Accounting policies that are significant to understanding the performance, financial position and cash flows of the Group are set out in note 4 with other policies presented in Appendix A. The notes are grouped together by their nature.
Significant accounting estimates and judgements In preparing these consolidated financial statements, management has made judgements in determining estimates in accordance with Group’s accounting policies. Estimates are based on management’s best knowledge of current circumstances and expectation of future events and actions, which may subsequently differ from those used in determining the accounting estimates.
· Valuation of insurance contract liabilities: the eventual outcome of the claims that have occurred by the end of the reporting period but remain unsettled – refer to note 37 for additional information
· Measurement of defined benefit obligations: key actuarial assumptions – refer to note 38 for additional information
· Valuation of level 3 financial assets and investment properties: use of significant unobservable inputs – refer to note 26 for additional information
The Group Audit Committee reviews the reasonableness of significant judgements and estimates. The issues considered by the Group Audit Committee are included within the Group Audit Committee Report on pages 62 and 63.
Basis of preparation and significant accounting policies continued 2) Adoption of new and revised standards IFRS 16 ‘Leases’ IFRS 16 replaced the previous standard IAS 17 ‘Leases’ with effect from 1 January 2019. Its objective is to ensure that lessees and lessors provide relevant information in a manner that faithfully represent lease transactions.
The Group elected to use the following practical expedients on transition: · Use of single discount rates to reflect similar lease terms and economic environments
· As an alternative to performing an impairment review, right-of-use assets have been adjusted by the value of provision for onerous leases recognised in the Consolidated Statement of Financial Position immediately before the date of initial application
· Exclusion of initial direct costs from the measurement of the right-of-use asset
Interest is accrued on the lease liability based on the discount rate at commencement of the lease, and is accounted for in finance costs. Subsequent payments are deducted from the lease liability.
The right-of-use asset is depreciated over the shorter of the useful life or the period of the contract on a straight line basis. There are no lease contracts with purchase options or under which the Group would acquire a right-of-use asset by the end of the lease term.
Remeasurements in the lease liability are reflected in the measurement of the corresponding right-of-use asset with reductions being restricted to the carrying value with any remaining remeasurement being recognised in the consolidated income statement.
Nature and effect of adoption of IFRS 16 On adoption the Group recognised lease liabilities in relation to leases which had been previously classified as operating leases under the principles of IAS 17 ‘Leases’. These liabilities were measured at the present value of the remaining lease payments, discounted using the relevant incremental borrowing rate as at 1 January 2019. These are set at a regional level. The Group’s weighted average incremental borrowing rate applied at that time was 2.7%.
Add: adjustments as a result of a different treatment of an extension/termination option1 48
Lease liability recognised at 1 January 2019 279 1. 2018 commitments assumed break clauses would be taken for certain contracts, whilst lease term under IFRS 16 assessed as contract end date. 2. Service components and VAT within lease payments excluded from IFRS 16.
Strategic report Governance Financials 2) Adoption of new and revised standards continued
Total liabilities 238 258 1. The right-of-use asset primarily relates to properties. The value at transition is made up of £279m equal to the lease liability, less £19m derecognition of finance sub leases, less £21m adjustment for the unwind of opening accruals.
2. Primarily relates to finance sub leases, whereby the sub lease term is for the remaining lease term of the head lease. 3. The value at transition includes lease liabilities of £279m less the £21m unwind of opening accruals represented against the right-of-use asset, 31 December 2019 values £258m and £20m respectively.
There is no material impact on the Consolidated Statement of Other Comprehensive Income or on basic and diluted EPS.
This interpretation has not had a significant impact on the Group’s consolidated financial statements.
There are also a small number of other narrow scope amendments arising from annual improvements to standards that are applicable to the Group for the first time in 2019, none of which have had a significant impact on the consolidated financial statements.
Responses to the ED are being considered by the IASB and it is expected that subsequent amendments including the deferral proposals will be approved and incorporated into an amended IFRS 17 standard due to be issued in the middle of 2020 resulting in both IFRS 17 and IFRS 9 becoming effective from a provisional date of 1 January 2022.
Draft legislation has been laid before Parliament to ensure that IFRS as endorsed by the EU at the end of the Brexit transitional period on 31 December 2020 will be adopted for use in the UK as well as providing the Secretary of State with the power to adopt and endorse subsequent changes to IFRS for adoption and use in the UK. This power will be delegated to a UK Endorsement Board (UKEB) which will be responsible for the UK endorsement of the amended IFRS 17. The Group is monitoring this closely.
Detailed build and testing of systems and processes to implement IFRS 17 is in progress and remains on track to substantially complete in 2020. Parallel run testing of reporting is scheduled to take place in 2021 to assure reporting compliance by 1 January 2022. Contingency planning has been considered in the event that the endorsement process adds any further delay to implementation after 2022. It is not yet possible to quantify the impact that implementing IFRS 17 will have on the measurement and presentation of insurance, reinsurance and related transactions and balances.
Other standards There are a number of amendments to IFRS that have been issued by the IASB that become mandatory in a subsequent accounting period. The Group has evaluated these changes and none are expected to have a significant impact on the consolidated financial statements.
Differences between the estimated cost and subsequent settlement of claims or re-estimated costs are recognised in the consolidated income statement in the year in which they are settled or in which the insurance contract liabilities are re-estimated.
Reinsurance Written premiums ceded to a reinsurer are recognised in the period in which the reinsurance contract is entered into and include estimates where the amounts are not finalised at the end of the reporting period. The ceded written premiums are recognised in the consolidated income statement over the period of the reinsurance contract, based on the expected earning pattern in relation to the underlying insurance contract(s).
Loans and receivables Loans, reinsurance deposits, other deposits and financial assets arising from non-investment activities, and loans made for investment purposes
Hedge of future cash flows – effective portion is initially recognised in other comprehensive income (OCI); subsequently recognised in the income statement when the hedged cash flows affect profit or loss
Hedge of fair value – recognised in the income statement. The change in fair value of the hedged investments attributable to the hedged risk is transferred from the revaluation reserve to the income statement
Strategic report Governance Financials 4) Significant accounting policies continued Financial Instruments continued Investment income Dividends on equity investments are recognised as investment income in the consolidated income statement on the date at which the investment is priced ‘ex dividend’. Interest income is recognised in the consolidated income statement using the effective interest rate method.
For equity securities whose fair values are readily determined and where there is objective evidence that such an asset is impaired by a ‘significant’ or ‘prolonged’ decline in the fair value below cost, the net loss previously charged to other comprehensive income is reclassified to the consolidated income statement.
