A In su ran ce G ro u p p lc
For more than 300 years, RSA has been protecting individuals and businesses from insurable risk. Our business is rooted in regional franchises, and we take pride in providing excellent customer service as well as striving to achieve high performance levels. We are a focused, agile and resilient business.
2019 was an excellent year for RSA overall. The business has recorded its three best1 underwriting results this century over the last four years. RSA’s foundations are strong and our strategy is clear; we will continue to drive improvements in pursuit of our best-in-class ambitions.
Alternative Performance Measures RSA uses Alternative Performance Measures (APMs), including certain underlying measures, to help explain its business performance and financial position. Where not identified in the body of this report, further information is set out on pages 201 to 210.
£597m4+15.5% 1. For further information see page 201. 2. Full-time equivalent. 3. Excluding UK&I exit portfolios. See pages 202 and 209 for further details. 4. Total Group. Statutory earnings per share 32.6p.
Further information on our key performance indicators is set out on pages 26 to 27.
Cost base management and productivity enhancements Running an efficient, productive business helps us to remain competitive, invest for the long term and achieve sustained value for our shareholders.
RSA is a leading international general insurer, operating principally through our Scandinavia, Canada and UK & International1 regions.
Dear Shareholders, As one of the world’s oldest insurers, RSA is a source of stability in our customers’ lives. We exist to help when things go wrong, and we use our knowledge and skills to ensure people and business are well protected in the first place. 2019 was another successful year in more than three centuries playing this role. We can point with pride to countless examples of our teams supporting customers in difficulty and helping them to be safer.
We’ve significantly improved the Group’s performance, addressing areas of weakness from 2018 to strengthen the business for the long term. The year was not without challenges and our ambition is to improve further for customers, shareholders and all our stakeholders.
Governance and championing a great culture are of the utmost importance to the Board. The Board’s commitment to these matters together with other key areas including the Board’s focus areas and activities are covered in the Governance section on page 59.
A changing context A strong RSA is critical as we and our customers are operating in an environment of uncertainty. The world is changing, and our ability to change with it will shape our future success.
Climate change was also a major focus in 2019, as concerns grew about the response from government and business. RSA has an important role in helping our customers to mitigate climate risks, as well as supporting the low-carbon transition through our investment, underwriting and operational decisions.
Reflecting our resilience and confidence in the business and its future prospects, we are pleased to propose a final dividend of 15.6 pence per share, making a total of 23.1 pence per share for the year. This is a 10% increase on 2018.
Managing our business well RSA is committed to making a positive impact in society, acting with integrity for the benefit of all our stakeholders. Our corporate responsibility strategy, Confident Futures, reflects our commitment to integrate responsible business practices into our operations, and to create a future where people can more confidently manage their risks.
In 2019, the Board approved a new Low Carbon Policy, which guides our underwriting and investments and sets a new Science
We are also partnering with non-governmental organisations, suppliers and other stakeholders to improve risk resilience in large and small ways. In Canada, our partnership with WWF supports communities to prepare for flooding. In the UK, we are developing our green supply chain in our claims function, as well as a new relationship with the Royal Society for the Prevention of Accidents. Our safety programmes in Scandinavia reached thousands in 2019, with our Swedish campaign on drowning winning an award for its impact.
∙ Sustain a platform of financial strength that enables our ambition
∙ Consistently develop the capabilities of our people and our use of data, technology and capital resources.
We are especially focused on ensuring we develop and retain technical skills in our business, which is important to our competitiveness. Our growing apprenticeship scheme provides the opportunity to gain industry recognised qualifications while learning ‘on the job’, and we are focusing on mentoring opportunities on under-represented groups and those at key stages of their careers. Some of my Board colleagues and I enjoyed meeting some of RSA’s apprentices in a recent visit to our Manchester site.
As stated in my 2018 report, Jos Streppel stood down from the Board in May 2019, and we were joined from March by Sonia Baxendale, whose financial services experience from the Canadian market adds significant value to our discussions.
In July, Isabel Hudson also retired from the Board with our gratitude, having made a significant contribution to the Group as Senior Independent Director and as a member of the Risk, Remuneration and Nomination and Governance Committees. Martin Strobel has been appointed to the role of Senior Independent Director.
RSA is a company built on the values of its employees, and the ongoing commitment and hard work of our colleagues is greatly appreciated by the Board. Particular thanks are due to our CEO Stephen Hester, Executive Directors, Scott Egan and Charlotte Jones, and their extended teams for their efforts in 2019.
We have a balanced portfolio, in terms of where we operate (the major insurance markets of Scandinavia, the UK and Canada), our product offering and the way we distribute these products. This scale and breadth helps us to manage the impact of volatility on the Group effectively.
We continually invest in our people and their development to create a forward-looking, high-performance culture intent on becoming market leaders in our chosen classes of business.
We have developed excellent regional customer franchises with trusted and recognisable brands in our markets.
We strive to provide tailored products that meet the evolving needs of our customers by analysing trends and investing in technology to keep pace with digital developments.
Number of customer and regulatory training hours completed across the Group in 2019
As a responsible business, we are committed to making a positive contribution to the communities where we operate and to proactively manage the impact of our business on the world around us.
£1.9m Value of community contribution and 11,911 volunteer hours in our local communities
Our core technical expertise lies with our underwriting, pricing and claims handling teams who receive ongoing training to build their capabilities. We also prioritise developing a strong customer service culture to ensure policyholders get the support they need.
Relationships and partnerships 74% of our business is distributed through our brokers and partner organisations.
3 Understanding risk to price correctly To ensure that we offer the right products at the right price and on the right terms, we work hard to increase our understanding of our customers’ risks and their evolving needs.
With this in mind, one of the Group’s strategic goals is the ambition of delivering improvements in customer service.
While the type of customer we serve ranges from individuals through to large corporations, our ambition to provide support and excellent service is the same and it is vital that we engage with our customers to ensure that we are meeting their expectations.
The Board also receive regular updates on customer satisfaction and customer retention, and receives quarterly updates from the Customer Committee, which has been established to support good customer outcomes and ensure that decisions are taken with the impact on customers at front of mind.
During 2019, the Board also focused on the customer experience of sales, service and distribution. We aim to be proactive and digitally enabled and provide tailored products that address evolving customer demands and needs.
The regular updates received by the Board have helped to ensure we promote and secure positive outcomes for our customers and enabled the Board to focus on all areas that are important to our customers.
The Board approved investment in further technology, analytics and digital offerings, including tools to help us to price in a more sophisticated way and to automate parts of our claims and customer service. The benefits of these systems will include being more intuitive for employees and increasing operational efficiency, thereby reducing costs.
The Board has sought to ensure corporate responsibility and sustainable business practices are relevant considerations in all Board decisions. For further information on RSA’s approach to environmental, social and governance matters (including climate change), and how the Board has taken these into account, see page 13 and 44 to 49.
The Board has reflected on the level and nature of stakeholder engagement in 2019 and concluded that it provided the Board with a comprehensive understanding of the views and interests of the key stakeholder groups. In refining and approving the stakeholder engagement plan for 2020, the Board agreed that the key priorities for 2020 are: customers, employees, shareholders and regulators. It also confirmed its commitment to continued direct and indirect engagement with these key groups and other stakeholders.
RSA is a people-centred business, with an ambition to perform at best-in-class levels. The Board recognises the key role of the workforce in delivering the Group’s strategy and values time spent with them.
We engage with our workforce to ensure that we are fostering this environment and meeting the needs of our workforce.
Although we engage with different members of the workforce in different ways, the Board acknowledges that the entire workforce can be affected by Board decisions and believe engagement with all sections of the workforce will ensure that the widest possible range of shared views are taken into account.
The Board also spent time in the business, both collectively and individually, to gain a greater insight into our business operations, including Board visits to Scandinavia, Manchester and Horsham to meet with the local board, senior management and workforce. The Board visit to the Scandinavian IT hub in Malmö provided the opportunity to experience first-hand an example of our investment in people through the development of new capabilities in customer facing technologies and agile ways of working. The Chairman and the Group Chief Executive attended the European Works Council, RSA’s European employee representative body. The Board also met with the Diversity and Inclusion Councils for our UK and Scandinavian businesses.
Throughout 2019, the Board encouraged and supported the work of the executive team and senior management in improving our people proposition based on feedback from the workforce, and this will continue during 2020.
The Board’s direct engagement with the workforce, including through the site visits, has been successful in achieving meaningful, regular two-way dialogue between the Board and the workforce. Following positive feedback on the site visits undertaken during the year, the Board plans to build on this, with further site visits planned for 2020.
We have identified a number of areas of particular interest to our workforce, including culture, diversity and inclusion, flexible working and personal and professional development. With this in mind: · The Board continues to support and monitor a programme of actions that focus on improving Group-wide diversity and inclusion
· The Group has explored ways to enable and support a more flexible workforce
We have an extensive engagement programme with our shareholders and analysts. Maintaining strong relationships with these shareholders helps ensure that the Company has access to the capital it requires.
We consider there to be two main groups of shareholders: institutional investors and private shareholders. Engagement with both of these groups of shareholders is important to ensure that we can maintain investor support for our long-term strategic objectives.
Private shareholders The Board considers our AGM an important opportunity to engage with all shareholders, but particularly private shareholders who might otherwise not have any direct engagement with the Board. Shareholders are invited to ask questions during the meeting, and have the opportunity to meet Directors before and after the formal proceedings.
More information about the AGM and Equiniti, the Company’s Share Registrar, can be found on pages 211 and 212.
Meetings with shareholders over the course of 2019 have been positive, engaging and beneficial. with a key focus area being the performance of the UK business.
After each meeting with investors, the relevant Director provides a verbal summary of the engagement to the following Board meeting, to ensure that all Directors are aware of the views and priorities of the investor(s).
The Remuneration Committee was informed of feedback from investors in relation to the proposed Remuneration Policy and, in line with that feedback, concluded that the existing policy continues to align well with our long-term business strategy and that no major overhaul was needed.
Regulators and ratings agencies How we engage and consider Outcomes and actions
RSA is committed to working with all of its regulators in an open, cooperative and transparent manner. We seek to ensure a strong regulatory compliance culture throughout the Group in order to pre-empt and, where necessary, resolve regulatory issues and to avoid or minimise business impact, the risk of customer harm and surprises.
The Board continues to have constructive engagement with our regulators, ensuring that they gain a comprehensive view of the Group’s governance priorities and that we understand the issues of interest to them.
We believe that open and regular dialogue promotes transparency between the Group and its regulators and ensures that we are in a position to reflect the views of our regulators when setting strategy.
The outcomes of our engagement with our regulators influence the Group’s priorities and focus for the year set out in the Group’s regulatory compliance plan, which is considered and approved by the Group Audit Committee.
Community and the environment Climate change is a serious environmental, social and economic challenge. We understand that it is important to our stakeholders (as well as to the future prospects of the Group) that we address responsible business issues, including climate change. Our new Confident Futures strategy seeks to ensure that we consider our environmental impact at every possible opportunity, and the Board took steps throughout 2019 to ensure that this is integrated into the business and our decision-making processes.
Suppliers Our suppliers are critical to our business and the long-term success of the Group. We are committed to the principles of the Prompt Payment Code and aim to treat suppliers fairly and consistently, for example by offering equal payment terms between suppliers, in order to build strong and lasting relationships. We use a supplier information and risk management portal to assist in monitoring our suppliers’ performance and have held meetings with key suppliers in the UK and Scandinavia to better understand their approach to managing key issues. For further information on how we manage our supply chain and encourage high standards of business conduct, see page 45.
Pension schemes RSA is committed to fully supporting the pension schemes and, in 2018, approved the funding agreements for the Group’s two defined benefit pension schemes, designed to provide a more stable, lower-risk future for the plans themselves and for RSA as sponsor. The Group has committed to pay contributions at this level until the schemes are fully funded on a lower-risk basis. During the course of 2019, the Board considered the funding level of the Group’s pension schemes, the contributions payable and the pension investment strategy to ensure that the funding and other arrangements remained appropriate. Quarterly updates on Group performance were provided to the pension trustees.
· The results of cultural mini surveys undertaken to improve ongoing monitoring and assessment of culture across the Group.
The following principal decisions and activities demonstrate how the Board has assessed and addressed different stakeholder interests and impacts in making decisions that support the implementation of the Group’s long-term strategy (as set out on page 16). We believe that principal decisions are both those that are material to the Group and/or also those that are significant to any of our key stakeholder groups.
Balancing competing demands for capital Throughout the year, the Board considered the capital position of the Group and the allocation of capital throughout the business. Based on our strong profitability and capital generation, robust capital position and confidence in the future prospects of the business, the Board decided to recommend a final dividend for 2018 of 13.7 pence per share, an interim dividend for 2019 of 7.5 pence per share and a final dividend for 2019 of 15.6 pence per share. In considering these dividends, the Board took into account the three year operational plan and capital forecast and the results of stress testing (together with the other factors set out in the viability statement on page 111) to ensure that sufficient resources would remain available to deliver the Group’s strategy and meet our long-term obligations, including the agreed funding arrangements in respect of the defined benefit pension schemes. In August 2019, the Board decided to further increase internal capital flexibility by raising £350m through the issuance of senior notes.
In applying the Group’s dividend policy and considering uses of capital, the Board balanced the resources required to support the Group’s long-term strategy (including the need to retain funds to meet the Group’s regulatory capital requirements, ensure that customers are adequately protected, support future investment and meet agreed pension contributions) with the interests of shareholders for whom income is an important metric. The Board considered, among other things, the Group’s capital positions, projected capital generation and expenditure and forecast positions.
Further details on our viability assessment and dividend are on pages 111 and 153.
In 2018, the Nomination and Governance Committee identified that the Board would benefit from the appointment of a director with experience and expertise in Scandinavia or Canada in order to give insight into the interests of, and issues facing, our customers and employees in those areas. This was reflected in the role profile for a new non-executive director and Sonia Baxendale was appointed to the Board based, among other things, on her breadth of skills and experience, Canadian expertise and cultural fit.
· Climate change featured as a key topic for discussion at the Board’s strategy away day – this included input from expert speakers and discussion on key issues and the role we can play
· The Board approved the adoption of the Group’s low-carbon policy position to clearly articulate our perspective on climate change, investment in/underwriting of carbon intensive sectors and support for the transition to a low-carbon economy and
Succeeding in an evolving market and a changing world Remaining resilient and supporting our customers by monitoring and responding to changing global developments.
Global growth slows Global economic growth was sluggish in 2019, contracting 0.7 points to 2.9%*, the lowest level since the last financial crisis. Capital markets were volatile, driven in part by trade tensions between the US and China, while negative yielding debt reached historic levels in 2019. Growth patterns remain unpredictable, with the long-term global outlook impacted by the tightening of financial conditions and ongoing global tensions. Global growth is forecast to reach 3.3%*, but this may be tempered slightly by the impacts of the ongoing coronavirus outbreak. * Source: International Monetary Fund
Technology Big data, digitisation and new technology are creating both risks and opportunities Digitisation and the availability of big data mean that companies can improve how they operate. This has shifted consumer expectations and led to increased scrutiny from regulators. Greater sophistication in data analytics and the continued development of artificial intelligence and automation have created an opportunity for better risk management and improved customer service. However, this has created some challenges for an insurance industry trying to keep pace with innovation. Insurers are continuing to invest significant resources to enhance their digital proposition to meet the evolving needs of their customers.
· We are continuing to invest in customer journeys, new products and better digital interfaces.
· We are harnessing big data and advanced modelling to assess and price our products more efficiently and accurately.
· Our Personal Lines business serves customers of all ages. Our focus is on building our digital approach while differentiating our support for vulnerable customers.
Political Protectionism continues to affect global relations Protectionist trade policies continue to strain relations between countries and impact levels of global trade. The US and China trade war was a dominant feature of 2019 and the pace of global economic activity remains weak, while tensions remain heightened in the Middle East. Meanwhile, Britain is coming to terms with Brexit, and its future relationships with key trading partners remain unclear.
· We have sufficient reinsurance to limit our exposure to severe weather events, as well as promoting prevention and investing in cross-industry risk pooling schemes.
· As part of our Confident Futures programme, we aim to reduce our own environmental impact, including helping our customers respond to climate change, assisting in the transition to a low-carbon economy.
· The trend is not unique to the UK but is becoming prevalent across the globe in mature insurance markets.
· Our Group Customer Policy outlines steps our business must take to ensure customers are treated fairly and products and service continue to meet their needs.
· The creation of RSA Luxembourg has insulated us from the main regulatory impacts of Brexit. The transfer of risk currently underwritten through our European branch network to our Luxembourg subsidiary has ensured a smooth transition for our customers and brokers following the UK’s departure from the European Union.
· As we move into the Brexit transition period, there is the potential for economic shocks, claims inflation and supply disruption, but we are working hard to ensure we are well placed to respond to and mitigate any impacts.
· We have a large suite of cyber-specific solutions for large and multinational businesses, as well as SME solutions. We are monitoring the market to make sure we understand demand.
· We are investing in technology and analytics to help us to price in a more sophisticated way and to automate parts of our claims and customer service.
Underlying earnings per share1 grew to 44.5p and underlying return on tangible equity1 to 16.0%, despite headwinds from low interest rates and FX. Dividends increase 10% to 23.1p/share for 2019.
RSA’s results come in the context of our consistent strategy, to focus on core markets and seek to improve operational capabilities towards ‘best in class’ levels. While we have much yet to do in pursuit of these ambitions, each of our three regions contributed well to 2019 results. In particular the repositioning of our UK & International region showed good progress with underwriting profits1 of £144m. The costs of this repositioning – losses on exit portfolios and cost restructuring charges – impacted results at a statutory level however.
Our disciplined strategy has enabled important improvements to customer service, underwriting skills and cost effectiveness in recent years. These improvements are driven by significant development of our capabilities and performance culture, as well as in our technology and data science tools. As a result, RSA has recorded its three best2 underwriting results this century over the last four years.
Customers Serving customers well is RSA’s raison d’être. For over 300 years we have built our brands and reputation in this way. Modern times bring heightened demands and expectations from our customers. These range from digital delivery of services, to help with new or changing areas of risk such as cyber and climate change. We are committed to doing all we can to improve and to serve customers well.
Across the Group, where our underwriting is stable and producing the expected results, customer retention and satisfaction levels are generally high and even improving. Conversely, when loss challenges require adjustments to pricing or underwriting conditions, we experience more challenges with service and retention. Many initiatives continue across our business, using technology and data science, to serve customers better. And we are striving to meet rising customer expectations with competitive services that deliver good outcomes.
