WE OPERATE IN 33 COUNTRIES AND PROVIDE GENERAL INSURANCE PRODUCTS AND SERVICES IN OVER 130 COUNTRIES.
In Ireland, we are a pure intermediated business and a leading provider of Household insurance.
Our Personal business is the third largest in the UK, and writes business through the broker, direct and affinity channels. MORE TH>N®, our direct business has around 2.6 million covers in place, providing Household, Motor, Travel and Pet insurance. We are the UK’s second largest Household and fourth largest Motor insurer. Our affinity business provides a range of insurance products to the retail customers of our corporate partners.
‘ THE COMMON THEME BEHIND OUR RESULTS HAS NOT CHANGED, NAMELY MANAGEMENT EXCELLENCE IN STRATEGIC, OPERATIONAL AND FINANCIAL PERFORMANCE IN ALL OUR BUSINESSES.’
In Personal, premiums were up 2% to £1.1bn. MORE TH>N® continued to perform well, with premium growth of 2%. New business sales increased by 10% while lower mortgage originations and new car sales continued to impact affinity volumes.
We also continue to focus on developing employees throughout the business and at all levels through our major initiatives: Our Technical Academy which we launched in 2006 to develop the next generation of talent, now has over 10,000 members across the Group in the core disciplines of claims, actuarial and underwriting The Executive Development Programme is now entering its fifth year, bringing together leaders from across the Group to work collaboratively on critical strategic issues Our Graduate and FastTrack programmes involved thirty new employees in 2008 providing structured support and career paths for new starters and high potential individuals.
We are committed to providing innovative ways of addressing those needs and emerging risks, including: The provision of energy performance management services for commercial customers, advising them how to reduce energy consumption, costs and CO
In 2008, our Irish business became carbon neutral for the first time, joining our UK business, with a newly constructed HQ designed to best practice construction and design standards.
We also launched our responsible procurement programme in the UK, assessing 96 of our suppliers on how they are tackling corporate responsibility issues and investigating how we can work together to address social and environmental issues in our supply chain.
We will maintain our focus on underwriting discipline and targeted profitable growth. We are seeing signs of economic downturn across the Group, however, we are also seeing rates beginning to harden in a number of our key markets and we continue to take action on rate and expenses. And as we announced with our full year results, we expect to deliver a combined operating ratio for 2009 of around 95%.
We are committed to delivering sustainable profitable performance. We are using three levers to drive the business forward and outperform the competition: Delivering profitable growth by focusing on profitable segments, expanding distribution and selected acquisitions Leveraging our market leading capabilities in underwriting and claims; and Driving continuous operational efficiencies across the business.
SCANDINAVIA Scandinavia represents over 50% of the International portfolio and 25% of the RSA Group. We are the third largest insurer in both Denmark and Sweden and are expanding our presence in Norway and Finland. In 2008, premiums increased by 16% to £1,602m (3% on constant exchange) and the COR improved by 3.1 points to 88.3% driven primarily by a strong performance in Sweden, particularly in Personal lines.
Personal net written premiums increased by 28% to £667m (18% on constant exchange). Growth in Personal Intermediated reflects positive rate, strong retention and the addition of CNS. Johnson is Canada’s second largest affinity writer and represents 40% of our Canadian business. In 2008, Johnson continued to perform strongly, delivering 24% growth (14% on constant exchange), reflecting the benefit of the TJV acquisition in 2007 and the signing of 35 new sponsorship groups, giving us access to a potential 240,000 new customers.
Marine insurance is an important part of RSA’s heritage and one of our key specialty lines. We are one of the largest Marine underwriters in the UK and our market leading technical skills provide real competitive advantage.
We are committed to delivering sustainable profitable performance. We will only write business that is profitable and are driving growth in segments where we can achieve our target returns. We are committed to underwriting discipline and actively withdraw capacity in areas of the market where the rate, terms and conditions do not meet our underwriting criteria.
We have achieved consistent increases in rate, with Personal Motor rates up by 6% and Household by 5%.
TECHNICAL CAPABILITIES Our technical skills are market leading and a real source of competitive advantage. In 2008, we won Insurer Innovation of the Year at the Insurance Times awards for our Energy Performance Management Proposition, which helps our customers meet Government requirements for Energy Performance Certificates. In addition, our rehabilitation programme, RSA Care, won the Rehabilitation Award at the British Insurance Awards.
The Personal market remains competitive, although we are now seeing some improving trends on rate and evidence of an increase in discipline from our major competitors. The influence of aggregators continues to grow and they are an increasing source of business for us. Our approach is to focus on working together with aggregators to create value over the long term. We also anticipate that the current economic environment may result in more affinity deals coming to the market.