Current and deferred tax Current and deferred tax are recognised in the consolidated income statement, except to the extent that the tax arises from a transaction or event recognised either in other comprehensive income or directly in equity. Any exceptions permitted under IAS 12 ‘Income Taxes’ are disclosed in the notes.
Post-employment benefits and obligations The Group operates both defined contribution and defined benefit schemes.
The value of the net defined benefit liability/asset recognised in the consolidated statement of financial position for each individual postemployment scheme is calculated as the difference between the present value of the defined benefit obligations of the scheme and the fair value of the scheme assets out of which the obligations are to be settled.
For those schemes in a net liability (deficit) position, the net liability is recognised in the consolidated statement of financial position in provisions. For those schemes in a net asset (surplus) position, the net asset is recognised in the consolidated statement of financial position in other debtors and other assets only to the extent that the Group can realise an economic benefit, in the form of a refund or a reduction in future contributions, at some point during the life of the scheme or when the scheme liabilities are settled.
Remeasurements of the net defined benefit liability/asset recognised in other comprehensive income comprises actuarial gains and losses as a result of changes in assumptions and experience adjustments in the calculation of the defined benefit obligation, and return on scheme assets excluding interest during the year. The most significant of these is the selection of the discount rate used to calculate the defined benefit obligation, details of which are set out in note 38.
Customer related intangible assets Customer related intangible assets are valued at cost less accumulated amortisation, and less any accumulated impairment losses.
Internally developed and externally acquired software The Group capitalises internal and external software development costs where the software is separately identifiable; the Group has control over the software; and where it can be demonstrated that they provide future economic benefits for the Group through facilitating revenue or improved processes. In respect of internally developed software, the costs capitalised include administrative and other general overhead expenditure when they can be directly attributed to the software development and preparing it for use. Amortisation is calculated on a straight line basis and commences when the asset is available for use in the manner intended by management. The useful economic life of externally acquired and internally generated software is normally estimated to be between three and ten years, and is reviewed on an annual basis.
Impairment of goodwill, other intangible assets, and internally developed and externally acquired software Goodwill and intangible assets not yet available to use are subject to an impairment test on an annual basis. Other intangible assets, and internally developed and externally acquired software, are reviewed for indications of impairment on an annual basis and are subject to an impairment test only if there is an indication of impairment.
Goodwill, other intangible assets, and internally developed and externally acquired software are allocated to cash generating units (CGUs) for the purpose of impairment testing. When testing for impairment, the recoverable amount of a CGU is determined based on value in use calculations. Further information on how the value in use is calculated can be found in note 22.
Risk and capital management 5) Risk and capital management Insurance risk The Group is exposed to risks arising from insurance contracts as set out below: A) Underwriting risk
Underwriting limits are in place to enforce appropriate risk selection criteria and pricing with all of the Group’s underwriters having specific licences that set clear parameters for the business they can underwrite, based on their expertise.
Financial risk Financial risk refers to the risk of financial loss predominantly arising from investment transactions entered into by the Group, and also to a lesser extent arising from insurance contracts, and includes the following risks: · Credit risk; · Market risk including price, interest rate and currency rate risks; · Liquidity risk.
The Group undertakes a number of strategies to manage these risks including the use of derivative financial instruments for the purpose of reducing its exposure to adverse fluctuations in interest rates, foreign exchange rates and long term inflation. The Group does not use derivatives to leverage its exposure to markets and does not hold or issue derivative financial instruments for speculative purposes. The policy on use of derivatives is approved by the Board Risk Committee (‘BRC’).
Total financial assets that are neither past due nor impaired excluding held for sale £m
Of which would qualify for SPPI under IFRS 91 5,345 1,978 2,057 816 70 – 10,266 – 10,266
Loans and receivables 25 249 – – – – – 249 –
Cash and cash equivalents 31 788 – – – – – 788 –
Market risk Market risk is the risk of adverse financial impact resulting, directly or indirectly, from fluctuations from equity and property prices, interest rates and foreign currency exchange rates. Market risk arises in the Group’s operations due to the possibility that fluctuations in the value of liabilities are not offset by fluctuations in the value of investments held. At Group level, it also arises in relation to the overall portfolio of international businesses through foreign currency risk. Market risk is subject to the Board Risk Committee’s risk management framework, which is subject to review and approval by the Board.
Given the composition of the Group’s investments as at 31 December 2019, the table below illustrates the impact to the income statement and other comprehensive income of a hypothetical 100bps change in interest rates on fixed income securities and cash that are subject to interest rate risk.
Increase in interest rate markets: Impact on fixed income securities and cash of an increase in interest rates of 100bps 19 20 (390) (380)
The sensitivity of the fixed interest securities of the Group has been modelled by reference to a reasonable approximation of the average interest rate sensitivity of the investments held within each of the portfolios. The effect of movement in interest rates is reflected as a one time rise of 100bps on 1 January 2020 and 1 January 2019 on the following year’s income statement and other comprehensive income. The impact of an increase in interest rates on the fair value of fixed income securities that would be initially recognised in OCI will reduce over time as the maturity date approaches.
iii. Currency risk The Group incurs exposure to currency risk in two ways: · Operational currency risk – by holding investments and other assets and by underwriting and incurring liabilities in currencies other than the currency of the primary environment in which the business units operate, the Group is exposed to fluctuations in foreign exchange rates that can impact both its profitability and the reported value of such assets and liabilities; · Structural currency risk – by investing in overseas subsidiaries the Group is exposed to the risk that fluctuations in foreign exchange rates impact the reported profitability of foreign operations to the Group, and the value of its net investment in foreign operations.
A large proportion of investments are maintained in short-term (less than one year) highly liquid securities, which are used to manage the Group’s operational requirements based on actuarial assessment and allowing for contingencies.
Interest on perpetual bonds and notes 27 27 27 27 27 19 – 154 1. Maturity profile shown on an undiscounted basis.
Risk and capital management continued 5) Risk and capital management continued As at 31 December 2018
Subordinated guaranteed US$ bonds1 35 – – – – – – 7 7 6
Deposits received from reinsurers 40 22 – – – – – – 22 22
The above maturity analysis is presented on a discounted basis, with the exception of issued debt and lease liabilities, for consistency with the consolidated statement of financial position and supporting notes. In prior year the analysis was presented on an undiscounted basis including held for sale. The prior year figures have been re-presented above on a consistent basis.
Capital management It is a key regulatory requirement that the Group maintains sufficient capital to support its exposure to risk. Accordingly, the Group’s capital management strategy is closely linked to its monitoring and management of risk. The Group’s capital objectives consist of striking the right balance between the need to support claims liabilities and ensure the confidence of policyholders, exposure to other risks, support competitive pricing strategies, meet regulatory capital requirements, and providing adequate returns for its shareholders.
