1
RSA INSURANCE GROUP LIMITED
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED
31 DECEMBER 2022
2
RSA Insurance Group Limited
Strategic report
for the year ended 31 December 2022
RSA UK & International
In accordance with the Companies Act 2006, the Directors present their Strategic Report for the year ended 31 December 2022.
RSA Insurance Group Limited is a subsidiary of Intact Financial Corporation (IFC). Its parent company up to 20 September
2022 was Regent Bidco Limited, and thereafter 2283485 Alberta Limited (a Canadian incorporated company), both wholly
owned subsidiaries of IFC, the ultimate controlling party.
RSA Insurance Group Limited and its subsidiaries operate in the UK, Ireland and Continental Europe (known as the Group,
RSA or UK&I). On 7 July 2022, the Group disposed of its operations in the Middle East.
Several of the Group’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 market share 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.
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 legitimate claims quickly and smoothly, delivering good outcomes for our customers.
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 continuing to focus 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. In Personal lines, work is continuing to finalise the footprint, with scale being required to drive towards
outperformance. This is more challenging for Motor than for other Personal lines of business.
We will build the customer proposition and grow our European businesses through alignment with IFC’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.
Business review
The Group reports a profit before tax of
£65m
for the year ended 31 December 2022 (31 December 2021: £228m loss from
continuing operations and £4,531m profit from discontinued operations).
Profit before tax of
£65m
consists of
£16m
underwriting profit (2021: £137m loss), investment result of
£140m
(2021: £110m),
£24m
central costs (2021: £11m) and
£67m
of other income and charges (2021: £190m).
Profit before tax includes a
£31m
gain on the disposal of the Group’s operations in the Middle East. Refer to note 8 for further
information.
3
The underwriting result is impacted by a
£30m
de-recognition of software assets (2021: £72m) (refer to note 23), and other
charges include
£61m
of integration costs (2021: £40m) (refer to note 13). In personal lines, the results include losses related to
prolonged sub-zero temperatures in December, which resulted in burst pipes in thousands of homes across the UK. In addition,
there were a number of non-catastrophe large losses, and inflationary pressures continue to weigh on both Motor and Home.
Net written premiums are
£3,110m
(2021: £3,293m continuing operations and £1,181m discontinued operations).
Net assets of the Group are
£2,345m
(2021: £3,091m).
Key performance indicators (KPIs)
The Group uses both IFRS and non-IFRS financial measures (Alternative Performance Measures - APMs) to assess
performance, including common insurance industry metrics.
The KPIs most relevant to the financial performance of the Group are as follows:
Net written premiums for continuing operations £3,110m
(2021: £3,293m): 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 does not compromise underwriting
performance.
Underwriting result for continuing operations £16m
profit
(2021: £137m loss): 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.
Profit/loss before tax for continuing operations £65m
(2021: £228m loss): net profit/loss 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.
Non-Financial KPIs
Customer:
From a customer perspective, we have aligned our UK customer advocacy ambitions to the IFC strategic objectives
to have three out of four customers as advocates and four out of five brokers who value our specialised expertise. We have
developed a flightpath to the number over five years, as we improve the service we provide to our customers and brokers. We
measure the amount of business that is renewed with us each year. Personal lines renewal was 80% on a premium retention
rate basis. For Commercial and Specialty lines, policy retention was 86%.
Climate:
Our ambition is to achieve Net zero by 2050 and halve operations by 2030. We are working on building plans towards
this with IFC across all our geographies. Further information can be found in the Environmental, Social and Governance (ESG)
section in the Director's Report on pages
13
to
15
.
Employees:
We aim to be a best employer and have made good progress on our Diversity, Equity and Inclusion agenda. We
are proud to have achieved our Women in Finance target of 34% representation in the Management Group by 2023 a year early
and we have recalibrated our future targets. We are aiming to achieve 40% female representation in Management by 2025 and
gender parity by 2030.
Our principal risks below also form the non-financial information statement.
Our operations
The Group’s operations remained resilient during the year.
Where and when government guidelines permitted, we began a
voluntary return to office working supported by hybrid arrangements (a mix of home and office working) and, following a
successful trial period, this was adopted as our business as usual. 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.
