Increasingly, RSA works with our customers to help them understand the risks they face and encourage mitigating actions – for example, through the application of telematics and connected technology, and risk consulting services that enable Commercial Lines clients to benchmark their risk profi le against peers and identify opportunities for improvement. The industry also has an important role to play in supporting innovations that tackle challenges on a wider scale, exemplifi ed by RSA’s long standing leadership in insuring renewable energy projects.
In 2018 we developed a new Customer Policy, and established a UK Customer Committee with Board oversight, in order to promote and secure positive outcomes for our customers in their interactions with RSA.
Technology: We use technology to digitise and automate our operations and services, so we can support our customers and remain competitive.
Our People Principles help us build a culture of high performance, working together effectively to sustain the capabilities we require to succeed.
We aim to be proactive and digitally enabled, providing tailored products that address evolving customer requirements and concerns.
“ We have an extensive engagement programme with our shareholders and analysts to ensure that the
· We are also building our digital and product proposition in the commercial space to ensure that we address the changing needs of business.
Our business strategy is to sustain a disciplined focus on RSA’s existing areas of market leadership, whilst driving operating improvements in pursuit of best-in-class performance levels.
General insurance markets are relatively mature, consolidated and stable, though with some intrinsic underwriting volatility. Attractive performance can be achieved through intense operational focus within a disciplined strategic framework.
In Commercial Lines we had poor results – a combined ratio of 101.9%. Proforma for portfolio exits and 2019 reinsurance additions, the ratio would have been 97.6%1, and a range of other improvements are targeted for 2019.
· Our large loss triage process shows that underwriting quality was signifi cantly improved in 2018, notwithstanding that we have more work to do to reach our targets.
· We seek to capture any changes in weather patterns or trends in our pricing.
· UK & International controllable expense ratio up due to premium contraction after pricing actions but down c. 3 points since 2013.
By ensuring customers are at the heart of everything we do, we can optimise business performance. We target improving retention over time.
Our assessment of the Group reserve margin (the difference between our actuarial indication and booked reserves in the fi nancial statements) remains at its target level of 5% of best estimate claims reserves.
The Group underwriting expense ratio of 14.1% was 0.3 points better than 2017 at constant FX. Scandinavia improved by 0.9 points and Canada improved by 1.3 points. The expense ratio in UK & International increased by 0.5 points, mainly due to a contraction in premiums. The Group commission ratio of 13.6% decreased slightly (0.3% at constant FX), mainly due to a lower proportion of Commercial Lines in the business mix.
No non-operating reorganisation costs were incurred during the year (2017: £155m).
Overall, the Scandinavian economy is strong, despite individual challenges within each of the countries we operate in. In Sweden, there was robust GDP growth of 2.5% during 2018, while Denmark and Norway grew at lower but stable levels.
Written controllable expenses were down 8% year-on-year1, with 10% cost reductions absorbing 2% infl ation. The earned controllable cost ratio of 21.1% improved by 2 points.
CEO, RSA Canada “ A year dominated by adverse weather, but solid foundations provide optimism for the future.”
The UK has created and launched a Connected Leaders programme in collaboration with Cranfi eld University. This programme mirrors the quadrants in our capability framework and is designed to disrupt thinking and be a catalyst for action. The programme is designed for senior management and 120 leaders have participated in the programme so far, with the remaining to be included in 2019.
As a Group, RSA has continued to make strong progress on the journey to fulfi l our D&I vision. The foundations have been put in place by agreeing a Group-wide policy and establishing robust business-led governance through the Group and Regional D&I Councils. Signifi cant groundwork has been undertaken to raise awareness within the organisation, by establishing Group-wide priorities and celebrating events on a quarterly basis, including International Women’s Day, Pride, Dive-In Festival and International Men’s Day. This, alongside region-led activities, such as a Board visit to Toronto where they met with the Diversity & Inclusion Council, has created the environment for change and signifi cantly contributed to RSA’s ability to build an inclusive culture. Further details on our progress in the UK and Group Corporate Centre can be found in our 2018 Gender Pay Gap report: www.rsagroup.com/ responsibility/resources/
In accordance with the UK Corporate Governance Code, the Directors have performed a robust assessment of the viability of the Group over an initial three year period and beyond after considering the longer term risks to the prospects of the business and mitigating actions that are in place.
