RSA Insurance Group Limited
Annual Report and Accounts 2021
RSA Insurance Group Limited
Annual Report and Accounts 2021
RSA
Annual Report and Accounts 2021
1
rsagroup.com
Strategic Report
Governance Financials
Contents
Strategic Report
Business review 02
Risk management 04
Section 172 statement 08
Environmental, Social and Governance 11
Environmental risk management 14
Directors’ and Corporate
Governance Report
Directors and Officers 17
Corporate Governance 18
Report of the Directors 23
Financial statements
Directors’ responsibilities 27
Independent auditor’s report 28
Primary statements 36
Basis of preparation and significant
accounting policies 41
Risk and capital management 50
Significant transactions and events 59
Notes to the consolidated income
statement, consolidated statement of
comprehensive income and dividends 62
Notes to the consolidated statement of
financial position 72
Notes to the consolidated statement of
cash flows 105
Other commitments, contingent liabilities
and events after the reporting period 106
Appendices 107
Parent company financial statements 117
Notes to the parent company
financial statements 120
Further information
Shareholder information and financial calendar 125
Excellence
·
Act with discipline and
drive to outperform
·
Embrace change,
improve every day
·
Celebrate success,
yet remain humble
Generosity
·
Help others
·
Protect the
environment
·
Make our
communities
more resilient
Our Purpose
To help people,
businesses and
society prosper in
good times and be
resilient in bad times.
We built our business with help in mind
– it’s why we exist.
Integrity
·
Be honest,
open and fair
·
Set high standards
·
Stand up for
what is right
Respect
·
Be kind
·
See diversity
as a strength
·
Be inclusive
and collaborate
Customer-driven
·
Listen to our
customers
·
Make it easy,
find solutions
·
Deliver second-to-
none experiences
Our Values
Our purpose and values are
shared with our parent company,
Intact Financial Corporation.
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In accordance with the Companies Act 2006,
the Directors present their Strategic Report for
the year ended 31 December 2021.
RSA Insurance Group Limited (the Company),
formerly RSA Insurance Group plc, was
re-registered as a private limited company
on 26 May 2021 and 100% of the Company’s
ordinary share capital was purchased
by Regent Bidco Limited, a wholly
owned subsidiary of Intact Financial
Corporation (IFC or Intact), on 1 June
2021 (the Acquisition). On 1 June 2021,
the Company disposed of its operations
in Scandinavia (Codan A/S) and Canada
(Roins Holdings Limited), and these have
been classified as discontinued operations
(refer to note 7 Discontinued operations for
further information
1
).
The Company is a member of the RSA
Insurance Group of companies which
continues to operate in the UK, Ireland,
Continental Europe and the Middle East
(the Group, RSA or UK&I).
A number of the Company’s subsidiaries are
regulated by the Financial Conduct Authority
and/or the Prudential Regulation Authority.
Principal activity
The principal activity of the Group is the
transaction of insurance and related
financial services.
In the UK, RSA holds a top 5 position in each
of domestic commercial lines, personal
property and pet insurance. Personal motor,
property, and pet insurance is offered to our
customers through MORE TH>N and affinity
partners, which include major retailers and
large banks. Commercial Lines in the UK are
offered through the RSA brand via brokers.
In Ireland, RSA is one of the largest multi-line
insurers in the market, distributing through
123.ie (our direct to consumer brand), affinity
partnerships and brokers. In addition, we are
Ireland’s largest commercial wind energy insurer.
We provide a suite of Personal Lines products
in the Middle East. We own 50% of the
operations in Bahrain, the United Arab Emirates
and Oman (where RSA operates under
the Al Ahlia brand) and Saudi Arabia (where
RSA operates under the Al Alamiya brand).
Business Model
a. Products that protect our customers:
Our customers are our business.
We strive to address their changing needs
and continually improve our service.
b. Effective product distribution:
We need to reach our target customers
effectively and efficiently to continue to
develop as a business. Our products are
distributed directly to customers, through
brokers and affinity partnerships.
c. Understanding risk to price correctly:
To help ensure we offer the right products,
at the right price on the right terms, we work
hard to increase our understanding of our
customers’ risks and their evolving needs.
d. Proactively managing claims:
We aim to settle claims quickly and smoothly.
We carefully manage our indemnity spend
to keep the cost of claims efficient.
Business review
The Group reports a profit before tax of £4,332m
for the year ended 31 December 2021, of which
continuing operations contributed a loss of
£228m and discontinued operations a profit of
£4,560m (31 December 2020: £17m loss and
£500m profit respectively).
Continuing losses before tax of £228m
consisted of £137m underwriting losses
(2020: £33m profit), £110m investment result
income (2020: £110m), £11m central costs
(2020: £12m) and £190m of other charges
(2020: £148m).
On the same continuing basis, profitable
current year underwriting performance
was outweighed by reserve and margin
strengthening of approximately £180m,
to reflect evolving estimation uncertainty
and to align to IFC practices (refer to note
39 Insurance contract liabilities
1
). The
underwriting result was further impacted by
a £72m write-down of software assets (refer to
note 23 Goodwill and intangible assets
1
) and
a £34m net impact relating to a reinsurance
contract purchase for adverse development
cover (which will reduce the potential volatility
in the Group’s historical claims liabilities),
including partial offset from reduced
reserve margin in light of the increased
reinsurance protection. Other charges were
also impacted, with £136m acquisition and
integration costs, and £53m debt buyback
costs (refer to note 37 Issued debt
1
).
Profit from discontinued operations
before tax included a £4,393m gain on
the disposal of the Group’s operations in
Scandinavia and Canada (refer to note 7
Discontinued operations
1
).
Net written premiums were £4,474m of
which £3,293m were in respect of continuing
operations and £1,181m from discontinued
(2020: £3,038m and £3,185m respectively).
Net assets of the Group are £3,091m
(2020: £4,730m).
RSA UK & International
For more than 300 years, RSA has been
protecting individuals and businesses from risk.
In 2021 we became part of Intact, to continue
our critical role.
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Related party transactions
The Group received capital injections from
Regent Bidco Limited of £1,021m and £275m
during the period, the latter of which was
used to fund the repurchase of its guaranteed
subordinated notes (Tier 2 notes). The Group
also declared a dividend in specie of £6,914m.
Refer to note 17 for further information on all
related party transactions
1
.
Key performance indicators (KPIs)
The Group use both IFRS and non-IFRS
financial measures (Alternative Performance
Measures, APMs) to assess performance,
including common insurance industry metrics.
As the Group is now a wholly owned
subsidiary of IFC, with no publicly listed
ordinary share capital, the KPIs reported
by the Group have been reassessed and
have reduced.
The KPIs most relevant to the financial
performance of the Group are now as follows:
·
Net written premiums for continuing
operations £3,293m
(2020: £3,038m):
premiums incepted in the period,
irrespective of whether they have been paid,
less the amount shared with reinsurers.
They represent how much premium the
Group gets to keep for assuming risk.
The Group targets growth – that is without
compromising underwriting performance.
·
Underwriting result
2
for continuing
operations £137m loss
(2020: £33m
profit): net earned premium and other
operating income less net claims and
underwriting and policy acquisition
costs. The Group aims to achieve an
underwriting result that is as sustainably
high as possible – that is without
uncompetitive pricing or compromising
reserves. The Group targets further
improvements to its underwriting result.
·
Loss/profit before tax for continuing
operations £228m loss
(2020: £17m
loss): net loss/profit generated before taxes
have been deducted. This is a key statutory
measure of the earnings performance of
the Group. The impact of tax can vary from
company to company, therefore excluding
this enhances comparability. The Group
seeks to maximise its profit before tax.
In both 2020 and 2021 the results, and
therefore some of these KPIs have been
significantly impacted by the transaction
and transition costs of the takeover.
Information contained in the Customer section
below, the ESG section and the People
section in the Directors’ report on pages 23
to 25 and our principal risks on page 7 form
the non-financial information statement.
Our operations
The Company’s operations remained resilient
during the year. The majority of our workforce
has been working from home during the
Covid-19 pandemic, reflecting guidelines
set by local governments. Significant resource
has been deployed to ensure our people
have received the appropriate support
regarding physical and mental well-being
during remote working. Operationally, we have
continued to make improvements to our IT
architecture and successfully migrated to a
new cloud based mainframe to support our
UK systems and processes.
During 2021, where and when guidelines
permitted, there was some voluntary
return to the office supported by hybrid
arrangements to ensure effective working
from the office and home.
Principal risks and uncertainties
Following the disposal of the Group’s
operations in Scandinavia and Canada,
the principal risks and uncertainties of the
Group have been reassessed. These are set
out in note 6 Risk and capital management
1
.
Further detail on how the Company manages
its principal risks and uncertainties is set
out in the risk management report on
pages 4 to 7.
Our strategy
Our ambition is to build on RSA’s strengths
to deliver a consistently outperforming
underwriting result. We will achieve this
by leveraging our strong UK domestic
Commercial Lines and Specialty businesses,
growing our direct channels in Personal Lines,
and continuing to improve our productivity.
We are therefore focused on simplifying our
business and distribution channels, investing
in our technical and digital capabilities, and
building a customer-driven culture that values
high performance and develops talent.
We will build the customer proposition and
grow our European businesses through
alignment with Intact’s Specialty businesses
in North America and the London Market,
while continuing to focus on the underwriting
excellence which has enabled the
performance improvement of recent years.
Our customers
We strive to provide tailored products to
meet the evolving needs of our customers
by analysing trends and keeping pace with
digital developments.
Our customer policy sets out standards for
the business to help ensure that we treat all
customers fairly, that products and service
continue to meet their needs, and that we
monitor customer outcomes to understand
our performance. Further information on how
we support and engage with our customers
is contained in the Section 172 statement on
pages 8 to 10.
We define customer retention as a measure
of the amount of business that is renewed
with us each year. Strong customer
satisfaction translates to high retention
levels and improved underwriting results.
By ensuring that customers are at the heart
of everything we do, we can optimise
business performance. We target improving
retention over time.
Future outlook
We evolve our products and services to
ensure that we continue to meet customers’
changing needs.
We continue to improve the performance
and resilience of the business. An ongoing
focus is to further simplify what we do and
drive and further invest in areas of strength.
Markets remain competitive but the Group
has the right foundation to target sustainable
growth in certain product lines and customer
types. The continuation of our programme of
business simplification aligned to customer-
driven values will assist this growth further.
Events after the reporting period
The Group has limited direct underwriting
or investment exposure to the war between
Ukraine and Russia and is vigilant in its
adherence to sanctions. The situation will
continue to be closely monitored for any
indirect impacts that could emerge.
On 7 March 2022 the Company gave notice of
redemption to the holders of the two floating
rate Restricted Tier 1 notes. The Tier 1 notes
will be redeemed at their principal amount
together with accrued and unpaid interest
up to (but excluding) the first call date on
27 March 2022.
1. Refer to Financial Statements.
2. The underwriting result is an Alternative Performance Measure (APM). Refer to Further information – Jargon buster and Alternative Performance Measures.
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Managing risk
to deliver for our
customers and achieve our goals
Aiming to deliver consistently for our customers while achieving good long-term
sustainable performance.
The Group’s operating plan provides a
platform for ensuring the business remains
aligned with its strategic goals, including
strong delivery for our customers and
sustainable performance with a robust capital
base. The Risk Function takes an active role in
challenging the business on its development
of our plans and delivery against our
objectives and those of our customers.
Approach to managing risk and our appetite in 2021
Our risk management and controls
frameworks were created to ensure
that we identify, measure and manage
risks across the Group before they adversely
impact on our customers or the business.
This information, together with the strength
of the Group’s capital position, allows the
Board to set a risk strategy and appetite
that articulates the level of risk the Board
is prepared to take in delivering its
strategic objectives.
Risks are managed within risk appetite,
using a risk maturity view. For material
financial risks, this was achieved throughout
the year and three-year plans assume this
will continue. From time to time, certain risks
stray outside target and action is taken to
manage them back to acceptable positions.
This year saw continued progress in some
key risk areas, including customer,
underwriting discipline, IT and cyber.
Risk culture – culture of
accountability and openness
We consider the foundation of an effective
risk management framework to be the
cultivation of a risk culture that promotes
accountability and openness (a willingness
to admit mistakes and learn from the past).
At RSA, the Board and senior management
team has been instrumental in setting the
right ‘tone from the top’, and we gain
insights from quarterly culture health
reviews and periodic workforce surveys.
A key part of our culture is ensuring our
customers are at the heart of all we do.
We give considerable attention to ensuring
our customers are treated fairly and our
colleagues are passionate about achieving
good customer outcomes.
Risk management and governance
approach during Covid-19
Maintaining effective risk management
and a robust internal control environment
is essential in times of organisational stress
as it helps protect the organisation
from harm. Our values continue to drive
decision-making in challenging times,
putting our people and customer needs
first, supported by our operational resilience
capabilities. Uncertainty from Covid-19
conditions continues to impact every
organisation and the economic environment;
however, our success in embedding remote
and hybrid working has allowed us to continue
to serve our customers well. Joining Intact and
the associated organisational change brought
with it additional operational risks. These
risks were mitigated through frequent and
open communication with our people, strong
and considered leadership, and appropriate
monitoring. Now some months on, these risks
have been, and continue to be, managed.
In terms of financial resilience our capital
position has been strengthened during the
takeover by Intact providing additional capital
and improving the solvency coverage, as well
as increasing the quality of capital held.
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Emerging risk – monitoring future threats
Cyber risk
Cyber threats arise on a
frequent basis; however,
there is an increasing risk
of hostile states and
organised crime to
engineer severe attacks.
Terrorism
Terrorist threats remain
high. Attacks could impact
a large number of our
customers and colleagues
as well as broader society.
Inflation
Supply chain issues,
the impact of Brexit and
the effects of the pandemic
increase the uncertainty
around inflation and
the risks of stagflation,
with implications on
claims fulfilment and
economic output.
Pandemic
While we appear to be
through the worst of the
pandemic the risk of further
variants remains and there
continue to be economic,
social and political
implications from the direct
and indirect consequences.
Regulatory activity
The pace of regulatory
change shows no sign of
slowing, with multiple
initiatives that are significant
in nature and complex to
implement. The current
regulatory change agenda
includes a new Consumer
Duty, Solvency II
developments, diversity and
inclusion, climate change,
operational resilience and
continuing efforts to embed
changes arising from the
FCA’s General Insurance
Pricing Practices reforms.
Financial market
uncertainty
Volatile capital markets
negatively impact on the
value of assets and
potentially increase capital
requirements for market/
credit risk, and with a
continued low interest
rate environment.
Global socio-political
uncertainty
Tensions over trade,
international relations
and EU stability are all
factors that may have
significant social and
economic implications.
Persistent or
more extreme
weather patterns
There is potential for further
deterioration of more
extreme weather patterns
from a warming planet.
Climate change
transition risk
Transition risk is already
underway, and the economic
effects are starting to
materialise. There remains
some uncertainty about how
disorganised transition will be
and the extent to which it
will have negative economic
effects as actions are taken to
deliver on net zero targets.
Geopolitical tensions
Geopolitical tensions
could result in new
political, economic,
cyber or physical conflicts.
Emerged risk
Near-term risk
Longevity risk
Longevity risk can affect long-term
annuity-like bodily injury claims
and pensions risks. Several factors
including medical advances could
shift the risk in the future.
Autonomous machines
Autonomous machines are likely
to change insurance needs and
could affect both the frequency
and severity of losses.
Transition risk
As economies shift to low carbon
emissions the transition could
have material micro and
macroeconomic implications
affecting asset values and
economic growth.
Solar storms
Solar flares could potentially impact
on electronics and the electricity
supply, having a broad economic
impact and resulting in a wider
range of insurance claims.
Medium-term risk
Climate change accelerates
Climate change is fully on the agenda and remains a key emerging risk for insurers.
While transition risk is nearer term, the physical risks will take longer to fully materialise and come with even greater uncertainty.
We are already experiencing some volatility in global weather patterns that are being reflected in weather assumptions
but there are substantial risks that these physical effects could accelerate.
Long-term risk
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Risk management approach
Risk management system
The Board sets
business strategy*
The Board sets the business
strategy which is incorporated in
the three-year operational plan.
Risk strategy combined with
the Risk Function challenge
of the operational plan provides
robust challenge of validity and
achievability of plan.
Board sets risk strategy
and appetite
Risk strategy defines the approach
to managing principal risks and
creates the overarching principles
for setting the risk appetite limits
and indicators.
Policies set a framework for
operating within appetite
Our extensive policy suite sets out
the required business processes
and controls to deliver the
operational plan within appetite.
Robust control testing and
monitoring is used to identify
risks out of appetite.
Monitor appetite and
action tracking
The business leaders manage
their own risks and define actions,
where out of appetite, with oversight
provided by UK&I Risk and Control
Committees and escalation to the
Board via the Risk Committee.
Own Risk and Solvency
Assessment (ORSA)
reported to Board
Validated output from the model
is reported to the Board, so that
changes can be made to the
three-year operational plan to
ensure the RSA Group remains
in appetite.
Model outputs used in ORSA
The internal model is run regularly
throughout the year in order to
assess the risks impacting the RSA
Group and determines how much
capital the RSA Group needs to
hold to remain solvent even after a
major stress event(s). This forms
part of the ORSA process.
Model outputs checked and
used in business decisions
Output from the model is sense
checked against non-modelled
stress and scenario events to
ensure it provides a reliable
basis for making business
decisions, including capital
planning, reinsurance purchase,
performance analysis and pricing.
Risk assessment and
update internal model
Significant changes in risk
assessments are considered
by the Internal Model Governance
Committee and, where appropriate,
the Group’s internal model
is updated.
Risk management system
underpins the operational planning cycle
58 7
1 2
3 4
6
* Following the takeover of RSA by IFC a review of strategy for the new perimeter and role of RSA as a part of IFC has commenced and continues.
Those aspects decided upon by the time of setting the 2022-24 operational plan are fully incorporated. Those areas still subject to review will become
an adjustment or overlay at the appropriate time.
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Key risks and mitigants
Key risks and exposures
Key mitigants and controls
Reserving
risk
This is the risk that the Group’s estimate of
future claims is insufficient, such that gross
losses could be higher than projected or
reinsurance does not respond as
anticipated. The size of future claims
payments is uncertain, with the main
sources being long-tail lines of business,
Covid-19 business interruption claims
(due to interpretation of policy wordings still
being debated in high profile legal cases),
as well as underlying economic inflation.
The timing of future claims payments is
another key uncertainty especially for our
long-tail liabilities arising from motor injury,
liability and Profin.
·
Reserves are reviewed and challenged at the UK&I Reserving Committee meeting
which is attended by the Chief Actuary, Chief Risk Officer, Chief Underwriting
Officer, Chief Financial Officer and Chief Executive Officer.
·
During 2021, we have carried out detailed monitoring of claims, regulatory, legal
and reinsurance developments, both within RSA and the industry, to help form
assessments and make appropriate allowance for the impact on our experience of
potential operational, economic or other disruptions arising from Covid-19 and Brexit.
·
The Adverse Development Cover mitigates the risk of adverse development in
prior year releases.
·
The Group’s reserve assurance programme and independent external reserve
reviews have independently verified more than 90% of the UK&I’s net Actuarial
Indication during the past three years.
·
Claims case reserves are set based on best estimate and reviewed at quarterly
case Reserving Committee meetings.
·
Management consider and seek legal advice on the implications of all open legal
cases and judgements across the industry relating to interpretation of policy
wordings in Covid-19 claims. It is expected that any adverse change would be
protected by reinsurance cover.
Operational
risk
This risk relates those resulting from
human factors, external events, regulatory
matters and inadequate or failed internal
processes and systems, including cyber
risks. Operational risks are inherent in the
Group’s operations and are typical of any
large enterprise, and have the potential to
impact on our customers.
·
Operational risk and resilience processes and procedures are in place, including
incident management.
·
Operational resilience mechanisms continue to be important in 2021 given
the ongoing pandemic. Through this time the customer focus and governance
has continued to be strong, and resilience plans and procedures have ensured
service continuity.
·
Control effectiveness is monitored through formal Validation and Assurance.
·
UK Customer Committee oversees decisions relating to good customer outcomes
with a particular focus in 2021 on the implementation of pricing practices rules.
·
IT and data risks remain a key focus, especially cyber threat, and we have made some
significant progress over the year, while migrating some services onto the Cloud.
Pension
risk
Our defined benefit pension schemes are
exposed to longevity and market risks.
Some of these, for example credit spread
movements, are partly hedged through
offsetting exposures in the Insurance
Investment Fund.
·
Funding assets are well matched to liabilities in the pension schemes, including
the use of swap arrangements.
·
A long-term funding plan is in place to further de-risk the schemes.
·
Possible market impacts are examined and well understood with a specific focus
on Pension risk.
This is the risk to our insurance
funds arising from movements in
macroeconomic variables, including
widening credit spreads, fluctuating
bond yields and, to a lesser extent,
currency fluctuations.
Market
and credit
·
RSA adopts a prudential investment strategy favouring high-quality fixed income
bonds, a modest allocation to equities and selected less liquid assets subject to
strong internal and external governance.
·
RSA ensures assets are closely duration and currency matched with insurance
liabilities to hedge volatility.
·
Investment positions are regularly monitored to ensure limits remain within
quantitative and qualitative appetite (including ESG factors).
·
Asset Managers position assets to align to the Low Carbon Position Statement.
Underwriting
and claims
risk
This is the risk that underwritten business
is not in line with appetite or is less
profitable than planned due to insufficient
pricing and setting of claims case
reserves. Key exposures arise from
large portfolios where claims trends
are slow to emerge, such as UK
Commercial and Marine.
·
Controlled through well-defined risk appetite statements (including climate
change factors) which are rigorously monitored at quarterly portfolio reviews,
with remediation action taken where deemed necessary.
·
Risks to inflation and supply chain delays are being monitored and we are ready
to respond.
·
Extensive control validation and assurance activities are performed over
underwriting pricing and claims.
·
2020 Covid-19 actions have been effective and in 2021 we focused on supporting
customers’ claims in line with regulatory expectations and relevant court rulings.
Catastrophe
risk
Arises from the risk of large natural
disasters, with our main exposure
being to North European windstorms
and UK flood.
·
Our reinsurance programme significantly reduces our exposure to
catastrophe risks, with historical losses being well covered by our programme.
The programme is designed to cover at least 1-in-200-year events and is
stress-tested for climate change scenarios.
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Section 172(1) Companies Act
2006 statement
The Board has balanced the views and interests of our stakeholders,
alongside the need to promote the long-term success of the Company.
The Board has acted in a way that it
considers, in good faith, would be most likely
to promote the success of the Company for
the benefit of its members as a whole. This
section sets out how the Board, in doing
so, has had regard to the matters set out in
Section 172 of the Companies Act 2006.
A balanced and collaborative
approach to stakeholder
engagement
The Board recognises the importance of
positive relationships between RSA and its
stakeholders and is committed to fostering
strong engagement with them. Open and
collaborative dialogue and interaction is in
the best interests of RSA and helps us to
make a positive contribution to society.
Throughout 2021, the Directors and senior
management engaged with key stakeholder
groups across the business. These
engagements were adapted as internal
and external demands continued to impact
the business, in particular, completion of
the Acquisition and the ongoing Covid-19
restrictions on operations and travel.
The composition of the Board changed
significantly during 2021 to reflect the change
to the Company’s scope and jurisdiction
under its new ownership. The Board remained
committed to maintaining a range of direct
and indirect engagement with its stakeholders
and has approved the stakeholder
engagement plan for 2022.
As part of its decision-making throughout
the year, the Board has considered and
balanced the views and interests gained
through its stakeholder engagement,
as well as the need to promote the
long-term success of the Company.
Customers
Why the Board engages
Good business starts with our customers and
we strive to keep them at the heart of what
we do. The Board works hard to increase
its understanding of our customers’ risks so
that we continue to provide tailored products
and services that meet their diverse and
evolving needs. Customer satisfaction and
customer retention are critical to the long-term
sustainable prospects of the Company.
How the Board engages
The Board receives regular updates from
senior management on customer and
conduct matters and monitors and tracks
KPIs on customer outcomes. In addition,
the Board receives management information
and updates from the UK Customer
Committee, which ensures good customer
outcomes are central to our decision-making.
These updates keep the Board informed
on customer priorities and key risks to
the consistent delivery of good customer
outcomes, and future areas of focus.
They help to ensure that the Company
has promoted and secured positive
outcomes for its customers.
The Board ensured that it was well informed
on how management was ensuring a
customer centric and robust conduct culture
during challenging and difficult times due
to the Covid-19 pandemic.
During the year, the Board received
deep-dive updates from both the Managing
Director of the Commercial Lines business
and the Managing Director of the Personal
Lines business. The Commercial Lines
update included a focus on broker feedback
and customer expectations, including the
increasing importance of retention linked to
price, service and value. The presentation
on the Personal Lines business included
customer and market insight and how
the business is responding to customer
expectations around customer service
and digital offerings. The Board also received
an update on RSA’s response to the
FCA’s new rules on Pricing Practices and
Product Governance, which will bring broad
industry focus on customer outcomes.
These business reviews have been a
forum for the Board and management to
discuss long-term strategic goals on
customer matters.
Long-term implications
Customer satisfaction and retention
are critical to the long-term sustainable
prospects of RSA. The Board has engaged
with and responded to the needs of
customers with this in mind. During the
second half of 2021, the Board was engaged
in detailed strategic analysis and planning,
and considering how any change in strategic
focus will impact and benefit customers.
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Workforce
Why the Board engages
The Board values meaningful engagement
with our people and recognises that a
healthy, transparent and open culture and
empowered individuals support our strategic
objectives of excellent customer service and
a high-performing workforce. We define our
workforce as our employees, individuals on
a contract for service and agency workers
across the UK&I business.
The Board recognises the central role that
our workforce plays in sustaining our positive
culture and diverse capabilities as we continue
to progress under new ownership. Much of
the engagement of the Board in the first half of
the year was focused on guiding our people
through this transition. Following completion
of the acquisition, the Board has supported
management’s communication strategy to
ensure employees are engaged and informed
on changes and opportunities for the
business and its people as part of Intact.
How the Board engages
We know how important culture and shared
values are to the success of an organisation
and of setting the tone from the top.
New Board members are inducted on the
organisational context, including briefings
with the Director of HR. Culture is a Board
level matter and during the year the Board
received and supported a number of updates
on people strategy and in 2022 approved the
adoption of Intact’s purpose and values.
RSA’s organisational structure changed
during 2021 following the Acquisition and to
support the future strategic ambitions of the
business. This has included some changes
to senior leadership in the region. The Board
reflected on the actions and precautions being
taken to deliver these organisational changes
and has been satisfied that management is
appropriately considering and protecting the
well-being of our people. The Board continues
to engage with the Executive Team and to
support them in providing reassurance and
clear communications to employees.
The Board has considered reports and
updates from senior management with
feedback from employees gained through
various methods, including management
group meetings with leaders across the
business and HR-led people sessions,
employee surveys and virtual ‘coffee chat’
discussion groups. The Board also reviewed
updates on progress to achieve diversity and
inclusion ambitions; for example, enhanced
UK family policies proposed by management
which were well received by employees.
Direct engagement with the workforce
was challenging during 2021 due to ongoing
changes in Covid-19-related restrictions.
That said, Executive Directors have taken
opportunities to engage by virtual means,
such as a roundtable discussion on the
topic of career progression between non-
executive Directors and female colleagues
on International Women’s Day, and town
halls and Q&A sessions with colleagues.
The Board has been engaged in key decisions
to support the workforce during a period of
heightened change, including hybrid (a mix of
home and office) working arrangements and
an accelerated pay review for UK employees.
Long-term implications
The Board understands that responding to
our workforce’s needs and removing any
barriers to enablement in evolving working
environments are key to the long-term
success of RSA. The Board has responded
to the short and medium-term impact of
Covid-19 on the workforce and organisational
structural changes related to the change to
the Company’s ownership.
Regulators and rating agencies
Why the Board engages
RSA is regulated by the PRA and the FCA
and committed to working with its regulators
in an open, cooperative and transparent
manner. We seek to ensure a strong
regulatory compliance culture throughout
RSA in order to pre-empt and, where
necessary, resolve regulatory issues and to
avoid or minimise business impact and the
risk of customer harm. The Board continues
to have constructive engagement with
our regulators, ensuring that they gain a
comprehensive view of the Group’s financial
soundness, strategic and operational
priorities, governance and culture, and that
we understand the issues of interest to them.
The Board regularly engages with RSA’s
regulators across all the regions that
it operates. Due to the significance of
the Acquisition, RSA’s regulators were
informed of the arrangements and terms
of the transaction. The regulatory capital
requirements of RSA was a central topic of
discussion with relevant regulators as well
as its culture and governance, solvency,
liquidity and treating customers fairly. The
PRA and the FCA attended Board meetings
in 2021 to discuss regulatory priorities.
How the Board responds
We believe that open and regular dialogue
promotes transparency between the Group
and its regulators and ensures that we are in
a position to reflect the views of our regulators
when setting strategy. The outcomes of our
engagement with our regulators influence
RSA’s priorities and focus for the year are set
out in the regulatory compliance plan, which is
considered and approved by the Governance,
Conduct & Remuneration (‘GCR’) Committee.
Long-term implications
The Board is committed to engagement with
the Company’s regulators in order to ensure
that we maintain positive relationships and
take account of their views and interests.
Environmental, Social and
Governance issues
Why the Board engages
The Board is committed to high standards
in ESG matters. This is manifested by our
contribution to communities and how we work
to mitigate the impact of our business on the
environment, in particular how we work with
business partners, suppliers and customers
in relation to our shared response to the
challenges posed by climate change.
How the Board responds
The Board has oversight of RSA’s policies on
climate change and is engaged on how the
business is supporting the transitioning to a
low carbon economy. Further information
on the Board’s oversight and engagement
on ESG matters and its oversight of non-
financial KPIs is set out in the ESG Report
and Environmental Risk Management Report
on pages 11 to 16.
Long-term implications
The Board recognises that stakeholders
have an interest in understanding how
our business is responding to issues that
concern wider society. The Board has been
particularly engaged in understanding both
the near and long-term risks associated with
climate change and in preparing our business
to respond to the associated physical,
regulatory, social and economic impacts.
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Section 172(1) Companies Act 2006 statement
continued
Shareholders
The Company’s ultimate owner is Intact
Financial Corporation, a public company
listed on the Toronto Stock Exchange.
During 2022, RSA adopted the purpose and
values of Intact and is aligned with Intact’s
strategic objectives to deliver outperformance
and value for its shareholders.
The Company’s Board has an equal balance
of independent and non-independent
Directors. There are three shareholder-
nominated Directors on the Board; which
supports the Board’s understanding and
integration with Intact.
Further detail on the composition of the
Board is included in the Governance Report
on pages 21 and 22.
Suppliers
Our suppliers are critical to our business
and the long-term success of RSA. We are
committed to the principles of the Prompt
Payment code and aim to treat suppliers
fairly and consistently – for example, by
offering equivalent payment terms between
suppliers, in order to build strong and lasting
relationships. We have structured supplier
management practices in place across all
regions and are investing in further tools and
processes to manage risk in the supply chain
and ensure that our supplier relationships are
managed in a cooperative and proportionate
manner. Further detail on how we engaged
with our suppliers during the year is included
on page 12 of the ESG Report.
Pension schemes
The Board continues to view the pension
trustees as a key stakeholder group. In 2021,
the UK pension trustees were provided with
quarterly updates on RSA performance
and offered meetings with RSA and Intact
senior executives. RSA also continued to
engage with and support the development
of investment strategy in the pension
schemes (noting that this is ultimately
controlled by the trustees).
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ESG
Building a
resilient future
As people and communities look to the future, our focus on helping
them to navigate change and build resilience has never been more important
We are committed to integrating
key environmental and social
issues with our business practices.
The information contained in the Customer section
of the Business Review on page 3, the ESG section
and the People section in the Directors’ report on
pages 23 to 25 and our principal risks on page 7
form the non-financial information statement.
We believe that strengthening relationships
with colleagues, customers, suppliers and
communities through addressing issues of
mutual concern helps to create value that is
sustainable and ultimately benefits both RSA
and the society in which we operate.
The pandemic has surfaced social and
environmental issues that were already
important to our business, but have been
given greater prominence as a result of
the challenges faced by our employees,
customers and communities during this
period. Our approach to ESG, articulated
in our Confident Futures strategy in 2018, is
one way RSA demonstrates the integrated
approach we take to these important issues
and the contribution we make to realising
the UN Sustainable Development Goals
that are most relevant to our business.
In 2022, we will review how this strategy
should evolve to benefit from the priorities,
skills and ambitions of Intact.
Environment
The insurance industry is critical to helping
people and communities to both understand
and manage the impacts of climate change,
particularly more frequent and severe
weather events, and the transition to a
low carbon economy.
We engage with the rapidly evolving
approach to climate change by business
and government through both our own
direct action and our active engagement
with sector groups such as ClimateWise,
the United Nations Principles for Sustainable
Insurance, and the Climate Financial Risk
Forum. Alongside our peers, these groups
provide RSA with the opportunity to develop
and share best practice on reporting,
new ways to integrate ESG concerns
with our strategic decision-making,
and to innovate new products that will
better serve the community.
Our Climate Change Action Plan, first
developed in 2019 and aligned with the PRA
Supervisory Statement SS3/19 is a central
component in our approach to embedding
climate change in our risk framework. As
a result of the plan we have put in place
measures to manage climate-related financial
risks, with a number of actions now forming
part of our BAU activity or being integrated
with Intact’s new climate change strategy,
which will be disclosed in 2022.
In 2021, we completed detailed scenario
analysis to determine the material financial
impact of risks to our business from changes
in the climate and submitted this to our
regulator, the PRA, as part of the Climate
Biennial Exploratory Scenario (CBES). The
process of completing our CBES submission
has also helped us to both validate and
update our Climate Change Action Plan
to ensure we are taking full account of the
risks and acting to mitigate them through an
integrated response. More on our approach
to managing the risks associated with climate
change can be found in our TCFD disclosure
on pages 14 to 16.
We maintained our Climate Change and
Low Carbon Policy position, first implemented
in 2020, as a key tool to demonstrate our
commitment to responsible investment and
underwriting. The policy is a framework for
assessing the carbon intensity of our Scope
3 emissions and a baseline for long-term
ambitions towards our commitment to
achieving Net-Zero by 2050. The policy will
be reviewed in 2022 to assess whether there
are opportunities to increase its impact and
efficiency in supporting low carbon transition
and ensure it continues to reflect the changing
shape of our business as part of Intact.
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ESG
continued
Carbon emissions from our operations
have reduced this year by 13%, in part as a
by-product of the changing work patterns
caused by the pandemic. More details
are available on pages 23 and 24 in the
Streamlined Energy and Carbon Reporting
(SECR) section. We have also maintained our
leadership position in the Carbon Disclosure
Project (CDP) assessment with an A- score.
Across the UK&I region, 55% of electricity
for our premises is from renewable sources.
In the UK this figure is 66%. Scope 1, 2
and 3 emissions data can be found on
page 24 as part of our SECR report.
Emissions from business travel were once
again down compared to pre-pandemic
levels, with a 65% reduction in carbon
emissions from business travel on the
previous year.
Our employees are increasingly interested
to understand how we can help them to
make more sustainable choices. We have
installed chargers for electric vehicles at
our Chelmsford offices with installations
planned for our offices in Horsham and
Liverpool in early 2022. In 2021, chargers
were installed in our Bristol office, with
Birmingham and Peterborough to follow
in 2022. In addition, our Executive Team
agreed in 2021 that from March 2022 our
Essential Car User policy will change so
that all new vehicles supplied by RSA to
employees will be low emission (<50g/km),
either Plug in Hybrid or electric vehicle.
Communities
Our community programme continues to
harness the generosity and enthusiasm of
employees to support some of the most
vulnerable in society. Food distribution,
education and learning, mental health
services and projects to combat loneliness
are among those having received more than
£1.47 million in cash, the value of volunteering
time and in-kind support. £0.87m of this total
community contribution was in the form of
charitable donations from RSA.
We are particularly committed to leveraging
our expertise and investment to improve risk
education in schools, in the workplace and
in the home through a behaviour change
programme. In the UK this includes a
partnership with the Royal Society for
the Prevention of Accidents (RoSPA),
targeted at over 65s to reduce the risk
of falls in the home.
The pandemic created challenges in
delivering traditional areas of our community
programme; for example through in-person
employee volunteering. Our focus turned
to alternative programmes including the
RSA Climate and Risk Education Grant
Programme, which utilised funds from the
UK Dividend Forfeiture Scheme to donate to
organisations tackling climate change and
reducing carbon emissions or supporting
risk education and behaviour change. In total
we contributed £295k funds to 43 causes.
Employee fundraising has increased
5% despite the challenges of delivering
fundraising activities. Employees raised
£66k for charitable causes, supplemented
with an additional £17k through our matched
funding programme.
In 2021, we also achieved the Charities
Aid Foundation Silver Payroll Giving Mark
for our GAYE scheme. 262 employees are
signed up to this benefit in which RSA offers
matched donations of up to £10/month,
with participants making an average donation
of £28/month. RSA donated a further
£39,412 in match funding.
As we emerge from the pandemic, we
believe 2022 offers an exciting opportunity
to relaunch, reinvigorate and emphasise the
importance of community engagement.
Suppliers
Our suppliers are critical to the service we
provide to our customers and make an
important contribution to our business.
In 2021, we continued to engage with
our suppliers through structured supplier
management practices across all regions,
establishing new or enhanced standards
and sharing best practice. We are investing
in new tools and processes to manage risk
in the supply chain and ensure that our
supplier relationships are managed in a
cooperative and proportionate manner.
Our Claims Supply Chain team has continued
to work closely with suppliers during the
emergence from Covid-19 lockdowns to
ensure that they could continue to offer
services safely and in an environment
where many people were isolating. We
have monitored the ongoing impact of the
pandemic on service levels and supplier
confidence through surveys and other
engagement tools. We improved our payment
terms for motor repair and provided increased
levels of support to repairers in recognition of
both increased labour rates and energy costs
affecting the sector.
RSA is committed to the principles of
the Prompt Payment Code, which recognises
the key role that small and medium sized
enterprises play in the local economy
and the need to ensure costs are covered
in a timely fashion. We aim to treat suppliers
fairly and consistently – for example,
by offering equivalent payment terms
between suppliers, in order to build strong
and lasting relationships.
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Human rights
As a signatory to the UN Global Compact,
RSA is committed to aligning its operations
with the ten universal principles that together
cover our approach to environment, human
rights, labour and anti-corruption.
Our Human Rights Policy is designed to
operationalise the Universal Declaration
of Human Rights, the International Labour
Organization’s Declaration on Fundamental
Principles and Rights at Work, and the UN
Guiding Principles on Business and Human
Rights. It sets the standard we expect for our
employment practices, the actions of our
supply chain, and principles we apply to
our investment and underwriting portfolios.
In 2021, we continued a programme of
due diligence that monitors the approach
of our supply chain to human rights, tracks
performance, and engages with suppliers
to improve transparency where necessary.
Supplier Relationship Managers have
completed our e-learning module, which
addresses the potential risks of modern
slavery and human trafficking in the supply
chain, raises awareness of this issue among
our people and the circumstances under
which they should seek specialist advice.
Our procurement team considers human
rights when reviewing supplier tenders, as
well as existing supplier contracts. Our aim
is to raise awareness of issues, ensure that
procedures are in place to prevent breaches,
and conduct appropriate due diligence.
We are subscribers to the Financial Services
Qualification System (FSQS) operated by
Hellios – a community of financial institutions
collaborating to agree a single standard for
managing supplier compliance, including
with ESG policy areas such as modern
slavery and environmental impact.
All relevant policies are reviewed on an annual
basis, including our Modern Slavery and
Human Trafficking Statement, which was
published in March 2021 and is linked to a
number of policies that provide confidence
we are helping to raise awareness of modern
slavery among our people and suppliers.
This includes policy standards outlining
how we recruit, manage and support
our people in a working environment that
promotes diversity, respect, integrity, safety
and wellbeing; our Third Party Contracts &
Outsourcing policy which exists to ensure
that appropriate assessments of risks
associated with services are undertaken to
meet our human rights commitments; and our
Speaking-up & Whistleblowing Policy, which
encourages our people to raise concerns,
without fear of retaliation, about how we do
business or operate as an employer.
Our overarching approach to ensuring
we are respecting and helping to fulfil human
rights is found in our Human Rights Policy.
Further information on our approach to
addressing modern slavery can be found in
our Modern Slavery and Human Trafficking
Statement: www.rsagroup.com
Anti-bribery and corruption
We do not tolerate bribery and corruption
anywhere in our business. Our Anti-Bribery
and Corruption Policy and Conflicts of Interest,
Gifts and Hospitality Policy apply across
our business. Directors, people leaders and
others with supervisory responsibility must
ensure that employees, contractors, business
partners and suppliers are aware of these
policies and comply with them.
The policies establish detailed guidance on
facilitation payments, gifts and hospitality
and relationships with third parties, as well as
the systems and controls to ensure effective
implementation. All employees, contractors,
business partners and suppliers are expected
to comply with applicable laws of the UK and
countries in which we conduct business, as
well as with our Broker Remuneration Policy
and Third-Party Contracts Policy, which set
out requirements for payments to brokers
and procurement activity.
In 2021, all colleagues were enrolled in
a mandatory e-learning training module
covering anti-bribery and corruption.
The training is an annual assignment to
all staff and is translated into a number of
different languages for our colleagues in
different parts of the world. Employees are
encouraged to identify and escalate concerns
to management or through our confidential
third-party whistleblowing hotline in line
with our Speaking-up & Whistleblowing
Policy. Operating countries complete risk
assessments that are reviewed and updated
annually, supported by a central team to
enable continuous improvement to controls.
The Audit Committee periodically reviews
Internal Audit findings in relation to our
Anti-Bribery and Corruption Policy.
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Environmental risk management
Task Force on
Climate-related
Financial Disclosures
(TCFD)
Reporting in line with the recommendations of the TCFD helps us
to manage the impacts of climate change through our strategy
and approach to risk management.
The TCFD recommendations
provide guidance for businesses
on increasing disclosure of
climate-related information.
RSA has adopted the TCFD
recommendations reporting on governance,
risk management and business strategy to
manage climate-related risks and low-carbon
opportunities, targets and metrics.
Governance
The Board is responsible for considering
climate-related issues in business plans, our
exposure to climate-related risks together
with opportunities for RSA to achieve energy
efficiency and climate mitigation measures
in its own business and supply chain, and
support customers in the transition to a
low-carbon economy. The Board via the
Risk Committee receives updates on the
implementation of RSA’s Climate Change
Action Plan, together with our Climate Change
and Low Carbon Policy position, and consider
how climate change risks and opportunities
are addressed through the operational plan.
Responsibility for climate change is integrated
into the roles and responsibilities of senior
managers across several key functions,
including Finance, Underwriting, Investments
and Risk. Our Director of Strategy has
overall responsibility for the RSA UK&I’s
Environmental Policy and shares responsibility
for delivery of our Climate Change Action
Plan and the risks it seeks to address with
our Chief Risk Officer and our Director of
Underwriting and Pricing.
Our Director of Strategy chairs our ESG
Committee, which regularly updates our
senior managers and the Board on activities
and progress against targets. Within each part
of the RSA UK&I region, country-level senior
management is responsible for ensuring that
the business strategy is executed and that
our business plans take into consideration
the operating environment and material risks
and associated policies, including in relation
to climate change.
Our ESG Committee and our UK&I Corporate
Responsibility Committee jointly oversee
the relevant components of our ESG
strategy, including our strategic focus on
responsible investment and underwriting
and the sustainability of our operations.
This encompasses actions to respond to
climate risks and opportunities, including
minimising the impact of our direct operations
by setting targets and monitoring progress,
and supporting the transition to a low-carbon
economy. For more information on our
approach to ESG, see pages 11 to 13.
In 2022, we intend to align the RSA approach
to climate change strategy with Intact.
We will be reviewing our approach to
governance of these matters to ensure
they are fit for purpose.
Strategy
As an insurer, the risks and demands of a
changing climate are of critical importance to
our business, customers and stakeholders.
The climate-related risks and opportunities
outlined in this section are integrated into
strategic decisions covering:
·
Corporate strategy – including integrating
actions that respond to climate change into
our five-year roadmap to ensure that our
business evolves in a way that is consistent
with our responsibilities under ESG.
·
Underwriting strategy and portfolio
management – particularly in relation to
physical risks and reinsurance decisions.
·
Reducing our own operational
environmental impacts, including within
our supply chain.
·
Investment decisions.
·
Risk management governance, policies,
processes and systems.
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Managing physical risk
RSA’s risk and operational teams
regularly review the emerging risk
landscape – analysing Company-wide
data, exposure and trends, and external
research to identify a management
approach to climate-related risks.
Climate risk is well managed through our
operational policies and standards:
·
Annual policies mean we can respond to
changing weather patterns.
·
Reinsurance provides protection against
losses from severe weather events.
·
We work with our customers to promote
measures that improve resilience to
extreme weather.
·
We use weather peril models and
geolocation tools to support sophisticated
risk assessments and underwriting of
residential and commercial properties.
Reinsurance is our primary means of reducing
the financial impacts of climate-related
losses associated with the physical risks of
changing weather patterns. Our catastrophe
reinsurance covers flood, windstorms,
hurricanes, wildfires and other severe weather
events, with special provisions providing
additional protection for prolonged or
greater frequency events.
Our reinsurance programme is designed
to cover at least 1-in-200-year events
and is optimised to mitigate the impact
of extreme weather. We have tested the
value and effectiveness of our reinsurance
programme against a scenario of rapidly
increasing severe weather, which has
informed the Board’s decision on our
forward-looking reinsurance strategy.
Our operational planning processes also
consider changing weather patterns. Using
up-to-date catastrophe models and building
identifiable trends into our weather planning,
technical pricing and exposure management
are key parts of our underwriting guidance.
Opportunities to support
low-carbon transition
Our Climate Change and Low Carbon
Policy position sets out the important role
we can play in helping society transition to a
low-carbon economy. We seek to ensure that
our business activities are consistent with our
commitment to support the development of
renewable energy and other lower-carbon
technologies through our products and
services while limiting capacity available to
and investments in certain fossil fuels.
