We also remain on target to grow Emerging Markets NWP to around £2.2bn by the end of 2015.
• 2011 was a challenging year for the industry, with low yields, the weak economic environment and record catastrophe losses. Despite this, we drove another good performance
• We delivered strong top line growth in 2011, with NWP up by 9% to £8.1bn across the Group
• All regions delivered NWP growth, with International up by 11%, the UK up by 6% and Emerging Markets up by 14%
• We grew our underwriting result by 58% to £375m and our investment result was up by 19% to £642m
• Our capital position remains strong with an IGD surplus of £1.3bn
• In 2012, we are confident of delivering good premium growth, a COR of better than 95% and investment income of around £500m.
02 RSA around the world 04 What we do 06 Chairman’s statement 10 Group CEO’s review
LATIN AMERICA • Number 1 general insurer in Chile • The largest private insurer in Uruguay • A leading Marine insurer in Brazil.
• We have a multi-channel distribution model, selling our products through call centres, intermediaries and affinity partners.
• We distribute products through intermediaries under the RSA brand. Our Direct offering is Johnson
• Our affiliated broker network, Noraxis, is a top 5 Canadian broker
• In January 2011, we completed the acquisition of GCAN, a leading Mid-Market, Large and Specialty Commercial insurer.
• In Ireland, we operate as RSA through intermediaries and as 123.ie in the Direct market
• Our main focus is on Large and Complex risks, Motor, Small and Medium Enterprises (SME), Marine and Affinity
• In Central and Eastern Europe, we operate as Lietuvos Draudimas in Lithuania, as Balta in Latvia, as RSA in Estonia, as Link4 in Poland, as InTouch in Russia and as Direct Pojišt’ovna in the Czech Republic
WE ARE A LEADING GENERAL INSURER OPERATING IN 33 COUNTRIES AND PROVIDING PRODUCTS AND SERVICES IN AROUND 140 COUNTRIES THROUGH OUR GLOBAL NETWORK OF LOCAL PARTNERS.
From 1 January 2012, the Group was restructured into four regions: Scandinavia, Canada, UK and Western Europe, which includes Ireland and Italy, and Emerging Markets, which is unchanged. The 2011 financial results are prepared according to the previous structure: UK, International and Emerging Markets. A reconciliation between the two structures is presented on page 105.
• In Asia, we have Commercial lines hubs in Hong Kong, Singapore and mainland China
SCANDINAVIA • The 3rd largest insurer in Denmark and Sweden with a growing business in Norway • Leading positions in Renewable Energy, Personal Accident and Marine.
UK AND WESTERN EUROPE • Largest Commercial lines insurer in the UK • 4th largest UK Personal lines insurer overall, 4th in Home, 5th in Motor and a market leader in Pet • 2nd largest general insurer and a leading
REINSURANCE We maintain a conservative reinsurance programme to minimise volatility in earnings from large losses and catastrophe events. For example, Copenhagen experienced a severe storm in July 2011, during which two months’ rain fell in under two hours. Although we are the third largest general insurer in Denmark, we restricted our net loss to around £23m through our extensive reinsurance programme.
DELIVERY We are committed to delivering timely settlements to our customers and claimants and, through numerous initiatives across the Group, we aim to continually improve the claims experience.
The fixed interest portfolio is concentrated on high quality short dated assets with 98% of the bond portfolio investment grade and 74% rated AA or above. The bond holdings are well diversified, with 75% invested in currencies other than Sterling and 60% invested in non government bonds (31 December 2010: 53%).
On a global basis, 2011 was a challenging year for the insurance industry. It was the costliest year ever in terms of natural catastrophes, earthquakes and weather events.
The financial highlights of what was a challenging year included • Good premium growth of 9% driven by both acquisition and organic growth • Strong operating results with the
• Improved investment result reflecting the careful management of our portfolio to lessen the impact of low interest rates without diluting investment quality
• The maintenance of a strong IGD surplus at £1.3 billion giving a 2x coverage.
The main non-financial event in the year, was the announcement, at the interims in August, of Andy Haste leaving as CEO and his formal departure in December. We had a well developed succession plan in place and with the added involvement of an externally-led Board selection process we were pleased to appoint Simon Lee, the previous Head of our International Division, as Group CEO.
The RSA of today has been rebuilt in terms of service, reputation and management since 2003, when the old Royal and Sun Alliance was still effectively two separate businesses, as that name denoted. They were in danger of being overwhelmed by losses, a major capital deficit and had massive exposures in the USA. The strategies to refinance the Company and remove the risks of the USA business were not without risk. They were all achieved.
Over the last three years, insurers have faced more difficult times. However, even if you take a comparison close to today, what has been achieved since 2003 is still remarkable.
Given these outcomes, the Board wishes Andy and George every success in the future. They both leave with the thanks and appreciation of our Board. Their departure terms reflect the goodwill of us all, the Board and hopefully the shareholders, in marking a job well done. The Board’s actions on succession planning have ensured the company maintains an ongoing depth and strength of management in all areas. We continue to be well placed to deal with current global economic and financial circumstances and drive this company forward.
Moving to other Board matters, as first indicated in 2009, our strategy is to add to the Board to ensure continuity of corporate knowledge and experience when we move to a phase of Board recruitments and retirements. As part of this plan, we have added two new Non-Executive Directors and an Executive Director.
“ We continue to be well placed to deal with current global economic and financial circumstances and drive this company forward.”
I think it essential, however, that every public company plays its role and undertakes to review its pay and remuneration practices. At RSA, we plan such a review in 2012 to ensure that our philosophy of closely aligning reward structures with the longer term interests of shareholders remains a continuing guideline in principle and in practice.
All are appointed on merit. We will continue to adopt this approach as being in the best interests of the effective management of the Company and in the interests of our shareholders. We are a regulated company and as such, all senior appointments including Non-Executive Directors have to meet FSA requirements. The basis of selection allowed is, therefore, different than for an average non-regulated plc.
The words ‘excess’ or ‘unsustainability’ should not be restricted to directors and senior management in the corporate sector. The trends in the absolute and relative pay and conditions, comparative investment, inputs, relative outputs and efficiency of the public sector compared to the private sector demand
In conclusion, therefore, 2011 has been an interesting, busy and successful year for the
Board and the business. I am particularly indebted to the contribution made by my colleagues on the Board. I would like also to thank everyone, our managers and employees, for their continuing efforts to improve the service standards and performance of the Company. We expect 2012 in market terms to be as challenging as 2011, but we plan to make further progress.
In my first report to shareholders as Group CEO, I would like to express how privileged I feel to have the opportunity to lead this business forward. I joined RSA in 2003 and in running the International division, have been a member of the team that transformed the business into the high performing company it is today. I truly believe the Group has qualities and strengths that most of our competitors cannot match and we will build on these foundations to generate even stronger performance.
To help achieve this, I have restructured the business to reflect the significant contribution our Scandinavian and Canadian businesses make to the Group’s results. I would like to welcome Mike Holliday-Williams, CEO of Scandinavia, and Rowan Saunders, CEO of Canada, along with Vanessa Evans, our new Group Customer and HR Director, to my executive team. In June 2012, we will also be joined by Richard Houghton as CFO. They are great additions and I look forward to working with the whole team to take the Group to the next level.
We also achieved a significant improvement in profitability. The underwriting result was up by 58% to £375m, with a combined operating ratio of 94.9%, and the investment result was up by 19% to £642m, giving an insurance result of over £1bn, with strong contributions from all regions.
The operating result was up by 38% to £884m and profit before tax was up by 29% to £613m. The underlying return on average equity was 11.6%, an improvement of 1.7 points. Net asset value per share of 104p was in line with 2010.
In Commercial, we saw growth of 2% with Risk Managed Europe up by 19% and Marine up by 9%. This was offset by a 10% decline in our Regional Mid-Market business where we continued to stick to our guns on price.
In Italy, it was a disappointing year. Market conditions remain very difficult and it is taking longer to fix the business than we had expected. The underwriting loss was £63m and comprised further deterioration in Motor and reserve strengthening in General Liability. The Motor losses reflect changes to and a wider adoption of the Milan Bodily Injury Tables and adverse experience on large losses.
While I’m not happy with the result, I am convinced we are taking the right action to remediate the business. Over the last couple
In contrast, our Irish business had another strong year, despite the economic conditions, with growth of 16%. 123.ie performed well ahead of expectations with 33% premium growth and we successfully pushed rate across all our main lines of business. Despite the November floods, we generated an underwriting profit of £24m and an excellent COR of 92.6%.
Emerging Markets Emerging Markets continued its impressive top line performance. Coupled with solid GDP growth in a number of our markets, we drove an increase in net written premiums of 14% to £1.1bn and, including our Indian associate, to over £1.2bn. The underwriting profit was £3m, with Latin America performing well but the overall result being hampered by severe weather events in Thailand and the Baltics.
In Asia and the Middle East, premium growth of 14% to £214m was led by Specialty lines and our businesses in Oman and Singapore. Our Indian associate continued to grow rapidly, with premiums up by 19%.
Across Central and Eastern Europe, growth returned with premiums up by 8%. We remain the number one insurer in the Baltics, maintaining our market leading positions in Lithuania and Latvia. In Estonia, our recent partnership with SEB will build scale in that business.
In Latin America, we had a really good year. We saw continued strong growth, with double digit increases led by Argentina and Brazil, and premiums reached £670m. In the last four years, premiums have doubled in Latin America and we remain very excited about the potential and prospects for the region.
STRONG FINANCIAL POSITION The Group maintains a strong financial position with a regulatory capital surplus of £1.3bn or twice the requirement.
In 2008, we partnered with Gallup on our staff engagement programme, setting ourselves an ambitious target to achieve upper quartile engagement by 2011. I am pleased to report that we have achieved this. Gallup has described this achievement as ‘unprecedented’, with most organisations taking five years to accomplish what we have managed in three. We are now the world’s ‘most engaged insurance company’ in the Gallup database and rank in the top three financial services companies globally. In March 2012, our UK business ranked 6th in the Sunday Times ‘Best Big Companies to Work For’.
I’d like to take this opportunity to thank our staff for their continued hard work and commitment to serving our customers and driving the business forward.
CORPORATE RESPONSIBILITY Behaving responsibly and ethically has a positive impact on our people, our communities and the environment in which we operate. Our approach to corporate responsibility remains practical and is focused on three key themes: the environment, road safety and social inclusion.
In 2011, we extended our work on Road Safety around the world. This included a new eyesight campaign in the UK, encouraging stronger regulation around eyesight tests for driving licence renewals. Our child safety programme was extended to another 40 primary schools in the UK.
INDUSTRY AND MARKET OVERVIEW The industry experienced record natural catastrophe losses in 2011, with earthquakes, a devastating tsunami, destructive floods and severe weather affecting many lives.
We also faced challenging economic times. Global economic recovery lost momentum in the latter part of 2011, with the combination of fiscal policy tightening and the continuing crisis in the Eurozone taking its toll on both business and consumer confidence. Once again, the more heavily indebted economies, such as those in peripheral Europe and the UK, struggled to generate economic growth as they implemented fiscal austerity measures. In contrast, the lower debt economies such as Canada and Sweden generated more solid growth and some emerging market economies continued to perform strongly.
Our portfolio of diversified businesses in both mature and emerging markets is one of our key strengths in enabling the Group to deliver consistent and resilient earnings performance in this challenging environment.
We welcome the Government’s commitment to reforming the practices that have led to a growing compensation culture in the UK and a dysfunctional motor market. We fundamentally believe that wholesale reform is required that includes a market-wide ban on referral fees, changes to the structure of personal injury legal fees and in payments for soft tissue injuries.
Build on firm foundations We are building on firm foundations. Firstly, we have a unique footprint with our portfolio of diversified businesses in both mature and emerging markets which has helped us outperform in both profitability and growth.
DISCIPLINED, HIGH QUALITY UNDERWRITING AND CLAIMS MANAGEMENT WITH CONSERVATIVE APPROACH TO REINSURANCE AND RESERVING
is more to be done. In Ireland, we have a really well run business which has significantly outperformed its competition over a number of years and will continue to do so.
We have an exciting franchise in Emerging Markets with good businesses in our chosen markets. Strong GDP growth and increasing insurance penetration mean that these markets will continue to do well.
We have a well deserved reputation for disciplined, high quality underwriting and claims management.
Finally, we have a talented and experienced management team who collectively have driven our success over a number of years.
Scandinavia Scandinavia is led by Mike Holliday-Williams. Mike has been there for 12 months after a successful period running our UK Personal business. I have been working with Mike on a new strategy which draws upon both the benefits of the Group and Mike’s own experience of customer-led initiatives. This will protect our leadership positions in Swedish Motor and Personal Accident and drive improved performance in our Danish and Norwegian operations. We will build out our sub-scale Specialty franchise and generate more business through our global broking partners Willis, AON and Marsh. We are determined to take advantage of our position as the only scale player in Scandinavia with a global presence.
Emerging Markets In Emerging Markets, Paul Whittaker will be looking to build scale and capitalise on the potential of these markets. Growth will be led by organic initiatives but will also be supplemented by bolt-on acquisitions. We have previously set a target of generating £2.2bn in premiums by 2015. I will be working with Paul to see how we can beat this.
Product Diversification Another of our strengths is our product diversification, split roughly half and half between Personal and Commercial. Within Personal, we’ve made good progress, growing the top line by around 50% since 2007.
M&A This has been a key part of the way we have built the Group over the past few years and we have had particular success in International with deals such as 123.ie, GCAN and the Codan minority buy-out. Going forward, my focus will be on bolt-on acquisitions.
With the combination of the strong platform we’ve built and the actions we are now emphasising, I’m confident that we will continue to outperform and take the Group to the next level.
Finally, I would also like to thank Andy Haste, who led this business so well for many years and George Culmer, who has been invaluable to both the business over the longer term and to me personally during my transition to Group CEO. It has been a pleasure to work with both of them over the last eight years and I wish them all the best for the future.
20 Canada business review 22 UK and Western Europe business review 24 Emerging Markets business review 26 Financial review 30 Risk review 34 Corporate responsibility
OUR GLOBAL SPECIALTY LINES BUSINESS SUPPORTS THE INSURANCE NEEDS OF LARGE AND SPECIALIST BUSINESSES AROUND THE WORLD. OUR PHILOSOPHY IS SIMPLE, IT’S ABOUT UNDERSTANDING OUR CUSTOMERS’ BUSINESSES, INSIDE OUT AND BACK TO FRONT.
This means we can provide solutions tailored to suit each individual business’ requirements. We bring our experience to bear at every stage, providing the right people and expertise for the lifetime of the partnership.
Our reputation has been built upon consistent delivery from our highly skilled and market-leading Underwriting, Operations, Claims and Risk Management teams, as well as a deep expertise in all lines of business and specific industry sectors.
All of our specialisms are supported by our dedicated team of risk engineers, who identify and assess the customers’ risks and design customised and comprehensive risk improvement programmes.
KEY STRATEGIES Our Scandinavian business has been a key driver of the Group’s profitability in recent years. Going forward, we expect to continue to deliver a strong underwriting result. We will look to protect our leadership positions in areas such as Motor, Personal Accident and Renewable Energy while improving profitability in Denmark and Norway. As well as this, we plan to fully capitalise on the opportunities in Specialty and with global brokers that arise from being the only scale player in the region with a global presence.