Asia and the Middle East again performed strongly with a 43% increase in premiums (30% on constant exchange) with strong growth in UAE Motor and Construction and Engineering. We are making good progress on our expansion plans in China and recently received approval to establish a new branch in Beijing. We have also received our Royal Decree in the Kingdom of Saudi Arabia which enables us to proceed with the IPO of our Saudi business.
of this exposure remains hedged with a rolling programme of put and call options, providing protection down to a FTSE level of 2,825.
2. ADVERSE FINANCIAL MARKETS AND LOWER INTEREST RATES IMPACT THE INVESTMENT PORTFOLIO AND INVESTMENT INCOME The Group operates a low risk investment policy, with the investment portfolio dominated by short dated, high quality fixed income and cash assets. The prudent nature of the Group’s investment strategy has been
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 902 companies on a wide range of issues from climate change to labour standards.
CLARE SHEIKH (NÉE SALMON) GROUP STRATEGY, MARKETING AND CUSTOMER DIRECTOR Clare joined as Group Strategy, Marketing and Customer Director in June 2007. Previously she was Director of Marketing & Commercial Strategy at ITV plc and a member of the Executive Management Board. Clare is also the former Managing Director of AA Financial Services and has held senior commercial roles at Prudential and British Gas. She is also a non-executive director of Alliance Trust plc.
Annual General Meeting The AGM will be held at the Queen Elizabeth II Conference Centre, Broad Sanctuary, Westminster, London SW1P 3EE on Monday, 18 May 2009 at 11.00 am.
Deloitte LLP have confirmed their willingness to continue in office as auditors of the Company for the year ending 31 December 2009. A resolution for their reappointment will be proposed at the 2009 AGM.
Key features of the current internal control systems of the Group include: Internal audit The Group has an internal audit function, whose activities and effectiveness 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.
In February, the Committee approved the 2007 remuneration report, determined the outcome of annual bonuses for 2007 in the light of actual performance against agreed goals and objectives, and reviewed the proposed annual objectives and performance goals for executive directors in 2008. They also reviewed the effectiveness of the Remuneration Committee. At its meeting in April, the Remuneration Committee reviewed the base salaries of the executive directors and reviewed a forecast of share usage
Reviewed annually, changes effective from 1 April Benchmarked against equivalent roles in similar companies and with reference to the sustained performance of the executive
Bonuses paid to executive directors in respect of the performance year 2008 are included in the table of directors’ emoluments on page 57. The Remuneration Committee is satisfied that the bonus payments made in respect of 2008 reflect the consistently strong COR results across the Group throughout 2008, and the contribution made by each executive director.
Deferred Shares As described in the annual performance bonus section on page 52, executive directors, members of the Executive Team and the Top 100 may be granted Deferred Shares as part of the annual bonus. These Deferred Shares may not be withdrawn and will normally vest three years from the date of grant subject to continued employment with the Group.
John Napier’s initial letter of appointment was effective 9 January 2003 and the term of his appointment was three years. At the beginning of 2006 it was extended until 31 December 2008, and was extended again at the beginning of 2009, until 31 December 2011.
Pension benefits (audited part) 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: Transfer value Transfer value Difference in Total of total of total transfer Change in accrued accrued accrued values accrued pension at pension at pension at less member pension 31 December 31 December 31 December contribution in year 2008 2008 2007 (note 1) £ £ £ £ £
Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the consolidated financial statements and the part of the remuneration report to be audited. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the consolidated financial statements, and of whether the accounting policies are appropriate to the Group’s circumstances, consistently applied and adequately disclosed.
Assets Goodwill and other intangible assets 8 744 663 Property and equipment 9 309 377 Investment property 10 365 429 Investments in associates 11 123 105 Financial assets 12 12,748 11,340 Total investments 13,236 11,874 Reinsurers’ share of insurance contract liabilities 13 1,759 1,872 Insurance and reinsurance debtors 14 2,890 2,579 Deferred acquisition costs 15 653 542 Current tax assets 23 40 19 Deferred tax assets 23 142 87 Other debtors and other assets 16 1,477 963 1,659 1,069 Cash and cash equivalents 17 1,614 1,509 22,864 20,485 Non current and disposal group assets held for sale 34 3 108 Total assets 22,867 20,593
Equity, reserves and liabilities Equity and reserves Shareholders’ equity 3,839 3,077 Minority interests 81 67 Total equity and reserves 18 3,920 3,144 Liabilities Loan capital 19 1,311 1,194 Insurance contract liabilities 20 15,055 13,727 Insurance and reinsurance liabilities 21 545 426 Borrowings 22 300 303 Current tax liabilities 23 215 92 Deferred tax liabilities 23 238 224 Provisions 24 240 331 Other liabilities 25 1,043 1,087 Provisions and other liabilities 1,736 1,734 18,947 17,384 Non current and disposal group liabilities held for sale 34 – 65 Total liabilities 18,947 17,449 Total equity, reserves and liabilities 22,867 20,593
Consolidated financial statements The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU). The consolidated financial statements are prepared under the historical cost convention as modified by the revaluation of available for sale financial assets, investment property, Group occupied property and financial assets and financial liabilities held for trading (which include all derivative contracts).
