Notes: 1 The impact shown is for the appropriate increase in the revaluation of deferred pensions and the increases to pensions in payment resulting from the specified increase in RPI and CPI. 2 Reducing the mortality assumption by 12% is the equivalent of increasing the life expectancy of a male aged 60 years by 1 year.
RSA Annual Report and Accounts 2015164 Financial statements – Notes to the statement of financial position
Total provisions at 31 December net of held for sale 261 338
Other provisions includes £15m (2014: £20m) held relating to vacant property leases, dilapidations and refurbishments, the costs relating to which will be borne across the period over which the leases expire, which is up to 20 years, and Motor Insurance Bureau provisions of £13m (2014: £13m).
Other creditors of £462m (2014: £530m) includes payroll and other indirect taxes £201m (2014: £200m), outstanding settlements for investment purchases £50m (2014: £130m), liability recognised to reflect recoverable amount of certain subsidiaries being less than carrying value £30m (2014: £nil), non-insurance creditors £24m (2014: £27m) and other creditors £153m (2014: £171m).
RSA Annual Report and Accounts 2015 165Financial statements – Notes to the statement of financial position
Capital commitments The Group’s significant capital commitments in respect of property and equipment and intangible assets are detailed in the table below: £m £m
Funding commitments to structured entities and invested assets The future commitments to structured entities are disclosed in note 28 of these financial statements. In addition, the Group has committed to invest £147m (2014: £nil) in other classes of investments.
The Group receives liability claims and may also become involved in actual or threatened litigation, during the ordinary course of its business operations. The Group reviews and, in the opinion of the Directors, maintains sufficient provisions, capital and reserves in respect of such claims.
In addition, the Group has given guarantees, indemnities and warranties in relation to the disposals of its businesses and business interests to external parties. These are kept under review and, in the opinion of the Directors, no material loss will arise in respect of these guarantees, indemnities and warranties.
RSA Annual Report and Accounts 2015166 Financial statements – Other commitments and contingencies
Subsidiaries Subsidiaries are entities over which the Group has control. The Group controls a subsidiary if the Group has all of the following: • the power over the subsidiary; • exposure, or rights, to variable returns from its involvement with the subsidiary; and
For business combinations completed on or after 1 January 2010, the cost of acquisition include the fair value of deferred and contingent consideration at the acquisition date and subsequent changes in the carrying value of the consideration are recognised in the consolidated income statement. For business combinations completed prior to 31 December 2009, the cost also includes costs directly attributable to the acquisition and the value of contingent consideration on settlement.
Changes in the ownership interests of a subsidiary between shareholders of the Group and shareholders holding a noncontrolling interest are accounted for as transactions between equity holders of the Group. Any difference between the fair value of the consideration given by the transferee and the carrying value of the ownership interest transferred is recognised directly in equity.
Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries are aligned to ensure consistency with the policies adopted by the Group.
Investments in associates Associates are entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for by the equity method of accounting and are initially recognised at cost.
Adjustments are made, where necessary, to the accounting policies of associates to ensure consistency with the policies adopted by the Group.
Hedge accounting Transactions are classified as hedging transactions when the following conditions for hedge accounting are met: • There is a formal designation and documentation of the hedging relationship and the Group’s risk management objective and strategy for undertaking the hedge; • The hedge is expected to be highly effective in achieving offsetting changes in fair value or cashflows attributable to the hedged risk, consistent with the originally documented risk management strategy for that particular hedging relationship; • The effectiveness of the hedge can be reliably measured; • The hedge is assessed on an ongoing basis and determined to have been highly effective.
The accumulated amount in the cashflow hedge reserve, is reclassified to the income statement in the period in which the hedged cashflows affect profit or loss.
Hedge of changes in fair value Where a derivative is designated as a hedging instrument in a fair value hedge of the changes in value of a fixed interest security, the gains and losses arising from the change in fair value of the derivative are recognised in the consolidated income statement. The change in fair value of the hedged investments that are attributable to the hedged risk is transferred from the revaluation reserve to the income statement.
Property and equipment Property, plant and equipment is comprised of Group occupied land and buildings and other equipment (comprising of fixtures, fittings and other equipment including computer hardware and motor vehicles) and is initially recognised at cost.
All other plant equipment is stated at cost less accumulated depreciation and accumulated impairment loss. Cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset only when it is probable that the expenditure will result directly in a flow of future economic benefits to the Group, and the cost can be measured reliably.
Foreign currency transactions Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the time of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the consolidated income statement.
Contingent liabilities A contingent liability is recognised if the Group has a possible future obligation as a result of past events, but either the amount of the expected future outflow of economic resources or the likelihood of payment cannot be reliably estimated.