Principal risks and uncertainties
The principal risks and uncertainties of the Group are set out in note 6 Risk and capital management
1
. Further detail on how the
Group manages its principal risks and uncertainties is set out in the risk management report on pages
5
to
9
.
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.
A core pillar of our strategy is focused on customer experience and delivering good outcomes – this involves improving products
and propositions, omni-channel customer journeys, service levels, and claims experience. Our customer policy sets out
standards for the business to help ensure that we treat all customers fairly, that we check products and services continue to
offer fair value and meet their needs, and that we monitor customer outcomes to understand performance and take action,
where needed. Planning for the delivery of the FCA’s Consumer Duty has been a key area of focus during the second half of
2022 and will continue to be a focus for 2023. Further information on how we support and engage with our customers is
contained in the Section 172 statement on pages
10
to
12
.
4
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. Our customer-driven value means we focus on
our customers’ needs and make sure we are there for them in both the good times and the bad. We target improving retention
over time.
Related party transactions
On March 27 2022, the Group received a capital injection from Regent Bidco Limited of £294m to fund the repurchase of the
Tier 1 notes. Refer to note 17 for further information on all related party transactions.
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
Subsequent to the year-end, on 27 February 2023, the Trustees of the two major defined benefit pension schemes in the UK,
the Royal Insurance Group Pension Scheme and the Sal Pension Scheme (“the Schemes”), entered into an agreement with
Pension Insurance Corporation plc (“PIC”) to purchase bulk annuity insurance policies that operate as investment assets. Such
arrangements are commonly referred to as a “buy-in”. The Schemes made up around 99% of total defined benefit assets and
obligations on the balance sheet at 31 December 2022. The buy-in removes all remaining material pension exposure from the
balance sheet, while maintaining the security of benefits to the Scheme members. The buy-in premium has initially been funded
through the transfer of the majority of the Schemes’ assets to PIC, as well as by an upfront contribution from the Company of
approximately £480m. The Schemes have retained ownership of various assets, including some less liquid investments, which
will be liquidated over the next 12-18 months in order to settle the remainder of the buy-in premium, and cash, some of which
will be required to meet ongoing expenses. In addition, the annual pension deficit funding contribution of £75m was paid in
January 2023.
The upfront contribution of the Company was part funded through a capital injection by IFC, via a subscription of one share in
the Company at a premium of approximately £480m.
The Schemes already had coverage against longevity risk for around 30% of the existing pensioner population through an
insurance policy entered into in 2009 with Rothesay Life. Together with the newly purchased PIC annuity assurance policies,
the Schemes will now have protection against longevity risk and market risk for the material obligations of all deferred and
pensioner members. As a result, the pension surplus on the balance sheet at 31 December 2022 of £200m net of tax is
expected to be largely removed as the fair value of these insurance policies, held as assets of the Schemes, will be set equal to
the value of the defined benefit obligations covered under IAS 19. An initial net loss of approximately £700m, based on recent
market conditions, is expected to be recognised through OCI. The fair value of the insurance policies will then fluctuate going
forward based on changes in the value of the defined benefit obligations covered. The transaction will temporarily increase the
income tax expense as the deductibility of the upfront contribution will be spread out over three years. This results in deferred
tax assets being reclassified to Other Comprehensive Income from income tax expense, with a neutral net impact on
shareholder’s equity.
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.
5
Managing Risk
Managing risk to deliver for our customers and achieve our goals
The Group’s aim is to deliver consistently for our customers while delivering outperformance.
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 2022
Our risk management and controls frameworks were created to ensure that we identify, assess and respond to 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 it 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.
6
Emerging risk – monitoring the future threats
Emerged risk
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 / Social unrest
Attacks could impact a large
number of our customers and
colleagues.
Growing concern that the cost-
of-living crisis could drive
increasing unrest.
Stagflation
The current economic climate
carries a risk of prolonged
stagflation, where inflation levels
are high but real economic
growth is slow or negative.
Potential impacts include higher
claims and repair costs,
increased liabilities, reduced
consumer spending and social
unrest or political instability.
Geopolitical tensions
New political, economic, cyber,
or political conflicts could occur,
or stem from escalation to, or
contagion from, the Ukraine
conflict. Other factors to monitor
include trade disputes, tensions
or conflicts in other regions,
relations with China, and EU
stability, potentially influenced by
impending elections.