This policy, which came into effect in January
2020, formalises our position on investments
and underwriting of carbon-intensive sectors.
We hold positions in renewable energy
insurance across our portfolio and our
Commercial Lines business includes a team
of specialist underwriters and risk engineers
with the skills, technical knowledge and
industry experience to handle construction
and operation of renewable energy projects
around the world. As a result of the acquisition
by Intact and new opportunities and
challenges associated with the changing
shape of our business, our Climate Change
and Low Carbon Policy will be reviewed to
coincide with the development of our new
climate change strategy.
We have an opportunity to influence our
customers and suppliers to improve their
resilience to climate change through risk
management tools and advice. In 2021,
we worked with Intact to develop a new
climate change strategy for the Group,
one which is designed to foster positive
approaches to addressing climate change
across the value chain, including ultimately
with customers, suppliers and in the
wider community.
Scenario analysis
RSA’s stress and scenario testing
programmes are designed to help the
business understand the potential financial
consequences of complex risk events, such
as climate change, where the impacts will
be broad, far-reaching and with a range
of future outcomes. The use of climate
scenario analysis to assess climate-related
financial risks is a growing focus of insurance
regulators and provides a valuable input to
inform strategic business decisions.
Global catastrophe risk is a material part of
RSA’s risk profile, and extensive reinsurance
arrangements are in place to manage and
mitigate this risk. The results of ongoing
scenario analysis highlight the importance
of reinsurance protection to mitigate extreme
weather events that occur over an extended
period of time. Increased severity of weather
events is likely to be well covered by our
existing catastrophe reinsurance cover.
The outcome of any scenario analysis is
considered as part of RSA’s short- and
long-term reinsurance strategy.
The impact of transition risks associated
with the 2°C scenario were limited as
RSA’s investment portfolio is composed
of high-rated assets with minimal exposures
to carbon-intensive sectors, as well as
government bonds (Scandinavia,
Canada, the US and the UK) issued by
countries that are among the highest
ranking in the Notre Dame Global Adaptation
Initiative (NDGAIN), climate change
adaptation rankings.
During 2021, we were one of only 18 firms to
participate in the Bank of England’s CBES
exercise, which explored the financial risks
posed by climate change and tested the
resilience of the financial services sector.
Subsequent management actions to mitigate
the risk associated with CBES climate
pathways are in line with the existing RSA
Climate Change Action Plan, which was set
in 2019. However, we have proposed that
the remit of the Action Plan be expanded to
capture additional actions arising from the
CBES exercise on an ongoing basis.
Risk management
Our enterprise-wide approach to risk
management (covered in more detail
on pages 4 to 7) ensures that the right
processes and procedures are in place to
identify, understand and monitor the risks
associated with a changing climate across
our operations. Climate risks feature on
our emerging risk profile and are built into
our risk control environment for assets
and underwriting.
Policies are reviewed to ensure that
climate change is integrated into relevant
requirements and controls. We have also
integrated climate change into our UK&I
Risk Appetite Statement and ORSA and will
be refreshing this in line with the approach
taken by Intact.
The key climate-related risks with the potential
to impact our business include:
·
Increased operating costs from short-term
changing weather patterns and increased
severity of extreme events (physical, short
term) – managed through underwriting
actions and reinsurance.
·
Increased operating costs from damage
caused by increased severity and/or
duration of extreme weather events such as
cyclone, floods, wildfire and/or cumulative
gradual climatic changes – for example,
in precipitation or sea level (physical, long
term) – managed through underwriting
actions and reinsurance.
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Environmental risk management
continued
·
Changes in the operational cost base or
claims profile due to new or unproven
technologies associated with the switch
to electric vehicles, larger turbine size,
battery storage (transition, medium term) –
managed through actions designed to help
us achieve net zero, underwriting actions
and customer engagement.
·
Reduction in investment returns due to early
retirement of assets, reduced demand for
products or increased costs of business
for carbon-intensive industries (transition,
long term) – managed through diversified
investment portfolio and risk appetite on
carbon-intensive sectors.
·
Reduction in demand (and associated
revenues) for insurance products/services
due to increasing costs of premiums,
reducing affordability (physical, long term)
– managed through product offering,
innovation and portfolio management.
The key climate-related opportunities with the
potential to impact our business include:
·
Increased investment in renewable energy
technologies, increasing demand for
renewable energy insurance and increasing
revenue (transition, short/medium term) –
managed through product/service offering,
renewables centre of excellence and our
Climate Change and Low Carbon
Policy position.
·
New product and service offerings to
provide insurance for new technologies,
resource efficiency or infrastructure,
such as electric vehicles, rail (transition,
short/medium term) – managed through
product/service offering, customer
engagement and ongoing market analysis.
·
Development of climate adaptation and
resilience solutions (physical, medium
term) – managed through product/service
offering, risk management expertise and
customer engagement.
·
Increased demand (and revenues) for
insurance as changes to weather patterns
increase public awareness of the need
for cover (physical, long term) – managed
through product/service offering and
customer engagement.
Targets and metrics
We recognise the importance of understanding, measuring and managing the impact of our
own operations. Our overall commitment is to achieve Net-Zero emissions by 2050 and halve
operational emissions by 2030. These targets are part of an ambitious climate change strategy
developed by Intact, which will be disclosed in 2022.
In 2020, RSA achieved ‘Leadership’ level in CDP (formerly the Carbon Disclosure Project)
increasing our score from B to A-. We retained a score of A- in 2021. This reflects the strategic
approach we have adopted to managing climate-related issues.
In 2021, the majority of RSA offices remained largely unoccupied until the gradual return
of a form of hybrid working in Q3. We observed a reduction of 13% in our total carbon
emissions and a 65% reduction associated with business travel. More information on how
we measure the environmental impact of our own operations, including a breakdown of
Scope 1, 2 and 3 emissions can be found in the Streamlined Energy and Carbon Reporting
section on pages 23 to 24.
We are committed to using the lessons from the pandemic to inform our approach to optimising
the efficiency of corporate real estate and virtual working opportunities as we progress our
ambition to continually reduce emissions from our operations.
Metrics 2021
2020 2019
Weather and subsidence related losses
£114m
£85m £61m
Weather and subsidence loss ratio
4.3%
3.2% 2.2%
Energy portfolio GWP in renewable energy
60%
37% 57%
Total carbon emissions (Scopes 1, 2 and 3)
4,977
tonnes
CO
2
e
5,737
tonnes
CO
2
e
9,997
tonnes
CO
2
e
Notes:
All figures have been restated to account for the disposal of our Scandinavian businesses following the acquisition
by Intact. The Canada portfolio and footprint will now be accounted for in the global figures for Intact.
Weather-related losses and weather-loss ratio figures represent ongoing continued business, excluding those
areas which have been exited. These figures also exclude the impact of internal reinsurance between the
UK&I business and the legacy RSA Group head office. This will no longer be in place from 2022 onwards.
For notes relating to Scope 1, 2 and 3 emissions please see the section on Streamlined Energy and
Carbon Reporting on page 24.
Charlotte Jones
Chief Financial Officer
11 March 2022
RSA
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Governance
Financials
Directors and Executive Officers
1
Non-Executive Directors
General Counsel & Secretary
Mark Hodges
Appointed 1 June 2021
Chair
Alastair Barbour
Sally Bridgeland
Appointed 1 June 2021
Charles Brindamour
Appointed 1 June 2021
(Shareholder-nominated)
Clare Bousfield
Claude Dussault
Appointed 1 June 2021
(Shareholder-nominated)
Robert Leary
Appointed 1 June 2021
(Shareholder-nominated)
Andy Parsons
Appointed 1 June 2021
Executive Directors
Ken Norgrove
Appointed 10 January 2022
Chief Executive Officer
2
Charlotte Jones
3
Chief Finance Officer
Jonathan Cope
Appointed 1 June 2021
Independent auditor
KPMG LLP
15 Canada Square
London
E14 5GL
Registered office
20 Fenchurch Street
London
EC3M 3AU
Company registered number
02339826
Ken Norgrove
Chief Executive Officer
2
Appointed 10 February 2022
Charlotte Jones
3
Chief Financial Officer
Ken Anderson
4
Chief Financial Officer
Appointed 1 January 2022
Karen Caddick
HR Director
Jonathan Cope
General Counsel &
Company Secretary
Paul Dilley
Chief Underwriting Officer
Karl Helgesen
Chief Claims Officer
Dave Howell
Chief Auditor
Oliver Holden
Chief Information Officer
Appointed 21 February 2022
Louisa Leonard
Chief Operating Officer
Kay Martin
Managing Director,
Personal Lines
Lee Mooney
Managing Director,
Commercial Lines
Appointed 1 December 2021
Andrew Podd
Chief Risk Officer
Appointed 17 May 2021
Steve Watson
Managing Director, UK
Specialty
Appointed 1 December 2021
Natalie Whitty
Strategy, Communications
& Marketing Director
Rachel Conran
CEO RSA Luxembourg
Kevin Thompson
CEO RSA Ireland
Martin Rueeg
CEO RSA Middle East
Executive Committee (UK&I)
1. Changes to the Board and Executive Committee during the year
are detailed on pages 21 and 22.
2. Subject to regulatory approval.
3. Charlotte Jones will leave RSA on 31 March 2022.
4. Ken Anderson has started to transition into his role and has been approved
to take up his position as CFO and become an Executive Director of the
Board from 1 April 2022.
RSA
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Governance
Financials
Corporate Governance
Chair and CEO
The roles of Chair and Chief Executive
Officer are separate and clearly defined.
The independent non-executive Chair
is responsible for the Board’s overall
effectiveness, promoting open debate and
facilitating constructive discussion. The Chair
is responsible for leading the Board, its overall
effectiveness and for facilitating constructive
debate and challenge. The CEO is responsible
for implementing the strategy and decisions of
the Board and its committees and leading
the Executive Committee.
Size and structure
An overview of the composition of the Board
has been included on pages 21 and 22.
The Board considers that it has an appropriate
combination of skills, backgrounds,
experience and knowledge, and that there
is an effective balance of independent
Directors to ensure constructive challenge.
Balance and diversity
Ensuring an appropriate balance of skills
and experience has been a key focus of
the Board. A thorough and detailed
recruitment process was undertaken to
appoint three new independent non-executive
Directors as well as a new CEO and a
new CFO. This process required careful
consideration of the Company’s strategy
and the interests of its key stakeholders.
The Board has approved a Board Diversity
Policy which is available to view on the
RSA website www.rsagroup.com and
sets the objective of a minimum of 33%
of women on the Board and at least one
Black, Asian or other ethnic minority Board
member. The Board currently has three
female Directors representing 30% of the
Board. At the Executive level there are
6 females, representing 38% of the
Executive Committee.
The Board recognises that its current
membership does not currently meet its
own aspirational targets and is committed to
improving its diversity. This will be taken into
account when new Directors are appointed
as part of the succession planning process.
The Board keeps under regular review the
Board’s composition in terms of its balance of
skills, experience and length of service, and
industry knowledge as well as wider diversity
considerations. The non-executive Directors
bring a broad range of experience and skills
which are highly relevant to the Company’s
operations and sectors in which it operates.
The shareholder-nominated Directors also
bring experience and knowledge of the
wider Group.
Effectiveness
A governance framework has been
established to ensure that independent
decision-making by the Board is clear.
The Board has approved a Matters Reserved
for the Board and adopted a Matters
Reserved for the Shareholder, as approved
by the Intact Board and independent
non-executive Directors have been appointed
who are fully independent from Intact as
well as the RSA Group.
On joining the Board, Directors are provided
with a tailored induction programme. With the
high volume of change to the composition of
the Board and within the Executive leadership
team, detailed handovers were provided by
the Chair, the Committee Chairs and from the
exiting Executive Directors to ensure effective
handovers and continuity.
The Board sets the strategy for the business
and during the year has overseen a review
of strategy for the Group’s new perimeter
and role as part of Intact. The Board has
received deep-dive presentations on both
the Commercial Lines and Personal Lines
business areas. It has also received updates
and reports throughout the year on the
regulatory change agenda and outcomes
for customers.
The Board conducts an annual review of
its effectiveness, including engagement of
an external provider to carry out a review
every three years. Due to the acquisition by
Intact during 2021 and the appointment of
a new Chair and non-executive Directors it
was decided that an effectiveness review
would not be undertaken in 2021 and that
an externally-facilitated review would be
completed in the second half of 2022.
Principle 2:
Board composition
The Company became a wholly owned
subsidiary of Intact on 1 June 2021.
The Company re-registered as a private
limited company on 26 May 2021 and
in accordance with The Companies
(Miscellaneous Reporting) Regulations 2018,
the Company applied the Wates Corporate
Governance Principles for Large Private
Companies (published by the Financial
Reporting Council in December 2018 and
available at www.frc.org.uk).
For the period from 1 January 2021 to
1 June 2021 the Company applied the
UK Corporate Governance Code.
The values of RSA and Intact are strongly
aligned and in February 2022 RSA formally
adopted Intact’s purpose and values.
Purpose
Our purpose is to help people, business and
society prosper in good times and be resilient
in bad times.
Values and culture
In line with our purpose, the Company’s
values are (i) integrity, (ii) respect, (iii) customer-
driven, (iv) excellence; and (v) generosity.
Our values are designed to guide our
decision-making and everything that we
do. They underpin how we seek to deliver
for our customers and other stakeholders.
We are a people-centred business which
aims for a culture of high performance, where
working together as a team is valued and
the business invests in its people. There are
various mechanisms in place to monitor our
culture, including employee surveys and
cultural health assessments.
Principle 1:
Purpose and leadership
RSA
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Governance
Financials
Accountability
The Board is committed to effective
governance, sound risk management and
a robust control environment. The Board
considers that the foundation of an effective
risk management framework is the cultivation
of a risk culture that promotes accountability
and openness.
The Board periodically reviews and approves
the Company’s governance documents
including a System of Governance, UK
Corporate Governance Framework, Delegated
Authority Framework, and a suite of governance
policies. The Board has also reviewed and
adopted its own constitutional documents
including the Matters Reserved for the
Board and Conflicts of Interest policy. These
documents set out the policies and practices
that govern the internal affairs of the Company.
The responsibilities of the Directors are set
out in their letters of appointment and role
profiles. All Directors are expected to report
any potential conflicts of interest. The Conflicts
of Interest register is reviewed at every Board
meeting and the Directors declare any actual
conflicts of interest at each Board meeting.
Board committees
In order that it can operate efficiently and
give the appropriate level of attention and
consideration to relevant matters, the Board
delegates certain activities to the Audit
Committee, the Risk Committee and the
GCR Committee. The Chair and membership
of each Committee is compiled of non-
executive Directors. Each Committee
has terms of reference that have been
approved by the Board which sets out its
authority and responsibilities.
Further information of the Board committees
including their membership and responsibilities
can be found on pages 21 and 22 of this report.
Integrity of information
The Board receives regular and timely
information on all aspects of the Company’s
business. This includes financial performance,
strategy, performance against the operational
plan, internal audit, risk and compliance,
customer metrics, governance, and people and
culture matters. Internal processes and systems
are robust and this ensures that management
information is accurate and timely. Reporting
to the Board includes consideration of the
impact to stakeholders, where appropriate and
includes an assessment of any potential risks to
the success of the business. The Company’s
financial statements are audited by KPMG LLP
on an annual basis.
Opportunity
The Acquisition was the focus of the
Board during the first half of 2021, with the
transaction completing on 1 June 2021.
The RSA Group strategy is aligned with the
Intact’s purpose and strategy. RSA’s strategic
opportunities were carefully assessed and
analysed during the second half of 2021
and those aspects decided upon have been
incorporated into the 3 year Operational
Plan. Any changes in strategic focus will be
approved by the Board in 2022, following
completion of this detailed programme of
work.
Risk
RSA’s Risk Management System provides
a framework for the management of risks by
management. The Board sets the risk strategy
and appetite that articulates the level of risk
the Board is prepared to take in delivering its
strategic objectives. The Board delegates
to the Risk Committee oversight of both
current and emerging risks that the business
faces. The UK&I CRO is a member of the
Executive Committee. The Chief Risk Officer
is supported by the Risk Function, which is
responsible for providing expert review and
challenge of Line 1’s management of risks
within their own business units. There is a
clear governance structure for the oversight,
management and escalation of risks that fall
outside of risk appetite. This structure relies
on clear processes and a risk culture that
promotes accountability and openness.
A Governance Committee of senior leadership
across the business is in place to oversee
the Group’s suite of policies, review of the
system of governance and the UK’s corporate
governance framework to ensure these
remain effective and appropriate for
the needs of the business.
Further details on risk management are
included in the Risk Management section
on pages 4 to 7.
Responsibilities
The Matters Reserved for the Board states
that the Board will:
·
Approve the Group’s overall risk appetite
and high-level business strategy, including
portfolio risk, claims management and
financial controls, and capital management.
·
Approve the Group approach to Own Risk
Solvency Assessment (ORSA).
·
Review the effectiveness of the Group’s
system of risk management and internal
controls, including all material controls,
and including financial, operational and
compliance controls.
·
When considering the Group’s overall
strategy and risk appetite, understand,
assess and have oversight of the financial
risks and impact associated with climate
change that affect the Company.
The Risk Management Internal Controls
Policy documents the requirements for the
identification, measurement, management,
monitoring and reporting of all risk types.
It sets out the processes and procedures
for the effective operation of the Risk
Management and Internal Control systems.
The Risk Committee supports the
Board to ensure that the key risks to the
Group are identified, understood and
effectively managed within risk appetite.
The Risk Committee advises the Board
on risk management matters, including
solvency needs and the risk management
arrangements for the Group. It monitors the
Group’s solvency by reviewing the outputs
of the ORSA process, the Internal Model
and conclusions of model validation,
making recommendations to the Board
on capital adequacy.
The Risk function, alongside the business
functions and Conduct & Risk function
facilitate the determination of the principal
risks facing the business, through application
of the Risk Management Framework and
the Conduct Risk Framework. These are
subject to debate and challenge by various
management committees and the Risk
Committee, as well as plans to mitigate
and manage high and medium rated risks.
There are clear internal communication
channels on the identification of risk factors.
Externally, the Group’s risk profile is outlined
in the Annual Report and the Solvency and
Financial Condition Reports of its regulated
insurance subsidiaries.
Principle 4:
Opportunity and risk
Principle 3:
Director responsibilities
RSA
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Governance
Financials
Prior to 1 June 2021, the Group Remuneration
Committee was responsible for the oversight
of remuneration principles, policy and
practices for RSA Insurance Group plc,
as well as determining policy and setting
remuneration in respect of the Chair of
the Board, Executive Directors and other
executives within its scope. The Group
Remuneration Committee discharged its
responsibilities in line with the UK Corporate
Governance Code.
Since 1 June 2021, the GCR Committee
has assumed these responsibilities.
Membership of the GCR Committee is set
out on page 22 and includes independent
non-executive Directors. The GCR Committee
discharges its responsibilities in line with the
Wates Principles.
Policies
The GCR Committee ensures appropriate
remuneration arrangements are in place
through the adoption of a Remuneration
Policy, which is designed to support the
business strategy by appropriately rewarding
performance and promoting sound
and effective risk management, compliance
with external regulatory requirements
and alignment to long-term interests
of the Company.
Setting remuneration
The remuneration principles that the
Committee follows are:
·
Competitiveness and cost effectiveness:
remuneration packages are set at
competitive levels to attract, retain and
reward high calibre talent in the context
of market conditions.
·
Fair-minded: appropriate reward
complying with principles of good risk
management (including deferral and malus
arrangements), inclusivity and avoiding
conflicts of interest and unconscious bias.
Information on our Gender Pay Gap figures
and our actions in this area can be found
at www.rsagroup.com. The Company has
been accredited by the UK’s Living Wage
Foundation as a Living Wage Employer
since 2016.
·
Pay for performance: variable remuneration
that strongly aligns employees with
shareholders and/or is fully contingent on
the achievement of stretching objectives
which support strategic priorities and
adherence to our organisational values.
·
Open and transparent: remuneration
components that are simple and
transparent, to be effective and understood
by employees and other stakeholders.
All employees are eligible to be considered
for a performance-related bonus, and those
in the UK and Ireland can participate in all-
employee share plans. General remuneration
arrangements for our employees (for
example, salary increases and pension and
incentive opportunities) are considered by
the GCR Committee when determining
total remuneration for senior executives.
Consideration is also given to the reputational
and behavioural risks to the Company that
can result from inappropriate incentives and
excessive reward and the GCR Committee
can adjust based on consideration of risk
factors. A significant proportion of senior-
level remuneration is variable, long term and
at risk, with an emphasis on share-based
remuneration; bonus deferral is operated
(and also where required by Solvency II), as is
participation in the long-term incentive plan.
Remuneration for the RSA Chair, Executive
Directors and heads of key governance
functions is set in agreement with Intact.
Intact’s compensation framework can be
found at www.intactfc.com.
PricewaterhouseCoopers (PwC) is appointed
by the Committee as its independent adviser.
PwC is a member of the Remuneration
Consultants’ Group and a signatory to its
Code of Conduct. In addition, the Committee
has satisfied itself that the advice it receives
is objective and independent as PwC has
confirmed there are no conflicts of interest
arising between it, its advisers and RSA.
External impacts
The broad social impact and responsibility
of the Company to its customers is core
to the policies and practices of the Group.
The key objective of the Group is to ensure
good outcomes for customers, and this
is a central principle of the Board decision-
making processes.
Further information on the Group’s
approach to ESG matters can be found
on pages 11 to 13.
Stakeholders
The Group has a number of material
stakeholders, which includes its workforce,
customers, partners and brokers, suppliers
and regulators.
Information on the Group’s stakeholder
relationships and engagement can be found
in the s172 statement on pages 8 to 10 of the
Company’s Strategic Report.
The Board and its committees
An overview of the responsibilities of the
Board and its committees for the year
ended 31 December 2021 is set out on
pages 21 and 22.
Corporate Governance
continued
Principle 5:
Remuneration decisions
Principle 6:
Stakeholder relationships
and engagement
RSA
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Governance
Financials
The Board and its Committees
The Board
Since 1 June 2021, the Board has been
led by Mark Hodges, the independent
non-executive Chair of the Company.
The Board is composed of the independent
non-executive Chairman, seven non-executive
Directors and two Executive Directors.
The primary responsibility of the Board is
to provide effective leadership to ensure it
promotes the success of the Company for
the benefit of all stakeholders.
Committees
The Board has established a number of
committees to which it has delegated
responsibility for oversight of some of its
activities, as detailed below. Each committee
has adopted Terms of Reference, which
are reviewed annually, and any changes
are approved by the Board.
Audit Committee
Members: Clare Bousfield (Chair),
Robert Leary, Alastair Barbour,
Andy Parsons
The Audit Committee is a committee
of the Board. Membership of the
Committee is composed of four
non-executive Directors, one of whom
acts as Chair. The Committee members
have experience and competence in
accounting, auditing and within the insurance
sector. At the invitation of the Committee,
the Chairman, Chief Executive Officer,
Chief Finance Officer and representatives
from functions within the business attend
to advise the Committee, including from
Finance, the external auditors, the Head of
Internal Audit (Corporate Audit Services) and
a representative from the Corporate Audit
Function of Intact. The Audit Committee plays
an important role in assisting the Board in its
oversight and monitoring of the Company’s
financial statements and the robustness
of RSA’s systems of internal control. The
Committee oversees the effectiveness and
objectivity of the internal and external auditors.
The Audit Committee is responsible for:
·
Monitoring the financial reporting process
and making recommendations or
proposals to ensure its integrity.
·
Monitoring the effectiveness of internal
quality control and risk management
systems and internal audit.
·
Monitoring the statutory audit of the
financial statements.
·
Reviewing and monitoring the
independence of external audit.
·
Reporting to the Board the outcome of
the external audit and the integrity of
financial reporting.
Auditor tenure
The Committee is responsible for overseeing
relations with the external auditor, including
the proposed external audit plan and the
approval of fees and the Committee assesses
the independence and effectiveness of
the external auditor each year and makes
a recommendation to the Board on their
appointment or re-appointment. KPMG
was appointed as the Company’s external
auditor in 2013 and has been re-appointed
at each subsequent AGM. During the year,
the Committee considered its position on the
external audit services contract and following
engagement with the Company’s regulator
received dispensation from the need to
conduct a tender in 2022 due to the context
of the Acquisition by Intact and timing of
IFRS 17 implementation. The audit tender
is expected to take place in 2023.
The Company has complied with the
Statutory Audit Services for Large Companies
Market Investigation (Mandatory Uses of
Competitive Tender Process and Audit
Committee Responsibilities) Order 2014
for the year ended 31 December 2021.
Risk Committee
Members: Robert Leary (Chair),
Clare Bousfield, Andy Parsons,
Sally Bridgeland
The Risk Committee is a committee of the
Board. Membership of the Committee
comprises four non-executive Directors,
one of whom acts as Chair of the Committee.
The Risk Committee has a pivotal role in
ensuring the key risks to the Group are
identified and understood, are effectively
managed within risk appetite with regard
to the views and interests of stakeholders,
and are appropriately reflected in the
Internal Model.
The Risk Committee is responsible for:
·
Advising the Board on risk management
matters, including solvency needs.
·
Overseeing the risk management
arrangements of the Group.
·
Monitoring the emerging and principal
material risks facing the Group, ensuring
appropriate arrangements are in place
to identify, manage and mitigate risks
effectively, and that appropriate levels of
capital are held in relation to these risks.
·
Recommending the Group’s risk strategy
and risk appetite for approval by the Board.
·
Approval of the Risk Management Plan.
·
Reviewing the outputs of the ORSA
process, the internal model and the
conclusions of model validation, making
recommendations to the Board on capital
adequacy and the ORSA Report.
·
Reviewing the Company’s investment
strategy framework and investment
portfolio disposition and performance to
ensure these remain within risk appetite
and consistent with the Company’s
investment strategy.
·
Oversight of the Risk function.
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Governance
Financials
Governance, Conduct &
Remuneration Committee
Members: Alastair Barbour (Chair),
Claude Dussault, Sally Bridgeland
The GCR Committee is a committee of
the Board. Membership of the Committee
comprises three non-executive Directors,
one of whom acts as Chair of the Committee.
The Committee plays an important role
in assisting the Board in its oversight of
customer, conduct and compliance matters
and has oversight of the robustness of the
governance framework and internal policies
for the RSA Group. The Committee is
responsible for the oversight of Remuneration
Policy and ensuring this promotes the
long-term sustainable success of the
Company. This includes reviewing and
setting the remuneration of Executive
Directors and the Chairman of the Board.
The Remuneration Committee also reviews
workforce remuneration and related policies
and the alignment of incentives and rewards
with culture, and takes these into account
when setting the policy for Executive Director
remuneration. The Committee appointed
PwC as its independent adviser during
the year.
The Committee also has oversight of
customer and conduct risks.
Executive Committee
The Executive Committee is the management
committee that assists the Chief Executive
Officer in discharging his responsibilities and
delegated authority. The previous Group
Executive Committee was disbanded
following the Acquisition. It is not a committee
of the Board.
The Executive Committee is collectively
responsible for implementing strategy and
delivering performance. The members have
a broad range of skills and expertise that are
updated through training and development.
Membership of the Executive Committee
is set out on page 17 and comprises Ken
Norgrove and Charlotte Jones, as well as
the Chief Executive Officers of the European,
Ireland, and Middle East businesses and
key functional and business leaders.
On 31 December 2021, Scott Egan stepped
down as Chief Executive Officer and left
RSA. Ken Norgrove was appointed as Chief
Executive Officer effective 10 January 2022
(subject to regulatory approval). Charlotte
Jones acted as interim Chief Executive and
supported the transition.
Following the reorganisation of the
Commercial Lines business in the UK to
align London Markets with Intact’s Global
Specialty Lines business, Rob Gibbs left RSA
effective 31 December 2021. Lee Mooney
and Steve Watson were appointed to the
Executive Committee as Managing Director,
Commercial Lines and Managing Director, UK
Specialty, respectively, on 1 December 2021.
David Germain, Chief Information Officer,
left RSA effective 30 November 2021. Oliver
Holden joined RSA as Chief Information
Officer and a member of the Executive
Committee on 21 February 2022.
Corporate Governance
continued
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Governance
Financials
Going concern
The consolidated financial statements have
been prepared on a going concern basis.
In adopting the going concern basis, the
Board has reviewed the Group’s ongoing
commitments for the next twelve months
and beyond. The Board’s assessment
included the review of Group’s strategic
plans and latest forecasts, capital position
and liquidity including on demand capital
funding arrangements with Intact Financial
Corporation. The impact and uncertainty
as a result of the Covid-19 pandemic, rising
inflation, and the transition to a post Brexit
environment has also been considered. These
assessments include stress and scenario
testing and consider significant areas of
risk and uncertainty for the Group in the
current challenging economic environment.
Scenarios considered include a market risk
shock involving several component stresses,
plus deterioration of the underwriting result
and a subsequent catastrophe loss. Climate
stress testing has also been completed.
In making their assessment, the Board have
reviewed the latest position on business
interruption losses and availability of
reinsurance to recover incurred claims and
there have been no significant changes.
The Board have considered the impact of
events after the balance sheet date with none
identified which could impact the Group’s
ability to continue as a going concern.
Based on this review no material uncertainties
that would require disclosure have been
identified in relation to the ability of the Group
to remain a going concern for at least the
next twelve months, from both the date of
the consolidated statement of financial
position and the approval of the consolidated
financial statements.
Share capital
More information on the Company’s share
capital can be found in note 34 on page 88.
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.
Streamlined Energy and
Carbon Reporting
We have reported on all sources of
greenhouse gas (GHG) emissions as required
by the Companies Act 2006 (Strategic Report
and Directors’ Report) Regulations 2013
and the Companies (Directors’ Report) and
Limited Liability Partnerships (Energy and
Carbon Report) Regulations 2018.
Our reporting has been conducted in
accordance with the World Resources
Institute’s GHG Protocol Corporate
Accounting and Reporting Standard.
We have consolidated our organisational
boundary according to the operational control
approach, which includes emissions from all
operations with 50 or more full-time equivalent
employees. Where data is not provided by an
operating entity, values have been estimated
using either extrapolation of intensities
from similar sites within RSA or using the
previous data as a proxy.
All conversion factors have been sourced
from recognised public sources, including
the UK’s Department for Business, Energy &
Industrial Strategy, the International Energy
Agency and the GHG Protocol’s stationary
combustion tool.
The 2021 data covers the period 1 January to
31 December. Data from 2021 and previous
years has been restated to account for the
disposal of RSA’s Scandinavian business.
Emissions from our legacy Canadian
business will now be reflected in Intact’s
global reporting of its environmental footprint.
Intact has committed to Net-Zero emissions
by 2050 and halving operations emissions
by 2030. We are integrating global carbon
emissions data and reporting systems with
Intact and will disclose a new climate change
strategy in 2022.
Data has been subject to quality control by
our external carbon footprint verifiers and
consultants, EcoAct. EcoAct has supported
RSA in our GHG emissions disclosures for
five years. As we consolidate our approach
to the capturing of environmental data across
Intact and reconcile the potential impact of
associated carbon reduction strategies across
the global business we have postponed
assurance in 2021. We will resume assurance
in 2022 once our Group-wide climate change
strategy and associated systems are in place.
Report of the Directors
Directors
Following the acquisition of the Company by
Intact and the de-listing of the Company’s
ordinary shares from the London Stock
Exchange, the composition of the Board
was reviewed and it was agreed that on
1 June 2021 the following Directors would
resign from the Board of the Company:
Martin Scicluna, Stephen Hester, Kath Cates,
Enrico Cucchiani, Sonia Baxendale and
Martin Strobel. The following individuals were
appointed as Directors of the Company:
Mark Hodges (as Chair), Sally Bridgeland,
Andy Parsons, Charles Brindamour, Claude
Dussault and Robert Leary. Alastair Barbour
(appointed October 2011) and Clare Bousfield
(appointed April 2020) remained on the Board.
Clare Bousfield has indicated her intention
to step down as a Director of the Board and
Chair of the Audit Committee in Q1 2022.
A new independent Non-executive Director
will be recruited to join the Board in 2022.
Alastair Barbour remained on the Board
following the Acquisition to provide continuity
and experience on the Board. Alastair
intended to step down during 2021 having
served on the Board for over 10 years.
However, the Board requested that Alastair
continue as a Director for a further year.
The Board remains confident that Alastair
continues to demonstrate independence of
thought and judgement.
Charlotte Jones will step down as CFO and
a Director of the Board on 31 March 2022.
She will be succeeded by Ken Anderson with
effect from 1 April 2022. Scott Egan stepped
down as CEO and a Director of the Board
effective 31 December 2021. Ken Norgrove
was appointed as CEO and a Director of the
Board effective 10 January 2022 (subject to
regulatory approval).
Corporate Governance Statement
An overview of the corporate governance
code applied by the Company is set out
in the Corporate Governance Report on
pages 18 to 20.
Dividend
No interim dividend was paid during the year
ended 31 December 2021. The Company
paid a dividend to its preference shareholders
during the period and also declared a dividend
in specie of £6,914m. The Directors do not
recommend the payment of a final dividend
for the year ended 31 December 2021.
RSA
Annual Report and Accounts 2021
24
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Governance
Financials
Report of the Directors
continued
tCO
2
e emissions
2021
2020
1
2019
1
2018
1
2017
1
Scope 1
1,546
1,434
2,18 4
1,704
2,078
Scope 2 (location-based
LB
)
2,840
3,160
4,218
4,903
6,227
Scope 2 (market-based
MB
)
1,914
2,033
N/A N/A N/A
Scope 3
591
1,142
3,596
4,075
3,902
Business travel
285
811
3,226
3,658
3,503
Total emissions (Scope 1, 2, 3)
LB
4,977
5,737
9,997
10,682
12,207
Total emissions (Scope 1, 2, 3)
MB
4,051
4,610
N/A N/A N/A
Intensity ratio:
Gross tonnes CO
2
e per FTE
LB
0.87
0.89
1.53 1.61 1.81
Gross tonnes CO
2
e per FTE
MB
0.70
0.72
N/A N/A N/A
Global energy use (kWh)
2021
2020
Electricity, district heating and cooling
17,962,864
19,001,387
Gas consumption
7,975,731
7, 3 76 , 613
Transportation – vehicles
930,564
1,513,683
Total energy use
26,869,159
2 7, 8 91, 6 8 3
Notes
The emissions reported above have been restated versus numbers previously disclosed, in accordance with
GHG Protocol guidelines.
1. Calculations have been amended to include data that was not available at the time of publication and reflect
improvements in methodology (including updated emissions factors).
The GHG referenced in the table cover:
Scope 1: Direct emissions from RSA’s activities, including natural gas consumption, diesel and
company-owned vehicles.
Scope 2: Indirect emissions from purchased electricity, district cooling and district heating. This year we are
reporting Scope 2 emissions according to two different methodologies (dual reporting): (i) the location-
based method, using average emissions factors for the country in which the reported operations take
place; and (ii) the market-based method, which uses the actual emissions factors of the energy procured.
Scope 3: Emissions relating to RSA activities not within our direct control, including business travel, water
supply, wastewater treatment, paper consumption and waste generated. These are the only Scope 3
categories included.
Business travel: Emissions from flights, trains and vehicles not owned by the organisation.
Among carbon reduction activities explored
in the Environment section on pages 11
and 12, this year our Corporate Real Estate
teams have been reviewing the practicalities
of installing electric vehicle (EV) charging
points at our sites. Our Chelmsford office now
has nine spaces available for EV charging
with a rollout plan in 2022 for Horsham and
Liverpool. In addition, chargers have been
installed in Bristol with Birmingham and
Peterborough expected to follow in 2022.
We are reporting our Scope 2 market-based
emissions to reflect our purchase of REGO-
backed renewable electricity at UK sites
where we are directly responsible for energy
procurement or have engaged with landlords
to switch to a renewable supply. Across the
UK&I region 55% of electricity for our premises
is from renewable sources. In the UK this
figure is 66%.
Charitable donations
During the year donations to charities were
made amounting to £0.87m.
No political donations were made during
the year.
Conflicts of interest
In accordance with section 175 of the
Companies Act 2006, each director has
a duty to avoid conflicts of interest. Under
Articles 15.1 and 15.2 of the Company’s
Articles of Association, conflicts of interest
may be authorised by the Board or a Board
committee. Directors are required to notify the
Company Secretary when a potential conflict
of interest arises. Each Director’s conflicts of
interest are reviewed on an annual basis. Any
director who has declared a conflict of interest
shall not count towards the quorum or vote
on any resolution to authorise the conflict of
interest and, at the Board’s discretion, may
be excluded from any meeting at which the
conflict of interest is under consideration.
Where a conflict of interest is authorised,
restrictions may be imposed on the conflicted
director, such as excluding the director from
the discussion or restricting the receipt of
information in connection with the conflict
of interest.
The Board confirms that it has reviewed the
schedule of directors’ conflicts of interest
during the year and that the procedures in
place operated effectively in 2021. None of
the Directors had an interest in any contract
of significance with the Company or any of
its subsidiaries during 2021. The Board also
considers at each meeting whether there
is any potential conflict of interest for the
shareholder-nominated Directors.
Directors’ Indemnity
Article 84 of the Articles of Association
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 84.1 of the
Articles of Association.
The indemnities granted constitute qualifying
third-party indemnity provisions, as defined
by section 234 of the Companies Act 2006,
and is in addition to appropriate insurance
cover. The Company believes that it promotes
the success of the Company to provide this
indemnity to its Directors in order to ensure
that RSA attracts and retains high calibre
Directors through competitive terms of
employment in line with market standards.
The Directors and officers of the Company
and its subsidiaries also have the benefit of
Directors & Officers insurance which provides
suitable cover in respect of legal actions
brought against them.
In addition, the Company maintains a pension
trustee liability insurance policy for the
directors of SAL Pension Fund Limited and
Royal & Sun Alliance Pension Trustee Limited,
subsidiaries of the Group, in relation to such
person’s role as a trustee of an occupational
pension scheme. This insurance constitutes
a qualifying pension scheme indemnity
provision under section 235 of the Companies
Act 2006. These insurances were in force
during the year ended 31 December 2021 and
remain in force as at the date of this report.
Workforce and stakeholder
engagement statements
An overview of how the Directors have
fostered relations with the Company’s
suppliers, customers and other key
stakeholders is included in the Company’s
s.172 statement on pages 8 to 10 of
the Strategic Report.
Further information on workforce
engagement, as required by the Companies
Act 2006 is also included below under
Our people.
RSA
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Governance
Financials
Our people
The Board and members of the Executive
Committee engaged extensively with
colleagues via town halls and internal
communications including emails and
intranet postings to provide updates, where
possible, on the acquisition of RSA by Intact.
Following completion of the Acquisition, Intact
and RSA’s Chief Executive Officers have
hosted live webinars and Q&A sessions for
all colleagues to provide updates on RSA’s
integration with Intact, strategic ambitions
and key factors affecting the structure and
performance of the Company.
Our people have always been central to
achieving our core purpose, and our culture
of support for personal well-being, diversity
and equal opportunity to excel is important to
us. This is underpinned by Company-wide HR
policies and our People Principles of: Building
High Performance, Sustaining Diverse
Capabilities and Working Together Effectively.
Building High Performance
We believe in enabling our people to bring
their best selves to work. We encourage
continuous feedback and development and
have formal biannual reviews for employees
and their managers to discuss business goals
and performance, as well as an opportunity
to talk about career plans. Formal reviews
generate ratings which take into account
‘what’ has been delivered along with ‘how’
and contribute to reward decisions. This
ensures that our values-based culture
and the way we do things have equal status
with end results and support individuals in
driving their personal development plans.
As development can take many forms and
evolve over time, we offer a range of options
such as apprenticeship and leadership
programmes, technical career pathways,
online training, coaching and mentoring.
These run from entry-level roles right through
to degree and masters qualifications. We take
time to share and celebrate achievements
by our people within the Company and in
the community through year-round peer
recognition schemes. In the UK, Europe
and Ireland, senior leaders also host events
to showcase the stand-out behaviours of
individuals who were nominated by peers
for special recognition. In 2021, our people
made just over 3,500 nominations for this
special recognition.
Sustaining Diverse Capabilities
Having experienced the benefits of diverse
opinions and perspectives, we continue to
promote inclusivity, including ensuring there
is no less favourable treatment on the
grounds of sex, sexual orientation, gender
re-assignment, marital or civil partnership
status, race (including colour, nationality,
ethnic or national origin), disability, religion
or belief, age, and pregnancy and maternity,
and that reasonable adjustments are provided
for people with disabilities who are applying to
or already working with us.
An executive-led Diversity & Inclusion
Council oversees our diversity strategy which
aligns to our commitments as signatories
to the Women in Finance Charter, Race
at Work Charter, the 10,000 Black Interns
Programme and the Valuable 500. Our
network of Employee Resource Groups,
mental health first-aiders and membership of
the UK Business Disability Forum contribute
to how we can best support colleagues.
These groups are incredibly well-received
in the business and participation is strong.
For example, we enhanced UK support for
parents and carers, and ‘listening groups’
with our UK Black, Asian and other ethnic
minority colleagues and contributed to training
on Inclusive Language & Communications,
Understanding Race Bias and focused
Anti-racism & Allyship sessions with leaders.
Working Together Effectively
Company-wide Employment Practices and
Speaking-up & Whistleblowing policies set
out the standards for local people policies
and practices and are reviewed annually via
our risk governance which is reviewed at
Board level.
We believe in transparency; therefore all
colleagues have access to confidential
procedures to raise concerns impacting them
personally and any broader suspicions of
wrongdoing within the Company. In addition,
we promote many communication channels
and also welcome views from our workforce
through regular and constructive dialogue
with trade unions and a European Works
Council. These range from formal to informal
mechanisms to support an open and inclusive
culture where speaking up and having a voice
is at the heart of how we operate.
Scores from 2021 employee surveys in
each of our countries range from 74% to
81%, which indicates our people are highly
engaged. Areas of particular strength were
our inclusive culture and solid understanding
of goals.
Covid-19 meant a significant shift in the way
we work and our colleagues rallied to this.
As we look forward, we are taking onboard
employee feedback for sustained flexibility
in the long term. We are developing hybrid
working (a mix of home and office bases)
which strikes a balance in patterns that
work for individual employees and serve our
customers well. We trust our people to deliver
good outcomes for our customers and our
business, regardless of where they work;
we have learned that we can collaborate
and solve problems wherever we are.
As always, protecting the health, safety and
well-being of colleagues is a priority and this
will continue to be at the top of our agenda
by listening to our people, understanding
what they need to be effective at work
and providing resources for practical and
emotional support.
Our transition as part of Intact provides
opportunities to build on our ambitions.
Equally, we recognise that change can
sometimes also create uncertainty; therefore
guiding our people through this is front of
mind. We have already completed significant
integration activities following the Acquisition
and identified ways to share best practice
between Intact and RSA. We look forward
to further developing these as the alignment
of values and ways of working bed down
further in 2022.
Modern slavery
As per section 54(1) of the Modern Slavery
Act 2015, our Slavery and Human Trafficking
Statement is published annually on our
website. The statement covers the activities
of the RSA Group and details policies,
processes and actions we have put in place
to ensure that appropriate steps are taken
to protect against slavery and human
trafficking in our supply chains and all
parts of our own business.
Management report
The Strategic Report is considered to
form the management report for the
purpose of DTR 4.1.8.R.
Directors’ Report
The Directors’ Report for the year ended
31 December 2021, was approved by order
of the Board and signed on its behalf.
Jonathan Cope
General Counsel and Company Secretary
11 March 2022
RSA
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Strategic Report Governance
Financials
Table of contents
Directors’ responsibilities 27
Independent auditor’s report 28
Primary statements 36
Basis of preparation and significant
accounting policies
1 Basis of preparation 41
2 Significant accounting estimates and judgements 42
3 Adoption of new and revised accounting standards 43
4 New accounting standards, interpretations and
amendments yet to be adopted 43
5 Significant accounting policies 44
Risk and capital management
6 Risk and capital management 50
Significant transactions and events
7 Discontinued operations 59
8 Loss on disposal of businesses 61
Notes to the consolidated income
statement, consolidated statement of
comprehensive income and dividends
9 Operating segments 62
10 Net investment return 64
11 Net claims 64
12 Other operating income 64
13 Other operating expenses 65
14 Finance costs 65
15 Employee expenses 65
16 Directors’ emoluments 66
17 Related party transactions 66
18 Auditor’s remuneration 67
19 Income tax 67
20 Share-based payments 69
21 Dividends paid and proposed 71
22 Total other comprehensive income 71
Notes to the consolidated statement
of financial position
23 Goodwill and intangible assets 72
24 Property and equipment 74
25 Investment property 76
26 Financial assets 76
27 Fair value measurement 80
28 Interests in structured entities 84
29 Reinsurers’ share of insurance contract liabilities 84
30 Insurance and reinsurance debtors 85
31 Current and deferred tax 86
32 Other debtors and other assets 88
33 Cash and cash equivalents 88
34 Share capital 88
35 Other equity instruments – Tier 1 notes 89
36 Non-controlling interests 89
37 Issued debt 89
38 Other borrowings 90
39 Insurance contract liabilities 90
40 Insurance and reinsurance liabilities 95
41 Post-employment benefits and obligations 96
42 Provisions 101
43 Other liabilities 102
44 Leases 102
Notes to the consolidated statement of cash flows
45 Reconciliation of cash flows from operating activities 105
46 Reconciliation of movements of liabilities arising from
financing activities 105
Other commitments, contingent liabilities
and events after the reporting period
47 Other commitments 106
48 Other contingent liabilities 106
49 Events after the reporting period 106
Appendices
A Other accounting policies 107
B Exchange rates 110
C Subsidiaries and associates 111
D Jargon buster and alternative performance measures
reconciliations 113
Parent Company financial statements
Primary statements 117
Notes to the Parent Company financial statements
1 Basis of preparation 120
2 Significant accounting estimates and judgements 120
3 Adoption of new and revised accounting standards 120
4 Significant accounting policies 120
5 Risk and capital management 121
6 Related party transactions 121
7 Share-based payments 122
8 Dividends paid and proposed 122
9 Investments 122
10 Current and deferred tax 123
11 Other debtors and other assets 124
12 Share capital 124
13 Tier 1 notes 124
14 Issued debt 124
15 Events after the reporting period 124
Group consolidated financial statements
RSA
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Strategic Report Governance
Financials
The directors are responsible for preparing the Annual Report and the RSA Insurance Group Limited (‘Group’) and Parent Company financial
statements in accordance with applicable law and regulations.