• Increase growth in each of our businesses and improve profitability We aim to grow profitably in our target core segments, to increase our business with key brokers and to strengthen our position within focus areas such as Care, Bancassurance and key target segments in Commercial lines
• Improve the customer experience We aim to define more clearly the sales, service and claims promises for our customers and to deliver them more consistently every time. We will focus on retaining our existing customers and improve our customer proposition to target new ones
• Invest in our people We already deliver excellent leadership and technical training to our people and have market-leading people engagement. We aim to improve this further through our increased customer focus.
The underwriting result was £16m. Motor and Workers Compensation again performed well, though the Property business was impacted by adverse weather.
Personal lines Net written premiums grew by 5% to £982m (up by 1% at constant exchange).
The underwriting result was up by 25% to £248m despite the adverse weather, driven mainly by another strong performance from Swedish Personal Motor and Personal Accident, where we have strong customer retention.
MARKET CONDITIONS In Scandinavia, early indications were that there would be some economic recovery during 2011 though, as with elsewhere in Europe, the recovery faded in the latter part of the year. The Scandinavian insurance market remains stable and attractive.
Against this backdrop, we continued to deliver strong profitability and maintained good top line momentum in our target growth areas.
“ Scandinavia has been a key driver of the Group’s result in recent years and we expect to continue to deliver strong underwriting profitability.”
2012 OUTLOOK In 2012, real GDP growth is expected to remain positive but at a low level in Denmark and Norway. The economic slowdown is also expected to have an impact on Sweden for the first time.
WE ARE THE THIRD LARGEST GENERAL INSURER IN THE CANADIAN MARKET, OPERATING AS RSA THROUGH BROKERS AND AS JOHNSON FOR DIRECT BUSINESS
KEY STRATEGIES In 2011, we continued to focus on sustainable, profitable growth, delivered through five core strategies
• A business value proposition that allows us to be an end-to-end solution for our partners and customers
Property was up by 54% and Liability up by 79%, both driven predominantly by the GCAN acquisition, while our Motor portfolio grew by 28% supported by excellent retention.
We broadened our appetite in the SME segment during 2011, with the launch of a refreshed product and a new e-trading platform that positions us well for growth in 2012.
Personal lines Net written premiums grew by 9% to £1,012m (9% at constant exchange) driven by strong growth across both Johnson and Personal Broker.
MARKET CONDITIONS Canada continued to weather the global economic downturn, maintaining a strong credit rating and high employment levels, while the dollar continued to appreciate against major currencies. GDP growth, while low, did remain in positive territory.
CUSTOMER In 2011, we implemented an upgraded Home and Motor system that improves customer service and reduces transaction times. As a result of its strong customer focus, Johnson was awarded some of the highest customer service scores in Canada by J.D. Power and Associates.
TECHNICAL EXCELLENCE The acquisition of GCAN has broadened our product offering in line with the rest of the Group, expanded our technical expertise and strengthened our position in the Canadian Large Commercial and Specialty market, positioning us as a top five Commercial insurer. The integration is almost complete and synergies between RSA and GCAN have had a positive impact on both retention and new business prospects.
• Commercial lines NWP growth of 50% due mainly to GCAN
• A record underwriting result of £116m and COR of 91.6% despite Slave Lake
Annual Report and Accounts 2011 | RSA | 21 visit www.rsagroup.com
Western Europe The remediation of Italy remains a priority and the management team continues to take extensive action to achieve this.
2011 OVERVIEW UK We delivered a good top line result, with net written premiums up by 6% to £3.1bn, driven by growth in both Commercial and Personal.
UK Commercial Net written premiums of £1,723m were up by 2% on last year, driven by strong growth in our Specialty business, with Marine up by 9% and European Risk Managed up by 19%. Growth of 9% in Motor reflects the phasing of a large three year contract and, excluding this contract, premiums reduced by 15%.
Household premiums are up by 11% due to strong retention and rate, the acquisition of Oak Underwriting in April 2011, which specialises in high net worth insurance, and the development of a new product for building societies. In MORE TH>N Motor, we reduced capacity whilst increasing rates and continuing to focus on strong fraud controls at both the application and claims stages.
Our Affinity business continues to grow and our reputation as a supportive and innovative partner has enabled us to build a healthy pipeline of opportunities. We recently announced a new partnership with Home Retail Group which will help drive further momentum in 2012.
We delivered a much improved underwriting result of £60m led by Household, with Motor breaking-even as expected following continued management action.
Italy The market remains challenging, however, the underwriting loss of £63m was disappointing. The result was driven by adverse prior year development in Motor and General Third Party Liability caused by changes to and a wider adoption of the Milan Bodily Injury Tables and large losses. We continued to take action to remediate the business, significantly reducing volumes, cancelling contracts with underperforming agents and pushing through double digit rate increases.
CUSTOMER We continue to put customers at the centre of everything we do. In the UK, we now offer our Personal customers a single point of contact for their policy and claims queries, to make their experience with us as easy as possible.
WE ARE ONE OF THE UK’S LARGEST COMMERCIAL AND PERSONAL LINES INSURERS WITH A REPUTATION FOR TECHNICAL EXCELLENCE. WE ARE THE SECOND LARGEST INSURER IN IRELAND, WHERE WE OUTPERFORM THE MARKET ON BOTH THE TOP AND BOTTOM LINE. IN ITALY, WE HAVE A NICHE BUSINESS, FOCUSED MAINLY ON MOTOR
TECHNICAL EXCELLENCE Our UK business continues to build on its reputation for technical excellence and in 2011, won the Insurance Times ‘Claims Initiative of the Year’ for our industry-leading Home Claims Customer Tracker, which enables us to deliver a smoother service, improving the customer experience, and gives us greater control over our claims costs.
• Ranked 6th in Sunday Times ‘Best Big Companies to Work For’
• Underwriting loss of £20m, good performance in Marine and Liability offset by Motor and Property.
• Pet continues to grow strongly with Tesco delivering c£130m NWP
We focus on markets where we can establish a meaningful presence, either in overall market share or in segments where we have a competitive advantage.
Net written premiums are up by 14% to £1,103m (15% at constant exchange) and including our Indian associate, total premiums are £1,241m.
Latin America Premiums are up by 17% to £670m (18% at constant exchange), with double digit growth in five countries. Argentina and Brazil grew particularly strongly, with premiums up by 42% and 22% respectively.
In Motor, we continue to focus on pricing sophistication to deliver competitive advantage and continue to invest in specialist pricing resources.
In Marine, premiums are up 21% and we continue to hold market-leading positions in a number of our territories including Brazil, where premiums grew by 26%.
In SME, we are focusing on streamlining our processes and propositions, making it easier for brokers and customers to work with us.
PEOPLE Talented people are key to our success and we continue to invest in our people through technical and management development programmes. There are currently 44 Emerging Markets employees participating in the Group’s programmes.
We continue to promote international mobility to give our developing talent the opportunity to gain experience in other markets and support the accelerated deployment of capability from developed markets. This can take the form of short term secondments as well as longer term transfers. We currently have 36 staff on assignments outside of their home countries across Emerging Markets.
LATIN AMERICA • Latin America net written premium growth of 17%
• Delivered strong NWP growth in Hong Kong and Singapore Specialty lines
CENTRAL AND EASTERN EUROPE • Central and Eastern Europe grew by 8%
Underwriting result The underwriting result was up by 58% to £375m (2010: £238m) with a current year underwriting profit of £146m (2010: underwriting loss of £29m) and a prior year profit of £229m (2010: £267m). The combined operating ratio (COR) of 94.9% was 1.5pts better than 2010.
2011 saw a record level of natural catastrophe losses across the industry. The Group, however, benefited from its focus on underwriting discipline and prudent reinsurance programme. The net impact of the earthquakes in Japan and New Zealand and the flooding in Australia in the first quarter was around £12m, the Scandinavian storms in July and November were around £35m, the floods in Ireland and Thailand were £24m and £17m respectively and in Canada, the Slave Lake fire cost £11m.
The Group continues to adopt a prudent reserving policy for both current and overall reserves and, given our prudent reserving policy, we continue to expect positive prior year development to be a significant feature of the underwriting result.
Investment result The investment result increased by 19% to £642m and comprised investment income of £579m and total gains of £157m offset by the discount unwind of £94m.
Investment income of £579m was up by 2% and benefited from continued action to mitigate the impact of falling yields, as well as a number of exceptional items including a £25m rent settlement in Denmark, around £10m from a combination of stronger Swedish index-linked income due to higher inflation levels and one-off dividends from equity and preference share holdings.
Total gains in 2011 of £157m were higher than anticipated and mainly comprise gains on the £430m of equities we sold during the year.
Profit after tax from continuing operations 427 355 419 586 641 Loss after tax from discontinued operations – – – – (13)
by the impact of the goodwill write-downs and excluding these, the effective underlying rate was 27%.
Profit after tax Profit after tax was up by 20% to £427m and the underlying return on average equity was 11.6%, with the movement on 2010 predominantly reflecting the improved underwriting result.
BALANCE SHEET The total value of the investment portfolio is £14.5bn and was broadly unchanged over the year. Of the total investment portfolio, 89% remains invested in high quality fixed income and cash assets. The fixed interest portfolio is concentrated on high quality short dated assets, with 98% of the bond portfolio investment grade, and 74% rated AA or above. The bond holdings are well diversified, with 75% invested in currencies other than Sterling, and 60% invested in non government bonds (31 December 2010: 53%).
On duration, across the Group we have increased the average duration from 3.1 to 3.4 years to benefit from the higher yields on longer dated securities.
Going forward, the Group will continue to take action to mitigate the impact of falling yields while sticking to its low risk, high quality strategy. Actions will include a further modest increase in exposure to high quality non government securities, from the 60% at the year end, to around 65% of the total bond portfolio. The Group will also look to modestly increase holdings in longer dated securities, although duration is set to remain below four years.
CAPITAL POSITION The Group has again maintained a strong capital position. Shareholders’ funds were £3.8bn, in line with 2010, with after tax profits offset by dividends and foreign exchange losses. Excluding the pension fund, Shareholders’ funds were up 4% to £3.9bn.
On regulatory capital, our IGD surplus of £1.3bn and coverage of 2 times the requirement were unchanged from the end of the third quarter and remained very strong.
Economic capital is the Group’s own internal measure of the capital position and is calibrated to S&P’s A rated default curve, which equates to a probability of insolvency over one year of 1 in 1,250. This is significantly more prudent than the probability of insolvency over one year under both ICA and Solvency II, which is 1 in 200. Our economic surplus remained strong and was up by £0.1bn since the end of the third quarter to £0.8bn. This compared with £1.1bn at the start of the year, with the movement reflecting capital generation of £0.5bn covering dividend payments of £0.3bn and corporate activity of £0.1bn.
We remain at our target credit rating level and the Group is rated A2 stable outlook by Moody’s and A stable outlook, by AM Best. In February 2012, S&P upgraded the Group to A+ stable outlook reflecting our strong competitive position and capitalisation.
The Board Risk Committee ensures that material risks are identified and that appropriate arrangements are in place to manage and mitigate those risks effectively in line with risk appetite.
GROUP RISK APPETITE The Group risk appetite is set and monitored at a Group, regional and business level and is reviewed annually and signed off by the Board Risk Committee and Group Board. It sets business volumes for certain higher risk insurance classes, stipulates loss retention limits, reinsurance protection, targets for credit rating and solvency margins.
RISK FRAMEWORK The Group operates a ‘three lines of defence’ model for the oversight and management of risk as follows: 1st line – Management • Setting strategy, performance measurement, establishment and maintenance of internal control and risk management in the business.
2nd line – Risk oversight • Operating a formal Risk Management
Simple objectives • Create value for all stakeholders • Focus on general insurance in our selected markets • Commitment to sustainable, profitable performance.
During the year we have maintained our focus on risk management, strengthening and developing our processes, controls and capabilities across the Group through the following activities
• Reinforced our three lines of defence model, which clearly articulates the second line role of the Risk Function
• Continued solid progress made on our transition into the Solvency II regulatory environment by - actively responding to the changing insurance regulatory architecture across the UK and Europe - working with regulators to demonstrate our approach in meeting requirements - educating our business on its changing roles and responsibilities.
Governance Risk and Compliance tool enabling a consistent assessment of risk across the three assurance functions of Risk, Financial Control and Internal Audit
PEOPLE • Our risk experts helped to develop excellence across the Group • We continue to strengthen our insurance and financial risk management capabilities through training and recruitment.
“ We ensure risk is managed to minimise losses and take opportunities for profitable growth.”
• Controls to ensure that exposure is managed within risk appetite
• Monitoring of exposure against limits set out in the Investment guidelines
Our reinsurance buying and management expertise has allowed us to manage our insurance exposure and losses such as those arising from natural catastrophes during 2011, including the earthquakes in Japan and New Zealand and the floods in Thailand and Australia.
• Pricing, acceptance and management of risks arising from our contracts with customers
• Reinsurance strategy and appetite recommended to the Board by the Board Risk Committee
• Purchase of the worldwide programme of global and local treaties
• Active engagement with regulators • Close monitoring of regulatory requirements • Compliance framework with consistent monitoring methodology • Monthly reporting of significant regulatory developments and mitigation of emerging risks.
• Limited exposure to economically triggered contracts • KPI dashboard utilised to support early corrective action • Maintain focus on underwriting discipline and targeted profitable growth • Continuous action on rate and expenses.
• Diversified portfolio by geography and line of business • Each portfolio has a rate plan which is regularly reviewed • Focus on underwriting and profitable growth • Actively shift capacity to where we see the best returns • Continue to invest in technical skills, sales and marketing capabilities.
• Underwriters are licensed only to write risks within specified limits based on their own experience
• Impact on investment portfolio and investment income due to lower interest rates and market volatility.
Corporate Responsibility (CR) remains fundamental to the way RSA conducts its business.
Responsibility for CR lies with the Group CEO, who chairs the biannual Group Executive Committee review of CR and the annual review by the Board. Briefings and training on specific CR issues are provided on an ongoing basis. CR targets and objectives are included in the entire Group Executive Committee’s individual objectives, which are also cascaded to direct reports and relevant business functions.
APPROACH AND GOVERNANCE Behaving responsibly and ethically has a positive impact on people, communities and the environment in which we operate. We are committed to ‘Doing the Right Thing’, both as individuals and as a company. All employees are assessed against our brand beliefs – Bright Ideas, Brilliant Service, Doing the Right Thing, Getting the Job Done and Positive People – to ensure that this forms part of the performance and remuneration structure at RSA.
2 emissions in relation to our net written premium by 40%. We have now extended the target to a 50% reduction against our 2006 baseline, to be achieved by 2020.
‘Claims Initiative of the Year’ for its industry leading Home Claims Customer Tracker at the Insurance Times Awards 2011. The innovative tracker shows where customers are in the claims journey, prompting us to contact them throughout their claim and to line up suppliers in advance, enabling us to deliver a smoother, more efficient service.
Product innovation is also key to our success. Across the business we have created tailored and relevant products for specific customer groups and innovative insurance solutions in response to social and environmental changes, including • In Canada, our green home endorsement policy ensures that any repairs are now carried out with environmentally friendly and healthy materials
• Our UK business is actively working to minimise waste in our claims supply chain through the use of recycled car parts and repairing electrical goods in the home
The ‘Arctic Challenge’ saw over 10,000 of our employees in 33 countries taking part in a competition to win the opportunity to travel to the Arctic to see at first-hand the impact of climate change. The competition challenged teams to reduce their carbon footprint by walking and cycling rather than driving, donating and fundraising for charity and developing ideas to reduce our environmental impact.