Strategic report Governance Financials 5) Risk and capital management continued Regulatory solvency position during 2019 The Group’s Solvency II Internal Model was approved by the PRA in December 2015 and forms the basis of the primary Solvency II solvency capital ratio (SCR) measure. 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.
At 31 December 2019, the estimated SCR and corresponding eligible own funds were as follows: Unaudited 2019 £bn 2018 £bn
The impact on the Solvency II coverage ratio of a range of sensitivities is set out below: Solvency II Sensitivities (change in coverage ratio): Unaudited 2019
2. The interest rate sensitivity assumes a non-parallel shift in the yield curve to reflect that the long end of the yield curve is typically more stable than the short end. 3. The asymmetry in credit spread sensitivities reflects the fact that upside pension sensitivities are restricted to the surplus cap. Sensitivities assume that credit spreads of different rating all move by the same amount and hence reflect an assumed offset between the impact on assets held and the IFRS value of pension scheme obligations which could differ.
Movement in tangible net asset value (TNAV) TNAV is one of many capital metrics used by the group and is based on IFRS net assets excluding the value of goodwill and intangible assets.
As at 31 December 2,910 2,867 1. Profit after tax excludes amortisation and impairment of intangible assets. 2. Dividends includes £9m (2018: £9m) paid in relation to preference shares and £14m (2018: £14m) coupon payment on the Group’s Tier 1 notes.
The assessment considers both the current position and the positions that may arise during the planning horizon of the Group (typically the next three years). It looks at both the expected outcome and the outcome arising when the plan assumptions do not materialise as expected.
Liabilities of operations classified as held for sale – 636 – 636
On 7 February 2017, the Group’s UK Legacy liabilities were disposed of to Enstar Group Limited. The transaction initially took the form of a reinsurance agreement, effective from 31 December 2016, which substantially effected economic transfer. The legal transfer of the business was completed on 1 July 2019. The Group’s UK Legacy business was managed as part of the UK operations. It is not presented as a discontinued operation as it is neither a separate geographic area nor a major line of business.
In 2018, the net loss of £2m included a write down of £4m on classification of the UK Noble Marine entities as Held for Sale at fair value, offset by a gain of £2m on the liquidation of Royal and Sun Alliance (Ireland) Limited.
7) Reorganisation costs During 2019 the Group’s UK business incurred costs in relation to improving operations through ongoing process re-engineering and other cost reduction initiatives such as office footprint consolidation and reduction. The £27m incurred in 2019 (notes 8, 12 and 39) includes £15m in respect of redundancy and £12m other restructuring activity.
Profit after tax 383 1 UK & International management underwriting result, as reported in the strategic report, includes an £8m re-classification of claims recoveries from Central Functions. This re-classification is not made in the Group consolidated financial statements.
Strategic report Governance Financials 8) Segmental information continued Year ended 31 December 2018
Profit after tax 372 9) Net investment return A summary of the net investment return in the income statement is given below: Investment income Net realised gains Net unrealised gains/(losses) Impairments
Notes to the income statement, other comprehensive income and distributions continued 9) Net investment return continued Unrealised gains and losses recognised in other comprehensive income for available for sale assets are as follows: Net unrealised gains/(losses)
Net realised (gains) transferred to income statement Impairments transferred to income statement
Reinsurers’ share of changes in provision for losses and loss adjustment expenses (22) 76
Total net claims 4,332 4,480 11) Other operating income £m £m
The average number of employees during the year are as follows: UK & International 6,846 6,737
Included in salaries and other short term employee benefits and bonus awards is £6,719,000 (2018: £3,942,000) 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 Directors’ Remuneration Report.
Fees payable to the auditor for audit of the Company’s annual accounts 0.8 0.9
17) Income tax The tax amounts charged in the income statement are as follows: 2019 £m 2018 £m
Tax at the UK rate of 19.0% (2018: 19.0%) 93 91
Increase/(decrease) of current tax in respect of prior periods 5 (5)
De-recognition of deferred tax asset for prior year losses 6 4
Non-recognition of deferred tax asset for current year losses 5 6
Different tax rates of subsidiaries operating in other jurisdictions 8 11
Fair value gains and losses 2 41 (10) (18) (8) 23
Total credited/(charged) to other comprehensive income – 52 (16) (45) (16) 7
The net current tax and deferred tax charged directly to equity is £nil (2018: £nil).
The Group applies judgement in identifying uncertainties over income tax treatments under IAS 12 and, from 1 January 2019, IFRIC 23. The introduction of IFRIC 23 on 1 January 2019 had no material impact on the Group’s provisions for uncertain tax positions. Provisions for uncertain tax treatments are based on our assessment of probable outcomes which take into consideration many factors, including interpretations of tax law and prior experience. At the end of the reporting period, provisions recognised in respect of uncertain tax positions for the Group totalled less than £10m (2018: less than £10m).
Notes to the income statement, other comprehensive income and distributions continued 18) Share-based payments The total amount included within staff costs in the consolidated income statement in respect of all share scheme plans in 2019 is set out below.
Performance share plan This plan is the Group’s current Long-Term Incentive Plan. Awards of Performance Shares to executive directors and other selected executives and senior managers are subject to performance conditions. These consist of the Group’s underlying return on tangible equity; relative total shareholder return; and business scorecard targets over a three year performance period. Typically awards vest on the third anniversary of the date of grant to the extent that the performance conditions have been met, with a two-year retention period in the case of Executive Directors’ Performance Shares.
The Remuneration Committee may also make conditional awards of Restricted Shares to other executives and senior managers, which are not subject to performance conditions.
If an employee resigns from the Group, then Performance Shares and Restricted Shares lapse at the date of leaving the Group. Deferred Bonus Share awards are generally retained by the employee to whom the award was granted if they leave the Group, unless the employee is dismissed for cause. Awards retained will vest on the normal vesting date.
Profit attributable to the shareholders of the Parent Company (£m) 359 349
Note 32 includes further information of the outstanding share options and unvested share awards to Group employees that could potentially dilute basic earnings per share in the future.