Company law requires the directors to prepare Group and Parent Company financial statements for each financial year. Under that law they are
required to prepare the Group financial statements in accordance with UK-adopted International Accounting Standards (IAS) and the requirements
of the Companies Act 2006 and applicable law and have elected to prepare the Parent Company financial statements on the same basis.
Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state
of affairs of the Group and Parent Company and of the Group’s profit or loss for that period. In preparing each of the Group and Parent Company
financial statements, the directors are required to:
·
Select suitable accounting policies and then apply them consistently
·
Make judgements and estimates that are reasonable, relevant and reliable
·
State whether they have been prepared in accordance with UK-adopted IAS and the requirements of the Companies Act 2006 and
applicable law
·
Assess the Group and Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern
·
Use the going concern basis of accounting unless they either intend to liquidate the Group or the Parent Company or to cease operations,
or have no realistic alternative but to do so
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company’s transactions
and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to ensure that its financial
statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the
preparation of financial 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.
Under applicable law and regulations, the directors are also responsible for preparing a Strategic Report, Directors’ Report and Corporate
Governance Statement that complies with that law and those regulations.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website.
Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Responsibility statement
We confirm that, to the best of our knowledge:
·
The financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss of the Parent Company and the undertakings included in the consolidation taken
as a whole.
·
The Strategic Report includes a fair review of the development and performance of the business and the position of the Parent Company
and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that
they face.
We consider the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary
for shareholders to assess the Group’s position and performance, business model and strategy.
Directors’ responsibilities
Ken Norgrove
Group Chief Executive
11 March 2022
Charlotte Jones
Group Chief Financial Officer
11 March 2022
RSA
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Strategic Report Governance
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Independent auditor’s report to the members of RSA Insurance Group Limited
1. Our opinion is unmodified
We have audited the financial statements of RSA Insurance Group
Limited (“the Company”) for the year ended 31 December 2021 which
comprise the consolidated income statement, consolidated and
parent company statement of comprehensive income, consolidated
and parent company statement of changes in equity, consolidated
and parent company statement of financial position, consolidated
and parent company statement of cash flows, and the related notes,
including the accounting policies in note 5 for the group and note 4
for the parent company.
In our opinion:
·
the financial statements give a true and fair view of the state of the
Group’s and of the parent company’s affairs as at 31 December
2021 and of the Group’s profit for the year then ended;
·
the Group financial statements have been properly prepared in
accordance with UK-adopted international accounting standards;
·
the parent company financial statements have been properly
prepared in accordance with UK-adopted international accounting
standards and as applied in accordance with the provisions of the
Companies Act 2006; and
·
the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on
Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are
described below. We believe that the audit evidence we have obtained
is a sufficient and appropriate basis for our opinion. Our audit opinion is
consistent with our report to the Audit Committee.
We were first appointed as auditor by the shareholders on 13 May
2013. The period of total uninterrupted engagement is for the nine
financial years ended 31 December 2021. We have fulfilled our ethical
responsibilities under, and we remain independent of the Group in
accordance with, UK ethical requirements including the FRC Ethical
Standard as applied to listed public interest entities. No non-audit
services prohibited by that standard were provided.
Overview
Materiality:
group financial
statements as a whole
£34m (2020: £35m)
0.8% (2020: 0.6%) of net earned premiums
Coverage
95% (2020: 96%) of net earned premiums
Key audit matters vs 2020
Recurring risks
Valuation of insurance liabilities
Valuation of post-employment
benefits and obligations
Valuation of deferred tax assets
Valuation of parent company’s
investment in subsidiaries
RSA
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2. Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements
and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which
had the greatest effect on: the overall audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team.
We summarise below the key audit matters, in decreasing order of audit significance, in arriving at our audit opinion above, together with our
key audit procedures to address those matters and, as required for public interest entities, our results from those procedures. These matters
were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial
statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate
opinion on these matters.
The risk Our response
Valuation of
insurance liabilities
Insurance contract
liabilities 2021:
£5,276 million gross,
£3,628 million net;
2020: £9,379 million
gross, £7,755 million
net, relating to provision
for losses and loss
adjustment expenses
Refer to pages 44 and
45 (accounting policy)
and pages 90 to 95
(financial disclosures)
Subjective valuation:
Insurance liabilities represent the single largest
liability for the Group. Valuation of these liabilities
is highly subjective, requiring a number of
assumptions to be made with high estimation
uncertainty. The determination and application
of the methodologies are also complex.
A margin is added to the actuarial best estimate
of insurance liabilities to make allowance for
specific risks and uncertainties that are not
specifically allowed for in establishing the
actuarial best estimate. The appropriate margin
to recognise is a subjective judgment and
estimate taken by the directors, based on the
perceived uncertainty and potential for volatility
in the underlying claims.
Certain lines of business have greater inherent
uncertainty, such as those where claims
emerge slowly over time, or where there is
greater potential exposure to large losses due
to the effect of uncertain or unknown incurred
events. Additional uncertainty is currently being
experienced as a result of the COVID-19
pandemic and the estimation of resulting claims
and reinsurance cover, particularly for business
interruption cases and the impact of the FCA Test
Case ruling, and reductions in claims frequency
experienced for some classes of business.
Reinsurance recoveries are inherently linked to
gross insurance liabilities. The extent of recoveries
from the Group’s ‘Group Volatility Cover’ (‘GVC’)
reinsurance contract is a key area of uncertainty
due to the judgement applied in determining the
value of individual claims eligible for the GVC,
some of which are no longer managed within the
RSA Group, and aggregation of eligible claims
required to trigger a recovery.
With the assistance of our own actuarial specialists across the Group
and component audit teams, our procedures included:
·
Data comparisons:
We inspected reconciliations between the
claims data recorded in the policy administration systems and
the data used in the actuarial reserving calculations to test the
completeness of the data used in the actuarial reserving process;
·
Independent re-performance:
We performed independent
re-projections of reserve balances using our own models for certain
classes of business. The determination of which classes to re-project
was based on risk assessment and consideration of the evidence
available from other alternative data analysis procedures;
·
Our sector experience and benchmarking assumptions:
We applied our industry experience and market benchmarks to
support our consideration and challenge of the Group’s reserving
methodology, key judgements and assumptions for the most
significant and objective classes of business;
·
Sensitivity analysis:
We evaluated sensitivity analysis over key
judgments and assumptions, such as large claims, the impact of
COVID-19 and the discount rates for longer tail classes of business;
·
Margin evaluation:
We evaluated the appropriateness of the margin
to be applied to the actuarial best estimate. In order to do this we
assessed the directors’ approach to setting the margin. In particular
we considered the allowance for uncertainties inherent in the data
and assumptions in developing the actuarial best estimate through
inquiry with the directors and with respect to our understanding of
any changes in the Group’s risks and our own sector experience of
approaches to setting the margin and the level of margin held by the
Group’s peers;
RSA
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Independent auditor’s report to the members of RSA Insurance Group Limited
continued
The risk Our response
Valuation of
insurance liabilities
(cont.)
The RSA Group has recently entered into a new
adverse development reinsurance arrangement.
The accounting treatment, including the
assessment of risk transfer, is dependent on
the contractual terms and will have a significant
impact on the financial statements.
The effect of these matters is that, as part of
our risk assessment, we determined that the
valuation of insurance liabilities has a high degree
of estimation uncertainty, with a potential range of
reasonable outcomes greater than our materiality
for the financial statements as a whole, and
possibly many times that amount. The financial
statements (note 39) disclose the sensitivity
estimated by the Group.
Data capture:
The valuation of insurance liabilities depends
on complete and accurate data about the
volume, amount and pattern of current and
historical claims since they are often used to
form expectations about incurred claims. If the
data used in calculating insurance liabilities,
or for forming judgments over key assumptions,
is not complete and accurate then material
impacts on the valuation of insurance liabilities
may arise.
·
Assessing principles:
We inspected selected Business Interruption
policy documents, and external information to verify exposure as a
result of COVID-19 business interruption (BI) claims and the resulting
reinsurance recoveries recognised. We inspected the legal advice
received by management and considered the appropriateness of
management judgements against this advice;
·
Tests of details:
We compared samples of claims case reserves to
appropriate documentation, such as reports from loss adjusters in
order to test the valuation of individual claims reserves focused on
portfolios deemed higher risk, whether that be due to size, complexity
or uncertainty. This covered the accuracy of the relevant policy
data elements relied upon within actuarial methods in their testing
of the valuation of insurance liabilities. Further, for the COVID-19 BI
claims, we inspected management’s date of loss analysis which
underpins the reinsurance recoveries recognised and assessed the
reasonableness of this analysis and management’s conclusions.
We obtained the relevant reinsurance contracts and recalculated
the resulting reinsurance recoveries. We have also assessed the
appropriateness of the accounting treatment adopted in respect of
the new adverse development cover entered into during the year;
·
Assessing transparency:
We considered the adequacy of the
Group’s disclosures in respect of the sensitivity of the insurance
liabilities and key assumptions applied to key areas of judgement
and estimation uncertainty.
We performed the tests above over the valuation rather than seeking to
rely on the Group’s controls because the nature of the balance is such
that we would expect to obtain audit evidence primarily through the
detailed procedures described.
Our results
We found the valuation of the insurance liabilities to be acceptable
(2020 result: acceptable).
Valuation of post-
employment benefits
and obligations
(2021: £8,679 million;
2020: £9,401 million)
Refer to page 48
(accounting policy) and
pages 96 to 101
(financial disclosures).
Subjective valuation:
Small changes in the assumptions and
estimates used, in particular the discount
rate, inflation rate and mortality rate, which
are highly sensitive to market and geographic
circumstances can have a significant effect on
the valuation of the Group’s post-employment
obligations and therefore the amount of the
post-employment benefits and obligations and
the Group’s financial position.
The effect of these matters is that, as part of
our risk assessment, we determined that the
valuation of post-employment benefits and
obligations has a high degree of estimation
uncertainty, with a potential range of reasonable
outcomes greater than our materiality for
the financial statements as a whole and
possibly many times that amount. The financial
statements (note 41) disclose the sensitivity
estimated by the Group.
With the assistance of our own pension actuarial specialists,
our procedures included:
·
Benchmarking assumptions and our experience:
We compared
the key assumptions such as discount rate, inflation rate and
mortality rate against our independent models using external data
and information relating to the pension schemes’ liability and
demographic profile.
·
Assessing valuer’s credentials:
We evaluated the Group’s external
valuer’s competence, objectivity, capability and scope of work.
·
Assessing transparency:
We considered the adequacy of the
Group’s disclosures in respect of the sensitivity of the defined pension
obligation to these assumptions.
We performed the tests above rather than seeking to rely on any of the
Group’s controls because the nature of the balance is such that we
would expect to obtain audit evidence primarily through the detailed
procedures described.
Our results
We found the valuation of the post-employment benefits and obligations
to be acceptable (2020 result: acceptable).
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The risk Our response
Valuation of deferred
tax assets
(2021: £146 million of
the total deferred tax
assets of £148 million;
2020: £181 million of
£199 million)
Refer to page 47
(accounting policy)
and pages 86 and 87
(financial disclosures).
Forecast-based assessment:
The recoverability of the recognised deferred
tax asset is dependent on the future profitability
of the UK business, in particular Royal & Sun
Alliance Insurance Limited, as the taxable legal
entity. There is inherent uncertainty involved in
developing the Group’s operational plan upon
which forecast future taxable profits are based
and further judgement in assessing to what
extent the deferred tax assets can be recovered
against those forecast taxable profits, particularly
following the acquisition transaction of the Group.
These forecasts determine the extent to which
deferred tax assets are or are not recognised in
the financial statements.
The effect of these matters is that, as part of
our risk assessment, we determined that the
recoverable amount of deferred tax assets has
a high degree of estimation uncertainty, with a
potential range of reasonable outcomes greater
than our materiality for the financial statements
as a whole. The financial statements (note 31)
disclose the sensitivity estimated by the Group.
Our procedures included:
·
Historical comparisons:
We assessed the accuracy of the Group’s
approved operating plan in relation to the forecasting process in the
past. We considered whether projected margins are achievable in
light of the acquisition and with reference to the business’ recent
performance and operating plans.
·
Our experience:
We assessed the Group’s approach to the
assessment of recoverability and challenged the approach with
reference to our understanding of the business and the requirements
of the relevant accounting standards.
·
Sensitivity analysis:
We carried out independent sensitivity analyses
of taxable profits to assumptions such as expected weather losses,
the development of claims reserves and claims inflation, projected
future growth rates and improvements in operating margins, future
investment returns, and the projection period used for the forecast
taxable profits.
·
Our tax expertise:
With the support of our own tax specialists and
their knowledge of tax legislation, we also assessed the extent to which
projected profits were taxable, in particular the Group’s assumptions
about how accumulated tax losses and other similar items can be
utilised within the Group against the UK business, and Royal & Sun
Alliance Insurance Limited as the taxable legal entity, in particular.
·
Assessing transparency:
We assessed the adequacy of the
Group’s disclosures in respect of the assumptions applied in
the calculation and the adequacy of the Group’s disclosures in
respect of the sensitivity of the valuation of the deferred tax asset
to key assumptions.
We performed the tests above rather than seeking to rely on any of the
Group’s controls because the nature of the balance is such that we
would expect to obtain audit evidence primarily through the detailed
procedures described.
Our results
As a result of our work, we found the level of deferred tax assets
recognised to be acceptable (2020 result: acceptable).
Valuation of
parent company’s
investment in
subsidiaries
(2021: £2,405 million;
2020: £6,276 million)
Refer to page 120
(accounting policy,
Investments in
Subsidiaries) and
page 122 (financial
disclosures).
The carrying amount of the parent company’s
investments in subsidiaries represents 63%
(2020: 71%) of the company’s total assets.
Fair value for the key operating subsidiaries is
calculated by applying the income approach
which uses discounted cash flow models to
assess the present value of expected future
economic benefits. Key assumptions include
the discount rate and cash flows.
The effect of these matters is that, as part of
our risk assessment, we determined that the
valuation of investment in subsidiaries has
estimation uncertainty, with a potential range
of reasonable outcomes greater than our
materiality for the parent company’s financial
statements as a whole. The parent company’s
financial statements (note 9) disclose the
sensitivity estimated by the Company.
With the assistance of our own valuation specialists, our procedures included:
·
Assessing valuer’s credentials:
We evaluated the Group’s external
valuer’s competence, objectivity, capability and scope of work.
·
Our experience and benchmarking assumptions:
We applied
our market experience and knowledge of the operating subsidiaries
to challenge the methodology and key assumptions applied by the
Group’s valuer.
·
Test of details:
We agreed net asset values to underlying financial
reporting for less material subsidiaries. We also evaluated the
underlying data used in the cash flow forecasts, on which the
valuations were based.
·
Assessing transparency:
We considered the adequacy of the
Company’s disclosures in respect of the sensitivity of the valuation
to the key assumptions.
We performed the tests above rather than seeking to rely on any of the
Company’s controls because the nature of the balance is such that we would
expect to obtain audit evidence through the detailed procedures described.
Our results:
We found the assessment of the valuation of the parent company’s
investment in subsidiaries to be acceptable (2020 result: acceptable).
We previously reported a key audit matter in relation to the existence of insurance debtors. However, following the correcting adjustment required
in 2020 to address an issue relating to the historic reconciliation of insurance debtor balances in Sweden, we have not assessed this as one of the
most significant risks in our current year audit and, therefore, it is not separately identified in our report this year.
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3. Our application of Group materiality and an overview
of the scope of our audit
Materiality for the group financial statements as a whole was set at
£34m (2020: £35m), determined with reference to a benchmark of
net earned premiums (of which it represents 0.8% (2020: 0.6%)).
We continue to consider net earned premiums to be the most
appropriate benchmark and a fair reflection of revenue from the
Group’s operations because it is a revenue metric per the accounting
standards, matches to claims cost, is less distorted by seasonal
fluctuations and takes into account the reinsurance programme
in place.
Materiality for the parent company financial statements as a whole
was set at £30m (2020: £32m), which is capped at 90% of Group
materiality and with reference to a benchmark of net assets of which
it represents 0.9% (2020: 0.4%).
In line with our audit methodology, our procedures on individual
account balances and disclosures were performed to a lower
threshold, performance materiality, so as to reduce to an acceptable
level the risk that individually immaterial misstatements in individual
account balances add up to a material amount across the financial
statements as a whole.
Performance materiality for the group was set at 65% (2020: 65%)
of materiality for the financial statements as a whole, which equates
to £22.1m (2020: £22.8m). We applied this percentage in our
determination of performance materiality based on the level of
identified control deficiencies during the prior period and the
number of areas of significant judgement in the audit.
Performance materiality for the parent company was set at 75%
(2020: 75%) of materiality, which equates to £22.5m (2020: £24.0m).
We applied this percentage in our determination of performance
materiality because we did not identify any factors indicating an
elevated level of risk for the parent company.
We agreed to report to the Audit Committee any corrected
or uncorrected identified misstatements exceeding £1.70m
(2020: £1.75m) in the group financial statements; and £1.50m
(2020: £1.50m) in the parent company financial statements,
in addition to other identified misstatements that warranted
reporting on qualitative grounds.
Of the group’s seven (2020: seven) reporting components,
we subjected the UK component to a full scope audit and the
components located in Canada and Scandinavia to full scope audits
for the period they were owned by the group. The Ireland component
was instructed to perform specific risk-focused audit procedures
relating to insurance liabilities and cash during the year. Specified
risk-focused audit procedures were also performed over investments,
cash and reinsurance debtors balances within two of the reporting
components, where specific risks were identified. This scoping
decision was made for the first time in order to provide further coverage
over the group’s results. The components for which we performed
specified risk-focused procedures were not financially significant
enough to subject to a full scope audit for group reporting purposes,
but did present specific individual risks that needed to be addressed.
Net earned premium
£34m
Whole financial statements
materiality (2020: £35m)
Group Materiality
£27m
Range of materiality at five
components (£10m to £27m)
(2020: £10m to £28m)
£1.70m
Misstatements reported to the
audit committee (2020: £1.75m)
Net earned premium
Group materiality
£4,330m (2020: £6,199m)
£34m (2019: £35m)
£22 .1m
Whole financial statements
performance materiality
(2020: £22.8m)
Group insurance
contract liabilities
95%
(2020: 96%)
95
93
95%
(2020: 93%)
87
77
94%
(2020: 94%)
89
5
1
84
10
96%
(2020: 87%)
78
96
2021
2020
Full scope for group audit purposes
Specified risk-focused audit procedures
Residual components
Group net earned
premium
Group total assets
Total profits and losses
that made up Group
profit before tax
9
2
6
18
Independent auditor’s report to the members of RSA Insurance Group Limited
continued
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The parent company’s financial assets had previously been subjected
to specific risk-focused audit procedures. Due to the fact that the
parent company had transferred all of its financial assets to its
subsidiary during the year, it was descoped from the group audit
for the 2021 year-end audit. Other scoping decisions remained
unchanged from the previous year’s audit.
The components within the scope of our work accounted for the
percentages illustrated below. For the residual components, we
performed analysis at an aggregated group level to re-examine
our assessment that there were no significant risks of material
misstatement within these.
The Group team instructed component auditors as to the significant
areas to be covered, including the relevant risks detailed above and
the information to be reported back. The Group team approved
the component materialities, which ranged from £10m to £27m
(2020: £10m to £28m), having regard to the mix of size and risk profile
of the Group across the components. The audit procedures over
the Canada, Scandinavia and Ireland components (2020: Canada,
Scandinavia and Ireland) were performed by component auditors.
All other audit procedures, as well as the parent company audit,
were performed by the Group team.
The scope of the audit work performed was predominately substantive
as we placed limited reliance upon the Group’s internal control over
financial reporting.
The Group team visited nil (2020: nil) component locations during
the year due to travels restrictions as a result of the pandemic and
instead maintained the virtual interactions with component teams.
Video and telephone conference meetings were held with the
component auditors and local management since they were not
physically visited. At these meetings, the findings reported to the Group
team were discussed in more detail, and any further work required by
the Group team was then performed by the component auditor.
4. Going concern
The directors have prepared the financial statements on the going
concern basis as they do not intend to liquidate the Group or the
Company or to cease their operations, and as they have concluded
that the Group’s and the Company’s financial position means that
this is realistic. They have also concluded that there are no material
uncertainties that could have cast significant doubt over their ability
to continue as a going concern for at least a year from the date of
approval of the financial statements (“the going concern period”).
We used our knowledge of the Group, its industry, and the general
economic environment to identify the inherent risks to its business
model and analysed how those risks might affect the Group’s and
Company’s financial resources or ability to continue operations over
the going concern period. The risks that we considered most likely
to adversely affect The Group’s and Company’s available financial
resources over this period were:
·
adverse insurance reserves development, potentially caused by
ongoing impacts of the COVID-19 pandemic;
·
a deterioration in claims experience, potentially caused by market
wide catastrophe event(s) or economic factors such as inflation;
·
a deterioration in the valuation of the Group’s investments arising
from a significant change in the economic environment; and
·
a decrease in the Group’s net pension surplus.
We considered whether these risks could plausibly affect the Group’s
regulatory capital or liquidity in the going concern period by assessing
the directors’ sensitivities over the level of available financial resources
indicated by the Group’s financial forecasts taking account of severe
but plausible adverse effects that could arise from these risks
individually and collectively.
Our procedures also included:
·
Consideration of specific scenarios that could reasonably arise in
relation to the COVID-19 pandemic including adverse outcomes in
respect of Business Interruption claims.
·
Evaluation of the consistency, arithmetical accuracy and
reasonableness of the data and assumptions used in management’s
Going Concern assessment paper.
·
We considered whether the going concern disclosure in note 1
to the financial statements gives a full and accurate description
of the directors’ assessment of going concern, including the
identified risks, dependencies, and related sensitivities.
Our conclusions based on this work:
·
we consider that the directors’ use of the going concern basis
of accounting in the preparation of the financial statements
is appropriate;
·
we have not identified, and concur with the directors’ assessment
that there is not, a material uncertainty related to events or conditions
that, individually or collectively, may cast significant doubt on the
Group’s or Company’s ability to continue as a going concern for
the going concern period; and
·
we found the going concern disclosure in note 1 to be acceptable.
However, as we cannot predict all future events or conditions and
as subsequent events may result in outcomes that are inconsistent
with judgements that were reasonable at the time they were made,
the above conclusions are not a guarantee that the Group or the
Company will continue in operation.
5. Fraud and breaches of laws and regulations –
ability to detect
Identifying and responding to risks of material
misstatement due to fraud
To identify risks of material misstatement due to fraud (“fraud risks”)
we assessed events or conditions that could indicate an incentive or
pressure to commit fraud or provide an opportunity to commit fraud.
Our risk assessment procedures included:
·
Enquiring of directors, the Audit Committee, internal audit and
management and inspection of policy documentation as to the
Group’s high-level policies and procedures to prevent and detect
fraud, including the internal audit function, and the Group’s channel
for “whistleblowing”, as well as whether they have knowledge of any
actual, suspected or alleged fraud.
·
Reading Board, Audit Committee and Risk Committee minutes.
·
Considering remuneration incentive schemes and performance
targets for management and directors.
·
Using professionals with forensic knowledge to assist us in
identifying fraud risks and designing appropriate procedures based
on discussions of the circumstances of the Group and Company.
·
Performing analytical procedures to identify any unusual or
unexpected fluctuations and relationships in the account balances.
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We communicated identified fraud risks throughout the audit team
and remained alert to any indications of fraud throughout the audit.
This included communication from the group to full scope component
audit teams of relevant fraud risks identified at the Group level and
request to full scope component audit teams to report to the Group
audit team any instances of fraud that could give rise to a material
misstatement at the Group level.
As required by auditing standards, we perform procedures to address
the risk of management override of controls and the risk of fraudulent
revenue recognition, in particular the risk that estimated premium is
valued incorrectly or recorded in the wrong period and the risk that
Group and component management may be in a position to make
inappropriate accounting entries, and the risk of bias in accounting
estimates and judgements, including premium estimates.
We also identified fraud risks related to the valuation of insurance
contract liabilities, the valuation of deferred tax assets and the
valuation of intangible assets, in response to the level of estimation
and judgement in these balances and possible pressures to meet profit
targets. Further detail in respect of insurance contract liabilities and
the deferred tax asset is set out in the key audit matter disclosures in
section 2 of this report.
We performed procedures including:
·
Identifying journal entries to test for all full scope components, based
on risk criteria and comparing the identified entries to supporting
documentation. These included those posted by senior finance
management and those posted to unusual accounts.
·
Assessing significant accounting estimates for bias.
Identifying and responding to risks of material misstatement
due to non-compliance with laws and regulations
We identified areas of laws and regulations that could reasonably
be expected to have a material effect on the financial statements
from our general commercial and sector experience, and through
discussion with the directors and other management (as required by
auditing standards), and from inspection of the Group’s regulatory
and legal correspondence and discussed with the directors and other
management the policies and procedures regarding compliance
with laws and regulations.
As the Group is regulated, our assessment of risks involved gaining
an understanding of the control environment including the entity’s
procedures for complying with regulatory requirements.
We communicated identified laws and regulations throughout our team
and remained alert to any indications of non-compliance throughout
the audit. This included communication from the Group to full scope
component audit teams of relevant laws and regulations identified at
Group level, and a request for full scope component auditors to report
to the group team any instances of non-compliance with laws and
regulations that could give rise to a material misstatement at group.
The potential effect of these laws and regulations on the financial
statements varies considerably.
Firstly, the Group is subject to laws and regulations that directly
affect the financial statements including financial reporting legislation
(including related companies legislation), distributable profits legislation,
pension legislation and taxation legislation, and we assessed the
extent of compliance with these laws and regulations as part of our
procedures on the related financial statement items.
Secondly, the Group is subject to many other laws and regulations
where the consequences of non-compliance could have a material
effect on amounts or disclosures in the financial statements, for
instance through the imposition of fines or litigation or the loss of the
Group’s licence to operate. We identified the following areas as those
most likely to have such an effect: regulatory capital and liquidity,
conduct regulation and certain aspects of company legislation
recognising the financial and regulated nature of the Group’s activities.
Auditing standards limit the required audit procedures to identify
non-compliance with these laws and regulations to enquiry of the
directors and other management and inspection of regulatory and
legal correspondence, if any. Therefore if a breach of operational
regulations is not disclosed to us or evident from relevant
correspondence, an audit will not detect that breach.
Context of the ability of the audit to detect fraud or breaches
of law or regulation
Owing to the inherent limitations of an audit, there is an unavoidable
risk that we may not have detected some material misstatements
in the financial statements, even though we have properly planned
and performed our audit in accordance with auditing standards.
For example, the further removed non-compliance with laws and
regulations is from the events and transactions reflected in the financial
statements, the less likely the inherently limited procedures required
by auditing standards would identify it.
In addition, as with any audit, there remained a higher risk
non-detection of irregularities, as these may involve collusion,
forgery, intentional omissions, misrepresentations, or the override
of internal controls. Our procedures are designed to detect material
misstatement. We are not responsible for preventing non-compliance
and cannot be expected to detect non-compliance with all laws
and regulations.
6. We have nothing to report on the other information in
the Annual Report
The directors are responsible for the other information presented in
the Annual Report together with the financial statements. Our opinion
on the financial statements does not cover the other information and,
accordingly, we do not express an audit opinion or, except as explicitly
stated below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so,
consider whether, based on our financial statements audit work, the
information therein is materially misstated or inconsistent with the
financial statements or our audit knowledge. Based solely on that work
we have not identified material misstatements in the other information.
Strategic report and directors’ report
Based solely on our work on the other information:
·
we have not identified material misstatements in the strategic report
and the directors’ report;
·
in our opinion the information given in those reports for the financial
year is consistent with the financial statements; and
·
in our opinion those reports have been prepared in accordance with
the Companies Act 2006.
Independent auditor’s report to the members of RSA Insurance Group Limited
continued
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7. We have nothing to report on the other matters on
which we are required to report by exception
Under the Companies Act 2006, we are required 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 parent Company financial statements are not in agreement with
the accounting records and returns; or
·
certain disclosures of directors’ remuneration specified by law are
not made; or
·
we have not received all the information and explanations we require
for our audit.
We have nothing to report in these respects.
8. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 27, the
directors are responsible for: the preparation of the financial statements
including being satisfied that they give a true and fair view; such internal
control as they determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether
due to fraud or error; assessing the Group and parent Company’s
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern; and using the going concern basis
of accounting unless they either intend to liquidate the Group or the
parent Company or to cease operations, or have no realistic alternative
but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue our opinion in an auditor’s
report. Reasonable assurance is a high level of assurance, but does
not guarantee that an audit conducted in accordance with ISAs
(UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered
material if, individually or in aggregate, they could reasonably be
expected to influence the economic decisions of users taken on
the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s
website at www.frc.org.uk/auditorsresponsibilities.
9. The purpose of our audit work and to whom we owe
our responsibilities
This report is made solely to the Company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state to them
in an auditor’s report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone
other than the Company and the Company’s members, as a body, for
our audit work, for this report, or for the opinions we have formed.
Salim Tharani (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
11 March 2022
RSA
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Note
2021
£m
Re-
presented
1
2020
£m
Continuing operations
Income
Gross written premiums 4,294 3,988
Less: reinsurance written premiums
(1,001 )
(950 )
Net written premiums
9 3,293 3,038
Change in the gross provision for unearned premiums 29
(44 )
Change in provision for unearned reinsurance premiums
(42 )
(34 )
Change in provision for net unearned premiums
(86 )
(5 )
Net earned premiums 3,207 3,033
Net investment return
10 160 110
Other operating income
12 82 93
Total income 3,449 3,236
Expenses
Gross claims incurred
(2,959 )
(2,527 )
Less: claims recoveries from reinsurers 759 607
Net claims
11 1,920 )
(2,200 )
(Underwriting and policy acquisition costs
(1,223 )
(1,169 )
Unwind of discount
(6 )
(7 )
Other operating expenses
13 123 )
(172 )
((3,601 )
(3,219 )
Finance costs
14 30 )
(76 )
(Loss on disposal of businesses
8 – (5 )
Net share of profit after tax of associates – 1
Loss before tax from continuing operations
9 17 )
(228 )
(Income tax expense
19 2 )
(33 )
(Loss after tax from continuing operations
(261 )
(19 )
Profit from discontinued operations, net of tax
7 4,531 383
Profit for the year 4,270 364
Attributable to:
Owners of the Parent Company from continuing operations
(263 )
(38 )
Owners of the Parent Company from discontinued operations 4,531 383
Total Owners of the Parent Company 4,268 345
Non-controlling interests 2 19
1. Comparatives have been re-presented to show Scandinavia and Canada as discontinued operations. Refer to note 7 for further information.
The attached notes form an integral part of these consolidated financial statements.
Consolidated income statement
For the year ended 31 December 2021
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Note
2021
£m
Re-
presented
1
2020
£m
Loss for the year from continuing operations
(261 )
(19 )
Profit for the year from discontinued operations 4,531 383
Profit for the year 4,270 364
Items from continuing operations that may be reclassified to the income statement:
Exchange losses net of tax on translation of foreign operations
22 5 )
(14 )
(Fair value (losses)/gains on available for sale financial assets net of tax
22 79
(79 )
(93 ) 74
Items from continuing operations that will not be reclassified to the income statement:
Pension – remeasurement of net defined benefit asset/liability net of tax
22 25 )
(70 )
(Other comprehensive (expense)/income for the year from continuing operations 49
(163 )
Other comprehensive (expense)/income for the year from discontinued operations
7 79
(129 )
Total other comprehensive (expense)/income for the year
22 128
(292 )
Comprehensive (expense)/income for the year from continuing operations 30
(424 )
Comprehensive income for the year from discontinued operations
7 4,402 462
Total comprehensive income for the year 3,978 492
Attributable to:
Owners of the Parent Company from continuing operations 16
(426 )
Owners of the Parent Company from discontinued operations 4,402 462
Total Owners of the Parent Company 3,976 478
Non-controlling interests 2 14
1. Comparatives have been re-presented to show Scandinavia and Canada as discontinued operations. Refer to note 7 for further information.
The attached notes form an integral part of these consolidated financial statements.
Consolidated statement of comprehensive income
For the year ended 31 December 2021
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Ordinary
share
capital
£m
Ordinary
share
premium
£m
Preference
shares
£m
Tier 1
notes
£m
Revaluation
reserves
£m
Capital
redemption
reserve
£m
Foreign
currency
translation
reserve
£m
Retained
earnings
£m
Equity
attributable to
owners of the
Parent
Company
£m
Non-
controlling
interests
£m
Total
equity
£m
Balance at
1 January 2020 1,032 1,090 125 297 259 389 (26 ) 1,003 4,169 173 4,342
Total comprehensive
income
Profit for the year – – – – – – – 345 345 19 364
Other comprehensive
income/(expense)
(note 22) – – – – 112 – 46 (25 ) 133 (5 ) 128
Transactions with
owners of the Group
Contribution
and distribution
Dividends (note 21/36) – – – – – – – (108 ) (108 ) (13 ) (121 )
Shares issued for
cash (note 34) 1 5 – – – – – – 6 – 6
Share-based payments
(note 34) 2 – – – – – – 17 19 – 19
Changes in
shareholders’ interests
in subsidiaries – – – – – – – – – (8 ) (8 )
Total transactions with
owners of the Group 3 5 – – – – – (91 ) (83 ) (21 ) (104 )
Balance at
1 January 2021 1,035 1,095 125 297 371 389 20 1,232 4,564 166 4,730
Total comprehensive
income
Profit for the year – – – – – – – 4,268 4,268 2 4,270
Other comprehensive
(expense)/income
(note 22) – – – – (267 ) – 33 (58 ) (292 ) – (292 )
Transactions with
owners of the Group
Contribution
and distribution
Dividends (note 21/36) – – – – – – – (6,938 ) (6,938 ) (10 ) (6,948 )
Shares issued for
cash (note 34) 1,023 282 – – – – – – 1,305 – 1,305
Share-based payments
(note 34) 11 – – – – – – 17 28 – 28
Transfers – – – – 1 – – (1 ) – – –
Capital reduction
1
(800 ) (1,095 ) – – – (389 ) – 2,284 – – –
Changes in
shareholders’ interests
in subsidiaries – – – – – – – – – (2 ) (2 )
Total transactions with
owners of the Group 234 (813 ) – – 1 (389 ) – (4,638 ) (5,605 ) (12 ) (5,617 )
Balance at
31 December 2021 1,269 282 125 297 105 – 53 804 2,935 156 3,091
1. A reduction of the Company’s share capital of
£800 m,
share premium of
£1,095 m
and capital redemption reserve of
£389 m
was effected in June 2021 by special
resolution supported by a solvency statement which resulted in the creation of distributable reserves of
£2,284 m
.
The attached notes form an integral part of these consolidated financial statements.
Consolidated statement of changes in equity
For the year ended 31 December 2021
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Note
2021
£m
2020
£m
Assets
Goodwill and other intangible assets
23 312 868
Property and equipment
24 91 237
Investment property
25 371 285
Investments in associates – 5
Financial assets
26 5,530 11,826
Total investments 5,901 12,116
Reinsurers’ share of insurance contract liabilities
29 2,291 2,340
Insurance and reinsurance debtors
30 1,916 2,989
Deferred tax assets
31 148 199
Current tax assets
31 2 23
Other debtors and other assets
32 737 840
Other assets 887 1,062
Cash and cash equivalents
33 500 1,094
Total assets 11,898 20,706
Equity and liabilities
Equity
Equity attributable to owners of the Parent Company 2,935 4,564
Non-controlling interests 156 166
Total equity 3,091 4,730
Liabilities
Issued debt
37 165 751
Insurance contract liabilities
39 7,185 12,614
Insurance and reinsurance liabilities
40 842 932
Borrowings 38 8 132
Deferred tax liabilities
31 – 105
Current tax liabilities
31 4 40
Provisions 42 50 172
Other liabilities
43 553 1,230
Provisions and other liabilities 607 1,547
Total liabilities 8,807 15,976
Total equity and liabilities 11,898 20,706
The attached notes form an integral part of these consolidated financial statements.
The financial statements were approved on 11 March 2022 by the Board of Directors and are signed on its behalf by:
Charlotte Jones
Group Chief Financial Officer
Consolidated statement of financial position
As at 31 December 2021
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Note
2021
£m
2020
£m
Cash flows from operating activities
Cash generated from operating activities
45 357 661
Tax paid
(99 )
(87 )
Net cash flows from operating activities 258 574
Cash flows from investing activities
Proceeds from sales or maturities of:
Financial assets 1,738 3,244
Property and equipment 1 –
Intangible assets – 1
Subsidiaries and associates (net of cash disposed of) 6,559 3
Dividends from associates 1 –
Purchase of:
Financial assets
(2,615 )
(3,261 )
Property and equipment
24 23 )
(13 )
(Intangible assets
23 122 )
(104 )
(Subsidiaries –
(1 )
Net cash flows from investing activities 5,566
(158 )
Cash flows from financing activities
Proceeds from issue of share capital 1,305 6
Dividends paid to ordinary shareholders
21 83 )
(6,914 )
(Coupon payment on Tier 1 notes
21 16 )
(15 )
(Dividends paid to preference shareholders
21 9 )
(9 )
(Dividends paid to non-controlling interests
36 13 )
(10 )
(Redemption of debt instruments
46 –
(642 )
Payment of lease liabilities
46 44 )
(24 )
(Movement in other borrowings
46 33 )
(71 )
(Interest paid
46 33 )
(26 )
(Net cash flows from financing activities
(6,406 )
(225 )
Net increase in cash and cash equivalents 191
(582 )
Cash and cash equivalents at the beginning of the year 1,083 886
Effect of changes in foreign exchange on cash and cash equivalents 6
(9 )
Cash and cash equivalents at the end of the year
33 492 1,083
The attached notes form an integral part of these consolidated financial statements.
Consolidated statement of cash flows
For the year ended 31 December 2021
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Basis of preparation and significant accounting policies
and the Company’s ordinary share capital was purchased by Regent Bidco Limited (a wholly owned subsidiary of Intact Financial Corporation)
on 1 June 2021 (the acquisition). The Company’s ultimate parent company and controlling party is Intact Financial Corporation . The Company
is incorporated and domiciled in England and Wales provides
discontinued operations (refer to note 7 for further information).
1) Basis of preparation
The consolidated financial statements have been prepared in accordance with UK-adopted International Accounting Standards and the
requirements of Companies Act 2006. The consolidated financial statements are prepared on a historical cost basis. Where other bases are
applied, these are identified in the relevant accounting policy.
The consolidated financial statements have been prepared on a going concern basis. In adopting the going concern basis, the Board has
reviewed the Group’s ongoing commitments for the next twelve months and beyond. The Board’s assessment included the review of Group’s
strategic plans and latest forecasts, capital position and liquidity including on demand capital funding arrangements with Intact Financial
Corporation. The impact and uncertainty as a result of the Covid-19 pandemic, rising inflation, and the transition to a post Brexit environment
has also been considered. These assessments include stress and scenario testing and consider significant areas of risk and uncertainty for the
Group in the current challenging economic environment. Scenarios considered include a market risk shock involving several component stresses,
plus deterioration of the underwriting result and a subsequent catastrophe loss. Climate stress testing has also been completed. In making their
assessment, the Board have reviewed the latest position on business interruption losses and availability of reinsurance to recover incurred claims
and there have been no significant changes. The Board have considered the impact of events after the balance sheet date with none identified
which could impact the Group’s ability to continue as a going concern. Based on this review no material uncertainties that would require disclosure
have been identified in relation to the ability of the Group to remain a going concern for at least the next twelve months, from both the date of the
consolidated statement of financial position and the approval of the consolidated financial statements.
In line with industry practice, the Group’s consolidated statement of financial position is not presented using current and non-current
classifications, but broadly in increasing order of liquidity.
The assets and liabilities considered as non-current include: investments in associates, deferred tax assets, property and equipment, intangible
assets, goodwill, deferred tax liabilities, outstanding debt including issued debt and elements of financial investments, insurance contract liabilities
and reinsurers’ share of insurance contract liabilities.
The assets and liabilities considered as current include cash and cash equivalents, insurance and reinsurance debtors, and elements of financial
investments, insurance contract liabilities and reinsurers’ share of insurance contract liabilities.
The remaining balances are of a mixed nature. The current and non-current portions of such balances are in the notes or in the risk and capital
management note (note 6).
Except where otherwise stated, all figures included in the consolidated financial statements are presented in millions of pounds sterling (£m).
Accounting policies that are significant to understanding the performance, financial position and cash flows of the Group are set out in note 5
with other policies presented in Appendix A. The notes are grouped together by their nature.
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Basis of preparation and significant accounting policies
continued
2) Significant accounting estimates and judgements
In preparing these consolidated financial statements, management has made judgements and calculated estimates in accordance with Group’s
accounting policies. Estimates are based on management’s best knowledge of current circumstances and expectation of future events and
actions, which may subsequently differ from those used in determining the accounting estimates.
Estimates and their underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively. These
estimates have been reviewed following the disposals of the Group’s operations in Scandinavia and Canada, and any changes as a result of this
have been disclosed below or in the relevant note.
The most significant estimates are described below. Additional information on estimation techniques and assumptions is presented in the relevant
note in order to provide context to the figures presented.
·
Valuation of insurance contract liabilities: the assumptions used in the estimation of the ultimate outcome of the claim events that have occurred
but remain unsettled at the end of the reporting period. Key assumptions include prior experience and trends to the extent they are a reliable
guide to future outcomes, changes in various key areas such as pricing, underwriting, claims, reinsurance, inflation and the wider economic
environment, which could affect claims experience, and Covid-19 estimates which remain a heightened area of uncertainty with respect to the
valuation of the insurance contract liabilities. Covid-19 business interruption (BI) gross claims cost uncertainty remains high but reduces over
time as initial estimates are replaced with maturing claims and case information, updates for which have been included in the claims estimates
at 31 December 2021. The ultimate Covid-19 BI claims liability could be materially different from the current estimate as claims information
develops further, as legal and regulatory interpretations throughout the industry evolve and clarify the criteria for eligible claims and the level
of cover available and as claims information matures given the complexity. Whilst the Group has considerable reinsurance protection against
changes in gross estimate, the net estimate is dependent on the extent to which losses are recoverable under the reinsurance contracts and
how this compares to the Group’s expectations. Aside from direct BI losses, Covid-19 has increased the level of estimation uncertainty for many
classes of business and loss types with key assumptions impacted such as frequency, severity and claims development patterns. Many of the
drivers of the uncertainty in these areas are external factors and require estimation to assess the impact.
In addition, management continually monitors claims experience, emerging trends and changes in the business or in the external environment
to help ensure the key assumptions and estimation techniques used to determine best estimate provisions reflect up-to-date information and
remain appropriate. As a result of management’s review given the current uncertain economic environment, including inflationary increases,
and in alignment with IFC practices, reserves have been strengthened during 2021 and additional margin is held.
Refer to note 39 for additional information.
·
Measurement of defined benefit obligations: the use of key actuarial assumptions, such as discount rates, inflation rates and mortality rates.
Refer to note 41 for additional information.
·
Recognition of deferred tax assets: availability of future taxable profits against which deductible temporary differences and tax losses carried
forward can be utilised. Forecast future taxable profits include the potential impact of Covid-19 and are based on the continuing Group
composition following the disposals of the Canadian and Scandinavian operations. Sensitivities have been used to assess the impact of
changes in the key assumptions supporting profit forecasts in the forecast period. Management further assess the application of contingency
on the estimation of future forecast taxable profits in determining the value of deferred tax asset to be recognised. Following the acquisition,
the UK profit forecasts have been updated to reflect the latest view of taxable profits. Changes to intragroup transactions and increased
contingency in the UK forecast taxable profits have resulted in a £83m reduction of the UK deferred tax asset at 31 December 2021.
This impact was offset by the effect of the UK tax rate increase on the UK deferred tax asset (£48m). Refer to note 31 for additional information.
·
Valuation of level 3 financial assets and investment properties: use of significant unobservable inputs. The current ongoing economic
uncertainty means that asset valuation techniques that rely on unobservable inputs have a greater degree of estimation uncertainty. Refer to
note 27 for additional information.
·
Measurement and impairment of goodwill and intangible assets: key assumptions applied in the valuation of the recoverable amount and the
estimation of useful economic life. The value in use calculations are based on management’s latest operational plans, which include the potential
impact of Covid-19 and are based on the continuing Group composition following the disposals of the Canadian and Scandinavian operations,
and considering management’s future intent. Refer to note 23 for additional information.
The areas where management has applied judgement are as follows:
·
Classification of financial assets in the fair value hierarchy: management apply judgement when deciding to classify financial instruments for
which immediate prices are available as being level 1 in the fair value hierarchy and financial assets for which observable prices are also available
as level 2 on the basis of a lower level of activity in the market from which those prices are quoted. Refer to note 27 for additional information.
·
Impairment of financial assets: determining if there is objective evidence of impairment requires judgement and, in the year to 31 December
2021,
£7m
of impairments have been recognised on a continuing operations basis (31 December 2020: £4m). The value of unrealised losses
from continuing operations in the revaluation reserve at 31 December 2021 is
£121m
(31 December 2020: gains of £79m). Refer to note 10 for additional information.
·
Valuation of intangible assets: The acquisition has resulted in a strategic reassessment of programme plans for internally generated software
assets. Determining if existing internally generated software would no longer generate future economic benefit and should therefore be
derecognised requires judgement. In the year to 31 December 2021,
£72m
of internally generated software assets were identified as no longer generating future economic benefit and were derecognised (12 months to 31 December 2020: £nil). Refer to note 23 for additional information.
The Group Audit Committee reviews the reasonableness of significant judgements and estimates.
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3) Adoption of new and revised accounting standards
Transition from EU-adopted IAS to UK-adopted IAS
Following the end of the Brexit Transition Period, SI 2019/685 brought the International Accounting Standards (IAS) already endorsed in
the EU into UK law as ‘UK-adopted international accounting standards’. The Group has applied UK-adopted IAS from 1 January 2021.