“ RSA has recorded its three best2 underwriting results this century over the last four years.”
RSA’s culture is also advancing in other ways. We have met two key diversity & inclusion targets in 2019 – over 33% of the senior management group are now female, as are 40% of my direct reports.
On a geographic basis, the highlight was a major improvement in our UK & International results, to a combined ratio of 95.0%1 (ex. exits). Canada improved sharply to 94.5%, Scandinavia was as usual the largest contributor (87.4% COR), though held back by poor Danish Commercial lines results.
The repositioning of RSA’s UK&I region in 2019 has driven some significant costs for exit portfolios and restructuring of expense base. Those actions make us more valuable going forward and have been absorbed by our organic capital generation.
Dividends: We propose total dividends for 2019 of 23.1p/share, up 10%. This represents a 52% payout of underlying EPS (ex. exits), above our 40-50% policy range. Our strong capital position and organic capital generation support this, despite the costs of ‘below the line’ items and bond ‘pull to par’. Reflecting the improvements of recent years in RSA’s performance and resilience, we are also increasing our target dividend payout range to 50-60% of underlying EPS.
Q You’ve been Group CEO at RSA for six years; how do you feel the insurance industry has changed during your tenure? The general insurance industry has been around for over 300 years. In that time, the world’s stock of risk has grown continually, with economic development increasing the value of insured risks, and human evolution gradually changing the mix of risks – such as through climate change or cyber risk. So, the insurance industry evolves in a measured way, and is less prone to ‘revolution’. However, as the original data science industry, the advances of recent years – in tools to gather data, learn lessons from it and apply those lessons – are of particular importance to insurance companies. We need to adopt the tools and capabilities now available – if we do so well, we can continue to prosper for shareholders by meeting enduring customer needs, while delivering our services in ever smarter, more convenient and efficient ways.
Q How is RSA adapting to that change and what does it need to do next? Property and Casualty Insurance is a very large mature industry. No patents mean competitors offer very similar services. Change is gradual but unmistakable. Like in other industries with these characteristics, there is a clear formula to ‘win’. RSA has pursued this formula since 2014, while building on its distinguished heritage of many previous years. We focus in a disciplined way on the three regional businesses where we are market leaders and have the attributes needed to succeed. Our businesses are highly complementary. Across them, we continually strive to improve our capabilities and execution towards best-in-class levels within our competitor group. This means intense focus on improving customer service, underwriting and claims technical skills, and our business efficiency. These efforts are driven by our people and technology. When things go well, we keep doing them. When we make mistakes, we try to change to put them right quickly.
Q You’ve made some significant changes to your executive team during 2019, could you explain the rationale for those changes? Capable and effective leadership is a vital requisite for companies aspiring to sustained high performance. As CEO, it’s my job to focus hard on the top team, to make sure we have the best team we can, to develop our leaders positively, to make changes when necessary and to reward and enable progression. Three of the top four ExCo jobs (3 regional CEOs and Group CFO) changed this year. In each case, it was a pleasure to ‘reward’ promise and performance; giving Scott Egan a big challenge as UK&I head, Ken Norgrove a promotion after turning around our Irish business so well, and Charlotte Jones a new challenge as CFO moving from her prior Non-Executive Director role.
· Sharpening customer acquisition tools · Developing innovative products that meet changing needs
Customers are at the heart of what we do. We are committed to ensuring customers achieve good outcomes through their interactions with us, evolving to meet their changing needs and providing excellent service.
· Customer satisfaction levels remained generally strong: in Denmark, Codan CSAT remained stable at +76 (2018: +76) and retention was above target for both Codan and Trygg-Hansa. In the UK, MORE TH>N showed strong year-on-year improvement in NPS1 scores, reflecting investment in the brand. While in Canada, Johnson recorded a sales and service NPS1 score of +45.
· In Personal Lines, we continue to invest in technology to improve customer satisfaction, retention and sales efficiency. In Canada, we piloted the Claims Advice Line for Johnson, a dedicated telephone service providing claims guidance to customers without impacting their policies. In the UK, our digital servicing platform, Unity, is helping us to provide more seamless interactions for MORE TH>N and affinity customers. In Scandinavia, investment in digital has seen automatic settled claims rise 8 points to 31% in Swedish Personal Motor.
· Developing innovative and relevant products remains an important differentiator. In the UK, MORE TH>N, has developed a customer loyalty programme – MORE TH>N Rewards – which has over 16,500 users. Meanwhile, in Canada, policyholders can earn Air Miles, with one mile earned for every $20 spent on premiums. More than 350,000 policyholders actively collected AirMiles in 2019.
100+ More than 100 flood victims visited our Emergency Response Vehicle in 2019
We continue to invest in our underwriting tools and capabilities, so we can constantly improve our understanding and pricing of the evolving risks that our customers face.
· Weather continues to be a dominant feature of the Canadian P&C market and we seek to capture any changes in weather patterns or trends in our pricing.
· Alongside our Group aggregate reinsurance cover, we purchased new local aggregate covers for the UK, Scandinavia and Canada in 2019 to protect us from frequency in mid-sized large losses. Recoveries of £15m and £17m were made from the Canadian and Scandinavian covers respectively.
· We continue to invest in new technology to enhance our underwriting and pricing sophistication, making the most of our data through machine learning and automation.
· Ongoing training is a crucial component to maintaining high underwriting standards and technical expertise. In 2019, 618 new employees completed our technical induction programmes.
· In 2019, the Board approved the Group’s new Low Carbon Policy, which included our position on underwriting of carbonintensive sectors (see pages 47 to 49 for further details).
Running an efficient, productive business helps us to remain competitive, invest for the long term and achieve sustained value for our shareholders.
Our progress · Cost management continues to be a vital business lever, and we continue to drive cost-efficiencies in our business, targeting a controllable expense ratio of 20% or better in each of our regions.
· In 2019, Group written controllable costs were £1,346m (2018: £1,343m). This comprised 2% cost reductions, offset by 2% inflation. At CFX and gross of inflation, Scandinavia written controllable costs of £379m were flat vs 2018, Canada (£294m) was 2% lower, and UK & International (£667m) was 2% lower.
· In 2019, we commenced a new cost reduction programme in our UK business. This is targeting the removal of >£50m costs by 2021. Associated restructuring costs of c.1.3x are expected, with £27m booked in 2019 and the remainder to be booked in 2020. Savings are expected to be made through the key levers of organisational design, premises and IT.
In 2019, we focused our Scandinavian IT capabilities in-house to our Malmo hub. The creation of the Malmo IT-hub has helped us have better control of our business, reduce costs and attract new talent. Since the start of the project, we have been able to attract 70 new full-time employees.
New employees have been brought in-house since the launch of the Malmo IT-hub
Definition This is the claims ratio (net incurred claims and claims handling expense as a proportion of net earned premiums) of our business prior to volatile impacts from weather, large losses and prior year reserve development.
Outlook We target attritional loss ratios in the medium term in line with best-in-class performance.
Definition Business operating result attributable to ordinary shareholders less finance costs and underlying tax, per share.
APM Alternative performance measures RSA uses Alternative Performance Measures (APMs) including certain underlying measures to help explain its business performance and financial position.
3. The Solvency II capital position as at 31 December 2019 is estimated.
Definition Business operating result attributable to ordinary shareholders less finance costs and underlying tax, expressed in relation to opening tangible shareholders’ funds, i.e. excluding goodwill and intangible assets.
Commentary This is a key statutory measure of the earnings performance of the Group. The impact of tax can vary from company to company, therefore excluding this enhances comparability.
Outlook We target continued progress towards our ambition of an earned controllable expense ratio of less than 20% in each of our Regions.
Definition A measure of the amount of business that is renewed with us each year.
Outlook By ensuring customers are at the heart of everything we do, we can optimise business performance. We target improving retention over time.
In 2019, we added new reinsurance covers to reduce the volatility of claims between £1m and £10m in each of our regions. Recoveries of £15m and £17m were made in our Canadian and Scandinavian businesses respectively. The overall reinsurance programme for 2020 is substantially similar.
These premium reductions in the UK require us also to take action on our cost base and we have announced a targeted programme of >£50m per annum cost saving by end 2021, which is well advanced. In relation to this, £27m of restructuring costs were booked in 2019 outside the underwriting result, in line with historical practice. The remainder will be booked in 2020. The restructuring activities mainly relate to organisational design, IT and premises, with the majority of 2019 restructuring costs relating to the first two.
In addition to our existing metrics, this year we have provided Alternative Performance Measures (APMs) to show the results for our ongoing businesses, given the significant portfolio exits undertaken in the UK&I. The aim of this is to enable better assessment of potential future performance. On this basis, excluding the portfolio exits, the Group reported 2019 underwriting profits of £405m, a combined ratio of 93.6%, underlying EPS of 44.5p, and underlying return on tangible equity of 16.0%. All APMs are defined and reconciled on pages 201 to 210.
2019 financial highlights · Profit after tax of £383m, up from
· Underlying return on tangible equity (excluding exits) 16.0%, underlying return on tangible equity (including exits) 14.2% (2018: 12.6%); versus 13-17% target range.
· Underwriting profits (excluding exits) of £405m, underwriting profits (including exits) of £346m up 38% (2018: £250m).
Group retention remained strong at 80% (2018: 80%) with improvements across Scandinavia, and in UK Personal Lines. In Commercial Lines, retention was down in the UK and Canada, where we have been taking the most rating and underwriting action.
Strong results for 2019 Improvement actions including repositioning of the UK & International business are showing good promise.
Personal Lines (57% of the Group’s premium) continues to deliver excellent results reporting a combined ratio (excluding exits) of 88.5% helped by lower weather costs across the Group. We continue to see premium growth in our most profitable lines in Sweden and Johnson (our direct to consumer retail business in Canada). Retention levels are generally strong, and we continue to invest in technology in order to meet the evolving needs of our customers.
Commercial Lines (43% of the Group’s premium) has been more challenging, reporting a combined ratio of 98.5% (excluding exits). In Scandinavia, Danish Commercial lines has disappointed, although we aim to restore profitability with actions already taken in 2019, and more to follow in 2020. Canadian Commercial Lines has also remained challenging; we have taken extensive underwriting and pricing actions, including some reductions to risk appetite, which has contributed to volumes falling by 13%.
Premiums were down 7% in the UK & International region at constant FX. Exits accounted for c.5 points of the reduction. UK Personal Lines premiums were down 11% in the period, with exits driving c.1.5 points of the reduction. Household was down 10% with the sale of Oak Home accounting for c.3 points of the reduction. Importantly, we have continued to achieve good rate increases through our Household book. Motor and Pet premiums also decreased. Commercial Lines premiums (which now exclude Europe which is reported separately within UK&I) were down 7%2 excluding reinsurance changes, but up c.5%2,3 excluding exits: rate was positive in all major lines of business, although this impacted retention. Premiums in Europe were down 7%2 reflecting the reshaping of the portfolio. Irish premiums increased by 6%2 helped by strong new business in Personal Motor. In the Middle East, premiums were down 5%2 driven by lower volumes in Commercial Lines and rating pressure in Personal Lines.
In Canada, the attritional loss ratio improved by 2.1 points; Personal Auto performed particularly well with better rates and claims initiatives starting to have an impact. The UK & International attritional loss ratio improved by 1.22 points. In the UK, improvements in Household, Pet and Commercial Property were partly offset by an increase in Motor. Household improved by 2.5 points reflecting the actions taken to address the ‘escape of water’ claims inflation issue which presented in 2017.
Weather, large losses and prior year development Group weather costs were £167m or 2.6% of net earned premiums (2018: 3.7%; fiveyear average6: 2.9%). Overall, weather for the year was around half a point better than our expectations, despite heavier Canadian weather in the first quarter.
Controllable costs Group written controllable costs were £1,346m (2018: £1,343m). This comprised 2% cost reductions, offset by 2% inflation. At CFX and gross of inflation, Scandinavia written controllable costs of £379m were flat vs 2018, Canada (£294m) was 2% lower and UK & International (£667m) was 2% lower.
The earned controllable expense ratio of 20.9% was up slightly versus 2018 (20.4%) mainly due to UK&I business exits. The ratio is down by c.3.51 points since 2013 and our ambition of an earned controllable expense ratio of less than 20% is unchanged.
We have commenced a new cost reduction programme in our UK business. This is targeting the removal of >£50m costs by 2021. Associated restructuring costs of c.1.3x are expected, with £27m booked in 2019 and the remainder to be booked in 2020.
Investment result The investment result was £263m (2018: £275m) with investment income of £306m (2018: £322m), investment expenses of £12m (2018: £14m) and the liability discount unwind of £31m (2018: £33m).
Investment income was down 5% on prior year, primarily reflecting the impact of reinvestment at lower yields, which was partly offset by increased income from actions taken on the portfolios to increase exposure to less liquid credit investments. The average book yield across our major bond portfolios was 2.1% (2018: 2.3%). At current market forward rates, we expect investment income of c.£255m-£270m in 2020.
There was also a £15m charge for the accounting impact of a reduction in the discount rate in the first half, on long-term insurance liabilities in Denmark.
The carrying value of the Group’s deferred tax asset at 31 December 2019 was £209m (2018: £234m), of which £180m (2018: £189m) was in the UK. The decrease in the Group’s deferred tax assets in 2019 was largely due to accelerated tax depreciation in Canada and a small reduction in UK deferred tax asset reflecting lower investment income outlook. At current tax rates, a further £254m (2018: £260m) of deferred tax assets remain available for use but not recognised on balance sheet; these are predominantly in the UK and Ireland.
For 2020, we expect the Group’s ETR and underlying tax rate to continue to be in the region of 20%, given the scale of unrecognised UK and Irish tax assets.
The taxes borne by the Group in 2019 were a total of £298m from our four largest territories (UK £90m, Ireland £9m, Scandinavia £96m and Canada £103m). Taxes collected by the same territories were an additional £581m.
For more details, please refer to our published Group tax strategy: www.rsagroup.com/ responsibility/disclosures/
Balance sheet and capital RSA’s balance sheet and capital is strong and resilient. Tangible net assets increased by 1% to £2.9bn at 31 December 2019. The increase was driven by profit in the year of £443m3 and positive fair value mark-to-market movements of £122m, mainly reflecting tightening credit spreads and falling bond yields. Tangible net assets were reduced by payment of the 2018 final dividend (£141m) and 2019 interim dividend (£78m), together with investment of £143m in intangible assets, which were primarily IT related (net investment of £59m after amortisation of £84m shown as part of profit).
RSA is a diversified, multi-channel, multiproduct general insurer and its business mix reduces exposure to significant volatility. However, the UK pension scheme provides a degree of volatility under Solvency II for RSA. We consider a target Solvency II operating range of 130 – 160% capital coverage to be appropriate to the Group’s risk profile.
Market movements including IAS 19 and other 1 1. At CFX and ex-disposals (where relevant). 2. Full-time equivalent. 3. Profit after tax adjusted for items relating to good will and intangible assets.
4. The Solvency II capital position at 31 December 2019 is estimated.
5. Capital generation represents profit after tax attributable to ordinary shareholders, adjusted for changes in intangible assets, deferred acquisition costs and other non-capital items.
The UK IAS 19 position benefited from strong equity performance over the year as well as deficit funding contributions paid by the Group (£86m pre-tax); however, these gains were partly offset by an increase in liabilities driven by a material (25-30bps) tightening of AA credit spreads.
Dividend We are pleased to declare a final dividend of 15.6 pence per ordinary share (2018: 13.7 pence). Together with the interim dividend of 7.5 pence, this brings the total dividend for the year to 23.1 pence (up 10%), representing a 52% payout of underlying EPS (excluding exits). This is supported by our strong capital position and organic capital generation, despite the costs of ‘below the line’ items and bond ‘pull-to-par’. Reflecting the improvements of recent years in RSA’s performance and resilience, we are also increasing our target dividend payout range from 40-50% to 50-60% of underlying EPS.
“2019 was a year of mixed results. Personal Lines continues to excel, but there is work still to do in Commercial Lines.” Ken Norgrove CEO, Scandinavia
Our operations in Scandinavia RSA is one of the leading insurers in Scandinavia, operating as Trygg-Hansa in Sweden and Codan in Denmark and Norway.
Approximately 60% of our Scandinavian business is Personal Lines and 40% is Commercial Lines. We distribute mainly direct to customers, but also leverage strong agency relationships.
Scandinavian market context and risk profile The Scandinavian economy remained resilient in 2019 despite a slowdown in global growth. In Sweden, real GDP growth of 1.2%1 was a point lower than 2018 as demand for exports fell. Meanwhile, GDP growth in Denmark declined modestly and Norway improved versus 2018.
Customers continue to demand quicker and slicker service; the major market players in the Scandinavian market are responding by increasing their investment in digital selfservice models.
Financial performance Scandinavia delivered a business operating result of £286m, down 3%2. The combined ratio of 87.4% was 0.6 points higher than last year and above our <85% best-in-class ambition. Personal Lines continued to deliver excellent performance with a combined ratio of 77.8% (2018: 78.9%). Commercial Lines performance was disappointing, delivering a combined ratio of 101.1% (2018: 97.9%). Danish Commercial Lines was a key driver of Commercial Lines underperformance.
Written controllable expenses were up 2%2 in 2019, with costs flat pre-inflation. The earned controllable cost ratio of 21.7% increased by around half a point, in part due to a flat topline as we continue to invest in the business.
Sweden generated an underwriting profit of £257m (2018: £251m) and a combined ratio of 75% (2018: 76%), driven by lower large losses and better expenses. Denmark reported an underwriting loss of £18m (2018: £6m profit) and a combined ratio of 103% (2018: 99%). Danish Personal Lines performed well but the result was driven by poor Danish Commercial Lines performance, with higher attritional and large losses. The underwriting loss in Norway of £16m (2018: £19m loss) included improvements in current year performance offset by a £6m prior year underwriting loss.
Doing more for customers As customers are increasingly seeking to interact with us digitally, we are focused on improving these capabilities. While maintaining a strong service culture, we have focused on improving digital access, from the point of purchase to claims. Following the launch of our IT-hub and roll-out of pricing tool Radar Live in 2018, digital sales in Sweden have grown 1%5. Meanwhile, the percentage of customers settling claims online also increased by 8 points to 31% in Swedish Personal Motor.
We have also introduced a digital claims platform, where the claims team can communicate with customers and share documents quickly and easily. The platform allows customers to track their claims in real time, and the policyholders that have used it so far access the platform an average of four times per claim.