20) Dividends paid and proposed The final dividend to equity holders is recognised as a liability when approved at the Annual General Meeting (AGM). The Company and its subsidiaries may be subject to restrictions on the amount of dividends they can pay to shareholders as a result of regulatory requirements. However, based on the information currently available, the Company does not believe that such restrictions materially limit its ability to settle obligations as and when they fall due and pay dividends. At the AGM on 7 May 2020, a final dividend in respect of the year ended 31 December 2019 of 15.6p (2018: 13.7p) per ordinary share amounting to a total dividend of £161m (2018: £141m) will be recommended by the directors (subject always to the dividend being cancelled, withheld or deferred). The proposed dividend will be paid on 14 May 2020 to holders of ordinary shares on the register at the close of business on 6 March 2020, subject to ordinary shareholder approval, and will be accounted for in shareholders’ equity as an appropriation of retained earnings in the year ending 31 December 2020.
Exchange (losses) net of tax (14) – (1) (15) (64) – (79) (6) (85)
Movement in property revaluation net of tax – 2 – 2 – – 2 – 2
Total other comprehensive (expense)/income for the year (153) 2 2 (149) (18) 161 (6) 7 1
Notes to the income statement, other comprehensive income and distributions continued
Notes to the statement of financial position 22) Goodwill and intangible assets
Additions acquired through business combinations – – – – – –
Less: Assets classified as held for sale 2 – – – – 2
Carrying amount at 31 December 2018 net of held for sale 347 – 2 385 58 792
RSA Annual Report and Accounts 2019156 rsagroup.com 22) Goodwill and intangible assets continued The carrying value of intangible assets not yet available for use at 31 December 2019 is £170m (2018: £191m). This primarily relates to the implementation of strategic software assets across the Group, reported within internally generated software.
The Group continues to invest in strategic software assets such as policy administration and claims management systems. These are fundamental to the ongoing insurance operations and will remain in use for a period in excess of seven years. Therefore in 2019 the useful economic life of strategic software assets was extended from seven to ten years. This did not have a material impact in the period.
Impairments During 2019 the software impairment charge was £1m (2018: £2m), which was recognised in underwriting and policy acquisition costs (2018: £2m).
The range of pre-tax discount rates used for goodwill and intangible asset impairment testing, which reflect specific risks relating to the CGU at the date of evaluation and weighted average growth rates used in 2019 for the CGUs within each operating segment are shown below. The growth rates include improvements in trade performance, where these are forecast in the three year operational plan for the CGU.
Group occupied property was revalued on 31 December 2019 by independent valuers using the basis of valuation as set out in note 26.
The carrying amount of group occupied property that would have been recognised had the assets been carried under the cost model at 31 December 2019 is £5m (2018: £5m).
Right-of-use assets Right-of-use assets relate to leased properties and other equipment. Further information can be found in note 41.
The movement in the carrying value of investment property is detailed below: 2019 £m 2018 £m
As at 31 December 2018 At fair value through profit and loss (FVTPL)
Financial assets measured at fair value 10,823 443 (182) 11,084 11,209
At 31 December 2019, the Group has accepted £429m (2018: £313m) in collateral, consisting of debt securities of £405m (2018: £292m), which the Group is permitted to sell or repledge in the event of default by the owner, and cash and cash equivalents of £24m (2018: £21m) which is included in the balance sheet. The fair value of the collateral accepted is £429m (2018: £313m). The terms and conditions of the collateral held are market standard. The assets held as collateral are readily convertible into cash.
In addition, during 2019, the Group took out borrowings from credit institutions under repurchase agreements of £146m (2018: £107m) (note 36). The Group continues to recognise debt securities in the statement of financial position as the Group remains exposed to the risks and rewards of ownership.
Repurchase arrangements and other similar secured borrowing 146 – 146 (146) – –
IFRS 9 ‘Financial Instruments’ The Group qualifies for temporary exemption from applying IFRS 9 ‘Financial Instruments’ on the grounds that it has not previously applied any version of IFRS 9 and its activities are predominantly connected with insurance, with the carrying amount of its liabilities within the scope of IFRS 4 and debt instruments included within regulatory capital being greater than 90% of the total carrying amount of all its liabilities at 31 December 2015 and with no subsequent change in its activities.
Strategic report Governance Financials 25) Financial assets continued The fair value at 31 December 2019 and change during the year of financial assets that are held to collect cash flows on specified dates that are solely for payment of principle and interest (SPPI) and are not held for trading as defined under IFRS 9, nor are managed or evaluated on a fair value basis, is set out below, together with the same information for other financial assets: As at 31 December 2019 SPPI
Group occupied property and investment property Group occupied properties are valued annually on a vacant possession basis using third party valuers. Investment properties are valued, at least annually, at their highest and best use.
The valuations of buildings with vacant possession are based on the comparative method of valuation with reference to sales of other vacant buildings. Fair value is then determined based on the locational qualities and physical building characteristics (principally condition, size, specification and layout) as appropriate.
These cash flows are discounted at an appropriate rate of interest to determine their present value.
Issued debt The fair value measurement of the Group’s issued debt instruments, with the exception of the subordinated guaranteed US$ bonds, are based on pricing obtained from a range of financial intermediaries who base their valuations on recent transactions of the Group’s issued debt instruments and other observable market inputs such as applicable risk free rate and appropriate credit risk spreads.
In certain circumstances, the Group does not receive pricing information from an external provider for its financial investments. In such circumstances the Group calculates fair value which may use input parameters that are not based on observable market data. Unobservable inputs are based on assumptions that are neither supported by prices from observable current market transactions for the same instrument nor based on available market data. In these cases, judgement is required to establish fair values. Valuations that require the significant use of unobservable data are classified as level 3 valuations and inputs are generally determined via reference to observable inputs, historical observations or using other analytical techniques. In addition, the valuations used for investment properties and for group occupied properties are classified in the level 3 category.
Available for sale financial assets: Financial assets at FVTPL: Debt securities – – 19 19
Total gains/(losses) recognised in: Other comprehensive income (6) (11) – – (17)
Level 3 financial assets at 31 December 2019 279 375 – 15 669
Unrealised losses of £6m (2018: £nil) attributable to FVTPL debt securities recognised in the consolidated income statement relate to those still held at the end of the year.
The following table shows the level 3 available for sale financial assets, investment properties and group occupied property carried at fair value as at the balance sheet date, the main assumptions used in the valuation of these instruments and reasonably possible decreases in fair value based on reasonably possible alternative assumptions.
Group occupied property – land and buildings1 Property valuation 19 (3) 19 (3)
2. The Groups investment in financial assets classified at level 3 in the hierarchy are primarily investments in various private fund structures investing in debt instruments where the valuation includes estimates of the credit spreads on the underlying holdings. The estimates of the credit spread are based upon market observable credit spreads for what are considered to be assets with similar credit risk. Reasonably possible alternative valuations have been determined using an increase of 100bps in the credit spread used in the valuation.