Near-term risk
Changing market conditions
Current interest rate
environment which has
supported growth is fragile,
competitive landscape could
change leading to softening of
the market.
Solar storms
Solar flares could potentially
impact on electronics and the
electricity supply, with broad
economic impact and a range of
insurance claims.
Persistent or more extreme
weather
There is potential for further
deterioration of more extreme
weather patterns from a
warming planet.
Climate change litigation
There are a growing number of
litigation cases globally relating
to climate change against
organisations and governments.
Medium-term risk
Small particles and
hazardous chemicals
Risk associated with
long-term health
implications from a range
of particles and
substances that could
cause harm when
ingested, inhaled, or
come into contact with
skin. Impacts include
potential for significant
long-tail future liability
claims.
Chemical, biological,
radiological and
nuclear (CBRN) threats
Malicious actors including
terrorists, hostile states
or criminals remain
interested in CBRN
attack methods.
Animal pandemic /
epidemic
A new pathogen crosses
species and spreads
quickly across the
household pet
population, resulting in
costly treatment.
Outbreaks such as foot &
mouth or bird flu create
disruption in the food
supply chain resulting in
material economic loss
for the food industry.
Climate change
transition
Economic effects are
starting to materialise.
There remains
uncertainty about the
scale of disruption to the
economy or asset
valuations as actions are
taken to deliver on Net
zero targets.
Technological
advances
Shift to autonomous
vehicles and advancing
automation are likely to
change insurance needs
and could affect both
frequency and severity of
losses.
Long-term risk
Climate change accelerates
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.
Discriminatory pricing
As markets evolve and the use of ‘big data’ and algorithms in setting
prices becomes more prevalent, there is a risk that these inequalities
are perpetuated and amplified.
The insurance industry (and
regulator) need to continue to have the right controls in place to
ensure good and fair customer outcomes.
7
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 appetite
The Board sets risk appetite,
limits and indicators which aligns
to our business strategy.
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
Business leaders manage their
own risks and define actions,
where out of appetite, with
oversight provided by Risk and
Control Committees and
escalation to the Board via the
Risk Committee.
Own Risk and Solvency
Assessment (ORSA) reported
to Board
Forward looking assessment of
risks and capital requirements
are combined to inform decision
making on the strategy, planning
and risk appetite for the next
cycle.
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 inform business
decision making
Validated model outputs are used
to assess and inform business
decision making, including capital
planning, reinsurance analysis
and risk-weighted returns for
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.
The model is validated by the
Risk function, informed by stress
and scenario testing.
8
Key risks and mitigants
Key risks and exposures
Key mitigants and controls
Catastrophe risk
Arises from the risk of large natural disasters,
with our main exposure being to European
windstorms and UK flood.
Our reinsurance programme significantly reduces our exposure to
catastrophe risks, with modelled extreme losses and historic experience
being well covered by our programme. The programme is designed to cover
at least 1-in-200-year events and is stress-tested for extreme weather
events.
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 increasing claims inflation trends, post-
pandemic disruption such as supply chain
constraints, economic uncertainty, long-tail lines
of business, and Covid-19 business interruption
claims (due to interpretation of policy wordings
still being debated in high profile legal cases.)
The timing of future claims payments is another
key uncertainty especially for our long-tail
liabilities arising from motor injury, liability and
professional indemnity.
Reserves are reviewed and challenged at the Reserving Committee
meeting, which is attended by the Chief Actuary, Chief Risk Officer, Chief
Underwriting Officer, Chief Operating Officer, Chief Financial Officer and
Chief Executive Officer. Reserves are also reviewed and challenged by the
Audit Committee.
During 2022, we continued to carry out detailed monitoring of claims,
regulatory developments, settlement delay, supply chain, 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, inflation increases and war in Ukraine.
The Adverse Development Cover mitigates the risk of adverse development
in 2020 and prior years ultimate claims cost estimates.
IFC Group’s reserve assurance programme and independent external
reserve reviews have independently verified material segments of the 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 significant
adverse change beyond our existing assumptions would be protected by
reinsurance cover.
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 quarterly.
Risks to inflation and the economic environment are actively monitored with
appropriate response taken.
Regular control validation and assurance activities are performed over
underwriting pricing and claims.
Market and credit
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.
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.
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.