Our strategy For the past five years, our focus in Scandinavia has been to combine our strong brands with efficient operations to secure customer loyalty and good profitability. We continue to focus on growing these businesses, while improving underwriting to secure better performance, making the most of digitisation to improve customer experience and reduce costs.
Product packages in Sweden Commercial customers in Sweden can buy online bespoke insurance packages to comprehensively cover the needs of their business.
Accident in Q1 2018. 5. Excluding Aktsam, a Swedish insurance brand owned by Trygg-Hansa.
Canada market context and risk profile While competition in the Canadian market remains strong, rates are increasing to meet rising claims costs across both Personal and Commercial Lines. Capacity is tightening in certain Commercial Lines segments, providing additional pricing opportunities.
Adverse and more volatile weather trends continue to impact our customers, with property damage from storms, one of the main drivers of claims trends. We continue to respond well to the needs of our customers.
In the majority of provinces, motor insurance pricing is regulated. Regulators in many provinces have created a more challenging pricing environment, while in our largest market, Ontario, we have seen positive changes to rate regulation enable more timely responses to motor trends.
Financial performance In 2019, our Canadian business delivered a business operating result of £159m, up from £84m in 2018. The combined ratio of 94.5% was four points better than last year. Adverse weather remained a feature despite being lower than 2018, while large losses and attritional losses also improved versus 2018.
An area of focus has been the development of our RSA Pro digital proposition, which enables brokers to service their clients remotely and provides instant communication with RSA underwriters. We have also moved to develop our frontline Commercial Lines staff through an increase in underwriting training and dayto -day coaching. We are developing the next generation of underwriting leaders with the launch of a new development programme known as LEAD, a mentorship and training scheme for our brightest and best employees.
Our strategy Our operations in Canada are well balanced geographically, by customer type, product and distribution channel, helping us to manage the challenges of adverse weather, increasing claims cost and regulation.
Outlook We target a best-in-class combined ratio, underpinned by selective growth and continued cost-effectiveness. Our partnerships with brokers, our relationship with customers and the hard work of our employees will continue to be the foundation of our success.
Read some of our other success stories here: rsagroup.com/ casestudy 1. Source: Catastrophe Indices and Quantification Inc. 2. At constant FX and excluding changes in reinsurance.
“ 2019 saw the UK&I region return to underwriting profit, with strong results in Ireland and the Middle East.” Scott Egan CEO, UK & International
Our operations in UK & International In the UK, RSA operates across both Personal and Commercial Lines. Personal insurance is offered to our customers through MORE TH>N and affinity partners, which include major retailers and large banks. RSA has a strong presence in the motor, home and pet markets and Personal Lines accounts for 49% of our business.
In Ireland, we are a leading Personal and Commercial insurer distributing through 123.ie (our direct to consumer brand), affinity partnerships and brokers. Our Middle East operations, of which we own c.50%, cover Bahrain, the United Arab Emirates, Oman (where we operate under the Al Ahlia brand) and Saudi Arabia (where we operate under the Al Alamiya brand).
UK & International financial performance The UK & International region delivered a business operating result of £279m in 2019 (£220m5 including exits) and the combined ratio was 95.0% (97.1%5 including exits).
The UK&I expense ratio increased by a point as expected, savings of 3% gross of inflation were offset by the impact of lower premiums. These topline reductions have necessitated a further targeted cost programme in the UK of >£50m p.a. cost saving by end 2021. This is already well advanced, and associated restructuring costs of c.1.3x are expected, with £27m booked in 2019 and the remainder to be booked in 2020.
Net written premiums of £2,120m were down 9% as reported. Personal Lines premiums decreased by 11% in the period; Household was down 10% with the sale of Oak Home accounting for c.3 points of this. We have continued to achieve good rate increases in Household and pleasingly new business in MORE TH>N Home doubled in 2019. Motor and Pet premiums also decreased. While retention improved, new business was down as we continued to hold our discipline on rate. Commercial premiums were down 1. Excluding UK&I exit portfolios.
4. Europe, previously reported with UK Commercial, is now reported separately within UK&I.
5. £8m of prior year GVC recoveries relating to UK&I exited business has been reallocated from Central Functions to UK&I Exits and therefore to total UK&I.
Regional review continued 7% excluding reinsurance changes, but up c.5%1 excluding exits. Rate was ahead of plan and prior year in all major lines e.g. Commercial Property achieved rate of 6% and Marine achieved 10%. However, pricing and underwriting actions have impacted retention. Benign weather helped to reduce the combined ratio, while both the attritional loss ratio and large loss improved versus prior year.
Doing more for customers Our customers are at the heart of our business, and we continue to focus on improving our service and our products.
Our UK Customer Committee, established in 2018, accelerated its work to analyse areas where we can do more to support good customer outcomes, and ensure we remediate any issues as quickly and smoothly as possible.
In Commercial Lines, we progressed work to upgrade our underwriting and pricing capabilities, investing in new tools to better harness data and increase automation. We also launched two new online tools, to help our customers choose the insurance that best meets their requirements. The Business Interruption Calculator and Risk Survey help brokers to safeguard prospective policyholders against underinsurance, ensuring that they are fully protected should the worst happen.
Playing our part in the community Working closely with the communities where we are based is important to both our business and our people and, in 2019, our office champions continued their excellent work with local interest groups and charities.
We also developed a new partnership with the Royal Society for the Prevention of Accidents, with a shared objective to drive risk awareness, education and behaviour change.
Ireland financial performance Ireland reported another excellent performance, with a £42m underwriting profit (2018: £30m) on a combined ratio of 87.1% (2018: 90.2%) which included strong prior year development. Net written premiums increased by 6%3 helped by strong new business in Personal Motor. Benign weather and lower large losses (down 3.5 points) helped deliver the result.
Middle East financial performance Middle East underwriting profit was £35m (2018: £33m) with another excellent combined ratio of 83.0% (2018: 83.4%). Net written premiums were down 5%3 largely as a result of lower volumes in Commercial Lines and rating pressure in Personal Lines. Benign weather and a lower attritional loss ratio (down 0.3 points) helped deliver the result.
As fit as a butcher’s dog We’ve partnered with PitPat, to offer our dog insurance customers membership to PitPat Life, which includes a free PitPat dog activity monitor, which can be attached to a dog’s collar to track their exercise and weight.
Read some of our other success stories here: rsagroup.com/ casestudy 1. At constant FX and excluding changes in reinsurance. 2. Europe, previously reported within UK Commercial, is now reported separately within UK&I. 2018 comparatives have been restated.
3. At constant FX. 4. £8m of prior year GVC recoveries relating to UK&I exited business has been reallocated from Central Functions to UK&I Exits and therefore to total UK&I.
Our 2019 Strategic Report, on pages 2 to 51, has been reviewed and approved by the Board of Directors on 26 February 2020 and signed on its behalf by Stephen Hester, Group Chief Executive.
Regional CEO round table discussion Ken Norgrove, Martin Thompson and Scott Egan discuss common challenges and their 2020 ambitions.
Q What are we seeking to do for customers that is distinctive?
Scott Egan Insurance is a centuries-old industry and no matter what innovations are available for those who buy policies from us, the crux will always be whether we are there for them when the chips are down. Having worked in the industry throughout my career, I believe RSA people have a distinctive commitment and care for our customers. My goal is to make sure that the business has the systems, processes, capabilities and culture to enable them to get that passion across in every interaction.
Martin Thompson From a financial perspective, we want to achieve our stated best-in-class combined ratio ambitions. To achieve this, we need to continue our strong performance in Personal Lines, but need to repair and improve Commercial Lines. We will continue to invest in digital to improve our customer delivery in both claims as well as sales and service. Finally, we want to continue to invest in our talented workforce and support a highperformance business culture.
Scott Egan It’s no secret that the UK business in particular has had some challenging results in the last few years, and we are really pleased that every part of the UK & International region turned a profit in 2019. However, it is vital that we sustain and keep improving that. To build a better business, we need to focus on growing the parts of the business where we know our underwriting and customer offering is strong, and reduce the cost profile of the UK business. This means simplifying our products and IT, and investing in new capabilities so we can perform to a high standard both today and in years to come. Above all, we need to make sure our customers feel and benefit from the great culture we have in RSA, so they continue to choose us.
Q What challenges do your businesses have in common and how do you share solutions?
Ken Norgrove We face many of the same challenges, whether it’s meeting the changing needs of customers, underwriting as accurately as possible, enhancing productivity or getting the best out of our employees. As regional CEOs, we are always talking to each other, sharing what our teams are working on, and getting our people to connect with each other to share experiences and learnings.
“For those who buy policies from us, the crux will always be whether we are there for them when the chips are down.”
Risks are managed within risk appetite. For material financial risks, we operate within our risk appetite throughout the year and our three-year plans predict that this will continue. From time to time, certain risks stray outside target and action is taken to manage them back to acceptable positions. This year saw significant progress in some key risk areas, including customer, IT/cyber and underwriting.
· The approach to operational resilience is being strengthened, with executive and Board training, a crisis management exercise and approval of an updated and expanded Operational Resilience Policy with a business service lens.
In a rapidly developing business environment, we strive for best-in-class risk management in order to protect our customers from loss and poor outcomes, while maximising shareholder risk-adjusted returns. We leverage our core expertise in order to be selective in the risks we wish to retain, while ensuring we manage, mitigate and avoid risks we are not adequately rewarded for. As a pure general insurer, our key area of expertise is insuring Property and Casualty risks. This means we can provide our customers with competitive products, while serving them well and ensuring that the risks we accept are collectively managed to maximise our long-term performance.
A key part of our culture is ensuring that our customers are at the heart of all we do, and our staff are passionate about achieving good customer outcomes. We give considerable attention to ensuring our customers are treated fairly.
Financial and insurance risk from climate change During 2019, RSA continued to review its financial and insurance risks arising from climate change, in terms of both physical risk and transition risk. These risks have been considered in strategic Board discussions and our risk management processes. This has included operating an ESG Committee, developing a Climate Change Risk Action Plan and publication of a Low Carbon Policy position. We have applied science-based targets to our energy sector underwriting and to our own business emissions, established a risk appetite for exposures to carbon-intensive industries in our underwriting and reviewed the carbon emissions and broader ESG issues associated with our investment portfolio.
Emerging threats arise on a frequent basis; however, there remains a risk of increasing capability of hostile states and organised crime to engineer severe attacks.
Risks remain in relation to disorderly Brexit effects with potential for economic and claims/supply chain implications.
ORSA reported to Board Validated output from the model is reported to the Board, so that changes can be made to the three-year operational plan to ensure the Group remains in appetite.
Solvency II and Solvency Capital Requirement (SCR) Insurers are required to calculate the level of capital needed based on their unique risk profile under the Solvency II regulatory regime. For RSA, this is calculated using our own internal model and is a key component of the annual Own Risk and Solvency Assessment (ORSA). RSA also publishes its Solvency and Financial Condition Report (SFCR) annually, which contains extensive information on how RSA manages its risks and exposures, and reports the financial position of the Company using Solvency II valuation principles. RSA operates a programme of continuous development in relation to the internal model and a Group-level regulatory approval was received in 2019 for the latest set of enhancements. Model approval was also received in 2019 in respect of our Scandinavian entities to mitigate the risk of moving to Standard Formula in the event of a ‘hard Brexit’. We expect further major model change applications may be required in 2020 in response to further enhancements to insurance risk and market risk modelling.
D iv er si fic at io n w ith in In su ra nc e
Another key SCR risk arises from the Group’s defined benefit pension schemes. Although these schemes are well funded (95% at the latest triennial review), under the Solvency II rules we are required to hold sufficient capital to withstand a 1-in-200year event. For more information on the pension schemes, see note 38 of the financial statements.
Reserving risk This is the risk that the Group’s estimate of future claims is insufficient. Longer tail-lines of business present more uncertainty on the size and timing of payments, with our largest exposure being the Swedish Personal Lines (including motor). The risk includes legislative changes, e.g. the Ogden rate change.
· Controlled through well-defined risk appetite statements (including climate change factors), which are rigorously monitored at quarterly portfolio reviews, with remediation action taken where deemed necessary.
Market, credit and currency risk This is the risk to our insurance funds arising from movements in macroeconomic variables, including widening credit spreads, fluctuating bond yields and currency fluctuations.
· RSA adopts a prudent investment strategy with the investment portfolio favouring high-quality fixed income bonds and selected less liquid assets subject to strong internal and external governance.
· Asset managers are positioning assets to manage Brexit risk where possible.
Pension risk We face longevity and market-related risks, which arise from our defined benefit pension schemes. This includes exposures arising from credit spread and equity movements.
· A long-term de-risking plan is in place following the last triannual valuation. · Possible market impacts of Brexit related scenarios are examined with a specific focus on pension risk.
Creating a Confident Future RSA’s long-term success depends on our ability to support customers, employees and the communities we serve to manage and respond to a wide range of risks and opportunities.
By focusing on providing effective products and services, strengthening our relationships and managing the everyday issues impacting our industry, we can create sustainable value now and in the future.
We have always had a strategic response to managing environmental and social matters, but our new Confident Futures strategy, launched in 2019, marks a more integrated approach to considering these issues. Our strategy focuses on: · Managing the everyday well – addressing responsible business issues in our day-today operations, including investment and underwriting practices, supply chain, our use of data, our environmental impacts and ensuring we act with integrity
· Building stronger relationships – responding to the needs of our customers, colleagues and communities
In 2019, we built the foundations for the strategy, increasing awareness and engagement among employees and stakeholders. This has been led by the Group Corporate Responsibility Committee, chaired by Scott Egan, UK & International Chief Executive and supported by our Environmental Social Governance (ESG) Committee, chaired by William McDonnell, Group Chief Risk Officer.
Shaping a smarter tomorrow We can play an important role in society by using our insight, data and product development expertise to help keep people safer in their homes, on the roads and at work.
This year, we continued to invest in charitable partnerships that have risk education and behavioural change at their heart. Our long-standing relationship with the Swedish Life Saving Society to tackle water safety continues to be successful, and our TruceTO campaign has promoted harmony between pedestrians, cyclists and motorists in Canada.
Our products and services also help customers better understand and manage their risks. In Personal Lines, we have expanded our telematics offering to Ireland through the launch of 123GO, enabling young drivers to receive feedback on their driving style, encouraging safer behaviours.
In Commercial Lines, we have continued to invest in risk management tools. Our Risk Engineering Database, RSA Red, is now used by 170 customers, and we launched a new online risk assessment platform to help businesses better understand their risk environment and make improvements.
In the UK, our Customer Committee works across our business to guide and improve our practices, using internal and external insights. The committee oversees our conduct framework and customer policy, ensures that risks are identified and appropriately managed, and provides a forum to discuss customer-related industry and regulatory changes. This year, all UK-based employees completed mandatory training on conduct and good customer outcomes, which focused on how their behaviours can help us do an even better job for customers.
For more information on the actions we are taking, see pages 20 and 21.
A flourishing workforce Enabling our employees to flourish by providing training and development, promoting inclusion and diversity and providing the right supporting policies and environment is incredibly important.
This year, we have invested in leadership development academies in Canada to develop the capabilities of executives, directors and people leaders. Through our Group-wide Diversity & Inclusion Councils, we have coordinated support for our pipeline
Strategic report Governance Financials of female talent to take the next step in their careers, and we were proud to be shortlisted for an Apprenticeship Employer of the Year award in the UK.
Active in communities We play an important role supporting communities during times of need. Our focus on being active in communities helps us to strengthen our local connections and enabled £1.85m to be invested in 2019. Our Community Investment Policy provides the framework for charitable donations and enables employees to use their two-day volunteering allowance to support the causes closest to their hearts, as well as our strategic partnerships.
In 2019, we saw record levels of engagement with our programme, with a 45% increase in volunteering hours to 11,911. Our actions have supported 610 organisations. Our community work focuses on risk education, as well as supporting local charitable causes linked to education and employability, social inclusion, emergency relief and improving the environment. No political donations are made by RSA Group.
Environment Climate change is a serious environmental, economic and social challenge. The insurance industry has an important role to play in the transition to a low-carbon economy and in supporting those facing more frequent and severe weather events. During 2019, we defined our new Low Carbon Policy position as part of our commitment to responsible investment and underwriting. We have also started adopting the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) in our reporting (see pages 47 to 49).
In 2019, we reduced our emissions impact by 15% compared to 2018 through the implementation of new business travel policies, ensuring our property portfolio is right-sized for our organisation and encouraging more flexible working. We also switched to renewable energy for properties where we directly purchase electricity in the UK. Full emissions data can be found on page 109.
We have also set a new carbon emissions reduction target, aligned to the sciencebased target (SBT) methodology. We have committed to achieving a 50% reduction in carbon emissions by 2030 with an interim target of 37% by 2025. This is supported by our environmental policy, which sets out our commitment to reducing our environmental impact.
Tackling many of the global environmental challenges we face requires collaboration with external stakeholders. During 2019, we engaged through ClimateWise, the CRO Forum, United Nations’ Principles for Sustainable Insurance and the Climate Financial Risk Forum to discuss industrywide opportunities and how we integrate environmental, social and governance issues into our decision-making.
Our expectations on suppliers are formalised through our Group-wide Supplier Code of Conduct. During 2019, we focused on improving supplier due diligence and engagement on these issues. In the UK, we rolled out a new supplier information and risk management portal to better monitor suppliers’ actions, and held meetings with key suppliers to understand their approach to managing key issues.
Anti-bribery and corruption Bribery and corruption are not tolerated anywhere in our operations. Our Anti-Bribery and Corruption Policy and Conflicts of Interest, Gifts and Hospitality Policy both apply across all parts of our business. They set out detailed guidance on gifts and hospitality and relationships with third parties, as well as establishing systems and controls to ensure effective implementation. All employees, contractors, business partners and suppliers are expected to comply with applicable laws of the UK and countries in which we conduct business, as well as with our Broker Remuneration Policy and Third-Party Contracts Policy, which set out requirements
Supporting floodresilient communities We undertook a study with WWF to explore Canadian attitudes to flooding, highlighting the need for education and community collaboration. We’re partnering to improve Canadian flood education and champion nature-based solutions to improve flood resilience.
Customer privacy and data security It is essential that our customers have confidence in us to protect their privacy and keep their data safe. We are committed to managing data sensitively through the design and delivery of our products and services, with clear policies and standards in place to help ensure that we mitigate potential threats.
In 2019, we raised awareness of this topic with dedicated internal campaigns focusing on behaviours that promote cyber security and data protection alongside mandatory eLearning training for our employees. We have improved the security of our network by implementing enhancements to detection systems, access control and third-party risk assessments.