Canada focuses on further developing weather models and pricing capabilities, and the UK initiated a long-term programme of work to enhance data, portfolio management and pricing models. Opportunities to improve profi tability are taken in a coordinated and informed way, with the UK taking the decision to exit certain segments and follow a more focused London Markets portfolio in 2019.
Failure of critical infrastructure impact on global communications, provision of power and/or telecommunications and GPS.
Emerging threats arise on a frequent basis, however there remains a risk of increasing capability of foreign powers and organised crime to engineer severe attacks.
Group and determines how much capital the Group needs to hold to remain solvent even after a major stress event(s), which forms part of the ORSA process.
rules we are required to hold suffi cient capital to withstand a 1-in-200-year event. For more information on the pension schemes, see note 38 of the fi nancial statements.
D iv e rs ifi c a ti o n w it h o th e r ri s k s
Cathy joined RSA as Group HR Director and member of the RSA Group Executive in January 2017.
Nathan was appointed Group Underwriting Director in June 2016. Since joining RSA in 2005, Nathan has held numerous senior roles, including Chief
The NomCo considers the structure, size and composition of the Board and committees and identifi es and proposes candidates to the Group Board. It ensures appropriate succession plans are in place for the Board and reviews executive succession planning. The Committee also focuses on
· The long-term sustainable success of the Company, generating value for shareholders and contributing to wider society; · Measuring performance against objectives set; · Establishing a framework of prudent and effective controls to assess and manage risk; · Maintaining and developing effective engagement with shareholders and stakeholders; · The purpose, values and strategy and associated cultural alignment within the Company; · Ensuring suffi cient resourcing is in place to meet objectives; · Ensuring workforce policies and practices are consistent with corporate values and support long-term success.
The Board approved investment in technology and digital offerings, which include an easier interface for UK customers to use. The benefi ts of these systems will include being more intuitive for employees and reducing costs.
The Board aims to ensure that the views of its stakeholders are considered during Board discussions and decision-making. The Board is aware of its responsibilities to its stakeholders in considering the following key areas:
The Board also reviewed and challenged the Own Risk and Solvency Assessment prior to submission to the PRA.
Each director has an individual training plan, which is reviewed annually by the Chairman. The directors have attended training sessions and seminars during the course of the year on topics such as cyber security, the Internal Model, Solvency II and audit and risk updates together with deep dives on business areas and participated in direct stakeholder engagement to keep their knowledge current and enhance their experience. Each year, the Board also spends time on site visits, giving it the opportunity to meet with and challenge senior management, while also deepening its knowledge of specifi c business areas. More information on the Board’s activities during 2018 is detailed on pages 50 and 51.
· A common framework through which risk management and control is embedded
· The remuneration framework is designed to promote sound and effective risk management in line with the Company’s risk profi le.
· Providing a business conduct helpline that employees can use to report any concerns
This stronger growth saw a continued tightening of labour markets with unemployment levels falling further in most western economies. Against this background, a number of countries also saw a small increase in infl ation pressures, although overall headline levels of Consumer Price Index remain at relatively modest levels.
Although economies have retained positive momentum from last year, the growing risks and uncertainties created by a range of factors, including trade wars and Brexit,are leading the market to generally predict slowing growth for the coming year.
Board. Taking into account the aggregated view of the strengths of current Board members, the Committee considered the current balance of skills, experience, independence and knowledge on the Board in the context of succession planning and the strategic priorities of the Group and agreed on a combination of skills and market experience that any future candidates for a non-executive director role on the Board should ideally bring.
