The Group has temporary differences in respect of the retained earnings of overseas subsidiaries and associates of £903m (2012: £893m) on which overseas taxes, including withholding taxes, might be incurred on the remittance of these earnings to the UK. The Group is able to control the remittance of earnings to the UK and there is no intention to remit any such earnings in the foreseeable future if the remittance would trigger a material incremental tax liability. As such the Group has not recognised any deferred tax in respect of the potential taxes on the temporary differences arising on unremitted earnings of overseas subsidiaries and associates.
Movements during the year on reorganisation and other provisions Reorganisation provisions £m
Defined contribution pension schemes Costs of £68m (2012: £68m) were recognised in respect of defined contribution schemes by the Group. The Group’s Swedish subsidiaries are part of a multi-employer defined benefit scheme along with other financial institutions in Sweden. As it is not possible to determine the assets and liabilities in respect of any one employer under this scheme, it is included in these accounts as a defined contribution scheme. Contributions of £11m (2012: £11m) were paid to this scheme during 2013 and are included in the costs shown above. The expected contributions in 2014 are £11m. Total contributions to the scheme from all employers in 2013 were estimated at £80m. The latest information regarding the funding of this scheme is taken from the interim report for the first half of 2013, when the scheme funding rate was 114% (2012: 106%).
Defined benefit pension schemes and other post retirement benefits The major defined benefit pension schemes are located in the UK. The assets of these schemes are mainly held in separate trustee administered funds.
Active members of the schemes accrue additional benefits in each year based on salaries (subject to a salary cap) in that year. Employees are entitled to join the stakeholder pension scheme for earnings above the cap.
Following the adoption of IFRS 13 all the cashflows of the arrangement are measured at fair value. The impact of valuing the net cashflows of the arrangement at fair value is to increase the value of the Group’s pension schemes’ assets by £160m. This increase is recognised in remeasurements of the net defined benefit liability (asset) in other comprehensive income. The valuation at 31 December 2012 has not been restated in accordance with the transitional requirements of IFRS 13.
The weighted average duration of the defined benefit obligation of the three main UK schemes at the end of the reporting period is 17 years.
The Group also provides post retirement healthcare benefits to certain current and retired Canadian employees. The benefits are not prefunded. Life insurance benefits, which provide varying levels of coverage, are provided at no cost to retirees. Healthcare benefits, which also provide varying levels of coverage, require retiree contributions in certain instances and benefits are generally payable for life.
The split of post retirement liabilities across other countries is shown below: NON UK LIABILITY SPLIT BY COUNTRY A Canada B Ireland C Other
The estimated discounted present values of the accumulated obligations are calculated in accordance with the advice of independent, qualified actuaries.
Return on scheme assets less amounts included in pension net interest cost 257 270
Deferred tax in respect of net pension and post retirement deficit 40 67
Securities with quoted market price in an active market 6,256 374 6,630 6,351
Other (including infrastructure, commodities, hedge funds, loans) 518 – 518 514
The UK pension schemes do not hold any of the Group’s own transferable financial instruments as plan assets, and no property held by the schemes is occupied by the Group.
The following is a reconciliation of the Group’s pension schemes’ assets: 2013 £m
Assumptions used in calculation of retirement benefit obligations: Annual rate of inflation (RPI) 3.3 2.6 – –
Mortality rate The mortality assumptions are set following investigations of the main schemes’ recent experience by the schemes’ actuaries for the funding valuations. At the funding valuation in March 2012, the mortality assumptions adopted for the main UK schemes used the SAPS Light Normal base table with percentage adjustments to reflect the schemes’ recent experience compared with that expected under these tables.
The value of the awards granted during 2013 is £16m (2012: £14m) of which £3m (2012: £2m) is charged in the consolidated income statement. The balance of the value of the awards will be charged to the consolidated income statement during the remaining vesting periods.
Long Term Incentive Plan The Long Term Incentive Plan (LTIP) for Executive Directors and other selected executives was adopted following approval obtained at the 2006 AGM. Awards have been made each year since 2006 following shareholder approval.