You can find out more about the first year of our Confident Futures journey in our Corporate Responsibility Report, see: rsagroup.com/responsibility
· Partnered with WWF Canada on a project to create climate-resilient communities in the St. John River watershed by restoring natural infrastructure.
· Expanded our telematics offering to Ireland with the launch of 123GO.
· Collaborated with RoSPA in the UK to research the main causes of accidents on the road and in the home, and to build awareness and encourage action to reduce their impact.
· Launched a campaign with the Swedish Life Saving Society to raise awareness of ‘the sound of drowning’ as part of our commitment to water safety.
Building stronger relationships Understanding and taking action to meet the needs of our customers, colleagues and communities.
· Partnered with Dollar A Day in Canada and BRIS in Sweden to support mental health resilience.
Managing the everyday well Managing our impacts in a transparent and responsible way.
· Developed our Climate Change Risk Action Plan – find out more in our first statement aligned to the TCFD recommendations.
· Developed a Low Carbon Policy position outlining our support for the transition to a low-carbon economy and the actions we will take in our investment and underwriting portfolios.
· Participated in the United Nations’ Principles for Sustainable Insurance project to develop guidance on ESG issues in underwriting.
· Raised awareness of the importance of cyber security with dedicated internal engagement campaigns.
· Refreshed our Group-wide Human Rights Policy and modern slavery training for procurement professionals engaging Tier 1 suppliers.
“ We understand that investors are increasingly concerned about ESG issues, and we are committed to meeting their need for better, more credible information on the impact of climate change on RSA.” William McDonnell Group Chief Risk Officer
RSA already responds to CDP and reports against the ClimateWise principles, which are aligned to the TCFD recommendations, and is committed to implementing these voluntary recommendations in full by 2021; this year, we have taken the first step to integrating these requirements into our strategic report.
Governance The RSA Group Board has responsibility for oversight and challenge of the overall strategy of the Group, including considering climaterelated issues in business plans and exposure to risks.
The Group Corporate Responsibility Committee is responsible for monitoring progress against the Corporate Responsibility strategy, ‘Confident Futures’, including our commitment to ‘Managing the everyday well’, which includes a strategic focus on ‘Responsible investment and underwriting’ and ‘Sustainable operations’. This encompasses actions to respond to climate risks and opportunities, including minimising the impact of our direct operations and supporting the transition to a low-carbon economy. For more information on Confident Futures, see pages 44 to 46.
Risk management Our enterprise-wide approach to risk management (covered in more detail on pages 40 to 43) ensures that the right processes and procedures are in place to identify, understand and monitor the risks associated with a changing climate across our operations. Climate risks feature on our emerging risk profile and have been incorporated into our existing risk control environment for assets and underwriting. Long-term climatic trends will show up through shorter-term changes in the frequency and severity of weather events.
· Executive oversight through Group Corporate Responsibility Committee and ESG Committee
· Establish reporting to monitor delivery against the Climate Change Risk Action Plan 2019 progress 2020 priorities
· Enhance the metrics we use to track and measure progress on our strategic objectives
Managing physical risk RSA’s risk and operational teams regularly review the emerging risk landscape – analysing company-wide data, exposure and trends, and external research, to identify a management approach to climate-related risks. Climate risk is well managed through our operational policies and standards: · Annual policies mean we can respond to changing weather patterns
· We continue to develop our use of weather peril models, and invest in geolocation tools to support sophisticated risk assessment and underwriting of weather perils for both homes and commercial properties.
Reinsurance is our primary means of reducing the financial impacts of climaterelated losses associated with the physical risks of changing weather patterns. Our catastrophe reinsurance covers flood, windstorms, hurricanes, wildfires and other severe weather events, with special provisions providing additional protection for prolonged or greater frequency events. Our reinsurance programme is designed to cover at least 1-in-200 year events and is optimised to mitigate the impact of extreme weather. We buy this annually, meaning that any climate change (increases in severe weather events) would be factored in over time.
In 2020, we will improve our use of scenario analysis to build on our understanding of short-, medium- and long-term impacts of different climate change scenarios.
Supporting low-carbon transition We believe we can play an important role in helping society transition to a low-carbon economy. This year, we have set out our Low Carbon Policy, formalising our position on the actions we take in relation to investments and underwriting of carbon-intensive sectors for the first time. This seeks to ensure our business activities are consistent with a below 2ºC world and sets out our commitment to supporting the development of renewable energy technologies through our products and services.
We hold market-leading propositions in renewable energy insurance across our portfolio – Codan leads the market in offshore wind, while our Commercial Lines business includes a team of specialist underwriters and risk engineers with the skills, technical knowledge and industry experience to handle construction and operation of renewable energy projects around the world.
In addition to our Renewable Energy offer, we are a specialist in providing insurance to the rail industry. Reducing emissions from transport will be critical to limiting climate change, as it is responsible for almost one-quarter of energy-related greenhouse gas emissions. Growth in the rail industry represents an opportunity to further support low-carbon transition planning.
As well as the actions we take in relation to our underwriting and investment activity, we recognise the importance of understanding, measuring and managing the impact of our own operations. We have measured and mapped carbon emissions across our own operations and have set a target to reduce our carbon emissions by 50% by 2030, as well as a commitment to source renewable electricity. Our key metrics and targets are shown in the table opposite.
“ Our vision is to create an inclusive workplace where everyone can bring their best selves to work.”
A capable, high-performing and valued workforce RSA is building a culture of high performance driven by passionate team players who are encouraged to bring their very best selves to work.
RSA’s continued ambition is to perform at best-in-class levels delivering good outcomes for customers and shareholders. Our People Principles remain core to underpinning our People Proposition, Regional People strategies and all people decisions across the Group.
Inclusion 2019 progress Group-wide This year, we have made strong advances to the Group-wide Diversity and Inclusion (D&I) agenda. There has been significant work across all regions in raising awareness of D&I and building continued engagement with employees. Supporting this, we have rolled out inclusive leadership and unconscious bias training in every region sponsored by local D&I Councils.
We will revisit our gender targets and recognise that further progress is required in terms of increasing senior female representation across the business.
Our all-employee pulse survey, which we completed in Q2, showed an improvement of 4% in engagement levels on last year’s result. Following communication of the results, we created local action plans in all sites and functions, as well as a top-down UK regional plan.
In Scandinavia, we have a spotlight on acquisition and development as part of our people strategy. We successfully established a new internal recruitment hub to replace our previous outsourced solution, and since establishment the new team has recruited more than 200 new hires.
In April 2019, the Executive Development Academy (EDA) kicked off with a two-day off-site event in London, Ontario, with in-class sessions for Executives and Vice Presidents. To strengthen our future succession pipeline, ten Directors were also selected to participate in the academy as part of the application process. The full programme includes three modules of two days each, and action learning projects which were presented in November 2019.
In Ireland, our People Plan, which is now in its fourth year, has been focused on employee engagement, investing in leadership and fostering a culture of high performance, wellness and inclusion. It has consistently concentrated on key enablers to drive an open and high-performing culture, where our people are the heart of our business. We have continued to celebrate success through committing to a refreshed performance management approach, alongside the relaunch of our Recognition Awards, which saw a 200% increase in nominations on 2018.
We are also utilising the RSA Group-wide Connected Leader development programme, which is extremely important to the success of our business. RSA Ireland is a founding partner of Leading Ireland’s Future Together (LIFT) and this programme has delivered 25 accredited facilitators with over 50% of our leaders participating.
We have also maintained progress on building capability with our senior leader population through an Executive Development Academy and Director Development Academy focused on openness and transparency.
2020 priorities For the UK, the journey will continue with a sustained focus on building a high-performing business culture. The culture work is an ongoing dialogue within our business that will encompass all the UK population through focus groups.
Scandinavia’s 2020 journey will be a continuation of its 2019 goal of having a wellfunctioning HR organisation in place, which includes building a learning organisation to close capability gaps, reach performance expectations and enable continuous learning anytime anywhere.
Ireland’s People Plan will focus on driving greater employee engagement, investing in leadership and fostering a culture of high performance, wellness and inclusion. Work will commence on exploring the Future of Work, particularly in relation to how technology will impact business processes and flexible working requirements.
Performance management will remain at the forefront of our priorities along with identifying and supporting development of our talent.
The Board is responsible for setting the Group’s strategy and overseeing the executive management team in the delivery of this ambition. It monitors the Group’s performance and the commitment to best-inclass with careful consideration of the interests of the Group’s shareholders, while having regard to the Company’s other stakeholders. See pages 8 to 11 for details of the Board’s engagement with our key stakeholders.
The primary responsibility of the Board is to provide effective leadership to ensure that it promotes the long-term sustainable success of the Company, generating value for our shareholders and other stakeholders and contributing to wider society.
Communication with shareholders is extremely important to the Board. By maintaining dialogue with you, we aim to ensure that your views are considered, and our objectives are understood. Further information on the Board’s engagement with its stakeholders can be found on pages 8 to 11.
Board composition, diversity and succession planning There have been a number of changes to the Board in 2019. Firstly, Sonia Baxendale joined the Board on 1 March 2019 as an independent Non-Executive Director and member of the Group Audit and Group Investment Committees.
We were pleased to announce the appointment of Clare Bousfield as an independent Non-Executive Director and member of the Group Audit Committee with effect from 1 April 2020. Further information relating to the appointment process for Clare can be found on page 66.
The Board values the breadth of perspective that diversity brings and is committed to maintaining a board that is diverse (in its widest sense).
As at the date of this report, women make up 33% of the Board and, following Clare’s appointment, women will make up 40% of
Commitment to governance The Board is committed to maintaining effective governance, sound risk management and a robust control environment. The 2018 UK Corporate Governance Code (the Code) came into effect on 1 January 2019 which puts relationships between the Company and its shareholders and stakeholders at the heart of long-term sustainable growth. The Board believes this framework supports effective decision-making, robust governance and risk management throughout the Group and this report sets out RSA’s framework for good governance against this backdrop.
Culture, purpose and values RSA is a people-centred business which aims for a culture of high performance, where working together as a team is valued and the business invests in its people. We regularly discuss and receive updates on culture as well as the results of the various tools we deploy to help monitor and assess culture, including a cultural mini survey and cultural health update.
Stakeholder engagement Open and collaborative dialogue and interaction with all our stakeholders is in the best interests of the Company and helps us to make a positive contribution to society.
A detailed stakeholder engagement plan was agreed and followed over the year; see page 8 for more information. The plan was regularly reviewed during the year to ensure all of our key stakeholder groups were appropriately represented, and included a variety of direct and indirect engagement to provide meaningful insight into the views, priorities and issues facing our stakeholders.
The Group’s employees are key in delivering the Group’s strategy and the Board values the time spent with them over the year. The Board will continue to seek opportunities to increase direct engagement with employees in 2020. The Board also looks forward to increased engagement with the Company’s other stakeholders, particularly more direct engagement with shareholders, customers and regulators.
the Board. We are also pleased to have met the Parker Review recommendation to have a director of black, Asian or minority ethnic background (BAME). RSA will continue to seek out opportunities to further improve diversity and inclusion on our Board and across the Group while always seeking to appoint the most appropriate candidates based on merit.
The performance of the Board over the last 12 months was very highly rated. The results evidenced that the Board is functioning effectively, with positive dynamics and a wellbalanced composition. Further information can be found on pages 60 and 61.
I would like to thank you for your support and look forward to discussing the Group’s progress with you at our forthcoming Annual General Meeting (AGM) on 7 May 2020.
* Alastair intends to step down from the Board on or around 9 October 2020.
Enrico has over 35 years’ experience in the financial and insurance sector, in both global executive and non-executive positions. Previously, he was Group CEO at Intesa Sanpaolo and, prior to that, member of the Executive Board of Allianz where he was responsible for companies in Europe, Africa and Latin America and, globally, for property and casualty. Other previous Board appointments include Unicredit and Pirelli.
Founding Partner of TGI-Think Global Investments, non-executive director of Piraeus Bank and Member of the Board and Executive Committee of Bocconi University.
Martin Scicluna Chairman Appointment date: January 2013 Nationality: British Committee membership: IN
Martin has considerable knowledge and understanding of the financial services sector and how it operates. He brings valuable experience in developing strategy and evaluating business opportunities. He is an experienced Chair and leader and ensures the Board operates effectively, promoting constructive engagement with shareholders and other stakeholders. Previous roles include Chair of Great Portland Estates Limited, Senior Independent Director and Audit Committee Chair of Worldpay Group plc, non-executive director and Chair of the Audit Committee at Lloyds Banking Group plc, 34 years at Deloitte LLP, including as Chairman from 1995 to 2007, and member of the Financial Services Trade and Investment Board from 2013 to 2015.
Martin Strobel Senior Independent Non-Executive Director Appointment date: May 2016 Nationality: Swiss Committee membership: B I N RA
Clare Bousfield Independent Non-Executive Director Appointment date: 1 April 2020 Nationality: British Committee membership: A
Clare brings an in-depth understanding of life and health insurance, asset management and reinsurance to the Board. She has significant experience in the financial services sector, as well as a deep understanding of the UK regulatory environment. Clare previously held the position of UK Chief Financial Officer at Aegon and spent 10 years before that in a variety of senior positions at Swiss Reinsurance Co., including regional Chief Financial Officer for UK, Ireland and Africa and Head of Group Internal Audit.
Non-executive director, Chairman of the Risk Management Committee and member of the Audit and Corporate Governance Committee of Laurentian Bank of Canada, non-executive director, Chair of the Human Capital and Governance Committee and member of the Audit and Compliance Committee at Foresters Financial and President and Chief Executive Officer of the Global Risk Institute in Financial Services.
Charlotte has over 25 years’ financial services experience in the banking and asset management sectors which she brings to the Board when overseeing the financial operations of the Group and setting the financial strategy. Before RSA, Charlotte held the position of Chief Financial Officer of Jupiter Fund Management plc since September 2016. Prior to Jupiter, Charlotte was Head of Group Finance and Chief Accounting Officer at Credit Suisse Group. From 2004 to 2013, she held various senior finance roles at Deutsche Bank and between 1990 and 2004 progressed from trainee accountant to partner in the financial services practice of Ernst & Young.
Charlotte Heiss Group Chief Legal Officer and Company Secretary Charlotte was appointed Group Chief Legal Officer and Company Secretary and joined the Executive Committee in March 2016. Charlotte joined RSA in February 2010 as Legal Counsel, becoming Head of Group Legal in 2011.
Martin Thompson President and CEO RSA Canada Martin was appointed President and CEO of RSA Canada in July 2016.
Before joining RSA, Ralph headed up Deloitte UK’s Internal Audit services to the insurance industry. Prior to that, he held senior audit positions at Aviva.
Karen Caddick Group HR Director Karen joined RSA as Group HR Director and member of the Executive Committee in June 2019. Karen worked in RSA’s UK & International business from 1993 to 2001, latterly as HR Director for its Personal Lines brand, MORE TH>N.
Karen re-joined RSA from Saga plc where she served as Group Human Resources Director since 2015, leading the development and implementation of the company's HR strategy. Since September 2018, Karen has served as a Non-Executive Director on the board of Howdens plc.
Prior to RSA he held roles at HSBC Investment Bank, Aviva, the UK Financial Services Authority and Deloitte. He is a member of the ClimateWise Council and Bank of England Climate Financial Risk Forum.
Nathan Williams Group Underwriting Director Nathan was appointed Group Underwriting Director in June 2016. Since joining RSA in 2005, Nathan has held numerous senior roles, including Chief Underwriting Officer for Scandinavia and Group Pricing Director.
Before joining RSA in 2005, Nathan held underwriting and pricing posts at Norwich Union and Towers Watson.
Biographical details of the individuals fulfilling these roles can be found at: www.rsagroup.com/who-we-are/ our-leadership/the-group-executive
The Board and its committees Role of the Board The primary responsibility of the Board is to provide effective leadership to ensure that it promotes the long-term sustainable success of the Company, generating value for our shareholders and other stakeholders, and contributing to wider society. The Board, supported by its committees, provides leadership within a framework of prudent and effective controls.
The Board sets annual objectives for the business in line with the current Group strategy and monitors achievement against these objectives through regular reports. Updates to the Board from the Group Chief Executive, the Group Chief Financial Officer and other members of senior management are scheduled in respect of all material business matters to ensure that progress against strategy is monitored.
The division of responsibilities No individual director or small group of directors is able to dominate the Board’s decision-making. Role statements define the separation of responsibilities between the Chairman and Group Chief Executive and provide a mandate to independent non-executive directors to debate and challenge strategy, execution and performance and bring an independent, objective opinion. The role statements for the Chairman and Group Chief Executive are approved by the Board annually.
Group Remuneration Committee (RemCo) The RemCo is responsible for the oversight of remuneration policy and ensuring this promotes the long-term sustainable success of the Company. This includes reviewing and setting the remuneration of executive directors and the Chairman of the Board. The RemCo also reviews workforce remuneration and related policies and the alignment of incentives and rewards with culture, and takes these into account when setting the policy for executive director remuneration.
Executive Committee (ExCo) ExCo is the Group management committee that assists the Group Chief Executive in discharging his responsibilities and delegated authority. It is not a committee of the Board. ExCo is collectively responsible for implementing strategy and delivering Group performance. The members have a broad range of skills and expertise that are updated through training and development.
Formal minutes recording the decisions of all Board and committee meetings are prepared and circulated to the relevant members. If a director objects to a particular decision, this is recorded in the minutes of the relevant meeting. If a director is unable to attend a meeting, their views are canvassed by the Chairman of the Board or committee prior to the relevant meeting, and the Board or committee is informed of their opinions and observations.
Following each committee meeting, an update is provided to the Board ensuring that all directors are aware of the deliberations and challenges on relevant topics and specific matters.
The Board, supported by its committees, operates within a framework of prudent and effective controls in the interests of shareholders, customers and other stakeholders. The purpose of the System of Governance is to ensure the safety and soundness of the Group and its key entities. This is achieved through a robust governance structure designed to deliver a well-managed business with effective decision-making, good procedures and strong controls.
The Group Audit Committee reviews the effectiveness of the Internal Control System on an annual basis and carries out assurance on the Financial Control Framework on a quarterly basis.
Internal Control System The Group’s Internal Control System sets out the processes and frameworks required to ensure effective and efficient delivery of the Group’s strategic objectives and is designed to identify and mitigate, rather than eliminate, the potential risk of failure to achieve business objectives and can only provide reasonable not absolute assurance against material financial misstatement or loss.