Other Mainly consist of property funds 425 100 525 488 193 681
Structured entities are not consolidated and are disclosed as follows in the statement of financial position: 2019 £m 20181 £m
Cash and cash equivalents 365 195 1. Following a review of commercial and domestic mortgage backed securities, comparatives from 2018 have been re-presented on the basis that they meet the criteria of the definition for structured entities. The impact of the re-presentation has been to increase mortgage backed securities by £2,010m and other by £140m.
Total reinsurers’ share of insurance contract liabilities net of held for sale 2,326 2,271
Total reinsurers’ share of provision for unearned premiums at 31 December 746 739
Of the £209m (2018: £234m) deferred tax asset recognised by the Group, £193m (2018: £204m) relates to tax jurisdictions in which the Group has suffered a tax loss in either the current or preceding period; £180m (2018: £189m) of which relates to the UK. The UK deferred tax asset has reduced by £9m due to a reduction in the forecast profits, with the net impact mainly due to lower investment income forecasts.
The relationship between the UK deferred tax asset and these sensitivities is not always linear. Therefore, the cumulative impact on the deferred tax asset of combined sensitivities or longer extrapolations based on the above numbers will be indicative only.
Notes to the statement of financial position continued 29) Current and Deferred Tax continued
Net arising on acquisition of subsidiaries and other transfers – (5)
Total insurance and reinsurance debtors net of held for sale 2,923 2,954
To be settled after 12 months 363 310 31) Cash and cash equivalents £m £m
Cash and cash equivalents, and bank overdrafts (consolidated statement of cash flows) 886 781
Total cash and cash equivalents (consolidated statement of financial position) 909 788 32) Share capital The issued share capital of the Parent Company is fully paid and consists of two classes; Ordinary Shares with a nominal value of £1 each and Preference Shares with a nominal value of £1 each. The issued share capital at 31 December 2019 is: 2019 £m 2018 £m
Issued and fully paid 1,031,645,294 Ordinary Shares of £1 each (2018: 1,026,937,928 Ordinary Shares of £1 each) 1,032 1,027 125,000,000 Preference Shares of £1 each (2018: 125,000,000 Preference Shares of £1 each) 125 125
The Royal and Sun Alliance ESOP Trust No. 2, an employee benefit trust, is used as a vehicle to satisfy vested awards under the long-term incentive plan (Performance Share Plan). New issue shares are allotted to the trust immediately prior to vesting, and distributed to PSP participants at vesting. There was no balance of shares in this Trust as at 1 January 2019 or 31 December 2019.
At 31 December 2019, the total number of options over Ordinary Shares outstanding under the Group employee share option plans is 4,463,331 (2018: 4,465,067) and the total number of potential shares outstanding under the long term incentive plan and under the Sharebuild plan is 9,941,034 Ordinary Shares (2018: 10,897,021 Ordinary Shares). Further information on the employee share schemes is provided in note 18 and in the Directors’ Remuneration Report within the Directors’ and Corporate Governance Report.
Strategic report Governance Financials 34) Non-controlling interests The non-controlling interests (NCI) of the Group includes the interests in the following Group entities: NCI shares at 31 December 2019
Royal & Sun Alliance Insurance (Middle East) BSC (c) 50 163 50 158
During 2019 the dividends paid to the non-controlling interests in the Middle East were £13m (2018: £12m) and British Aviation Insurance Company £nil (2018: £2m).
Notes to the statement of financial position continued 36) Other borrowings The Group’s other borrowings as at 31 December 2019 are £169m (2018: £119m), relating to borrowings from credit institutions under repurchase agreements of £146m (2018: £107m) and bank accounts in overdraft £23m (2018: £12m).
37) Insurance contract liabilities Estimation techniques and uncertainties Provisions for losses and loss adjustment expenses are subject to a robust reserving process by each of the Group’s business units and at Group Corporate Centre, as detailed in the risk management note (note 5).
There is considerable uncertainty in regard to the eventual outcome of the claims that have occurred by the end of the reporting period but remain unsettled. This includes claims that may have occurred but have not yet been notified to the Group and those that are not yet apparent to the insured.
· Notified claims development, where notified claims to date for each year are extrapolated based upon observed development of earlier years
Individually large and significant claims are generally assessed separately, being measured either at the face value of the loss adjusters’ estimates, or projected separately in order to allow for the future development of large claims.
Sensitivities Sensitivities in the table below show the impact on the pre-taxation result considering an increase in loss ratio of 5%, and an increase in expenses of 10%.
The impact of the reduction in the discount rate on long-term insurance liabilities in Denmark (£15m) has been recognised in unwind of discount and change in economic assumptions in the consolidated income statement.
As at 31 December 2019, the value of the discount on net claims liability reserves is £69m (2018: £92m) excluding held for sale, annuities and periodic payment orders. All other factors remaining constant, a decrease of 0.5% in the discount rates would reduce the value of the discount by approximately £20m (2018: £30m).
Gross insurance contract liabilities and the reinsurers’ share of insurance contract liabilities The Group accounting policies in respect of insurance contract liabilities are described in note 4. The gross insurance contract liabilities and the reinsurers’ (RI) share of insurance contract liabilities presented in the consolidated statement of financial position comprise the following: £m £m £m
Provision for losses and loss adjustment expenses at 31 December net of held for sale 9,468 (1,532) 7,936
The provision for unearned premiums is shown net of deferred acquisition costs of £646m (2018: £675m). Movements in deferred acquisition costs during the year are as follows: 2019 £m 2018 £m
Total claims payments made in the year net of salvage and other recoveries (5,196) (5,123)
Claims development tables The tables on the following pages present changes in the historical provisions for losses and loss adjustment expenses that were established in 2009 and prior, and the provisions for losses and loss adjustment expenses arising in each subsequent accident year. The tables are presented at current year average exchange rates on an undiscounted basis and have been adjusted for operations that have been disposed of.
The top triangle of the tables presents the estimated provisions for ultimate incurred losses and loss adjustment expenses for each accident year as at the end of each reporting period.
Strategic report Governance Financials 37) Insurance contract liabilities continued Consolidated claims development table gross of reinsurance prior £m 2010 £m 2011 £m 2012 £m 2013 £m 2014 £m 2015 £m 2016 £m 2017 £m 2018 £m 2019 £m
At end of accident year 8,718 2,794 2,983 2,838 3,147 2,821 2,917 2,821 2,988 3,264 3,162
Current year provision before discounting 774 76 144 187 295 327 385 625 811 1,214 2,229 7,067
Present value recognised in the consolidated statement of financial position 7,561
Less: Liabilities classified as held for sale – 3 38) Post-employment benefits and obligations Defined contribution pension schemes Costs of £65m (2018: £70m) were recognised in respect of defined contribution schemes by the Group.