As there are no changes when applying UK-adopted IAS, there has not been an impact on the Group.
The following narrow scope amendments have been adopted by the Group:
Extension of the Temporary Exemption from Applying IFRS 9
IFRS 9 has been issued to replace IAS 39 ‘Financial Instruments: Recognition and Measurement’ (IAS 39). IFRS 4 ‘Insurance Contracts’ (IFRS 4)
permits an insurance company that meets the criteria a temporary exemption from applying IFRS 9 and continue to apply IAS 39. The exemption
has been extended by two years to annual periods beginning before 1 January 2023.
The Group meets the criteria and has elected to defer the application of IFRS 9 to the reporting period beginning on 1 January 2023,
alongside IFRS 17.
Interest Rate Benchmark Reform (IBOR) —Phase 2
In August 2020, the IASB issued amendments to IAS 39, IFRS 7 ‘Financial instruments: Disclosures’ (IFRS 7), IFRS 4 and IFRS 16 ‘Leases’
(IFRS 16). The amendments complement those issued in 2019 and focus on the effects on financial statements when an entity replaces an old
interest rate benchmark with an alternative risk-free rate (ARRs) as part of the IBOR reform.
The amendments clarify that, if the contractual cash flows of a financial instrument are modified as a result of the reform, an entity updates the
effective interest rate to reflect the change instead of derecognising it or adjusting its carrying amount. In addition, hedge accounting relationships
shall not be discontinued if changes are required by the reform, as long as the hedge meets other hedge accounting criteria.
The Group’s exposure to IBORs (Interbank Offered Rates) that have yet to transition from LIBOR and USD IBOR to Sterling Overnight Index
Average (SONIA) and Secured Overnight Financing Rate (SOFR) respectively relates to illiquid investments and is
£155m
(notional amount as at
31 December 2021).
Given the transition to ARRs has no significant impact on the Group, there has been no significant change in the risk management strategies as
result of the IBOR reform.
The amendments did not impact the consolidated financial statements.
Other standards
Other amendments to UK-adopted IAS, became mandatory as of 1 January 2021. The Group has evaluated these changes, none of which have
had a significant impact on the consolidated financial statements.
4) New accounting standards, interpretations and amendments yet to be adopted
IFRS 17 ‘Insurance Contracts’
In May 2017, the IASB published IFRS 17 – Insurance Contracts (“IFRS 17”) a comprehensive new accounting standard for insurance contracts
covering recognition, measurement, presentation and disclosure, which replaces IFRS 4 – Insurance Contracts (“IFRS 4”) and introduces
consistent accounting for all insurance contracts.
The original effective date was for annual periods beginning on or after 1 January 2021. However, in June 2020, amendments to the standard
were issued and the IASB officially extended the deferral of the effective date and the deferral of the temporary exemption from applying IFRS 9
as provided by IFRS 4 to 1 January 2023. The Group plans to adopt the new standard on the required effective date together with IFRS 9. In July
2021, the IASB issued an exposure draft proposing a narrow-scope amendment to the IFRS 17 transition requirements for entities that first apply
IFRS 17 and IFRS 9 at the same time. This proposed amendment relates to financial assets for which comparative information presented on initial
application of IFRS 17 and IFRS 9 has not been restated for IFRS 9. Applying the proposed amendment, an entity would be permitted to present
comparative information about such a financial asset as if the classification and measurement requirements of IFRS 9 had been applied to that
financial asset.
The Group has devoted considerable resources and efforts to the implementation of IFRS 17 since its issuance in May 2017. A program structure
was put in place, comprised of a dedicated multi-disciplinary team representing Finance, Actuarial and Information Systems. Strong governance
was established to assist program sponsors who report regularly to the IFRS 17 Steering Committee.
The Group has also made progress in developing and testing the technological solutions required for the compliance with IFRS 17 requirements
and continues to join discussions with industry groups and other stakeholders regarding the adoption and interpretation of the standard. In 2022,
the Group is aiming to monitor changes in regulatory requirements, evaluate the impact on processes and continue the development and testing
of the technological solutions.
The Group is currently evaluating the impact that IFRS 17, in conjunction with IFRS 9, will have on its financial statements but has not yet
determined the impact.
The standard has not been adopted for use in the UK. On 11 November 2021 the UK Endorsement Board issued for public consultation its draft
Endorsement Criteria Assessment: IFRS 17 Insurance Contracts and the Group is monitoring the process closely.
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4) New accounting standards, interpretations and amendments yet to be adopted
continued
IFRS 9 ‘Financial Instruments’
As outlined in Note 3, the group has deferred the application of IFRS 9 to the reporting period beginning on 1 January 2023, alongside IFRS 17.
Implementation plans have been updated to reflect the amended effective date and are on track.
Information required by IFRS 4 when applying the temporary exemption can be found in note 26 and note 6.
Other standards
There are a number of amendments that have been issued by the IASB that have not yet been adopted for use in the UK. The Group has
evaluated the impact of these amendments and none are expected to have a significant impact on the consolidated financial statements.
5) Significant accounting policies
The significant accounting policies used in the preparation of these consolidated financial statements, as set out below, have been applied
consistently to all periods presented in these consolidated financial statements, unless otherwise stated.
There have been no significant changes to the Group’s accounting policies during 2021. Following the Group’s disposals of its operations in
Scandinavia and Canada, the policy relating to discontinued operations has been included as a significant accounting policy.
Discontinued operations
A discontinued operation is a component of the Group that has been disposed of and represents a separate major line of business or
geographical area of operation.
The profit from discontinued operations is shown separately on the face of the consolidated income statement as a single amount. It comprises
the profit or loss after tax from discontinued operations together with the gain or loss after tax recognised on disposal. Further information can
be found in note 7.
In the year in which an operation is first classified as discontinued, the consolidated income statement and consolidated statement of other
comprehensive income for the comparative prior period is re-presented to present those operations as discontinued.
Where intragroup arrangements between continuing and discontinued operations continue after the point of disposal, the continuing operations
are presented as if the income/expense had always been an external party, with the result of the discontinued operation being reduced to offset.
Where the arrangement ceased at the point of disposal the income/expense of the continuing operation in relation to the arrangement with the
discontinued operation is eliminated.
Premium income
Written premium is recognised in the period in which the Group is legally bound through a contract to provide insurance cover. It represents
the full amount of premiums receivable under the contract, including estimates where the amounts are not known at the date they are written.
These are deferred as a provision for unearned premiums until recognised as revenue principally computed on a monthly or daily pro-rata basis.
Net earned premiums are stated net of amounts passed (‘ceded’) to reinsurers. Premiums are shown before deduction of commission and
exclude any sales-based taxes or duties.
Insurance receivables
Premium receivables due from policyholders or intermediaries at the end of the reporting period are presented within insurance and reinsurance
debtors in the consolidated statement of financial position. 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 insurance contract. Impairment losses
for non-recoverable amounts are charged to underwriting and policy acquisition costs in the consolidated income statement and directly reduce
the carrying amount of insurance debtors in the consolidated statement of financial position.
Gross claims incurred and insurance contract liabilities
Gross claims incurred represent the cost of agreeing and settling insurance claims on insurance contracts underwritten by the Group. Provisions
for losses and loss adjustment expenses are recognised at the estimated ultimate cost, net of expected salvage and subrogation recoveries when
a claim is incurred.
The provisions for losses and loss adjustment expenses, and related reinsurance recoveries, are discounted where there is a long period from
incident to claims settlement or when nominal interest rates are high 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, an average period of settlement of six years
or more has been used as a guide. The discount rate used is based upon an investment return expected to be earned by financial assets which
are appropriate in value and duration to match the provisions for insurance contract liabilities being discounted during the period expected before
the final settlement of such claims.
Differences between the estimated cost and subsequent settlement of claims or re-estimated costs are recognised in the consolidated income
statement in the year in which they are settled or in which the insurance contract liabilities are re-estimated.
Acquisition costs comprise the direct and indirect costs of obtaining and processing new insurance business. Levies payable are treated as costs
of underwriting business. These costs are recognised as deferred acquisition costs (DAC) and are deducted from the provision for unearned
premium. DAC is amortised on the same basis as the related unearned premiums are earned.
Basis of preparation and significant accounting policies
continued
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5) Significant accounting policies
continued
At the end of each reporting period tests are performed to ensure the adequacy of the Group’s insurance contract liabilities by considering the
cash flows associated with the provision for unearned premium net of related DAC. In performing these tests, best estimates of future contractual
cash flows, including loss adjustment and administrative expenses as well as investment income on financial assets backing such liabilities are
used. Any deficiency is charged to the consolidated income statement immediately by establishing a provision for liability adequacy known as
the unexpired risk provision. The requirement for an unexpired risk provision is assessed in aggregate for business classes which are managed
together and where there are no restraints on the ability to use assets held in relation to such business to meet any of the associated liabilities.
Further information on net claims can be found in note 11, and insurance contract liabilities in note 39.
Reinsurance
Written premiums ceded to a reinsurer are recognised in the period in which the reinsurance contract is entered into and include estimates
where the amounts are not finalised at the end of the reporting period. The ceded written premiums are recognised in the consolidated income
statement over the period of the reinsurance contract, based on the expected earning pattern in relation to the underlying insurance contract(s).
Gains or losses on buying retroactive reinsurance are recognised in the income statement immediately at the date of purchase and are not
amortised. Premiums ceded and claims reimbursed are presented on a gross basis in the consolidated income statement and statement of
financial position as appropriate.
Reinsurers’ share of insurance contract liabilities within the consolidated statement of financial position includes the reinsurers’ share of provisions
for losses and loss adjustment expenses and unearned premiums. The Group reports third party reinsurance balances on the consolidated
balance sheet on a gross basis to present the exposure to credit risk related to third party reinsurance. 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.
Annuities purchased by the Group to provide for payments under structured settlement arrangements are accounted for as reinsurance ceded
and a corresponding reinsurers’ share of insurance contract liabilities in cases where the Group remains liable for the settlement in the event of
default by the annuity provider. Any gain or loss arising on the purchase of an annuity is recognised in the consolidated income statement at the
date of purchase.
Further information can be found in note 29.
Financial Instruments
Classification and measurement of financial assets and financial liabilities
The Group initially recognises financial instruments at their fair value on the date at which they are purchased.
At initial measurement, the Group classifies its financial assets and financial liabilities in one of the following categories:
·
Designated at fair value through profit and loss (FVTPL)
·
Held for trading
·
Available for sale (AFS)
·
Cash and cash equivalents
·
Loans and receivables
·
Financial liabilities
·
Derivatives designated as hedging instruments
Transaction costs that are directly attributable to the acquisition of financial assets and financial liabilities that are not FVTPL are added to their fair
value in their initial measurement.
Further information can be found in notes 26, 27 and 28.
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5) Significant accounting policies
continued
The table below summarises the classification and treatment of the Group’s financial assets and financial liabilities.
Category
Financial instrument
DescriptionSubsequent measurement
Recognition of change
in fair value
Designated
at fair value
through
profit and
loss (FVTPL)
on initial
recognition
Debt securities Where the investment
return is managed on the
basis of the total return
on investment (including
unrealised investment gains)
Fair value using prices
at the end of the period
Income statement –
net investment gains/(losses)
Available for
sale (AFS)
Debt securities,
equity securities
Where the investment return
on equity or debt securities
is managed on the basis of
the periodic cash flows
arising from the investment
Fair value using prices
at the end of the period
Other comprehensive income –
unrealised gains/(losses)
Income statement –
net investment gains/(losses)
when realised or impaired
Cash and cash
equivalents
Cash and cash equivalents Consist of cash and highly
liquid investments that are
readily convertible into a
known amount of cash,
are subject to insignificant
risk of changes in value
and have a maturity date
of 90 days or less from
the date of acquisition
Carrying amounts at
amortised cost
Loans and
receivables
Loans, reinsurance
deposits, other deposits
and financial assets arising
from non-investment
activities, and loans made
for investment purposes
Financial assets with
fixed or determinable
payments not quoted
in an active market
Amortised cost using the
effective interest method
Income statement –
net investment gains/(losses)
when realised or impaired
Financial
liabilities
Other borrowings Financial liabilities with fixed
or determinable payments
Amortised cost using the
effective interest method
Income statement – net investment
gains/(losses) when settled
Issued debt Financial liabilities with fixed
or determinable payments
and maturity date
Amortised cost using the
effective interest method
Income statement – net investment
gains/(losses) when settled
Derivative
assets/
(liabilities) not
designated
as hedging
instruments
Derivative assets/(liabilities)
not designated as
hedging instruments
Economic hedges
that do not qualify
for hedge accounting
Carried at fair value
Derivatives are carried as
assets when fair value is
positive and as liabilities
when fair value is negative
Income statement – net investment
gains/(losses)
Derivatives
designated
as hedging
instruments
Derivative assets/(liabilities)
designated as
hedging instruments
Hedge of a net investment
in a foreign operation or
hedge of future cash flows
or hedge of fair value of
fixed interest securities
Carried at fair value
Derivatives are carried as
assets when fair value is
positive and as liabilities
when fair value is negative
Hedge of future cash flows – effective
portion is initially recognised in
other comprehensive income (OCI);
subsequently recognised in the
income statement when the hedged
cash flows affect profit or loss
Hedge of a net investment in a
foreign operation – effective portion
is recognised in OCI, ineffective
portion is immediately recognised
in the income statement
Hedge of fair value – recognised in
the income statement. The change in
fair value of the hedged investments
(classified as AFS) attributable to
the hedged risk is transferred
from the revaluation reserve to
the income statement
Basis of preparation and significant accounting policies
continued
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5) Significant accounting policies
continued
Investment income
Dividends on equity investments are recognised as investment income in the consolidated income statement on the date at which the investment
is priced ‘ex dividend’. Interest income is recognised in the consolidated income statement using the effective interest rate method.
Unrealised gains and losses on AFS investments are recognised in other comprehensive income, except for impairment losses and foreign
exchange gains and losses on monetary items which are recognised in the consolidated income statement. On derecognition of an investment
classified as AFS, the cumulative gain or loss previously recognised in other comprehensive income is recognised in the consolidated income
statement. Further information can be found in note 10.
Impairment of financial instruments
The Group determines, at each reporting date, whether there is evidence that the value of a financial asset or a group of financial assets, other than
those measured as FVTPL are impaired. A financial asset is impaired if there is objective evidence that indicates that an event has occurred after
the initial recognition of the asset that may have resulted in a loss of value as a result of having a negative effect on the estimated future cash flows
generated by that asset which can be estimated reliably.
Financial assets are impaired according to either a debt, equity, or loans and receivables impairment model. The appropriate impairment model
is determined based on the characteristics of each instrument.
An impairment loss in respect of debt instruments is calculated as the difference between its carrying amount and the present value of the
estimated future cash flows discounted at the original effective interest rate of the instrument and is recognised in the consolidated income
statement. Interest on the impaired asset continues to be recognised using the effective interest rate method.
An equity security is considered impaired if there is objective evidence that the cost may not be recovered. In addition to qualitative impairment
criteria, a significant or prolonged decline in fair value below cost is considered as indication of potential impairment. Impairment is considered
to have occurred when the decline in fair value relative to cost has been more than 30% for a continuous twelve-month period. Unless there is
evidence to the contrary, an equity security is also considered impaired when the decline in fair value relative to cost is more than 40% at the end
of the reporting period, or when it has been in an unrealised loss position for a continuous fifteen-month period. Where there is objective evidence
that impairment exists, the cumulative unrealised loss previously recognised in other comprehensive income is reclassified to the consolidated
income statement.
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 consolidated income statement. Impairment
losses on equity investments are not reversed. Further information can be found in note 10.
When financial assets are impaired by credit losses, the impairment charge directly reduces the carrying amount of the asset.
Current and deferred tax
Current and deferred tax are recognised in the consolidated income statement, except to the extent that the tax arises from a transaction or event
recognised either in other comprehensive income (OCI) or directly in equity. Any exceptions permitted under IAS 12 ‘Income Taxes’ are disclosed
in the notes. To the extent that deferred tax assets are recognised or derecognised in the period and it is not possible to attribute this directly
to either the consolidated income statement or OCI, as is the case typically for brought forward tax losses, then these amounts are attributed
between the income statement and OCI transactions using a reasonable pro rata split based on historical movements.
Current taxation is based on profits and income for the year as determined in accordance with the relevant tax legislation, together with
adjustments for prior years.
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 financial 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 profit 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.
Deferred tax in respect of the unremitted earnings of overseas subsidiaries and principal associated undertakings is recognised as an expense in
the year in which the profits arise, except where the remittance of earnings can be controlled and it is probable that remittance will not take place in
the foreseeable future, in which case the tax charge is recognised on the dividends received.
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which unused tax losses and
temporary differences can be utilised.
IFRIC 23 is applied to the recognition and measurement of both current and deferred tax assets and liabilities. In cases where the applicable tax
regulation is subject to interpretation, the positions taken in tax returns are recognised in full in the determination of the tax charge in the financial
statements, if the Group considers that it is probable that the taxation authority will accept those positions. Otherwise, provisions are established
based on management’s estimate and judgement of the likely amount of the liability/recovery by providing for the single best estimate of the most
likely outcome or the weighted average expected value where there are multiple outcomes.
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5) Significant accounting policies
continued
Post-employment benefits and obligations
The Group operates both defined contribution and defined benefit schemes.
A defined contribution scheme is a pension scheme under which the Group pays fixed contributions and has no further payment obligations
once the contributions have been paid. Contributions to defined contribution pension schemes are charged in the consolidated income statement
in the period in which the underlying employment services are provided to the Group.
A defined benefit scheme refers to any other pension scheme; specifically, the Group’s defined benefit schemes define an amount of pension
benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and salary.
The value of the net defined benefit liability/asset recognised in the consolidated statement of financial position for each individual post-
employment scheme is calculated as the difference between the present value of the defined benefit obligations of the scheme and the fair
value of the scheme assets out of which the obligations are to be settled.
For those schemes in a net liability (deficit) position, the net liability is recognised in the consolidated statement of financial position in provisions.
For those schemes in a net asset (surplus) position, the net asset is recognised in the consolidated statement of financial position in other debtors
and other assets only to the extent that the Group can realise an economic benefit, in the form of a refund or a reduction in future contributions,
at some point during the life of the scheme or when the scheme liabilities are settled.
The amounts charged (or credited where relevant) in the consolidated income statement relating to post-employment defined benefit schemes
are as follows:
·
The current service cost: this is the present value of additional benefits payable for employees’ services provided during the reporting period.
·
The past service costs and gains or losses on settlement: these are changes to the obligations already established for past service costs that
have arisen from an amendment to the terms of the scheme or a curtailment of the benefits payable by the scheme. These are recognised at
the earlier of when the terms of the scheme are amended or the curtailment occurs or, where applicable, when the Group recognises related
restructuring costs or termination benefits.
·
Net interest on the net defined benefit liability/asset: this is determined by applying the discount rate applied to the defined benefit obligation
for the period to the net defined benefit liability/asset, and results in a net interest expense/income.
·
The administration costs of operating the pension schemes.
Remeasurements of the net defined benefit liability/asset recognised in other comprehensive income comprises actuarial gains and losses as a
result of changes in assumptions and experience adjustments in the calculation of the defined benefit obligation, and return on scheme assets
excluding interest during the year. The most significant of these is the selection of the discount rate used to calculate the defined benefit obligation,
details of which are set out in note 41.
Intangible assets and Goodwill
Goodwill
Goodwill is the difference between the cost of a business acquisition and the net fair value of the identifiable assets, liabilities and contingent
liabilities acquired. Goodwill is initially capitalised in the consolidated statement of financial position at cost and is subsequently recognised
at cost less accumulated impairment losses (see below). The cost of the acquisition is the amount of cash paid and the fair value of other
purchase consideration.
Customer related intangible assets
Customer related intangible assets are valued at cost less accumulated amortisation, and less any accumulated impairment losses.
Customer related intangible assets comprise acquired renewal rights and customer lists. The useful economic lives are generally between one and
ten years and are estimated considering relevant metrics such as customer retention rates and contract length. The asset is amortised on a basis
which reflects usage of economic benefit.
Internally developed and externally acquired software
The Group capitalises internal and external software development costs where the software is separately identifiable; the Group has control over
the software; and where it can be demonstrated that they provide future economic benefits for the Group through facilitating revenue or improved
processes. In respect of internally developed software, the costs capitalised include administrative and other general overhead expenditure
when they can be directly attributed to the software development and preparing it for use. Amortisation is calculated on a straight line basis and
commences when the asset is available for use in the manner intended by management. The useful economic life of externally acquired and
internally generated software is normally estimated to be between three and ten years, and is reviewed on an annual basis.
Where no future economic benefits are expected from its use or disposal, the software asset is derecognised. Any gain or loss arising from the
derecognition of the asset is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the asset and is
recognised in profit or loss when the asset is derecognised.
Further information on goodwill and other intangibles can be found in note 23.
Basis of preparation and significant accounting policies
continued
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5) Significant accounting policies
continued
Impairment of goodwill, other intangible assets, and internally developed and externally acquired software
Goodwill and intangible assets not yet available to use are subject to an impairment test on an annual basis or more frequently if there has been
an indication of impairment. Other intangible assets, and internally developed and externally acquired software, are reviewed for indications of
impairment on an annual basis and are subject to an impairment test only if there is an indication of impairment.
Goodwill, other intangible assets, and internally developed and externally acquired software are allocated to cash generating units (CGUs) for the
purpose of impairment testing. When testing for impairment, the recoverable amount of a CGU is determined based on value in use calculations.
Further information on how the value in use is calculated can be found in note 23.
Where the carrying amount is more than the recoverable amount, impairment of goodwill or intangible assets is recognised in the consolidated
income statement. Impairment losses previously recognised on other intangible assets may be reversed in subsequent periods provided that
the revised carrying amount does not exceed the value that would have been determined (net of amortisation) had no impairment loss been
recognised. An impairment loss recognised for goodwill is not reversed in a subsequent period.
Reorganisation, acquisition and integration costs
Reorganisation costs represent external and clearly identifiable internal costs that are necessarily incurred and directly attributable to the
Group’s restructuring programme that was completed in 2020. The aim of the restructuring programme was to both reduce operating costs
and improve profitability.
Acquisition costs represent expenses incurred to effect the acquisition of RSA by Intact Financial Corporation and include restructuring costs
incurred prior to the acquisition.
Integration costs represent expenses directly attributable to the integration of the Group into Intact Financial Corporation. They include
restructuring costs incurred following the acquisition.
Employee termination costs are only recognised when they are part of a restructuring programme or a detailed plan of redundancies that has
been communicated to those affected. Reorganisation, integration or acquisition costs that are uncertain in terms of their amount and timing are
included within provisions (see note 42).
Provisions for onerous contracts are recognised when action is taken by the Group as part of a restructuring programme that reduces any
remaining benefit expected under a contract to below its remaining unavoidable costs.
Further information can be found in note 13.
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Risk and capital management
6) Risk and capital management
Insurance risk
The Group is exposed to risks arising from insurance contracts as set out below:
A) Underwriting risk
B) Reserving risk
A) Underwriting risk
Underwriting risk refers to the risk that claims arising are higher (or lower) than assumed in pricing due to bad experience including catastrophes,
weakness in controls over underwriting or portfolio management, claims management issues or policy wording interpretation issues.
The majority of underwriting risk to which the Group is exposed is of a short-term nature, and generally does not exceed 12 months. Annual
policies allow the Group to respond to changing weather patterns when managing the global catastrophe risk. The Group’s underwriting strategy
aims to ensure that the underwritten risks are well diversified in terms of the type, amount of risk, and geography in order to ensure that the Group
minimises the volatility of its insurance result. The Group’s exposure to concentration of Insurance risk in terms of geographical area has been
provided in note 9 – Operating segments.
Underwriting limits are in place to enforce appropriate risk selection criteria and pricing with all of the Group’s underwriters having specific licences
that set clear parameters for the business they can underwrite, based on their expertise.
The Group has developed enhanced methods of recording exposures and concentrations of risk and 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 monthly portfolio management process across all its business units where key risk indicators are tracked to monitor emerging trends,
opportunities and risks. This provides greater control of exposures in high risk areas as well as enabling a prompt response to adverse
claims development.
Pricing for the Group’s products is generally based upon historical claim frequencies and claim severity averages, adjusted for inflation and
modelled catastrophes, trended forward to recognise anticipated changes in claim patterns after making allowance for other costs incurred
by the Group, conditions in the insurance market and a profit loading that adequately covers the cost of capital. For climate risk exposures,
weather peril models and geolocation tools are employed to support sophisticated risk assessments and underwriting of residential and
commercial properties.
Passing elements of our insurance risk to reinsurers is another key strategy employed in managing the Group’s exposure to insurance risk,
including protection against losses from severe weather events (see more details for the catastrophe reinsurance treaty in note 39). The Group
Board determines a maximum level of risk to be retained by the Group as a whole. The net retained risk is distributed across the Group in
accordance with Group and local risk appetite. The strategy is dependent on being able to secure reinsurance cover on appropriate commercial
and contractual terms and the nature of the programme presents risks in that recoveries are contingent on the particular pattern of losses and
aggregation across the Group.
The Group remains primarily liable as the direct insurer on all risks reinsured, although the reinsurer is liable to the Group to the extent of the
insurance risk it has contractually accepted responsibility for.
B) Reserving risk
Reserving risk refers to the risk that the Group’s estimates of future claims payments will be insufficient.
The Group establishes a provision for losses and loss adjustment expenses for the anticipated costs of all losses that have already occurred but
have not yet been paid. Such estimates are made for losses already reported to the Group as well as for the losses that have already occurred
but are not yet reported together with a provision for the future costs of handling and settling the outstanding claims.
There is a risk to the Group from the inherent uncertainty in estimating provisions at the end of the reporting period for the eventual outcome
of outstanding notified claims as well as estimating the number and value of claims that are still to be notified. This is especially true due to
the heightened uncertainty arising through 2020 and 2021 as the direct and indirect impacts of the Covid-19 pandemic evolve. There is also
uncertainty in the level of future costs of handling and settling the outstanding claims.
The Group seeks to reduce its reserving risk through the use of experienced, regional actuaries who estimate the actuarial indication of the
required reserves based on claims experience, business volume, anticipated change in the claims environment and claims cost. This information
is used by local reserving committees to recommend to the newly established UK&I Reserving Committee (formed to replace the former RSA
Group Reserving Committee further to the acquisition) the appropriate level of reserves for each region. This will include adding a margin onto
the actuarial indication as a provision for unforeseen developments such as future claims patterns differing from historical experience, future
legislative changes and the emergence of latent exposures. The UK&I Reserving Committee reviews these local submissions and recommends
the final level of reserves to be held by the Group. The UK&I Reserving Committee is chaired by the UK&I Chief Financial Officer and includes the
UK&I Chief Executive, UK&I Underwriting Director, UK&I Claims Director, Managing Directors for key business units, UK&I Chief Actuary and UK&I
Chief Risk Officer. A similar committee has been established in each of the UK&I’s primary operating segments. The UK&I Reserving Committee
monitors the decisions and judgements made by the business units as to the level of reserves to be held. It then recommends to the Group Board
via the Group Audit Committee the final decision on the level of reserves to be included within the consolidated financial statements. In forming its
collective judgement, the committee considers the following information:
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6) Risk and capital management
continued
·
The actuarial indication of ultimate losses together with an assessment of risks and possible favourable or adverse developments that may not
have been fully reflected in calculating these indications. These risks and developments include: the possibility of future legislative change having
a retrospective effect on open claims or changes in interpretation or regulatory application of existing legislation; changes in claims settlement
practice or procedures potentially leading to future claims payment patterns differing from historical experience; the possibility of new types
of claim arising either from changes in business mix, or, such as disease claims emerging from historical business; general uncertainty in the
claims environment and emerging claims trends; the emergence of latent exposures; the outcome of litigation on claims received; failure to
recover reinsurance as the Group expects and unanticipated changes in claims inflation.
·
How previous actuarial indications have developed as claims experience has evolved.
·
The views of internal peer reviewers of the reserves and of other parties including actuaries, legal counsel, risk directors, underwriters and
claims managers.
·
The outcome from independent assurance reviews performed by both external actuarial consultants and the Intact Financial Corporation Group
Actuarial Function to assess the reasonableness of regional actuarial indication estimates.
·
Emerging trends where Covid-19 has caused changes in experience along with analysis to demonstrate the impact on reserving estimates.
Some areas such as business interruption have observed direct claims, whereas other lines have seen indirect changes in policyholder
behaviour such as reduced motor frequency during lockdown which can change the mix of claims.
·
Changes in the external claims environment in areas such as legal and medical activities which impact the speed of claims development.
The distortions in data caused by the various issues means identification of trends is more difficult than normal. Claims experience may exhibit
different characteristics and runoff trends compared to historic experience, resulting in increased uncertainty relating to actuarial indications of
ultimate losses.
·
Covid-19 claims experience, which continues to be monitored closely and the Group is engaging with its reinsurers as payment and settlement
activity grows following the increased clarity brought by the Supreme Court judgment on 15 January 2021. Whilst experience has tracked in line
with the Groups expectations to this stage, many key areas of uncertainty remain such as the value of eligible claims and the extent to which
reinsurance will ultimately respond compared to how the Group expects. The Company considers and seek legal advice on the implications of
all open legal cases and judgments across the industry relating to the interpretation of policy wordings in Covid-19 claims however it may take
many months before clarity increases on these gross and reinsurance uncertainties as claims details and consideration of these evolve.
·
Given the Covid-19 pandemic and other changes such as Brexit, there is considerable uncertainty in the economic environment beyond 2021,
and the potential impacts any changes in the economic environment could have on claims costs, such as inflationary pressure. This is a key
uncertainty that is monitored by Reserving Committee with sensitivity testing to monitor, assess and understand potential impacts should the
risks manifest.
As a result of the disposal of Codan A/S on 1 June 2021, the Group is no longer exposed to very long-tail liabilities in Scandinavia that are
closely tied to the economic, legislative and social environment. The relevant classes of business that fell into this category were Danish Workers
Compensation, Swedish Personal Accident, and Swedish Motor annuities. Selling these liabilities has materially reduced the Group’s exposure
to this type of risk.
Financial risk
Financial risk refers to the risk of financial loss predominantly arising from investment transactions entered into by the Group, and also to a lesser
extent arising from insurance contracts, and includes the following risks:
·
Credit risk
·
Market risk, including price, interest rate and currency rate risks
·
Liquidity risk
The Group undertakes a number of strategies to manage these risks including the use of derivative financial instruments for the purpose of
reducing its exposure to adverse fluctuations in interest rates, foreign exchange rates and long-term inflation. The Group does not use derivatives
to leverage its exposure to markets and does not hold or issue derivative financial instruments for speculative purposes. The policy on use of
derivatives is approved by the Board Risk Committee (BRC).
Credit risk
Credit risk is the risk of loss resulting from the failure of a counterparty to honour its financial or contractual obligations to the Group. RSA ensures
that assets are broadly matched in duration and currency with insurance liabilities to hedge volatility. The Group’s credit risk exposure is largely
concentrated in its predominantly investment grade fixed income investment portfolio reducing the risk of default. Also to a lesser extent credit risk
exists in its premium receivables and reinsurance assets.
Credit risk is managed at both a Group level and at a local level. Local operations are responsible for assessing and monitoring the
creditworthiness of their counterparties (e.g. brokers and policyholders). Local credit committees are responsible for ensuring that these
exposures are within the risk appetite of the local operations. Exposure monitoring and reporting for fixed income investments and premium
receivables is embedded throughout the organisation with aggregate credit positions reported and monitored at Group level. In addition,
the Group’s Credit Ratings Review Committee reviews the credit ratings of material investment exposures and unrated investments.
The Group’s credit risk appetite and credit risk policy are developed by the BRC and are reviewed and approved by the Board on an annual basis,
to ensure limits remain within its quantitative appetite. This is done through the setting of Group policies, procedures and limits.
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6) Risk and capital management
continued
In defining its appetite for credit risk the Group looks at exposures at both an aggregate and business unit level, distinguishing between credit risks
incurred as a result of offsetting insurance risks or operating in the insurance market (e.g. reinsurance credit risks and risks to receiving premiums
due from policyholders and intermediaries) and credit risks incurred for the purposes of generating a return (e.g. invested assets’ credit risk).
Limits are set at both a portfolio and counterparty level based on likelihood of default, derived from the credit rating of the counterparty, to ensure
that the Group’s overall credit profile and specific concentrations are managed and controlled within risk appetite.
The Group’s investment management strategy primarily focuses on debt instruments of investment grade issuers and seeks to limit the overall
credit exposure with respect to any one issuer by ensuring limits have been based upon credit quality. Restrictions are placed on the Group’s core
fixed income investment manager as to the level of exposure to various credit rating categories including unrated securities.
The Group is also exposed to credit risk from the use of reinsurance in the event that a reinsurer fails to settle its liability to the Group.
The Intact Reinsurance Credit Committee oversees the management of credit risk arising from the reinsurer failing to settle its liability to the Group.
Group standards are set such that reinsurers that have a financial strength rating of less than ‘A-’ with Standard & Poor’s, or a comparable rating,
are rarely used and are excluded from the Group’s list of approved reinsurers. The exceptions are fronting arrangements for captives, where some
form of collateral is generally obtained, and some global network partners. At 31 December 2021 the extent of collateral held by the Group against
reinsurers’ share of insurance contract liabilities was
£40m
(2020: £36m), which in the event of a default would be called and recognised on the
balance sheet.
The Group’s use of reinsurance is sufficiently diversified that it is not concentrated on a single reinsurer, or any single reinsurance contract.
The Group monitors its aggregate exposures by reinsurer group, being total exposure (as defined in the Reinsurance Risk Management Policy)
as a percentage of Intact Financial Corporation’s shareholders’ equity, the maximum percentages allowed depending on the Reinsurer’s financial
credit rating. The Group regularly monitors its aggregate exposures by reinsurer group against predetermined reinsurer group limits, in accordance
with the methodology agreed by the BRC. The Group’s largest reinsurance exposures to active reinsurance groups are Berkshire Hathaway,
Lloyd’s of London and Talanx. At 31 December 2021 the reinsurance asset recoverable from these groups does not exceed
7.8%
(2020: 3.9%)
of the Group’s total financial assets. Stress tests are performed by reinsurer counterparty such that in a catastrophic event, the exposure to a
single reinsurer is estimated currently to not exceed
£168m
.
The credit profile of the Group’s assets exposed to credit risk is shown below. The credit rating bands are provided by independent rating
agencies. The table below sets out the Group’s aggregated credit risk exposure for its financial and insurance assets.
As at 31 December 2021
Credit rating relating to financial assets that are neither past due nor impaired
AAA
£m
AA
£m
A
£m
BBB
£m
<BBB
£m
Not rated
£m
Total
financial
assets that
are neither
past
due nor
impaired
£m
Debt securities
907 1,296 1,345 1,047 218 – 4,813
Of which would qualify as solely for payment of principal and
interest (SPPI) under IFRS9
1
907 1,280 1,333 905 76 – 4,501
Loans and receivables
2
– – 74 243 42 – 359
Reinsurers’ share of insurance contract liabilities
– 590 1,569 67 43 22 2,291
Insurance and reinsurance debtors
3
– 31 871 45 55 825 1,827
Derivative assets
– – 47 – – – 47
Other debtors
– – 5 9 – 80 94
Cash and cash equivalents
298 – 172 5 4 21 500
1. The debt securities meeting SPPI criteria under IFRS 9 which are below investment grade are stated under IAS 39 at fair value.
2. Loans and receivables are measured using amortised cost and their carrying amounts are considered to be as approximate fair values.
3. The insurance and reinsurance debtors classified as not rated comprise personal policyholders and small corporate customers that do not have individual credit ratings.
Credit risk of this balance is managed through close monitoring of ageing profiles and cover can be cancelled if payment is not received in accordance with agreed
credit terms.
Risk and capital management
continued
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6) Risk and capital management
continued
As at 31 December 2020
Credit rating relating to financial assets that are neither past due nor impaired
AAA
£m
AA
£m
A
£m
BBB
£m
<BBB
£m
Not rated
£m
Total
financial
assets that
are neither
past
due nor
impaired
£m
Debt securities
4,978 2,026 2,295 1,288 107 4 10,698
Of which would qualify as SPPI under IFRS9
1
4,977 2,006 2,065 1,159 91 4 10,302
Loans and receivables
2
64 – 59 274 27 5 429
Reinsurers’ share of insurance contract liabilities
– 670 1,554 58 34 21 2,337
Insurance and reinsurance debtors
3
– 12 928 50 49 1,803 2,842
Derivative assets
– 1 15 78 – 31 125
Other debtors
– – 21 17 – 140 178
Cash and cash equivalents
447 207 343 77 4 16 1,094
1. The debt securities meeting SPPI criteria under IFRS 9 which are below investment grade are stated under IAS 39 at fair value.
2. Loans and receivables are measured using amortised cost and their carrying amounts are considered to be as approximate fair values.
3. The insurance and reinsurance debtors classified as not rated comprise personal policyholders and small corporate customers that do not have individual credit ratings.
Credit risk of this balance is managed through close monitoring of ageing profiles and cover can be cancelled if payment is not received in accordance with agreed
credit terms.
With the exception of government debt securities, the largest single aggregate credit exposure does not exceed
2%
(2020: 2%) of the Group’s total financial assets.
Ageing of financial assets that are past due but not impaired
The following table provides information regarding the carrying value of financial assets that have been impaired and the ageing of financial assets
that are past due but not impaired, excluding those assets that have been classified as held for sale.
As at 31 December 2021
Note
Neither
past
due nor
impaired
£m
Financial assets that are past due
but not impaired
Financial
assets that
have been
impaired
£m
Carrying
value in the
statement
of financial
position
£m
Impairment
losses
charged to
the income
statement
during
the year
£m
Up to
three
months
£m
Three
to six
months
£m
Six
months
to one
year
£m
Greater
than one
year
£m
Debt securities
26
4,813 – – – – – 4,813 –
Loans and receivables
26
359 – – – – – 359 –
Reinsurers’ share of insurance
contract liabilities
29
2,291 – – – – – 2,291 –
Insurance and reinsurance debtors
1, 2
30
1,827 39 13 14 3 20 1,916 11
Derivative assets
32
47 – – – – – 47 –
Other debtors
32
94 1 2 1 1 – 99 –
Cash and cash equivalents
33
500 – – – – – 500 –
1. Debtors with similar credit risk characteristics are collectively assessed for impairment with provisions being made based on past experience.
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6) Risk and capital management
continued
As at 31 December 2020
Note
Neither past
due nor
impaired
£m
Financial assets that are past due
but not impaired
Financial
assets that
have been
impaired
£m
Carrying
value in the
statement of
financial
position
£m
Impairment
losses
charged to
the income
statement
during
the year
£m
Up to
three
months
£m
Three
to six
months
£m
Six
months
to one
year
£m
Greater
than one
year
£m
Debt securities
26 10,698 – – – – 26 10,724 8
Loans and receivables
26 429 – – – – – 429 –
Reinsurers’ share of insurance
contract liabilities
29 2,337 – – – – 3 2,340 –
Insurance and reinsurance debtors
1, 2
30 2,842 81 21 17 5 23 2,989 19
Derivative assets
32 125 – – – – – 125 –
Other debtors
32 178 2 2 3 – – 185 –
Cash and cash equivalents
33 1,094 – – – – – 1,094 –
1. Debtors with similar credit risk characteristics are collectively assessed for impairment with provisions being made based on past experience.
2. Included within impairment losses charged in the period is a £10m write off in relation to aged debtors in Sweden.
Market risk
Market risk is the risk of adverse financial impact resulting, directly or indirectly, from fluctuations in equity and property prices, interest rates and
foreign currency exchange rates. Market risk arises in the Group’s operations due to the possibility that fluctuations in the value of liabilities are not
offset by fluctuations in the value of investments held. At Group level, it also arises in relation to the remaining international businesses, after the
disposal of the Canadian and Scandinavian subsidiaries, through foreign currency risk. Market risk is subject to the Board Risk Committee’s risk
management framework, which is subject to review and approval by the Board.
Market risk can be broken down into three key components:
i. Equity and property risk
At 31 December 2021 the Group held investments classified as AFS equity securities of
£358m
(2020: £673m). These include interests in structured entities (as disclosed in note 28) and other investments where the price risk arises from interest rate risk rather than from equity market
price risk. The Group considers that within AFS equity securities, investments with a fair value of
£245m
(2020: £190m) may be more affected by equity index market price risk than by interest rate risk. On this basis a 15% fall in the value of equity index prices would result in the recognition of
losses of
£37m
(2020: £29m) in other comprehensive income.In addition the Group holds investments in properties and in group occupied properties which are subject to property price risk. A decrease of
15% in property prices would result in the recognition of losses of
£56m
(2020: £43m) in the income statement and £3m
(2020: £3m) in other comprehensive income.
This analysis assumes that there is no correlation between interest rate and property market rate risks. It also assumes that all other assets and
liabilities remain unchanged and that no management action is taken. This analysis does not represent management’s view of future market
change, but reflects management’s view of key sensitivities.
This analysis is presented gross of the corresponding tax impact as the tax position is affected by other factors, including current year profitability
and the ability to recognise deferred tax assets.
ii. Interest rate risk
Interest rate risk arises primarily from the Group’s investments in long-term debt and fixed income securities and their movement relative to
the value placed on insurance liabilities. This impacts both the fair value and amount of variable returns on existing assets as well as the cost of
acquiring new fixed maturity investments.
Given the composition of the Group’s investments as at 31 December 2021, the table below illustrates the impact to the income statement and
other comprehensive income of a hypothetical 100bps change in interest rates on fixed income securities and cash that are subject to interest
rate risk.
Risk and capital management
continued
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6) Risk and capital management
continued
Changes in the income statement and other comprehensive income (OCI):
Increase in income
statement
Decrease in other
comprehensive income
2022
£m
2021
£m
2022
£m
2021
£m
Increase in interest rate markets:
Impact on fixed income securities and cash of an increase in interest rates of 100bps
14
22
(144)
(440)The Group principally manages interest rate risk by holding investment assets (predominantly fixed income) that generate cash flows which
broadly match the duration of expected claim settlements and other associated costs.
The sensitivity of the fixed interest securities of the Group has been modelled by reference to a reasonable approximation of the average interest
rate sensitivity of the investments held within each of the portfolios. The effect of movement in interest rates is reflected as a one time rise of
100bps on 1 January 2022 and 1 January 2021 on the following year’s income statement and other comprehensive income. The impact of an
increase in interest rates on the fair value of fixed income securities that would be initially recognised in OCI will reduce over time as the maturity
date approaches.
The analysis on the table above is presented gross of the corresponding tax impact as the tax position is affected by other factors, including
current year profitability and the ability to recognise deferred tax assets.
iii. Currency risk
The Group incurs exposure to currency risk as follows:
·
Operational currency risk – by holding investments and other assets and by underwriting and incurring liabilities in currencies other than the
currency of the primary environment in which the business units operate, the Group is exposed to fluctuations in foreign exchange rates that can
impact both its profitability and the reported value of such assets and liabilities.
·
Structural currency risk – by investing in overseas subsidiaries the Group is exposed to the risk that fluctuations in foreign exchange rates impact
the reported profitability of foreign operations to the Group, and the value of its net investment in foreign operations.
The sale of the Canadian and Scandinavian subsidiaries on 1 June 2021 has simplified the structural currency exposure of the Group, noting the
remaining material subsidiaries are exclusively denominated in EUR and USD.
Operational currency risk is principally managed within the Group’s individual operations by broadly matching assets and liabilities by currency
and liquidity. However, operational currency risk overall is not significant.
Structural currency risk is managed at a Group level through currency forward contracts, swaps and foreign exchange options within
predetermined limits set by the Group Board. In managing structural currency risk, the needs of the Group’s subsidiaries to maintain net assets in
local currencies to satisfy local regulatory solvency and internal risk based capital requirements are taken into account.
At 31 December 2021, the Group’s equity attributable to owners of the Parent Company deployed by currency was:
Pounds
Sterling
£m
Euro
£m
United
States
Dollar
1
£m
Other
2
£m
Total
£m
Equity attributable to owners of the Parent Company at 31 December 2021
2,688 50 181 16 2,935
Equity attributable to owners of the Parent Company at 31 December 2020
2,579 335 204 1,446 4,564
1. United States Dollar equity includes equity denominated in Bahraini Dinar, Omani Rial, Saudi Arabian Riyal and UAE Dirham, currencies which are pegged to the
United States Dollar.
2. Other as at 31 December 2020 includes the Danish Krone, Swedish Krona and Canadian Dollar equity in respect of the subsidiaries disposed of on 1 June 2021.
Equity attributable to owners of the Parent Company is stated after taking account of the effect of currency forward contracts, swaps and foreign
exchange options. Hedging arrangements in place to manage the structural currency risk related to the Group’s operations in Scandinavia and
Canada have been closed out following the disposals on 1 June 2021.
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6) Risk and capital management
continued
The table below illustrates the impact of a hypothetical 10% change in Euro or US Dollar exchange rates on equity attributable to owners of the
Parent Company when retranslating into sterling.
10%
strengthening
in Pounds
Sterling
against Euro
£m
10%
weakening
in Pounds
Sterling
against
Euro
£m
10%
strengthening
in Pounds
Sterling
against US
Dollar
£m
10%
weakening
in Pounds
Sterling
against US
Dollar
£m
Movement in equity attributable to owners of the Parent Company at
31 December 2021
(5) 6 (16) 20
Movement in equity attributable to owners of the Parent Company at
31 December 2020
(30) 37 (19) 23
Changes arising from the retranslation of foreign subsidiaries’ net asset positions from their primary currencies into Sterling are taken through the
foreign currency translation reserve and so consequently these movements in exchange rates have no impact on profit or loss.
Liquidity risk
Liquidity risk refers to the risk of loss to the Group as a result of assets not being available in a form that can immediately be converted into cash,
and therefore the consequence of not being able to pay its obligations when due. To help mitigate this risk, the BRC sets limits on assets held by
the Group designed to match the maturities of its assets to that of its liabilities.
A large proportion of investments are maintained in short-term (less than one year) highly liquid securities, which are used to manage the Group’s
operational requirements based on actuarial assessment and allowing for contingencies.