The Group has an effective Internal Control System which contains administrative and accounting procedures, an internal control framework, with appropriate validation, assurance and reporting arrangements at all levels of the Group, a delegated authority framework, and a compliance framework. The internal control system is underpinned by the three lines of defence model.
· The Financial Control Framework is an integral element of the Group’s Internal Control System and aims to embed and promote a strong culture of financial control across the Group, delivering a consistent and robust approach to mitigate the risks of material financial misstatement through the design, operation and validation of key financial controls, thereby providing an acceptable degree of assurance around the financial control environment.
2. Delegated Authority Framework · Authority is delegated from the Board to the Group Chief Executive through the Delegated Authority Framework
3. Compliance Framework · Sets out the standard control processes to minimise and/or prevent the risk of material loss, reputational damage or liability arising from the failure to comply with regulatory requirements
· It consists of a Compliance Mandate, Compliance Policy and related processes and tools.
Further information can be found in the s.172 statement on page 12
· The Board held deep dives on various topics, including IT, digital and cyber, and business process outsourcing.
· The Board also met with members of the Group’s D&I Councils in the UK and in Scandinavia to understand the progress being made against this programme of actions as well as hosting various other events with different groups of employees.
· The Board reviewed and challenged the new corporate responsibility strategy, Confident Futures, see pages 44 to 46 for more information.
· The Board reviewed executive succession planning with a view to ensuring a strong pipeline of talent needed for the future development of the business.
· The Board received regular updates on culture and the results of the various mechanisms to monitor and assess culture, including a mini survey and cultural health update. Further information can be found on pages 50 and 51.
Finance, capital and investor relations · At each meeting, the Board reviewed and challenged the monthly Group performance pack, which includes a discussion on capital.
· The Board recommended the 2018 final dividend and approved the 2019 interim dividend.
· The Board reviewed the results of the European Insurance and Occupational Pensions Authority stress-test exercise. Having challenged management on the risk to the Group’s assets and the impact of certain scenarios in the exercise, it approved the results for submission to the PRA.
Induction, training and development The directors have attended training sessions and seminars during the course of the year on topics such as IFRS 17 and operational resilience, together with deep dives on business areas, and participated in direct stakeholder engagement to keep their knowledge current and enhance their experience.
Each year, the Board also undertakes site visits which provide the opportunity to meet with and challenge senior management, while also deepening the Board's knowledge of specific business areas. A directors’ training plan and several site visits have been agreed for 2020.
Following her appointment to the Board, Sonia Baxendale undertook a tailored induction programme, receiving a broad range of information about the operational performance and business of the Group. This included information on the Group’s approach to corporate responsibility, and details of Board procedures, corporate governance and directors’ responsibilities. She also met with members of senior management from all aspects of the business, including capital, claims, company secretarial and legal, HR, internal audit, investments, IT and e-business, regulatory compliance, reserving, risk and underwriting. Additionally, as part of her induction and wider stakeholder engagement efforts overall, Sonia met with a major shareholder. Sonia was also invited to attend each Board committee as part of her induction programme to familiarise herself with the remit of each committee and the matters discussed.
Board evaluation Each year, a formal and rigorous evaluation of the Board, its committees, the Chairman and each individual Director is conducted. As required by the Code, the 2019 Board evaluation was externally facilitated. Lintstock, an independent external evaluation facilitator with no other connection with the Group or any individual director, was appointed to facilitate the 2019 Board evaluation. The diagram below summarises the process undertaken.
· An assessment of how effectively the Board works together and other factors relevant to the continued effectiveness of the Board and its committees
The anonymised responses to the surveys and feedback from the interviews were used to create reports on the performance of the Board and its committees, identifying themes, focus areas and key recommendations.
Enhanced stakeholder engagement There has been good progress in terms of the Board’s engagement with our shareholders, customers and employees; see pages 8 to 11 for further details.
A template for Board papers and accompanying ‘golden’ rules for good papers were provided to authors and presenters. Further work is required to support the production of quality papers. Group Secretariat will be leading workshops in 2020 for authors and presenters to support the introduction of revised paper templates.
The Board received an update on the Group’s data strategy twice during the year.
The reports were presented by Lintstock to the Board in December 2019 for discussion and review. Recognising its strengths and potential development areas, the Board agreed actions for the coming year, as set out opposite.
The committees also discussed the results of their respective evaluation reports and agreed actions where appropriate.
The significant accounting and reporting issues the Committee considered during 2019 are set out later in this report, together with key activities during the year. The role and responsibilities of the Committee are set out in our terms of reference, which are available on the Company’s website and summarised on page 57.
Individually, Committee members met with employees in our London and Liverpool offices from both Group Finance and UK Finance teams, receiving presentations on a variety of important topics, including finance systems infrastructure, finance operations, accounting regulatory change (i.e. IFRS 9, 16 and 17) and the operation and development of the Financial Control Framework (the Framework).
The Committee was very pleased to note that the Group and UK Finance Team received two awards in 2019: ‘Finance Team of the Year’ at the British Accountancy Awards and ‘North West Shared Service Centre of the Year’ at the Finance Awards North West.
Committee composition, skills and experience The Committee comprises four non-executive directors and the Board is satisfied that the Committee has competence relevant to the insurance sector, and at least one member has recent and relevant financial experience as required by the Code.
Details of membership and attendance at committee meetings are shown on page 71 and biographies are available on pages 54 and 55.
In addition, the Committee and the external auditors have discussed the significant issues addressed by the Committee during the year. You can read the Independent Auditor’s Report on pages 114 to 121.
· New and emerging International Financial Reporting Standards (IFRS): IFRS 9 (Financial Instruments), 16 (Leases) and 17 (Insurance Contracts)
Review of the year I am pleased to present the Group Audit Committee (the Committee) Report for 2019. The Committee oversees Group financial reporting and challenges the integrity of the Company’s financial statements and the robustness of the Group’s systems of internal control and financial and regulatory risk management.
This included the impact of external factors such as Ogden rate change, the Ontario auto reform, the UK decision to leave the European Union and potential legislative increases in retirement age in Sweden.
The Committee also received and considered detailed written and verbal reporting from KPMG setting out its observations and conclusions in respect of the reported insurance liabilities based on its audit procedures as further described in its report on pages 115 and 116.
Deferred tax asset valuation The Committee reviewed the key assumptions and valuation methodologies supporting the carrying value of the UK deferred tax asset. The profit projections presented by management and sensitivities to key assumptions were assessed and the Committee was satisfied that the reduced carrying value was reasonably stated. The Committee continues to monitor the UK deferred tax asset on a quarterly basis.
Pension and postretirement obligations The Committee reviewed reports on the valuation of the pension schemes. Management completed an assessment as to the appropriateness of the assumptions currently used compared with market practice and external expert reviews, and reported the findings to the Committee.
The Committee concluded that the changes proposed by management in relation to mortality assumptions, the assumed gap between RPI and CPI inflation updated for latest industry estimates and new commutation factors set by the Trustees were appropriate and the assumptions used overall were deemed reasonable and within acceptable benchmark ranges.
The Committee received updates from KPMG on their assessment of general IT controls, including information on areas where additional controls or substantive testing was required and the conclusions reached in support of the audit. After consideration and discussion with management and KPMG, the Committee concluded that the financial results as prepared were appropriate and reliable.
Solvency II reporting Solvency II reporting is a key focus for the Committee. We received quarterly reports on the Solvency II Technical Provisions, Balance Sheets and Own Funds, including the reconciliation to IFRS results as well as quarterly and annual movements. The Committee satisfied itself that the calculations had been conducted according to the Group’s Basis of Preparation. The Committee reviewed management’s proposals and basis of preparation for the Solvency and Financial Condition Report (SFCR) and the Regular Supervisory Report (RSR) for the year ended 31 December 2019.
Key activities during the year In addition to the significant issues set out above, the Committee undertook the following key activities during the year: · Considered whether it was appropriate to adopt the ‘going concern’ basis of accounting for the 2019 Annual Report and Accounts and the basis on which the viability statement is made, recommending to the Board that both were appropriate. The viability statement, on page 111, helps demonstrate how the Group’s prospects and viability have been assessed.
· The Committee considered whether the 2019 Annual Report and Accounts were fair, balanced and understandable, and whether the disclosures were appropriate. Taken as a whole, the Committee is satisfied that the 2019 Annual Report and Accounts are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s position and performance, business model and strategy.
· Received quarterly updates on relevant accounting standards that could impact the financial statements to ensure that new accounting standards were understood and appropriately reflected in the financial
Corporate Governance continued statements. The Group did not make any significant changes to its accounting policies during 2019.
· Considered KPMG’s wider comments on governance, financial reporting processes and efficiencies as well as comments on information systems and controls and separately their reporting on Solvency II returns and observations on key areas of judgement in relation to Solvency II.
· Received quarterly reports from Group Internal Audit on audits conducted, progress made in dealing with the issues raised as well as any thematic issues arising and the underlying causes. Delays in closing any actions arising were given particular scrutiny.
· Reviewed and considered the arrangements for monitoring and reporting of whistleblowing activities. Alastair Barbour has oversight of whistleblowing arrangements in accordance with the PRA’s Senior Insurance Managers Regime and has also been appointed as the FCA Whistleblowing Champion.
· Held regular private Committee meetings without management present to discuss which items to focus on in the subsequent meeting and any other issues.
· The Committee was subject to an external effectiveness evaluation as part of the wider review of the Board and its committees during 2019, see page 60. The overall performance of the Committee was very highly rated.
Group Internal Audit Group Internal Audit’s (GIA) primary purpose is to ‘keep RSA safe and improving’. Specifically, GIA helps the Board and executive management protect the assets, reputation and sustainability of the Group. GIA does this by assessing whether all significant risks are identified and appropriately reported by management and the second line of defence to the Board and executive management; assessing whether they are adequately controlled and by challenging executive management to improve the effectiveness of governance, risks management and internal controls.
GIA is an independent and objective function reporting to the Board and Group Audit Committee. The Group Chief Auditor is a member of the Group Executive Committee and has a primary reporting line to the Chairman of the Committee, with a secondary reporting line to the Group Chief Executive. Regional Chief Auditors report directly to the Group Chief Auditor, while recognising local legislation or regulation.
The Company has complied with the Statutory Audit Services for Large Companies Market Investigation (Mandatory Uses of Competitive Tender Process and Audit Committee Responsibilities) Order 2014 for the year ended 31 December 2019. It is the intention of the Committee that the Company will tender the external auditor appointment at least every ten years.
This includes discussion and challenge in relation to materiality levels set, the scope of the proposed coverage by business unit, determination and approach to the audit of key areas of risk, understanding the oversight by the group audit team of subsidiary business unit audit teams and visits by the group external audit team to business units.
In assessing the mindset, professional scepticism and degree of challenge to management, the Committee took into account the observations, recommendations and conclusions drawn by KPMG at the half year and year end and considered their findings and opinions in relation to the key risk areas, judgements made, any changes to the plan and to materiality and discussion of the underlying reason. In addition, the Committee considered the performance of the external auditor in meetings during which the Committee questioned the auditor’s planning, strategy, risk identification process and conclusions.
On the basis of the review, the Committee is satisfied with the work of KPMG; that their performance reflected the relevant skills, rigour, perseverance and robustness expected and that it is objective and independent. Accordingly, resolutions to reappoint KPMG LLP and giving authority to the directors to determine their remuneration will be submitted to shareholders at the 2020 AGM.
Fees and non-audit services The audit fee for 2019 was discussed and considered before being approved by the Committee on behalf of the Board.
The non-audit fees for 2019 were £1.4m, £1.3m of which related to audit-related assurance services including £0.9m in respect of Solvency II reporting. The Committee considered that KPMG is best placed to complete the Solvency II assurance work given its knowledge and understanding of the business and IFRS reported position. Full details of the remuneration paid to KPMG during 2019, including for non-audit services and the ratio to audit fees, is provided in the notes to the financial statements on page 150.
“The Committee, and Board as a whole, believe that meaningful engagement with our workforce is crucial to the success of our business.” Martin Scicluna Chairman and Chair of Group Nomination and Governance Committee
· Compliance with the new UK Corporate Governance Code (the Code)
Review of the year 2019 has been another busy year for the Committee. Activities included: · The search and appointment process for our new non-executive director, Clare Bousfield
Sonia Baxendale was appointed as a NonExecutive Director to the Board on 1 March 2019, and, following a recommendation by the Committee, the Board approved Sonia’s appointment as Chair of the Group Investment Committee with effect from 9 May 2019.
Clare brings extensive experience in audit and finance to the Board, along with a considerable, technical knowledge of the insurance industry. She has significant experience in the financial services sector, as well as a deep understanding of the UK regulatory environment and customers from her previous executive positions.
Isabel Hudson retired from the Board on 31 July 2019 for personal reasons. Following a recommendation from the Committee, the Board appointed Martin Strobel to replace Isabel as Senior Independent Director with effect from 1 August 2019. Martin has proven to be a strong chair of the BRC and has an excellent understanding of the Company from his membership on each of the Board’s other committees.
As reported last year, we saw Joseph Streppel retire from the Board before the Company’s Annual General Meeting on 9 May 2019.
Russell Reynolds Associates is accredited by the Davies Review under the Enhanced Code of Conduct for Executive Search Firms and does not have any other connection with the Group or any individual director.
Diversity and inclusion The Board recognises the importance and beneficial impact of diversity of gender, social and ethnic backgrounds and cognitive and personal strengths on Board effectiveness and values the breadth of perspective that such diversity can bring.
The Board and Committee has continued its focus on diversity and inclusion this year: · The Committee considered and recommended to the Board the adoption of a separate Board Diversity Policy. The Board Diversity Policy codifies previous commitments to diversity and incorporates a commitment in relation to the Parker Review to have at least one BAME board member. The Committee is pleased to confirm that the Board is currently compliant with this recommendation.
Stakeholder engagement In response to the Code and reporting requirements under section 172 of the Companies Act 2006, the Committee has reviewed the Board’s direct and indirect engagement with the Company’s key stakeholders and discussed the Board’s stakeholder engagement plan for 2020.
The Board’s engagement activities in 2019 also included shareholder meetings, face-toface meetings with customers and meetings with the Company’s regulators (the PRA and the FCA); see pages 8 to 11 for further details.
The Committee agreed that the key priorities for stakeholder engagement in 2020 are customers, employees, shareholders and regulators. The Committee is committed to maintaining meaningful engagement with all its key stakeholders and intends to keep stakeholder engagement high on its corporate agenda in the new year. The Committee will review the stakeholder engagement plan on a quarterly basis to ensure additional opportunities for further direct engagement with stakeholders are incorporated as appropriate.
· The Committee reviewed and discussed the results of the Board and committee evaluations, with particular emphasis on how the results will influence Board composition and succession planning. Further information relating to the Board evaluation process and results is included on pages 60 and 61.
· The Committee also has responsibility for the oversight of regulated subsidiaries. The Committee receives updates periodically from the regions on matters including board composition, governance, people matters and strategic priorities and met with each of the regulated subsidiary chairs during the year.
During 2019, the Board visited Scandinavia to spend time with the local first, second and third line teams and engage directly with key local stakeholders. The Committee used this visit to gain greater insight into the region’s business lines, its activities, and local risk and governance matters. During this visit, we focused on the structure and resource of the risk function in our Scandinavian operations, the risks associated with the main insurance portfolios and major transformation initiatives, and the IT assurance framework.
The Committee undertook two specific training sessions during the year: on ‘why insurers fail’ and operational resilience. The purpose of the ‘why insures fail’ session was to explore how firms get into crisis and to identify any particular risk or scenarios; the learnings included the importance of operational resilience, ‘speaking up’ and ‘listening up’ and encouraging the culture to make this happen, and the significance of early warning indicators. The objective of the operational resilience training was to equip Committee members with knowledge and insight to challenge how the Group and UK businesses were adapting to the opportunities and challenges of implementing a more holistic operational resilience approach focused on end-to-end business services, which is central to the Group’s vision of delivering great customer outcomes and is an area of growing regulatory focus.
Key areas of focus The Committee has a pivotal role in ensuring the key risks to the Group are identified and understood, are effectively managed within risk appetite and appropriately reflected in the Internal Model. The key risk areas facing the Group are reflected in the rolling agenda and specific areas of concern and/or risk are subject to deep dives during the year. The risk management section of the Strategic Report includes the key risk areas on page 43.
As for every insurer, the continuing development of the regulatory landscape, market studies and regular engagement means regulatory risk and compliance matters remain a key area of focus. Conduct regulation received more attention this year with the Committee focusing on customer outcomes, conduct risks, pricing, and compliance with the demands and needs aspects of the Insurance Distribution Directive, together with increased and improved monitoring, challenge and reporting from the Compliance function.
Review of the year Following on from our effectiveness review at the start of 2018, a number of enhancements were undertaken in 2019 to maintain momentum and progress.
The Committee has continued to oversee the evolution of the Brexit scenario and will continue to do so to ensure that the necessary measures are taken to mitigate any risks during this period of transition.
· The Group’s risk strategy and appetite was reviewed and recommended to the Board for approval as part of the annual refresh.
· Emerging risk analysis is used to anticipate future risk issues that might arise and to support development of stress and scenario testing plans. Each year several risks are selected for more detailed analysis. Two new emerging risks were added to the risk radar: the UK political landscape post-Brexit and the changing use of consumer data.
· The Group Capital Report and the Group ORSA were presented and approved for recommendation to the Board. No material changes to the process were proposed but a number of enhancements were approved.
· The Terms of Reference for the Committee, available at www.rsagroup.com, were amended during the year.
The Committee will also continue to oversee the evolution of Brexit and ensure that the necessary measures are taken to mitigate any risks during this period of transition.
“The Group’s investment portfolios continued to concentrate on high-quality assets focused on delivering income while maintaining a low risk structure.” Sonia Baxendale Non-Executive Director and Chairman of the Group Investment Committee
· Review of global investment strategy framework and implications for portfolio structure
· Review of investment strategy of the Group’s main defined benefit pension schemes
The weakening growth environment lowered expectations of future inflation and interest rate increases, which in turn drove further declines in the level of bond yields.
ESG factors continue to be a growing area of focus within the Committee. The Committee discussed ESG ratings of the Group’s assets and considered future developments in the integration of ESG considerations in the operation of the Group’s portfolios.