Present value of funded obligations (8,147) (435) (8,582) (7,474) (401) (7,875)
Present value of unfunded obligations (7) (92) (99) (7) (92) (99)
During 2009 the Group entered into an arrangement that provides coverage against longevity risk for 55% of the retirement obligations relating to pensions in payment of the two largest UK schemes at that time (c.35% coverage based on current pensioner population). The arrangement provides for reimbursement of the covered pension obligations in return for the contractual return receivable on a portfolio of assets (made up of quoted Government debt and swaps) held by the pension funds at the inception of the arrangement and which have continued to be held by the schemes. The swaps held are accounted for as a longevity swap, measured at fair value under IFRS by discounting all expected future cash flows using a discount rate consistent with the term of the relevant cash flow. The discount rate used is subject to a degree of judgement, due to the unique characteristics of the swap, and the rate is selected to most closely reflect the economic matching nature of the arrangement within a range of acceptable values obtained from external sources. The total value of the arrangement, including Government debt measured at prices quoted in an active market, at 31 December 2019 is £1,560m (2018: £1,523m). Management do not believe that there is a significant risk of a material change to the balance in the consolidated statement of financial position net of the associated pension liabilities subject to the arrangement within the next financial year.
The weighted average duration of the defined benefit obligation of the two main UK schemes at the end of the reporting period is 17 years (2018: 16.5 years).
The Group also provides post-employment 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. Certain healthcare benefits have been discontinued for active employees retiring after 1 November 2021, resulting in a £14m plan curtailment gain.
Value of asset and longevity swaps (2,791) – (2,791) (2,506) – (2,506)
Where assets are classified as unquoted the valuations are: · taken from the underlying managers in the case of non-developed market equity, non-UK sovereign debt, pooled non-government debt and other pooled funds – these funds themselves will be subject to annual (or more frequent) audit
· taken at the mark to market valuation used for collateral purposes in the case of derivative contracts
Notes to the statement of financial position continued 38) Post-employment benefits and obligations continued Assumptions The principal actuarial assumptions used are: UK Other
Assumptions used in calculation of retirement benefit obligations: Annual rate of inflation (RPI) 2.96 3.18 – –
Of the above, £106m (2018: £109m) is due to be settled outside of 12 months.
Notes to the statement of financial position continued 41) Leases Leases as a lessee The Group leases land and buildings and other assets such as vehicles, IT equipment, servers and mainframes (reported as other) to operate its business in each of its core regions. These leases were previously classified as operating leases under IAS 17. The remaining lease terms for the main office premises range from 3 to 19 years.
Two properties in Canada have lease terms ending January 2028 and December 2033 with the option to extend the leases for two further consecutive periods of five years each. The extension options have not been included in the determination of the lease term and therefore the measurement of the lease liabilities.
Total cash outflow for leases primarily relates to finance leases, with the principal and interest portion recognised separately within financing activities in the consolidated statement of cash flows. It also includes short term lease payments and payments for leases of low value assets which are reported within operating activities.
Finance leases Prior to 2019, the Group has sub-let office floor space in Canada and UK for which the head leases have been presented as part of the land and buildings right-of-use asset upon IFRS 16 transition. The sub-leases have been classified as finance leases because the sub-lease is for the whole remaining term of the head lease. The net investments in the subleases have been reported within other debtors.
During 2019, the Group recognised interest income on lease receivables of £1m.
Operating leases The Group leases out its investment property and has classified these leases as operating leases because they do not transfer substantially all of the risks and rewards incidental to the ownership of the assets.
Funding commitments to structured entities and invested assets The future commitments to structured entities are disclosed in note 27 of these financial statements. In addition, the Group has committed to invest £185m (2018: £188m) in other classes of investments.
Appendix A: Other accounting policies Subsidiaries Subsidiaries are entities over which the Group has control. The Group controls a subsidiary if the Group has all of the following: · 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 includes 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.
Investment 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.
On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are recognised in other comprehensive income within the foreign currency translation reserve. Further information can be found in note 21. When a foreign entity is sold, the cumulative exchange differences relating to that foreign entity are recognised in the consolidated income statement as part of the gain or loss on disposal.
Appendix A: Other accounting policies continued Earnings per share Basic earnings per share are calculated by dividing the profit attributable to the ordinary shareholders of the Parent Company by the weighted average number of ordinary shares in issue during the period, excluding ordinary shares purchased by various share trusts of the Group and held as own shares.
· The hedge is expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk, consistent with the originally documented risk management strategy for that particular hedging relationship
· The hedge is assessed on an ongoing basis and determined to have been highly effective
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 consolidated income statement.
Property and equipment Property 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.
Contingent liabilities A contingent liability is disclosed if the Group has a possible future obligation as a result of past events, and either the amount of the expected future outflow of economic resources or the likelihood of payment cannot be reliably estimated.
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 or charge 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 RSA 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.
Further information on the share schemes the Group operates can be found in note 18 and in the Directors’ Remuneration Report.