On 27 February 2023 a buy-in removed all remaining material pension
exposure from the balance sheet. Further information is contained in Events
after the reporting period on page 4.
Operational risk
This risk relates to the risks arising 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.
Continued improvement to our Operational Resilience capabilities are being
delivered through a dedicated programme, supported by simulation
exercises which test the adequacy of our approach.
Control effectiveness is monitored through formal Validation and Assurance.
IT and data risks remain a key focus, especially cyber threat, and we have
9
made some significant progress over the year, while remediating some of
the legacy IT estate.
Customer risk
The risk that customers do not receive good
outcomes and suffer harm as a result of products
& services that are not fit-for purpose, offer poor
value, are poorly explained or inadequately
supported.
The UK Executive Customer Committee oversees key matters and decisions
relating to good customer outcomes, supported by our Customer Outcomes
Monitoring.
Successful implementation of Product Governance requirements in line with
regulatory deadline.
RSA’s business strategy has been assessed and aligned to Consumer Duty
requirements. Delivery of Consumer Duty is in progress and a focus for
2023.
10
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 Group.
The Board has acted in a way that it considers, in good faith, would be most likely to promote the success of the Group 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 2022, the Directors and senior management engaged with key stakeholder groups across the business, including
IFC as the business further integrated with the wider Group. The Board is committed to maintaining a range of direct and
indirect engagement with its stakeholders and has approved the stakeholder engagement plan for 2023.
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 Group.
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 risks to our customers’ 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 Group.
How the Board engages
The Board receives regular updates from senior management on customer and conduct matters, including key indicators that
monitor customer outcomes and insights on customer-driven 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. During the
year, the Board appointed a Non-Executive Director as a “Customer Champion” to support the Chair and the CEO in ensuring
that our customer ambitions and the FCA’s Consumer Duty requirements are regularly discussed and considered by the Board.
The Board was kept well informed on how management was responding to Business Interruption Claims following the Covid-19
pandemic and taking steps to support customers during the cost of living crisis.
During the year, the Board received deep-dive updates on customer and market insight and how the business is responding to
customer expectations around customer service and digital offerings. The Board has closely monitored RSA’s implementation of
the FCA’s rules on Pricing Practices and Product Governance and preparations for the new Consumer Duty rules, which will
further heighten 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 2022, Board members have reviewed and
approved management’s plan to implement the FCA’s Consumer Duty rules as part of the strategic focus of the Group.
Workforce
Why the Board engages
The Board recognises that a values-driven, open culture and an engaged workforce are central to achieving our strategic goals.
As such, the Board is committed to setting the tone from the top and engaging in a meaningful way with our people.
How the Board engages
The Board has supported management’s communication approach to ensure the workforce is informed of, and engaged in,
business strategy and performance.
This has included regular intranet articles and ‘vlogs’, email and online messaging, and
team meetings. Employees are encouraged to engage in our financial performance through various means described in
Principle 6 of our Corporate Governance section.
Alongside our People and Diversity, Equity & Inclusion Strategies, group-wide Employment Practices and Speaking-up &
Whistleblowing Policies drive our approach on people matters and are reviewed annually under the governance of our Risk
Management Framework. During the year, the Board received and supported a number of updates on people priorities
including: activities to further embed our Purpose and Values in day-to-day practice, strengthened succession and development
planning, trials of hybrid working patterns, trends from our speaking-up channel, and progress against inclusion ambitions; for
example, our UK Gender Pay Gap and Women in Finance representation targets.
11
The Board also received insights from employee feedback gained through frequent leadership meetings, employee surveys and
focus groups, and formal and informal dialogue with employee representation groups, including a European Works Council. The
Board hosted a lunch with individuals in our talent succession plans to directly exchange views. In addition, some Board
members are paired with an employee from an ethnic minority background to directly champion an Enable Me initiative
designed by our REACH Employee Resource Group for multicultural inclusion.
Long-term implications
The Board understands that enabling our people and creating an open and transparent culture is key to our long-term success.
The Board reflected on the workforce’s views on ways of working and engaged in key decisions to adopt hybrid patterns that
support both personal wellbeing and excellent service for our customers. The Board also responded to workforce concerns
about cost-of-living pressures through pay enhancements for colleagues at greatest risk of impact.