Other operating income Other operating income is comprised principally of: • Administration fee income: is received from policyholders in order for certain changes to their policy or policyholder details within their period of cover to be made and is recognised in full on the date that the change is made; • Premium policy instalment income: is received from policyholders as a finance charge on premiums paid in instalments and is recognised over the period that the instalments are made on a straight-line basis; • Engineering inspection fees: are received in respect of inspection services of plant and machinery and are recognised in full in the month in which the inspection is made.
Share based payments The fair value of the employee share options and other equity settled share based payments is calculated at the grant date and recognised as an expense over the vesting period. The vesting of share awards is dependent on service and performance conditions, as well as market conditions. The assumption of the number of shares expected to vest is revised at the end of each reporting period, with the corresponding credit recognised immediately in the income statement. Where an option is cancelled by an employee, the full value of the option (less any value previously recognised) is recognised at the cancellation date. The proceeds received by the Group upon exercise of share options, net of any transaction costs, are credited to share capital (nominal value) and share premium when the options are exercised, with a corresponding increase in equity.
Unless otherwise stated, the share capital disclosed comprises ordinary shares which are 100% held within the Group.
Brazil Royal & Sun Alliance Insurance PLC – Escritório de Representação no Brasil Ltda. (99.80%)
Royal & Sun Alliance Insurance Company of Canada (class A preferred non-voting)
RSA Insurance Group plc. 2 99.99% owned by the parent company
Other notes: a. All of the entities listed are included in the consolidated accounts. b. Except where indicated, the proportion of voting power held equals the proportion of ownership interest. For Al Ahlia Insurance Company SAOC, and Al Alamiya for Cooperative Insurance Company, the percentage held relates to the actual percentage of the share capital held and not the effective percentage held (which is 35.00% and 25.04% respectively).
c. Except where indicated, there is no subsidiary where the Group holds less than 50% of the voting rights and there are no entities where the Group holds more than 50% of the voting rights which are not subsidiaries.
d. No subsidiary holds a disclosable interest in the shares of RSA Insurance Group plc.
Parent company statement of comprehensive income for the year ended 31 December 2015 £m £m
The loss for the year net of tax includes a tax credit of £8m (2014: credit £7m). There is no tax relating to fair value gains.
Loss for the year net of tax - - - - - (52) (52)
RSA Annual Report and Accounts 2015 173Financial statements – Financial statements of the Parent Company
Parent company statement of financial position as at 31 December 2015
The separate financial statements were approved on 24 February 2016 by the Board of Directors and are signed on its behalf by: Scott Egan Group Chief Financial Officer
RSA Annual Report and Accounts 2015 175Financial statements – Financial statements of the Parent Company
Except where otherwise stated, all figures included in the separate financial statements are presented in millions of pounds Sterling (‘Sterling’), shown as £m, rounded to the nearest million.
The investments in subsidiaries are recognised in the statement of financial position at fair value measured in accordance with the Company’s accounting policies. The Company’s investments are classified as Level 2 financial assets. Fair value of the Company’s significant subsidiary is determined by reference to the market value (derived from relevant indices) of the Company’s ordinary shares and loan capital instruments at the end of the reporting period, being the most transparent independent available indicator. The market value is adjusted for the fair value of the Company’s preference shares, assets and liabilities, excluding directly owned subsidiaries. The adjusting items have been fair valued by determining the present value of future cashflow projections, using an appropriate arm’s length discount rate. The remaining subsidiaries are held at fair value which has been determined to be net asset value.
The Directors believe that the methodology used supports the inclusion of the investments in subsidiaries in the statement of financial position, at the fair values ascribed to them. The market value of the Company’s ordinary shares at 31 December 2015 was 4.27p. A movement of 1% in the share price would have an impact of £43m on the fair value.
Full details of the principal subsidiaries of the Company are set out in Appendix C to the consolidated financial statements.
5) Loan capital Full details of the loan capital of the Company are set out in note 35 to the consolidated financial statements.
6) Current and deferred tax Asset Liability £m £m £m £m
7) Dividends Full details of the dividends paid and proposed by the Company are set out in note 21 to the consolidated financial statements.
RSA Annual Report and Accounts 2015 177Financial statements – Notes to the separate financial statements
9) Related party transactions The following transactions were carried out with related parties: Provision of services and benefits RSA Insurance Group plc provides services and benefits to its subsidiary companies operating within the UK and overseas as follows: • Provision of technical support in relation to risk management, information technology and reinsurance services. Services are charged for annually on a cost plus basis, allowing for a margin of 5% (2014: 5%).
• Issue of share options and share awards to employees of subsidiaries. Costs are charged for annually, based on the underlying value of the awards granted calculated in accordance with the guidance set out within IFRS 2. The amounts charged in respect of these services to the Company’s subsidiaries totalled £67m (2014: £51m).
Receivable from related parties: Receivable from subsidiaries, interest bearing loans 1,816 1,902
Interest received from subsidiaries is £81m (2014: £97m), and interest paid to subsidiaries is £2m (2014:£15m).