Directors’ Remuneration Policy 76 2. Determining and reviewing the Policy 76 3. RSA’s remuneration principles 77 4. Remuneration Policy for
Annual Report on Remuneration 85 2. The Group Remuneration Committee 85 3. Executive Director total 4. Components of variable remuneration 87 5. Executive Director Shareholding 95 6. External directorships 97 7. Loss of office and former director payments 97 8. Contextual figures 97 9. Implementation of Policy in 2020 99 10. Non-Executive Directors 101 11. Statement of voting at
We have concluded that the Policy continues to align well to our long-term business strategy and no major overhaul is needed. This is consistent with the feedback received. However, some updates are appropriate to take account of evolving corporate governance standards and best practice.
· The two-year retention period on Executive Directors’ Performance Shares will continue post-employment within the framework outlined on page 79, and
· The required shareholding level (currently 300% for the Group CEO and 200% for other Executive Directors) will continue to apply in full for two years post-employment, with shareholdings calculated on shares owned outright, and share awards without performance conditions on a post-tax basis.
The Committee is satisfied with the processes in place to ensure the implementation of the Policy.
Applying pay-for-performance RSA delivered a strong performance in 2019, with profits up, dividends up and a very good return on tangible equity. Underwriting profits and combined ratio were very strong. The key performance indicators focus on RSA Group’s results excluding exits and include: · Dividends 23.1p per share, up 10%, · Statutory EPS 32.6p, up 3%, underlying EPS
“Our Remuneration Policy is designed to support a strong linkage between sustained business performance, customer service, risk management and reward.”
∙ Review of bonus communications to explain the performance-reward link more clearly.
∙ Scandi HR app upgraded, enabling colleagues to view payslips and book leave on personal mobile devices.
∙ New back-up care benefit piloted with UK management to support balancing work and family commitments.
Fair minded ∙ We strive to ensure all employees receive a living wage or equivalent. ∙ We take care to avoid unconscious bias, allowing appropriate judgements in pay decisions.
Supporting business strategy in 2020 Similar to 2019, our 2020 Annual Bonus Plan and 2020-22 long-term incentive will focus on shareholder returns and profit performance, with targets consistent with the Group’s operating plan. The scorecard assessment will also take into account risk and capital management, controllable expenses, attritional loss ratios, strategic improvement, the customer franchise, ESG and people. Long-term incentive grants to Executive Directors have been agreed in principle at the same levels as 2019, as set out on page 100.
Clarity Transparent Director pay decisions, with incentive targets and outcomes published in detail.
Risk Risk management is built into the Policy, e.g. potential override of formulaic incentive outcomes, malus and clawback provisions, bonus deferral, length of LTIP (5 years in total), shareholding requirements. Multiple risk lenses in incentive scorecards.
Stakeholders Policy considers investor feedback and alignment. Remuneration Committee oversees consistent workforce reward principles. Key customer KPIs and shareholder returns measured in performance scorecards.
RSA exists to help protect customers against risk and thereby to serve shareholders. In so doing, we contribute to society at large.
We aim to fulfil our purpose and strategy by consistently building our core business values: ∙ Strong customer service
Total £’000 2020 Bonus 2020-22 Long-term incentive 2 year retention period
It is intended that the Policy will apply for the next three years.
· Executive shareholding requirements will be extended such that they apply in full for two years post-employment. In line with Investment Association guidance, future shareholding calculations will include unvested awards without performance conditions, on a post-tax basis.
· The long-term incentive retention period will apply post-employment, such that shares that vest from our three-year long-term incentive plan (LTIP) will need to be retained for a further two years whilst a Director is employed, or for up to two years postemployment if no longer employed by RSA.
2. Determining and reviewing the Policy The Policy has been determined by the Group Remuneration Committee (‘the Committee’) on behalf of the Board after reviewing the impact of the existing Policy, key governance factors, and taking account of stakeholder feedback. To ensure conflicts of interest are managed, the Committee ensures no Director determines the policy regarding their own remuneration. The factors considered are set out below: Clarity
The Committee has reviewed stakeholder feedback since the 2017 Policy was put in place and concluded the Policy is clear and well understood, it facilitates transparent Director pay decisions, and allows incentive targets and outcomes to be published in detail.
Implementing the Policy The Committee refers to the Policy in its decisions throughout the year. It considers its impact in determining how to implement it in the following year. Each year’s Remuneration Report notes how the Policy has been implemented over the previous year and how it will be implemented the following year.
Fair-minded · The remuneration framework is reviewed regularly to ensure that it continues to appropriately reward executives, while protecting shareholders’ interests and complying with principles of good risk management and reward governance and avoiding conflicts of interest.
· Each component of the total remuneration package is simple and transparent, so as to be effective and understood by executives, shareholders and regulators.
The Committee can adjust contribution or allowance levels (within the maximum provided by the Policy) to ensure these remain appropriate and market aligned. It can also agree changes to the terms of the Directors’ pension plan(s), as appropriate.
The maximum pension contribution rate for newly appointed Executive Directors will be aligned to the offering for new RSA employees in their country (currently 10% of salary for UK new hires and the majority of UK employees).
The pension contribution rates for existing Directors will reach 10% of salary by the end of 2022, through voluntary reductions1.
Scott Egan’s rate will reduce from 15% of salary to 14% from 1 April 2020, 13% from 1 April 2021, 12% from 1 April 2022 and 10% from 31 December 2022. Charlotte Jones currently receives 10% of salary.
Bonus awards are calculated against stretching annual financial and non-financial targets, as well as the performance of the individual executive.
An additional bonus opportunity of up to a further 40% of salary may be available, at the Committee’s discretion, to recognise highly exceptional circumstances. Full disclosure will be given if an increased bonus opportunity is applied.
Actual bonus awards are linked to achievement as follows: · Below threshold – no bonus
The performance measures and targets used to inform the 2019 bonus awards are on pages 87 to 91.
Long-term incentive Plan (LTIP) (variable remuneration) This element supports RSA’s long-term strategy, performance and priority to create shareholder value through sustained earnings and share price growth.
Conditional long-term incentive awards are granted annually in the form of Performance Shares, and may vest wholly or partially subject to company performance conditions.
A two-year retention period applies to vested Performance Shares, excluding any sold to satisfy statutory deductions. Such periods continue on awards retained on leaving RSA, ending on the earlier of: (i) the usual end of the retention period, or (ii) two years after employment cessation, unless waived by Committee discretion (e.g. on death or change of control).1
The Committee can act within the parameters of the Plan’s rules as approved by shareholders and its performance conditions, enabling the LTIP to be appropriately administered under both normal and exceptional circumstances.2 The Committee can make such amendments as may be necessary to respond to legal, accounting or regulatory changes. Awards can be reduced or otherwise amended, provided the action is fair and justifiable, for example, to guard against a windfall award or the converse generated by an accounting treatment. Vesting can be adjusted downwards to reflect broader performance considerations if considered appropriate and in shareholders’ interests, including for current or future risk exposure.
RSA Annual Report and Accounts 201980 rsagroup.com 5. Illustrations of the Remuneration Policy’s application The remuneration structure is intended to promote the long-term interests of the Company and its shareholders, and the following charts illustrate how the Executive Directors’ remuneration potential changes according to varying levels of performance achievement. The Committee’s aim is that superior levels of remuneration will only be paid in return for delivering superior levels of performance. The variable element is fully flexible such that no award is guaranteed. Additionally, the charts show the balance between fixed and variable remuneration. The assumptions used in the chart calculations are noted in the table underneath.
4. There are no assumptions relating to share price growth or dividend equivalents included in the above scenarios. In the event of 50% share price growth during the LTIP
· Where the Director is an internal appointee to the Board, any outstanding legacy awards granted under current or previous incentive schemes may continue and remain eligible to vest on the basis of their original award terms.
Buy-outs · Where the Director is an external appointment, the Committee may agree to a compensatory package reflecting the value and terms of incentives or benefits forfeited upon resignation.
- Any compensatory award using cash or restricted shares will always carry a service condition and an appropriate repayment schedule to protect shareholders’ interests.
Notice period · No Director will be appointed on a notice period exceeding 12 months. The current Executive Directors’ employment contracts have no fixed term, and can be terminated by the Company or the individual, by the serving of 12 months’ notice.
· No payment or compensation for loss of office made to any departing Director will be disclosed if it is less than £10,000 gross.
· Restrictive covenants are in place to help protect RSA’s interests should the individual leave the Company for any reason.
· The Committee can determine whether a pro-ration for time is applied to these awards.
· Performance conditions are tested early and awards can vest sooner than the scheduled date.
8. Malus and clawback The Group operates malus and clawback provisions. In summary, the Committee has the ability to reduce or forfeit awards that have yet to be paid or vest in the case of shares, to delay the payment or vesting date or to amend another form of award or benefit which has yet to be received (malus adjustment). The Committee may also recover sums already paid to Executive Committee members if it considers it appropriate to do so (clawback). This can be applied during a two-year period after receipt (in the case of cash bonuses) or vesting (in the case of long-term incentives).
· Material financial misstatement of results for any financial year or the material financial loss/under-performance of a business unit that could have been reasonably risk-managed
9. Legacy incentive plans The Policy provides for any outstanding awards granted under legacy incentive plans to continue in place, although the current Executive Directors do not hold any such awards.
· The Committee can exercise discretion to temporarily waive or reduce the holding requirement or allow shares to be sold in exceptional business or personal circumstances (e.g. ill health, death, change of control, divorce, financial hardship).
· The shareholding levels were determined with reference to the practice across the Company’s benchmark peer groups.
· Non-Executive Directors (aside from the Chairman) receive a base fee, further fees are then paid to reflect membership of a committee, and for chairing a committee. A separate fee is paid to the Senior Independent Director.
· When assessing fee levels, account is taken of the required time commitment and the degree of expertise necessary to fulfil the particular role (such as chairing a committee).
· The fees are benchmarked using the same peer groups as for the Executive Directors’ remuneration, and will have regard to the market median.
· Details of the Chairman’s fee and the Non-Executive Directors’ fees earned for 2019 are noted on pages 101 to 102.
Non-Executive Directors are not employed by RSA, but they are engaged on a contract for services basis. They are issued with an appointment letter with no fixed term, but are subject to annual re-election by shareholders at the Annual General Meeting and will not usually serve for more than nine years from the date of their first appointment. The term of office can end with either the individual or the Company serving one month’s notice, or three months in respect of the Chairman. No notice will be served by the Company in the event of gross misconduct. Appointment letters are available for inspection by shareholders at the Company’s registered office.
At the 2020 AGM, this report on pages 85 to 103, together with the Committee Chairman’s letter on pages 72 to 73, will be put to an advisory vote.
The Committee operates within an agreed set of terms of reference, which it reviews annually. A copy of these terms can be viewed on the Group’s website at: www.rsagroup.com/termsofreference or alternatively a paper copy can be requested in writing from the Group Company Secretary.
Members The Committee comprises a number of independent Non-Executive Directors. The Committee’s members in 2019 were: Kath Cates (Chair), Enrico Cucchiani, Isabel Hudson (to 31 July 2019), Joseph Streppel (to 9 May 2019) and Martin Strobel. The number of meetings attended by each Director is shown on page 71.
· Testing of Annual Bonus Plan 2018 and LTIP cycle 2016-18 performance conditions; and determination of outcomes • •
· Review of Directors’ Remuneration Policy and incentive performance measures for 2020 onwards • • •
· Review of wider workforce engagement and remuneration framework, including gender pay gap and pay ratios • • • •
· Update on the performance of the Annual Bonus Plan 2019 and current long-term incentive cycles • •
3. Executive Director total remuneration 2019 (audited) The table below sets out the Executive Directors’ total remuneration single figures. Non-Executive Director fees are detailed on pages 101 to 102.
Notes: 1. Taxable benefits: Stephen Hester received a car allowance and the use of a car and driver service which totalled £43,904 (2018: £40,460), Scott Egan received a car allowance of £15,000 (2018: £15,000), Charlotte Jones received a car allowance of £6,304, and each of the Executive Directors were provided with medical benefits and life cover.
3. LTIP 2019: Estimated value of Performance Shares and accrued dividend equivalents under the 2017-19 LTIP cycle due to vest on 3 March 2020. Estimate reflects the performance conditions having been met to the extent noted on pages 92 to 93, and uses an average share price over the last quarter of 2019 of £5.385.
Note: 1. 2019 financial measures in these tables relate to the Group’s underlying performance which is the basis on which the Group’s plans and targets were set by the Board, in common with practice in prior years and which excludes exits for 2019. It is also the primary basis on which the Group was managed in 2019 and its activities reported to shareholders. The Committee also considers all other financial measures to determine whether they should give rise to any discretionary adjustments to pay outcomes and has applied a downward adjustment to the Business Scorecard component of the bonus plan, as set out in the following section.
The Scorecard applicable to the Group CEO and CFO is shown in the following table. Achievement was assessed to have been very good reflecting particularly the very strong underwriting profits which were driven by fundamental underlying improvements to the business.
As the table shows, Underlying Performance on each of costs, cost ratio, and attritional loss ratio was materially better than target. Strategic plan initiatives are discussed at length in the body of the Annual Report, and support the progress achieved on the underlying financials. In particular, the repositioning of the UK & International business and the execution of the planned portfolio exits was seen as a strong positive.
In terms of Risk and Resilience, performance was again strong. Capital ratios were sustained above target levels despite higher dividends. The UK legacy sale was completed and good progress made on various internal capital initiatives. New reinsurance programmes proved their value in Canada and Scandinavia. Good work was done in changing the UK business to meet new regulatory requirements.
On Business Sustainability, the emphasis in 2019 was on adjusting the Group’s underwriting to address the market challenges evident from the previous year. While in selected segments this gave rise to a price/volume tradeoff, the Group overall operated at or above targeted levels. Further commentary is presented elsewhere in the Annual Report. Also relevant to Business Sustainability were the Group’s progress on diversity and inclusion, as well as new Corporate Responsibility/ESG initiatives including those related to climate change.
The Scorecard applicable to the CEO UK & International is shown in the following table. The assessment methodology and items given weight were substantially similar to the Group commentary given above. A higher weighting was put on strategic initiatives as the UK & International Region bore the brunt of implementation of portfolio exits, management restructuring and formulation of further cost programmes. It also saw the greatest level of activity adapting to new regulatory standards. All were considered to have been progressed better than expected and to significant benefit for RSA. For the same reason as the Group adjustment described above, discretion was used to adjust downwards the Business Scorecard outcome by 5% from 27.5/30 to 22.5/30.
Notes: 1. As note 1 of table on page 87. 2. Defined excluding Claims Handling Expenses (which are part of the expense measure).
UK & International plans, responding to Best in Class challenge and competitor benchmarks.
· Drove restructuring of UK Commercial Lines and the leadership teams to enhance efficiency and customer experience and deliver more sustainable earnings. UK Cost programme targeted at removing >£50m costs annually by 2021 is well advanced.
· Positive actions taken in respect of risk items. · Regulatory engagement continued to build positively, with inclusion of a
Compliance role on the restructured UK executive team and strong progress made on regulatory matters.
· Stakeholders/Customer: Create strong stakeholder relations and advance initiatives to elevate customer service in the Region.
· Overall increases in UK customer trust: NPS increases across the UK and sustained levels of overall customer retention.
· Good feedback from brokers on streamlining of the commercial business. · Leadership: Drive accentuated performance culture, embed new people proposition, support for ESG and Diversity & Inclusion policies.
· Ensured embedding of the new people proposition, including the launch of the ‘Spotlight’ recognition platform. Review of 12 UK HR policies, including the launch and implementation of the new menopause policy (receiving positive feedback from employees).
· Financials significantly improved as set out above, e.g. Group underlying PBT of £624m and Group underwriting result of £405m (excluding exits).
· Leadership: Develop people structures and culture to achieve Group performance plans and build succession bench, provide effective leadership of Group executive, and advocacy for Environmental, Social & Governance (ESG) initiatives across the Group including Diversity & Inclusion.
· Strengthened the leadership of the business with key appointments (including two new CEOs in Scandinavia and UK & International and new Group CFO).
· Assumed direct accountability for the Group Finance function and the Group CFO role during the first half of the year, ahead of the arrival of a new Group CFO.
· Pro-active on ESG/Corporate Responsibility. New policy on fossil fuels agreed by the Board, carbon emissions reduced by 16.5% per FTE (2018: 8.1% per FTE reduction). 34.6% representation of women in the Management Group by 2020 (above the 33% minimum targeted), with 40% of CEO direct reports now female.
· Continued optimisation of Group corporate structure and internal capitalisations around regulatory, tax and FX hedging.
· Capital and other policies maintained to sustain “A stable” S&P credit rating. · Finance function operated slightly below budget. · Investment returns outperformed benchmarks, within sensible risk policy.
· Risk profile: Operate to a high standard of financial control, in terms of judgement, reporting and compliance.
· Actuarial early warnings and judgements enhanced to deliver better and faster understanding of loss picks and trends.
· Good early feedback from Audit Committee, Board and executives for service quality, timeliness, analysis and control effectiveness.
· Increased Finance function proactivity on identifying and solving business issues and opportunities.
Long-term incentive awards vesting from 2017-19 cycle In 2020, these conditional Performance Share awards will partially vest at 50.3% of the maximum, based on the achievement of the three performance conditions described below. The long-term incentive plan provides incentives aligned with, but different from, the annual bonus plan. The one-third Business Scorecard component has similar measures to the bonus Business Scorecard focusing on key underlying performance indicators relevant to RSA’s business (in order to avoid conflicting signals), however in the case of the long-term incentive targets these are set for a three year period at the start of the LTIP as opposed to being set annually for bonus targets. Therefore the assessment outcome will be different and more geared to the medium term.
Relative Total Shareholder Return (33.3% weighting – achieved 0%) RSA’s Relative TSR (which combines share price and dividend returns) underperformed the index of comparators over the period primarily due to the impact of RSA’s 2018 drop in performance together with the general underperformance of the UK listed insurance sector versus international competitors which constitute much of the LTIP index.
Business Scorecard (33.3% weighting – achieved 33.3%) The vesting outcome on this element was determined by the Committee assessing RSA’s progress during the three years in the round. The 2017-19 Scorecard targets were updated versus the 2016-18 Scorecard reflecting more ambitious targets in some areas plus an alignment with the Annual Bonus Plan KPIs. The Scorecard differs from that applied to the Annual Bonus Plan in timescale (three years vs one year), and reflects targets set at the beginning of the three-year period rather than set annually.
2. Defined excluding Claims Handling Expenses (which are part of the expense measure) and adjusted for reinsurance changes. 3. Excludes discontinued operations of Latin America and Russia, and non-core operations of UK Legacy. 4. Final year result.
Notes: 1. Estimate includes the vesting 90,685 Performance Shares valued at £488,295 (of which none is attributable to share price appreciation), and accrued dividend equivalents valued at £48,897 that will be added to the awards that vest. Valued using an average share price over the last quarter of 2019 of £5.385 and compared to a grant share price of £5.972.
