Pages 8 to 33 constitute the business review of RSA and are incorporated by reference into the Directors’ and corporate governance report set out on pages 40 to 54. The Directors’ and corporate governance report has been drawn up and presented in accordance with and in reliance upon applicable English company law and the liabilities of the Directors in connection with that report shall be subject to the limitations and restrictions provided by such law.
Through our affiliated broker network, Noraxis, we operate as one of the largest brokers in Canada
RSA is well placed to continue its progress and we look forward to the year ahead with a sense of shared purpose.
This gave us an overall insurance result of £806m (2011: £860m), including significant contributions from all our business regions but, in particular, our mature markets outside the UK as well as many of our emerging markets.
We continue to pay considerable attention to our corporate behaviour and our wider responsibilities to the individuals, businesses and communities we work with. Two examples are the projects we have undertaken to help draw attention to environmental degradation, asking RSA staff worldwide to propose plans to help us reduce our carbon footprint, and taking the creators of the best ideas to see for themselves the impact deforestation is having on the Brazilian rainforests. And in the UK, our ‘Fit to Drive’ campaign is pressing the government to do more to ensure drivers are safe on the road through more regular eye tests.
BE DISCIPLINED ABOUT CAPITAL ALLOCATION Finally, we will be disciplined about capital allocation. Acquisitions have been a key part of the way we have built the Group over the past few years, underpinned by strong financial disciplines as we evaluate deals, and strong post-transaction review discipline to ensure the operational targets for each deal are subsequently met and all lessons learned. This has been borne out by the success of deals such as 123.ie in Ireland and GCAN in Canada.
In January 2013, we welcomed Martin Scicluna as our new chairman. Martin brings a wealth of experience and I am greatly looking forward to working with him, as we take the business forward.
Investment result The investment result, which now excludes realised and unrealised gains, was £431m and comprised investment income of £515m offset by the discount unwind of £84m.
We continue to work hard to mitigate the impact of falling yields. In 2013, investment income is currently expected to be around £470m, which represents a decline of just under 9%, reflecting the ongoing variance between maturing and reinvestment yields.
2012 OVERVIEW In 2012 our Scandinavian businesses performed very strongly. Net written premium grew by 3% at constant exchange (down 2% as reported) despite a tough economic environment. Once again we delivered a strong underwriting result of £237m driven by a very strong current year performance in all countries, and an overall COR of 86.6%.
2013 OUTLOOK The Scandinavian economies are heavily dependent on exports and are therefore suffering from weak international economic performance. However, relatively stable labour markets in Scandinavian countries are sustaining domestic demand.
“This was another solid year for Canada, strengthening our number three position in the market with topline growth of 8%”
In Commercial lines, the strategy is to convert our leading market share into sustained underwriting profitability. We have a carefully selective approach to broker distribution, terminating 200 broker relationships during 2012 and focusing on our most valuable relationships, building long-term partnerships with key brokers through superior service.
2012 OVERVIEW UK & Western Europe net written premiums increased 1% at constant exchange to £3.7bn (flat as reported), driven by growth in UK Commercial and all UK Personal lines excluding Motor, where the decision was taken to reduce the top line to preserve profit.
We achieved growth of 3% in Household, driven by the 2011 acquisition of Oak Underwriting and continued success with our affinity partners.
2012 OVERVIEW In 2011, we set our target for Emerging Markets premium to double to around £2.2bn by the end of 2015 and we remain on track to achieve this.
The existing strengths of our programme will be maintained and opportunities for improvement taken. In 2013 we will outline a new vision for our CR programme and the activities we will commit to.
We will continue to offer volunteering and charitable matched-funding resources to our employees. We are also developing ambitious plans to expand CR activities and measure the impact of our community investment programmes. We are focusing our efforts on creating opportunities for our people to contribute their skills in educational programmes and to support enterprise and entrepreneurship.
European Retail Practice. Johanna was awarded a CBE in the 2013 New Year Honours List.
4. Hugh Mitchell was appointed to the Board on 26 September 2012.
Group Company Secretary and in addition may take independent professional advice at the expense of the Company in the furtherance of their duties.
Chairman on 31 December 2012, it was decided to defer the next annual evaluation of the Board until Martin Scicluna was in situ as the new Chairman in January 2013.
Review on pages 8 to 33. A statement of the Directors’ responsibilities can be found on page 74 and reports from the external auditor can be found on page 75.
Participants work in global teams on strategically important business challenges, researching the issues and recommending a solution.
The Technical Academy continually aims to enhance the technical capabilities of the Group’s underwriting, claims and actuarial staff by providing bespoke technical training, identifying talent, facilitating career development, analysing skills gaps, developing global best practice and supporting and recognising the attainment of technical skills and qualifications within the Group. The Academy also runs a two year
In the UK, these are available on request from UK Strategic Sourcing,
This report should be read in conjunction with and is incorporated by reference into the Directors’ and Corporate Governance Report.
To coordinate and oversee the integrity of the financial reporting process
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, and is well communicated with good processes in place.
So far as each Director of the Board is aware, there is no relevant audit information (as defined in section 418(3) of the Companies Act 2006) of which the Company’s external auditor is unaware, and each
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.
Group underlying Return on Equity (ROE). The calculation will exclude all net gains or losses to remove the impact of accounting volatility arising from trading RSA’s investment portfolio. This metric will be the sole financial bonus element for executives who work at a Group level, including Simon Lee, Group Chief Executive and Richard Houghton,
During the year, the Committee obtained advice from Towers Watson and PricewaterhouseCoopers (PwC). Towers Watson acted as the
Handover of Committee Chair role from Mr Maxwell to Mr Mitchell.