RESPONSIBLE INVESTMENT The bulk of our UK equity assets continue to be managed by F&C Asset Management. F&C has one of the largest Governance and Sustainable Investment teams in Europe, enabling it to follow a policy of active engagement across its portfolios on environmental, social and governance issues. Last year, F&C engaged with 29 companies on a wide range of issues from climate change to labour standards across our portfolios.
We continue to focus on developing employees at all levels through programmes such as the Executive Development Programme for senior leaders, the Leadership Development Programme for team leaders, Fast Track for high potential individuals and the Graduate Programme. Our Graduate Programme involves developing long term charitable initiatives which link to our business as well as tackling responsible business dilemmas including procuring goods and product development.
Our child safety programme was extended in the UK to another 40 primary schools nominated by our employees. Our Chilean road safety programme continues to help over 30,000 children per year. In early 2012, the programme was extended to Bahrain and Singapore for the first time.
Across the Group, we also launched our Global Charitable Programme to support employees charitable work and local communities. The programme is aimed at helping improve employee engagement, supporting local community organisations and promoting RSA in the community. Employees anywhere within RSA can now apply for matched funding, a charitable grant, or a charitable secondment lasting up to three months.
We launched the Arctic Challenge in 2011 which saw over 10,000 of our employees actively participate to reduce their carbon footprint, develop the best business green idea and fundraise for WWF or other green charities. The campaign was aimed at increasing awareness of WWF and the link to insurance risk.
For further information on Corporate Responsibility please email corporate.responsibility@gcc.rsagroup.com or to see the full Corporate Responsibility Report, visit our website www.rsagroup.com
Marine As one of the largest Marine insurers, we are acutely aware of increasing pressures on fishing, shipping and resource extraction and we are working to improve the sustainability of our seas. In Canada, we are working with WWF to establish marine protection areas to help safeguard the long-term future of the fishing industry and in Scandinavia, we are collaborating with governments to better manage the commercial use of the Baltic Sea. RSA joined a group of global marine industry leaders to launch the Sustainable Shipping Initiative (SSI) which will focus on shaping regulations to improve safety and minimise the impact on the environment. The SSI tackles issues such as climate change, piracy and carbon taxes. We will be working to ensure that risk reduction plays a key role in commitments for the industry.
Renewable energy Governments are placing an increased focus on renewable energy to combat climate change. As a leading insurer of this risk, our Global Renewables business is uniquely placed to help the transition to a low carbon economy. In China, we have been working with WWF and a range of stakeholders to develop renewable energy usage and energy efficiency. In 2011, we produced research in China and the UK to raise awareness of the importance of insurance to grow the renewable energy industry. Together with WWF, further research in 2012 will help make the case for renewable energy and develop our knowledge of new technologies.
WITH OUR FOUNDATIONS GOING BACK TO THE INDUSTRIAL REVOLUTION, PROVIDING INSURANCE SOLUTIONS TO THE CONSTRUCTION AND ENGINEERING SECTOR HAS ALWAYS BEEN A CORNERSTONE OF OUR BUSINESS.
Our teams of people across the world are supported by our Centres of Excellence, which bring together the combined knowledge of specialist underwriters, risk engineers and claims experts with specific industry experience. The combination of our depth of knowledge and global reach has established us as a market leader.
External appointments Chairman of Aegis Group plc (media) (and was also interim Chief Executive of Aegis Group plc from December 2008 until May 2010).
Committee membership • Nomination Committee (Chairman) • Remuneration Committee • Investment Committee
Skills and experience Edward Lea was appointed as a Non-Executive Director in July 2003 and was appointed Senior Independent Director in January 2011. Previous roles include Finance Director of BUPA, ASDA and MFI and Chairman of Redbourn Group Limited.
Skills and experience Adrian Brown was appointed as an Executive Director in July 2011 having been Chief Executive of the UK since September 2008. Adrian is a qualified management accountant and has been with the RSA Group since 1989. He was previously the UK Chief Operating Officer with responsibility for Claims, Sales and Service, IT and Change across Personal and Commercial lines, and prior to that he was UK Director of Personal Lines, leading the launch of MORE TH>N.
External appointments Adrian is also a Director of Employers’ Liability Tracing Office and DKH Legacy Trust.
Skills and experience Simon Lee was appointed as Group Chief Executive in November 2011 having been Chief Executive of the Group’s International region since April 2003 and an Executive Director since January 2007. Previous roles include 17 years with the National Westminster Group, in the UK and US, including time as Chief Executive, Natwest Offshore and Head of US Retail Banking.
External appointments Non-Executive Director of Standard Life European Private Equity Trust plc, CATCo Reinsurance Opportunities Fund and Liontrust Asset Management plc. He is a fellow of the Institute of Chartered Accountants in England and Wales.
Skills and experience Jos Streppel was appointed as a Non-Executive Director in October 2011 and has a comprehensive understanding of the insurance market globally and good knowledge of international and emerging markets. He was Chief Financial Officer of Aegon until 2009 and has extensive financial services expertise.
External appointments Chairman of KPN, the former incumbent telecom carrier of The Netherlands, Deputy Chairman of Van Lanschot, a Dutch private banking and asset management firm and Chairman of the Monitoring Committee of the Dutch Corporate Governance Code
External appointments Non-Executive Director of WM Morrison Supermarkets plc, Director of RBG Kew Enterprises Limited, an Operating Partner of Duke Street LLP and Chairman of Sandpiper CI.
Committee membership • Group Audit Committee • Nomination Committee • Investment Committee
Skills and experience John Maxwell was appointed as a Non-Executive Director in July 2003. Previous roles include Executive Director of Prudential Group plc, Chairman of DXServices plc (mail), Director of Provident Financial plc (financial services) and Homeserve plc (support services) and Director General of The Automobile Association Limited.
External appointments Director of London Finance and Investment Group plc and a member of the Institute of Chartered Accountants of Scotland.
Committee membership • Remuneration Committee (Chairman) • Nomination Committee • Investment Committee
Skills and experience Malcolm Le May was appointed as a NonExecutive Director in March 2004. Previous roles include CEO Investment Banking (Europe) at UBS, Deputy Chief Executive of Morley Fund Management (Investment Fund Manager), Deputy CEO of ING-Barings (finance), Chief Executive of Matrix Corporate Capital LLP and President Europe at JER Partners (Property).
Committee membership • Investment Committee (Chairman) • Remuneration Committee • Board Risk Committee
Vanessa joined RSA in 2005 as UK Human Resources Business Partner Director for Claims and Finance. In 2006 she was appointed as Human Resources Director for the newly created Emerging Markets Region. In September 2008, she was promoted to UK Human Resources Director and since September 2011, has been acting Group Customer and Human Resources Director. Prior to working at RSA, Vanessa was HR Director – Global Retail at Lego and before that Head of HR for Gap, the international clothing retailer.2
Notes: 1. Orlagh Hunt went on maternity leave from 20 September 2011 and has since decided she will leave the Group in September 2012.
The Executive Team comprises the Executive Directors whose biographies are on page 40 and the following senior executives:
Derek joined the Group as Group General Counsel and Group Company Secretary in July 2010 and has over 17 years experience in the insurance industry. From 2002, he served as Group General Counsel at Benfield Group Limited, where he was responsible for the global legal, company secretarial and compliance teams. Prior to that, Derek held positions in law firms Pinsent Curtis (now Pinsent Masons), McKenna & Co (now CMS Cameron McKenna) and Norton Rose.
Paul was appointed Chief Executive of Emerging Markets in 2006, having been Group Human Resources Director since April 2003 when he joined RSA. He has over 20 years senior management experience in the financial services sector including three years at AXA and ten years at GE Capital, including work in Asia and Eastern Europe on acquisition integration and business development.
Mike Holliday-Williams joined RSA in 2006 and was appointed CEO of Scandinavia in February 2011. Mike is also CEO of Codan A/S and CEO of Trygg-Hansa. Prior to this, he was the Managing Director for RSA’s UK Personal Lines operation, which includes MORE TH>N and was previously the Managing Director of RSA’s UK Retail business. Before joining RSA, Mike worked in the energy, telecoms and retail sectors, beginning his career at WH Smith Ltd, before subsequently moving to various Centrica owned businesses, including British Gas and Onetel.
Currently Group Operations and Risk Director, David joined the Group in June 2007. Immediately prior to that David spent two years consulting blue chip and government organisations and acting as an independent board member in the US and UK. David had spent 27 years with the Barclays Group, where senior roles included CEO for Mid-Market Banking, Chief Operating Officer for Corporate Banking and Group Chief Information Officer. He was also on the Group Executive Committee. David is also currently a Non-Executive Director at the Financial Services Compensation Scheme.
Orlagh joined the Group as Human Resources Director for International in September 2003 and was appointed Group Human Resources Director in October 2006, also being responsible for Group Customer since 2011. She was previously Head of Human Resources for AXA Sun Life and has worked at Walkers and Tesco in a variety of Human Resources management roles.1
Counsel and Group Company Secretary • Determining the remuneration policy for the Executive Directors, the Chairman, Group General Counsel and Group Company Secretary and senior executives
2011 HIGHLIGHTS (in addition to items discussed elsewhere in this report) • Full day dedicated to strategy and regular updates during the year • Approved the 2012 Operational Plan • Discussed and approved the changes to the Board which took place during the year • Considered matters relating to Solvency II implementation including approving a UK legal entity reduction programme • Considered mergers and acquisitions activity in excess of £50m • Monitored material claims and reinsurance matters • Updated the Company’s policy in relation to bribery and corruption in response to the implementation of the Bribery Act 2010.
Each year, the Board meets to set annual objectives for the business in line with the current Group strategy. The Board monitors achievement of the Company’s objectives through monthly Board reports which include updates from the Group Chief Executive (Group CEO); Chief Financial Officer (CFO); Group Risk and other functions including Legal, Regulatory Risk and Compliance; IT and Operations; Corporate Responsibility; and Human Resources. The Board has a rolling agenda of items that regularly need to be considered by the Board and this agenda is continually updated to include any topical matters that arise.
The attendance of Directors at meetings of the Board during the year is set out below: Total number of Board meetings held during the year
Delegated authorities The Group operates a Delegated Authority Framework which specifies how executive authority is delegated from the Board to the Group CEO and on to other executives in the Group. Senior executives across the Group receive an executive licence setting out their specific limits of authority in terms of entering into financial, underwriting, claims and other business commitments. Each executive is responsible for ensuring a similar process of delegation is in place within his or her area of responsibility. Further detail on the overall risk framework is set out on pages 30 to 33.
Composition of the Board The Board believes that it has the appropriate balance of skills, experience, independence and knowledge of the Group to enable it and its committees to discharge its duties and responsibilities effectively, as required by the Code. It is satisfied that it is of a size appropriate to the needs of the business and that no individual or small group of Directors can dominate the Board.
A programme to actively manage changes to the Board to reflect the fact that four Non-Executive Directors will cease to be deemed to be independent in 2013 was commenced during the year. In order to ensure continuity of corporate knowledge and experience ahead of a series of planned retirements, the Board was strengthened in 2011 by the appointment of an additional Executive Director and two new Non-Executive Directors. Further details of appointments to the Board are contained in the report of the Nomination Committee below.
The Board also made a number of changes to the membership of its committees demonstrating its commitment, as required by the Code, to regularly refreshing the Board’s committee membership so that undue reliance is not placed on particular individuals. Further details on the changes to Board committee membership are contained in the relevant committee report below.
Board Appointments in 2011 The Board considers the leadership needs and succession planning of the Board when making decisions on new appointments and ensures that succession planning processes are in place with regard to senior appointments both below and at Board level. Further details of appointments to the Board are contained in the report of the Nomination Committee below.
Commitment The Chairman’s letter of appointment, revised in February 2011, anticipates an expected time commitment involving attendance at all Board meetings, the AGM and Board committee meetings of which the Chairman chairs or is a member, as well as being required from time to time to attend meetings with major shareholders, management, staff and professional advisers. The Chairman is currently Chairman of Aegis Group plc but the Board is satisfied that his other commitments did not interfere with the performance of his role as Chairman. He is always available, as required, to attend to the business of the Company as demonstrated by his availability for a number of additional Board and Board committee meetings during the year.
Service agreements and letters of appointment (for both the Executive and Non-Executive Directors) are available for inspection at the Company’s registered office and at the AGM. The letters of appointment for each of the Non-Executive Directors, revised at the beginning of the year, state that in accepting the appointment, the Director confirms that he/she is able to allocate sufficient time to meet the expectations of the role, with a minimum anticipated time commitment of 28–32 days per year.
Development On appointment to the Board, Directors undertake an induction programme and receive a broad range of information about the Company appropriate to their existing knowledge and experience and the committees to which they will be appointed. This includes background information on the Group and details of Board procedures, governance matters and Directors’ responsibilities and a series of meetings with members of the Board and executive management on the business and regulatory matters.
The monthly Board report (which is discussed at each Board meeting) includes updates from the Group CEO, CFO, the Group General Counsel and Group Company Secretary, including Regulatory Risk and Compliance and IT and Operations and other functional updates. Development and training for the Directors is an ongoing process which includes briefings on legislative and regulatory changes and on corporate governance matters. Directors also receive regular presentations about the Company’s operations and there are regular discussions on strategy, customer marketing, employee engagement and environmental and social matters. Opportunities are also created for Non-Executive Directors to make informal visits to different parts of the Group and to meet with local management.
The Group General Counsel and Group Company Secretary is responsible for assisting the Chairman with arranging induction and professional development for the Directors and for bringing all governance matters to the attention of the Board. The Directors have access to the services and advice of the Group General Counsel and Group Company Secretary and, in addition, may take independent professional advice at the expense of the Company in the furtherance of their duties. The appointment and removal of the Group General Counsel and Group Company Secretary is a matter reserved for the Board.
Following the Board Risk Committee’s review of its effectiveness, action is being taken to address the length of the agenda and quantity of information received by the Board Risk Committee to enable the committee to focus on key issues such as Solvency II and to be more forward looking.
The evaluation of the Remuneration Committee identified some areas for improvement relating to the reporting of remuneration matters to the Board and the need to have a coordinated training programme for committee members to maintain their knowledge of executive remuneration matters. The committee agreed to progress these actions.
Going concern In considering the appropriateness of the going concern basis, the Board has reviewed the Group’s ongoing financial commitments for the next 12 months and beyond. The Board’s review included consideration of the Group’s underwriting plans, strong regulatory capital surplus, diverse insurance risk profile, considerable undrawn financing facilities and highly liquid investment portfolio. As a result of this review, the Directors have satisfied themselves that it is appropriate to prepare these financial statements on a going concern basis.
• To provide oversight of the internal and external audit function • To manage the effectiveness of the Group’s systems of internal controls • To review the Group’s financial performance • To provide assurance on the effectiveness of the Group’s financial and regulatory risk management systems.
• Approved non audit services provided by the external auditor • Assessed the external auditor • Approved the 2012 Group Internal Audit Plan • Approved the 2012 Regulatory Risk & Compliance Plan.
Whistle blowing The Company’s policy on whistle blowing provides a mechanism for employees to raise serious concerns in good faith, where they either do not feel comfortable raising the matter with local management or are not satisfied with the local management response. The GAC annually reviews the policy and is satisfied that it meets the criteria set out in the Code.