Executive succession planning is also regularly reviewed by the Committee to ensure that a pipeline of talented individuals across the Group is being maintained. Individuals identifi ed as possible future candidates to join the Executive Committee team have tailored development plans and the Committee also seeks to ensure they are given appropriate opportunities to meet with Board members. A gender lens is now applied to succession plans as a way of highlighting progress against our targets as set out below.
· Group underlying Return on Tangible Equity at 12.6% (2017: 15.5%),
This report seeks to describe and explain our remuneration decisions clearly, and I hope to receive your support for it at the AGM.
RSA’s strategy is to: ∙ Concentrate on the complementary regional insurance markets where we are strongest
(after statutory deductions, not including dividend equivalents). Performance Shares assumed to vest on-target (62.5% vesting). Deferred Bonus Shares are not subject to performance conditions.
3 Half of the bonus is awarded in Deferred Bonus Shares which vest three years from the grant date, and are subject to malus adjustment as noted on page 75.
This component focuses on personal performance vs the priorities set by the Board for the Executive Directors in 2018. The Remuneration Committee considers their performance holistically in relation to the development and driving of strategy, fi nancial performance, appropriate risk management, customer and people initiatives. The Committee’s assessment was as shown in the following tables: Scott Egan (30% weighting – achieved 15%) Overview Progress
· Good progress moving Finance function towards strategic high performance, with good cost control.
RSA’s Relative TSR (which combines share price and dividend returns) outperformed the index of comparators.
2 The valuation is against an average mid-market closing price of an RSA ordinary share during 2018 of £6.113 per share.
performance period, the maximum outcome from the 2019-21 LTIP would be £1.7m (Scott Egan), £3.6m (Stephen Hester) and £1.5m (Charlotte Jones). This is based on 100% of the granted awards vesting multiplied by 1.5. If this was coupled with a maximum bonus award as in the Maximum scenarios above, the total remuneration receivable would be £3.2m (Scott Egan), £6.6m (Stephen Hester) and £2.9m (Charlotte Jones).
The Committee reviewed the Chairman’s fee in accordance with the Remuneration Policy, and did so referencing a range of information including market data on fees taken from the same peer groups used to benchmark the Executive Directors’ salaries, UK infl ation fi gures and the average reviews applied elsewhere in the Group. From 1 April 2019, the current fee of £428,400 will rise by 2% to £436,968, below the average salary increase levels for our UK employees.
Benefi ts are determined with reference to market practice within the same peer group companies referred to in respect of salaries. The Committee can also source information from bespoke benefi t surveys to aid decision-making.
The LTIP will include at least two measures. A majority weighting is given to fi nancial metrics.
Notes: 1 The current LTIP, referred to as the Performance Share Plan 2014 (PSP), was approved by shareholders at the 2014 AGM. It is also used as a vehicle for granting deferred bonus shares, and restricted shares where these are awarded as part of an Executive Director buy-out as noted on page 88.
- Cash bonuses may be bought out with Restricted Shares in order to give the Director an early ‘stake’ in RSA.
Restrictive covenants · Restrictive covenants are in place to help protect RSA’s interests should the individual leave the Company for any reason.
During the year, the Company operated two employee share trusts to hold Ordinary Shares in the Company which are used to satisfy grants under the Group’s share incentive schemes. Link Trustees (Jersey) Limited and Link Market Service Trustees Limited, respectively, are the Trustees. The Trustees may vote in respect of any shares held in the trusts but have no obligation to do so, and the Trustees may have regard to the fi nancial interests of the benefi ciaries in exercising their voting rights over the Company’s shares. Standard dividend waiver agreements are in place for the employee benefi t share trust, of which Link Trustees (Jersey) Limited are Trustees, to receive dividends of 0.01 pence per share.