Voluntarily Invested Deferred Shares are purchased by participants from net bonus payable (limited to a maximum value of 33% of net bonus). Voluntarily Invested Deferred Shares are held in trust for three years.
Awards of Performance Shares and Matching Shares related to Compulsory Deferred Shares are subject to a performance condition consisting of a combination of a return on equity target and a total shareholder return target (with performance measured by comparison against other European insurance companies) over a single three year performance period. Matching Shares related to Voluntarily Invested Deferred Shares are subject only to the return on equity performance condition. Restricted Shares are not subject to performance conditions. All awards vest on the third anniversary of the date of grant to the extent that the performance conditions have been met. Performance Shares and Restricted Shares are normally forfeited on an employee leaving the Group.
Further information on the LTIP (including details of a proposed new Long Term Incentive Plan) can be found in the Remuneration Report within the Corporate Governance section. Further disclosures in respect of the ESOS, SAYE and Sharebuild schemes have not been made on the grounds that the schemes are immaterial to the Group.
Further information on derivatives, including those designated as accounting hedges, can be found in the Risk Management section.
Bahrain Royal & Sun Alliance Insurance (Middle East) BSC (c) (50.0%) General insurance
Brazil Royal & Sun Alliance Seguros (Brasil) SA (99.9%) General insurance
Colombia Royal & Sun Alliance Seguros (Colombia) SA (86.7%) General insurance
Fair value losses (including losses on disposal) on property and equipment 2 1
Fair value (gains)/losses (including (gains)/losses on disposal) on investment property (13) 24
Cash generated from operations 241 165 33. RELATED PARTY TRANSACTIONS The ultimate Parent Company of the Group is RSA Insurance Group plc which is incorporated in England and Wales.
Included in salaries and other short-term employee benefits is £3,116,000 (2012: £4,207,000) paid in respect of directors. These amounts exclude the value of share options granted to directors and gains made on the exercise of such options, Group contributions paid in respect of pension schemes and cash or other assets received or receivable under long-term incentive schemes. The total value of the directors’ remuneration (including values for these excluded items) and other details are disclosed in the Remuneration Report.
A number of the directors, other key managers, their close families and entities under their control have general insurance policies with subsidiary companies of the Group. Such policies are available at discounted rates to all employees including Executive Directors.
Subsequent to the year end a number of actions were taken to strengthen the Group’s capital position: • On 26 February 2014 the directors agreed to seek to raise £775m by way of a rights issue. The rights issue has been underwritten on a standby basis by a syndicate of banks
• The Group sold £460m of equities representing most of the equities in the Group’s investment portfolio
Items that may be reclassified to the income statement: Fair value (losses)/gains on available for sale financial assets (1,371) 1,413
PARENT COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2013
Balance at 1 January 2012 as previously reported 971 1,144 125 862 8 931 4,041
Total comprehensive income/(expense) for the year – – – 1,413 – (81) 1,332
Shares issued for cash (note 4) 3 5 – – – – 8
Fair value losses net of tax – – – (1,371) – – (1,371)
Shares issued for cash (note 4) 2 5 – – – – 7
Cash and cash equivalents at the beginning of the year 3 8
Cash and cash equivalents at end of the year 3 3
Changes in the fair value of the investments in subsidiaries are recognised in the statement of comprehensive income. Where there is a decline in the fair value of a directly owned subsidiary below cost, and there is objective evidence that the investment is impaired, the cumulative loss that has been recognised in equity is removed from equity and recognised in the income statement.
The investments in subsidiaries are recognised in the statement of financial position at fair value measured in accordance with the Company’s accounting policies. 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.
5. LOAN CAPITAL Full details of the loan capital of the Company are set out in note 20 to the consolidated financial statements.
6. CURRENT AND DEFERRED TAX Asset Liability 2013 £m 2012 £m 2013 £m 2012 £m
9. RELATED PARTY TRANSACTIONS RSA Insurance Group plc (incorporated in England and Wales) is the ultimate Parent Company of the RSA group of companies.
Payable to related parties: Payable to subsidiaries, interest bearing loans 1,016 976
12. RESERVE TRANSFER A transfer between share premium and retained profit has been made as a result of retrospectively treating scrip dividends as bonus issues of shares in order to bring the Company into line with current market practice for such transactions.