The Group maintains additional liquidity facilities for contingency purposes. These facilities included uncommitted overdraft arrangements
in each of the key operating entities, as well as the ability to enter repurchase agreements to cover short-term fluctuations in cash and
liquidity requirements.
The following table summarises the contractual repricing or maturity dates, whichever is earlier. Provision for losses and loss adjustment expenses
are presented and are analysed by remaining estimated duration until settlement.
As at 31 December 2021
Note
Less
than
one year
£m
One to
two
years
£m
Two to
three
years
£m
Three to
four
years
£m
Four to
five
years
£m
Five to
ten
years
£m
Greater
than ten
years
£m
Total
£m
Carrying
value in
the
statement
of financial
position
£m
Subordinated guaranteed US$ bonds
1
37
– – – – – 7 – 7 6
Guaranteed subordinated notes due 2045
1
37
– – – 160 – – – 160 159
Provisions for losses and loss
adjustment expenses
39
2,381 920 545 302 195 400 533 5,276 5,276
Direct insurance creditors
40
78 1 – – – – – 79 79
Reinsurance creditors
40
526 180 57 – – – – 763 763
Borrowings 38
8 – – – – – – 8 8
Derivative liabilities
43
9 – 2 3 1 5 38 58 58
Lease liabilities
1
43
12 10 8 7 4 11 10 62 55
Total
3,014 1,111 612 472 200 423 581 6,413 6,404
Interest on bonds and notes
9 9 9 7 1 2 – 37
1. Maturity profile shown on an undiscounted basis.
Risk and capital management
continued
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6) Risk and capital management
continued
As at 31 December 2020
Note
Less
than
one year
£m
One to
two
years
£m
Two to
three
years
£m
Three to
four
years
£m
Four to
five
years
£m
Five to
ten
years
£m
Greater
than ten
years
£m
Total
£m
Carrying
value in the
statement
of financial
position
£m
Subordinated guaranteed US$ bonds
1
37 – – – – – 7 – 7 6
Senior notes due 2024
1
37 – – – 350 – – – 350 348
Guaranteed subordinated notes due 2045
1
37 – – – – 400 – – 400 397
Provisions for losses and loss
adjustment expenses
39 3,106 1,885 1,108 721 492 1,088 979 9,379 9,379
Direct insurance creditors
40 121 – – – – – – 121 121
Reinsurance creditors
40 537 201 73 – – – – 811 811
Borrowings 38 132 – – – – – – 132 132
Deposits received from reinsurers
43 8 – – – – – – 8 8
Derivative liabilities
43 32 – – 2 4 2 105 145 145
Lease liabilities
1
43 39 35 30 25 22 51 29 231 204
Total
3,975 2,121 1,211 1,098 918 1,148 1,113 11,584 11,551
Interest on bonds and notes
27 27 27 27 17 2 – 127
1. Maturity profile shown on an undiscounted basis.
The above maturity analysis is presented on a discounted basis, with the exception of issued debt and lease liabilities, for consistency with the
consolidated statement of financial position and supporting notes.
The capital and interest payable on the bonds and notes have been included until the earliest dates on which the Group has the option to call the
instruments and the interest rates are reset. For further information on terms of the bonds and notes, see note 37.
Pension risk
The Group is exposed to risks through its obligation to fund a number of schemes. These risks include market risk (assets not performing as
well as expected), inflation risk and longevity risk over the lives of the members. The Group and trustees of the schemes work together to reduce
these risks through agreement of investment policy including the use of interest rate, inflation rate and mortality swaps. Further information on the
Group’s management of pension risk is included within note 41.
Capital management
It is a key regulatory requirement that the Group maintains sufficient capital to support its exposure to risk. Accordingly, the Group’s capital
management strategy is closely linked to its monitoring and management of risk. The Group’s capital objectives consist of striking the right
balance between the need to support claims liabilities and ensure the confidence of policyholders, exposure to other risks, support competitive
pricing strategies, meet regulatory capital requirements, and providing adequate returns for its shareholder.
The Group’s overall capital position is primarily comprised of shareholders’ equity and subordinated loan capital and aims to maximise
shareholder value, while maintaining financial strength and adequate regulatory capital. In addition, the Group aims to hold sufficient capital so as
to maintain its single ‘A’ credit rating.
The Group holds an appropriate level of capital to satisfy all applicable regulations. Compliance with regulatory requirements is embedded within
the Board Risk Committee mandate, for the protection of the Group’s policyholders and the continuation of the Group’s ability to underwrite.
Regulatory solvency position during 2021
The Group operates a Prudential Regulation Authority (PRA) approved Solvency II Internal Model which forms the basis of the primary Solvency II
solvency capital ratio (SCR) measure. The internal model is used to support, inform and improve the Group’s decision making. It is used to inform
the Group’s optimum capital structure, its investment strategy, its reinsurance programme and target returns for each portfolio.
Following the acquisition of the Group by Regent Bidco Limited on 1 June 2021, RSA Insurance Group Limited is no longer subject to regulatory
supervision and reporting, however its principal operating subsidiary, Royal & Sun Alliance Insurance Limited (RSAI) continues to be regulated and
is deemed to be equivalent from a risk perspective and therefore is used to provide details of the Group’s regulatory capital position.
As at 31 December 2021, RSAI’s unaudited estimated coverage of its Solvency II SCR is approximately
1.8 times
(31 December 2020: 2.0 times).
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6) Risk and capital management
continued
Movement in tangible net asset value (TNAV)
TNAV is one of many capital metrics used by the Group and reconciles to IFRS net assets as follows:
2021
£m
2020
£m
Equity attributable to owners of the Parent Company at 31 December
2,935
4,564
Less: tier 1 notes
(297)
(297)
Less: preference share capital
(125)
(125)
Less: goodwill and intangibles
(312)
(868)
TNAV at 31 December
2,201
3,274
The key movements in TNAV are as follows:
2021
£m
2020
£m
As at 1 January
3,274
2,910
Profit after tax
1
4,328
446
Exchange gains net of tax
34
50
Fair value gains net of tax
(261)
97
Pension fund losses net of tax
(58)
(25)
Dividends
2
(6,938)
(108)
Goodwill and intangible additions and disposals
489
(121)
Share issue
1,305
6
Share-based payments
28
19
As at 31 December
2,201
3,274
1. Profit after tax excludes amortisation and impairment of intangible assets.
2. Refer to note 21.
Own risk and solvency assessment (ORSA)
The Solvency II directive introduced a requirement for undertakings to conduct an ORSA.
The Group defines its ORSA as a series of interrelated activities by which it establishes:
·
The quantity and quality of the risks which it seeks to assume or to which it is exposed
·
The level of capital required to support those risks
·
The actions it will take to achieve and maintain the desired levels of risk and capital
The assessment considers both the current position and the positions that may arise during the planning horizon of the Group (typically the next
three years). It looks at both the expected outcome and the outcome arising when the plan assumptions do not materialise as expected.
The assessments of how much risk to assume and how much capital to hold are inextricably linked. In some situations, it may be desirable to
increase the amount of risk assumed or retained in order to make the most efficient use of capital available or else to return excess capital to
capital providers. In other situations, where the risks assumed give rise to a capital requirement that is greater than the capital immediately available
to support those risks, it will be necessary either to reduce the risk assumed or to obtain additional capital.
The assessment of risk and solvency needs is in principle carried out continuously. In practice, the assessment consists of a range of specific
activities and decisions carried out at different times of the year as part of an annual cycle, supplemented as necessary by ad hoc assessments
of the impact of external events and developments and of internal business proposals.
Papers are presented to the Board throughout the year dealing with individual elements that make up the ORSA. The information contained in
those papers and the associated decisions taken are summarised in an annual ORSA report, which is submitted to the Group’s regulators as
part of the normal supervisory process. The ORSA is approved by the BRC.
The ORSA report was delivered to the Board in November 2021, considering the 30 June, 2021 balance sheet position and the impact of the
2022-24 operational plan on forecast capital positions. The report outlines the participation in the 2021 Bank of England Climate stress testing
exercise, with an assessment of the climate-associated physical, litigation and asset risks. The ORSA process during this cycle continues to
demonstrate ongoing balance sheet strength and balance sheet resilience.
Risk and capital management
continued
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7) Discontinued operations
On 1 June 2021, the Group disposed of its operations in Scandinavia and Canada, in return for consideration in the form of on demand loan
notes issued by IFC. These have been classified as discontinued operations in the consolidated income statement and consolidated statement of
comprehensive income, and the comparatives have been re-presented on this basis.
Income statement of discontinued operations
For the year ended 31 December 2021
2021
£m
2020
£m
Income
Gross written premiums
1,269
3,294
Less: reinsurance written premiums
(88)
(109)
Net written premiums
1,181
3,185
Change in the gross provision for unearned premiums
(97)
(23)
Change in provision for unearned reinsurance premiums
39
4
Change in provision for net unearned premiums
(58)
(19)
Net earned premiums
1,123
3,166
Net investment return
65
107
Other operating income
15
37
Total income
1,203
3,310
Expenses
Gross claims incurred
(711)
(1,994)
Less: claims recoveries from reinsurers
2
24
Net claims
(709)
(1,970)
Underwriting and policy acquisition costs
(297)
(767)
Unwind of discount and change in economic assumptions
(10)
(32)
Other operating expenses
(21)
(37)
(1,037)
(2,806)
Finance costs
(1)
(3)
Profit/(loss) on disposal of business
2
(1)
Profit before tax from operating activities
167
500
Income tax expense
(29)
(117)
Profit after tax from operating activities
138
383
Gain on disposal of discontinued operation
4,393
–
Profit after tax from discontinued operation
4,531
383
Attributable to:
Owners of the Parent Company
4,531
383
Non-controlling interests
–
–
4,531
383
Significant transactions and events
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Significant transactions and events
continued
7) Discontinued operations
continued
Statement of comprehensive income of discontinued operations
For the year ended 31 December 2021
2021
£m
2020
£m
Profit for the period
4,531
383
Items that may be reclassified to the income statement:
Exchange gains net of tax on translation of foreign operations
42
60
Fair value (losses)/gains on available for sale financial assets net of tax
(183)
19
(141)
79
Items that will not be reclassified to the income statement:
Pension – remeasurement of defined benefit asset/liability net of tax
12
–
Total other comprehensive (expense)/income for the period
(129)
79
Total comprehensive income for the period
4,402
462
Attributable to:
Owners of the Parent Company
4,402
462
Non-controlling interests
–
–
4,402
462
Cash flows from discontinued operations
For the year ended 31 December 2021
2021
£m
2020
£m
Net cash flows from operating activities
53
187
Net cash flows from investing activities
6,565
(25)
Net cash flows from financing activities
(81)
(115)
Net increase in cash and cash equivalents
6,537
47
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7) Discontinued operations
continued
Gain on disposal of discontinued operations
2021
£m
Consideration
6,916
Net assets disposed of:
Goodwill and other intangible assets
521
Property and equipment
123
Investments in associates
4
Financial assets
6,603
Reinsurers’ share of insurance contract liabilities
1,073
Insurance and reinsurance debtors
1,194
Deferred tax assets
18
Current tax assets
47
Other debtors and other assets
182
Cash and cash equivalents
357
Total assets
10,122
Insurance contract liabilities
6,659
Insurance and reinsurance liabilities
159
Borrowings
46
Deferred tax liabilities
79
Current tax liabilities
16
Provisions
91
Other liabilities
502
Total liabilities
7,552
Total net assets disposed of
2,570
Net assets disposed of attributable to non-controlling interests
(2)
Net assets disposed of attributable to owners of the Parent Company
2,568
Gain on disposal of discontinued operation before recycling of items from other comprehensive income
4,348
Gains/(losses) recycled to income statement:
Fair value gains on available for sale financial assets
114
Exchange losses on translation of foreign operations
(69)
Total gains recycled to income statement
45
Gain on disposal of discontinued operation
4,393
8) Loss on disposal of businesses
In 2020, the loss of £5m from continuing operations is from the sale of the Group’s 57.1% holding in British Aviation Insurance Company
Limited. Total loss on disposal of businesses for 2020 was £6m inclusive of continued and discontinued operations, with a loss of £1m from
discontinued operations.
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9) Operating segments
The Group’s primary operating segments comprise UK, International and Central Functions. Canada and Scandinavia are shown as discontinued
operations following the disposal of these operations. The primary operating segments are based on geography and are all engaged in providing
personal and commercial general insurance services. International comprises of all other operating segments based in Ireland, Europe and
Middle East, which individually do not meet the criteria of a reportable segment. Central Functions include the Group’s internal reinsurance
function and Group Corporate Centre.
The basis of the segmental disclosure has been reassessed following the acquisition of the Group and the disposal of the Group’s operations in
Scandinavia and Canada, with UK and International now shown separately.
Each operating segment is managed by individuals who are accountable to the Group Chief Executive and the Group Board of Directors,
who together are considered to be the chief operating decision maker in respect of the operating activities of the Group. The UK is the Group’s
country of domicile and one of its principal markets. As explained in note 5, where intragroup arrangements between continuing and discontinued
operations continue after the disposal, the continuing operations are presented as if the income/expense had always been an external party,
with the result of the discontinued operation being reduced to offset.
Assessing segment performance
The Group uses the following key measures to assess the performance of its operating segments:
·
Net written premiums
·
Underwriting result
Net written premiums are the key measure of revenue used in internal reporting.
Underwriting result is the key internal measure of profitability of the operating segments. It is an alternative performance measure (APM), defined
within the Jargon Buster and reconciled to the nearest IFRS measure in appendix D.
Transfers or transactions between segments are entered into under normal commercial terms and conditions that would also be available to
unrelated third parties.
Segment revenue and results
Year ended 31 December 2021
UK
£m
International
£m
Central
Functions
£m
Total
continuing
operations
£m
Discontinued
operations
£m
Total
Group
£m
Net written premiums
2,060 690 543 3,293 1,181 4,474
Underwriting result
(98) 58 (97) (137) 134 (3)
Investment result
110 37 147
Central costs and other activities
(11) – (11)
Business operating result
(38) 171 133
Realised (losses)/gains
(2) 9 7
Unrealised gains, impairments of investments and foreign exchange
21 2 23
Finance costs (note 14)
(76) (1) (77)
Amortisation of intangible assets (note 13/23)
– (2) (2)
Pension net interest and administration costs (note 12/41)
3 (1) 2
Integration, acquisition and reorganisation costs (note 13)
(136) (13) (149)
Gain on disposal of business
– 4,395 4,395
(Loss)/profit before tax
(228) 4,560 4,332
Tax on operations (note 19)
(33) (29) (62)
(Loss)/profit after tax
(261) 4,531 4,270
Notes to the consolidated income statement, consolidated statement of comprehensive income
and dividends
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9) Operating segments
continued
Year ended 31 December 2020
Re-presented
1
UK
£m
International
£m
Central
Functions
£m
Total
continuing
operations
£m
Discontinued
operations
£m
Total
Group
£m
Net written premiums
2,034 697 307 3,038 3,185 6,223
Underwriting result
(38) 80 (9) 33 469 502
Investment result
110 103 213
Central costs and other activities
(12) – (12)
Business operating result
131 572 703
Realised gains
– 6 6
Unrealised losses, impairments of investments and
foreign exchange
(23) (40) (63)
Finance costs (note 14)
(30) (3) (33)
Amortisation of intangible assets (note 13/23)
(2) (9) (11)
Impairment of goodwill (note 23)
– (14) (14)
Pension net interest and administration costs (note 12/41)
4 (3) 1
Integration, acquisition and reorganisation costs (note 13)
(92) – (92)
Change in economic assumptions (note 39)
– (8) (8)
Loss on disposal of businesses (note 8)
(5) (1) (6)
(Loss)/profit before tax
(17) 500 483
Tax on operations (note 19)
(2) (117) (119)
(Loss)/profit after tax
(19) 383 364
1. Comparatives have been re-presented to show Scandinavia and Canada as discontinued operations (see note 7 for further information) and for the new segmental basis
explained above, with UK shown separately from International.
Non current assets by geographical area
Non current assets represent goodwill and intangible assets, property and equipment, investment property and prepayments with an expected
maturity of greater than 12 months.
2021
£m
2020
£m
UK
698
646International
91
101Continuing operations
789
747
Discontinued operations
–
653
Total Group
789
1,400
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10) Net investment return
A summary of the net investment return in the income statement is given below:
Investment
income
Net realised
gains/(losses)
Net unrealised
losses Impairments
Total investment
return
2021
£m
2020
£m
2021
£m
2020
£m
2021
£m
2020
£m
2021
£m
2020
£m
2021
£m
2020
£m
Investment property
17
17
–
345
(8)–
–62
12Equity securities
Available for sale
6
5
3
1–
–(7)
(4)2
2Debt securities
Available for sale
86
93
(2)
1–
––
–84
94At FVTPL
–
–
–
–(12)
(3)–
–(12)
(3)Other loans and receivables
Loans secured by mortgages
–
1
–
––
––
––
1Other loans
28
8
–
––
––
–28
8Deposits, cash and cash equivalents
–
1
–
––
––
––
1Derivatives
–
–(1)
(5)(3)
––
–(4)
(5)Other
2
–(2)
––
––
––
–Total from continuing operations
139
125
(2)–
30(11)
(7)(4)
160110
Direct operating expenses (including repairs and maintenance) arising from investment properties were not material in 2021 or 2020.
Unrealised gains and losses recognised in other comprehensive income for available for sale assets are as follows:
Net unrealised
(losses)/gains
Net realised
gains transferred to
income statement
Impairments transferred
to income statement
Net movement
recognised in other
comprehensive income
2021
£m
2020
£m
2021
£m
2020
£m
2021
£m
2020
£m
2021
£m
2020
£m
Equity securities
5
(6)
(3)
(1)7
49
(3)Debt securities
(135)
83
2
(1)–
–(133)
82Other
–
–3
––
–3
–Total from continuing operations
(130)
77
2(2)
74
(121)79
11) Net claims
2021
£m
2020
£m
Gross claims paid
1
2,358
2,215
Gross changes in provision for losses and loss adjustment expenses
601
312
Reinsurance recoveries on claims paid
2
(440)
(314)
Reinsurers’ share of changes in provision for losses and loss adjustment expenses
(319)
(293)
Total net claims from continuing operations
2,200
1,920
1. Gross claims paid inclusive of continuing and discontinued operations totals
£3,189m
(2020: £4,556m) (note 39).
2. Reinsurance recoveries on claims paid inclusive of continuing and discontinued operations totals
£558m
(2020: £594m) (note 29).12) Other operating income
2021
£m
2020
£m
Administration fee income
5
7
Instalment policy fee income
16
21
Introductory commissions
7
8
Service income
8
7
Other fees
43
46
Pension net interest and administration expenses (note 9/41)
3
4
Total other operating income from continuing operations
82
93
Notes to the consolidated income statement, consolidated statement of comprehensive income
and dividends
continued
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13) Other operating expenses
2021
£m
2020
£m
Administration and other expenses
11
13
Investment expenses and charges
23
8
Amortisation of intangible assets (note 9/23)
–
2
Reorganisation costs
1
–
78
Acquisition costs
2
96
14
Integration costs
3
40
–
Foreign exchange loss
2
8
Total other operating expenses from continuing operations
172
123
1. The UK restructuring programme was completed in 2020. The £78m incurred in 2020 were unrelated to the acquisition of RSA by Intact Financial Corporation and included
£29m in respect of redundancy, £17m information systems outsourcing rationalisation, £16m reduction in premises footprint and £16m other restructuring activity.
2. Acquisition costs represent expenses incurred to effect the acquisition and include restructuring costs incurred before the acquisition.
3. Integration costs are expenses that are directly attributable to the integration of the Group with Intact Finance Corporation, following the acquisition of the Group on
1 June. The majority of the integration costs are expected to be incurred by the end of 2022, with a limited amount expected to be recognised in the consolidated income
statement in 2023.
14) Finance costs
2021
£m
2020
£m
Interest expense on issued debt
21
27
Interest on lease liabilities
2
3
Premium on debt buy back
1
53
–
Total finance costs from continuing operations
76
30
1. During the year the Group repurchased
£240m
loan capital and £350m
senior notes, on which premiums were paid for early redemption of
£37m
and £16m
respectively.
Refer to note 37 for further information.
15) Employee expenses
Staff costs for all employees
1
comprise:
2021
£m
2020
2
£m
Wages and salaries
405
616
Redundancy costs
10
45
Social security costs
55
86
Pension costs
49
73
Share-based payments to directors and employees
30
19
Total staff costs
549
839
The average number of employees during the year is as follows:
2021
2020
UK
4,929
5,427International
1,239
1,291Continuing operations
6,168
6,718
Discontinued operations
2,425
5,904
Total average number of employees during the year
8,593
12,622
1. Total staff costs include costs related to employees from the Scandinavian and Canadian operations for the first five months of the year up to the point of the acquisition.
2. 2020 comparatives have been restated to include redundancy costs that were not included, and to split out redundancy costs that were included in wages and salaries,
in the figures disclosed in the 2020 annual report and accounts.
Further information on pension obligations of the Group can be found in note 41. Further information on employee share schemes can be found in
note 20.
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16) Directors’ emoluments
The aggregate emoluments of the Company’s directors’ were as follows:
2021
£000
2020
£000
Short term benefits (salaries, bonuses, allowances and other benefits)
7,147
6,760
Compensation for loss of office
6
–
Total
7,153
6,760
The criteria for making bonus awards is based on targeted levels of business sector profit and specific business objectives.
During 2021, no retirement benefits were accrued under defined benefit pension schemes for any directors (2020: £nil), and no contributions were
made to defined contribution pension schemes (2020: £4,813 in respect of one director).
During 2021, no directors (2020: no directors) exercised share options, three directors (2020: three directors) had share awards vesting under
long term incentive schemes in respect of ordinary shares of the Company, and two non-executive directors (2020: none) had Deferred Share
Units (DSUs) vesting in the Group’s ultimate parent company, Intact Financial Corporation (IFC), as part of their fee for their role on the IFC Board
of Directors. The DSUs are redeemed upon director retirement or termination and are settled for cash afterwards.
The emoluments of the highest paid director were:
2021
£000
2020
£000
Short term benefits and compensation for loss of office
2,646
3,047
During 2021, no retirement benefits were accrued under defined benefit pension schemes (2020: £nil) and no contributions were made to defined
contribution schemes (2020: £nil) in respect of the highest paid director.
During 2021 and 2020, the highest paid director had share awards vesting under long term incentive schemes in respect of ordinary shares of
the Company.
17) Related party transactions
Transactions with parent company
The Group’s parent company is Regent Bidco Limited, a wholly owned subsidiary of Intact Financial Corporation, the ultimate controlling party.
During the year ended 31 December 2021, the following related party transactions have taken place with Regent Bidco Limited:
·
Upon acquisition, the Group received a capital injection from Regent Bidco Limited of
£1,021m
·
The Group received a further capital injection from Regent Bidco Limited of
£275m
in September to fund the repurchase of its Guaranteed subordinated notes (Tier 2 notes) with a par value of
£240m
for a total cost of £275m
.
·
Ordinary dividends paid to Regent Bidco Limited of
£6,914m
Other related party transactions
The Group has a reinsurance arrangement with Unifund Assurance Company (Unifund), a member of the Intact Financial Corporation Group.
Under the terms of the arrangement the insurance risk of Unifund’s business is transferred to the Group. The Group pays a reinsurance
commission in relation to the quota share agreement and the agreement covers Unifund’s existing insurance liabilities and new written premium
for all lines of business at a rate of 60%. This transaction became a related party transaction on 1 June following the disposal of Roins Holdings
Limited. The outstanding balances are secured against collateral assets, made up of assets held in trust and a letter of credit.
The Group also has other reinsurance arrangements (some of which are secured against collateral assets) and transactions with Roins Holdings
Limited and other entities that are part of the Intact Financial Corporation Group, including its associates.
The amounts relating to the above related party transactions included in the consolidated income statement for the year ended 31 December
2021, the consolidated statement of financial position as at 31 December 2021, and the collateral pledged, are provided in the table below.
2021
£m
Income
253
Expenses
184
Assets
103
Liabilities
734
Collateral pledged
882
The amounts outstanding are expected to be settled in cash or offset against other outstanding balances where possible. No provisions have
been made for doubtful debts on any of the amounts owed by related parties.
Notes to the consolidated income statement, consolidated statement of comprehensive income
and dividends
continued
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17) Related party transactions
continued
Compensation of key management personnel
Key management personnel comprise members of the Company’s Executive Committee, executive directors, and non-executive directors.
The compensation of key management personnel is set out below.
The Executive Committee members changed after the acquisition. The figures below for 2021 include a mix of the previous and current members,
time apportioned for the periods when they were members of the committee.
Key management personnel compensation
2021
£m
2020
£m
Short term employee benefits (salaries, bonuses, allowances and other benefits)
15
13
Termination benefits
2
–
Share-based awards
12
7
Total
29
20
Key management personnel transactions
A number of the directors, other key managers, and their close families have general insurance policies with the Group. Such policies are available
at discounted rates to all employees including executive directors.
18) Auditor’s remuneration
2021
£m
2020
£m
Fees payable to the auditor for audit of the Company’s annual accounts
2.0
1.4
Fees payable to the auditor and its associates for other services:
The audit of the Company’s subsidiaries, pursuant to legislation
1
4.5
5.5
Additional audit performed during the year
2
5.2
–
Non-audit services:
Audit related assurance services
1,3
2.9
1.6
Total auditor’s remuneration
14.6
8.5
1. The above items included audit fees, audit assurance and other services for the Scandinavian and Canadian entities that have been disposed of during the year.
2. The additional audit performed during the year relates to the audit of the consolidated statement of financial position as at the date of the acquisition of RSA for the
purpose of the IFC group financial reporting and audit.
3. Included in the Audit related assurance services for 2021 is
£0.9m
(2020: £0.9m) of assurance work in respect of Solvency II reporting. The remainder of £2.0m
(2020: £0.7m) represents in aggregate
18%
(2020: 11%) of the Group IFRS audit fee of £11.7m
(2020: £6.9m).
19) Income tax
The tax amounts charged in the income statement from continuing operations are as follows:
2021
£m
2020
£m
Current tax:
Charge for the year
10
11
Adjustments in respect of prior years
1
1
Total current tax
11
12
Deferred tax:
Charge/(credit) for the year
24
(8)
Adjustments in respect of prior years
(2)
(2)
Total deferred tax
22
(10)
Total tax charged to income statement attributable to continuing operations
33
2
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19) Income tax
continued
Reconciliation of the income tax expense
2021
£m
2020
£m
Loss before tax from continuing operations
(228)
(17)
Tax at the UK rate of
19.0%
(2020: 19.0%)(43)
(4)
Tax effect of:
Income/gains not taxable (or taxed at lower rate)
1
(2)
Expenses not deductible for tax purposes
11
5
Non-taxable loss on sale of subsidiaries
–
1
Impairment of goodwill and amortisation of intangibles
–
1
Increase of current tax in respect of prior periods
1
1
Decrease of deferred tax in respect of prior periods
(2)
(2)
Derecognition of prior year deferred tax assets
72
12
Non-recognition of current year deferred tax assets
53
11
Different tax rates of subsidiaries operating in other jurisdictions
(9)
(3)
Withholding tax on dividends and interest from subsidiaries
2
4
Effect of change in tax rates
(50)
(21)
Deductible Restricted Tier 1 coupon in equity
(3)
(3)
Other
–
2Income tax expense attributable to continuing operations
33
2
Effective tax rate
(15)%
(14)%
The main drivers of the Group’s tax charge (and negative effective tax rate) for the continuing operations for the year ended 31 December 2021 are
as follows:
·
The Group made a loss for tax purposes in the period to 31 December 2021 on its continuing UK operations of
£279m
. These tax losses have not been recognised for deferred tax purposes due to insufficient future taxable profits (see note 31 for further detail). The tax loss includes the
impact of non-deductible expenses predominantly related to the acquisition of the Group
£86m
. The tax impact of the unrecognised losses in
the income statement is an increased tax charge of
£53m
.
·
In May 2021, the change in the UK tax rate from 19% to 25% from 1 April 2023 was substantively enacted. The change in tax rate increased the
valuation of the Group’s UK deferred tax assets, which has been reflected in the period to 31 December 2021. In addition, the UK deferred tax
asset was partially derecognised in the period to 31 December 2021 following the latest view of taxable profits post the acquisition (see note
31 for further detail). The combined impact of the tax rate change and derecognition on the deferred tax asset reported in the consolidated
income statement is a
£22m
charge.
·
The impact of the above was offset by the impact of lower tax rates in Ireland and the Middle East (
£9m
tax benefit).
The current tax and deferred income tax (charged)/credited to each component of other comprehensive income from continuing operations is
as follows:
Current Tax Deferred Tax
Total
2021
£m
2020
£m
2021
£m
2020
£m
2021
£m
2020
£m
Exchange gains and losses
(1)
–
–
–(1)
–Fair value gains and losses
(2)
–
36
1034
10Remeasurement of net defined benefit pension liability
1
2
(48)
(19)(47)
(17)Total (charged)/credited to OCI from
continuing operations
(2)
2
(12)(9)
(14)(7)
Notes to the consolidated income statement, consolidated statement of comprehensive income
and dividends
continued
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19) Income tax
continued
Foreign exchange arising on the revaluation of current and deferred tax balances is reported through other comprehensive income within the
foreign currency translation reserve.
The net current tax and deferred tax charged directly to equity is
£nil
(2020: £nil).
The Group applies judgement in identifying uncertainties over income tax treatments under IAS 12 and IFRIC 23. Provisions for uncertain
tax treatments are based on our assessment of probable outcomes which take into consideration many factors, including interpretations of
tax law and prior experience. At the end of the reporting period, provisions recognised in respect of uncertain tax positions for the Group totalled
less than £10m
(2020: less than £10m).
Tax rates
The table below provides a summary of the current tax and deferred tax rates for the year in respect of the largest jurisdictions in which the
Group operates.
2021
2020
Current Tax Deferred Tax
Current Tax Deferred Tax
UK 19.0%
19.0% 24.0%
19.0%Ireland 12.5%
12.5% 12.5%
12.5%Tax assets and liabilities are recognised based on tax rates that have been enacted or substantively enacted at the balance sheet date.
In May 2021, the change in the UK tax rate from 19% to 25% from 1 April 2023 was substantively enacted. This change impacts the UK deferred
tax rate. A 24% deferred tax rate results from the expected unwind pattern of the UK temporary differences.
20) Share-based payments
The total amount included within staff costs in the consolidated income statement in respect of all share scheme plans in 2021 is set out below.
Analysis of share scheme costs:
2021
£m
2020
£m
Performance share plan (PSP) – RSA shares
18
13
Save as you earn (SAYE) – RSA shares
3
2
Long term incentive plan (LTIP) – Intact shares
2
–
Total from continuing operations
23
15
Analysis of new award costs:
2021
2020
Charge for
year
£m
Total value
granted
£m
Charge for
year
£m
Total value
granted
£m
PSP – RSA shares
4 4
5 10
SAYE – RSA shares
– –
– 2
LTIP – Intact shares
2 8
– –
SAYE – Intact shares
– 4
– –
Total from continuing operations
6 16
5 12
The balance of the value of the awards will be charged to the consolidated income statement during the remaining vesting periods.
For the year ended 31 December 2021
510,820
share awards under the RSA Performance Share Plan were granted to employees in continuing operations. The weighted-average fair value of the share awards at the grant date was
£6.77
, amounting to a total of
£4m
.
For the year ended 31 December 2021
86,420
share awards under the Intact Long term Incentive Plan were granted to employees in continuing operations. The weighted-average fair value of the share awards at the grant date was
C$161.67
, amounting to a total of
£8m
.
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20) Share-based payments
continued
Performance Share Plan RSA Shares
This plan was the Group’s Long-Term Incentive Plan until the completion of the takeover on 1 June 2021. Awards of Performance Shares to
executive directors and other selected executives and senior managers were subject to performance conditions. These consisted of the Group’s
underlying return on tangible equity; relative total shareholder return; and business scorecard targets over a three year performance period.
Typically awards vested on the third anniversary of the date of grant to the extent that the performance conditions had been met, with a two-year
retention period in the case of Executive Directors’ Performance Shares. All PSP awards vested or lapsed on 25 May 2021 as a result of the
takeover of the Group.
The former Remuneration Committee could also make conditional awards of Restricted Shares to other executives and senior managers,
which were not subject to performance conditions.
Additionally, the former Remuneration Committee could 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 were also not subject to performance conditions.
If an employee resigned from the Group, then Performance Shares and Restricted Shares lapsed at the date of leaving the Group. Deferred Bonus
Share awards were generally retained by the employee to whom the award was granted if they left the Group, unless the employee was dismissed
for cause. Awards retained vested on the normal vesting date.
However, the former Remuneration Committee had the discretion to modify the treatment of leavers’ share awards that had yet to be released,
based on the leaving circumstances, where this was appropriate and in shareholders’ interests.
The Group had the obligation to settle the liabilities for the PSP and therefore it was accounted for as an equity-settled plan as awards were
granted over the Group’s shares.
Save as you earn RSA Shares
SAYE was a Group all-employee plan until the completion of the takeover on 1 June 2021. Employees were able to elect to make monthly
savings for a period of three years. In exchange, employees were granted an option to buy ordinary shares in the Group at the end of the savings
period, with a pre-set option price – typically at a 20% discount. This plan gave tax advantages to participants from the UK. The SAYE scheme
using RSA shares ended as a result of the completion of the takeover transaction. Participants could exercise their SAYE options early at
completion of the takeover transaction to the extent of their accrued savings; or continue to save for up to 6 months following the takeover and
then exercise their options.
The Group had accounted for the SAYE scheme as an equity-settled plan as awards were granted over the Group’s own shares.
Long-term incentive plan Intact shares
Since 1 June 2021, this plan has replaced the PSP. Executive directors, other selected executives and senior managers are eligible to participate
in the LTIP to enable them to own shares in the ultimate parent company, Intact Financial Corporation. Participants are awarded notional share
units referred to as Performance Stock Units (PSUs) and Restricted Stock Units (RSUs). The PSU pay out is subject to the achievement of specific
targets with regards to:
·
Intact Financial Corporation’s estimated ROE outperformance versus an industry benchmark, based on a three-year average; or
·
The three-year average combined ratio of the UK & International operations compared to a specific target.
RSUs ordinarily vest three years from the year of the grant. Vesting for RSUs is not linked to the Group’s performance.
If an employee resigns from the Group, then unvested PSUs and RSUs lapse at the date of leaving the Group.
For Executive Directors and other specified roles, the Remuneration Committee defers a portion of an individual’s gross bonus into an award over
RSUs, which are also not subject to performance conditions.
Shares are purchased in the market to settle the awards.
The awards are initially estimated and valued at fair value on the grant date, which corresponds, for 2021, to the average share price of Intact
Financial Corporation from 6 May to 31 May 2021.
As the Group has the obligation to settle the liabilities of LTIP awards, which grant rights to receive shares in the ultimate parent company, Intact
Financial Corporation, it is accounted for as a cash-settled plan. This means the cost of the awards is recognised as an expense over the vesting
period and the liability is remeasured at each reporting period based on the number of awards that are expected to vest and the current share
price, with any fluctuations in the liability also recorded as an expense until it is settled.
Save as you earn Intact Shares
Since 1 June 2021, this plan has replaced the SAYE using RSA shares. The terms for SAYE 2021 remain the same as for SAYE, except that
employee are granted an option to buy shares in the ultimate parent company, Intact Financial Corporation, at the end of the savings period.
Therefore, as the Group has the obligation to settle the liabilities of SAYE 2021 awards, it is accounted for as a cash-settled plan on the same
basis as the Long-term incentive plan Intact shares.
Notes to the consolidated income statement, consolidated statement of comprehensive income
and dividends
continued
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21) Dividends paid and proposed
2021
£m
2020
£m
Ordinary dividend
6,914
83
Preference dividend
9
9
Tier 1 notes coupon payment
15
16
6,938
108
Following the acquisition, the Group disposed of its operations in Scandinavia and Canada, as disclosed in note 7 in exchange for interest bearing
demand notes, which were considered highly liquid financial instruments, classified as cash equivalents. Those demand notes were subsequently
used to settle dividends of
£6,914m
(dividends in specie) paid to Regent Bidco Limited. Therefore, the settlement of the dividends in specie is a
cash transaction presented as a cash outflow in the cash flow statement within financing activities.
The Company’s preference shareholders receive a dividend at the rate of 7.375% per annum paid in two instalments on, or as near as practicably
possible to, 1 April and 1 October each year, subject to approval by the Board.
The Tier 1 notes coupon payment relates to the two floating rate notes issued on 27 March 2017 (note 35).
22) Total other comprehensive income
Year ended 31 December 2021
Total
revaluation
reserves
£m
Foreign
currency
translation
reserve
£m
Retained
earnings
£m
Equity
attributable to
owners of the
Parent Company
£m
Non-
controlling
interests
£m
Total
equity
£m
Exchange (losses)/gains net of tax
– (15) – (15) 1 (14)
Fair value losses net of tax
(78) – – (78) (1) (79)
Pension – remeasurement of net defined benefit asset/liability
net of tax
– – (70) (70) – (70)
Continuing operations
(78) (15) (70) (163) – (163)
Discontinued operations
(189) 48 12 (129) – (129)
Total other comprehensive (expense)/income for the year
(267) 33 (58) (292) – (292)
Year ended 31 December 2020
Total
revaluation
reserves
£m
Foreign
currency
translation
reserve
£m
Retained
earnings
£m
Equity attributable
to owners of the
Parent Company
£m
Non-
controlling
interests
£m
Total
equity
£m
Exchange (losses)/gains net of tax
(1) 2 – 1 (6) (5)
Fair value gains net of tax
78 – – 78 1 79
Pension – remeasurement of net defined benefit asset/liability
net of tax
– – (25) (25) – (25)
Continuing operations
77 2 (25) 54 (5) 49
Discontinued operations
35 44 – 79 – 79
Total other comprehensive income/(expense) for the year
112 46 (25) 133 (5) 128
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23) Goodwill and intangible assets
Goodwill
£m
Intangible
assets
arising
from
acquired
claims
provisions
£m
Externally
acquired
software
£m
Internally
generated
software
£m
Customer
related
intangibles
1
£m
Total
£m
Cost
At 1 January 2021
422 118 81 1,063 246 1,930
Additions
– – 1 96 7 104
Disposal of subsidiaries
2
(315) (113) (3) (488) (209) (1,128)
Derecognised
3
– – – (103) (33) (136)
Exchange adjustment
(8) (4) – (10) 2 (20)
At 31 December 2021
99 1 79 558 13 750
Accumulated amortisation
At 1 January 2021
– 118 78 509 206 911
Amortisation charge
– – 1 55 4 60
Amortisation on disposals of subsidiaries
2
– (113) (3) (256) (169) (541)
Amortisation on derecognition
3
– – – (14) (30) (44)
Exchange adjustment
– (4) – (5) 1 (8)
At 31 December 2021
– 1 76 289 12 378
Accumulated impairment
At 1 January 2021
92 – – 55 4 151
Impairment on disposals of subsidiaries
2
(28) – – (37) (1) (66)
Impairment on derecognition
3
– – – (17) (3) (20)
Exchange adjustment
(4) – – (1) – (5)
At 31 December 2021
60 – – – – 60
Carrying amount at 31 December 2021
39 – 3 269 1 312
1. Customer related intangibles includes customer lists and renewal rights.
2. The disposal of the Group’s operations in Scandinavia and Canada has reduced goodwill and other intangible assets by
£521m
in the year. Refer to note 7 for further detail.3. The acquisition has resulted in a strategic reassessment of programme plans for certain internally generated software assets and as a result certain assets were identified
for which there are no future economic benefits expected. As a result of this the Company has derecognised assets with a net book value of
£72m
, with the cost recognised in Underwriting and policy acquisition costs.
Notes to the consolidated statement of financial position
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23) Goodwill and intangible assets
continued
Goodwill
£m
Intangible
assets
arising from
acquired
claims
provisions
£m
Externally
acquired
software
£m
Internally
generated
software
£m
Customer
related
intangibles
£m
Total
£m
Cost
At 1 January 2020
412 126 80 931 266 1,815
Additions – – 1 119 2 122
Disposals – (15) – (1) (21) (37)
Exchange adjustment
10 7 – 14 (1) 30
At 31 December 2020
422 118 81 1,063 246 1,930
Accumulated amortisation
At 1 January 2020
– 126 77 434 211 848
Amortisation charge
– – 1 68 16 85
Amortisation on disposals
– (15) – – (20) (35)
Exchange adjustment
– 7 – 7 (1) 13
At 31 December 2020
– 118 78 509 206 911
Accumulated impairment
At 1 January 2020
75 – – 51 4 130
Impairment charge
14 – – 1 – 15
Exchange adjustment
3 – – 3 – 6
At 31 December 2020
92 – – 55 4 151
Carrying amount at 31 December 2020
330 – 3 499 36 868
The carrying value of intangible assets not yet available for use at 31 December 2021 is
£99m
(31 December 2020: £188m). This primarily relates to the implementation of strategic software assets in the UK and Ireland (2020 also included Canada and Scandinavia).
The aggregate amount of research and development expenditure recognised as an expense during the period was
£1m
(2020: nil).
Amortisation
Amortisation expense of
£58m
(2020: £74m) has been charged to underwriting and policy acquisition costs with the remainder recognised in other operating expenses.
Impairments
The disposal of subsidiaries as detailed above, were in respect of the Canadian and Scandinavian CGUs. There have been no other changes to
the CGU’s recognised by the Group.
When testing for impairment, the carrying value of the Cash Generating Unit (CGU) to which goodwill and intangibles have been allocated is
compared to the recoverable amount as determined by a value in use calculation. Where the value in use is less than the current carrying value
of the CGU in the statement of financial position, the goodwill or intangible asset is impaired in order to ensure that the CGU carrying value is not
greater than its future value to the Group.
The value in use calculation uses cash flow projections based on operational plans approved by management covering a three year period.
The operational plans use best estimates of future premiums, operating expenses and taxes using historical trends, general geographical market
conditions, industry trends and forecasts and other available information, as discussed in more detail in the Strategic Report. These plans reflect
the Group’s assessment of the impact of the current challenging economic environment and of changing weather patterns using up-to-date
catastrophe models.
Cash flows beyond the operational plan period are extrapolated using the estimated growth rates which management deem appropriate for
the CGU. The cash flow forecasts are adjusted by appropriate discount rates. When testing for intangible asset impairment (including those not
available for use), a consistent methodology is applied although future cash flow projection years are not extrapolated beyond the asset’s useful
economic life.
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23) Goodwill and intangible assets
continued
Goodwill is allocated to the Group’s CGUs, which are contained within the following operating segments:
2021
£m
2020
1
£m
International (Ireland, Oman)
39
41
Scandinavia (Sweden, Denmark, Norway)
1
–
132
Canada (Commercial, Johnson, Personal, Travel)
1
–
157
Total goodwill
39
330
1. The disposal of the Group’s operations in Scandinavia and Canada has reduced goodwill by
£289m
in the year.
The range of pre-tax discount rates used for goodwill and intangible impairment testing, which reflect specific risks relating to the CGU at the
date of evaluation, and weighted average growth rates used in 2021 for the CGUs within each operating segment are shown below. The pre-tax
discount rate reflects an assessment of the Intact Financial Corporation’s cost of capital and of RSA’s external debt and equity. For International
operations, those rates are adjusted to take into account the currency and country risks.
In determining a cost of capital, data over a period of time is utilised to avoid short term market volatility. The growth rates include improvements in
trade performance, where these are forecast in the three year operational plan for the CGU.
Pre-tax discount rate
Weighted average
growth rate
2021
2020
20212020
UK
16%
15%2%
5%International
10%–13%
9%–14%2%–4%
2%–3%No impairments have been identified, with recoverable value sufficiently exceeding carrying value across the Group.
Sensitivity
Sensitivities relating to key assumptions in the value in use model are shown in the table below. A 1% increase in the cost of capital and a 1%
decrease in future growth rates have been considered, neither of which would result in an impairment of goodwill and other intangible assets.
Goodwill
£m
Recoverable amount
less carrying value
£m
Change in recoverable amount less carrying value
Discount rate +1%
£m
Weighted average
growth rate -1%
£m
UK
– 633 (44) (32)
International (Ireland, Oman)
39 151 (40) (34)
Total goodwill
39 784 (84) (66)
24) Property and equipment
Property and equipment is split between property and equipment owned and right-of-use assets as follows:
2021
£m
2020
£m
Property and equipment owned (see below)
54
86
Right-of-use assets (note 44)
37
151
Total property and equipment
91
237
Right-of-use assets relate to leased properties and other equipment. Further information can be found in note 44.
The disposal of the Group’s operations in Scandinavia and Canada has reduced the total property and equipment by
£123m
in the year. Refer to note 7 for further detail.
Notes to the consolidated statement of financial position
continued
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24) Property and equipment
continued
Property and equipment owned
Group
occupied
property
– land and
buildings Other Total
Group
occupied
property
– land and
buildings Other Total
2021
£m
2021
£m
2021
£m
2020
£m
2020
£m
2020
£m
Cost/valuation
At 1 January
19 223 242
19 222 241
Additions 23 23
– 13 13
–Disposal of subsidiaries
– (90) (90)
– – –
Disposals (23) (23)
(1) (21) (22)
–Exchange adjustment
– – –
– 1 1
At 31 December
18 125 143
19 223 242
Accumulated depreciation
At 1 January
– 152 152
– 158 158
Depreciation charge
(1) 11 10
– 13 13
Depreciation on disposals of subsidiaries
– (63) (63)
– – –
Depreciation on disposals
– (20) (20)
– (20) (20)
Revaluation adjustments
1 – 1
– – –
Exchange adjustment
– – –
– 1 1
At 31 December
– 80 80
– 152 152
Accumulated impairment
At 1 January
– 4 4
– – –
Impairment charge
– 6 6
– 4 4
Impairment on disposals
– (1) (1)
– – –
At 31 December
– 9 9
– 4 4
Carrying amount at 31 December
18 36 54
19 67 86
Other includes fixtures, fittings and other equipment.