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. The PRA and the FCA attended
Board meetings in 2022 to discuss regulatory priorities.
Senior management interacts regularly with key rating agencies. Board members are kept informed of the current views of the
rating agencies through regular commentary and financial metric reporting at Board meetings.
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 Group’s regulators in order to ensure that we maintain positive relationships
and take account of their views and interests.
Environmental, Social and Governance issues (ESG)
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 transition 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
13
to
19
.
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.
Shareholder
The Group’s ultimate owner is IFC, a public company listed on the Toronto Stock Exchange. During 2022, RSA adopted the
Purpose and Values of IFC and is aligned with IFC’s strategic objectives to deliver outperformance and value for its
shareholders.
The Group’s Board has an equal balance of independent and non-independent Directors. There are three shareholder-
nominated Directors on the Board; this supports the Board’s understanding and integration with IFC.
Further detail on the composition of the Board is included in the Governance Report on pages
24
and
25
.
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.
12
Pension schemes
The Board continues to view the pension trustees as a key stakeholder group. In 2022, the UK pension trustees were provided
with quarterly updates on RSA performance and offered meetings with RSA and IFC 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).
13
Environmental, social and governance
Building resilient communities
Helping society is core to our strategy. We believe that financial performance and helping society are equally important and
therefore, we have integrated both into our strategic objectives.
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. This work is encapsulated in RSA’s approach to Social Impact and ESG.
Environment
The business, government and community level approach to climate change is rapidly evolving in response to more frequent
and severe weather events and the transition to a low carbon economy.
RSA is an active participant in business and industry
groups such as ClimateWise, the Association of British Insurers and the Climate Financial Risk Forum, sharing best practice on
climate risk and strategies that will help to mobilise finance towards low carbon industries, technologies and services.
In 2022, we launched our global climate change strategy. Workstreams have been mobilised across our business, including in
operations, supply chain, underwriting, investments and social impact to establish the foundations and milestones necessary to
achieve our goals, which comprise:
a commitment to achieve Net zero by 2050 in line with the Paris Agreement and an interim goal to halve emissions from our
operations by 2030 using 2019 data as a baseline;
doubling down on helping people adapt to the extreme weather impacts of climate change in Canada, the US and the UK;
shaping climate-friendly behaviour among customers by incentivising green behaviour, creating and scaling green products,
and providing information and education;
enabling the transformation of businesses and industries key to the transition and supporting new industries that will be
created to build a sustainable future; and
collaborating with governments and industry to accelerate climate action.
This year we have made a further commitment to achieving our climate change strategy by enhancing our Climate Change and
Low Carbon Policy position. First implemented in 2020 our Low Carbon Policy is key to helping us 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 goal of achieving Net-zero by 2050. In 2022, our Board approved
a refreshed policy with an enhanced commitment to target an underwriting portfolio for energy production that is over 75% low
carbon by 2030.
Greenhouse Gas (GHG) emissions from RSA’s corporate real estate have reduced this year by 18%. This has been achieved
by a continuing reduction in the floor area of UK offices in 2022 to nearly 40% less compared to 2019, together with energy
efficiency featuring as a design choice in the fit out or move to new office locations. Our office footprint in Ireland has also
reduced by 22% since 2019. In addition, of the electricity we purchase directly in the UK, 100% is now procured from renewable
sources. We observed an overall increase in emissions of 3.7% in 2022 on the previous year. This is primarily due to the
increase in business travel following the easing of Covid-19 restrictions. However, the impact of business travel is still
significantly below pre-pandemic levels and our overall GHG emissions have reduced by 53% since 2018. More details are
available on pages
26
and
27
in the Streamlined Energy and Carbon Reporting (SECR) section.
To support our employees to make sustainable choices we have introduced a new Essential Car User scheme, where
employees on the scheme can only choose between a plug-in hybrid electric vehicle (PHEV) or an electric vehicle (EV). This is
one component of our strategy to achieve a 70% reduction in the emissions from our global fleet by 2030. At year end, total
orders of vehicles in the UK number 137 (74% EV, 26% PHEV). EV charging facilities are now available at our Peterborough,
Chelmsford, Horsham and Bristol sites.
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 £1.25m million in cash, the value of volunteering time and in-kind support.