Regulatory compliance The Board is responsible to the Financial Services Authority (FSA) for ensuring compliance with the Group’s UK insurance regulatory obligations. The Board attaches great importance to its regulatory responsibilities and is committed to dealing with the regulator in an open, cooperative and transparent manner. In the second half of 2011, the FSA carried out a review under its risk based regulation operational framework (ARROW).
External auditor Deloitte LLP was appointed as the Group’s external auditor in 2007. During the year Deloitte LLP was engaged as an adviser on a number of occasions. In order to maintain their independence, such appointments are only made in accordance with a protocol developed and embedded by the GAC. This provides that the external auditor should not carry out work where the output or recommendations are then subject to its review as external auditor. Work may be given to the external auditor where it is closely allied with the audit function or it is advantageous to the Group to use its external auditor in view of its knowledge and experience of RSA. This could
The GAC has reviewed the independence, effectiveness and objectivity of the external auditor in 2011 and concluded that Deloitte LLP provided a service that was robust and fit for purpose. Deloitte LLP has confirmed its willingness to continue in office as external auditor of the Company for the year ending 31 December 2012. Accordingly the GAC has recommended to the Board that a resolution be put to the 2012 AGM for the re-appointment of Deloitte LLP as external auditor and the Board has accepted this recommendation.
Group Internal Audit (GIA) The activities and effectiveness of the GIA are monitored and reviewed by the GAC. The GAC is responsible for ensuring that adequate access to information and resource is given to the Group Chief Auditor and for approving the appointment to, and removal of the holder from, that position.
Internal control The Board has overall responsibility for the Group’s internal control systems and for monitoring their effectiveness. Implementation and maintenance of the internal control systems are the responsibility of the Executive Directors and senior management.
A quarterly self-certification process is completed by business managers across the Group to confirm the adequacy of controls and their compliance with Company policies, local laws, rules and regulations.
The current reporting framework delivers information to monitor the systems of internal control and to review their effectiveness as required by the Code. The Board therefore considers that an ongoing process for identifying, evaluating and managing the significant risks faced by the Group has been in place during 2011 and up to the date of approval of the Annual Report and Accounts. This process is regularly reviewed by the Board and accords with the Turnbull Guidance on the Code.
Notes: 1. Mr Haste resigned from the BRC with effect from 1 November 2011 2. Mr Lee was appointed to the BRC with effect from 1 November 2011
Capital Assessment (ICA) and Economic Capital Assessment (ECA) to the Board
• To monitor the Group’s implementation of Solvency II • To ensure that material risks have been identified and mitigated appropriately • To approve new and amended Group policies • To approve the remit of the Group Risk team • To review the Remuneration Report for any implications of the
2011 HIGHLIGHTS • Reviewed the Group’s risk appetite and material risk profile • Reviewed results of stress and scenario tests • Considered emerging risks • Cyclically reviewed and approved changes to Group policies • Reviewed the quantum of the ICA and ECA capital models and made appropriate recommendations to the Board • Reviewed risks facing the Group by risk type and region at each meeting • Monitored progress on Solvency II compliance • Reviewed the governance structure and control framework to ensure its effectiveness • Carried out a survey on the committee’s performance in 2011 • Reviewed the Group’s risk appetite and material risk profile.
The BRC has a standing agenda to ensure that all items within its terms of reference are covered by the committee and this is regularly reviewed to ensure it reflects the requirements of the Group, meets current best practice and industry guidance and includes items of topical relevance. This may include greater focus on specific risk disciplines or individual insurance portfolios as considered appropriate through pre-meeting discussions between the BRC Chairman and the Group Risk Director.
These tests involve exploring a range of scenarios which could adversely impact the Group’s assets, liabilities and/or operational performance. In particular, the impact of a Euro sovereign debt default, the collapse of the Euro, effects of social unrest and increases in inflation and interest rates have been explored. The results demonstrated the Group’s resilience on both an absolute and relative basis to the scenarios considered. The results also allowed for the identification of potential additional management actions that could be taken to protect RSA’s customers, shareholders and operations.
No further committee meetings took place in 2011 following his appointment
PRINCIPAL DUTIES OF THE INVESTMENT COMMITTEE • To assist the Board in setting the Group’s investment strategy • To monitor the execution of that strategy and the Group’s investment performance.
• To make recommendations to the Board in relation to the re-appointment of any Non-Executive Director at the conclusion of his/her specified term of office.
• Managed the process of identifying board appointees • Recommended the appointment of a new Executive Director to the Board • Recommended the appointment of two new Non-Executive
With effect from 1 February 2011, Edward Lea and Johanna Waterous were appointed as members of the Nomination Committee and Malcolm Le May retired from the Nomination Committee. All members of the Nomination Committee, excluding the Chairman, are independent Non-Executive Directors. The Chairman chairs the Committee unless it is dealing with succession planning regarding his successor. The terms of reference for the Nomination Committee were revised and approved by the Board in March 2011.
When appointing new Directors, regard is given to the size of the Board, the balance of Executive and Non-Executive Directors, the skills and experience already represented, likely future retirements and those appointments to the Board which would be desirable going forward. RSA supports diversity within the boardroom, appropriate to and reflecting the global nature of the Company, its strategic objectives, and its regulatory status.
On 1 November 2011, Andy Haste stepped down as the Group CEO and was succeeded by Simon Lee who has been Chief Executive of International since April 2003 and an Executive Director since January 2007. Mr Haste retired from the Board on 31 December 2011.
On 21 November 2011, it was announced that George Culmer was to resign to take up the position of Group Finance Director of Lloyds Banking Group plc. George Culmer will remain as a Director and Chief Financial Officer of RSA until the close of business on 14 May 2012. He will be succeeded by Richard Houghton who will join the Group in June 2012.
Remuneration Committee Full details of the activities and duties of the Remuneration Committee can be found in the Remuneration Report on pages 57 to 71.
The Group CEO presents on the Company’s performance and activities during the year and the CFO presents the financial results of the Company prior to the formal business of the meeting. All Directors are requested to attend the AGM and the Chairman and the Chairmen of each Board committee make themselves available to take questions from ordinary shareholders at the AGM.
Separate resolutions are proposed on each substantive issue, including a resolution to adopt the Annual Report and Accounts. In accordance with the provisions of the Articles of Association (Articles), any form of proxy sent by the Company to shareholders in relation to any general meeting must be delivered to the Company, whether in written form or in electronic form, not less than 48 hours before the time for holding the meeting excluding non business days (or, in the case of a poll taken otherwise than at or on the same day as the meeting, not less than 24 hours before the time appointed for the taking of the poll).
Preference shareholders are only entitled to receive notice of, attend, speak and vote at general meetings if the dividend payable on the preference shares is in arrears at the date of the Notice, a resolution is proposed that affects the rights of the preference shareholders, a resolution is proposed to wind up the Company, a resolution is proposed to reduce the capital of the Company (other than a redemption or purchase of shares), or in such other circumstances as the Board shall determine. In any of these situations the preference shareholders may only vote on the relevant resolution and not on all the business of the general meeting.
Substantial share interests The following table shows the holdings of major shareholders in the Company in accordance with the Disclosure and Transparency Rules as at 31 December 2011 and the date of this Report.
The Group is committed to the promotion of equal opportunities for all employees. This involves recruiting, engaging, retaining, rewarding and developing people solely on the grounds of ability to carry out the role and establishing and promoting a working environment which is free from discrimination. In order to do this, the Group ensures that any reasonable adjustments are made, where it is appropriate to do so, to provide equal opportunities to all in respect of recruitment, terms and conditions of employment, promotions, transfers, grievances, redundancies and vocational training. The Group is committed, wherever possible, to supporting the rehabilitation and return to work of employees who become disabled during their career with RSA. Information on the diversity of RSA’s workforce can be found in the Corporate Responsibility Report available at www.rsagroup.com/corporate-responsibility.
The Group is committed to fostering a constructive relationship with recognised independent trade unions, ensuring a regular and open dialogue on business issues and early consultation on changes affecting the workforce. In the UK, Unite is formally recognised through a partnership agreement which covers collective consultation and bargaining on behalf of non-management employees. The Management Association (TMA) represents managerial employees under a separate consultative agreement. In Scandinavia, the Group has formal meeting forums with the national unions, where the Group informs and negotiates changes affecting the workforce. Within our CNS operation in British Columbia, Canada, we have a collective bargaining agreement with the Canadian Office and Professional Employees Union. The European Consultative Forum (ECF) is a cross European body created to enable information sharing and consultation on transnational issues with our European workforce.
Lloyds Banking Group plc 246,760,3051 7.00 Direct and Indirect –2 –2 –2
Indirect as discretionary investment manager Standard Life Investments Ltd 152,266,879 4.42 Direct and Indirect 152,266,879 4.42 Direct and Indirect
Notes: 1. 242,643,597 shares (6.884%) are under the control of Scottish Widows Investment Partnership Ltd, a wholly owned subsidiary of Scottish Widows Investment Partnership Group Ltd, a wholly owned subsidiary of Scottish Widows Group Ltd, a wholly owned subsidiary of Lloyds TSB Bank plc, a wholly owned subsidiary of Lloyds Banking Group plc. 2. The Company was informed on 31 January 2012 that the indirect holding of Lloyds Banking Group plc had decreased below the reporting threshold of 5%.
The Fast Track programme is aimed at growing our emerging leadership talent (employees who are in their second or third role after graduating) who have already demonstrated high performance and leadership ability. The programme is structured to equip our future leaders with the commercial understanding and leadership capabilities they will need to thrive; exposing them to global networking opportunities, in-depth self-analysis and development and performance coaching to encourage rapid career development.
The Marketing Academy was set up to support our ambition of building a world class marketing function for RSA by professionalising our marketing activity. Both e-learning and face-to-face training courses are run throughout the year. So far, over 300 marketers from 12 countries have attended the foundation course as well as additional specialist master-classes.
The Technical Academy aims to continually enhance the technical capability of RSA’s Underwriting, Claims and Actuarial community by providing training programmes, identifying talent, ensuring there are structured career pathways for technical staff, developing global best practice and standards as well as supporting and recognising the attainment of technical skills and qualifications.
The ‘Learning Zone’ is available in 13 languages in 28 countries. There are over 2,000 learning resources directly available on the ‘Learning Zone’. Employees can access thousands of e-books and audio books that can be downloaded to a computer, mobile device or Kindle. We are also using webinars and ‘Connect’ (a social platform for learning and communication) to facilitate bringing global teams and professional communities together.
Employees are kept well informed of the overall performance and objectives of the Group. Communications are regularly provided through face to face meetings and presentations, by email, intranet articles and staff publications. Key messages from the biannual Group Leaders Conferences are disseminated to teams by the Group CEO via Webex and through local management.
The Group actively encourages employees to become involved in supporting their local communities. Further details are provided in the Corporate Responsibility Report on pages 34 to 37.
Principal activity The Company is the holding company of the RSA Insurance Group plc group of companies whose principal activity is the transaction of personal and commercial general insurance business. The Group operates in 33 countries and provides general insurance products and services in around 140 countries.
Disclosure and Transparency Rule 4.1.5(2) also requires the Annual Report to include a management report. The information that fulfils this requirement can be found in the Introduction and the Business Review on pages 1 to 37 and the Directors’ Report on pages 44 to 56.
Events after the reporting period No material events have occurred since 31 December 2011.
Environmental programme Details of our environmental programme can be found on pages 34 to 37 of the Business Review and on the Group’s website at www.rsagroup.com/corporate-responsibility.
Share capital Details of the Company’s share capital, together with details of the movements in the Company’s issued share capital during the year are shown in note 18 on page 120. Directors are still limited as to the number of shares they can allot (save in respect of employee share schemes). The current authority allows Directors to allot securities up to a nominal amount of £320,667,149 and renewal of the Directors’ authority to allot shares will be sought at the 2012 AGM. During 2011, the Directors exercised their authority to allot in respect of employee share schemes and the scrip dividend scheme.
The Company’s outstanding indebtedness to trade creditors on 31 December 2011 amounted to £3.5m, corresponding to 18 days’ payment when averaged over the year.
Essential contracts The Company does not consider that it, or any of its subsidiaries, has any contractual or other arrangements that are essential to the success of the Group that is required to be disclosed pursuant to section 417 of the Companies Act 2006.
Charitable and political donations The Company and its subsidiaries worldwide made charitable donations of £2.6m (2010: £2.4m) during the year, of which £0.7m (2010: £1.2m) related to donations made to UK based charities. The Group’s Community and Charitable policy prohibits political donations.
Borrowing powers The Directors restrict the borrowings of the Company so that the aggregate amount, for the time being, remaining borrowed by the Group is not, without the previous sanction of an ordinary resolution of the Company, more than one and a half times the aggregate of: • The amount paid up on the issued share capital of the Company • The total of the capital and revenue reserves of the Group (subject to certain adjustments).
Directors’ indemnity Article 140 of the Articles provides that, among other things and insofar as permitted by law, the Company may indemnify its Directors against any liability and may purchase and maintain insurance against any liability.
The Company has granted an indemnity to each of the Directors pursuant to the power conferred by Article 140. The indemnities granted constitute qualifying third party indemnity provisions (as defined by section 234 of the Companies Act 2006). The Board believes that it promotes the success of the Company to provide this indemnity to its Directors in order to ensure that the Group attracts and retains high calibre Directors through competitive terms of employment in line with market standards.
In addition, the Company has indemnified the Directors of SAL Pension Fund Limited, a majority owned subsidiary of the Group, in relation to its role as Trustee of an occupational pension scheme. This indemnity constitutes a qualifying indemnity provision under section 236 of the Companies Act 2006.
Directors’ responsibility statement The Directors’ responsibility statement appears on page 74 and is incorporated by reference into this Report.
Notes: 1. Mr Streppel was appointed to the Remuneration Committee with effect from
Attendees at Committee Meetings During 2011, a number of executives attended Committee meetings by invitation to advise on Group strategy, Company performance, HR policies and remuneration policies and practices. None of the attendees have a right to be present and do not attend when their own remuneration is discussed.
During the year, the Committee obtained its principal advice from Towers Watson, which was appointed by the Committee in 2009. Representatives from the firm attended each of the seven Committee meetings held in 2011. In addition to providing independent advice to the Committee, Towers Watson advised the Company on a range of remuneration-related matters in the year.
Notes: 1. Ceased attending the Remuneration Committee after 20 September 2011. 2. Commenced attending the Remuneration Committee from 20 September 2011. 3. Ceased attending the Remuneration Committee after 20 September 2011 due to maternity leave.
4. Commenced attending the Remuneration Committee from 26 July 2011. 5. Ceased attending the Remuneration Committee after 19 July 2011. 6. Commenced attending the Remuneration Committee from 17 October 2011.
The following report by the Remuneration Committee (the Committee) has been approved by the Board, for submission to shareholders at the 2012 AGM.
• The tables of defined benefit and defined contribution pensions on page 68 and associated footnotes
In constitution and operation, the Committee complies fully with the Corporate Governance Code as described in the Directors’ and Corporate Governance Report on page 44.
Duties and Activities of the Committee The Remuneration Committee is a formal Committee of the Board, accountable to shareholders through its policies, actions and decisions which are contained in the annual Remuneration Report, upon which shareholders vote at the AGM. Its principal duties are: • To determine the terms and conditions and remuneration of the Chairman of the Board and the Executive Directors
• Review of the measurement of the relative Total Shareholder Return (TSR) performance condition applying to conditional awards granted under the LTIP in 2008 and approval for awards to vest
• Approval of the 2010 Remuneration Report • Review of the 2011 objectives and performance goals for each Executive Director.