Coast Underwriters Limited4 208-4940 No. 3 Road, Richmond BC V6X 3A5, Canada Class B1
Coast Underwriters Limited4 208-4940 No. 3 Road, Richmond BC V6X 3A5, Canada Class B2
Shaw Sabey & Associates Ltd3 1800 – 401 West Georgia Street, Vancouver BC V6B 5A1, Canada
Johnson Inc. Fort William Building, 10 Factory Lane, St. John’s Newfoundland A1C 6H5, Canada
Class A Preferred 2029974 Ontario Inc.7 90 Allstate Parkway Suite 500 Markham ON L3R 6H3 Canada
Class E Special 2029974 Ontario Inc.4 90 Allstate Parkway Suite 500 Markham ON L3R 6H3 Canada
Class N Special 2029974 Ontario Inc.4 90 Allstate Parkway Suite 500 Markham ON L3R 6H3 Canada
Deeks Investments Inc.4 90 Allstate Parkway Suite 500 Markham ON L3R 6H3 Canada
Deeks Investments Inc. 90 Allstate Parkway Suite 500 Markham ON L3R 6H3 Canada
Codan Forsikring A/S Codanhus, Gammel Kongevej 60, DK-1790 Kobenhavn V, Denmark
Ireland 123 Money Limited4 8 RSA House, Dundrum Town Centre, Sandyford Road, Dublin 16, Ireland B1 Ordinary 123 Money Limited4 8 RSA House, Dundrum Town Centre, Sandyford Road, Dublin 16, Ireland B2 Ordinary 123 Money Limited4 8 RSA House, Dundrum Town Centre, Sandyford Road, Dublin 16, Ireland B3 Ordinary 123 Money Limited4 8 RSA House, Dundrum Town Centre, Sandyford Road, Dublin 16, Ireland B4 Ordinary 123 Money Limited4 8 RSA House, Dundrum Town Centre, Sandyford Road, Dublin 16, Ireland B5 Ordinary 123 Money Limited4 8 RSA House, Dundrum Town Centre, Sandyford Road, Dublin 16, Ireland C Ordinary 123 Money Limited8 RSA House, Dundrum Town Centre, Sandyford Road, Dublin 16, Ireland 123 Money Limited8 RSA House, Dundrum Town Centre, Sandyford Road, Dublin 16, Ireland shares
EGI Holdings Limited8 RSA House, Dundrum Town Centre, Sandyford Road, Dublin 16, Ireland
Al Ahlia Insurance Company SAOG6 PO Box 889, 100, Oman 52.50
Office No.203, 2nd Floor, Home Centre Building, Tahlia Street, Suleymaniyah, Riyadh, Kingdom of Saudi Arabia 50.07
Centrium Management Company Limited3 5th Floor, United Kingdom House, 180 Oxford Street, London, W1D 1NN, United Kingdom 31.45
Punchbowl Park Management Limited3 5 10 Buckingham Gate, London, SW1E 6LA, United Kingdom 65.09
Hempton Court Manco Limited3 5 7 Seymour Street, London, W1H 7JW 66.66
RSA Law Limited8 St Mark’s Court, Chart Way, Horsham, West Sussex, RH12 1XL, United Kingdom 90.00
8. Indicates companies within the Group that are applying IFRS 9 and disclose relevant information in their own published financial statements in addition to that already included in these consolidated financial statements.
RSA Annual Report and Accounts 2019194 rsagroup.com 2019 £m 2018 £m
Items that may be reclassified to the income statement: Fair value losses on debt securities net of tax (2) –
Items that will not be reclassified to the income statement: Fair value gains/(losses) on investment in subsidiaries 510 (1,292)
Dividends – paid (note 5) – – – – – – (231) – (231)
Profit for the year net of tax – – – – – – 351 – 351
Share-based payments (note 4) 4 – – – – – 6 – 10
Parent company statement of financial position As at 31 December 2019
The parent company financial statements were approved on 26 February 2020 by the Board of Directors and are signed on its behalf by: Charlotte Jones Group Chief Financial Officer
Parent company statement of cash flows For the year ended 31 December 2019
These parent company financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as endorsed by the European Union (EU) and the Companies Act 2006 where applicable.
Except where otherwise stated, all figures included in these parent company financial statements are presented in millions of Pounds Sterling (‘Sterling’), shown as £m, rounded to the nearest million.
The accounting policies that are used in preparation of these parent company financial statements are consistent with the accounting policies used in preparation of the consolidated financial statements of RSA Insurance Group plc as set out in those financial statements.
The additional accounting policies that are specific to the parent company financial statements are set out below.
The most significant estimate is in connection with fair valuing the investment in subsidiaries, details of which can be found in note 6.
Changes in the fair value of the investments in subsidiaries are recognised directly in equity in the statement of comprehensive income which is not re-classified through profit or loss on de-recognition.
Investment in debt securities Investment in debt securities are valued at fair value through other comprehensive income (FVOCI) on the basis that their contractual cash flows are solely principal and interest and the Company’s business model’s objective is to hold such investments to collect their contractual cash flows and for sale.
An allowance for expected credit loss is based on those default events that are possible within 12 months after the reporting date, or where the credit risk has increased significantly since initial recognition on the basis of all possible default events over the life of debt. Specifically the probability of default is considered over the appropriate period of time together with the expected subsequent loss. For investment grade debt securities, rated BBB or above, the ‘low credit risk exemption’ available within IFRS 9 has been applied. For these assets, it is assumed that credit risk has not increased significantly since initial recognition. As at the balance sheet date, all of the Company’s debt securities are investment grade and expected credit losses are not significant and so no ECL is recognised.
Dividend income Dividend income from investment in subsidiaries is recognised when the right to receive payment is established.
The amounts charged in respect of these services to the Company’s subsidiaries totalled £55m (2018: £50m).
Other transactions Interest is receivable on interest bearing loans to subsidiaries, which are repayable on 24 hours written notice. The rates of interest charged are at three months LIBOR plus margins ranging from 0.60% to 2.50%.
Interest is payable on interest bearing loans from subsidiaries, which are repayable on 24 hours written notice. The rates of interest charged are at three months LIBOR plus margins ranging from 0.40% to 2.00%.
Interest income from subsidiaries is £35m (2018: £34m), and interest charged to subsidiaries is £2m (2018: £2m).
Payable to related parties: Payable to subsidiaries, interest bearing loans 36 99
Total payable to related parties 209 419 4) Share-based payments Full details of share-based compensation plans are provided in note 18 to the consolidated financial statements.
5) Dividends paid and proposed Full details of the dividends paid and proposed by the Company are set out in note 20 to the consolidated financial statements.
Investment in subsidiaries The investment in subsidiaries balance at 31 December comprises: 2019 £m 2018 £m
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 2019 was 565.6p. A movement of 1% in the share price would have an impact of £58m on the fair value.
The subordinated loan to a subsidiary had the same terms as the external issued debt from which the loan to the subsidiary was financed. The fair value of the loan was based on the quoted price for the external issued debt. The nominal value of the loan at 31 December 2018 was £32m with an interest rate of 9.375%. The loan was repaid on 20 May 2019 following the redemption of the external issued debt.
Notes to the parent company financial statements continued 6) Investments continued Loss allowance The loss allowance for debt securities at FVOCI is recognised in the income statement and reduces the fair value otherwise recognised in other comprehensive income.
The movement in the net deferred tax assets recognised by the Company was as follows: 2019 £m 2018 £m
Net deferred tax assets of £5m (2018: £4m), that relate to tax jurisdictions in which the Company has suffered a loss in either the current or preceding period, have been recognised on the basis that future taxable profits will be available against which these can be utilised. The evidence for the future taxable profits is a forecast consistent with the three year operational plans prepared by the relevant businesses, which are subject to internal review and challenge. Where relevant, the forecast includes extrapolations of the operational plans using assumptions consistent with those used in the plans.