Depreciation expenses of
£10m
(2020: £13m) have been charged to underwriting and policy acquisition costs.Impairments of
£6m
(2020: £4m) have been recognised in Other operating expenses. The carrying amount of Group occupied property that would have been recognised had the assets been carried under the cost model at
31 December 2021 is
£3m
(2020: £4m).
The Group occupied property reserve at 31 December 2021 is
£21m
(2020: £21m).
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25) Investment property
Investment property of
£371m
(2020: £285m), relating to freehold and leasehold land and buildings, is held for long term rental yields and is not
occupied by the Group.
The movement in the carrying value of investment property is detailed below:
2021
£m
2020
£m
At 1 January
285
300
Purchases
50
19Sales
(8)
(29)Fair value gain/(losses)
44
(8)
Transfer from right-of-use assets
–
3
Investment property at 31 December
371
285
Expected to be recovered after 12 months
371
285
Investment properties are included in the Group’s investment portfolio to provide investment returns over the longer term in accordance with the
Group’s investment strategy. Investment properties are managed by external managers.
The lease agreements are normally drawn up in line with local practice and the Group has no significant exposure to leases that include
contingent rents.
26) Financial assets
The following tables analyse the Group’s financial assets by classification as at 31 December 2021 and 31 December 2020.
As at 31 December 2021
At fair value
through
profit and
loss
(FVTPL)
£m
Available
for sale
£m
Loans and
receivables
£m
Total
£m
Expected to be
recovered
Within 12
months
£m
After 12
months
£m
Equity securities
– 358 – 358 – 358
Debt securities
– 4,813 – 4,813 790 4,023
Financial assets measured at fair value
– 5,171 – 5,171 790 4,381
Loans and receivables
– – 359 359 25 334
Total financial assets
– 5,171 359 5,530 815 4,715
As at 31 December 2020
At fair value
through
profit and
loss (FVTPL)
£m
Available
for sale
£m
Loans and
receivables
£m
Total
£m
Expected to be recovered
Within 12
months
£m
After 12
months
£m
Equity securities
– 673 – 673 – 673
Debt securities
12 10,712 – 10,724 1,804 8,920
Financial assets measured at fair value
12 11,385 – 11,397 1,804 9,593
Loans and receivables
– – 429 429 27 402
Total financial assets
12 11,385 429 11,826 1,831 9,995
The disposal of the Group’s operations in Scandinavia and Canada has reduced financial assets by
£6,603m
in the year. Refer to note 7 for
further detail.
Notes to the consolidated statement of financial position
continued
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26) Financial assets
continued
The following table analyses the cost/amortised cost, gross unrealised gains and losses, and fair value of financial assets.
2021
2020
Cost/
amortised
cost
£m
Unrealised
gains
£m
Unrealised
losses
£m
Fair value
£m
Fair value
£m
Equity securities
354 12 (8) 358
673
Available for sale debt securities
4,697 146 (30) 4,813
10,712
FVTPL debt securities
118 – (118) –
12
Financial assets measured at fair value
5,169 158 (156) 5,171
11,397
Loans and receivables
359 – – 359
429
Total financial assets
5,528 158 (156) 5,530
11,826
Collateral
At 31 December 2021, the Group had pledged
£355m
(2020: £530m) of financial assets as collateral for liabilities or contingent liabilities,
consisting of government debt securities of
£151m
(2020: £287m), non-government debt securities of £192m
(2020: £192m), and cash and cash equivalents of
£12m
(2020: £51m). The debt securities of
£343m
(2020: £479m) are included in the balance sheet as available for sale debt securities and the Group’s right to recover the cash pledged of
£12m
(2020: £51m) is included in other assets. The terms and conditions of the collateral pledged are market standard in relation to letter of credit facilities, derivative transactions and repurchase agreements.
The total collateral pledged is
£1,237m
(2020: £530m) including the collateral pledged pertinent to reinsurance arrangements with related parties (note 17).
At 31 December 2021, the Group has accepted
£642m
(2020: £531m) in collateral, consisting of government and non-government debt securities of
£631m
(2020: £508m), which the Group is permitted to sell or repledge in the event of default by the owner, and cash and cash equivalents of
£11m
(2020: £23m). The obligation to repay the cash is included in the balance sheet in other liabilities and the corresponding cash received is
recognised as an asset. The fair value of the collateral accepted is
£642m
(2020: £531m). The terms and conditions of the collateral held are market standard. The assets held as collateral are readily convertible into cash.
Derivative financial instruments
The following table presents the fair value and notional amount of derivatives by term to maturity and nature of risk.
As at 31 December 2021
Notional Amount Fair Value
Less than
1 year
£m
From 1 to
5 years
£m
Over
5 years
£m
Total
£m
Asset
£m
Liability
£m
Designated as hedging instruments
Currency risk (net investment in foreign operation)
193 – – 193 2 –
Currency risk (cash flow)
1 – – 1 – –
Cross currency interest swaps (fair value/cash flow)
– 63 74 137 2 15
Total (note 32 / 43)
4 15
At FVTPL
Currency risk mitigation
343 – – 343 1 9
Inflation risk mitigation
– – 120 120 42 34
Total (note 32 / 43)
43 43
Total derivatives
47 58
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26) Financial assets
continued
As at 31 December 2020
Notional Amount Fair Value
Less than
1 year
£m
From 1 to
5 years
£m
Over
5 years
£m
Total
£m
Asset
£m
Liability
£m
Designated as hedging instruments
Currency risk (net investment in foreign operation)
1,541 – – 1,541 12 17
Currency risk (cash flow)
3 3 – 6 – –
Cross currency interest swaps (fair value/cash flow)
38 54 291 383 28 31
Total (note 32 / 43)
40 48
At FVTPL
Currency risk mitigation
580 – – 580 7 2
Inflation risk mitigation
60 15 240 315 78 95
Total (note 32 / 43)
85 97
Total derivatives
125 145
The use of derivatives can result in accounting mismatches when gains and losses arising on the derivatives are presented in the income
statement and corresponding losses and gains on the risks being mitigated are not included in the income statement. In such circumstances the
Group may apply hedge accounting in accordance with IAS 39 and the Group accounting policy on hedging.
After the disposal of the Canadian and Scandinavian subsidiaries, the Group applies hedge accounting to derivatives acquired to reduce foreign
exchange risk in its net investment in certain overseas subsidiaries denominated in Euros. There was no ineffectiveness recognised in the income
statement in respect of these hedges during 2021 or 2020.
The Group also applies hedge accounting to specified fixed interest assets in its investment portfolio. In order to remove exchange risk from these
assets the Group may also acquire cross currency interest rate swaps to swap the cash flows from the portfolio into cash flows denominated in
pounds sterling or the functional currency of the entity acquiring the asset. The Group applies fair value hedge accounting when using ‘fixed to
floating’ interest rate swaps and cash flow hedge accounting when using ‘fixed to fixed’ interest rate swaps. The interest rate swaps exactly offset
the timing and amounts expected to be received on the underlying investments. The investments have a remaining term of between 3 and 34
years, with the substantial majority having a term of less than 9 years. There have been no defaults and no defaults are expected on the hedged
investments. The Group also applies cash flow hedge accounting to certain foreign currency operating expense contracts in order to reduce
foreign exchange risk on these contracts.
The total losses on cash flow hedge instruments during 2021 were
£1m
(2020: £26m losses) in the consolidated statement of other comprehensive income, and the amount reclassified to the income statement was a gain of
£1m
(2020: £19m gain), recognised within foreign exchange losses in other operating expenses (see note 13). There was no ineffectiveness recognised in the income statement in respect
of these hedges during 2021 or 2020.
The total losses on the fair value hedge instruments recognised in the income statement were
£61m
(2020: £62m losses) and the offsetting gains related to the hedged risk were
£53m
(2020: £51m gains).
The Group enters into derivative transactions under International Swaps and Derivatives Association (ISDA) master netting arrangements.
In general, under such agreements the amounts owed by each counterparty on a single day in respect of all transactions outstanding in the same
currency are aggregated into a single net amount that is payable by one counterparty to the other. In certain circumstances, such as a credit
default, all outstanding transactions under the agreement are terminated, the termination value is assessed and only a single net amount
is payable in settlement of all transactions.
The ISDA agreements do not meet the criteria for offsetting in the statement of financial position. This is because the Group does not have any
current legally enforceable right to offset recognised amounts, because the right to offset is enforceable only on the occurrence of future events.
The tables below provide information on the impact of the netting arrangements.
In addition, as at 31 December 2021, the Group has no borrowings from credit institutions under repurchase agreements (2020: £121m)
(note 38). The Group continues to recognise debt securities in the statement of financial position as the Group remains exposed to the risks
and rewards of ownership.
Notes to the consolidated statement of financial position
continued
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26) Financial assets
continued
As at 31 December 2021
Amounts subject to enforceable netting arrangements
Effect of offsetting in statement of
financial position Related items not offset
Gross
amounts
£m
Amounts
offset
£m
Net
amounts
reported
£m
Financial
instruments
£m
Financial
collateral
£m
Net amount
£m
Derivative financial assets
47 – 47 (38) (9) –
Cash received under repurchase arrangements
– – – – – –
Total assets
47 – 47 (38) (9) –
Derivative financial liabilities
58 – 58 (38) (11) 9
Repurchase arrangements and other similar secured borrowing
– – – – – –
Total liabilities
58 – 58 (38) (11) 9
As at 31 December 2020
Amounts subject to enforceable netting arrangements
Effect of offsetting in statement of
financial position Related items not offset
Gross
amounts
£m
Amounts
offset
£m
Net amounts
reported
£m
Financial
instruments
£m
Financial
collateral
£m
Net amount
£m
Derivative financial assets
125 – 125 (106) (16) 3
Cash received under repurchase arrangements
121 – 121 (121) – –
Total assets
246 – 246 (227) (16) 3
Derivative financial liabilities
145 – 145 (106) (39) –
Repurchase arrangements and other similar secured borrowing
121 – 121 (121) – –
Total liabilities
266 – 266 (227) (39) –
Repurchase arrangements are settled “delivery versus principal” and so are disclosed in the above table net of associated debt securities.
IFRS 9 ‘Financial Instruments’
The Group qualifies for temporary exemption from applying IFRS 9 ‘Financial Instruments’ on the grounds that it has not previously applied any
version of IFRS 9 and its activities are predominantly connected with insurance, with the carrying amount of its liabilities within the scope of IFRS 4
and debt instruments included within regulatory capital being greater than 90% of the total carrying amount of all its liabilities at 31 December 2015
and with no subsequent change in its activities.
The fair value at 31 December 2021 and change during the year of financial assets that are held to collect cash flows on specified dates that are
solely for payment of principal and interest (SPPI) and are not held for trading as defined under IFRS 9, nor are managed or evaluated on a fair value
basis, is set out below, together with the same information for other financial assets:
As at 31 December 2021
SPPI
financial
assets
£m
Other
financial
assets
£m
Total
£m
Available for sale equity securities
– 358 358
Available for sale debt securities
4,501 312 4,813
Loans and receivables
359 – 359
Derivative assets held for trading
– 43 43
Fair value at 31 December 2021
4,860 713 5,573
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26) Financial assets
continued
As at 31 December 2020
SPPI
financial
assets
£m
Other
financial
assets
£m
Total
£m
Available for sale equity securities
– 673 673
Available for sale debt securities
10,302 410 10,712
Debt securities at FVTPL
– 12 12
Loans and receivables
429 – 429
Derivative assets held for trading
– 85 85
Fair value at 31 December 2020
10,731 1,180 11,911
The fair value gains/losses on SPPI financial assets and other financial assets during the year are
£141m losses
(2020: £144m gains) and
£11m losses
(2020: £80m gains) respectively.
Information on credit ratings relating to SPPI debt securities and loans and receivables can be found in note 6.
When IFRS 9 is adopted by the Group (currently expected to be 2023) an expected credit loss provision will be recognised replacing the incurred
credit loss provision under IAS 39, the impact of which will be determined by the financial instruments held at that time.
Companies within the Group that are applying IFRS 9 and disclose relevant information in their own published financial statements in addition to
that already included in these consolidated financial statements are indicated in Appendix C.
27) Fair value measurement
Fair value is used to value a number of assets within the statement of financial position and represents their market value at the reporting date.
Cash and cash equivalents, loans and receivables, other assets and other liabilities
For cash and cash equivalents, loans and receivables, commercial paper, other assets, liabilities and accruals, their carrying amounts are
considered to be as approximate fair values.
Group occupied property and investment property
Group occupied properties are valued annually on a vacant possession basis using third party valuers. Investment properties are valued, at least
annually, at their highest and best use.
The fair value of property has been determined by external, independent valuers, having appropriate recognised professional qualifications and
recent experience in the location and category of the property being valued.
The valuations of Group occupied properties and investment properties are based on the comparative method of valuation with reference to sales
of other comparable buildings. Fair value is then determined based on the locational qualities and physical building characteristics (principally
condition, size, specification and layout) together with factoring in the occupational lease terms and tenant covenant strength as appropriate.
Derivative financial instruments
Derivative financial instruments are financial contracts whose fair value is determined on a market basis by reference to underlying interest rate,
foreign exchange rate, equity or commodity instrument or indices.
Issued debt
The fair value measurement of the Group’s issued debt instruments, with the exception of the subordinated guaranteed US$ bonds, are based on
pricing obtained from a range of financial intermediaries who base their valuations on recent transactions of the Group’s issued debt instruments
and other observable market inputs such as applicable risk free rate and appropriate credit risk spreads.
The fair value measurement of the subordinated guaranteed US$ bonds is also obtained from an indicative valuation based on the applicable risk
free rate and appropriate credit risk spread.
Fair value hierarchy
Fair value for all assets and liabilities which are either measured or disclosed is determined based on available information and categorised
according to a three-level fair value hierarchy as detailed below:
·
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
·
Level 2 fair value measurements are those derived from data other than quoted prices included within level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices);
·
Level 3 fair value measurements are those derived from valuation techniques that include significant inputs for the asset or liability valuation that
are not based on observable market data (unobservable inputs).
A financial instrument is regarded as quoted in an active market (level 1) if quoted prices for that financial instrument are readily and regularly
available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly
occurring market transactions on an arm’s length basis.
Notes to the consolidated statement of financial position
continued
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27) Fair value measurement
continued
For level 1 and level 2 investments, the Group uses prices received from external providers who calculate these prices from quotes available at
the reporting date for the particular investment being valued. For investments that are actively traded, the Group determines whether the prices
meet the criteria for classification as a level 1 valuation. The price provided is classified as a level 1 valuation when it represents the price at which
the investment traded at the reporting date, taking into account the frequency and volume of trading of the individual investment, together with the
spread of prices that are quoted at the reporting date for such trades. Typically investments in frequently traded government debt would meet the
criteria for classification in the level 1 category. Where the prices provided do not meet the criteria for classification in the level 1 category, the prices
are classified in the level 2 category. Market traded securities only reflect the possible impact of climate change to the extent that this is built into
the market price at which securities are trading.
In certain circumstances, the Group does not receive pricing information from an external provider for its financial investments. In such
circumstances the Group calculates fair value, which may use input parameters that are not based on observable market data. Unobservable
inputs are based on assumptions that are neither supported by prices from observable current market transactions for the same instrument nor
based on available market data. In these cases, judgement is required to establish fair values. Changes in assumptions about these factors could
affect the reported fair value of financial instruments.
The principal assets classified as Level 3, and the valuation techniques applied to them, are described below.
Investment property
Investment property valuations are carried out in accordance with the latest edition of the Valuation Standards published by the Royal Institution
of Chartered Surveyors (RICS), and are undertaken by independent RICS registered valuers. Valuations are based on the comparative method
with reference to sales of other comparable buildings and take into account the nature, location and condition of the specific property together
with factoring in the occupational lease terms and tenant covenant strength as appropriate. The valuations also include an income approach using
discounted future cash flows, which uses unobservable inputs, such as discount rates, rental values, rental growth rates, vacancy rates and void
or rent free periods expected after the end of each lease. The valuations at 31 December 2021 reflects equivalent yield ranges between
3.60%
and
11.46%
(2020: 4.15% and 15.41%).
Private fund structures
Loan funds are principally valued at the proportion of the Group’s holding of the Net Asset Value (NAV) reported by the investment vehicle.
Several procedures are employed to assess the reasonableness of the NAV reported by the fund, including obtaining and reviewing periodic
and audited financial statements and estimating fair value based on a discounted cash flow model that adds spreads for credit and illiquidity to a
risk-free discount rate. Discount rates employed in the model at 31 December 2021 range from
0.2%
to
(2020: 0.2% to 8.7%). If necessary 4.8%
the Group will adjust the fund’s reported NAV to the discounted cash flow valuation where this more appropriately represents the fair value of its
interest in the investment.
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27) Fair value measurement
continued
The following table provides an analysis of financial instruments and other items that are measured subsequent to initial recognition at fair value
as well as financial liabilities not measured at fair value, grouped into levels 1 to 3. The table does not include financial assets and liabilities not
measured at fair value if the carrying value is a reasonable approximation of fair value.
Fair value hierarchy 2021
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
Group occupied property – land and buildings
– – 18 18
Investment properties
– – 371 371
Available for sale financial assets:
Equity securities
246 1 111 358
Debt securities
1,453 3,110 250 4,813
1,699 3,111 750 5,560
Derivative assets:
At FVTPL
– 43 – 43
Designated as hedging instruments
– 4 – 4
Total assets measured at fair value
1,699 3,158 750 5,607
Derivative liabilities:
At FVTPL
– 43 – 43
Designated as hedging instruments
– 15 – 15
Total liabilities measured at fair value
– 58 – 58
Issued debt
– 187 – 187
Total value of liabilities not measured at fair value
– 187 – 187
Fair value hierarchy 2020
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
Group occupied property – land and buildings
– – 19 19
Investment properties
– – 285 285
Available for sale financial assets:
Equity securities
185 179 309 673
Debt securities
2,416 7,874 422 10,712
Financial assets at FVTPL:
Debt securities
– – 12 12
2,601 8,053 1,047 11,701
Derivative assets:
At FVTPL
– 85 – 85
Designated as hedging instruments
– 40 – 40
Total assets measured at fair value
2,601 8,178 1,047 11,826
Derivative liabilities:
At FVTPL
– 97 – 97
Designated as hedging instruments
– 48 – 48
Total liabilities measured at fair value
– 145 – 145
Issued debt
– 837 – 837
Total value of liabilities not measured at fair value
– 837 – 837
Notes to the consolidated statement of financial position
continued
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27) Fair value measurement
continued
The movement in the fair value measurements of level 3 financial assets is shown in the table below:
Available for sale
investments
Debt
securities
at FVTPL
£m
Investment
property
£m
Group
occupied
property
£m
Total
£m
Equity
securities
£m
Debt
securities
£m
At 1 January 2020
279 375 15 300 19 988
Total gains/(losses) recognised in:
Income statement
– 7 (3) (8) – (4)
Other comprehensive income
(5) 1 – – – (4)
Purchases 49 153 – 19 – 221
Disposals (27) (113) – (29) – (169)
Exchange adjustment
13 (1) – – – 12
Transfer from right-of-use assets
– – – 3 – 3
At 1 January 2021
309 422 12 285 19 1,047
Total gains/(losses) recognised in:
Income statement
(4) (4) (12) 44 – 24
Other comprehensive income
4 (7) – – – (3)
Purchases
19 160 – 50 – 229
Disposals
1
(208) (319) – (8) (1) (536)
Exchange adjustment
(9) (2) – – – (11)
Level 3 financial assets at 31 December 2021
111 250 – 371 18 750
1. AFS equity and AFS debt securities disposals includes £160m and £218m respectively in relation to the disposals of Codan A/S and Roins Holdings Limited.
Unrealised losses of
£12m
(2020: £3m losses) attributable to FVTPL debt securities recognised in the consolidated income statement relate to an
asset that is still held at the end of the year but has been fully written down.
The following table shows the level 3 available for sale financial assets, investment properties and Group occupied property carried at fair value as
at the balance sheet date, the main assumptions used in the valuation of these instruments and reasonably possible decreases in fair value based
on reasonably possible alternative assumptions.
Available for sale financial assets and property Main assumptions
Reasonably possible alternative assumptions
2021
2020
Current fair
value
£m
Decrease in
fair value
£m
Current fair
value
£m
Decrease in
fair value
£m
Group occupied property – land and buildings
1
Property valuation
18 (1)
19 (2)
Investment properties
1
Cash flows; discount rate
371 (19)
285 (25)
Level 3 available for sale financial assets:
Equity securities
2
Cash flows; discount rate
111 (1)
309 (4)
Debt securities
2
Cash flows; discount rate
250 (2)
422 (7)
Total (38)
750 (23)
1,0351. The Group’s property portfolio (including the Group occupied properties) is almost exclusively located in the UK. Reasonably possible alternative valuations have been
determined using an increase of 25bps in the discount rate used in the valuation (31 December 2020: 50bps). The 2020 increase of 50bps was previously considered in
light of the Covid-19 uncertainty that has now significantly reduced. Therefore, the lower increase of 25bps is considered a reasonably possible scenario for 2021.
2. The Group’s investments in financial assets classified at level 3 in the hierarchy are primarily investments in various private fund structures investing in debt instruments
where the valuation includes estimates of the credit spreads on the underlying holdings. The estimates of the credit spread are based upon market observable credit
spreads for what are considered to be assets with similar credit risk. Reasonably possible alternative valuations have been determined using an increase of 25bps in the
credit spread used in the valuation (31 December 2020: 50bps). The 2020 increase of 50bps was previously considered in light of the Covid-19 uncertainty that has now
significantly reduced. Therefore, the lower increase of 25bps is considered a reasonably possible scenario for 2021.
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28) Interests in structured entities
A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity,
such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements.
The Group does not securitise any of its investments in financial instruments and does not create, promote or administer structured entities on
behalf of third party investors. The Group therefore considers that it does not act as a sponsor for any structured entity.
However, the Group invests in entities created by and managed by external specialist investment managers where investments are pooled within
an investment vehicle to provide a diversified exposure to particular classes of underlying investments. The use of these products allows the Group
to broaden the diversification of its investment portfolio in a cost-efficient manner.
The Group is exposed to the risks of the underlying investments of the investment vehicles. The investment return from the structured entities is
expected to reflect the returns from the underlying investments of the entity.
In addition, the Group has commitments for future undrawn subscriptions limited to the amounts set out in the subscription agreements.
The Group has no obligations to provide any other additional funding or other financial support to these entities. The Group has determined
that its maximum exposure to structured entities is the sum of the carrying value and the undrawn commitments. These exposures at
31 December 2021 are summarised in the table below:
Class of investments
Nature of the
underlying investments
of the vehicle
Carrying
value
2021
£m
Undrawn
commitments
2021
£m
Exposure
2021
£m
Carrying
value
2020
£m
Undrawn
commitments
2020
£m
Exposure
2020
£m
Mortgage backed securities
Mainly consists of
domestic mortgage
backed securities
45 – 45
2,380 – 2,380
Collateralised debt obligations
Structured debt security
backed by bonds
243 4 247
286 16 302
Cash money market funds
Short term cash
deposits – 447
298 – 298
447Collective investment undertakings
Mainly consists of
property funds
109 20 129
300 57 357
Other
Mainly consists of
property funds
64 – 64
143 – 143
759 24 783
3,556 73 3,629
Structured entities are not consolidated and are disclosed as follows in the consolidated statement of financial position:
2021
£m
2020
£m
Investments – financial assets – equity securities
109
300
Investments – financial assets – debt securities
352
2,809
Cash and cash equivalents
298
447
759
3,556
29) Reinsurers’ share of insurance contract liabilities
2021
£m
2020
£m
Reinsurers’ share of provisions for unearned premiums
643
716
Reinsurers’ share of provisions for losses and loss adjustment expenses
1,648
1,624
Total reinsurers’ share of insurance contract liabilities
2,291
2,340
To be settled within 12 months
892
974
To be settled after 12 months
1,399
1,366
Notes to the consolidated statement of financial position
continued
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29) Reinsurers’ share of insurance contract liabilities
continued
The following changes have occurred in the reinsurers’ share of provision for unearned premiums during the year:
2021
£m
2020
£m
Reinsurers’ share of provision for unearned premiums at 1 January
716
746
Premiums ceded to reinsurers
1,089
1,059
Reinsurers’ share of premiums earned
(1,092)
(1,089)
Changes in reinsurance asset
(3)
(30)
Reinsurers’ share of disposal of subsidiaries
(70)
–
Total reinsurers’ share of provision for unearned premiums at 31 December
643
716
The following changes have occurred in the reinsurers’ share of provision for losses and loss adjustment expenses during the year:
2021
£m
2020
£m
Reinsurers’ share of provisions for losses and loss adjustment expenses at 1 January
1,624
1,580
Reinsurers’ share of total claims incurred
761
631
Total reinsurance recoveries received
(558)
(594)
Disposal of subsidiaries
(172)
(1)
Exchange adjustment
(12)
3
Other movements
5
5
Reinsurers’ share of provisions for losses and loss adjustment expenses at 31 December
1,648
1,624
30) Insurance and reinsurance debtors
2021
£m
2020
£m
Insurance debtors comprise:
Due from policyholders
390
1,347
Due from intermediaries
1,343
1,467
Total insurance debtors
1,733
2,814
Reinsurance debtors
183
175
Total insurance and reinsurance debtors
1,916
2,989
To be settled within 12 months
1,698
2,770
To be settled after 12 months
218
219
The disposal of the Group’s operations in Scandinavia and Canada has reduced insurance and reinsurance debtors by
£1,194m
in 2021. Refer to note 7 for further detail.
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31) Current and deferred tax
Current tax
Asset Liability
2021
£m
2020
£m
2021
£m
2020
£m
To be settled within 12 months
2
18
4
33To be settled after 12 months
–
5
–
7Current tax position at 31 December
2
23
440
The
£36m
reduction in current tax liabilities in the year is due to the disposal of the Canadian and Scandinavian sub-groups as part of the
restructuring following the acquisition. The current tax liabilities were
£16m
at the date of disposal (note 7).
Deferred tax
Asset Liability
2021
£m
2020
£m
2021
£m
2020
£m
Deferred tax position at 31 December
148
199
–
105The
£105m
reduction in deferred tax liabilities in the year is due to the disposal of the Canadian and Scandinavian sub-groups as part of the
restructuring following the acquisition. The deferred tax liabilities were
£79m
at the date of disposal (note 7).
Of the
£148m
(31 December 2020: £199m) deferred tax asset recognised by the Group,
£146m
(31 December 2020: £181m) relates to the UK. The
£51m
decrease in deferred tax assets during the period is predominantly due to the de-recognition of deferred tax assets in the UK (
£83m
) plus the disposals of Canada and Scandinavia (£18m
) (note 7) as part of the restructuring following the acquisition, offset by the impact of the UK corporation tax rate increase of
£48m
.
Deferred tax assets have been recognised on the basis that management consider it probable that future taxable profits will be available against
which these deferred tax assets can be utilised. Key assumptions in the forecast are subject to sensitivity testing which, together with additional
modelling and analysis, support management’s judgement that the carrying value of deferred tax assets continues to be supportable.
The majority of the deferred tax asset recognised based on future profits is that in respect of the UK. The evidence for the future taxable profits is
a seven-year forecast based on the three-year operational plans prepared by the relevant businesses and a further four years of extrapolation,
which are subject to internal review and challenge, including by the Board. The four years of extrapolation assumes UK premium growth of
1.9% per annum and no overseas premium growth where relevant to UK profit projections. The forecasts incorporate a contingency of
£35m
per
annum and consider the impact of changing weather patterns using up-to-date catastrophe models.
The value of the deferred tax asset is sensitive to assumptions in respect of forecast profits. The impact of downward movements in key
assumptions on the value of the UK deferred tax asset is summarised below. The relationship between the UK deferred tax asset and the
sensitivities below is not always linear. Therefore, the cumulative impact on the deferred tax asset of combined sensitivities or longer extrapolations
based on the table below will be indicative only.
2021
£m
2020
£m
1% increase in combined operating ratio
1
across all 7 years
(40)
(16)
1 year reduction in the forecast modelling period
(47)
(18)
50 basis points decrease in bond yields
(18)
(6)
No annual premium growth
2
(3)
(1)
1. Combined operating ratio (COR) is a measure of underwriting performance and is the ratio of underwriting costs expressed in relation to earned premiums.
2. In respect of the extrapolated years four to seven only.
There is increased sensitivity to changes in the operational plan compared to previous years due to the increase in the substantively enacted tax
rate to 25% in the year and due to recognising a proportionally greater amount of deferred tax assets, which are not subject to the 50% tax loss
offset restriction rules.
Notes to the consolidated statement of financial position
continued
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31) Current and deferred tax
continued
The following table summarises the main categories of deferred tax assets/(liabilities) recognised by the Group:
2021
£m
2020
£m
Net unrealised gains on investments
(25)
(70)
Intangibles capitalised
–
(22)
Deferred acquisition costs
–
(7)
Tax losses and unused tax credits
15
78
Other deferred tax reliefs
76
98
Net insurance contract liabilities
(1)
(52)
Retirement benefit obligations
(1)
15
Capital allowances
82
40
Provisions and other temporary differences
2
14
Net deferred tax asset at 31 December
148
94
The movement in the net deferred tax assets recognised by the Group is as follows:
2021
£m
2020
£m
Net deferred tax asset at 1 January
94
125
Amounts charged to income statement
(72)
(40)
Amounts charged to other comprehensive income
(12)
(5)
Net amount arising on disposal/acquisition of subsidiaries and other transfers
88
1
Exchange adjustments
–
(8)
Effect of change in tax rates – income statement
50
21
Net deferred tax asset at 31 December
148
94
At the end of the reporting period, the Group had the following unrecognised tax assets/(liabilities):
2021
2020
Gross
amount
£m
Tax effect
£m
Gross
amount
£m
Tax effect
£m
Trading tax losses
2,018 455
1,531 280
Capital tax losses
1,285 308
1,298 247
Deductible temporary differences
381 91
162 31
Unremitted retained earnings
– –
(606) (30)
Unrecognised tax assets/(liabilities) as at 31 December
3,684 854
2,385 528
The Group’s unrecognised trading losses are predominantly located in the UK and Ireland and represent losses which are not expected to be
utilised within the forecast profit period. Unrecognised capital losses mainly relate to the UK and have not been recognised as it is not considered
probable that they will be utilised in the future as most UK capital gains are exempt from tax.
£2m
(2020: £2m) of the gross trading tax losses are
attributable to Luxembourg and will expire in 2036.
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32) Other debtors and other assets
2021
£m
2020
£m
Derivatives designated as accounting hedging instruments (note 26)
4
40
Other derivatives (note 26)
43
85
Other debtors
99
185
Pension scheme surplus (note 41)
490
379
Accrued interest and rent
60
88
Prepayments
41
63Total other debtors and assets
737
840
To be settled within 12 months
173
334
To be settled after 12 months
564
506
The disposal of the Group’s operations in Scandinavia and Canada has reduced other debtors and other assets by
£182m
in 2021. Refer to note 7 for further detail.
33) Cash and cash equivalents
2021
£m
2020
£m
Cash and cash equivalents, and bank overdrafts (consolidated statement of cash flows)
492
1,083
Add: Overdrafts reported in other borrowings (note 38)
8
11
Total cash and cash equivalents (consolidated statement of financial position)
500
1,094
The disposal of the Group’s operations in Scandinavia and Canada has reduced cash and cash equivalents by
£357m
in 2021. Refer to note 7 for further detail.
No cash and cash equivalents are restricted for operational RSA Group use at 31 December 2021 (31 December 2020: £27m restricted cash held
in Canada).
34) Share capital
The issued share capital of the Parent Company is fully paid and consists of two classes: Ordinary Shares with a nominal value of £1 each and
Preference Shares with a nominal value of £1 each. The issued share capital at 31 December 2021 is:
2021
£m
2020
£m
Issued and fully paid
1,269,484,814 Ordinary Shares of £1 each (31 December 2020: 1,035,267,610 Ordinary Shares of £1 each)
1,269
1,035
125,000,000 Preference Shares of £1 each (2020: 125,000,000 Preference Shares of £1 each)
125
125
1,394
1,160
The movement of Ordinary Shares in issue, their nominal value and the associated share premiums during 2021 are as follows:
Number of shares
Nominal
value
£m
Share
premium
£m
At 1 January 2020
1,031,645,294 1,032 1,090
Issued in respect of employee share options and employee share awards
3,622,316 3 5
At 1 January 2021
1,035,267,610 1,035 1,095
Issued in respect of employee share options and employee share awards
1
13,217,203 13 7
Capital injection from Regent Bidco Limited
1
1,021,000,001 1,021 275
Capital reduction
(800,000,000) (800) (1,095)
At 31 December 2021
1,269,484,814 1,269 282
1. The consolidated statement of changes in equity shows
£1,023m
shares issued for cash, which includes £1,021m
capital injection from Regent Bidco Limited and
£2m
in
respect of employee share options and employee share awards. A further
£275m
capital injection from Regent Bidco Limited was recognised as share premium, and an
additional
£11m
share-based payments were also issued in respect of employee share options and employee share awards.
Ordinary Shares of £1 each
Each member holding an Ordinary Share shall be entitled to vote on all matters at a general meeting of the Company, be entitled to receive
dividend payments declared in accordance with the Articles of Association, and have the right to participate in any distribution of capital of the
Company including on a winding up of the Company.
Notes to the consolidated statement of financial position
continued
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34) Share capital
continued
Preference Shares of £1 each
The Preference Shares are not redeemable but the holders of the Preference Shares have preferential rights over the holders of Ordinary Shares in
respect of dividends and of the return of capital in the event of the winding up of the Company.
Provided a resolution of the Board exists, 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. Preference shareholders have no further right to
participate in the profits of the Company.
Full information on the rights attaching to shares is in the RSA Insurance Group Limited Articles of Association which are available on the
Group’s website.
Employee share schemes
Shares issued in respect of employee share options and employee share awards includes
9,391,504
accelerated share awards under the
long-term incentive plan (Performance Share Plan (PSP)) and
1,737,667
accelerated shares issued under the Group employee share option plan
ahead of the acquisition of the Group.
35) Other equity instruments – Tier 1 notes
On 27 March 2017, the Company issued two floating rate Restricted Tier 1 (RT1) notes totalling £297m in aggregate size and with a blended
coupon of c.4.7%. The notes are as follows:
·
Swedish Krona 2,500m at 3 month Stibor +525bps (equivalent to c.4.8% coupon on issue)
·
Danish Krone 650m at 3 month Cibor +485bps (equivalent to c.4.6% coupon on issue)
Interest on the notes is due and payable only at the sole and absolute discretion of the Company, subject to certain additional restrictions set out
in the terms and conditions, and is non-cumulative. In addition the terms and conditions of the notes will require the Company to cancel interest
payments in certain circumstances. The notes are redeemable (subject to certain conditions) at the option of the Company in whole but not in part
on the first call date, being the fifth anniversary of the issue date (27 March 2022), or any interest payment date thereafter or in the event of certain
changes in the tax, regulatory or ratings treatment of the notes. Any redemption is subject, inter alia, to the Company giving notice to the relevant
regulator and the regulator granting permission to redeem. The notes convert into ordinary shares of the Company, at a pre-determined price in
the event that certain solvency capital requirements are breached, or in the event of a winding up occurring earlier, would be entitled to a return
of capital in preference to ordinary shareholders but behind the rights of the existing preference shareholders, as more fully set out in the terms
and conditions of the notes. Accordingly, the notes are treated as a separate category within equity and coupon payments are recognised as
distributions, similar to the treatment of preference share dividends.
36) Non-controlling interests
The non-controlling interests (NCI) of the Group includes the interests in the following Group entities:
NCI shares at
31 December 2021
NCI shares at
31 December 2020
Share of net assets
Share of net assets
% £m
% £m
Royal & Sun Alliance Insurance (Middle East) BSC (c)
50 156
50 164
Royal & Sun Alliance Insurance (Middle East) BSC (c) owns 50% of the ordinary share capital of Al Alamiya for Cooperative Insurance Company,
a company operating in the Kingdom of Saudi Arabia and 52.5% of Al Ahlia Insurance Company SAOG, a company operating in the Sultanate of
Oman. They are valued in its statement of financial position at share of net assets, which are as follows:
2021
Share of
net assets
£m
2020
Share of net
assets
£m
Al Alamiya for Cooperative Insurance Company
36
38
Al Ahlia Insurance Company SAOG
32
33
During 2021 the dividends paid to the non-controlling interests in the Middle East were
£10m
(2020: £13m).
37) Issued debt
2021
£m
2020
£m
Subordinated guaranteed US$ bonds
6
6
Guaranteed subordinated notes due 2045
159
397
Total loan capital
165
403
Senior notes due 2024
–
348
Total issued debt
165
751
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37) Issued debt
continued
Loan capital
The subordinated guaranteed US$ bonds were issued in 1999 and have a nominal value of $9m and a redemption date of 15 October 2029.
The rate of interest payable on the bonds is 8.95%.
The dated guaranteed subordinated notes were issued on 10 October 2014 at a fixed rate of 5.125%. The original nominal £400m bonds have
a redemption date of 10 October 2045. The Group has the right to repay the notes on specific dates from 10 October 2025. If the bonds are not
repaid on that date, the applicable rate of interest would be reset at a rate of 3.852% plus the appropriate benchmark gilt for a further five year
period.
£240m
of these bonds (nominal value) were repurchased and cancelled in September 2021 (remaining nominal £160m). Premium and
amortisation costs of
£37m
were incurred, and are presented in finance costs in the consolidated income statement. The Group has the option to defer interest payments on the bonds and notes, but has to date not exercised this right.
The bonds and the notes are contractually subordinated to all other creditors of the Group such that in the event of a winding up or of bankruptcy,
they are able to be repaid only after the claims of all other creditors have been met.
Senior notes
The nominal £350m senior notes, issued on 28 August 2019, were repaid in full on 16 June 2021. Make-whole and amortisation costs of
£16m
were incurred, and are presented in finance costs in the consolidated income statement.
All issued debt
There have been no defaults on any bonds or notes during the year.
38) Other borrowings
The 2021 other borrowings relate to bank accounts in overdraft
£8m
(2020: £11m). 2020 also included borrowings from credit institutions under repurchase agreements £121m.
The disposal of the Group’s operations in Scandinavia and Canada has reduced borrowings by
£46m
in 2021. Refer to note 7 for further detail.39) Insurance contract liabilities
Estimation techniques and uncertainties
Provisions for losses and loss adjustment expenses are subject to a robust reserving process by each of the Group’s business units and at
Group Corporate Centre, as detailed in the risk management note (note 6). The Group has strong independent oversight governance
arrangements in place to provide assurance over the reasonableness of reserve estimates.
There is considerable uncertainty with regard to the eventual outcome of the claims that have occurred but remain unsettled by the end of the
reporting period. This includes claims that may have occurred but have not yet been notified to the Group and those that are not yet apparent
to the insured.
The provisions for losses and loss adjustment expenses are estimated using relevant previous claims experience, historical payment and
incurred claims trends, the volume and nature of the insurance underwritten by the Group and current specific case reserves. Also considered
are developing loss trends, the potential longer-term significance of large events, the levels of unpaid claims, qualitative information that may
be relevant to our loss experience, and relevant external information such as legislative changes, judicial decisions and economic, political and
regulatory conditions.
The Group uses a number of commonly accepted actuarial projection methodologies to determine the appropriate provision to recognise.
These include methods based upon the following:
·
Historic claims development trends are assessed and used to inform extrapolation of the latest payments and reported claims cost for each
prior period to their ultimate value. Incurred or paid claims to date for each year are extrapolated to estimate the ultimate cost using these
assessed trends which are based upon the observed development of earlier periods.
·
Estimates based upon a projection of claims numbers and average cost
·
Expected loss ratios
·
The Bornhuetter-Ferguson method, which combines features of the above methods
·
Bespoke methods for specialist classes of business or types of claims, for example, for Periodic Payment Orders in the UK where a detailed
cash flow model is used with specific assumptions on future indexation and longevity given the individual characteristics of these claims.
In selecting the method and estimate appropriate to any one class of insurance business, the Group considers the appropriateness of the
methods and bases to the individual circumstances of the class and accident period or underwriting year. A key assumption common
to many classes of business is that historic experience is a good guide to what we can expect to see in the future. This depends on a variety of
considerations such as consistent claims handling practise and mix of business, which is tested as part of the Group’s analytic process to ensure
that assumptions are reasonable.
Individual large and significant claims are generally assessed separately, being measured either at the face value of the loss adjusters’ estimates or
projected separately in order to allow for the future development of large claims.
Notes to the consolidated statement of financial position
continued
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39) Insurance contract liabilities
continued
Insurance contract liability estimates remain subject to heightened uncertainty relative to normal circumstances due to the impact of the Covid-19
pandemic. The Group monitors evolving experience and regularly reviews the key assumptions and sources of uncertainty. The impact of
some issues has become clearer during 2021, such as interpretation of the January 2021 Supreme Court ruling and the subsequent Financial
Ombudsman determinations which have largely supported the year end position, and the different frequency and mix of claims during the 2020
lockdowns. However significant uncertainties remain and are unlikely to diminish before reinsurance recoveries are made and whilst issues such
as industry court cases are resolved.
Materially different outcomes to those we assume are possible, driven by either direct Covid-19 claims movements or from indirect Covid-19
impacts which make reliable identification of trends more difficult and uncertain than under normal circumstances.
The main areas of heightened uncertainty from indirect Covid-19 effects include frequency changes, severity changes, and changes in the
external environment that might impact the pace at which claims information emerges and can be reflected in the estimates. Whilst many classes
of business saw changes in policyholder behaviour (such as reduced levels of driving and therefore reduced motor claim frequency) during the
Covid-19 lockdowns, the impact of this on 2020 experience is now more stable although the effects from 2021 Covid-19 restrictions are still
evolving given these continued throughout the year. The potential changes in external factors such as medical and legal updates which could
impact the pace of development of claims information remains highly uncertain. These issues are subject to close monitoring and judgements
have been made within our reserve estimates in recognition of this. The increasing inflationary pressure arising from the wider economic
environment during 2021 complicates assessment of the severity impact, with different factors contributing to severity changes such as supply
chain issues which are likely to have been impacted by Covid-19 to some degree although perhaps also from other sources such as Brexit.
Business interruption (BI) claims are the main direct Covid-19 claim type that remain subject to significant ongoing uncertainty now that travel
and wedding claims experience has neutralised. Direct Covid-19 business BI claims estimates have been fully reviewed during 2021 to true up
estimates and reflect the latest experience, judgments, legal advice and qualitative assessments. This work resulted in an increase in the Groups
net actuarial indication of approximately
£30m
during the year ended 31 December 2021. The revised estimates were produced following
forensic analysis on individual claims that considered claims-specific aspects such as level of cover, industry type and date of loss. This analysis
was supported by discussion with a range of claims, accounting, and legal experts to help inform how current incurred claims experience might
develop in the future. A key difference during 2021 is that direct Covid-19 claims estimates are now based upon more mature claims information,
whereas before the estimates had to rely more on exposure data and assumptions whilst the claims information was immature.
The main outstanding uncertainties around the direct Covid-19 gross ultimate claims estimate centre around interpretation of policy wordings on
issues such as triggers of cover and application of policy limits. In some cases, the pace of progress is limited as some of the relevant issues are
being debated in high profile legal cases in the industry. Once these are resolved quicker progress on these issues is expected. On 25 February
2022, the High Court handed down its judgment in the case of Corbin & King Ltd & Ors v AXA Insurance UK Plc. A detailed assessment,
supported by legal advice, has been undertaken by the Group from which it has been concluded that the judgment does not have a material
impact on the assumptions used in determining, or the assessed value of, the claims estimates as at 31 December 2021. The Group will continue
to monitor the progression of this case, including any appeal to a higher court or its impact on other legal processes.
Whilst the gross estimate remains uncertain due to the issues described above, in the event unexpected change arise from the various
uncertainties, the Group expects that the reinsurance cover would respond in many of the scenarios that could evolve and as such the net
position has meaningful protection against material adverse development. The catastrophe reinsurance treaty, the Group Volatility Cover and the
property risk excess of loss treaty are the relevant reinsurance covers the Group has in place that provide this protection. Reinsurance recoveries
on both the catastrophe and group volatility covers (GVC) are dependent on the identification and timing of events which trigger a reinsurance
recovery claim, and for the GVC, the aggregation of all relevant claims against the retention level. Key reinsurance assumptions made, include
how reinsurance contracts respond to Covid-19 losses, the date of loss that will apply to Covid-19 claims, how losses are attributed by date, and
how aggregation applies across different businesses and territories which share common reinsurance treaties. Judgements on these issues have
firmed up throughout 2021 as supporting information emerged, such as granular claims data to better assess date of loss and consequently
revise reinsurance aggregation assumptions. During 2021, the Group has made cash-calls and started Covid-19 reinsurance collections. Failure to
recover outstanding assumed reinsurance recoveries in line with the expectations could lead to a material increase in the reported net liability.
The level of provision carried by the Group includes a margin over and above the actuarial indication. The method for the reserve margin
calculation was changed in June 2021 to align with the method of calculation of RSA’s ultimate parent company Intact Financial Corporation.
Applying this method and the continued evolving estimation uncertainty from Covid-19 has resulted in an increased level of reserve margin.
The appropriateness of the margin held is subject to regular review as part of our reserving process which considers the risk characteristics of
our liability profile, and the sensitivity of our actuarial indication estimates to key uncertainties.
As a result of management’s review of Covid-19 liabilities as noted above, given our review of the uncertain economic environment which
contributes to the evolving level of estimation uncertainty, and in aligning practices on reserve margin with IFC following their acquisition of the
Group, additional booked reserve strengthening of approximately
£180m
was recognised in June 2021.
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39) Insurance contract liabilities
continued
Sensitivities
Sensitivities in the table below show the impact on the net claims reserves of changes to key assumptions in relation to reserving risk and
underwriting and claims risk as described in note 6.
Impact on net claims reserves
2021
£m
2020
£m
Current year attritional loss ratios frequency or severity assumptions +5%
60–70
60–70
Current year large loss ratios frequency or severity assumptions +5%
15–25
15–25
Inflation being 1% higher than expected for the next 2 years (excluding annuities)
50–60
50–60
UK Annuities (PPOs) discount rate being 0.5% lower than expected
10–15
10–15
In the table above, the 2020 impacts have been restated to reflect the RSA continuing operations post the takeover of RSA by Intact
Financial Corporation.