• Review of the measurement of the Return on Equity (ROE) performance condition applying to conditional awards granted under the LTIP in 2008, and approval for awards to vest
August • Approval of Simon Lee’s remuneration package as Group Chief Executive.
• Approval of the terms relating to Andy Haste’s resignation • Review of incentive plan benchmarking analysis • Commenced an effectiveness review of the Committee
Remuneration policy principles The continuing focus of the Committee is on maintaining a strong link between performance and reward. It is the Committee’s view that shareholders’ interests are best served through a remuneration structure which contains a significant element of deferred performance-related pay, supporting the existing Group-wide culture of high performance and accountability, without undue risk.
During 2011, the Company announced the resignation of two Executive Directors: Andy Haste and George Culmer, both of whom have made a significant contribution to the success of the business during their respective tenures.
Andy Haste left the Company on 31 December 2011 with the Board’s approval, and following significant planning and hand-over to the incoming Group Chief Executive, Simon Lee, in accordance with the Company’s succession plan. Andy was therefore treated as a “good leaver” in light of his performance and commitment to the Company. His leaving arrangements include a cash bonus in respect of the 2011 financial year, unvested shares under the long-term incentive plans and a payment to reflect the remaining part of his notice period; further details of these terms are set out in each relevant section of this report.
George Culmer tendered his resignation in November 2011 and he will leave the Company in May 2012 to join Lloyds Banking Group plc. As a consequence, he did not receive a bonus award in respect of 2011 performance. He will also forfeit all shares issued to him through the Company’s incentive plans that remain unvested at the date his employment ceases.
Elements of remuneration Remuneration for Executive Directors in 2012 will consist of the four principal elements described in the table on page 59, of which only base salary is pensionable: Remuneration Purpose Delivery Detail
Base salary To reflect the market value of the role and the skills, experience and performance of the individual.
Benchmarked against equivalent roles in similar companies (having regard to the market median) and with reference to the sustained performance of the executive.
Up to 120% of base salary can be awarded as a cash bonus, and up to 40% of base salary can be issued in the form of compulsory Deferred Shares. These shares are held on behalf of the director for three years, subject to continued employment.
Executive Team members are expected to defer an additional element of their cash bonus so that the total deferral is around 50% of the total cash bonus award.
Financial performance in 2012 will be measured through stretching targets based on COR and NWP performance according to Group and business divisions.
Full details of the performance conditions and vesting are described on pages 63 and 64.
Delivery is through deferred remuneration into a defined benefit or defined contribution scheme and/or through taxable cash payments made on a monthly basis.
To enable the Group to compete for the most talented executives, the Committee references base salary levels to market data at the median level for equivalent roles in similar companies facing similar levels of complexity and challenge in the UK and internationally. The Committee also has regard to levels of base pay within European and international companies, where appropriate.
The Committee is alert to market concerns surrounding boardroom pay in general and it closely monitors both base salaries and total remuneration for Executive Directors in light of the market, in addition to both individual and corporate performance. The Committee also has regard to the levels of pay increases available for all employees, as well as other forms of remuneration including short and long-term variable pay. Salary review decisions are therefore made “in the round”, taking into account the impact of salary increases on other forms of remuneration. The Committee remains confident that the structures and processes in place for reviewing salaries are robust.
2011 Pay review For the second consecutive year, the Remuneration Committee made no base salary increases in respect of Andy Haste and George Culmer, as their level of remuneration was considered to be appropriate and remained market-aligned. During the year, Simon Lee’s base salary rose to reflect his appointment as Group Chief Executive and Adrian Brown received a salary increase upon his appointment to the Group Board.
The current base salaries paid to each Executive Director are: Current Position Base salary
At the time Andy Haste left the Company, his annual base salary was £955,500.
The following charts set out the elements of the Executive Directors’ remuneration for 2011. The bonus value is based on the cash bonus plus the fair value of the compulsory Deferred Shares granted in 2011. The LTIP value is based on the fair value of awards of Performance Shares (as defined on page 63) and an expected value of half of the maximum potential number of matching shares that may vest (subject to performance) relating to voluntary and compulsory Deferred Shares granted under the LTIP in 2011.
The chart in respect of George Culmer reflects that no bonus was awarded for 2011 performance and while the share grants are noted, these will not vest.
UK-based executives who are members of the Group’s senior leadership team (Top 100) participate in a bonus plan which is structured in the same way and is assessed using the same financial measures as applying to the Executive Directors and the Executive Team. For outstanding performance, a cash bonus of up to 80% of base salary can be awarded, in addition to compulsory Deferred Shares worth up to a further 26.4% of base salary.
Bonuses paid to Executive Directors in respect of the 2011 financial year are included in the table of Directors’ emoluments on page 67. The Committee is satisfied that the bonus payments made in respect of 2011 are appropriate given the COR and NWP results delivered across the Group throughout the year, in addition to the contribution made by each Executive Director.
Matching Shares Executive Directors, members of the Executive Team and the Top 100 are eligible to receive a further conditional award of matching shares (Matching Shares) based on the number of compulsory and voluntary Deferred Shares awarded to them and held in the Trust on their behalf. Matching Shares will vest after three years subject to the stretching performance conditions set out below and provided the individual remains in employment with the Group (other than in exceptional circumstances such as death or retirement at normal retirement age).
Performance conditions The Committee will determine the performance condition for each grant of Performance Shares and Matching Shares, with performance measured over a single period of three years with no provision to retest. In 2012, grants of Performance Shares and Matching Shares related to compulsory Deferred Shares will be subject to a performance condition consisting of a combination of ROE and TSR targets.
As in 2011, ROE will be given greater prominence than relative TSR in 2012, to underline the Company’s commitment to improving the returns that it generates on its balance sheet. The vesting of 70% of the LTIP awards will be based on reported ROE performance and 30% on relative TSR performance (with the exception of Matching Shares attaching to voluntary Deferred Shares, the vesting of which will remain dependent solely on the ROE performance condition). The range of ROE performance targets has remained unchanged since 2009 and in respect of the performance periods yet to conclude, is from 10% (25% of the ROE related award vests) to 16% (100% of the award vests). Between these levels the award will vest on a straight line basis.
The element of the award which will vest according to TSR performance (30% of the total award) is measured against the comparator group of UK and international financial services companies shown below. If TSR performance is at the median compared with the comparator group, 25% of the award will vest, with 100% of the award vesting if performance is in the upper quintile. Between these levels the award will vest on a straight line basis. Additionally, before any shares subject to the TSR condition vest, the Committee must be satisfied that the Company’s TSR performance is reflective of underlying financial performance.
As noted on page 59, the Committee agreed that Andy Haste would be considered a “good leaver” in accordance with the LTIP rules relating to the unvested share awards granted to him in 2009, 2010 and 2011. George Culmer’s unvested share awards will lapse on the date his employment with the Company ends.
Dilution Dilution levels for all schemes are held strictly within the Association of British Insurers (ABI) limits. The dilution levels compared to ABI limits as at 31 December 2011 were: ABI limit RSA dilution %
Share ownership guidelines Strengthened share ownership guidelines were introduced in 2004 for Executive Directors and members of the Executive Team.
Pension provision and other benefits Andy Haste is a member of the SAL Pension Scheme (SAL), a contributory defined benefit occupational pension scheme. In 2010, the Group restructured the provision of defined benefit pensions for all UK based employees. From 1 March 2010, Andy Haste’s benefit accrual was reduced from 1/60th to 1/80th and was calculated with reference to a capped salary of £75,000. Benefit accrued under the RSA Stakeholder Plan (a defined contribution plan) in respect of base salary from £75,000 up to an earnings cap (£129,600 for the tax year commencing 6 April 2011). Participation in the RSA Stakeholder Plan will generate employer contributions worth 15% of base salary, subject to an employee contribution of 5% of base salary. In addition to his benefits within SAL and the RSA Stakeholder Plan, Andy Haste received an age-related taxable cash allowance which enabled him to make his own provision for retirement above the cap. In 2011, he was paid an allowance of 38% of base salary for this purpose.
George Culmer is a member of the RSA Stakeholder Plan. He receives employer contributions worth 15% of base salary, subject to an employee contribution of 5% of base salary up to the HM Revenue and Customs annual allowance as applicable. Additionally, George Culmer receives a taxable cash allowance of 15% of base salary.
Simon Lee elected not to join a Group pension plan on joining RSA, and receives a taxable cash allowance in lieu of employer contributions. His cash allowance rose from 17.5% of salary to 25% of salary upon his appointment as Group Chief Executive on 1 November 2011.
Adrian Brown is a member of the RSA Stakeholder Plan (a defined contribution plan), and he receives an employer contribution of 11% of salary, subject to the HM Revenue and Customs annual allowance, as applicable. He has elected not to make a contribution from his salary into the pension plan. Additionally, Adrian Brown receives a taxable cash allowance of 6.5% of base salary.
The Executive Directors’ service contracts became effective on the following dates: Director Effective date of contract Notice period
Historical TSR performance growth in the value of a hypothetical £100 holding over five years Based on spot values
External directorships Where appropriate, the Group encourages Directors and other senior managers to accept, subject to the approval of the Chairman, an invitation to join the board of another company outside the Group in a non-executive capacity, recognising the value of such wider experience. In these circumstances, they are permitted to retain any remuneration from the non-executive appointment. Executive Directors and other members of the Executive Team are limited to accepting one external appointment.
Andy Haste is a Non-Executive Director of ITV plc. During the year he received a fee of £77,500 which he is permitted to retain. None of the other Executive Directors have been appointed to the board of another company outside the Group.
Non-Executive Directors Under the Company’s Articles, the remuneration paid to NonExecutive Directors is determined by the Board, within limits set by shareholders. The fees paid to the Non-Executive Directors were last adjusted in 2010 and are noted as follows for 2011. The fees will be reviewed during 2012 and any changes that may be agreed will be reported to shareholders in the 2012 Remuneration Report.
John Napier’s term of appointment as Chairman of the Board was most recently extended on 15 February 2011 so that it continues until terminated in accordance with his letter of appointment. The appointment may be terminated by either party giving not less than three months’ notice to the other.
The graph shows the TSR of the Group with reference to the FTSE World Europe Non Life Insurance Index and the FTSE 100 Index. The FTSE World Europe Non Life Insurance Index comprises the range of European insurance businesses which most closely match our competitor group, and the TSR comparator group selected for awards under the LTIP. The FTSE 100 Index comprises the 100 most highly capitalised companies of the UK market. TSR performance relative to the indices is shown over the five years from 31 December 2006 to 31 December 2011. TSR reflects the change in value of ordinary shares in a company over time, as represented by the evolution of a notional initial investment of £100 in the shares and including any distribution of dividends.
3. Adrian Brown was appointed as a Director on 5 July 2011. Accordingly, the table above shows Adrian Brown’s salary, allowances and benefits for the period from 5 July 2011 to 31 December 2011. The bonus shown is the total payment made in respect of his performance throughout 2011.
7. The fees paid to Alastair Barbour and Jos Streppel are in respect of the period from their appointment as directors on 10 October 2011 and 3 October 2011 respectively until 31 December 2011.
Pension benefits Non-Executive Directors are not entitled to any pension benefits. The pension benefits earned by the Executive Directors, as members of Group defined benefit schemes, were as follows: Change in accrued pension in year3 £
Notes: 1. The difference in transfer values reflects the difference between the two transfer values calculated using relevant information on the respective dates and is not necessarily the actuarial increase of the underlying pension. 2. The figures set out in the table above provide information as required by Regulation 11 and Schedule 8 to the Large and Medium-Sized Companies and Group (Accounts and Reports)
Regulations 2008. The Listing Rules require the change in accrued pension to be shown excluding the effects of inflation and the transfer value of this increase. These figures are shown in the notes below.
The Company contributions paid in respect of Executive Directors who are members of Group defined contribution schemes, were as follows: Company contributions paid in 2011 £
Notes: 1. The contributions disclosed in the table above relate to the period from 5 July 2011 (when Mr Brown was appointed as a Director) to 31 December 2011.
Notes: 1. The Executive Directors each had a beneficial interest as at 31 December 2011 in the Voluntarily Invested Deferred Shares of 27.5p each held under the LTIP and in the Matching
Sharebuild The Directors’ interests in Sharebuild shares were as follows: Sharebuild Shares held at
2. The interests of Adrian Brown, George Culmer and Simon Lee each increased by 232 ordinary shares on 9 January 2012 and a further 220 ordinary shares on 7 February 2012 following the purchase of Partnership Shares and the awards of Matching Shares on those dates.
3. Matching Shares are capable of vesting in respect of a maximum of 2.5 times the number of Deferred Shares awarded, subject to the achievement of performance conditions over a three year period. For grants awarded in 2009 and 2010, 30% of the Matching Shares relating to compulsory Deferred Shares are subject to TSR performance relative to other companies specified by the Remuneration Committee. For grants awarded in 2008, 50% of the Matching Shares relating to compulsory Deferred Shares are subject to TSR performance relative to other companies specified by the Remuneration Committee and for awards granted in 2009, 2010 and 2011, this was 30%. Full vesting will only occur at upper quintile performance; at median performance 25% of the Matching Shares will vest. Vesting will be on a straight line basis in between. The remaining balance of the Matching Shares relating to compulsory Deferred Shares (and all of the Matching Shares relating to voluntary Deferred Shares) are subject to a ROE performance condition. If underlying ROE over three years commencing in the year of grant is below 10% (12% for awards granted in 2008), no part of the award subject to ROE performance will vest. If underlying ROE over three years is 10% (12% for awards granted in 2008), 25% of the award will vest. If underlying average annual ROE over three years is 16% or higher (18% for awards granted in 2008), 100% of the awards will vest. Vesting will be on a straight line basis in between. For the purpose of establishing the number of Matching Shares relating to voluntary Deferred Shares that may be awarded, the gross value of that part of the annual bonus payment that a participant elects to voluntarily defer is used.
7. The aggregate value of share awards vested for Directors during the year under the long term incentive plan amounted to £3.8m. Voluntarily Invested Deferred Shares which are shown in the table above are not included in this value.
9. No other Directors of the Company held long term incentive scheme interests during 2011.
OUR MARINE BUSINESS WAS THE FOUNDATION OF THE RSA WE KNOW TODAY.
From financing maritime traders in the early 18th century to underwriting the emerging marine risks of the 21st century, RSA has been at the forefront of driving innovative insurance solutions for this diverse and evolving sector, where we offer a broad range of covers for our customer including
• Transportation – Covering individuals and businesses responsible for carrying, handling or storing cargo
• Aquaculture – Specialist cover for the production of fish, shellfish and shrimp
With over 700 people in the Marine team, we have built up a strong presence and excellent reputation in all of the key marine insurance markets, including the UK, Canada, Scandinavia, Brazil, Chile and Singapore, and our Marine business continues to be a strong and stable growth driver for the Group.
Responsibility statement We confirm to the best of our knowledge: • The financial statements on pages 76 to 141, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group
• The risk review section on pages 30 to 33, which is incorporated into the Directors’ report, includes a description of the principal risks and uncertainties faced by the Group.
We have audited the consolidated financial statements of RSA Insurance Group plc for the year ended 31 December 2011 which comprise the consolidated Income Statement, the consolidated Statement of Comprehensive Income, the consolidated Statement of Changes in Equity, the consolidated Statement of Financial Position, the consolidated Statement of Cashflows and the related notes on pages 76 to 141. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRS) as adopted by the European Union.
Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion: • Certain disclosures of Directors’ remuneration specified by law are not made or
Under the Listing Rules we are required to review: • The Directors’ statement, contained within the Directors’ Report, in relation to going concern
• The part of the Corporate Governance Statement relating to the Company’s compliance with the nine provisions of the UK Corporate Governance Code specified for our review and
Graham Richardson (Senior Statutory Auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditor London, UK
Less: change in provision for unearned premiums, reinsurers’ share (9) (26)
Net share of loss after tax of associates 11 (9) (5)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2011
Depreciation transfer – – – – (2) – – 2 – – –
Changes in shareholders’ interests in subsidiaries – – – – 1 – – 3 4 1 5
Investments in subsidiaries (net of cash disposed of) 30 6 (74)
Cash and cash equivalents at end of the year 16 1,258 1,314
CONSOLIDATED STATEMENT OF CASHFLOWS for the year ended 31 December 2011
liabilities and contingent liabilities acquired, is initially capitalised in the statement of financial position at cost and is subsequently recognised at cost less accumulated impairment losses. The cost of the acquisition is the amount of cash paid and the fair value of other purchase consideration. 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. Goodwill is allocated to cash generating units for the purpose of impairment testing. Goodwill is subject to an impairment review at least annually. An impairment review is also carried out whenever there is an indication that goodwill or other intangible assets are impaired. Where the carrying amount is more than the recoverable amount, an impairment is recognised in the income statement.
When calculating the goodwill arising on an acquisition, provisions for losses and loss adjustment expenses are discounted to present value. Immediately following the acquisition, the provisions for losses and loss adjustment expenses are valued at full nominal value. This increase in liabilities is matched by the recognition of an intangible asset arising from acquired provisions for losses and loss adjustment expenses, representing the present value of future investment income implicit in the claims discount. The intangible asset is amortised over the expected run off period and is tested in within the liability adequacy test of insurance contract liabilities where the balances of intangible assets associated with insurance contracts is deducted from the carrying amount of the insurance contract liabilities. The run off period is normally between five and 11 years.
Translation of foreign currencies Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency).
• Income and expenses for each income statement are translated at average exchange rates during each period
Goodwill and other intangible assets Goodwill, being the difference between the cost of a business acquisition and the Group’s interest in the net fair value of the identifiable assets,
Financial assets A financial asset is initially recognised on the date the Group commits to purchase the asset at fair value plus, in the case of all financial assets not classified as at fair value through the income statement, transaction costs that are directly attributable to its acquisition. A financial asset is derecognised when the rights to receive cashflows from the investment have expired or have been transferred and when the Group has substantially transferred the risks and rewards of ownership of the asset.
Financial assets arising from non investment activities are not classified on initial recognition as available for sale assets and are therefore categorised as loans and receivables.
If the fair value of a previously impaired debt security increases and the increase can be objectively related to an event occurring after the impairment loss was recognised, the impairment loss is reversed and the reversal recognised in the income statement. Impairment losses on equity investments are not reversed.
Increases in the carrying amount arising on the revaluation of Group occupied property are credited to revaluation reserves in equity. Decreases that offset the previous increases of the same asset are charged against revaluation surplus directly in equity; other decreases are charged to the income statement. Each year the difference between depreciation based on the fair value of the asset charged to the income statement and depreciation based on the asset’s original cost is transferred from revaluation surplus to retained earnings.
Derivative financial instruments Derivatives are recognised in the statement of financial position on a trade date basis and are carried at fair value. Derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and the nature of the item being hedged. Where a derivative is not designated as a hedging instrument, changes in its fair value are recognised in the income statement.
• The hedge is assessed on an ongoing basis and determined to have been highly effective.
Where a foreign exchange derivative is designated as a hedging instrument against the net investment in foreign entities, the effective portion of the hedge is recognised in equity; the gain or loss relating to the ineffective portion is recognised immediately in the income statement. Gains and losses accumulated in equity are included in the income statement when the underlying hedged item is derecognised.
Estimation of the fair value of financial assets and liabilities The methods and assumptions used by the Group in estimating the fair value of financial assets and liabilities are: • For fixed maturity securities, fair values are generally based upon quoted market prices. Where market prices are not readily available, fair values are estimated using either values obtained from quoted market prices of comparable securities or estimated by discounting expected future cashflows using a current market rate applicable to the yield, credit quality and maturity of the investment
adjustment expenses reported under insurance contract liabilities. The amount recoverable from reinsurers is initially valued on the same basis as the underlying provisions for losses and loss adjustment expenses. The amount recoverable is reduced when there is an event arising after the initial recognition that provides objective evidence that the Group may not receive all amounts due under the reinsurance contract and the event has a reliably measurable impact on the expected amount that will be recovered from the reinsurer.
Treasury shares Treasury shares are deducted from equity. No gain or loss is recognised on the purchase, sale, issue or cancellation of the treasury shares. Any consideration paid or received is recognised directly in equity.
The provisions for losses and loss adjustment expenses, and related reinsurance recoveries, are discounted where there is a particularly long period from incident to claims settlement and where there exists a suitable claims payment pattern from which to calculate the discount. In defining those claims with a long period from incident to claims settlement, those categories of claims where the average period of settlement is six years or more from the end of the reporting period has been used as a guide. The discount rate used is based upon an investment return expected to be earned by assets, which are appropriate in magnitude and nature to cover the provisions for losses and loss adjustment expenses being discounted, during the period necessary for the payment of such claims.
At the end of each reporting period an assessment is made of whether the provisions for unearned premiums are adequate. A separate provision is made, based on information available at the end of the reporting period, for any estimated future underwriting losses relating to unexpired risks. The provision is calculated after taking into account future investment income that is expected to be earned from the assets backing the provisions for unearned premiums (net of deferred acquisition costs). The unexpired risk provision is assessed in aggregate for business classes which, in the opinion of the Directors, are managed together.
A reinsurance asset (reinsurers’ share of insurance contract liabilities) is recognised to reflect the amount estimated to be recoverable under the reinsurance contracts in respect of the provisions for losses and loss
The present value of defined benefit obligations and the present value of additional benefits accruing during the period are calculated using the Projected Unit Credit Method.
For those individual schemes in deficit, the resulting net liabilities are recognised in the statement of financial position in provisions. For those individual schemes in surplus, an asset is recognised in the statement of
Post retirement benefits (including pension schemes and post retirement health schemes) Contributions to defined contribution pension schemes are charged in the income statement in the period in which the employment services qualifying for the benefit are provided. The Group has no further payment obligations once the contributions have been paid.
The amounts charged (or credited where relevant) in the income statement relating to post retirement benefits in respect of defined benefit schemes are as follows: • The current service cost • The past service cost for additional benefits granted in the current or earlier periods • The interest cost for the period • The impact of any curtailments or settlements during the period • The expected return on scheme assets (where relevant).
Operating segments Operating segments are identified on the basis of the regional structure of the Group. Internal reports about these segments are regularly reviewed by the Board of Directors (determined to be the chief operating decision maker) to assess their performance and to allocate capital and resources.
Discontinued operations are presented on the face of the income statement as a single amount comprising the total of the net profit or loss of discontinued operations and the after tax gain or loss recognised on the sale or the measurement to fair value less costs to sell of the net assets constituting the discontinued operations. In the period where an operation is presented for the first time as discontinued, the income statement for the comparative prior period presented is restated to present that operation as discontinued.
financial position in other debtors and other assets 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.
Termination benefits Termination benefits are payable when employment is terminated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either: terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after the end of the reporting period are discounted to present value.
The proceeds received net of any transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.
IFRS 9 relies on the Group business model objective and may also be influenced by the basis of the measurement of the Group’s insurance contract liabilities at the time that the new standard is adopted. The latter may change prior to adoption of IFRS 9 and so it is not possible to determine the overall impact on the results and the earnings per share of the current period, the comparative period or earlier periods, and on the Group’s financial position at the end of each such period. It is not possible to assess the impact the changes will have on future periods as in addition to the factors above, these will be impacted by future market conditions and management actions.
In May 2011 the IASB issued four new standards, IFRS 10 ‘Consolidated Financial Statements’, IFRS 11 ‘Joint Arrangements’, IFRS 12 ‘Disclosure of Interests in Other Entities’ and IFRS 13 ‘Fair Value Measurement’. IFRS 10, 11 and 12 represent the completion of the improvements to the accounting requirements for off balance sheet activities and joint arrangements. The IASB also issued a revised standard, IAS 27 ‘Separate Financial Statements’ to cover the existing topics that are not contained in the new standards.
The key features of the new standards are as follows: • IFRS 10 includes a new definition of control, which is used to determine which entities are consolidated. Therefore IFRS 10 may change which entities are within a group
• A business model test is applied first in determining whether a financial asset is eligible for amortised cost measurement. The business model test objective is based on holding financial assets in order to collect contractual cashflows rather than realising cashflows from the sale of the financial assets
In October 2010 the requirements for classifying and measuring financial liabilities were added to IFRS 9. The majority of the requirements were carried forward unchanged from IAS 39. However, the requirements related to the fair value option for financial liabilities were changed to address the issue of own credit risk in order that the effects of changes in a liability’s credit risk ought not to affect profit or loss unless the liability is held for trading.
It is expected that the IASB will issue the new standard covering the remaining parts of the project during 2012.
In June 2011 the IASB issued a revised version of IAS 19 ‘Employee Benefits’. The revisions include the following changes to the Group’s existing accounting policies: • Expected returns on plan assets will no longer be recognised in profit or loss. Expected returns are replaced by recording interest income in profit or loss, which is calculated using the discount rate used to measure the pension obligation
This revised version of IAS 19 will come into effect for annual periods beginning on or after 1 January 2013, with retrospective application required. The revised standard has not yet been endorsed by the EU. When adopted, these changes are not expected to have a significant impact on the Group’s statement of financial position. Total comprehensive income will not change as a result of the former change above, but profit before tax is expected to reduce, offset by an increase in other comprehensive income as a consequence of the change in the calculation of the interest income. The impact cannot currently be quantified because the value of the scheme assets and the rate that will be used to calculate the interest income included in profit or loss, in 2013, will be determined at that time. The latter change above is not likely to have a significant impact on the Group’s financial statements as, for the Group, such events are rare.
In addition to the above, the IASB has issued the following revisions to existing standards that are not expected to have a material impact on the Group’s financial statements: • Amendment to IFRS 7 ‘Financial Instruments: Disclosures – Transfers of Financial Assets’ (issued October 2010)
Estimation techniques Claims and unexpired risks provisions are determined based upon previous claims experience, knowledge of events and the terms and conditions of the relevant policies and on interpretation of circumstances. Particularly relevant is experience with similar cases and historical claims payment trends. The approach also includes the consideration of the development of loss payment trends, the potential longer term significance of large events, the levels of unpaid claims, legislative changes, judicial decisions and economic, political and regulatory conditions.
• Estimates based upon a projection of claims numbers and average cost
The provisions for losses and loss adjustment expenses are subject to close scrutiny both within the Group’s business units and at Group Corporate Centre. In addition, for major classes where the risks and uncertainties inherent in the provisions are greatest, regular and ad hoc detailed reviews are undertaken by advisers who are able to draw upon their specialist expertise and a broader knowledge of current industry trends in claims development. As an example, the Group’s exposure to asbestos and environmental pollution is examined on this basis. The results of these reviews are considered when establishing the appropriate levels of provisions for losses and loss adjustment expenses and unexpired periods of risk.
using a discount rate in line with yields on ‘AA’ rated bonds of suitable duration and currency. As such, the financial position of a pension fund on this basis is highly sensitive to changes in bond rates and will also be impacted by changes in equity markets.
Uncertainties and contingencies The uncertainty arising under insurance contracts may be characterised under a number of specific headings, such as: • Uncertainty as to whether an event has occurred which would give rise to a policyholder suffering an insured loss
• Uncertainty as to the extent of policy coverage and limits applicable • Uncertainty as to the amount of insured loss suffered by a policyholder as a result of the event occurring • Uncertainty over the timing of a settlement to a policyholder for a loss suffered.
Asbestos and environmental claims The estimation of the provisions for the ultimate cost of claims for asbestos and environmental pollution is subject to a range of uncertainties that is generally greater than those encountered for other classes of insurance business. As a result it is not possible to determine the future development of asbestos and environmental claims with the same degree of reliability as with other types of claims, particularly in periods when theories of law are in flux. Consequently, traditional techniques for estimating provisions for losses and loss adjustment expenses cannot wholly be relied upon and the Group employs specialised techniques to determine provisions using the extensive knowledge of both internal asbestos and environmental pollution experts and external legal and professional advisors.
• Emerging court decisions and the possibility of retrospective legislative changes increasing or decreasing insurer liability
Reinsurance The Group is exposed to disputes on, and defects in, contracts with its reinsurers and the possibility of default by its reinsurers. The Group is also exposed to the credit risk assumed in fronting arrangements and to potential reinsurance capacity constraints. In selecting the reinsurers with whom the Group conducts business its strategy is to seek reinsurers with the best combination of financial strength, price and capacity. The Group Corporate Centre publishes internally a list of authorised reinsurers who pass the Group’s selection process and which its operations may use for new transactions.
Litigation, disputes and investigations The Group, in common with the insurance industry in general, is subject to litigation, mediation and arbitration, and regulatory, governmental and other sectoral inquiries and investigations in the normal course of its business. In addition, the Group is exposed to the risk of litigation in connection with its former ownership of the US operation. The directors do not believe that any current mediation, arbitration, regulatory, governmental or sectoral inquiries and investigations and pending or threatened litigation or dispute will have a material adverse effect on the Group’s financial position, although there can be no assurance that losses or financial penalties resulting from any current mediation, arbitration, regulatory, governmental or sectoral inquiries and investigations and pending or threatened litigation or dispute will not materially affect the Group’s financial position or cashflows for any period.
Rating environment The ability of the Group to write certain types of insurance business is dependent on the maintenance of the appropriate credit ratings from the rating agencies. The Group has the objective of maintaining single ‘A’ ratings. At the present time the ratings are ‘A’ (positive outlook) from S&P 1, ‘A’ (stable outlook) from AM Best and ‘A2’ (stable outlook) from Moody’s. A worsening in the ratings could have an adverse impact on the ability of the Group to write certain types of general insurance business.
Foreign exchange risk The Group publishes consolidated financial statements in Pounds Sterling. Therefore, fluctuations in exchange rates used to translate other currencies, particularly other European currencies and the Canadian Dollar, into Pounds Sterling will impact the reported consolidated financial position, results of operations and cashflows from period to period. These fluctuations in exchange rates will also impact the Pound Sterling value of, and the return on, the Group’s investments.
Regulatory environment The legal, regulatory and accounting environment is subject to significant change in many of the jurisdictions in which the Group operates, including developments in response to changes in the economic and political environment and the recent financial crisis. The Group continues to monitor the developments and react accordingly.