3. Details of Charlotte Jones’ compensatory buyout award are set out on page 94. 4. The Committee considered whether any discretionary adjustments in respect of the vesting were appropriate and concluded that none were required.
Long-term incentive awards granted in 2019 Conditional long-term incentive awards were made to Scott Egan and Stephen Hester on 8 March 2019, and to Charlotte Jones on 2 September 2019. These Performance Share awards will vest in 2022, subject to the satisfaction of the plan’s performance conditions based on Relative Total Shareholder Return, Group underlying ROTE, and a Business Scorecard.
The Business Scorecard measures a range of indicators on an underlying basis, and includes: regulatory capital ratios, credit rating, capital actions, risk management, attritional loss ratio, total controllable costs/cost ratios, key business improvement projects, customer franchise and other relevant actions related to the Company’s long-term success. Achievement will be evaluated using a performance framework whereby metrics will be reviewed against their targets, together with any other aspects connected to the business performance including material risk items. Judgement in the round will be used by the Committee to determine the level of vesting. The specific targets cannot be disclosed prospectively for commercial reasons, including price sensitivity. A performance narrative will be given regarding the level of Scorecard vesting once the performance conditions have been tested.
Long-term incentive performance measures 2019-21 Weighting Threshold target: 25% vesting Maximum target: 100% vesting
Notes: 1. Relative TSR index of comparators includes: Admiral, Allianz, Aviva, Chubb, Direct Line, Gjensidige Forsikring, Hiscox, Intact, Mapfre, QBE, Topdanmark, Tryg and Zurich.
A straight-line calculation is applied to determine the portion of awards that vest for performance between the threshold and maximum targets. 2. Group underlying ROTE will be calculated on a three-year average basis. A straight-line calculation is applied to determine the portion of awards that vest for performance between threshold and on-target, and between on-target and maximum. The average required for on-target vesting (62.5% vesting) is considered commercially sensitive because it is set in line with, and therefore signals, the Group’s forward plan for the period. Disclosure will be provided retrospectively following the end of the performance period.
Notes: 1. The performance period is three years and ends on 31 December 2021. Performance measures are Group underlying ROTE, Relative TSR and a Business Scorecard
· Valuing the share awards using the former employer’s share price at the time and converting them to RSA awards, to provide Charlotte early linkage to the RSA share price.
The following awards, which consist of a combination of cash and share-based awards (with emphasis on the latter), have been granted. The share award face values shown below are the maximum number of shares that can vest, multiplied by the mid-market five day average closing share price preceding the 2 September 2019 grant date of £5.2532: · 72,778 Performance Shares in the RSA 2017-19 cycle, in line with the value and schedule of her forfeited award (face value £382,317). 36,622 of these shares will vest on 3 March 2020, given the vesting outcome described on page 92. The rest will lapse. The estimated value of the Performance Shares vesting is £197,192, of which £4,809 is attributable to share price appreciation, using an average share price over the last quarter of 2019 of £5.385 compared to a grant share price of £5.2532. Accrued dividend equivalents valued at £2,816 will be added to the awards that vest, giving a total estimated value at vesting of £200,008. Following vesting, a two year retention period applies.
· 77,504 Performance Shares in the RSA 2018-20 cycle, in line with the value and schedule of her forfeited award (face value £407,144). These awards will vest subject to the satisfaction of this cycle’s performance conditions, disclosed on page 75 of the 2018 Remuneration Report. If threshold performance is achieved, 25% of the award will vest. Following vesting on 2 March 2021, a two year retention period applies.
· A cash payment of £112,500 to replace a cash bonus payment forfeited upon her resignation in respect of 2018 performance.
3. Full details of all Directors’ shareholdings and options to subscribe for shares are recorded in the Group’s Register of Directors’ Interests which is open to inspection by shareholders at the AGM and at the Company’s registered office during standard business hours. The Directors had no share options that vested and remained unexercised, or were exercised in the year.
Required Shareholding The left-hand side of table below shows the Executive Directors’ Shareholding level as at 31 December 2019, calculated based on the shares they own outright, and an after tax value of share awards that are not subject to performance conditions.
In addition, Executive Directors hold unvested Performance Share interests in the Company’s long-term incentive plan, which are shown on the right-hand side of the table. These provide further exposure to the RSA share price ensuring Executive Directors have significant ‘skin in the game.’ These awards must be retained on vesting (aside from any sold to satisfy statutory deductions) until the required Shareholding level is reached. Any awards which vest and are retained count towards the Shareholding level from that point.
Scott Egan 130,738 £706,229 130,381 £373,279 £1,079,508 193% 200% Set to reach on 3 March 2020 when
6. Estimates the potential additional Shareholding that could result from these awards at vesting, after statutory deductions. Assumes an on-target (62.5%) vesting level of
Performance Shares. For simplicity, the dividend equivalents that are added to vesting share awards are not included here. Valued as in notes 1 and 4 above. 7. Scott Egan is set to reach the target level on 3 March 2020 when the Performance Share awards vest from the 2017-19 cycle as shown on pages 92 to 93, which is within the targeted five-year build up period. Calculation is based on the average 2019 share price as in note 1. (If the mid-market closing share price on 31 Dec 2019 of £5.656 were used in the valuation, Scott’s holding at 31 December 2019 would be 202% of salary as opposed to the 193% shown.)
Scheme interests Details of Executive Directors’ existing awards in the Company’s share plans are set out in the following table. The interests shown were granted under the long-term incentive plan approved by shareholders at the 2014 AGM, the Performance Share Plan (PSP).
Notes: 1. The Company granted conditional awards over Ordinary Shares under the PSP during the year at nil cost. The number of shares was calculated based on the mid-market closing price averaged over the five business days preceding the grant dates (8 March 2019 for Stephen Hester and Scott Egan, averaged share price of £5.198; and 2 September 2019 for Charlotte Jones, averaged share price £5.2532).
2. Deferred Bonus Shares vest three years from the date of grant, and are subject to malus adjustment as detailed on page 83. Those granted during the year reflect the 50% of the 2018 annual bonus deferred, with a face value at grant of £259,351 and £140,516 for Stephen Hester and Scott Egan respectively.
4. Performance Shares granted to Scott Egan in 2016 partially vested during the year and 15,008 accrued dividend equivalent shares were added to the number of vesting awards shown above. A portion of the shares were sold to cover statutory deductions, the rest were retained.
5. Performance Shares granted to Stephen Hester in 2016 partially vested during the year and 31,857 accrued dividend equivalent shares were added to the number of vesting awards shown above. A portion of the shares were sold to cover statutory deductions, the rest were retained.
7. Restricted Shares and Performance Shares in the 2017-19 and 2018-20 cycles were granted to Charlotte Jones to replace awards forfeited on leaving her previous employer, as detailed on page 94. Restricted Shares are subject to continued service with RSA and malus adjustment. A portion of the shares vesting in 2019 were sold to cover statutory deductions, the rest were retained.
8. Retention period applicable to 14,277 of the 22,972 share awards shown. 9. No other Directors of the Company held long-term incentive scheme interests during the year. 10. Details of the employee benefit trusts used to satisfy grants under the Group’s share incentive schemes are on pages 110 and 170.
Strategic report Governance Financials 6. External directorships Stephen Hester received fees of £92,500 during the year in respect of his non-executive role at Centrica plc, where he is Senior Independent Director. As permitted under the Remuneration Policy, he retained these fees. Scott Egan and Charlotte Jones do not hold outside directorships of FTSE 100 (or any other listed) companies but would be allowed to have one such appointment, subject to the approval of the Group Nomination and Governance Committee.
Annual bonus award rates (% of maximum) 73% 58% 59% 50% 0% n/a n/a 68% 77% 100% 63% 32% 93%
Percentage change in remuneration The table below sets out the percentage change in salary, benefits and bonus for Executive Directors compared with Group employees on average on a full time equivalent basis. A similar comparison for Non-Executive Directors is on page 101.
Notes: 1. A comparison to parent company employees is not possible, as the parent company RSA Insurance Group plc employs only Directors. 2. Charlotte Jones was appointed as an Executive Director effective 31 July 2019 and had no executive remuneration in 2018, so it is not possible to calculate a percentage change in her case.
Pay ratios The Group aims to treat all employees fairly in the markets in which we operate and provide competitive, performance-linked remuneration. RSA is accredited by the UK’s Living Wage Foundation as a Living Wage Employer.
Year Method 25th percentile pay ratio Median pay ratio 75th percentile pay ratio 20191,3 Option B2 175:1 120:1 68:1 20184 Option B 180:1 122:1 69:1
4. The 2018 ratio figures are restated to reflect the actual value of the Group CEO’s 2016-18 Performance Shares vesting, as detailed on page 86.
Dilution RSA monitors its dilution levels on a regular basis to ensure that they remain within the headroom limits set by the Investment Association. As at 31 December 2019, the dilution levels were as follows: Limit RSA dilution %
5% over 10 years for discretionary schemes, including long-term incentives 2.33%
9. Implementation of Policy in 2020 This section outlines how the Committee intends to implement the Directors’ Remuneration Policy during 2020.
The table below shows the salaries that will apply from 1 April 2020. The level of increase is below the average increase levels for other UK-based employees this year: Director
Aligning strategy and incentive measures in 2020 The table below shows how the business strategy, and the key performance indicators which underpin it, are reflected in the Annual Bonus Plan and long-term incentive performance measures for Executive Directors in 2020: Strategic priorities Annual Bonus Plan 2020 Long-term incentive cycle 2020-22
The Business Scorecard component focuses on key areas of management activity essential to the success of the Company including Underlying Performance, Risk and Resilience and Business Sustainability including Customer franchise and ESG. For the CEO UK & International, divisional performance indicators are included. The Personal Scorecard consists of SMART objectives bespoke to each Director, with a focus on both what is achieved and how goals are delivered. Half of the total bonus will be awarded in cash where clawback can apply; the balance is deferred into shares for a three-year period where malus adjustment can apply.
The Committee will assess performance for 2020 once the financial year has ended, taking into account material risk factors. All of the bonus targets are considered to be commercially sensitive because they signal the Group’s forward plan for the year, and therefore they are not provided in this document. Disclosure will be provided in the 2020 Directors’ Remuneration Report, to the extent that the targets do not remain commercially sensitive. The table below sets out the structure of the Executive Directors’ bonus plan for 2020.
The Business Scorecard measures and assessment will be operated similarly to the 2019-21 LTIP cycle, as described on pages 93 to 94. In contrast to the Business Scorecard in the 2020 Annual Bonus, which will capture calendar year actions and outcomes relative to RSA’s business plan, the long-term incentive Scorecard will capture progress over three years vs the Company’s strategy and three-year Operating Plans. Its specific targets cannot be disclosed prospectively for commercial reasons, including price sensitivity. A performance narrative will be given regarding the level of vesting on the Scorecard once the performance conditions have been tested.
The Committee has approved in principle that Stephen Hester’s Performance Share opportunity in the 2020-22 LTIP grant will be 230% of salary at maximum vesting, which is the usual level of award for the Group Chief Executive; and the opportunity for other Executive Directors will be 200% of salary at maximum vesting.
Notes: 1. The TSR index of comparators for this cycle includes: Admiral, Allianz, Aviva, Chubb, Direct Line, Gjensidige Forsikring, Hiscox, Intact, Mapfre, QBE, Topdanmark, Tryg and
Total remuneration 2019 The table below sets out the Non-Executive Directors’ total remuneration single figures for the financial year ended 31 December 2019. Non-Executive Directors do not receive variable remuneration.
2. Sonia Baxendale was appointed as a Non-Executive Director effective 1 March 2019. 3. Isabel Hudson resigned as a Non-Executive Director effective 31 July 2019.
Percentage change in remuneration The table below sets out the percentage change in fees and benefits for Non-Executive Directors compared with salary and benefits for Group employees on average on a full time equivalent basis.
Notes: 1. A comparison to parent company employees is not possible, as the parent company RSA Insurance Group plc employs only Directors. 2. Enrico Cucchiani’s % fee change reflects additional Committee membership during 2019, and is in line with the fee structure on page 102. 3. Isabel Hudson and Joseph Streppel resigned as Non-Executive Directors effective 31 July 2019 and 9 May 2019 respectively. The above changes are presented on an annualised basis. On an actual earnings basis, the changes in Isabel’s fees and benefits were -40.9% and -48% respectively and the changes in Joseph’s fees and benefits were -63.6% and -25% respectively.
5. Martin Strobel’s % fee change reflects his becoming Senior Independent Director during 2019, and is in line with the fee structure on page 102. 6. Sonia Baxendale was appointed as a Non-Executive Director effective 1 March 2019 and therefore it is not possible to calculate a percentage change in her case.
Fee structure The Committee reviewed the Chairman’s fee in accordance with the Remuneration Policy, and did so referencing a range of information including market data on fees taken from the same peer groups used to benchmark the Executive Directors’ salaries, UK inflation figures and the average reviews applied elsewhere in the Group. From 1 April 2020, the current fee of £436,968 will increase by 2% to £445,707, below the average salary increase levels for our UK employees.
Note: 1. Votes withheld are not included in the calculation as a vote withheld is not a vote in law.
Listing Rule 9.8.4 R cross-reference table Information required to be disclosed by LR 9.8.4 R (starting on the page indicated): Interest capitalised Not applicable
UK Corporate Governance Code The Board, through the Group Nomination and Governance Committee, monitors compliance with the Code. The Company has complied with the 2018 Code which was in force throughout the year (which is available at www.frc.org.uk). Details of how the principles and provisions of the Code have been applied are set out in the Directors’ and Corporate Governance Report, the reports from each of the Board committees and in the Strategic Report.
Details of our Board and their biographies, including external appointments, are set out on pages 54 and 55.
B RSA exists to help protect customers against risk and to serve shareholders well. In so doing, we contribute to society at large.
Our goal is a culture of high performance and engagement and this is reflected in the decisions taken by the Board and senior management. More information on the Board’s consideration of our culture and people strategy is set out on pages 50 and 51.
C The Board sets annual objectives for the business in line with the current Group strategy and monitors achievement against these objectives through regular reports.
Our progress towards best-in-class is measured using nine key performance indicators, see pages 26 and 27 for our progress this year.
The Board considered the workforce engagement models set out in the Code and determined that the most effective engagement would result from all Board members maximising their engagement with the workforce through the wide range of activities described on page 9.
The principal decisions and activities included on pages 8 to 11 demonstrate how the Board has assessed and addressed different stakeholder interests and impacts in making decisions which support the implementation of the Group’s long-term strategy.
E As set out in the Matters Reserved for the Board, the Board is responsible for ensuring workforce policies and practices are consistent with corporate values and support long-term success.
F The Chairman is responsible for the leadership and effectiveness of the Board and its governance. He promotes a culture of openness and debate, and facilitates constructive Board relations and the effective contribution of all directors to support effective decision-making.
The Chairman regularly meets with the non-executive directors, without management present including in advance of Board meetings to discuss the upcoming agenda and provide the opportunity for open dialogue.
G No individual director or small group of directors is able to dominate the Board’s decisionmaking. Role statements define the separation of responsibilities between the Chairman and Group Chief Executive and provide a mandate to independent non-executive directors to debate and challenge strategy, execution and performance and bring independent, objective opinion.
The independence of the non-executive directors is considered at least annually along with their commitments and performance on the Board and its Committees.
Following review of the time commitments of the non-executive directors, the Board considers that they each devote sufficient time to discharging their duties.
When considering the appointment of Clare Bousfield, the Board took into account the other demands on her time, noting that she had committed to stepping down from one of her appointments in advance of joining the Board. Directors are required to seek prior approval for additional external appointments. The NomCo considered the changes to the non-executive directors’ external appointments; see page 67.
Through regular review of the Board’s rolling agenda and previews of each Board meeting’s agenda, the Chairman ensures sufficient time is allowed for discussion and debate.
The role of the Company Secretary is to support the Chairman and the Board. This includes bringing all governance matters to the attention of the Board and delivering a programme of Board and committee meetings, training, induction programmes and senior management presentations to ensure that each director has the information required to discharge his or her statutory duties.
The number of meetings of the Board and its committees, and the individual attendance by directors, is set out on page 71.
RSA will continue to seek out opportunities to further improve diversity and inclusion on our Board and across the Group while always seeking to appoint the most appropriate candidates based on merit.
Appointments to the Board are subject to a formal, rigorous and transparent procedure.
The report of the NomCo on pages 66 and 67 provides more details on the appointments to the Board during the year and the process undertaken, the committee’s role in succession planning and our commitment to and focus on diversity and inclusion.
An executive search firm, Russell Reynolds Associates, was appointed to assist with the non-executive director search process. Russell Reynolds Associates does not have any other connection with the Group or any individual director.
K The NomCo is responsible for reviewing Board membership, succession planning and diversity to ensure the skills, experience and balance of the Board and its committees remain appropriate.
As part of succession planning discussions, consideration is given to the tenure of Directors, diversity of members and the size and combination of the Board and its committees.
The non-executive directors participated in a self-assessment survey to determine the overall range and level of skills, knowledge and experience on the Board; see page 67 for more details.
L The annual evaluation of the Board was designed to include consideration of the Board’s composition, diversity and how effectively the Board works together and other factors relevant to the continued effectiveness of the Board and its committees.
The process also included a 360-degree evaluation of the individual performance of all Directors.
Each year a formal and rigorous evaluation of the Board, its committees, the Chairman and each individual Director is conducted. As required by the Code, the 2019 Board evaluation was externally facilitated; see page 60 for more information.
N The Board considers the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy.
The Directors’ statement of responsibilities in respect of the Annual Report and Accounts 2019 is set out on page 113.
The Board’s consideration of the adoption of the going concern basis of accounting is set out page 109 and the Board’s viability statement is included on page 111.
O Our risk management and controls frameworks were created to help ensure that we identify, measure and manage risks across the Group before they adversely impact on our customers or the business. This information, together with the strength of the Group’s capital position, allows the Board to set a risk strategy and appetite that articulates the level of risk the Board is prepared to take in delivering strategic objectives.
The Board is responsible for ensuring the effectiveness of the Group’s System of Governance, which is approved on an annual basis. More information on the System of Governance is provided on page 58.
P RSA’s Director’s remuneration policies and practices are designed to support strategy and promote long-term sustainable success. A significant proportion of executive remuneration is variable and at-risk, with payments subject to stretching performance criteria aligned to RSA’s purpose, values, culture and the successful delivery of RSA’s long-term strategy.