£0.92m of
this total community charitable contribution was in the form of cash donations from RSA, an increase of 6.5% on the previous
year.
Volunteering hours totalled 3,370 hours in 2022, an increase of 188% compared to 2021 following the successful relaunch of
the programme in May 2022. Beneficiaries include families, children and young people, older people, asylum seekers and
refugees through volunteering at schools, charities tackling poverty, and support for food banks. We will be looking to build on
this encouraging platform of impact as we look to engage even more employees in 2023.
Employees raised a total of £0.24m for charitable causes, an increase of 22% on the previous year. 284 employees are signed
up to our Give As You Earn benefit, which allows our people to give to charity in a tax efficient way and where RSA also
provides matched donations of up to £10/month, with participants making an average donation of £30/month. RSA donated
£36,319 in match funding to support this team.
14
In 2022 we funded new research into workplace slips, trips and falls (STF) with our partner The Royal Society for the Prevention
of Accidents (RoSPA), which found that these incidents represent a significant risk to businesses and employees.
The
research, which canvassed the opinions of nearly 3,000 people, found that 60% of decision makers do not have a dedicated
STF prevention programme in place. A number of businesses reported losing in excess of 100,000 hours (4,167 days) working
time per year due to STF and data from RSA indicates that the average claim for a slip, trip or fall is £25,000.
RSA also donated £25,000 to suicide prevention charity R;pple to support our people, their families and our communities with
mental health and wellbeing challenges. R;pple is an online interceptive tool designed to ensure more help is provided to
individuals who are conducting searches relating to self-harm or suicide. The donation from RSA supported the development of
a smartphone and tablet version of the tool.
People
Our people are 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. RSA actively promotes 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, Equity & Inclusion (DEI) Council oversees our diversity strategy which aligns to our commitments as
signatories to the Women in Finance Charter, Race at Work Charter, and the Valuable 500. In June 2022 RSA welcomed 23
interns over 6-weeks and retained four candidates in permanent positions after participating in the 10,000 Black Interns scheme,
which aims to transform the horizons of young Black talent and improve workplace diversity. Our network of Employee
Resource Groups, mental health first-aiders and memberships of both the UK Business Disability Forum and Employers
Initiative on Domestic Abuse all contribute to how we can best support colleagues. Our volunteer led Employee Resource
Groups are a key enabler of our DEI strategy and champion awareness and proposition enhancement aligned to our key priority
areas.
This year we were proud to expand our suite of support for employees which included the extension of our maternity, adoption
and paternity leave provisions and enhanced guidance and support for those transitioning. We also introduced a new policy to
support employees who are impacted by domestic abuse and achieved Menopause Friendly Accreditation – a mark of
excellence for menopause support in the workplace. This year we were proud to achieve our target of 34% female
representation in our management group a year ahead of plan and have since agreed a new target to achieve 40% by 2025.
We recognise the value of hybrid working in supporting inclusivity and trust our people to deliver good outcomes for our
customers and our business, regardless of where they work; 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.
Suppliers
Our suppliers are critical to the service we provide to our customers and make an important contribution to our business.
In
2022, we built on the work in previous years to continue to engage with our suppliers through structured supplier management
practices, across a range of ESG topics.
We are continually evolving the approach to third party management to ensure that
our supplier relationships are managed in a cooperative and proportionate manner.
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.
All relevant policies are reviewed on an annual basis, including our Modern Slavery and Human Trafficking Statement, which
was published in April 2022 and is linked to a number of policies that provide confidence we are helping to raise awareness of
modern slavery with 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 due diligence programme monitors the approach of our supply chain to human rights and engages with suppliers to improve
transparency where necessary.
We are subscribers to the Financial Services Qualification System (FSQS) operated by Hellios,
a community of over 50 financial institutions collaborating to agree a single standard for managing supplier compliance,
including ESG policy areas such as modern slavery and environmental impact. Supplier Relationship Managers can also
complete our e-learning module, which addresses the potential risks of modern slavery and human trafficking in the supply
chain, raises awareness of this issue with our people and the circumstances under which they should seek specialist advice.
15
Anti-bribery and corruption
We do not tolerate bribery and corruption anywhere in our business.
Our Anti-Bribery and Corruption Policy and Personal
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, 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 & Outsourcing Policy, which set out requirements for payments to brokers and
procurement activity.