The Group has a Group Reserving Committee consisting of the Group Chief Executive Officer, Chief Financial Officer, Group Underwriting and Claims Director and Group Chief Actuary. A similar committee has been established in each of the Group’s major operating segments. The Group Reserving Committee monitors the decisions and judgments made by the business units as to the level of reserves recommended and makes the final decision on the reserves to be included within the consolidated financial statements (‘Management Best Estimate’). In making its judgment, the Group Reserving Committee’s aim is that, over the longer term, reserves should be more likely to run off favourably than adversely. However, there can be no assurance that reserves will not develop adversely and exceed the Management Best Estimate. In making its judgment of the Management Best Estimate of reserves to include in the consolidated financial statements, the Group Reserving Committee adopts the following approach: • The Group’s actuaries provide an indication of ultimate losses together with an assessment of risks and possible favourable or adverse developments that may not have been fully considered in calculating these indications. At the end of 2011 these risks and developments include: the possibility of future legislative change having retrospective effect on open claims; changes in claims settlement procedures potentially leading to future claims payment patterns differing from historical experience; the possibility of new types of claim, such as disease claims, emerging from business written several years ago; general uncertainty in the claims environment; the emergence of latent exposures such as asbestos; the outcome of litigation on claims received; failure to recover reinsurance and unanticipated changes in claims inflation
Emerging and legal risks These are risks that have been identified as potentially affecting the Group but are not able to be quantified. Existing or potential future risk exposures are identified and investigated in a structured way, using internal and external resources, and actions to mitigate, contain or remove these risks are taken.
In the ordinary course of its insurance activities, the Group is routinely involved in legal or arbitration proceedings with respect to liabilities, which are the subject of policy claims.
The Group’s reinsurance strategy is to purchase reinsurance in the most effective manner from reinsurers who meet its security standards.
All of the Group’s operations are required to purchase reinsurance within agreed local reinsurance appetite parameters. The Group Corporate Centre reviews the operations’ proposed catastrophe purchases to check that they at least meet the Group’s ‘1 in 200 year’ standard. Group Corporate Centre also checks to see that total Group exposures are within the limits set out above and also are consistent with the required risk based capital. As a result the Group may decide to purchase further catastrophe coverage at the Group level. In addition to local reinsurance arrangements, the Group reinsures a portion of the risks underwritten to control exposure to losses, to reduce volatility and protect capital.
Operational risk Operational risk is the risk of direct or indirect losses resulting from human factors, external events and inadequate or failed internal processes and systems. Operational risks are inherent in the Group’s operations and are typical of any large enterprise. Major sources of operational risk include operational process reliability, information security, outsourcing of operations, dependence on key suppliers, implementation of strategic change, integration of acquisitions, fraud, human error, customer service quality, inadequacy of business continuity arrangements, recruitment, training and retention of staff, and social and environmental impacts.
Limits are set at both a portfolio and counterparty level based on likelihood of default, derived from the rating of the counterparty, to ensure that the Group’s overall credit profile and specific concentrations are managed and controlled within risk appetite. Financial assets are graded according to the Group’s credit rating policy. AAA is the highest possible rating. Investment grade financial assets are classified within the range of AAA to BBB ratings. For invested assets, restrictions are placed on each of the Group’s investment managers as to the level of exposure to not rated securities.
The following table provides information regarding the aggregated credit risk exposure for financial assets of the Group as at 31 December 2011.
Reinsurers’ share of insurance contract liabilities 25 564 1,699 237 85 28 2,638
With the exception of AAA rated government debt securities, the largest aggregate credit exposure does not exceed 3% of the Group’s total financial assets. Holdings of government bonds in Greece, Italy, Ireland, Spain and Portugal are £138m at 31 December 2011 and comprises less than 1% of the total bond portfolio. In addition to this the Group holds £132m of senior and subordinated bank debt in these countries.
The Group regularly monitors its aggregate exposures by reinsurer group, both current and contingent, in accordance with the methodology agreed by the BRC. The Group’s largest reinsurance exposures to active reinsurance groups are Lloyd’s of London, Munich Re, and HDI-Gerling. At 31 December 2011 the reinsurance asset recoverable from these groups does not exceed 3% of the Group’s total financial assets. Stress tests are performed on the Group’s reinsurance assets and the limits are set such that in a catastrophic event, the exposure to a single reinsurer is estimated not to exceed 2% of the Group’s total financial assets. Certain of the Group’s subsidiaries are members of government mandated pools in various parts of the world. As of 31 December 2011 the largest pool (by premium volume) is Pool Re operated by the UK Government to provide terrorism cover.
Reinsurers’ share of insurance contract liabilities 2,061 – – – – 12 2,073 –
Loans and receivables 113 – – – – – 113 –
Cash and cash equivalents 1,317 – – – – – 1,317 –
At 31 December 2011, the Group had pledged £901m (2010: £935m) of financial assets as collateral for liabilities or contingent liabilities and had accepted £936m (2010: £1,094m) collateral that could be sold or pledged. The nature of the assets pledged as collateral comprises government securities of £855m (2010: £794m), cash and cash equivalents of £13m (2010: £67m) and debt securities of £33m (2010: £74m). The terms and conditions of the collateral pledged are market standard in relation to letter of credit facilities.
The market risk policy governs the Group’s exposure to investment risks. Exposures are controlled by the setting of investment limits in line with the Group’s risk appetite.
The Group Investment Committee (GIC), on behalf of the Group Board, is responsible for reviewing and approving the investment strategy for the Group’s investment portfolios. It provides approval for all major changes of the Group’s investment strategy and, in particular, approves any substantive changes to the balance of the Group’s funds between the major asset classes. Importantly the GIC also approves the terms of reference of the Group’s main operational investment committee, the Group Asset Management Committee (GAMC). The BRC issues GAMC with investment risk limits.
The Group makes use of derivative products as appropriate to protect the portfolio from losses outside of its risk appetite.
Property price risk The Group’s portfolio of properties is subject to property price risk arising from changes in the market value of properties. Thus if the value of property falls so will the fair value of the portfolio as set out in the sensitivity analysis on page 100.
Operational currency risk is managed within the Group’s individual operations by broadly matching assets and liabilities by currency.
Structural currency risk is managed at a Group level through currency forward contracts. Derivatives are used to manage exposures within the limits that have been set. In managing structural currency risk, net assets maintained by the Group’s subsidiaries in local currencies are taken into account to satisfy local regulatory solvency and internal risk based capital requirements. These assets should prove adequate to support local insurance activities irrespective of exchange rate movements. Consequently, this may affect the value of the consolidated shareholders’ equity expressed in Sterling.
Shareholders’ equity is stated after taking account of the effect of currency forward contracts and foreign exchange options. On this basis, a 10% change in Sterling against Danish Krone/Euro, Canadian Dollar or Swedish Krona would have the following impact on shareholders’ equity: in Sterling against Danish
At 31 December 2011 there are derivative contracts in place to protect the value of the UK, Canadian, European, and US equity portfolios of the Group. These provide limited protection against declines in market levels whilst also capping participation in any appreciation of the market. In total, this strategy covers an underlying equity value up to approximately £477m (2010: £779m). If UK, Canadian, European and US equity markets decreased by 15%, the impact of these derivatives as of 31 December 2011, would be to decrease the impact of the decline by £30m (2010: £42m).
At 31 December 2011 the Group holds forward currency contracts and foreign exchange options that are designated as hedging instruments to reduce structural foreign exchange risk. The derivatives are included in the table above. Further information on designated hedges can be found in note 28.
Impact on fixed interest securities of increase in interest rates of 100bps3 – – (393) (354)
Direct impact on equities of a 15% fall in equity markets (28) (3) (116) (193)
3. The impact on the fair value of the loan capital is a decrease of £75m (2010: £64m). 4. The effect of movements in equity and property markets is reflected as a one time decrease of worldwide equity and property markets on 1 January 2012 and 1 January 2011 which results in a 15% decline in the value of the Group’s assets in these investment categories.
5. This analysis has not considered the impact of the above market changes on the valuation of the Group’s insurance contract liabilities or retirement benefit obligations. 6. This analysis is presented gross of the corresponding tax credits/(charges).
Liquidity risk Liquidity risk is the risk that cash may not be available to pay obligations when due at a reasonable cost. The Group has no tolerance for liquidity risk and is committed to meeting all liabilities as they fall due. The investment risk limits set by the BRC ensure that the Group’s portfolio is kept in highly liquid marketable securities sufficient to meet its liabilities as they come due based on actuarial assessment. The limits are monitored at a Group level as part of the Group Risk exposure monitoring and BRC reporting process.
Subordinated guaranteed perpetual notes – – 450 – – – – 450 480
Subordinated guaranteed perpetual bonds – – – – – 375 – 375 320
Subordinated guaranteed perpetual notes – – – 450 – – – 450 489
Deposits received from reinsurers 12 – – – – – – 12 12
Interest on perpetual bonds and notes 112 112 112 112 112 158 12 730
Economic capital Economic capital is the Group’s preferred measure of capital sufficiency. It is the Group’s own assessment of the amount of capital it needs to hold to meet its obligations given the Group’s risk appetite. Assets and liabilities are valued on an economic basis providing the most realistic representation of the Group’s financial position.
The Group continues to implement a number of capital management initiatives, including the completion of a restructuring of its UK insurance companies on the 1 January 2012, reducing the number of UK regulated entities from 22 to 5.
As described in the Risk Management section of the notes to the financial statements sufficient net assets are maintained by each of the Group’s subsidiaries to satisfy local regulatory and internal risk based capital requirements. In addition the Group monitors the Group’s total capital position at all times. Assets and liabilities are reviewed by the chief operating decision maker at the Group level, and as such are not presented at the operating segment level.
All of these items are measured in accordance with the Group’s accounting policies. Certain items included within the Group’s investment result are allocated to the operating segments based on economic capital requirements.
The investment result, excluding unwind of discount and foreign exchange, is disclosed as net investment return on the statutory basis.
Other activities primarily comprise administration expenses, ongoing investment in the Group’s operations in Central and Eastern Europe and other expenses of £99m (2010: £102m), the Group share in the loss after tax of its associates of £9m (2010: £5m) and investment expenses and charges of £34m (2010: £33m).
Other segment items included in the income statement: Investment expense and charges (14) – (11) (9) (34)
Other segment items included in the income statement: Investment expense and charges (12) – (10) (11) (33)
Non current assets comprise goodwill and intangible assets, property and equipment, investment property and investments in associates.
Presentation under revised management structure On 11 November 2011, the Group announced changes to the Group’s operating structure and Executive Team. From 1 January 2012, the Group is organised into four regions, Scandinavia, Canada, UK & Western Europe and Emerging Markets.
The analysis of the segmental revenue and underwriting result under the revised structure is presented below.
Debt securities: At fair value through the income statement – – – – (17) (12) – – (17) (12)
Net realised (gains)/losses transferred to income statement Impairments transferred to income statement Net movement recognised in equity £m £m £m £m £m £m £m £m 3. NET CLAIMS AND BENEFITS
Fees payable to Deloitte LLP and its associates for other services: The audit of the Company’s subsidiaries, pursuant to legislation 4.6 4.5
Details of Directors’ remuneration and pension benefits, and details of Directors’ interests in the Parent Company are shown in the remuneration report.
The average number of employees during the year was as follows: Number
UK corporation tax is calculated at 26.5% (2010: 28.0%) of the estimated assessable profit for the year. Since the Group operates around the world, it is subject to income taxes in many different jurisdictions. Taxation for jurisdictions other than the UK is calculated at the rates prevailing in those jurisdictions. Of the above taxation attributable to the Group £(8)m (2010: £(35)m) relates to UK corporation tax and £194m (2010: £154m) to overseas taxation.
Release of tax provided in respect of prior periods (36) (20)
Different tax rates of subsidiaries operating in other jurisdictions (1) (8)
Weighted average number of ordinary shares in issue (thousands) 3,511,180 3,441,243
Diluted Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Parent Company has share options and contingently issuable shares as categories of dilutive potential ordinary shares.
Weighted average number of ordinary shares for diluted earnings per share (thousands) 3,541,004 3,463,744
The Group subsidiaries may be subject to restrictions on the amount of dividends they can pay to shareholders as a result of local regulatory requirements. However, based on the information currently available, the Group does not believe that such restrictions materially impact the ability to meet obligations or pay dividends.
The trustees of the Royal & Sun Alliance ESOP Trust and the Royal & Sun Alliance ESOP Trust No 2 waived their entitlement to (except for a nominal amount) dividends which reduced the total dividend paid by less than £1m (2010: less than £1m).
Net carrying amount at 31 December 2011 663 5 498 193 1,359
Additions of software development comprise £9m (2010: £8m) of external software and £147m (2010: £119m) of internally developed software.
Goodwill impairment charges of £71m (2010: £Nil) have been recognised within other operating expenses, split between the UK £41m and Emerging Markets £30m.
In the UK, the impairment losses impact Commercial lines and relate to the acquisitions of Martello in 2006 and Fyfe in 2008, where the Group has significantly scaled back activity in the economic downturn. The key estimate in the measurement of the recoverable amount is the discount rate applied to calculate the net present value of future cash flows, which has been estimated as 8% as at 31 December 2011 (2010: 10%).
9. PROPERTY AND EQUIPMENT Group occupied property – land and buildings £m
Depreciation expenses of £34m (2010: £37m) have been charged to underwriting costs and policy acquisition costs.
The carrying amount of Group occupied property that would have been recognised had the assets been carried under the cost model at 31 December 2011 is £136m (2010: £144m).
Group occupied property reserve at 31 December 31 33 10. INVESTMENT PROPERTY
The Group has the following investments in associates: Country Ordinary shareholding
Syn Mun Kong Public Limited Company is listed on the Stock Exchange of Thailand. The fair value of the Group’s holding at 31 December 2011 is £18m (2010: £11m).
Summarised below are the assets, liabilities, revenue and profit and loss of the companies above. 2011 £m £m
At fair value through the income statement – 47 – 47
Level 3 financial assets at 1 January 2010 26 18 8 81 133
Total gains/(losses) recognised in: Exchange adjustment – – – 2 2
Level 3 financial assets at 1 January 2011 28 23 13 71 135
Of the total gains/(losses) for the period recognised in the income statement (shown in the reconciliation above), losses of £14m (2010: £4m) relates to assets held at the end of the reporting period.
Of the total gains/(losses) for the period recognised in other comprehensive income (shown in the reconciliation above), £1m (2010: £4m) relate to assets held at the end of the reporting period and is reported in movements in the revaluation reserves in the statement of changes in equity.
The following changes have occurred in the reinsurers’ share of provision for unearned premiums during the year.
Reinsurers’ share of provision for unearned premiums at 1 January 299 301
The following changes have occurred in the reinsurers’ share of provisions for losses and loss adjustment expenses during the year: £m £m
Reinsurers’ share of provisions for losses and loss adjustment expenses at 1 January 2,353 1,494
Cash and cash equivalents and bank overdrafts (as reported within the Consolidated Statement of Cashflows) 1,258 1,314
Fair value gains net of tax 26 – – 26 – 26
Other comprehensive income/(expense) for the year 21 (56) (73) (108) 1 (107)
Exchange gains net of tax 12 40 – 52 1 53
Fair value gains net of tax 46 – – 46 – 46
Total comprehensive income for the year 58 40 404 502 10 512 18. SHARE CAPITAL
The Royal & Sun Alliance ESOP Trust holds ordinary shares in the Parent Company, which may subsequently be transferred to employees (other than the Executive Directors). At 31 December 2011 the Trust held 1,660,274 ordinary shares (2010: 2,707,723) in the Parent Company with a nominal value of £0.5m (2010: £1m) and a mid market value of £2m (2010: £3m), based on the mid market closing value of the Company’s shares on 30 December 2011.