RSA’s Remuneration schemes promote long-term shareholdings by executive directors that support alignment with long-term shareholder interests, with 50% of any annual bonus earned deferred into shares, vesting after 3 years and the LTIP awards subject to a 3 year vesting period and 2 year post-vesting retention period. Furthermore, executive directors will be required to maintain a shareholding post-employment for 2 years, in-line with their in-employment requirement. The Committee’s policy in respect of share awards and share ownership are set out on pages 79 and 84 of the Remuneration Report.
The Policy for Non-Executive Director remuneration, set out on page 84 of the Remuneration Report, states, they are not eligible to receive a bonus award or participate in any of RSA’s share plans.
The factors considered, as set out on pages 76 and 77 of the Remuneration Report include clarity, simplicity, alignment to culture, predictability, proportionality, risk, shareholder alignment, and the workforce policies more broadly. RSA’s principles are that remuneration is competitive and cost effective, fair-minded, for performance and open and transparent.
PricewaterhouseCoopers (PwC) was appointed by the Committee as its independent adviser. The role of PwC, along with a statement about the other connections it has with RSA and the Committee’s approach to advice is set out on page 85 of the Remuneration Report.
R Committee members exercise independent judgement and discretion when authorising remuneration outcomes, taking account of Company and individual performance, and wider circumstances.
The judgements made and use of discretion are set out on pages 88 and 93 of the Remuneration Report.
Borrowing powers Article 101 of the Articles of Association sets out the restrictions on the borrowings of the Company. The aggregate amount, for the time being, remaining borrowed by the Group must not, without the previous sanction of an ordinary resolution of the Company, be more than one-and-a-half-times the aggregate of: (i) the amount paid up on the issued share capital of the Company; and (ii) the total of the capital and revenue reserves of the Group (subject to certain adjustments).
Conflicts of interest In accordance with section 175 of the Companies Act 2006, each director has a duty to avoid conflicts of interest. Under Articles 94 and 95 of the Company’s Articles of Association, conflicts of interest may be authorised by the Board or a Board committee. Directors are required to notify the Company Secretary when a potential conflict of interest arises. Each director’s conflicts of interest are reviewed on an annual basis. Any director who has declared a conflict of interest 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 of interest is under consideration. Where a conflict of interest is authorised, restrictions may be imposed on the conflicted director, such as excluding the director from the discussion or restricting the receipt of information in connection with the conflict of interest. The Board confirms that it has reviewed the schedule of directors’ conflicts of interest during the year and that the procedures in place operated effectively in 2019. None of the directors had an interest in any contract of significance with the Company or any of its subsidiaries during 2019.
Directors’ indemnity Article 143 of the Articles of Association provides that, among other things and insofar as permitted by law, the Company may indemnify its directors against any liability and may purchase and maintain insurance against any liability. The Company has granted an indemnity to each of the directors pursuant to the power conferred by Article 143 of the Articles of Association. The indemnities granted constitute qualifying third-party indemnity provisions, as defined by section 234 of the Companies Act 2006, and is in addition to appropriate insurance cover. The Company believes that it promotes the success of the Company to provide this indemnity to its directors in order to ensure that the Group attracts and retains high calibre directors through competitive terms of employment in line with market standards.
RSA is committed to the promotion of equal opportunities for all employees and the only acceptable form of discrimination is on the basis of an individual’s ability to do the job. We aim to ensure that no employee or job applicant or leaver receives less favourable treatment on the grounds of: · Sex
As well as the town halls with the Board and other methods of workforce engagement described on page 9, members of the Executive Committee and senior management host regular ‘town hall’ meetings to update employees on topical issues and other matters of concern to the workforce, including giving performance updates following the announcement of results or a trading update. At these updates, senior management will present on the results and the key factors affecting performance of the Group and provide an opportunity for individuals to ask questions. These ‘town hall’ meetings are supplemented by internal communications, including emails, internal social collaboration tools and intranet postings, which provide our entire workforce with relevant updates and further information on key issues.
All conversion factors have been sourced from recognised public sources, including the UK’s Department for Business, Energy and Industrial Strategy, the International Energy Agency and the GHG protocol’s stationary combustion tool.
2. We have removed the impact of hotel stays from all years in line with our updated reporting criteria, this allows for fair comparison year on year.
A. Indicates values independently assured by PwC in accordance with ISAE 3000 (Revised) and ISAE 3410.
For further information, please refer to our reporting criteria and PwC’s assurance opinion which can be found on our Corporate Responsibility pages at www.rsagroup.com/responsibility.
Scope 2: Indirect emissions from imported energy; electricity, district cooling and district heating. Scope 3: Emissions relating to RSA activities not within our direct control, including business travel, water supply, wastewater treatment, paper and waste generated. Business travel: Emissions from flights, trains, taxis and vehicles not owned by the organisation.
Registered shareholdings by size as at 31 December 2019 No of holdings No of shares % of holdings % of shares
Scrip Dividend Scheme The Company is seeking shareholder approval to renew its authority to offer a Scrip Dividend Scheme to shareholders at the 2020 AGM. The Company will not be offering a Scrip Dividend alternative in respect of the final 2019 dividend. For dividends where a Scrip alternative is offered, shareholders wishing to receive a Scrip dividend instead of a cash dividend should contact the Company’s Registrar for details or visit the shareholder services area of the Company’s website www.rsagroup.com/investors/shareholders.
Share capital More information on the Company’s share capital can be found in Notes 32 and 33 on pages 169 and 170. Note 33 includes a summary of the principal terms of the Company’s SEK 2,500,000,000 and DKK 650,000,000 floating rate Restricted Tier 1 Contingent Convertible Notes which were issued in March 2017. The notes are convertible into Ordinary Shares of the Company upon the occurrence of certain conversion trigger events.
Preference Shareholders are only entitled to receive notice of, attend, speak and vote at general meetings if the dividend payable on the Preference Shares is in arrears at the date of the Notice, a resolution is proposed that affects the rights of the preference shareholders, a resolution is proposed to wind-up the Company, a resolution is proposed to reduce the capital of the Company (other than a redemption or purchase of shares), or in such other circumstances as the Board shall determine. In any of these situations, the Preference Shareholders may only vote on the relevant resolution and not on all the business of the general meeting.
The table below shows the holdings of major shareholders as disclosed to the Company in accordance with the Disclosure Guidance and Transparency Rules (DTR) as at 31 December 2019 and at the date of this report.
Ameriprise Financial, Inc. and its group 75,871,245 7.46% Direct & Indirect &
Notes: 1. The threshold for notifications is 5 percent in accordance with DTR 5.1.5. If the Company has not been informed that interests have fallen below this threshold the last notification is included in this table.
The Directors have determined that an initial three year period is an appropriate basis to provide its viability statement as the operational planning process focuses on this period and is aligned to the short-tail nature of insurance contracts that the business underwrites.
· The Company’s exposure to price risk, underwriting risk, reserving risk, credit risk, liquidity risk and cashflow risk
Directors’ Responsibility Statement The Directors’ Responsibility Statement appears on page 113 and is incorporated by reference into this Report.
Directors’ Report The Directors’ Report for the year ended 31 December 2019, was approved by order of the Board and signed on its behalf.
Notes to the income statement, other comprehensive income and distributions 8 Segmental information 146 9 Net investment return 147 10 Net claims 148 11 Other operating income 148 12 Other operating expenses 148 13 Finance costs 149 14 Employee expenses 149 15 Related party transactions 149 16 Auditor’s remuneration 150 17 Income tax 150 18 Share-based payments 152 19 Earnings per share 153 20 Dividends paid and proposed 153 21 Total other comprehensive income 154
Notes to the parent company financial statements 1 Significant accounting policies 197 2 Risk and capital management 198 3 Related party transactions 198 4 Share-based payments 198 5 Dividends paid and proposed 198 7 Current and deferred tax 200 8 Other debtors and other assets 200 9 Share capital 200 11 Issued debt 200
· Make judgements and estimates that are reasonable, relevant and reliable
· Assess the Group and Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern, and
Responsibility statement We confirm that, to the best of our knowledge: · The financial statements on pages 122 to 200, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Parent Company and the undertakings included in the consolidation taken as a whole.
RSA Annual Report and Accounts 2019114 rsagroup.com 1. Our opinion is unmodified We have audited the financial statements of RSA Insurance Group plc (“the Company”) for the year ended 31 December 2019 which comprise the consolidated income statement, consolidated statement of comprehensive income, consolidated and parent company statement of changes in equity, consolidated and parent company statement of financial position, the consolidated and parent company statement of cash flows and the related notes, including the accounting policies in note 4.
In our opinion: · the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 31 December 2019 and of the Group’s profit for the year then ended; · the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU); · the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006; and
· the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.
We were first appointed as auditor by the shareholders of the Company at the Annual General Meeting held on 13 May 2013. The period of total uninterrupted engagement is for the seven financial years ended 31 December 2019. We have fulfilled our ethical responsibilities under, and we remain independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities. No non-audit services prohibited by that standard were provided.
These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.
A margin is added to the actuarial best estimate of insurance liabilities to make allowance for specific risks and uncertainties that are not specifically allowed for in establishing the actuarial best estimate. The appropriate margin to recognise is a subjective judgment and estimate taken by the directors, based on the perceived uncertainty and potential for volatility in the underlying claims.
With the assistance of our own actuarial specialists, our procedures included: · Controls design and observation: Evaluation of the governance around the overall Group reserving process, including the scrutiny applied by the Local, Regional and Group Reserving committees, as well as Group level actuarial reviews. We assessed the qualifications and experience of those responsible and examined the output of the reviews to assess the scope and depth of these processes. Our evaluation of the methodologies and key assumptions for the most significant and subjective classes of business enabled us to assess the quality of challenge applied through the Group’s reserving process.
· Independent re-performance: Independent re-projection of the gross and net reserve balances using our own models for certain classes of business. The determination of which classes to re-project was based on risk assessment and consideration of the evidence available from other alternative data analysis procedures.
· Sector experience and Benchmarking: Comparison of assumptions, reserving methodologies and estimates of losses to expectations based on the Group's historical experience, current trends, externally-derived data and benchmarking against industry trends including information relating to forthcoming legislation that may affect claims settlement speed or amount.
Data capture The valuation of insurance liabilities depends on complete and accurate data about the volume, amount and pattern of current and historical claims since they are often used to form expectations about future claims. If the data used in calculating insurance liabilities, or for forming judgments over key assumptions, is not complete and accurate then material impacts on the valuation of insurance liabilities may arise.
Processing errors Many financial reporting controls depend on the correct functioning of operational and financial IT systems. If these systems or controls fail, a significant risk of error in reported financial information can arise from the failure to transfer data appropriately between systems or inappropriate changes being made to financial data or systems.
This is an area of significant risk in our audit due to the complexity of the IT infrastructure, particularly in the UK and Scandinavia, where there are legacy systems which require increased manual inputs, relative to more automated processes.
With the assistance of our own IT specialists, our procedures included: · Controls design and observation: Where we have planned to rely on IT systems, testing general IT controls around system access, change management and computer operations within specific applications pertinent to the financial statements by assessing if appropriate policies are in place and adhered to by inspecting supporting evidence. Where the general IT controls we have chosen to test are not operating effectively, we addressed the increased risk of financial statement misstatement by extending the scope of our work. This included assessing the operation of controls over changes or transactions being recorded in the systems and testing manual compensating controls, such as reconciliations between systems and other information sources, through re-performance or inspection.
Valuation of post-employment benefits and obligations (2019: £8,681 million, 2018: £7,974 million)
Subjective valuation Small changes in the assumptions and estimates used can have a significant effect on the valuation of the Group’s pension obligations and therefore the amount of the pension and post retirement obligations and the Group’s financial position.
The effect of these matters is that, as part of our risk assessment, we determined that the valuation of pensions and post-retirement obligations has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole and possibly many times that amount. The financial statements (note 38) disclose the sensitivity estimated by the Group.
· Benchmarking assumptions: Comparing the key assumptions such as discount rate, inflation rate and life expectancy against externally derived data.
· Assessing transparency: Considering the adequacy of the Group’s disclosures in respect of the sensitivity of the defined pension obligation to these assumptions.
Our results We found the valuation of the pension and post retirement obligations to be acceptable (2018 result: acceptable).
Valuation of deferred tax assets (2019: £209 million; 2018: £234 million)
Refer to page 63 (Group Audit Committee Report), page 133 (accounting policy) and pages 167 and 168 (financial disclosures).
Forecast-based valuation The recoverability of the recognised deferred tax asset is dependent on the future profitability of the UK business and RSAI plc as the taxable legal entity, in particular. There is inherent uncertainty involved in developing the operational plan upon which forecast future taxable profits are based and further judgement in assessing to what extent the deferred tax assets can be recovered against those forecast taxable profits. These forecasts determine the extent to which deferred tax assets are or are not recognised in the financial statements.
Our procedures included: · Historical comparisons: Assessing the accuracy of the Group’s approved operating plan in relation to the forecasting process in the past. We considered whether projected margins are achievable with reference to the business's recent performance and operating plans.
· Our sector experience: Comparing the expected growth rates and projected margins in the Group’s approved operating plan to expectations based on our own industry knowledge.
· Own tax expertise: With the support of our own tax specialists and their knowledge of tax legislation, we also assessed the extent to which projected profits were taxable, in particular the Group’s assumptions about how accumulated tax losses and other similar items can be utilised within the Group against the UK business, and RSAI plc as the taxable legal entity, in particular.
Subjective valuation The parent company holds its investments in subsidiaries at fair value, representing 67% (2018: 66%) of the company’s total assets. The valuation is based on the market value of the Group, after adjusting for certain items that relate to the parent company. Whilst there is not a high degree of subjectivity, there is estimation in some of the adjusting items which are dependent on assumptions of future cash flows discounted to present value.
· Sector experience: We independently recalculated the weighted average cost of capital used to discount the cash flows to determine the value of the adjusting items.
Our results: We found the assessment of the valuation of the parent company's investment in subsidiaries to be acceptable (2018 result: acceptable).
RSA Annual Report and Accounts 2019118 rsagroup.com 3. Our application of materiality and an overview of the scope of our audit The materiality for the Group financial statements as a whole was set at £35m (2018: £35m) determined with reference to a benchmark of Net Earned Premiums of £6,462m (2018: £6,537m), of which it represents 0.5% (2018: 0.5%). We continue to believe that the benchmark of net earned premiums is a fair reflection of revenue from the Group’s operations as it is not subject to the volatility arising from multi-year insurance contracts that net written premium would be. We have not considered profit before tax to be a suitable benchmark due to historical volatility in this metric.
Materiality for the Parent company financial statements as a whole was set at £31.5m (2018: £31.5m), determined with reference to a benchmark of Net Assets and chosen to be lower than materiality for the Group financial statements as a whole. It represents 0.5% of the stated benchmark (2018: 0.5%).
Our responsibility is to conclude on the appropriateness of the Directors’ conclusions and, had there been a material uncertainty related to going concern, to make reference to that in this audit report. However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgments that were reasonable at the time they were made, the absence of reference to a material uncertainty in this auditor's report is not a guarantee that the Group and the Company will continue in operation.
· the related statement under the Listing Rules set out on page 109 is materially inconsistent with our audit knowledge.
Disclosures of emerging and principal risks and longer-term viability Based on the knowledge we acquired during our financial statements audit, we have nothing material to add or draw attention to in relation to: · the directors’ confirmation within the Viability Statement (page 111) that they have carried out a robust assessment of the emerging and principal risks facing the Group, including those that would threaten its business model, future performance, solvency and liquidity; · the Principal Risks disclosures describing these risks and explaining how they are being managed and mitigated; and
· the directors’ explanation in the Viability Statement of how they have assessed the prospects of the Group, over what period they have done so and why they considered that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.
· the section of the annual report describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee
· certain disclosures of directors’ remuneration specified by law are not made; or
· we have not received all the information and explanations we require for our audit.
7. Respective responsibilities Directors’ responsibilities As explained more fully in their statement set out on page 113, the directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group and parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or other irregularities (see below), or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud, other irregularities or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
Irregularities – ability to detect We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements through discussion with the directors and other management (as required by auditing standards), and from inspection of the Group’s regulatory and legal correspondence. We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit. This included communication from the Group to component audit teams of relevant laws and regulations identified at Group level.
Firstly, the Group is subject to laws and regulations that directly affect the financial statements including financial reporting legislation (including related companies legislation), distributable profits regulation and taxation legislation, we assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items.
Secondly, the Group is subject to many other laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation or the loss of the Group’s licence to operate. We identified the following areas as those most likely to have such an effect: regulatory capital and liquidity and certain aspects of company legislation recognising the financial and regulated nature of the Group’s activities. Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the directors and other management and inspection of regulatory and legal correspondence, if any. Through these procedures, we became aware of actual or suspected noncompliance and considered the effect as part of our procedures on the related financial statement items. The identified actual or suspected non-compliance was not sufficiently significant to our audit to result in our response being identified as a key audit matter.
Daniel Cazeaux (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants 15 Canada Square London E14 5GL
The attached notes on pages 127 to 193 form an integral part of these consolidated financial statements.
Fair value gains/(losses) on available for sale financial assets net of tax 21 121 (149)
Items that will not be reclassified to the income statement: Pension - remeasurement of net defined benefit asset/liability net of tax and tax credit for scheme contributions 21 (86) 161
Other comprehensive (expense)/income (note 21) – – – – (149) – (18) 161 (6) – 7 1
Other comprehensive income/(expense) (note 21) – – – – 107 – (64) (86) (43) – (6) (49)
Assets of operations classified as held for sale 6 – 639
Liabilities of operations classified as held for sale 6 – 636
Effect of changes in foreign exchange on cash and cash equivalents (11) (3)
RSA Insurance Group plc (the Company) is a public limited company incorporated and domiciled in England and Wales. The Company through its subsidiaries and associates (together the Group or RSA) provides personal and commercial insurance products to its global customer base, principally in the UK, Ireland, Middle East (together UK & International), Scandinavia and Canada.
The assets and liabilities considered as non-current include: investments in associates, deferred tax assets, property and equipment, intangible assets, goodwill, deferred tax liabilities, outstanding debt including issued debt and elements of financial investments, insurance contract liabilities and reinsurers’ share of insurance contract liabilities.
The assets and liabilities considered as current include cash and cash equivalents, and insurance and reinsurance debtors.
The remaining balances are of a mixed nature. The current and non-current portions of such balances are in the notes on pages 127 to 193 or in the risk and capital management note (note 5).