In accordance with section 175 of the Companies Act 2006, each director has a duty to avoid confl icts of interest. Under Articles 94 and 95 of the Company’s Articles of Association, confl icts of interest may be authorised by the Board or a Board committee. Directors are required to notify the Company Secretary when a potential confl ict of interest arises. Each director’s confl icts of interest are reviewed on an annual basis. Any director who has declared a confl ict of interest shall not count towards the quorum or vote on any resolution to authorise the confl ict of interest and, at the Board’s discretion, may be excluded from any meeting at which the confl ict of interest is under consideration. Where a confl ict of interest is authorised, restrictions may be imposed on the confl icted director, such as excluding the director from the discussion or restricting the receipt of information in connection with the confl ict of interest. The Board confi rms that it has reviewed the schedule of directors’ confl icts of interest during the year and that the procedures in place operated effectively in 2018. None of the directors had an interest in any contract of signifi cance with the Company or any of its subsidiaries during 2018.
The Company does not consider that there are any signifi cant agreements to which the Company is a party that take effect, alter or terminate upon a change of control of the Company following a takeover bid, that are required to be disclosed pursuant to paragraph 13(2) (j) of Schedule 7 of the Large and Medium Sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended).
6 Held for sale disposal groups and business disposals 127 7 Reorganisation costs 127
The Directors are responsible for keeping adequate accounting records that are suffi cient to show and explain the Parent Company’s transactions and disclose with reasonable accuracy at any time the fi nancial position of the Parent Company and enable them to ensure that its fi nancial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of fi nancial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
RSA Annual Report and Accounts 201898 rsagroup.com 1) Our opinion is unmodifi ed
In addition, we tested the operation of controls over the valuation of individual claims reserves, such as large loss review controls, internal peer reviews and claims approvals. We assessed whether such controls were performed in line with the Group’s policies and with reference to underlying claims data.
Refer to page 172 (accounting policy, Investments in Subsidiaries) and page 174 (fi nancial disclosures).
Effect of changes in foreign exchange on cash and cash equivalents (3) (11)
Financial assets with fi xed or determinable payments not quoted in an active market
Deferred tax is provided in full using the liability method on temporary differences arising between the tax bases of assets and liabilities and the carrying amounts in the consolidated fi nancial statements. However, if the deferred tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting, nor taxable profi t or loss, it is not accounted for. Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the end of the reporting period and are expected to apply when the related deferred tax asset is realised or the related deferred tax liability is settled.
A defi ned contribution scheme is a pension scheme under which the Group pays fi xed contributions and has no further payment obligations once the contributions have been paid. Contributions to defi ned contribution pension schemes are charged in the consolidated income statement in the period in which the underlying employment services are provided to the Group.
Market risk can be broken down into three key components: i. Equity and property risk
Further information on pension obligations of the Group can be found in note 38. Further information on employee share schemes can be found in note 18.
A number of key management personnel, or their related parties, hold positions in other companies that result in them having signifi cant infl uence over these companies. A number of these companies transacted with the Group during the year. The terms and conditions of these transactions were no more favourable than those available, or which might reasonably be expected to be available, in similar transactions with non-key management personnel-related companies on an arm’s length basis.
Additionally, the Remuneration Committee may defer a portion of an individual’s gross bonus into an award over shares referred to for the purpose of the plan as Deferred Bonus Shares, which are also not subject to performance conditions.
Profi t attributable to the shareholders of the Parent Company (£m) 349 289
Less: Assets classifi ed as held for sale 2 – – – – 2
The carrying amount of group occupied property that would have been recognised had the assets been carried under the cost model at 31 December 2018 is £5m (2017: £26m).
In both cases the estimated fair value would increase/(decrease) if: · The estimated rental value is higher/(lower); · Void periods were shorter/(longer); · The occupancy rates were higher/(lower); · Rent free periods were shorter/(longer); · The discount rates were lower/(higher).