REGISTERED OFFICE AND GROUP CORPORATE CENTRE 9th Floor, One Plantation Place, 30 Fenchurch Street, London EC3M 3BD. Telephone: +44(0) 20 7111 7000. Registered in England and Wales No. 2339826.
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
ANNUAL GENERAL MEETING Holders of the Company’s ordinary shares are invited to attend the Company’s AGM, which will be held at 200 Aldersgate, St Paul’s, London EC1A 4HD at 11.00am on Friday 9 May 2014.
You can elect to receive email notifications of shareholder communications by registering at www.shareview.co.uk where you can also set up a bank mandate to receive dividends directly to your bank account and submit proxy votes for shareholder meetings. Shareholders may elect to receive a printed copy of the Annual Report and Accounts at any time by contacting Equiniti.
SCRIP DIVIDEND SCHEME The Company has the authority to offer a Scrip Dividend Scheme to shareholders giving them the opportunity to use their final and interim dividend payments to increase their holding in the Company without incurring dealing costs or stamp duty. The Scrip Dividend Scheme requires shareholder approval and the authority currently in place is due to expire on 17 May 2014. The Company is proposing to renew the authority for the Scrip Dividend Scheme at this year’s AGM. For dividends where a scrip alternative is offered, shareholders wishing to receive a scrip dividend instead of a cash dividend should contact Equiniti for details or visit the shareholder services area of the Company’s website.
LOW COST SHARE DEALING FACILITIES Shareholders may purchase or sell their RSA ordinary shares through their stockbroker, a high street bank or one of the providers detailed below: Equiniti offer a telephone and internet dealing service. Commission is currently 1.5% with a minimum charge of £50 for telephone dealing and currently 1.5% with a minimum charge of £45 for internet dealing. For telephone sales call +44(0) 845 6037 037 between 8.30am and 4.30pm, Monday to Friday. For internet sales log on to www.shareview.co.uk/dealing. Please quote your shareholder reference number.
Stocktrade also offer a telephone dealing service. Commission is currently 0.5% on amounts up to £10,000 and 0.2% on the excess thereafter, all of which are subject to a minimum charge of £17.50. For telephone sales call +44(0) 131 240 0414 between 8.00am and 4.30pm, Monday to Friday. Please quote reference: ‘RSA Group dial and deal service’. Alternatively visit their website, www.stocktrade.co.uk.
Shareholders are advised to be wary of any unsolicited advice, offers to buy shares at a discount, or offers of free reports about the Company. If you receive any unsolicited advice, make sure you get the correct name of the person and organisation and check that they are appropriately authorised by the FCA by visiting www.fca.org.uk. More information on protecting your investment can be found at consumers/scams/investment-scams/protect-yourself. If you do receive a fraudulent approach, please advise the FCA using the share fraud reporting form at www.fca.org.uk/scams or call the FCA Consumer Helpline on 0800 111 6768.
• Consider holding your shares electronically in a CREST account via a nominee.
FRIDAY 7 MARCH 2014 Record date for the first preference dividend for 2014.
WEDNESDAY 13 AUGUST 2014* Ex dividend date for the second preference dividend for 2014.
FRIDAY 21 NOVEMBER 2014* Payment of the ordinary interim dividend for 2014.
Claims Severity • Average cost of claims incurred over the period.
Financial Conduct Authority (FCA) • The regulatory authority for the conduct of the UK financial services industry.
Gross Written Premium (GWP) • Total premium written or processed in the period, irrespective of whether it has been paid.
IBNR (Incurred but Not Reported) • A reserve for accidents or incidents that have occurred but which have not yet been reported to us.
Net Asset Value (NAV) • The value of the Group calculated by subtracting our total liabilities including loan capital from our total assets. This represents the funds that would be available to ordinary shareholders if the Group were wound up.
Net Written Premium (NWP) • Net Written Premium is premium written or processed in the period, irrespective of whether it has been paid, less the amount paid out in reinsurance premiums.
Unearned Premium • The portion of a premium that relates to future periods, for which protection has not yet been provided, irrespective of whether the premium has been paid or not.