Net claims reserves for Covid-19 business interruption losses are not expected to be sensitive to changes in assumptions to the estimates
underlying the gross claims reserves, including the number of eligible claimants and legal interpretations of eligibility and level of cover, provided
reinsurance contracts respond as expected.
Discount assumptions
The total value of provisions for losses and loss adjustment expenses less related reinsurance recoveries before discounting is
£3,844m
(2020: £3,624m related to continuing operations).
Key discount rates on certain classes of business are as follows:
Category
Discount rate
Average number of years
to settlement from
reporting date
2021
%
2020
%
2021
Years
2020
Years
UK
Periodic Payment Orders
4.0
4.018
19In determining the average number of years to ultimate claims settlement, estimates have been made based on the underlying claims
settlement patterns.
As at 31 December 2021, the value of the discount on net claims liability reserves is
£15m
(2020: £13m) excluding UK annuities (PPOs). All other factors remaining constant, a decrease of 0.5% in the discount rates would reduce the value of the discount by approximately
£2m
(2020: £2m).
As at 31 December 2021, the net of reinsurance value of the discount on UK annuities (PPOs) is
£201m
(2020: £246m). The impact of a change in
discount rate for the UK annuities is given in the above sensitivities table.
Gross insurance contract liabilities and the reinsurers’ share of insurance contract liabilities
The Group accounting policies in respect of insurance contract liabilities are described in note 5. The gross insurance contract liabilities and the
reinsurers’ (RI) share of insurance contract liabilities presented in the consolidated statement of financial position comprise the following:
Gross RI Net
2021
£m
2021
£m
2021
£m
Provision for unearned premiums
1,909 (643) 1,266
Provision for losses and loss adjustment expenses
5,276 (1,648) 3,628
Total insurance contract liabilities
7,185 (2,291) 4,894
Gross RI Net
2020
£m
2020
£m
2020
£m
Provision for unearned premiums
3,235 (716) 2,519
Provision for losses and loss adjustment expenses
9,379 (1,624) 7,755
Total insurance contract liabilities
12,614 (2,340) 10,274
The disposal of the Group’s operations in Scandinavia and Canada has reduced gross insurance contract liabilities by
£6,659m
and reinsurers’
(RI) share of insurance contract liabilities by
£1,073m
. Refer to note 7 for further detail.Notes to the consolidated statement of financial position
continued
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continued
Provision for unearned premiums, gross of acquisition costs
2021
£m
2020
£m
Provision for unearned premiums (gross of acquisition costs) at 1 January
3,860
3,812
Premiums written
5,563
7,282
Less: Premiums earned
(5,423)
(7,288)
Changes in provision for unearned premiums
140
(6)
Disposal of subsidiaries
(1,628)
–
Exchange adjustment
(37)
54
Provision for unearned premiums (gross of acquisition costs) at 31 December
2,335
3,860
The provision for unearned premiums is shown net of deferred acquisition costs of
£426m
(2020: £625m). Movements in deferred acquisition costs during the year are as follows:
2021
£m
2020
£m
Deferred acquisition costs at 1 January
625
646
Acquisition costs deferred during the year
55
992
Amortisation charged during the year
(59)
(1,018)
Exchange gains/(losses)
(2)
4
Other movements
–
1
Disposal of subsidiaries
(193)
–
Deferred acquisition costs at 31 December
426
625
The reinsurers’ share of deferred acquisition costs is included within accruals and deferred income.
Provisions for losses and loss adjustment expenses
The following changes have occurred in the provisions for losses and loss adjustment expenses during the year:
2021
£m
2020
£m
Provisions for losses and loss adjustment expenses at 1 January
9,379
9,141
Gross claims incurred and loss adjustment expenses
3,670
4,521
Total claims payments made in the year net of salvage and other recoveries
(3,189)
(4,556)
Disposal of subsidiary
(4,451)
(10)
Exchange adjustment
(154)
237
Unwind of discount and change in economic assumptions
16
39
Other movements
5
7
Provisions for losses and loss adjustment expenses at 31 December
5,276
9,379
Claims development tables
The tables on the following pages present changes in the historical provisions for losses and loss adjustment expenses that were established in
2011 and prior, and the provisions for losses and loss adjustment expenses arising in each subsequent accident year. The tables are presented at
current year average exchange rates on an undiscounted basis and have been adjusted for operations that have been disposed of.
The triangle on the top of the table presents the estimated provisions for ultimate incurred losses and loss adjustment expenses for each accident
year as at the end of each reporting period.
The estimated provisions for ultimate incurred losses change as more information becomes known about the actual losses for which the initial
provisions were set up and as the rates of exchange change.
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39) Insurance contract liabilities
continued
Consolidated claims development table gross of reinsurance
2011
and
prior
£m
2012
£m
2013
£m
2014
£m
2015
£m
2016
£m
2017
£m
2018
£m
2019
£m
2020
£m
2021
£m
Total
£m
Estimate of
cumulative claims
At end of accident year
1,461 1,616 1,501 1,546 1,431 1,868 1,682 1,659 1,426 1,531
One year later
1,516 1,694 1,624 1,594 1,464 1,864 1,758 1,669 1,570
Two years later
1,536 1,655 1,581 1,613 1,429 1,859 1,735 1,721
Three years later
1,527 1,618 1,587 1,554 1,429 1,861 1,765
Four years later
1,505 1,637 1,551 1,552 1,425 1,910
Five years later
1,524 1,616 1,536 1,552 1,434
Six years later
1,515 1,604 1,530 1,605
Seven years later
1,508 1,592 1,536
Eight years later
1,506 1,593
Nine years later
1,497
Ten years later
Current estimate of
cumulative claims
1,497 1,593 1,536 1,605 1,434 1,910 1,765 1,721 1,570 1,531
Claims paid to date
1,453 1,488 1,470 1,454 1,213 1,483 1,262 1,013 509
Reconciliation to
the statement of
financial position
Current year provision
before discounting
266 44 105 66 151 221 427 503 708 1,061 1,531 5,083
Exchange adjustment
to closing rates
(13)
Discounting
(23)
Annuities
229
Present value recognised in
the consolidated statement
of financial position
5,276
2021 movement
1 9 (1) (6) (53) (9) (49) (30) (52) (144) (334)
Notes to the consolidated statement of financial position
continued
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continued
Consolidated claims development table net of reinsurance
2011
and
prior
£m
2012
£m
2013
£m
2014
£m
2015
£m
2016
£m
2017
£m
2018
£m
2019
£m
2020
£m
2021
£m
Total
£m
Estimate of
cumulative claims
At end of accident year
1,289 1,466 1,250 1,211 1,064 1,352 1,203 1,042 931 1,226
One year later
1,335 1,560 1,319 1,163 1,102 1,404 1,253 1,095 1,016
Two years later
1,351 1,531 1,311 1,146 1,081 1,384 1,230 1,104
Three years later
1,333 1,512 1,280 1,095 1,083 1,386 1,245
Four years later
1,314 1,484 1,262 1,088 1,078 1,423
Five years later
1,322 1,476 1,257 1,087 1,076
Six years later
1,314 1,469 1,253 1,135
Seven years later
1,310 1,466 1,257
Eight years later
1,307 1,462
Nine years later
1,297
Ten years later
Current estimate of
cumulative claims
1,297 1,462 1,257 1,135 1,076 1,423 1,245 1,104 1,016 1,226
Claims paid to date
1,262 1,381 1,210 1,057 923 1,109 933 617 420
Reconciliation to
the statement of
financial position
Current year provision
before discounting
195 35 81 47 78 153 314 312 487 596 1,226 3,524
Exchange adjustment
to closing rates
(8)
Discounting
(14)
Annuities
126
Present value recognised in
the consolidated statement
of financial position
3,628
2021 movement
11 10 4 (4) (48) 2 (37) (15) (9) (85) (171)
40) Insurance and reinsurance liabilities
2021
£m
2020
£m
Direct insurance creditors
79
121
Reinsurance creditors
763
811
Total insurance and reinsurance liabilities
842
932
The disposal of the Group’s operations in Scandinavia and Canada has reduced insurance and reinsurance liabilities by
£159m
in 2021. Refer to note 7 for further detail.
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41) Post-employment benefits and obligations
Defined contribution pension schemes
Costs of
£47m
(2020: £68m) were recognised in respect of defined contribution schemes by the Group.Defined benefit pension schemes and other post-employment benefits
The amounts recognised in the consolidated statement of financial position are as follows:
2021
2020
UK
£m
Other
£m
Total
£m
UK
£m
Other
£m
Total
£m
Present value of funded obligations
(8,583) (83) (8,666)
(8,844) (452) (9,296)
Present value of unfunded obligations
(5) (8) (13)
(6) (99) (105)
Fair value of plan assets
9,310 100 9,410
9,355 500 9,855
Other net surplus remeasurements
(254) – (254)
(179) – (179)
Net IAS 19 surplus/(deficits) in the schemes
468 9 477
326 (51) 275
Defined benefit pension schemes
468 17 485
326 – 326
Other post-employment benefits
– (8) (8)
– (51) (51)
Schemes in surplus (note 32)
473 17 490
333 46 379
Schemes in deficit (note 42)
(5) (8) (13)
(7) (97) (104)
The disposal of the Group’s operations in Scandinavia and Canada has reduced pensions and post-employment net obligations by
£44m
in 2021.
Independent actuaries calculate the value of the defined benefit obligations for the larger schemes by applying the projected unit credit method.
The future expected cash outflows (calculated based on assumptions that include inflation and mortality) are discounted to present value, using
a discount rate determined at the end of each reporting period by reference to current market yields on high quality corporate bonds (‘AA’ rated)
identified to match the currency and term structure of the obligations.
The actuarial valuation involves making assumptions about discount rates, future salary increases, future inflation, the employees’ age upon
termination and retirement, mortality rates, future pension increases and disability incidence.
If actual experience differs from the assumptions used, the expected obligation could increase or decrease in future years. Due to the complexity
of the valuation and its long-term nature, the defined benefit obligation is highly sensitive to changes in the assumptions. Assumptions are
reviewed at each reporting date. As such, the IAS 19 valuation of the liability is highly sensitive to changes in bond rates.
UK Schemes
The major defined benefit pension schemes are located in the UK. The assets of these schemes are mainly held in separate trustee administered
funds. The UK defined benefit schemes were effectively closed to new entrants in 2002 and subsequently closed to future accruals with effect
from 31 March 2017. UK schemes in surplus have been reduced for the 35% tax cost of an authorised return of surplus, classified as ‘Other net
surplus remeasurements’. Our opinion is that the authorised refund tax charge is not an income tax within the meaning of IAS 12 and so the
surplus is recognised net of this tax charge rather than the tax charge being included within deferred taxation.
The profile of the members of the two main UK schemes at 30 September 2021 (the latest date at which full information is available) is as follows:
Deferred members – members no longer accruing and not yet receiving benefits
21,647
Pensioners – members and dependants receiving benefits
19,179
Total members at 30 September 2021
40,826
Accrued benefits are revalued up to retirement in accordance with government indices for inflation. A cap of 2.5% per annum applies to the
revaluation of benefits accrued post March 2010 (a cap of 5% per annum applies for benefits which accrued prior to this date).
After retirement, pensions in payment are increased each year based on the increases in the government indices for inflation. A cap of 2.5%
applies to benefits accrued post 31 December 2005 (a cap of 5% applies to benefits in excess of Guaranteed Minimum Pension prior to this date).
The UK schemes are managed through trusts with independent trustees responsible for safeguarding the interests of all members. The trustees
meet regularly with Group management to discuss the funding position and any proposed changes to the schemes. The schemes are regulated
by The Pensions Regulator.
The Group is exposed to risks through its obligation to fund the schemes. These risks include market risk (assets not performing as well as
expected), inflation risk and longevity risk over the lives of the members. The Group and the trustees of the schemes work together to reduce
these risks through agreement of investment policy including the use of interest rate, inflation rate and longevity swaps.
Notes to the consolidated statement of financial position
continued
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41) Post-employment benefits and obligations
continued
During 2009 the Group entered into an arrangement that provides coverage against longevity risk for 55% of the retirement obligations relating
to pensions in payment of the two largest UK schemes at that time (c.35% coverage based on current pensioner population). The arrangement
provides for reimbursement of the covered pension obligations in return for the contractual return receivable on a portfolio of assets (made up of
quoted government debt and swaps) held by the pension funds at the inception of the arrangement and which have continued to be held by the
schemes. The swaps held are accounted for as a longevity swap, measured at fair value under IFRS by discounting all expected future cash flows
using a discount rate consistent with the term of the relevant cash flow. The discount rate used is subject to a degree of judgement, due to the
unique characteristics of the swap, and the rate is selected to most closely reflect the economic matching nature of the arrangement within a range
of acceptable values obtained from external sources. The total value of the arrangement, including government debt measured at prices quoted
in an active market, at 31 December 2021 is
£1,523m
(2020: £1,596m). Management do not believe that there is a significant risk of a material change to the balance in the consolidated statement of financial position net of the associated pension liabilities subject to the arrangement within
the next financial year.
Each scheme is subject to triennial valuations, which are used to determine the future funding of the schemes by the Group including funding to
repair any funding deficit. The funding valuations, which determine the level of cash contributions payable into the schemes and which must be
agreed between the Trustees and the Group, are typically based on a prudent assessment of future experience with the discount rate reflecting
a prudent expectation of returns based on actual investment strategy. This differs from IAS 19, which requires that future benefit cash flows
are projected on the basis of best-estimate assumptions and discounted in line with high-quality corporate bond yields. The Trustees’ funding
assumptions are updated only every three years, following completion of the triennial funding valuations. The effective date of the most recent
valuations of the main UK funds is 31 March 2018.
At the most recent funding valuations, the main UK funds had an aggregate funding deficit of
£468m
, equivalent to a funding level of 95%. The Group and the Trustees have agreed funding plans to eliminate the funding deficits by 2026. Details of the deficit contributions paid in 2021 and
that are due to be paid in 2022 under these plans are disclosed below. The funding plans are being reviewed as part of the next triennial valuations
which have an effective date of 31 March 2021, and are expected to be completed in the first half of 2022.
For the two main UK defined benefit schemes, the level of contributions in 2021 was
£160m
(2020: £84m) of which £150m
(2020: £75m) were additional contributions to reduce funding deficits, including
£75m
paid upon completion of the acquisition by Intact Financial Corporation. Expected contributions to the two schemes for the year ending 31 December 2022 are approximately
£83m
including
£75m
of additional contributions to reduce the deficit.
The maturity profile of the undiscounted cash flows of the two main UK schemes is shown below:
Cash flow – total liability
£m
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
2050
2052
2054
2056
2058
2060
2062
2064
2066
2068
2070
2072
2074
2076
2078
2080
2082
2084
2086
2088
2090
2092
2094
2096
Deferred Pensioner
0
50
100
150
200
250
300
350
The weighted average duration of the defined benefit obligation of the two main UK schemes at the end of the reporting period is
17.5 years
(2020: 17.5 years).
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41) Post-employment benefits and obligations
continued
Non-UK schemes
The Group also operates defined benefits schemes in other countries. The most significant of these schemes is in Ireland.
The split of post-employment liabilities across other countries is shown below:
92%
8%
Non-UK liability split by country
Ireland
Other
All schemes
The estimated discounted present values of the accumulated obligations are calculated in accordance with the advice of independent, qualified
actuaries.
Movement during the year:
2021
Present value of
obligations
£m
Fair value of plan
assets
£m
Other net
surplus
remeasurements
£m
Net surplus/
(deficit)
£m
At 1 January
(9,401) 9,855 (179) 275
Current service costs
(3) – – (3)
Termination payments
(1) – – (1)
Interest (expense)/income
(126) 134 – 8
Administration costs
– (6) – (6)
Total (expenses)/income recognised in income statement
(130) 128 – (2)
Return on scheme assets less amounts in interest income
– (4) – (4)
Effect of changes in financial assumptions
367 – – 367
Effect of changes in demographic assumptions
(45) – – (45)
Experience gains and losses
(237) – – (237)
Investment expenses
– (10) – (10)
Other net surplus remeasurements
– – (75) (75)
Remeasurements recognised in other comprehensive income
85 (14) (75) (4)
Employer contribution
– 164 – 164
Benefit payments
340 (340) – –
Increase/(decrease) due to disposals
428 (383) – 45
Exchange adjustment
(1) – – (1)
At 31 December
(8,679) 9,410 (254) 477
Deferred tax
(1)
IAS 19 net surplus net of deferred tax
476
Notes to the consolidated statement of financial position
continued
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continued
2020
Present value of
obligations
£m
Fair value of
plan assets
£m
Other net surplus
remeasurements
£m
Net surplus/
(deficit)
£m
At 1 January
(8,681) 9,016 (141) 194
Current service costs
(6) – – (6)
Termination payments
(1) – – (1)
Interest (expense)/income
(178) 186 – 8
Administration costs
– (7) – (7)
Gains on settlements/curtailments
1 – – 1
Total (expenses)/income recognised in income statement
(184) 179 – (5)
Return on scheme assets less amounts in interest income
– 950 – 950
Effect of changes in financial assumptions
(1,000) – – (1,000)
Effect of changes in demographic assumptions
18 – – 18
Experience gains and losses
72 – – 72
Investment expenses
– (10) – (10)
Other net surplus remeasurements
– – (38) (38)
Remeasurements recognised in other comprehensive income
(910) 940 (38) (8)
Employer contribution
– 95 – 95
Benefit payments
376 (376) – –
Exchange adjustment
(2) 1 – (1)
At 31 December
(9,401) 9,855 (179) 275
Deferred tax
15
IAS 19 net surplus net of deferred tax
290
Employer contributions include
£150m
of deficit funding paid in the year to 31 December 2021. This includes an additional
£75m
of deficit funding
paid following the acquisition, on top of the
£75m
expected deficit funding contributions disclosed in the 2020 Annual Report and Accounts.
£44m
disposal of subsidiary relates to the sale of the Group’s Canadian operations and is included in the net assets disposed of in note 5 as
£35m
within other debtors and other assets and
£79m
within provisions.
The values of scheme assets are as follows:
2021
2020
UK
£m
Other
£m
Total
£m
UK
£m
Other
£m
Total
£m
Equities 124 669
579 17 596
545Government debt
6,567 49 6,616
6,514 336 6,850
Non-government debt
3,651 5 3,656
3,493 1 3,494
Derivatives – 1,061
1,041 12 1,053
1,061Property – 636
659 – 659
636Cash 11 202
86 – 86
191Other (including annuity contracts, infrastructure and
growth alternatives)
363 17 380
362 28 390
Investments
12,946 100 13,046
12,802 500 13,302
Value of asset and longevity swaps
(3,636) – (3,636)
(3,447) – (3,447)
Total assets in the schemes
9,310 100 9,410
9,355 500 9,855
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41) Post-employment benefits and obligations
continued
The scheme assets analysed by those that have a quoted market price in active markets and unquoted are as follows:
2021
2020
Total
Quoted
£m
Total
Unquoted
£m
Total
£m
Total Quoted
£m
Total
Unquoted
£m
Total
£m
Equities 106 669
568 28 596
563Government debt
6,616 – 6,616
6,850 – 6,850
Non-government debt
2,482 1,174 3,656
1,928 1,566 3,494
Derivatives 1,061 1,061
– 1,053 1,053
–Property 635 636
1 658 659
1Cash – 202
86 – 86
202Other (including annuity contracts, infrastructure and
growth alternatives)
– 380 380
– 390 390
Investments
9,753 3,293 13,046
9,544 3,758 13,302
Value of asset and longevity swaps
– (3,636) (3,636)
– (3,447) (3,447)
Total assets in the schemes
9,753 (343) 9,410
9,544 311 9,855
Where assets are classified as unquoted the valuations are:
·
Taken from the underlying managers in the case of non-developed market equity, non-UK sovereign debt, pooled non-government debt and
other pooled funds – these funds themselves will be subject to annual (or more frequent) audit
·
Provided by an independent surveyor (in the case of direct property)
·
Taken at the mark to market valuation used for collateral purposes in the case of derivative contracts
Assumptions
The weighted average principal actuarial assumptions used are:
UK Other
2021
%
2020
%
2021
%
2020
%
Assumptions used in calculation of retirement benefit obligations:
Discount rate
1.84
1.38
1.63
1.42Annual rate of inflation (RPI)
3.35
2.92
–
–Annual rate of inflation (CPI)
2.71
2.26
2.19
1.70Annual rate of increase in salaries
n/a
n/a
4.00
4.00Annual rate of increase in pensions
1
3.14
2.79
2.201.35
Assumptions used in calculation of pension net interest costs for the year:
Discount rate
1.38
2.05
1.42
1.561. For the UK the annual rate of increase in pensions shown is the rate that applies to pensions that increase at RPI subject to a cap of 5%.
Mortality rate
The mortality assumptions are set following investigations of the main schemes’ recent experience carried out by independent actuaries as
part of the most recent funding valuations. The core mortality rates assumed for the main UK schemes follow industry-standard tables with
percentage adjustments to reflect the schemes’ recent experience compared with that expected under these tables. The impact on future
mortality trends as a result of Covid-19 are still unknown, and so no adjustments were made to the mortality assumptions in this regard for the
year ending 31 December 2021.
Reductions in future mortality rates are allowed for by using the CMI 2020 tables (2020: CMI 2019 tables) with a long term improvement rate
of
1.25%
(2020: 1.25%). The weighted average assumptions imply that a current pensioner aged 60 has an expected future lifetime of
27.1
(2020: 27.0) years for males and
28.9
(2020: 28.5) years for females and a future pensioner aged 60 in 15 years’ time has a future expected lifetime from age 60 of
28.0
(2020: 28.0) years for males and 29.8
(2020: 29.7) years for females.Notes to the consolidated statement of financial position
continued
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41) Post-employment benefits and obligations
continued
Sensitivity analysis
Sensitivities for the defined benefit obligations of the two main UK schemes are shown below:
Changes in assumption
2021
£m
2020
£m
Discount rate Increase by 0.25%
(356)
(369)
Decrease by 0.25%
380
394
RPI/CPI
1
Increase by 0.25%
228
233
Decrease by 0.25%
(226)
(227)
Core mortality rates
2
Decrease by 12%
355
376
Increase by 12%
(325)
(377)
Long-term future improvements to mortality rates Increase by 0.25%
82
84
Decrease by 0.25%
(81)
(83)
1. The impact shown is for the appropriate increase in the revaluation of deferred pensions and the increases to pensions in payment resulting from the specified increase in
RPI and CPI.
2. Reducing the core mortality rates by 12% is the equivalent of increasing the life expectancy of a male aged 60 years by 1 year.
42) Provisions
2021
£m
2020
£m
Pensions and post-employment obligations (note 41)
13
104
Reorganisation provisions
8
34
Other provisions
29
34
Total provisions at 31 December
50
172
To be settled within 12 months
19
69
To be settled after 12 months
31
103
Reorganisation provisions include
£1m
(2020: £19m) relating to redundancy costs for plans which were announced to employees before the RSA
acquisition by Intact Financial Corporation and are expected to be settled before 31 December 2022. The 2021 provision predominantly relates to
redundancy costs incurred as a result of the integration of the Group into Intact Financial Corporation. See note 13 for more details of integration
costs incurred.
Other provisions include
£11m
(2020: £13m) held relating to property 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. The balance consists of a number of provisions none of which are
individually significant.
See note 41 for further information regarding the pensions and post-employment benefit obligations.
Movements during the year on reorganisation and other provisions
Reorganisation
provisions
Other
provisions
2021
£m
2021
£m
Provisions at 1 January 2021
34 34
Exchange adjustment
(1) –
Additional provisions during the year
12 27
Utilised
(30) (23)
Released
– (3)
Disposals
(7) (5)
Provisions at 31 December 2021
8 30
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43) Other liabilities
2021
£m
2020
£m
Deposits received from reinsurers
–
8
Derivatives designated as accounting hedges (note 26)
15
48
Other derivatives (note 26)
43
97
Payroll and Indirect taxes
85
170
Outstanding settlements for investment purchases
–
100
Other creditors
57
148
Accruals
283
392Deferred income
15
63
Lease liabilities (note 44)
55
204
Total other liabilities
553
1,230
To be settled within 12 months
447
927
To be settled after 12 months
106
303
The disposal of the Group’s operations in Scandinavia and Canada has reduced other liabilities by
£502m
in 2021. Refer to note 7 for further detail.44) Leases
Leases as a lessee
The Group leases land and buildings and other assets such as vehicles, IT equipment, servers and mainframes (reported as other) to operate its
business in each of its core regions. The remaining lease terms for the main office premises range from 1 to 17 years.
The Group also leases office equipment such as laptops and printers and for which certain leases are short term (1 year or less) and/or for
low value items. The Group has elected to apply recognition exemptions as permitted by IFRS 16 for these leases (see Appendix A for
accounting policy).
Information about leases for which the Group is a lessee is presented below.
Right-of-use assets
Land and
buildings
£m
Other
£m
Total
£m
Amounts recognised at transition on 1 January 2020
174 39 213
Depreciation charge for the year
(30) (12) (42)
Additions to right-of-use assets
9 3 12
Remeasurements (4) (21) (25)
Impairments (15) – (15)
Other
1
9 (1) 8
Balance at 31 December 2020
143 8 151
Depreciation charge for the year
(16) (3) (19)
Additions to right-of-use assets
4 1 5
Remeasurements
(3) – (3)
Disposals
(91) (4) (95)
Other
1
(2) – (2)
Balance at 31 December 2021
35 2 37
1. Other includes
£6m
transfer from Other debtors,
£(3)m
transfer to Investment property in respect of subleases and foreign exchange.Notes to the consolidated statement of financial position
continued
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44) Leases
continued
Impairment assessment
When testing for indicators of impairment, the key judgements and assumptions were considered:
I. Office space was distinguished between:
·
Office space that is temporarily underutilised and has not been impaired on the basis that the space will be utilised again in the future when office
working resumes
·
Office space that will remain vacant and no longer be utilised.
II. The likelihood of activating future break clauses on remaining leases where office space is still utilised have been assessed and assets
re-measured (together with associated lease liabilities) where it is likely that clauses will be invoked.
III. The recoverable amount of the right-of-use assets relating to permanently vacant office space was based on their value in use and include
several key assumptions. These include:
·
The ability to sublet and the timing of agreements, if considered possible
·
The level of rent charged
·
The discount rate which is assumed to be the Group weighted average cost of capital (WACC)
·
Identification of other relevant cash flows to include such as future service charges and insurance
There were no impairments identified in 2021. The key judgements and assumptions used in measuring the recoverable amounts of the impaired
right of use assets are not deemed materially sensitive.
Lease liabilities
Lease liabilities of
£55m
(2020: £204m) are included within other liabilities in the consolidated statement of financial position (see note 43). The maturity analysis of this balance can be found in note 6.
A reconciliation of lease liabilities is presented below.
2021
£m
2020
£m
Balance at 1 January
204
258
Lease payments
(27)
(50)
Additions to lease liabilities
5
12
Remeasurements
(12)
(25)Interest on lease liabilities
3
6
Disposals
(116)
–Foreign exchange
(2)
3
Balance at 31 December
55
204
Other amounts recognised in profit or loss from continuing operations
Leases under IFRS 16
2021
£m
2020
£m
Interest on lease liabilities
3
3
Expenses relating to leases of low-value assets
–
1
Expenses relating to variable lease payments
8
4
Amounts recognised in statement of cash flows
2021
£m
2020
£m
Total cash outflow for leases
35
61
Total cash outflow for leases primarily relates to lease payments, with the principal and interest portion recognised separately within financing
activities in the consolidated statement of cash flows. It also includes payments for leases of low value assets and variable lease payments which
are reported within operating activities.
Leases as a lessor
The Group leases out its investment property consisting of freehold and leasehold land and buildings, as disclosed in note 25. All leases are
classified as operating leases from a lessor perspective with the exception of sub-leases, which the Group has classified as finance sub-leases.
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44) Leases
continued
Finance leases
The Group has sub-let office floor space in the UK for which the head leases have been presented as part of the land and buildings right-of-use
asset. The sub-leases have been classified as finance leases because the sub-lease is for the whole remaining term of the head lease. The net
investments in the subleases have been reported within other debtors.
During 2021, on a continuing basis the Group recognised interest income on lease receivables of
£nil
(2020: £nil).
The following table sets out a maturity analysis of lease receivables, showing the undiscounted lease payments to be received after the
reporting date.
Land and buildings
2021
£m
2020
1
£m
Less than one year
2
2
One to two years
2
3
Two to three years
2
2
Three to four years
2
2
Four to five years
–
2
More than five years
–
3
Total undiscounted lease receivable
8
14
Unearned finance income
–
(1)
Net investment in the lease
8
13
1. Includes
£5m
net investment in the lease relating to Canada.
Operating leases
The Group leases out its investment property and has classified these leases as operating leases because they do not transfer substantially all of
the risks and rewards incidental to the ownership of the assets.
During 2021, the Group recognised
£17m
of rental income within its net investment return (2020: £18m).The following table sets out a maturity analysis of lease receivables, showing the undiscounted lease payments to be received after the
reporting date.
Land and buildings
2021
£m
2020
£m
Less than one year
17
15
One to two years
16
15
Two to three years
15
14
Three to four years
15
11
Four to five years
13
10
More than five years
73
41
Total
149
106
Notes to the consolidated statement of financial position
continued
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45) Reconciliation of cash flows from operating activities
The reconciliation of net profit before tax to cash flows from operating activities is as follows:
Notes
2021
£m
2020
£m
Cash flows from operating activities
Profit for the year before tax
9
4,332
483Adjustments for non-cash movements in net profit for the year
Amortisation of available for sale assets
37
49
Depreciation and impairment of tangible assets
24/44
35
74Amortisation and impairment of intangible assets and goodwill
23
60
100Fair value (gains) / losses on financial assets
(46)
–
Impairment charge on available for sale financial assets
18
32
Share of profit of associates
–
(1)
(Gain)/Loss on disposal of businesses
8
(4,395)
6Derecognition of intangibles
73
5
Share based payments
28
19
Other non-cash movements
13
(32)
Changes in operating assets/liabilities
Loss and loss adjustment expenses
293
(41)
Unearned premiums
140
48
Movement in working capital
(160)
(40)
Reclassification of investment income and interest paid
(122)
(282)
Pension deficit funding
41
(150)
(75)Cash generated from investment of insurance assets
Dividend income
16
28
Interest and other investment income
185
288
Cash flows from operating activities
357
661
46) Reconciliation of movements of liabilities arising from financing activities
The table below details changes in liabilities arising from the Group’s financing activities.
Issued
debt
£m
Accrued
interest
payable on
issued debt
£m
Lease
liabilities
£m
Borrowings
from credit
institutions
under
repurchase
agreements
£m
Total
£m
Balance at 1 January 2021
751 7 204 121 1,083
Changes from financing cash flows
Redemption of debt instruments
(642) – – – (642)
Payment of lease liabilities
– – (24) – (24)
Net movement in other borrowings
1
– – – (71) (71)
Interest paid
– (23) (3) – (26)
Total changes from financing cash flows
(642) (23) (27) (71) (763)
Acquisition / Disposal of subsidiary
– – (116) (46) (162)
The effect of changes in foreign exchange rates
– – (2) (4) (6)
Interest Charge
2
56 18 3 – 77
Other changes
– – (7) – (7)
Balance at 31 December 2021
165 2 55 – 222
1. This movement represents cash repayments of repurchase agreements and bank overdrafts and excludes the effects of the Scandinavian repurchase agreements
disposed and the changes in foreign exchange rates (separately disclosed).
2. The interest charge for issued debt includes
£53m
relating to premiums on debt buyback (see note 37 for further information).
Notes to the consolidated statement of cash flows
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46) Reconciliation of movements of liabilities arising from financing activities
continued
Issued
debt
£m
Accrued
interest
payable on
issued debt
£m
Lease
liabilities
£m
Borrowings from
credit institutions
under repurchase
agreements
£m
Total
£m
Balance at 1 January 2020
750 7 258 146 1,161
Changes from financing cash flows
Payment of lease liabilities
– – (44) – (44)
Net movement in other borrowings
– – – (33) (33)
Interest paid
– (27) (6) – (33)
Total changes from financing cash flows
– (27) (50) (33) (110)
The effect of changes in foreign exchange rates
– – 4 8 12
Interest Charge
– 27 6 – 33
Other changes
1 – (14) – (13)
Balance at 31 December 2020
751 7 204 121 1,083
Other commitments, contingent liabilities and events after the reporting period
47) Other commitments
Capital commitments
The Group’s significant capital commitments in respect of investment property, property and equipment and intangible assets are detailed in the
table below:
2021
£m
2020
£m
Investment Property
3
23
Property and equipment
7
8
Intangible assets
9
21
Total
19
52
Funding commitments to structured entities and invested assets
The future commitments to structured entities are disclosed in note 28 of these financial statements. In addition, the Group has committed to
invest
£464m
(2020: £319m) in other classes of investments.
48) Other contingent liabilities
The Group receives liability claims and becomes involved in actual or threatened litigation during the ordinary course of its business operations.
The Group reviews and, in the opinion of the directors, maintains sufficient provisions, capital and reserves in respect of such claims.
In addition, the Group has given guarantees, indemnities and warranties in relation to the disposals of its businesses and business interests
to external parties. These are kept under review and, in the opinion of the directors, no material loss will arise in respect of these guarantees,
indemnities and warranties.
A small number of litigation claims for unpaid BI claims have been filed outside of the UK FCA test case in other regions. RSA conducts a thorough
claims assessment process for all BI claims received. Most BI coverages are not expected to be eligible under their terms for Covid-19 claims.
Consequently claims reserves are held in accordance with our view of prospects of success.
49) Events after the reporting period
The Group has limited direct underwriting or investment exposure to the war between Ukraine and Russia and is vigilant in its adherence to
sanctions. The situation will continue to be closely monitored for any indirect impacts that could emerge.
On 7 March 2022 the Company gave notice of redemption to the holders of the two floating rate Restricted Tier 1 notes. The Tier 1 notes will
be redeemed at their principal amount together with accrued and unpaid interest up to (but excluding) the first call date on 27 March 2022.
Notes to the consolidated statement of cash flows
continued
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Appendices
Appendix A: Other accounting policies
Subsidiaries
Subsidiaries are entities over which the Group has control. The Group controls a subsidiary if the Group has all of the following:
·
Power over the subsidiary
·
Exposure, or rights, to variable returns from its involvement with the subsidiary
·
The ability to use its power over the subsidiary to affect its returns
Subsidiaries are fully consolidated from the date on which control is entitled by the Group. They are deconsolidated from the date that
control ceases.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group.
The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at
the date of acquisition.
For business combinations completed on or after 1 January 2010 the cost of acquisition includes the fair value of deferred and contingent
consideration at the acquisition date and subsequent changes in the carrying value of the consideration are recognised in the consolidated
income statement. For business combinations completed prior to 31 December 2009, the cost also includes costs directly attributable to the
acquisition and the value of contingent consideration on settlement.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at
the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the cost of acquisition over the fair value of the Group’s
share of the identifiable net assets acquired is recognised as goodwill. If the cost of acquisition is less than the fair value of the net assets of the
subsidiary acquired, the difference is recognised directly in the consolidated income statement.
Changes in the ownership interests of a subsidiary between shareholders of the Group and shareholders holding a non-controlling interest
are accounted for as transactions between equity holders of the Group. Any difference between the fair value of the consideration given by the
transferee and the carrying value of the ownership interest transferred is recognised directly in equity.
Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated on consolidation.
Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of
subsidiaries are aligned to ensure consistency with the policies adopted by the Group.
Investment in associates
Associates are entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20%
and 50% of the voting rights. Investments in associates are accounted for by the equity method of accounting and are initially recognised at cost.
The Group’s share of its associates’ profits or losses are recognised in the consolidated income statement and its share of comprehensive
income is recognised in the consolidated statement of comprehensive income. The cumulative post acquisition movements are adjusted in
the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including
any unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of
the associate.
Adjustments are made on consolidation, where necessary, to the accounting policies of associates to ensure consistency with the policies
adopted by the Group.
Translation of foreign operations
The results and financial position of subsidiaries and associates whose functional currency is not Sterling are translated into Sterling as follows:
·
Assets and liabilities for each statement of financial position presented are translated at closing exchange rates at the end of the period
·
Income and expenses for each income statement are translated at average exchange rates during each period
·
All resulting exchange differences are recognised in other comprehensive income and accumulated in the foreign currency translation reserve
On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of borrowings and other currency
instruments designated as hedges of such investments, are recognised in other comprehensive income within the foreign currency translation
reserve. Further information can be found in note 22. When a foreign entity is sold, the cumulative exchange differences relating to that foreign
entity are recognised in the consolidated income statement as part of the gain or loss on disposal.
Foreign currency transactions
Foreign currency transactions are translated into the functional currency of the Group’s business operations using the exchange rates prevailing at
the time of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year
end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the consolidated income statement.
Internal loans
Where non-Sterling loans are provided by RSA Insurance Group Limited to its subsidiaries, the settlement of which is neither planned nor likely to
occur in the foreseeable future, they are treated as part of its net investment in subsidiary in the consolidated financial statements which results in
foreign exchange gains and losses being recognised in revaluation reserves.
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Appendix A: Other accounting policies
continued
Hedge accounting
Transactions are classified as hedging transactions when the following conditions for hedge accounting are met:
·
There is a formal designation and documentation of the hedging relationship and the Group’s risk management objective and strategy for
undertaking the hedge
·
The hedge is expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk,
consistent with the originally documented risk management strategy for that particular hedging relationship
·
The effectiveness of the hedge can be reliably measured
·
The hedge is assessed on an ongoing basis and determined to have been highly effective
Hedge of a net investment in a foreign operation
Where a foreign exchange derivative is designated as a hedging instrument against a net investment in foreign operations, the effective portion
of the hedge is recognised in other comprehensive income; the gain or loss relating to the ineffective portion is recognised immediately in
the consolidated income statement. At the point at which the net investment in the foreign operation is derecognised, the gains and losses
accumulated in other comprehensive income are transferred to the consolidated income statement.
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.
For foreign exchange options the hedge designation is to hedge the value of the foreign operations at the strike price at the exercise date of
the option.
Hedge of future cash flows
Where a derivative is designated as a hedging instrument against the cash flows from a fixed interest security, the gains and losses arising from the
change in fair value of the derivative are recognised initially in other comprehensive income in the cash flow hedge reserve. This amount is adjusted
to be the lesser of the cumulative gain or loss on the derivative and the cumulative change in fair value of the expected future cash flows of the
security, both since the inception of the hedge.
The accumulated amount in the cash flow hedge reserve, is reclassified to the consolidated income statement in the period in which the hedged
cash flows affect profit or loss.
Hedge of changes in fair value
Where a derivative is designated as a hedging instrument in a fair value hedge of the changes in value of a fixed interest security, the gains and
losses arising from the change in fair value of the derivative are recognised in the consolidated income statement. The change in fair value of
the hedged investments (classified as available for sale) that are attributable to the hedged risk is transferred from the revaluation reserve to the
consolidated income statement.
Property and equipment
Property and equipment is comprised of Group occupied land and buildings and other equipment (comprising of fixtures, fittings and other
equipment including computer hardware and motor vehicles) and is initially recognised at cost.
Group occupied property is stated at fair value, less subsequent depreciation for buildings. The fair value methodology is set out in note 27.
Increases in the carrying amount arising on revaluation are recognised in other comprehensive income and credited to a separate revaluation
reserve within equity. Decreases in the carrying amount arising on revaluation are recognised in other comprehensive income and reduce the
revaluation reserve, to the extent they offset previous revaluation increases; further decreases are charged to the consolidated income statement.
Buildings are depreciated to their residual value on a straight line basis over the useful economic life of the building; depreciation is charged to
the consolidated income statement except where a building has been revalued upwards, in which case the amount of the depreciation relating
to the difference between the buildings revalued amount and the original cost is transferred from revaluation reserve to retained earnings. Land is
not depreciated.
All other equipment is stated at cost less accumulated depreciation and accumulated impairment. 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 benefits to the Group, and the cost can be measured reliably.
The estimated useful lives of property and equipment are as follows:
Group occupied buildings normally 30 years
Fixtures and fittings 10 years
Equipment 3 – 5 years
Appendices
continued
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Appendix A: Other accounting policies
continued
The useful economic life and residual value are reviewed on an annual basis. Where the carrying value of an asset is deemed to be greater than
its recoverable amount the asset is impaired. Impairment losses on non-revalued assets are recognised in the consolidated income statement.
Impairment losses on revalued assets are recognised in other comprehensive income to the extent that the impairment loss does not exceed the
amount in the revaluation surplus for that same asset. Impairment losses may be subsequently reversed if there is a change in the estimates used
to determine the asset’s recoverable amount since the last impairment loss was recognised. If this is the case, the increased carrying amount of an
asset shall not exceed the carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals
of impairment losses are recognised in the consolidated income statement except for reversals of impairment losses on revalued assets which are
recognised in other comprehensive income similarly to the initially recorded impairment loss.
Gains and losses on disposal are recognised based on the carrying amount of the asset. On disposal of buildings, any associated revaluation
surplus is transferred to retained earnings.
Investment property and rental income
Investment property is stated at fair value. The fair value methodology is set out in more detail in note 27. Unrealised gains and unrealised losses
are recognised in net investment return in the consolidated income statement. Rental income from operating leases on investment property is
recognised in the consolidated income statement on a straight line basis over the length of the lease.
Policy acquisition costs
Policy acquisition costs incurred in acquiring insurance contracts include commissions and premium levies directly related to the writing or renewal
of insurance policies. These acquisition costs are deducted from unearned premiums and recognised in the consolidated income statement on
the same basis as the unearned premiums.
Issued debt
Issued debt comprises subordinated bonds and senior notes which are initially measured at the consideration received less transaction costs.
Subsequently, issued debt is measured at amortised cost using the effective interest rate method.
Provisions
A provision is recognised when the Group has a present legal or constructive obligation as a result of past events that are more likely than not to
result in an outflow of economic resources in order to settle the obligation, and the amount of that outflow can be reliably estimated.
Contingent liabilities
A contingent liability is disclosed if the Group has a possible future obligation as a result of past events, and either the amount of the expected
future outflow of economic resources or the likelihood of payment cannot be reliably estimated.
Termination benefits
Termination benefits are payable when either employment is terminated by the Group before the normal retirement date, or whenever an employee
accepts voluntary redundancy in exchange for these benefits. Termination benefit expenses are recognised in the income statement at the earlier
of the date when the Group can no longer withdraw the offer and the date when any related restructuring costs are recognised. Benefits falling due
more than 12 months after the end of the reporting period are discounted to present value.
Own shares
Own shares are deducted from equity. No gain or loss is recognised on the purchase, sale, issue or cancellation of shares. Any consideration paid
or received is recognised directly in equity.
Other operating income
Other operating income is comprised principally of:
·
Administration fee income: is received from policyholders in order for certain changes to their policy or policyholder details within their period of
cover and is recognised in full on the date that the change is made.
·
Premium policy instalment fee income: is received from policyholders as a finance charge on premiums paid in instalments and is recognised
over the period that the instalments are made on a straight line basis.
·
Introductory commission income is received from third parties for introducing business to them and is recognised when the introduction
is made.
·
Service income refers to income received for operating a settlement function primarily for the Group and its Global Network Partners which is
recognised over the period in which service is provided whilst the relevant business is earned.
·
Reinsurance commissions are recognised over the same period in which relevant expenses are recognised.
Share-based payments
The fair value of the employee share options and other equity settled share-based payments is calculated at the grant date and recognised
as an expense over the vesting period. The vesting/maturity of share awards can be dependent on service and performance conditions, as
well as market conditions. The assumption of the number of shares expected to vest is revised at the end of each reporting period, with the
corresponding credit or charge recognised immediately in the income statement. Where an option is cancelled by an employee, the full value of
the option (less any value previously recognised) is recognised at the cancellation date. The proceeds received by RSA upon exercise of share
options are credited to share capital (nominal value) and share premium, with a corresponding increase in equity.
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Appendix A: Other accounting policies
continued
The cash-settled awards are recognised as an expense over the vesting period with a corresponding financial liability reported in other liabilities.
This liability is remeasured at each reporting date based on the current share price, with any fluctuations in the liability also recorded as an expense
until it is settled.
Further information on the share schemes the Group operates can be found in note 20.
Dividends
The final dividend is recognised as a liability when approved at the Annual General Meeting.
Leases
The Group as lessee
A lease liability and right-of-use asset is recognised for all lease obligations the Group has as a lessee, except for the following recognition
exemptions that the Group has elected to use: lease contracts that at the commencement date have a lease term of 12 months or less and that
do not contain a purchase option and lease contracts for which the underlying asset is of low value.
The lease liability is recognised at the inception of a lease as the present value of the fixed and certain variable lease payments, plus any
guaranteed residual values, any termination penalties if the lease term assumes termination options will be exercised, and the purchase option
value if it is reasonably certain that it will be exercised.
Interest is accrued on the lease liability based on the discount rate at commencement of the lease, and is accounted for in finance costs.
The discount rate is the rate implicit in the lease, except where this rate cannot be readily determined, in which case the Group’s incremental
borrowing rate is used. Subsequent payments are deducted from the lease liability.
The right-of-use asset is initially measured as the value of the lease liability, adjusted for any initial direct costs incurred to obtain the lease
restoration provisions and any lease payments made before the commencement of the lease.
The right-of-use asset is subsequently measured at cost less accumulated depreciation and impairment losses. It is depreciated over the shorter
of the useful life or the period of the contract on a straight line basis. The Group applies IAS 36 to determine whether a right-of-use asset is
impaired and accounts for any identified impairment loss as described in the ‘Property and equipment’ policy.
The lease liability is subsequently re-measured when there are changes in lease term, in the expectation regarding whether a purchase option
would be exercised or not, in any expected residual value guarantee or changes in variable lease payments that are dependent upon an index or
rate (from the date that these take effect).
Remeasurements in the lease liability are reflected in the measurement of the corresponding right-of-use asset with reductions being restricted to
the carrying value with any remaining remeasurement being recognised in the consolidated income statement.