Except where otherwise stated, all figures included in the consolidated financial statements are presented in millions of British Pounds Sterling (‘Sterling’), shown as ‘£m’, rounded to the nearest million.
Cash and cash equivalents Cash and cash equivalents are short term, highly liquid investments that are subject to insignificant changes in value and are readily convertible into known amounts of cash. Cash equivalents comprise financial assets with less than three months maturity from the date of acquisition.
All of the Group’s underwriters have specific licences that set clear parameters for the business they can underwrite, based on the experience of the individual underwriter. Additionally the Group has a centrally managed forum looking at Group underwriting issues, reviewing and agreeing underwriting direction and setting policy and directives where appropriate. The Group has a quarterly portfolio management process across all its business units, which provides a consistent assessment of each portfolio performance against a set of key performance indicators. Under the portfolio management system, key risk indicators are tracked to monitor emerging trends, opportunities and risks and, on an annual basis, a review forum of business and underwriting leaders undertakes a detailed review of each portfolio utilising data from the quarterly reviews.
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.
Auditors’ remuneration of £nil (2007: £nil) was paid in 2008 in respect of the audit services for discontinued operations.
Balance at 1 January 895 943 (38) 125 422 8 47 675 3,077 67 3,144 Total recognised (expense)/ income for the year – – – – (195) – 317 779 901 22 923 Dividends – paid (note 7) – – – – – – – (246) (246) (8) (254) Issued by scrip 14 51 – – – – – – 65 – 65 Issued for cash 6 13 – – – – – – 19 – 19 Treasury shares utilised – – 28 – – – – (28) – – – Changes in shareholders’ interests in subsidiaries – – – – (2) – – – (2) – (2) Depreciation transfer – – – – (1) – – 1 – – – Share options – – – – – – – 25 25 – 25 Balance at 31 December 915 1,007 (10) 125 224 8 364 1,206 3,839 81 3,920
Assumptions The total value of outstanding claims provisions less related reinsurance recoveries before discounting amounted to £10,391m (2007: £9,288m).
Notes to the financial statements continued 20. Insurance contract liabilities continued Consolidated claims development table net of reinsurance
Other provisions includes £60m (2007: £65m) 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 various litigation provisions of £nil (2007: £10m), the payment of which is dependent upon legal processes and Motor Insurance Bureau provision of £23m (2007: £33m).
Options outstanding at 1 January 53,633,132 139.01 73,839,962 142.71 Exercised (13,230,719) 83.46 (3,865,688) 86.09 Forfeited (1,111,080) 197.77 (1,890,835) 139.84 Expired (2,176,911) 364.25 (1,890,782) 287.22 Cancelled – – (12,559,525) 154.63 Options outstanding at 31 December 37,114,422 143.84 53,633,132 139.01 *Sterling (pence)
Equity, reserves and liabilities Equity and reserves Share capital 4 1,040 1,020
Retained earnings 684 422 Total equity and reserves 5,001 5,418 Liabilities Amounts owed to subsidiaries 9 436 232
Except where otherwise stated, all figures included in the separate financial statements are presented in millions of Pounds Sterling (‘Sterling’), shown as £m, rounded to the nearest million.
6 August 2009* Announcement of the half year results for the six months ended 30 June 2009, the ordinary interim dividend for 2009 and the second preference dividend for 2009 12 August 2009* Ex dividend date for the ordinary interim dividend for 2009 and the second preference dividend for 2009 14 August 2009* Record date for the ordinary interim dividend for 2009 and the second preference dividend for 2009 20 August 2009* Announcement of the scrip dividend price for the ordinary interim dividend for 2009 1 October 2009* Payment date for the second preference dividend for 2009 30 October 2009* Deadline for the receipt of scrip dividend mandates by Equiniti in relation to the ordinary interim dividend for 2009 27 November 2009* Payment of the ordinary interim dividend for 2009 * provisional date