P er ce n ta ge o f an n u al b as e sa la ry
Unvested share awards granted from 2013 onwards can be subject to forfeiture under RSA’s clawback policy as noted on page 65.
TSR performance will be compared to an unweighted index of comparators 25% of the TSR part of the award will vest if RSA’s TSR is equal to the index with full vesting if RSA outperforms the index by at least 7% per annum
Executive Directors’ agreements contain restrictive covenants that protect RSA’s interests should the individual leave the Company.
Simon Lee a taxable cash supplement of 25% of base salary.
2. These values are as set out in the emoluments table on page 67. 3. In respect of Adrian Brown, this figure includes the value that RSA contributed into RSA’s Stakeholder Pension Plan during 2012 which is detailed in the table on page 68. 4. The face value of the compulsory deferred shares that were approved for awarding to the Executive Directors arising through the annual bonus plan for 2012. 5. The value of awards that vested on 6 April 2012 relating to the LTIP granted in 2009, against the market price of £1.043 as noted on page 70. Deferred shares vesting in the year are omitted from this calculation as they are derived from the 2008 bonus and are already earned.
Similarly, the policy will apply to the 2013 LTIP and future grants and not retrospectively, i.e. awards granted in 2010, 2011 and 2012.
The graph shows the TSR of the Group with reference to the FTSE
Net share of loss after tax of associates 11 (6) (9)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2012
Group accounting policies. There are no other significant changes to Group accounting policies during 2012.
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
Past service costs arise where additional benefits are granted. The cost of providing additional benefits is recognised on a straight line basis over the remaining period of service until such benefits vest.
Minus the fair value at the end of the reporting period of the scheme assets out of which the obligations are to be settled directly.
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
The insurance contract liabilities of an insurance company include the provision for unearned premiums and unexpired risks and the provision for losses and loss adjustment expenses. Unearned premiums and unexpired risks represent the amount of income set aside by the Company to cover the cost of claims that may arise during the unexpired period of risk of insurance policies in force at the end of the reporting period. Outstanding claims represent the Company’s estimate of the cost of settlement of claims that have occurred by the end of the reporting period but have not yet been finally settled.
The components of insurance, reinsurance, operational, credit, market and liquidity risk management are addressed below: Insurance risk
Loans and receivables 104 – – – – – 104 –
The Group is permitted to sell or repledge collateral held in the event of default by the owner, the fair value of which has been noted above at £827m. The terms and conditions of the collateral held are market standard. The assets held as collateral are readily convertible into cash.
The fair value of the Group’s portfolio of fixed income securities is inversely correlated to changes in the market interest rates.
Italy. Emerging Markets comprises the Group’s operations in Latin America, Asia and Central and Eastern Europe and the Middle East. All operations are engaged in providing personal and commercial general insurance services. Central functions include the Group’s internal reinsurance function and Group Corporate Centre.
Reinsurers’ share of change in insurance contract liabilities for claims 107 717
Fees payable to the Company’s auditor and its associates for the audit of the Company’s annual accounts 0.9 0.9
Discount rates used in 2012 are within a range of 6% to 24% (2011: 8% to 21%), are post tax and reflect specific risks relating to the relevant segments at the date of evaluation. The weighted average growth rates used in 2012 are within a range of 2% to 13% (2011: 3% to 13%).
Available for sale financial assets: Financial assets at fair value through the income statement: Derivative assets: At fair value through the income statement – 32 – 32
Pension fund actuarial (losses)/gains net of tax – – (63) (63) – (63)
The aggregate fair value of total loan capital at 31 December 2012 is £1,510m (2011: £1,325m).
At 31 December 2012 total unsecured loans from credit institutions under committed credit facilities of £500m (2011: £455m) are available to the Group. There are no amounts outstanding at 31 December 2012 (2011: £nil). The facility expires in 2017.
At 31 December 2012 the Group has in place a US$1bn (2011: US$1bn) Euro commercial paper programme. There are no amounts outstanding at 31 December 2012 (2011: £nil).
(Charge)/credit to the income statement for the year – (22) (54) (5) 60 (21)
In April 2002, the primary UK defined benefit schemes were effectively closed to new entrants and in 2005, following discussions with the
Present value of funded obligations fully covered by insurance arrangement 1,544 – 1,544 1,510
There is no impact on the net asset value of the Group.
During 2012 there were no significant changes in the recognised amounts of contingent consideration, and no changes in the range of outcomes, in respect of business combinations completed in earlier years.
Deferred tax for the current year is based on a rate of 23.0% (2011: 25.0%). The following are the major deferred tax assets recognised by the Company and movements during the year: Other temporary differences £m
RSA Insurance Group plc (incorporated in England and Wales) is the ultimate Parent Company of the RSA Group of companies.
Interest is charged on interest bearing loans, which are repayable on 24 hours’ written notice. This is comprised of £706m (2011: £618m)
Shareholders are encouraged to have their dividends paid directly into their bank account. It is a more secure and faster way to receive the dividend payment with cleared funds available to shareholders on the dividend payment date. Shareholders who have their dividends paid directly into their bank receive a consolidated tax voucher in March, showing payments received in the respective tax year. Alternatively, individual tax vouchers are available upon request. To take advantage of this convenient method of payment visit www.shareview.co.uk or contact Equiniti. Details of 2013 dividend dates can be found in the Financial Calendar on page 150.