preference dividend for 2020 1 April 2020 Payment date for the first preference dividend for 2020 7 May 2020 Q1 Trading Update 7 May 2020 Annual General Meeting 14 May 2020 Payment date for the ordinary final dividend for 2019 30 July 2020* Announcement of the half-year results for the six months ended 30 June 2020 13 August 2020* Ex-dividend date for the second preference dividend for 2020 14 August 2020* Record date for the second preference dividend for 2020 3 September 2020* Ex-dividend date for the ordinary interim dividend for 2020 4 September 2020* Record date for the ordinary interim dividend for 2020 1 October 2020* Payment date for the second preference dividend for 2020 9 October 2020* Payment date of the ordinary interim dividend for 2020 5 November 2020* Q3 Trading Update * Provisional date
Ordinary Share performance The opening market price of an ordinary share on 2 January 2019 was 508.8 pence and the closing market price on 31 December 2019 was 565.6 pence. The highest daily closing price of an Ordinary Share during 2019 was 597.0 pence on 16 July 2019 and the lowest daily closing price was 501.6 pence on 26 March 2019 and 9 October 2019.
Tips on protecting your shares · Keep any documentation that contains your shareholder reference number in a safe place and destroy any documentation you no longer require by shredding.
American Depositary Receipts The Company operates a sponsored American Depositary Receipts (ADRs) programme which is managed by JPMorgan Chase Bank, NA. The programme allows shareholders to invest in the Company through US dollar denominated funds. One ADR represents one Ordinary Share of £1.00 each.
Registered Office The Company is registered in England and Wales under Company No. 2339826. Its registered office address is 20 Fenchurch Street, London EC3M 3AU.
Registered office RSA Insurance Group plc 20 Fenchurch Street London EC3M 3AU United Kingdom