RSA Annual Report and Accounts 2018142 rsagroup.com 26) Fair value measurement continued
Total gains recognised in: Income statement 2 – – – 2
Less: Held for sale provisions for losses and loss adjustment expenses 604 (604) –
Provision for unearned premiums (gross of acquisition costs) at 1 January 3,986 3,994
The provision for unearned premiums is shown net of deferred acquisition costs of £675m (2017: £670m). The reasons for the movement in deferred acquisition costs during 2018 are as follows: £m £m
The tables on the following pages present changes in the historical provisions for losses and loss adjustment expenses that were established in 2008 and prior, and the provisions for losses and loss adjustment expenses arising in each subsequent accident year. The tables are presented at current year average exchange rates on an undiscounted basis and have been adjusted for operations that have been disposed of.
· provided by an independent surveyor (in the case of direct property)
RSA Annual Report and Accounts 2018160 rsagroup.com 38) Post-retirement benefi ts and obligations continued
On designation of forward foreign exchange contracts the interest element is separated from the forward exchange rate and is excluded from the hedge relationship. Effectiveness of the hedge is then measured using the spot rate, which is also the exchange rate used when measuring the net investment in the designated subsidiaries.
All other plant and equipment is stated at cost less accumulated depreciation and accumulated impairment loss. Cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset only when it is probable that the expenditure will result directly in future economic benefi ts to the Group, and the cost can be measured reliably.
New London House, 6 London Street, London, EC3R 7LP, United Kingdom
9 Indicates companies within the Group that are applying IFRS 9 and disclose relevant information in their own published fi nancial statements in addition to that already included in these consolidated fi nancial statements.
Share based payments 2 – – – – – 14 – 16
· Amounts owed by subsidiaries, which are held to collect contractual cashfl ows and are not designated at fair value through profi t or loss continue to be measured at amortised cost using the effective interest rate method, consistent with their treatment as loans and receivables under IAS 39.
Record date for the second preference dividend for 2019 5 September 2019*
Underlying Tax Rate The underlying Core Group tax rate mainly comprising the local statutory tax rates in the Group's territories applied to underlying regional profi ts (operating profi ts less interest costs).
Income Gross written premiums 7,599 7,599 Less: reinsurance premiums (921) (921) Net written premiums 6,678 6,678 Change in the gross provision for unearned premiums (16) (16) Less: change in provision for unearned reinsurance premiums (57) (57) Change in provision for unearned premiums (73) (73) Net earned premiums, analysed as 6,605 A 6,605
Attritional loss ratio G/B R 55.3% Weather loss ratio H/B S 2.6% Large loss ratio I/B T 10.8% Prior year effect on loss ratio V-R-S-T U (2.8%) Loss ratio F/A V 65.9% Commission ratio (K+L)/A W 13.7% Expense ratio (E+M+N)/A X 14.4% Combined operating ratio V+W+X Y 94.0%
· the results for our ongoing business given the portfolio exits undertaken in the UK business
A letter from the Chairman and the notice convening the AGM (Notice) is made available to all ordinary shareholders at least 20 working days before the meeting and can be found on the Company’s website at www.rsagroup. com/agm2019.
The RSA CSN is an easy and convenient way for you to hold and manage your RSA shares electronically, so there is no need for a paper certifi cate. You are still the benefi cial owner of the shares and you can instruct the nominee to buy, sell or transfer your holding on your behalf.
Shareholders are advised to be wary of any unsolicited advice, offers to buy shares at a discount, or offers of free reports about the Company. If you receive any unsolicited advice, make sure you get the correct name of the person and organisation and check that they are appropriately authorised by the FCA by visiting www.fca.org.uk/scamsmart. More information on protecting your investment can be found at www.fca.org.uk/consumers. If you do receive a fraudulent approach, please advise the FCA using the share fraud reporting form at www.fca.org.uk/scams or call the FCA Consumer Helpline on 0800 111 6768.