The Group as lessor
Where the Group act as a lessor the lease will be classified as a finance lease if it transfers substantially all the risk and rewards incidental to
ownership of the underlying asset, or otherwise as an operating lease (refer to ‘Investment property and rental income’ policy).
When the Group is an intermediate lessor, it accounts for the head lease and the sub-lease as two separate contracts. The sub-lease is classified
as a finance or operating lease by reference to the right-of-use asset arising from the head lease.
Amounts due from lessees under finance leases are recognised as receivables within Other debtors at the amount of the Group’s net investment
in the lease. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net
investment outstanding in respect of the leases.
Finance lease income is calculated with reference to the gross carrying amount of the lease receivables.
Appendix B: Exchange rates
The rates of exchange used in these accounts in respect of the major overseas currency are:
Local currency/£
2021
2020
Average Closing
Average Closing
United States Dollar
1.37 1.35
1.28 1.37
Canadian Dollar
1.72 1.71
1.72 1.74
Euro 1.12
1.16 1.19
1.13Swedish Krona
11.80 12.26
11.81 11.22
Danish Krone
8.65 8.86
8.39 8.31
Appendices
continued
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Appendix C: Subsidiaries and associates
Unless otherwise stated, the share capital disclosed comprises ordinary shares (or equivalent) which are 100% held within the Group. All of the
subsidiaries listed are wholly owned within the Group and included in the consolidated accounts.
The proportion of voting power held equals the proportion ownership interest unless indicated.
Name and country of
incorporation
Registered office addresses
Class of
shares held
Percentage
Holding (%)
Bahrain
Royal & Sun Alliance
Insurance (Middle
East) BSC (c)
Impact House, Building,
office no. 21, 2nd floor,
Building no. 662, Road no.
2811, Black no. 428, Al Seef,
Manama, Kingdom of Bahrain
50.00002
Brazil
Royal & Sun Alliance
Insurance ltd –
Escritório de
Representação
no Brasil Ltda.
Avenida Major Sylvio de
Magalhães Padilha, 5200,
America Business Park, Ed.
Dallas, conj. 31, sala 02,
Jardim Morumbi, Zip Code
05693-000, City of São Paulo,
State of São Paulo, Brazil
Guernsey
Insurance
Corporation of the
Channel Islands
Limited
Dixcart House, Sir William
Place, St. Peter Port,
Guernsey, GY1 4EY
Insurance
Corporation Service
Company Limited
Dixcart House, Sir William
Place, St. Peter Port,
Guernsey, GY1 4EY
India
RSA Actuarial
Services (India)
Private Limited
7
First Floor, Building 10 C,
Cyber City Complex, DLF
Phase II, Gurgaon, Haryana,
122002, India
Ireland
123 Money Limited
4,7
RSA House, Dundrum Town
Centre, Sandyford Road,
Dublin 16, Ireland
B1 Ordinary
123 Money Limited
4,7
RSA House, Dundrum Town
Centre, Sandyford Road,
Dublin 16, Ireland
B2 Ordinary
123 Money Limited
4,7
RSA House, Dundrum Town
Centre, Sandyford Road,
Dublin 16, Ireland
B3 Ordinary
123 Money Limited
4,7
RSA House, Dundrum Town
Centre, Sandyford Road,
Dublin 16, Ireland
B4 Ordinary
123 Money Limited
4,7
RSA House, Dundrum Town
Centre, Sandyford Road,
Dublin 16, Ireland
B5 Ordinary
123 Money Limited
4,7
RSA House, Dundrum Town
Centre, Sandyford Road,
Dublin 16, Ireland
C Ordinary
123 Money Limited
7
RSA House, Dundrum Town
Centre, Sandyford Road,
Dublin 16, Ireland
123 Money Limited
7
RSA House, Dundrum Town
Centre, Sandyford Road,
Dublin 16, Ireland
€1
redeemable
shares
Benchmark
Underwriting
Limited
7
RSA House, Dundrum Town
Centre, Sandyford Road,
Dublin 16, Ireland
EGI Holdings
Limited
7
RSA House, Dundrum Town
Centre, Sandyford Road,
Dublin 16, Ireland
RSA Insurance
Ireland DAC
RSA House, Dundrum Town
Centre, Sandyford Road,
Dublin 16, Ireland
Name and country of
incorporation
Registered office addresses
Class of
shares held
Percentage
Holding (%)
RSA Overseas
Holdings (No 1)
Unlimited Company
7
RSA House, Dundrum Town
Centre, Sandyford Road,
Dublin 16, Ireland
RSA Overseas
Holdings (No. 2)
Unlimited Company
7
RSA House, Dundrum Town
Centre, Sandyford Road,
Dublin 16, Ireland
RSA Reinsurance
Ireland Limited
RSA House, Dundrum Town
Centre, Sandyford Road,
Dublin 16, Ireland
RSA Broker
Motor Insurance
Ireland Limited
(previously Sertus
Underwriting Limited)
7
RSA House, Dundrum Town
Centre, Sandyford Road,
Dublin 16, Ireland
Isle of Man
RSA Isle of Man
No.1 Limited
7
33-37 Athol Street, Douglas,
IM1 1LB, Isle of Man
Royal Insurance
Service Company
(Isle of Man) Limited
7
Jubilee Buildings,
1 Victoria Street, Douglas,
IM99 1BF, Isle of Man
Tower Insurance
Company Limited
Jubilee Buildings,
1 Victoria Street, Douglas,
IM99 1BF, Isle of Man
Luxembourg
RSA Luxembourg
S.A.
7
40 rue du Cure,
L-1368 Luxembourg
Netherlands
IDIP Direct
Insurance B.V.
7
20 Fenchurch Street, London,
EC3M 3AU, United Kingdom
Intouch Insurance
Group B.V.
7
20 Fenchurch Street, London,
EC3M 3AU, United Kingdom
RSA Overseas
(Netherlands) B.V.
7
20 Fenchurch Street, London,
EC3M 3AU, United Kingdom
RSA Overseas
Holdings B.V.
7
20 Fenchurch Street, London,
EC3M 3AU, United Kingdom
GDII – Global
Direct Insurance
Investments V.O.F.
7
Wilhelminakade 97-99, 3072
AP Rotterdam, Netherlands
Partnership
Interest
Royal Insurance
Global B.V.
7
Wilhelminakade 97-99, 3072
AP Rotterdam, Netherlands
Oman
Al Ahlia Insurance
Company SAOG
6
PO Box 1463, PC112,
Ruwi, Oman
52.50
Saudi Arabia
Al Alamiya for
Cooperative
Insurance Company
6
Office No.203, 2nd Floor,
Home Centre Building, Tahlia
Street, Suleymaniyah, Riyadh,
Kingdom of Saudi Arabia
50.07
United Kingdom
Centrium
Management
Company Limited
3
5th Floor, United Kingdom
House, 180 Oxford Street,
London, W1D 1NN, United
Kingdom
31.45
Punchbowl Park
Management
Limited
3,5
10 Buckingham Gate, London,
SW1E 6LA, United Kingdom
65.09
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Name and country of
incorporation
Registered office addresses
Class of
shares held
Percentage
Holding (%)
Eurotempest
Limited
3
c/o UCL Business Plc,
The Network Building 97,
Tottenham Court Road,
London, W1T 4TP,
United Kingdom
33.33
Polaris U.K.
Limited
3
New London House, 6 London
Street, London, EC3R 7LP,
United Kingdom
25.38
RSA Northern Ireland
Insurance Limited
7
Law Society House,
90-106 Victoria Street, Belfast,
BT1 3GN, Northern Ireland
Emersons Green
Management
Company
The Old Council Chambers,
Halford Street, Tamworth,
England
33.00
Aztec West
Management
Company
Minton Place, Station Road,
Swindon, SN1 1DA
3.00
Hempton Court
Manco Limited
3,5
7 Seymour Street, London,
W1H 7JW
66.66
Alliance Assurance
Company Limited
7
St Mark’s Court, Chart Way,
Horsham, West Sussex,
RH12 1XL, United Kingdom
National Vulcan
Engineering Insurance
Group Limited
7
St Mark’s Court, Chart Way,
Horsham, West Sussex,
RH12 1XL, United Kingdom
Regent SubCo
Limited
1 Bartholomew Lane, London,
EC2N 1AX, United Kingdom
Non-Destructive
Testers Limited
7
St Mark’s Court, Chart Way,
Horsham, West Sussex,
RH12 1XL, United Kingdom
R&SA Global
Network Limited
7
St Mark’s Court, Chart Way,
Horsham, West Sussex,
RH12 1XL, United Kingdom
64.00
R&SA Marketing
Services Limited
7
St Mark’s Court, Chart Way,
Horsham, West Sussex,
RH12 1XL, United Kingdom
Royal & Sun
Alliance Insurance
(Global) Limited
7
St Mark’s Court, Chart Way,
Horsham, West Sussex,
RH12 1XL, United Kingdom
Royal & Sun
Alliance Insurance
Limited
St Mark’s Court, Chart Way,
Horsham, West Sussex, RH12
1XL, United Kingdom
Class A
Ordinary
Royal & Sun
Alliance Insurance
Limited
4, 8
St Mark’s Court, Chart Way,
Horsham, West Sussex,
RH12 1XL, United Kingdom
Class B
Ordinary
Royal & Sun
Alliance Pension
Trustee Limited
7
St Mark’s Court, Chart Way,
Horsham, West Sussex,
RH12 1XL, United Kingdom
Royal & Sun
Alliance Property
Services Limited
7
St Mark’s Court, Chart Way,
Horsham, West Sussex,
RH12 1XL, United Kingdom
Royal & Sun
Alliance Reinsurance
Limited
St Mark’s Court, Chart Way,
Horsham, West Sussex,
RH12 1XL, United Kingdom
Royal Insurance
Holdings Limited
1,7
St Mark’s Court, Chart Way,
Horsham, West Sussex,
RH12 1XL, United Kingdom
Royal Insurance
(U.K.) Limited
7
St Mark’s Court, Chart Way,
Horsham, West Sussex,
RH12 1XL, United Kingdom
Royal International
Insurance
Holdings Limited
7
St Mark’s Court, Chart Way,
Horsham, West Sussex,
RH12 1XL, United Kingdom
£1.00
Ordinary
Royal International
Insurance
Holdings Limited
7
St Mark’s Court, Chart Way,
Horsham, West Sussex,
RH12 1XL, United Kingdom
US$1.00
Ordinary
Name and country of
incorporation
Registered office addresses
Class of
shares held
Percentage
Holding (%)
Roysun Limited
7
St Mark’s Court, Chart Way,
Horsham, West Sussex,
RH12 1XL, United Kingdom
RSA Accident
Repairs Limited
7
St Mark’s Court, Chart Way,
Horsham, West Sussex,
RH12 1XL, United Kingdom
RSA Finance
7
St Mark’s Court, Chart Way,
Horsham, West Sussex,
RH12 1XL, United Kingdom
RSA Law Limited
7
St Mark’s Court, Chart Way,
Horsham, West Sussex,
RH12 1XL, United Kingdom
90.00
Sal Pension
Fund Limited
1,7
St Mark’s Court, Chart Way,
Horsham, West Sussex,
RH12 1XL, United Kingdom
99.99
Sun Alliance
and London
Insurance Limited
7
St Mark’s Court, Chart Way,
Horsham, West Sussex,
RH12 1XL, United Kingdom
Sun Alliance
Insurance
Overseas Limited
7
St Mark’s Court, Chart Way,
Horsham, West Sussex,
RH12 1XL, United Kingdom
Sun Alliance
Mortgage
Company Limited
1,7
St Mark’s Court, Chart Way,
Horsham, West Sussex,
RH12 1XL, United Kingdom
Sun Insurance
Office Limited
7
St Mark’s Court, Chart Way,
Horsham, West Sussex,
RH12 1XL, United Kingdom
The London
Assurance
7
St Mark’s Court, Chart Way,
Horsham, West Sussex,
RH12 1XL, United Kingdom
The Globe Insurance
Company Limited
7
St Mark’s Court, Chart Way,
Horsham, West Sussex,
RH12 1XL, United Kingdom
The Marine Insurance
Company Limited
St Mark’s Court, Chart Way,
Horsham, West Sussex,
RH12 1XL, United Kingdom
The Sea Insurance
Company Limited
7
St Mark’s Court, Chart Way,
Horsham, West Sussex,
RH12 1XL, United Kingdom
Westgate
Properties Limited
7
St Mark’s Court, Chart Way,
Horsham, West Sussex,
RH12 1XL, United Kingdom
United States
Royal & Sun
Alliance Insurance
Agency Inc.
9
Wall Street Plaza,
88 Pine Street, New York,
NY 10005, United States
1. Directly owned by the Parent Company RSA Insurance Group Limited.
2. No subsidiary holds a disclosable interest in the shares of RSA Insurance
Group Limited.
3. Indicates that the holding represents an Investment or is an Associate of
the Group.
4. Indicates ownership of non-voting shares.
5. There is no subsidiary where the Group holds less than 50% of the voting rights.
There are no entities where the Group holds more than 50% of the voting rights
which are not subsidiaries other than Punchbowl and Hempton Court Manco.
6. In relation to Al Ahlia Insurance Company SAOG (listed on the Muscat Securities
Market, Oman Stock Exchange) and Al Alamiya for Cooperative Insurance
Company (listed on the Tadawul, Saudi Stock Exchange), the percentage held
relates to the actual percentage of the share capital held and not the effective
percentage held (which is 26.25% and 25.04% respectively).
7. Indicates companies within the Group that apply IFRS 9 and disclose relevant
information in their own published financial statements in addition to that already
included in these consolidated financial statements.
8. Intact Financial Corporation hold 73.54% of the share capital of Royal & Sun
Alliance Insurance Limited in non-voting “nil-paid” shares.
9. Royal & Sun Alliance Insurance Agency Inc. was sold and transferred out of the
RSA Group effective 1 January 2022.
Appendix C: Subsidiaries and associates
continued
Appendices
continued
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Appendix D: Jargon buster and alternative performance measures reconciliations
Jargon buster
Term Definition
Affinity
Selling insurance through a partner’s distribution network, usually to a group of similar customers e.g. store-card
holders, alumni groups, unions and utility company customers.
Attritional Loss Ratio
This is the claims ratio (net incurred claims and claims handling expense as a proportion of net earned premium)
of our business prior to volatile impacts from weather, large losses and prior-year reserve developments.
Available for Sale (AFS)
A class of financial asset that is neither held for trading nor held to maturity.
Business Operating Result
Business operating result represents profit before tax adjusted to add back other charges.
Claims Frequency
Average number of claims per policy over the year.
Claims Handling Expenses
The administrative cost of processing a claim (such as salary costs, costs of running claims centres,
allocated share of the costs of head office units) which are separate to the cost of settling the claim itself
with the policyholder.
Claims Ratio (Loss Ratio)
Percentage of net earned premiums that is paid out in claims and claims handling expenses.
Claims Reserve (Provision
for Losses and Loss
Adjustment Expenses)
A provision established to cover the estimated cost of claims payments and claims handling expenses that are
still to be settled and incurred in respect of insurance cover provided to policyholders up to the reporting date.
Claims Severity
Average cost of claims incurred over the period.
Combined Operating
Ratio (COR)
A measure of underwriting performance being the ratio of underwriting expenses (claims, commissions and
expenses) expressed in relation to earned premiums:
COR = loss ratio + commission ratio + expense ratio, where
Loss ratio = net incurred claims/net earned premiums
Commission ratio = commissions/net earned premiums
Expense ratio = underwriting and policy acquisition costs less other insurance income/net earned premiums
Commission
An amount paid to an intermediary such as a broker for introducing business to the Group.
Current Year Loss Ratio
The claims ratio relating to business for which insurance cover has been provided during the current financial
period. This does not include claims development recognised in the current reporting period relating to prior
accident years.
Current Year
Underwriting Result
The profit or loss earned from business for which insurance cover has been provided during the current financial
period. This does not include performance impacts recognised in the current reporting period relating to prior
accident years.
Customer Retention
A measure of the amount of business that is renewed with us each year.
Expense Ratio
Underwriting and policy acquisition expenses less other insurance income expressed as a percentage of net
earned premium.
Financial Conduct
Authority (FCA)
The regulatory authority with responsibility for the conduct of the UK financial services industry.
Gross Written
Premium (GWP)
Total revenue generated through sale of insurance products. This is before taking into account reinsurance and
is stated irrespective of whether payment has been received.
Group Catastrophe
programme (Cat)
Reinsurance purchased by the Group to protect against a catastrophic event, usually a large number of losses
accumulating over a short period of time. Losses can arise worldwide from either natural peril, for example
hurricane, windstorm, flood and earthquake, or from man-made perils, for example explosion, fire. Individual losses
are aggregated and, when the respective Catastrophe retention is exceeded, a reinsurance recovery is made.
Group Volatility
Cover (GVC)
This is an aggregate reinsurance cover purchased by the Group to protect against the accumulation of “smaller/
medium” single or event type losses. In 2020, individual large losses and catastrophe events were covered in full
if they exceeded the £10m franchise level. In 2021, the qualifying criteria for catastrophe losses were unchanged
but individual large losses qualified based on a £5m excess (the £10m in/out trigger no longer applied). GVC
reinsurers get the inuring benefit of our main excess of loss programmes. Cover attaches once the aggregate
deductible is breached. This reinsurance provides protection world-wide for all short tail classes of business other
than marine large losses.
Investment Result
Investment result is the money we make from our investments on a management basis. It comprises
the major component of net investment return, investment income, in addition to unwind of discount and
investment expenses.
Large Losses
Single claim or all claims arising from a single loss event with a net cost of £0.5m or higher.
Large Loss Ratio
The large loss ratio is an expression of claims incurred in the period with a net cost of £0.5m or higher as a
percentage of current year net earned premium over the same period.
Net Earned Premium (NEP)
The proportion of premium written, net of the cost of associated reinsurance, which represents the consideration
charged to policyholders for providing insurance cover during the reporting period.
Net Incurred Claims (NIC)
The total claims cost incurred in the period less any share that is borne by reinsurers. It includes both claims
payments and movements in claims reserves and claims handling expenses in the period.
Net Written Premium (NWP)
Premium written or processed in the period, irrespective of whether it has been paid, less the amount shared
with reinsurers.
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Term Definition
Other charges
Other charges represents items that are excluded to arrive at business operating result.
Item
Reason for classification
Amortisation of
intangible assets
To allow meaningful assessment of segmental performance where similar internally
generated assets are not capitalised.
Economic
assumption changes
To allow assessment of performance excluding the impact of changes in the
discount rate on long-term insurance liabilities.
Gains and losses arising from
the disposal of businesses
To allow assessment of the performance of ongoing business activities.
Pension administration and
net interest costs
Costs that are dependent on the level of defined benefit pension scheme plan
funding and arise from servicing past pension commitments.
Realised and unrealised
gains and losses on
investments/foreign
exchange gains and losses
To remove the impact of market volatility and investment rebalancing activity.
Reorganisation, integration
and transaction costs
To allow assessment of the performance of ongoing business activities.
Prudential Regulation
Authority (PRA)
The regulatory authority with responsibility for the prudential regulation and supervision of the UK financial
services industry.
Reinsurance
The practice whereby part or all of the risk accepted is transferred to another insurer (the reinsurer).
Solvency II/
Coverage Ratio
Capital adequacy regime for the European insurance industry which commenced in 2016 and is based on a set of
EU wide capital requirements and risk management standards. The coverage ratio represents total eligible capital
as a proportion of the Solvency Capital Requirement (SCR) under Solvency II.
Tangible Net Asset Value
(TNAV)
Tangible net asset value comprises equity attributable to owners of the Parent Company, less tier 1 notes,
preference share capital and goodwill and intangible assets.
Underwriting Result
Net earned premium and other insurance income less net claims and underwriting and policy acquisition costs.
Underwriting result is an internal measure of profitability of the operating segments and a key KPI used to assess
performance of the Group. It is an alternative performance measure (APM) and is reconciled to the nearest IFRS
measures in the APM reconciliations presented after the Jargon Buster.
Unearned Premium
The portion of a premium that relates to future periods, for which protection has not yet been provided, irrespective
of whether the premium has been paid or not.
Weather Losses
Weather claims incurred with a net cost of £0.5m or higher and losses of less than £0.5m where extreme weather
has been identified over an extended period.
Weather Loss Ratio
The weather loss ratio is an expression of weather losses in the period as a percentage of earned premium.
Yield
Rate of return on an investment in percentage terms. The dividend payable on a share expressed as a percentage
of the market price.
Appendix D: Jargon buster and alternative performance measures reconciliations
continued
Appendices
continued
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Appendix D: Jargon buster and alternative performance measures reconciliations
continued
Alternative performance measures reconciliations
IFRS reconciliation to management P&L
For the year ended 31 December 2021
£m IFRS
Underwriting
result
Investment
result
Central
costs
Business
operating
result
Other
charges
Loss before
tax from
continuing
operations
Management
Continuing operations
Income
Gross written premiums
4,294 4,294
Less: reinsurance written premiums
(1,001) (1,001)
Net written premiums
3,293 3,293
Change in the gross provision for
unearned premiums
(44) (44)
Change in provision for unearned
reinsurance premiums
(42) (42)
Change in provision for net unearned premiums
(86) (86)
Net earned premiums
3,207 3,207
Investment income
139 139
Realised losses on investments
(2) (2)
Unrealised gains, impairments and
foreign exchange
23 23
Net investment return
160
Other insurance income
79 79
Pension net interest and administration costs
3 3
Other operating income
82
Total income
3,449
Expenses
Gross claims incurred
(2,959) (2,959)
Less: claims recoveries from reinsurers
759 759
Net claims
(2,200) (2,200)
Underwriting and policy acquisition costs
(1,223) (1,223)
Unwind of discount
(6) (6)
Investment expenses
(23) (23)
Central expenses
(11) (11)
Foreign exchange losses
(2) (2)
Integration costs
(40) (40)
Transaction costs
(96) (96)
Other operating expenses
(172)
(3,601)
Finance costs
(76) (76)
(Loss)/profit before tax from
continuing operations
(228) (137) 110 (11) (38) (190) (228)
Income tax expense
(33)
Loss after tax from continuing operations
(261)
Profit from discontinued operations
4,531
Profit for the period
4,270
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Appendix D: Jargon buster and alternative performance measures reconciliations
continued
IFRS reconciliation to management P&L
For the year ended 31 December 2020
£m IFRS
Underwriting
result
Investment
result
Central
costs
Business
operating
result
Other
charges
Loss before
tax from
continuing
operations
Management
Continuing operations
Income
Gross written premiums
3,988 3,988
Less: reinsurance written premiums
(950) (950)
Net written premiums
3,038 3,038
Change in the gross provision for
unearned premiums
29 29
Change in provision for unearned
reinsurance premiums
(34) (34)
Change in provision for net unearned premiums
(5) (5)
Net earned premiums
3,033 3,033
Investment income
125 125
Unrealised losses, impairments and
foreign exchange
(15) (15)
Net investment return
110
Other insurance income
89 89
Pension net interest and administration costs
4 4
Other operating income
93
Total income
3,236
Expenses
Gross claims incurred
(2,527) (2,527)
Less: claims recoveries from reinsurers
607 607
Net claims
(1,920) (1,920)
Underwriting and policy acquisition costs
(1,169) (1,169)
Unwind of discount
(7) (7)
Investment expenses
(8) (8)
Central expenses
(13) (13)
Amortisation of intangibles
(2) (2)
Transaction costs
(14) (14)
Foreign exchange losses
(8) (8)
Reorganisation costs
(78) (78)
Other operating expenses
(123)
(3,219)
Finance costs
(30) (30)
Loss on disposal of business
(5) (5)
Net share of profit after tax of associates
1 1
(Loss)/profit before tax from
continuing operations
(17) 33 110 (12) 131 (148) (17)
Income tax expense
(2)
Loss after tax from continuing operations
(19)
Profit from discontinued operations
383
Profit for the period
364
Appendices
continued
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2021
£m
2020
£m
Profit/(loss) for the year net of tax
6,038
(19)
Items that may be reclassified to the income statement:
Fair value (losses)/gains on debt securities net of tax
(10)
11
Items that will not be reclassified to the income statement:
Fair value (losses)/gains on investment in subsidiaries
(4,876)
1,290
Total other comprehensive (expense)/income for the year
(4,886)
1,301
Total comprehensive income for the year
1,152
1,282
The profit for the year net of tax includes dividend income of
£6,210m
received from Royal Insurance Holdings Limited (2020: nil) and a tax charge of
£8m
(2020: £5m tax credit). Fair value losses on debt securities include a tax credit of
£2m
(2020: £2m tax charge).
Ordinary
share
capital
£m
Ordinary
share
premium
£m
Preference
shares
£m
Revaluation
reserves
£m
Capital
redemption
reserve
£m
Retained
earnings
£m
Tier 1
notes
£m
Total
equity
£m
Balance at 1 January 2020
1,032 1,090 125 2,424 389 1,123 297 6,480
Total comprehensive income/(expense)
for the year
Loss for the year net of tax
– – – – – (19) – (19)
Fair value gains net of tax
– – – 1,301 – – – 1,301
– – – 1,301 – (19) – 1,282
Dividends – paid
2
(note 8)
– – – – – (108) – (108)
Shares issued for cash (note 12)
1 5 – – – – – 6
Share-based payments (note 7)
2 – – – – 17 – 19
Balance at 1 January 2021
1,035 1,095 125 3,725 389 1,013 297 7,679
Total comprehensive income/(expense)
for the year
Profit for the year net of tax
– – – – – 6,038 – 6,038
Fair value losses net of tax
– – – (3,721) – (1,165) – (4,886)
– – – (3,721) – 4,873 – 1,152
Dividends – paid
2
(note 8)
– – – – – (6,938) – (6,938)
Shares issued for cash (note 12)
1,023 282 – – – – – 1,305
Share-based payments (note 7)
11 – – – – 17 – 28
Capital reduction
1
(800) (1,095) – – (389) 2,284 – –
Balance at 31 December 2021
1,269 282 125 4 – 1,249 297 3,226
1. A reduction of the Company’s share capital of
£800m
, share premium of £1,095m
and capital redemption reserve of £389m
was effected in June 2021 by special
resolution supported by a solvency statement which resulted in the creation of distributable reserves of
£2,284m
.
2. For the dividends paid, please refer to the Group note 21.
The attached notes form an integral part of these Parent Company financial statements.
Parent Company statement of comprehensive income
For the year ended 31 December 2021
Parent Company statement of changes in equity
For the year ended 31 December 2021
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Parent Company statement of financial position
As at 31 December 2021
Note
2021
£m
2020
£m
Assets
Investments in subsidiaries
9
2,405
6,276Investments in debt securities
9
–
360Amounts owed by subsidiaries
6
1,408
2,185Current tax assets
10
–
4Deferred tax assets
10
–
4Other debtors and other assets
11
–
5Other assets
1,408
2,198
Cash and cash equivalents
1
3
Total assets
3,814
8,837
Equity and liabilities
Equity attributable to owners of the Parent Company
3,226
7,679
Liabilities
Amounts owed to subsidiaries
6
403
366Issued debt
14
165
751Current tax liabilities
10
2
–Accruals and other liabilities
18
41
Total liabilities
588
1,158
Total equity and liabilities
3,814
8,837
The attached notes form an integral part of these Parent Company financial statements.
The profit for the year net of tax was
£6,038m
(2020: £19m loss).
The Parent Company financial statements were approved on 11 March 2022 by the Board of Directors and are signed on its behalf by:
Charlotte Jones
Group Chief Financial Officer
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2021
£m
2020
£m
Cash flows from operating activities
Profit/(loss) for the year before tax
6,046
(24)
Adjustments for non-cash movements in net profit for the year
Share-based payments
28
19
Other non-cash movements
10
7
Changes in operating assets/liabilities
Movement in working capital
(31)
9
Reclassification of investment income and interest paid
(6,251)
15
Cash generated from investments
Dividend income
6,210
–
Interest and other investment income
117
12
Tax recovered
3
4
Net cash flows from operating activities
6,132
42
Cash flows from investing activities
Purchase of financial assets
(652)
(21)
Proceeds from sales of financial assets
3
10
Net movement in amounts owed by subsidiaries
121
96
Repayment of issued debt from subsidiaries
693
–
Net cash flows from investing activities
165
85
Cash flows from financing activities
Proceeds from issue of share capital
1,304
6
Dividends paid to ordinary shareholders
(6,914)
(83)
Coupon payment on Tier 1 notes
(15)
(16)
Dividends paid to preference shareholders
(9)
(9)
Redemption of debt instruments
(642)
–
Interest paid
(23)
(27)
Net cash flows from financing activities
(6,299)
(129)
Net decrease in cash and cash equivalents
(2)
(2)
Cash and cash equivalents at the beginning of the year
3
5
Cash and cash equivalents at the end of the year
1
3
The attached notes form an integral part of these Parent Company financial statements.
Parent Company statement of cash flows
For the year ended 31 December 2021
RSA
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Notes to the Parent Company financial statements
1) Basis of preparation
RSA Insurance Group Limited (the Company) is incorporated in England and Wales and is the intermediate Parent Company of the RSA Group of
companies with Intact Financial Corporation being the ultimate Parent Company. The principal activity of the Company is to hold investments in its
subsidiaries and the receipt and payment of dividends.
These Parent Company financial statements have been prepared on a going concern basis and in accordance with the UK-adopted International
Accounting Standards (IAS) and the requirements of the Companies Act 2006.
Except where otherwise stated, all figures included in these Parent Company financial statements are presented in millions of pounds sterling (£m).
In accordance with section 408 of the Companies Act 2006, the Company’s income statement and related notes have not been presented in
these Parent Company financial statements.
2) Significant accounting estimates and judgements
In preparing these Parent Company financial statements, management has made judgements in determining estimates in accordance with the
Group’s accounting policies. Estimates are based on management’s best knowledge of current circumstances and expectation of future events
and actions, which may subsequently differ from those used in determining the accounting estimates.
Estimates and their underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.
The most significant estimate is in connection with fair valuing the investment in subsidiaries. Fair value has been calculated by applying the
income approach which uses discounted cash flow valuation models to assess the present value of expected future economic benefits.
Key assumptions relate to discount rate, growth rate and cash flows. Cash flows are based on the latest Board approved operational plan.
Sensitivities have been used to assess the impact of changes in key assumptions on fair value, details of which can be found in note 9.
3) Adoption of new and revised accounting standards
There are no new and revised accounting standards that have or are expected to have an impact on the Company.
4) Significant accounting policies
The accounting policies that are used in the preparation of these Parent Company financial statements are consistent with the accounting policies
used in the preparation of the consolidated financial statements of the Group as set out in the consolidated financial statements, with the exception
of financial instruments where the Company is not permitted to defer the application of IFRS 9 ‘Financial Instruments’.
The accounting policies that are specific to the Parent Company financial statements are set out below.
Investments in subsidiaries
The Company designates its investments in directly owned subsidiaries at fair value through other comprehensive income (FVOCI) as they are
considered strategic in nature. The fair value is determined by applying the income approach which uses discounted cashflow valuation models
for major operating entities and the net asset value for other smaller entities.
Changes in the fair value of the investments in subsidiaries are recognised directly in equity through the statement of other comprehensive income
and are not reclassified through profit or loss on derecognition.
Amounts owed from subsidiaries
The Company accounts for amounts owed from subsidiaries at amortised cost and determines an expected credit loss (ECL) based on those
default events that are possible within 12 months after the reporting date, or where the credit risk has increased significantly since initial recognition
on the basis of all possible default events over the life of debt. Specifically the probability of default is considered together with the expected
subsequent loss.
It has been concluded that the value of the ECL would be insignificant and so no ECL is recognised.
Investments in debt securities
Investments in debt securities are valued at FVOCI on the basis that their contractual cash flows are solely principal and interest and the
Company’s business model’s objective is to hold such investments to collect their contractual cash flows and for sale.
An allowance for ECL is based on those default events that are possible within 12 months after the reporting date, or where the credit risk has
increased significantly since initial recognition on the basis of all possible default events over the life of debt. Specifically the probability of default is
considered over the appropriate period of time together with the expected subsequent loss. For investment grade debt securities, rated BBB or
above, the ‘low credit risk exemption’ available within IFRS 9 has been applied. For these assets, it is assumed that credit risk has not increased
significantly since initial recognition. As at the balance sheet date, all of the Company’s debt securities are investment grade and expected credit
losses are not significant and so no ECL is recognised.
On disposal of debt securities any related balance within the FVOCI reserve will be reclassified to the income statement.
Dividend income
Dividend income from investment in subsidiaries is recognised when the right to receive payment is established.
Interest income
Interest income is recognised using the effective interest rate method.
RSA
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5) Risk and capital management
The Company’s key risks are considered to be the same as those faced by the Group. Details of the key risks to the Group and the steps taken to
manage them are disclosed in the risk and capital management section (note 6) of the consolidated financial statements.
6) Related party transactions
The following transactions were carried out with related parties:
RSA Insurance Group Limited provides services and benefits to its subsidiary companies operating within the UK and overseas as follows:
·
Provision of technical support in relation to risk management, information technology and reinsurance services. Services are charged for
annually on a cost plus basis, allowing for a margin of
7%
(2020: 7%).
·
Issue of share options and share awards to employees of subsidiaries. Costs are charged for annually, based on the underlying value of the
awards granted calculated in accordance with the guidance set out within IFRS 2.
The amounts charged in respect of these services to the Company’s subsidiaries totalled
£29m
(2020: £60m).
Key management compensation
2021
£m
2020
£m
Short term employee benefits
15
13
Termination benefits
2
–
Share-based awards
12
7
Total
29
20
Transactions with parent company
The Company’s parent company is Regent Bidco Limited, a wholly owned subsidiary of Intact Financial Corporation, the ultimate controlling party.
During the year ended 31 December 2021, the following related party transactions have taken place with Regent Bidco Limited:
·
Upon acquisition, the Company received a capital injection from Regent Bidco Limited of
£1,021m
·
The Company received a further capital injection from Regent Bidco Limited of
£275m
in September to fund the repurchase of its Guaranteed subordinated notes (Tier 2 notes) with a par value of
£240m
for a total cost of £275m
.
·
Ordinary dividends paid to Regent Bidco Limited of
£6,914m
Other related party transactions
Interest is receivable on interest bearing loans to subsidiaries, which are repayable on 24 hours written notice. The rates of interest charged during
the period are at monthly average SONIA plus 0.80% margin.
Interest is payable on interest bearing loans from subsidiaries, which are repayable on 24 hours written notice. The rates of interest charged during
the period are at monthly average SONIA plus 0.25% margin.
Interest income from subsidiaries is
£13m
(2020: £26m), and interest charged to subsidiaries is
£1m
(2020: £1m). Dividends of £6,210m
were received from a subsidiary, Royal Insurance Holdings Limited, during the year (2020: £nil).
The company also incurred losses of
£9m
(2020 £nil) on foreign exchange derivatives with Intact Financial Corporation.
Royal & Sun Alliance Insurance Limited (RSAI), a subsidiary of the Company, has provided guarantees to the Company’s creditors for amounts
arising from its issued debt agreements (as set out in note 37 to the consolidated financial statements) and for amounts arising from its committed
credit facilities (as set out in note 38 to the consolidated financial statements). The guarantees relating to the issued debt agreements are
subordinated to all other creditors of RSAI.
Related party balances
Year end balances with related parties are set out below:
2021
£m
2020
£m
Receivable from related parties:
Receivable from subsidiaries, interest bearing loans
1,164
1,857
Receivable from subsidiaries, non interest bearing loans
244
328
Total receivable from subsidiaries/related parties
1,408
2,185
Payable to related parties:
Payable to subsidiaries, interest bearing loans
171
189
Payable to subsidiaries, non interest bearing loans
232
177
Total payable to subsidiaries
403
366
Payable to other related parties, derivative liabilities
9
–
Total payable to related parties
412
366
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7) Share-based payments
Full details of share-based compensation plans are provided in note 20 to the consolidated financial statements.
8) Dividends paid and proposed
Following the acquisition, the Group disposed of its operations in Scandinavia and Canada, as disclosed in the Group note 7 in exchange for
interest bearing demand notes, which were considered highly liquid financial instruments, classified as cash equivalents. Those demand notes
were subsequently used to settle dividends (dividends in specie) paid to Regent Bidco Limited. Therefore, the settlement of the dividends in specie
is a cash transaction presented as a cash outflow in the cash flow statement within financing activities.
Full details of the dividends paid and proposed by the Company are set out in note 21 to the consolidated financial statements.
9) Investments
Debt
securities
£m
Subsidiaries
£m
Total
£m
Investments at 1 January 2020
341 4,986 5,327
Purchases 21 – 21
Disposals (10) – (10)
Total (losses)/gains recognised in:
Income statement
(6) – (6)
Other comprehensive income
14 1,290 1,304
Investments at 31 December 2020
360 6,276 6,636
Purchases
2 1,005 1,007
Disposals
1
(354) – (354)
Total gains/(losses) recognised in:
Income statement
4 – 4
Other comprehensive income
(12) (4,876) (4,888)
Investments at 31 December 2021
– 2,405 2,405
1. The Parent Company contributed its entire investment portfolio in debt securities of
£351m
to Royal Insurance Holdings Limited in exchange for ordinary shares.
Investments in subsidiaries
The investments in subsidiaries are recognised in the statement of financial position at fair value measured in accordance with the Company’s
accounting policies. The Company’s investments in subsidiaries are classified as level 3 financial assets. Fair value has been calculated by
applying the income approach which uses discounted cash flow valuation models to assess the present value of expected future economic
benefits. Discounted cash flows were based on the latest Board approved operational plan. Sensitivities have been used to assess the impact of
changes in that assumption.
Decrease in fair value
through OCI
2021
£m
1% increase in discount rate
(277)
1% reduction in growth rate
(188)
1% increase in combined operating ratio across all years
1
(355)
1. Combined operating ratio (COR) is a measure of underwriting performance and is the ratio of underwriting costs expressed in relation to earned premiums.
Comparable sensitivities are unavailable for 2020 due to a change in methodology with 2020 balance being valued based on the market value
of the company (level 2 asset in 2020). The market value of the Company’s ordinary shares at 31 December 2020 was 677.40p. A movement of
5% in share price would have an impact of £351m on the 2020 fair value. This methodology is no longer applicable following the acquisition of the
Group by Intact Financial Corporation as a market value is no longer available.
Full details of the principal subsidiaries of the Company are set out in Appendix C to the consolidated financial statements.
Notes to the Parent Company financial statements
continued
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9) Investments
continued
Investments in debt securities
The investments in debt securities, all of which are listed, are classified at fair value through other comprehensive income (FVOCI) and at
31 December were neither past due nor impaired and comprise of securities with the following investment grades.
2021
£m
2020
£m
AA
–
21A
–
102BBB
–
237–
360
Details about the methods and assumptions used to fair value debt securities are provided in note 27 to the consolidated financial statements.
Under the fair value hierarchy,
£nil
of the investments in debt securities are classified as level 1 financial assets (2020: £3m) and £nil
are classified
as level 2 (2020: £357m).
Loss allowance
The loss allowance for debt securities at FVOCI is recognised in the income statement and reduces the fair value otherwise recognised in other
comprehensive income. The loss allowance at 31 December 2021 is
£nil
(2020: £nil).
10) Current and deferred tax
Current tax
Asset Liability
2021
£m
2020
£m
2021
£m
2020
£m
To be settled within 12 months
–
4
2–
The current tax relating to items that are (charged)/credited directly to equity is
£nil
(2020: £nil).
Deferred tax
Deferred tax for the current year is based on a rate of
24%
(2020: 19%). The following are the major deferred tax assets recognised by the Company and movements during the year:
2021
£m
2020
£m
Depreciation in excess of capital allowances
–
5
Provisions and other temporary differences
–
(1)
Net deferred tax position at 31 December
–
4
The movement in the net deferred tax assets recognised by the Company was as follows:
2021
£m
2020
£m
Net deferred tax position at 1 January
4
5
Amount (charged)/credited to income statement
(8)
1
Amount (charged)/credited to other comprehensive income
3
(2)
Effect of change in tax rates – income statement
2
–
Effect of change in tax rates – other comprehensive income
(1)
–
Net deferred tax position at 31 December
–
4
No deferred tax has been recognised in respect of
£153m
(2020: £18m) of deferred tax reliefs, predominantly relating to tax losses of £115 m
(2020: £7m) and capital expenditure of
£36m
(2020: £11m), due to the unpredictability of future profit streams.
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11) Other debtors and other assets
2021
£m
2020
£m
Prepayments and accrued income – to be settled within 12 months
–
5
Total other debtors and other assets
–
5
12) Share capital
Full details of the share capital of the Company are set out in note 34 to the consolidated financial statements.
13) Tier 1 notes
Full details of the Tier 1 notes are set out in note 35 to the consolidated financial statements.
14) Issued debt
Full details of the issued debt of the Company are set out in note 37 to the consolidated financial statements.
15) Events after the reporting period
On 7 March 2022 the Company gave notice of redemption to the holders of the two floating rate Restricted Tier 1 notes. The Tier 1 notes will be
redeemed at their principal amount together with accrued and unpaid interest up to (but excluding) the first call date on 27 March 2022.
Notes to the Parent Company financial statements
continued
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Further information and help
The Company’s corporate website
provides a range of information about the
Group’s heritage, social and environmental
responsibilities and pre-Acquisition investor
information such as the Group’s financial
statements, current and historic share prices,
historic Annual General Meeting (AGM)
materials, events, governance information
and answers to frequently asked questions
in respect of shareholder matters, including
the Acquisition. Visit the investor website
at www.rsagroup.com/investors for
further information.
The Company’s share register is maintained
by Equiniti Limited (Equiniti). Any administrative
enquiries relating to shareholdings, such as
dividend payment instructions or a change
of address, should be notified to:
·
Equiniti, Aspect House, Spencer Road,
Lancing, West Sussex BN99 6DA
·
Telephone: 0371 384 2048
·
To securely email Equiniti with an enquiry,
visit www.shareview.co.uk.
When contacting Equiniti, please quote your
shareholder reference number which can
be found on your share certificate or dividend
documents. Telephone lines are open
8.30am to 4.30pm (UK time), Monday to
Friday, excluding public holidays in England
and Wales. Shareholders with a text phone
facility should use +44(0) 371 384 2255
or use the Text Relay service by dialling
18001 0121 415 7064 directly from the
text phone.
Managing your shareholding
Information on how to manage
your shareholding can be found at
www.shareview.co.uk. Amalgamation of
accounts Shareholders who receive duplicate
sets of Company mailings owing to multiple
accounts in their name may contact Equiniti to
request that their accounts be amalgamated.
Electronic communications
You can elect to receive email notification of
shareholder communications by registering
at www.shareview.co.uk, where you can also
set up a bank mandate to receive dividends
directly to your bank account and submit
proxy votes for shareholder meetings.
Shareholders may elect to receive a printed
copy of the Annual Report and Accounts at
any time by contacting Equiniti. Additionally,
if you wish to register for the Company’s
investor news service to receive the latest
news and press releases by email, visit
www.rsagroup.com/news.
Low-cost share dealing facilities
Shareholders may purchase or sell their RSA
Preference Shares through their stockbroker,
a high street bank or one of the providers
detailed below. Equiniti offers a telephone and
internet dealing service. Commission is 1.5%
(rate quoted as at 11 March 2022 and may be
subject to change) on amounts up to £50,000
and 0.25% on the excess thereafter, with a
minimum charge of £60 for telephone dealing
and £45 for internet dealing. For telephone
sales, call +44(0) 345 6037 037. Lines are
open 8.30am to 5.30pm (UK time), Monday
to Friday, excluding public holidays in England
and Wales. For internet sales log on to
www.shareview.co.uk/dealing. Please
quote your shareholder reference number.
Preference Share Dividends
Shareholders are encouraged to have
their dividends paid directly into their bank
account. It is a more secure and faster way
to receive dividend payments, with cleared
funds available to shareholders on the
dividend payment date. Shareholders
who have their dividends paid directly
into their bank account receive annual
dividend confirmations once a year, showing
payments received in the respective tax year.
Alternatively, individual dividend confirmations
are available upon request. To take advantage
of this convenient method of payment, visit
www.shareview.co.uk or contact Equiniti.
Financial calendar
10 March 2022
Ex-dividend date for the first preference
dividend for 2022
11 March 2022
Record date for the first preference dividend
for 2022
1 April 2022
Payment date for the first preference dividend
for 2022
3 August 2022*
Announcement of the half-year results for the
six months ended 30 June 2022
11 August 2022*
Ex-dividend date for the second preference
dividend for 2022
12 August 2022*
Record date for the second preference
dividend for 2022
1 October 2022*
Payment date for the second preference
dividend for 2022
* Provisional date
Shareholder
information
RSA
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Share register fraud:
protecting your investment
UK law requires that our shareholder register
is available for public inspection. We are
unable to control the use of information
obtained by persons inspecting the register.
Details of any share dealing facilities that
the Company endorses will be included in
Company mailings or on our website.
Always be wary if you’re contacted out of
the blue (by telephone, email, post or in
person) and pressured to invest quickly or
promised returns that sound too good to be
true. 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.
It is advisable to check the URL on websites
and check the contact details of a firm in
case it’s a ‘clone firm’ pretending to be a
real firm, such as your bank or a genuine
investment firm. 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.
Tips on protecting your shares
·
Keep any documentation that contains
your shareholder reference number in a
safe place and destroy any documentation
you no longer require by shredding.
·
Inform Equiniti promptly when you change
your address.
·
Be aware of dividend payment dates and
contact Equiniti if you do not receive your
dividend cheque or, better still, make
arrangements to have the dividend paid
directly into your bank account.
·
Consider holding your shares electronically
in a CREST account via a nominee account
or in the Corporate Sponsored Nominee.
Printed at Pureprint Group, ISO 14001.
FSC
®
certified and CarbonNeutral
®
.
Both manufacturing mill and the printer are registered to
the Environmental Management System ISO4001 and are
Forest Stewardship Council
®
(FSC) chain of custody certified.
Designed and produced by
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rsagroup.com
Registered office
RSA Insurance Group Limited
20 Fenchurch Street
London EC3M 3AU
United Kingdom
Registered in England with
company number 2339826
Telephone: +44 (0) 1403 232 323
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RSA Insurance Group Limited
Annual Report and Accounts 2021