11) Risk management The risks faced by the Company are derived from its investment in subsidiaries and are therefore the same as those of the RSA Group of companies. Details of the key risks to the Group and the steps taken to manage them are disclosed in the Risk Management section of the consolidated financial statements.
Registered office and group corporate centre 20 Fenchurch Street, London EC3M 3AU. Telephone: +44(0) 20 7111 7000.
Group website The Company’s corporate website provides shareholders with a broad range of information about the Company’s heritage, social and environmental responsibilities and investor information such as the Group’s financial statements, current and historic share prices, Annual General Meeting (AGM) materials, events, governance information and answers to frequently asked questions in respect of shareholder matters. Visit the investor website at www.rsagroup.com/investorrelations for further information.
Registrar The Company’s share register is maintained by Equiniti Limited. Any administrative enquiries relating to shareholdings, such as dividend payment instructions or a change of address, should be notified to Equiniti at the following address: Equiniti Limited Aspect House Spencer Road Lancing West Sussex BN99 6DA
When contacting Equiniti, please quote your shareholder reference number which can be found on your share certificate or dividend tax voucher. Telephone lines are open 8.30am to 5.30pm (UK time), Monday to Friday, excluding English public holidays. Overseas callers should use +44(0) 121 415 7064. Shareholders with a text phone facility should use +44(0) 371 384 2255 or alternatively use the Text Relay service by dialling 18001 0121 415 7064 directly from the text phone. To securely email Equiniti with an enquiry visit www.help.shareview.co.uk.
Annual General Meeting Holders of the Company’s Ordinary Shares are invited to attend the Company’s 2016 AGM, which will be held at 200 Aldersgate, St Paul’s, London EC1A 4HD at 11.00am on Friday 6 May 2016.
Electronic communications Receiving the Company’s communications electronically allows the Company to communicate with its shareholders in a more environmentally friendly, cost effective and timely manner.
Scrip Dividend Scheme The Company renewed its authority to offer a Scrip Dividend Scheme to shareholders at the 2014 AGM.
The Company will not be offering a Scrip Dividend alternative in respect of the final 2015 Ordinary dividend.
American Depositary Receipts The Company operates a sponsored American Depositary Receipts (‘ADR’) programme which is managed by JPMorgan Chase NA. The programme allows shareholders to invest in the Company through US dollar denominated funds. Any enquiry relating to the sponsored ADR programme should be addressed to: JPMorgan Chase & Co PO Box 64504 St Paul MN 55164-0504 USA
Please note that rates quoted are as at February 2016 and may be subject to change. Please contact either provider for further guidance on their full terms and conditions.
Sharegift Shareholders with a small number of shares, the value of which makes it uneconomic to sell them, may wish to consider donating them to charity through ShareGift, a registered charity administered by The Orr Mackintosh Foundation, registered charity number 1052686. The relevant share transfer form can be obtained from Equiniti. Further details can be obtained from www.sharegift.org or by calling +44(0) 20 7930 3737.
Ex dividend date for the ordinary final dividend for 2015 and the first preference dividend for 2016.
9 September 2016* Record date for the ordinary interim dividend for 2016.
Note: The ordinary final dividend is conditional upon the directors being satisfied, in their absolute discretion, that the payment of the final dividend would not breach any legal or regulatory requirements, including Solvency II regulatory capital requirements
RSA Annual Report and Accounts 2015 181Other information – Financial calendar
RSA Annual Report and Accounts 2015182 Other information – Jargon buster
Expense Ratio • Percentage of Net Earned Premiums which is paid out in operating expenses e.g. salaries, premises costs, etc. The ratio does not include claims related expenses but can include or exclude commissions.
RSA Annual Report and Accounts 2015 183Other information – Jargon buster
• The regulatory authority with responsibility for the prudential regulation and supervision of the UK financial services industry.
Reinsurance • The practice whereby we transfer part or all of the risk we have accepted to another insurer (the reinsurer).
Weather losses • Weather events with a net cost of £500k or higher.
Important disclaimer This document contains ‘forward-looking statements’ with respect to certain of the Group’s plans and its current goals and expectations relating to its future financial condition, performance, results, strategic initiatives and objectives. Generally, words such as ‘may’, ‘could’, ‘will’, ‘expect’, ‘intend’, ‘estimate’, ‘anticipate’, ‘aim’, ‘outlook’, ‘believe’, ‘plan’, ‘seek’, ‘continue’, ‘potential’, ‘reasonably possible’ or similar expressions, are intended to identify forward-looking statements.
By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond the Group’s control, including amongst other things, UK domestic, Eurozone and global economic business conditions, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of governments, central banks and regulatory authorities (including changes related to capital and solvency requirements whether in the UK, Eurozone or globally), the impact of competition, inflation, deflation, the timing impact and other uncertainties of future acquisitions or combinations within relevant industries, as well as the impact of tax and other legislation or regulations in the jurisdictions in which the Group and its affiliates operate.