The symbol ◊ has been used to identify APMs within tables of data in the 2019 Annual Report, the definitions of which are given in the jargon buster below. Further definition, commentary and outlook of those APMs considered important in measuring the delivery of the Group’s strategic priorities can be found on pages 26 and 27 of the Strategic Report. Detailed reconciliations of APMs to their nearest IFRS equivalents and adjusted APMs can be found after the below jargon buster. APMs used to determine management and executive remuneration are identified below with ◊*.
Affinity Selling insurance through a partner’s distribution network, usually to a group of similar customers e.g. store-card holders, alumni groups, unions and utility company customers.
Claims Frequency Average number of claims per policy over the year. Claims Handling Expenses The administrative cost of processing a claim (such as salary costs, costs of running claims centres, allocated share of the costs of head office units) which are separate to the cost of settling the claim itself with the policyholder.
Interest Costs Interest costs represent the cost of Group debt. Investment Result Investment result is the money we make from our investments on a management basis. It comprises the major component of net investment return, investment income, in addition to unwind of discount and investment expenses.
Large Losses Single claim or all claims arising from a single loss event with a net cost of £0.5m or higher.
Net Written Premium (NWP) Premium written or processed in the period, irrespective of whether it has been paid, less the amount shared with reinsurers.
Other charges represent items that are excluded to arrive at business operating result and underlying profit measures (previously referred to as non-operating charges).
Reorganisation costs To allow assessment of the performance of ongoing business activities.
Realised and unrealised gains and losses on investments/ foreign exchange gains and losses
Rate The price of a unit of insurance based on a standard risk for one year. Actual premium charged to the policyholder may differ from the rate due to individual risk characteristics and marketing discounts.
Reported Exchange (RFX) Prior period comparative translated at exchange rates applicable at that time. Return on Equity Profit attributable to ordinary shareholders (profit after tax excluding non-controlling interests, coupon on tier 1 notes and preference dividend) expressed in relation to opening ordinary shareholders’ funds (opening ordinary shareholders funds less preference share capital).
Underlying Return on Equity Underlying profit after tax expressed in relation to opening shareholders’ funds excluding preference share capital.
Weather Losses Weather claims incurred with a net cost of £0.5m or higher and losses of less than £0.5m where extreme weather has been identified over an extended period.
Alternative Performance Measures Reconciliations 1. IFRS reconciliation to management P&L For the 12 months ended 31 December 2019 £m IFRS
Earned CY commission (830) K (830) Earned PY commission (1) L (1) Earned CY operating expenses (1,081) M (1,081) Earned PY operating expenses (7) N (7) Underwriting and policy acquisition costs (1,919) (1,919) Unwind of discount1 (46) (31) (15) Investment expenses (12) (12) Central expenses (13) (13) Amortisation of intangible assets (12) (12) Reorganisation costs (27) (27) Other operating expenses (64)
Income tax expense (109) Z AA AB AC AD Profit for the year 383 C+J+L+N P 32 PY Underwriting Z – P Q 314 CY Underwriting 346
Alternative Performance Measures Reconciliations continued 1. IFRS reconciliation to management P&L continued For the 12 months ended 31 December 2018 £m IFRS
Income Gross written premiums 7,467 7,467 Less: reinsurance premiums (997) (997) Net written premiums 6,470 6,470 Change in the gross provision for unearned premiums 61 61 Change in provision for unearned reinsurance premiums 6 6 Change in provision for unearned premiums 67 67 Net earned premiums, analysed as 6,537 A 6,537
Interest costs (25) (25) Finance costs (25) O Acquisitions and disposals (2) (2) Net share of profit after tax of associates 1 1
B Underlying profit after tax attributable to ordinary shareholders 406 350
Comprised of: Volume change including portfolio actions and reinsurance (373) (153)
Alternative Performance Measures Reconciliations continued 5. Controllable expenses 2019 £m 2018 £m
Alternative Performance Measures Reconciliations continued 7. Adjusted APMs Management report adjusted APMs when circumstance requires to further enhance understanding of reported results and of future performance potential. Adjusted profitability metrics provided show: · The results for our ongoing business given the portfolio exits undertaken in the UK&I business
1. £8m of prior year GVC recoveries relating to UK exited business has been reallocated from Central Functions to UK Exits and therefore to total UK&I. 2. UK underlying tax rate 10% applied, reducing Group underlying tax rate from 20% to 19% due to an increase in the UK share of Group profit mix.
Alternative Performance Measures Reconciliations continued 7. Adjusted APMs continued Impact of reinsurance adjustments In 2018, the Group purchased a three year Group Volatility Cover (‘GVC’) and, in 2019, the Group purchased new reinsurance covers to provide additional protection for short tail lines. 2018 NWP and attritional loss ratio comparatives have been restated accordingly to allow direct comparison.
A:D E 2018 net written premium at constant exchange restated 1,753 1,683 3,098 35 6,569
F/E-1 G Net written premium movement restated 1% 3% (7)% (2)%
A:C D 2018 net earned premium at constant exchange restated 1,739 1,637 3,102 (11) 6,467
Further information and help The Company’s corporate website provides shareholders with a broad range of information about the Group’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/ investors for further information.
Telephone lines are open 8.30am to 5.30pm (UK time), Monday to Friday, excluding public holidays in England and Wales. Overseas callers should use +44(0) 121 415 7064. Shareholders with a text phone facility should use +44(0) 371 384 2255 or use the Text Relay service by dialling 18001 0121 415 7064 directly from the text phone.
Equiniti offers a telephone and internet dealing service. Commission is 1.5% (rate quoted as at 7 February 2019 and may be subject to change) on amounts up to £50,000 and 0.25% on the excess thereafter, with a minimum charge of £60 for telephone dealing and £45 for internet dealing. For telephone sales, call +44(0) 345 6037 037. Lines are open 8.30am to 5.30pm (UK time), Monday to Friday, excluding public holidays in England and Wales. For internet sales log on to www.shareview.co.uk/dealing. Please quote your shareholder reference number.
Dividends Shareholders are encouraged to have their dividends paid directly into their bank account. It is a more secure and faster way to receive dividend payments, with cleared funds available to shareholders on the dividend payment date. Shareholders who have their dividends paid directly into their bank account receive annual dividend confirmations once a year, showing payments received in the respective tax year. Alternatively, individual dividend confirmations are available upon request. To take advantage of this convenient method of payment, visit www.shareview.co.uk or contact Equiniti.
Annual General Meeting The 2020 AGM will be held at 200 Aldersgate, St Paul’s, London EC1A 4HD on Thursday 7th May 2020 at 11.00am.
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 (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.
· Telephone: Toll-free number: Phone: 1 800 990 1135 Hearing impaired: Phone: 1 866 700 1652 Outside the U.S.: Phone: +1 651 453 2128