Provided a resolution of the Board exists, and in priority to any payment of dividend to other shareholders (other than any dividend not exceeding 0.1p per share), holders of preference shares are entitled to a cumulative preferential dividend of 7.375% per annum, payable out of the profits available for distribution, to be distributed in half yearly instalments and the shares are not redeemable. Preference shareholders have no further right to participate in the profits of the Parent Company. In addition, preference shares do not confer: • Any right to participate in any offer by way of rights or otherwise to subscribe for additional shares in the Parent Company (except where required by law)
The Directors may make calls on shareholders in respect of monies unpaid on their shares. If any call is not complied with the Directors may serve a notice on such shareholder requiring him to pay the call together with any interest and expenses incurred by the Parent Company. Failure to comply with a notice may result in forfeiture of any share which is the subject of the notice (including any dividends declared and other monies payable in respect of the shares so forfeited).
No shareholder is, unless the Directors otherwise determine, entitled to attend or vote either personally or by proxy at any general meeting if: • Any call or any sum presently payable by him to the Parent Company in respect of such share remains unpaid or • The shareholder has failed to comply with a notice under section 793 of the Companies Act 2006 and is in default for a period of 14 days from the date of service of such notice.
The Directors may also refuse to register any transfer of any certificated share unless: • A duly stamped instrument of transfer is delivered to the Parent Company’s registered office together with the certificates of the shares to which it relates and any other evidence that the Directors may reasonably require to show the right of the transferor to make the transfer
The Directors can require a shareholder to provide evidence that shares held by such shareholder are not held by or on behalf of a US Holder (as defined in the Articles of Association). The Directors may require a US Holder to sell its shares to a non US resident, failing which the Parent Company may effect a sale of such shares. The Directors may refuse to register a transfer by a US Holder where it is made to a US resident.
The subordinated guaranteed perpetual notes have a nominal value of £450m and pay an annual coupon of 8.50% with an option to call the notes, or if not called for the coupon rate to be reset, on 8 December 2014 and every five years thereafter.
Provisions for losses and loss adjustment expenses at 31 December 11,097 11,694
Claims on certain classes of business (excluding annuities) have been discounted as follows: Discount rate Average number of years to settlement
2001 and prior £m £m £m £m £m £m £m £m £m £m £m Total £m
Consolidated claims development table net of reinsurance 2001 and prior £m £m £m £m £m £m £m £m £m £m £m Total £m
At 31 December 2011 the Group has in place a US$1bn (2010: US$1bn) Euro commercial paper program. There are no amounts outstanding at 31 December 2011 (2010: £nil).
The Articles of Association of the Group defines a cap on borrowing limits. This cap is not being amended at the 2012 AGM. At 31 December 2011 the cap on borrowing limits is £4,708m (2010: £4,675m) of which £1,638m (2010: £1,638m) had been utilised.
(Charge)/credit to the income statement for the year – (21) 2 8 43 32
Available for sale financial assets (18) (19) 19 4 1 (15)
Pension fund actuarial gains and losses – – 10 (26) 10 (26)
At the end of the reporting period, the Group has unused tax losses of £2,128m (2010: £1,835m) and unused tax credits of £15m (2010: £15m) available for offset against future profits. A deferred tax asset of £148m (2010: £109m) has been recognised in respect of losses and unused tax credits. In addition, the Group recognised £80m (2010: £69m) in respect of other deferred tax reliefs. These are included within other temporary
differences at 31 December 2011. No deferred tax asset has been recognised in respect of £1,572m (2010: £1,390m) tax losses and unused tax credits of £11m (2010: £5m) due to the unpredictability of future profit streams. Tax losses include £194m (2010: £152m) which will expire between 2012 and 2031, of which £87m (2010: £71m) have been recognised for deferred tax. Other tax losses and unused credits may be carried forward indefinitely.
The Group does not recognise deferred tax on the unremitted earnings of overseas subsidiaries, as the Group is able to control the remittance of earnings to the UK and there is no intention to remit any such earnings to the UK in the foreseeable future if the remittance would trigger a material incremental tax liability. The temporary difference in respect of the retained earnings of overseas subsidiaries and associates is £965m (2010: £841m).
Of the above, £324m is due to be settled outside of 12 months (2010: £339m).
Other provisions includes £29m (2010: £32m) 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. Other provisions also includes Motor Insurance Bureau provision of £21m (2010: £25m) and deferred consideration of £17m (2010: £15m) in respect of acquisitions.
In 2003 a subsidiary of the Group wrote an Adverse Development Cover (ADC) contract with its former US subsidiary. The liabilities arising under the ADC contract comprise an insurance component and a deposit component. The liability arising under the insurance component of £0.1bn represents the timing risk on the settlement of those liabilities. The financial liability arising under the deposit component is offset by the value of funds held in a trust fund whose trust deed only permits the trust fund assets to be used to settle amounts due under the ADC. The value of the funds held in trust at 31 December 2011 is £0.1bn (2010: £0.3bn) and the value of the liability of the deposit component is £0.1bn (2010: £0.3bn).
In April 2002, the primary UK defined benefit schemes were effectively closed to new entrants and in 2005, following discussions with the Trustees and consultation with the members, the UK defined benefit schemes were altered from providing benefits on a final salary basis to benefits on a revalued average salary basis with effect from 1 January 2006. Under the new benefit formula, the accrued benefits of current active members are based on salaries at the date of change and will increase in line with inflation each year (limited to 5% in any year) up to their retirement date. Benefits earned in each year from 1 January 2006 are based on salaries in that year and are revalued up to retirement.
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. Benefits are generally payable for life.
Deferred tax in respect of net pension and post retirement deficit 49 61
The amounts recognised in the income statement are as follows: UK £m
The accumulated actuarial losses since 1 January 2004 are £602m (2010: £529m).
Excluding the pension liabilities covered by the insurance arrangement the assets and liabilities committed to the arrangement, the value of scheme assets and the residual scheme obligations are as follows: UK £m
Total assets in the schemes (excluding those used to fund insurance arrangement) 3,942 361 4,303 3,833
Additional information for the current annual period and previous four annual periods: £m £m £m £m £m
Reductions in future mortality rates are allowed for by using 80% (males) and 60% (females) of the long cohort improvements. The weighted average assumptions imply that a current pensioner aged 60 has an expected future lifetime of 27.5 (2010: 27.5) years (males) and 28.1 (2010: 28.1) years (females) and a future pensioner aged 60 in 15 years time has a future expected lifetime from age 60 of 28.3 (2010: 28.3) years (males) and 28.7 (2010: 28.7) years (females).
The Group has four types of share based payment plans which are settled in the form of ordinary shares: the Long Term Incentive Plan (LTIP), the Sharesave Plan (SAYE), the Sharebuild Plan and the Executive Share Option Scheme (ESOS). Dilution levels for all schemes are held strictly within Association of British Insurers limits. Further information on the LTIP scheme is included below and information on the other share schemes can be found in the remuneration report.
The value of the awards granted during 2011 is £25m (2010 : £35m) of which £6m (2010: £8m) is charged in the income statement. The balance of the value of the awards will be charged to the income statement during the remaining vesting periods.
The structure of the plan allows for a number of different types of awards to be made. Voluntary Deferred Shares are purchased by participants from net bonus payable (limited to a maximum value of 33% of net bonus); in addition, for senior executives, the Remuneration Committee may defer a portion of an individual’s gross bonus (limited to 33% of that bonus) into an award over shares referred to for the purpose of the plan as Compulsory Deferred Shares. Voluntary Deferred Shares are held in trust for three years. Compulsory Deferred Shares awards are normally forfeited on an employee leaving the Group. No further performance conditions apply. The Remuneration Committee may make a conditional award of shares on a ‘matched’ basis to Voluntary and Compulsory Deferred Shares (‘Matching Shares’) up to a maximum of 2.5:1 and these are normally forfeited on an employee leaving the Group.
5. GCAN Insurance Company will be amalgamated into Royal & Sun Alliance Insurance Company of Canada on 1 January 2012.
Fair values of identifiable assets acquired and liabilities assumed for all business combinations in the year: £m
Acquisition related costs for acquisitions concluded during the period (included in other operating expenses in the income statement for the year ended 31 December 2011) amounted to £2m.
On acquisition of Proteccion Garantizada LTDA, the Group recognised £4m of non controlling interests. The non controlling interest was measured as the proportionate share of the identifiable acquired net assets.
The goodwill shown above primarily arises from the premium paid to strengthen the Group’s Commercial proposition in Canada by adding further technical expertise, geographic diversification and product breadth. Goodwill is further derived from the value of the workforces acquired, the growth from new customers and the significant synergies from reinsurance, capital and expense savings on integration into the Group.
Fair value gains (including gains on disposal) on property and equipment (1) –
The following transactions were carried out with related parties: Key management compensation £m £m
As at 31 December 2011, there are interest free loans totalling £10,000 (2010: £10,000) outstanding to two members of the Executive Team under standard terms of the Group’s UK Car Ownership Scheme, which is open to all UK managers within a qualifying salary band.
Opinion on other matters prescribed by the Companies Act 2006 In our opinion: • The information given in the Directors’ report for the financial year for which the financial statements are prepared is consistent with the Parent Company financial statements.
Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • Adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us or
The profit for the year net of tax includes a tax credit of £10m (2010: £3m). There is no tax relating to fair value gains.
Fair value losses net of tax – – – 69 – – 69
Profit for the year net of tax – – – – – 359 359
Profit for the year net of tax – – – – – 387 387
Total comprehensive (expense)/income for the year – – – (797) – 387 (410)
Dividends – paid (note 7) – – – – – (325) (325)
The accounting policies that are used in preparation of these separate 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.
Changes in the fair value of the investments in subsidiaries are recognised directly in equity 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.
Total other debtors and other assets 4 4 4. SHARE CAPITAL
Deferred tax assets at 1 January 2010 7 14 2 23
Credit to the income statement for the year 5 – – 5
Credit to the income statement for the year – – 1 1
Effect of change in tax rates – income statement (1) – – (1)
Effect of change in tax rates – other comprehensive income/equity – (1) – (1)
Within other temporary differences, there is £9m (2010: £7m) in respect of deferred tax reliefs.
Receivable from related parties: Receivable from subsidiaries, interest bearing loans 842 1,836
Full details of share based compensation plans are provided in note 27 to the consolidated financial statements.
Businesses of this size and scale often have unique and complex insurance needs, and those which operate on a global basis require an insurer with an in-depth knowledge of insurance issues that transcend international boundaries.
Group website RSA’s corporate website provides shareholders with a broad range of information about RSA’s heritage, social and environmental responsibilities and investor information such as the Group’s financial statements, current and historic share prices, AGM materials, events, governance information and answers to frequently asked questions in respect of shareholder matters. You may visit the investor website at www.rsagroup.com/rsa/pages/ir/irhome.
Registrar The Company’s share register is maintained by Equiniti Limited. Queries regarding your shareholding should be addressed to Equiniti at the following address: Equiniti Limited Aspect House Spencer Road Lancing West Sussex BN99 6DA
Overseas callers should use +44(0) 121 415 7064. Shareholders with a text phone facility should use +44(0) 871 384 2255 or alternatively use the Text Relay service by dialing 18001 0121 415 7064 directly from the text phone.
Please quote your shareholder reference number (on your share certificate and dividend tax vouchers) when contacting or corresponding with Equiniti. Calls are charged at 8p per minute from a BT landline. Other telephone providers’ costs may vary. Telephone lines are open from 8.30am to 5.30pm Monday to Friday.
Annual General Meeting Ordinary shareholders are invited to attend the Company’s Annual General Meeting (AGM), which will be held at The Queen Elizabeth II Conference Centre, Broad Sanctuary, Westminster, London SW1P 3EE at 11.00am on 14 May 2012. Ordinary shareholders who are unable to attend the AGM to ask a question in person are invited to send the Chairman an email via the Company’s website or to write to the Chairman at the Registered Office address above.
Electronic communications Changes to legislation allows companies greater flexibility when communicating with shareholders and allows corporate websites to be used as a primary source of information. By communicating with shareholders electronically RSA is able to distribute messages to all its shareholders instantaneously. Shareholders who register for electronic communications are more informed, receiving emails when our results are released. Shareholders may elect to receive paper copies of the Annual Report and Accounts by writing to or telephoning the Registrar.
Dividends Shareholders are encouraged to have their dividends paid directly into their bank account as it is more secure than receiving cheques by post and ensures that cleared funds are available to shareholders on the dividend payment date. Those receiving dividends in this method are sent a consolidated tax voucher in March, showing both payments in the respective tax year. To take advantage of this convenient method of payment visit www.shareview.co.uk or contact Equiniti.
Low cost share dealing facilities Shareholders may purchase or sell their ordinary shares in RSA through their stockbroker, a high street bank or one of the providers detailed below: RSA’s registrar, Equiniti offers a telephone and internet dealing service. Commission is currently 1.5% with a minimum charge of £35 for telephone dealing and currently 1.5% with a minimum charge of £30 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. You will need your shareholder reference number as shown on your share certificate.
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. A postal dealing service is also available upon request. For telephone sales call +44(0) 845 6010 995 between 8.00am and 4.30pm, Monday to Friday. Please quote reference: Low Cost 331. Alternatively visit their website www.stocktrade.co.uk.
Please note that rates are as at February 2012 and may be subject to change. Please contact either provider for further guidance on their full terms and conditions.
Ex dividend date for the first preference share dividend for 2012.
Announcement of the scrip dividend price for the ordinary final dividend for 2011.
14 May 2012 Annual General Meeting at the Queen Elizabeth II Conference Centre.
25 May 2012 Payment date for the ordinary final dividend for 2011 (subject to shareholder approval at the AGM).
8 August 2012* Ex dividend date for the second preference dividend for 2012.
28 September 2012* Record date for the ordinary interim dividend for 2012.
23 November 2012* Payment of the ordinary interim dividend for 2012.
Capacity • Largest amount of insurance available from a company • Can also refer to the largest amount of insurance or reinsurance available in the marketplace.
• The sum of the Claims Ratio and Expense Ratio • Measures how much we pay out in claims and expenses for each unit of net premium received • A COR of less than 100% indicates that we are writing profitable business • Calculated as: Commission • An amount paid to an intermediary such as a broker for generating business.
Earned Premium • The portion of an insurance premium for which we have already provided protection.
Expense Ratio • Percentage of Net Written 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.
Exposure • A measurement of risk we are exposed to through the premiums we have written. For example, in motor insurance one vehicle insured for one year is one unit of exposure.
• 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.
Portfolio Management • Management of a group of similar risks, these are usually grouped by geography and line of business.
Yield • Rate of return on an investment in percentage terms • The dividend payable on a share expressed as a percentage of the market price.
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 fi nancial condition, performance, results, strategic initiatives and objectives. Generally, words such as “may”, “could”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “aim”, “outlook”, “believe”, “plan”, “seek”, “continue” or similar expressions, identify forward-looking statements. These forward-looking statements are not guarantees of future performance. 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 and global economic business conditions, market-related risks such as fl uctuations in interest rates and exchange rates, the policies and actions of regulatory authorities (including changes related to capital and solvency requirements), the impact of competition, infl ation, defl ation, 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 affi liates operate. As a result, the Group’s actual future fi nancial condition, performance and results may differ materially from the plans, goals and expectations set forth in the Group’s forward-looking statements. The Group undertakes no obligation to update any forward-looking statements, save in respect of any requirement under applicable law or regulation. Neither the content of RSA’s website nor the content of any other website accessible from hyperlinks on RSA’s website is incorporated into, or forms part of, this document.
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