All colleagues complete 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. Together
with regular reports from the Compliance team to the Risk Committee and Audit Committee throughout the year, the Audit
Committee periodically reviews Internal Audit findings in relation to our Anti-Bribery and Corruption Policy.
16
Environmental risk management
Task force on climate-related financial disclosures (TCFD)
RSA is committed to contributing to efforts that reduce greenhouse gas (GHG) emissions and accelerate the transition to a low
carbon future, helping to limit the global temperature rise this century to well below 2ºC above pre-industrial levels, as outlined in
the Paris Agreement. As noted above, we have set a target to achieve Net-zero by 2050 in line with the Paris Agreement and an
interim goal to halve emissions from our operations by 2030 using 2019 data as a baseline.
We also believe that addressing climate change presents an opportunity to both help society manage the impacts, and for RSA
and IFC to win in the marketplace with innovative products and services.
Governance
Board of directors oversight
RSA is committed to delivering the strategic direction and initiatives of our parent company, IFC, including our global Climate
Strategy. Our Board is responsible for overseeing the strategic direction and initiatives of the Group with regards to climate
change
.
Climate change is an integral accountability of the Board’s Committees. These Committees oversee the assessment of
the risks related to climate change. Our Board is engaged in shaping the approach to Enterprise Risk Management, including
the Group’s risk appetite, governance structures and policies.
Our board considers the potential impact of insured losses resulting from damage to property and assets arising from climate
related natural catastrophe events and the development of strategies to manage the business sensitivity to these risks. The
Board provides oversight of climate change risks and opportunities, through the RSA management level Catastrophe Modelling,
and the Board Risk Committee, and the Governance, Conduct and Remuneration Committees.
Management oversight
Climate risk is incorporated into Enterprise Risk Management, which is integrated into all business activities and strategic
planning, including subsidiaries and operations. This framework includes the identification, assessment, response, monitoring
and reporting of risks. Climate risks are regularly discussed with the leadership of commercial, personal and specialty lines of
business to ensure proper risk assessment and mitigation plans are in place.
Our CEO and Executive Committee oversee RSA’s management of climate change risks and opportunities, including delivery of
the Climate Strategy in the UK.
Further, responsibility for climate change action is integrated into the roles, responsibilities and
compensation of senior managers including the Chief Financial Officer, the Chief Underwriting Officer and the Chief Risk
Officer. There are also a number of senior management committees and operational teams that have climate risk management
accountability.
Climate change oversight
Governance and oversight of climate risk at RSA is aligned with the Board and Committee governance at IFC level. Physical
and transition risks related to climate change influence standard risk categories and its treatment is fully integrated into the
wider RSA system of governance:
Relevant committees include climate change in their responsibilities.
Senior Manager Certification Regime (SMCR) responsibilities have been allocated to the Chief Financial Officer, Chief
Risk Officer and Chief Underwriting Officer.
The Risk Strategy and Risk Appetite includes climate change related limits for financial risk and insurance risk types.
The policy framework includes reference to management of climate change risks – within the Risk Management and
Internal Controls Policy and referenced within other relevant policies.
Climate change is considered within risk and capital processes including for emerging risks and the ORSA.
Board risk committee:
Advises the Board on risk management issues, recommends the
framework of risk limits and risk appetite to the Board for approval,
and oversees the risk management arrangements of RSA, including in
relation to climate change. This includes:
Monitoring the emerging and principal material risks facing RSA,
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 RSA’s risk strategy and risk appetite.
Reviewing the outputs of the ORSA, the internal model and the
conclusions of model validation, making recommendations to the
Board on capital adequacy and the ORSA Report.
Governance, conduct and remuneration committee:
Oversees the compliance function and the Group’s governance.
The GCR provides oversight of the global ESG framework, associated
performance and disclosure as it relates to the RSA business,
including:
ESG emphasis and priorities for the RSA region, drawing on IFC
global priorities.
Oversight of delivery of ESG communications and disclosure
strategy in the RSA region.
RSA ESG stakeholder engagement.
Delivery of Social Impact Strategy and Performance Scorecard in
RSA.
ESG topics not covered by other Committees.
17
Strategy
The IFC Climate Change Strategy, released in 2022, is owned by IFC’s Chief People, Strategy and Climate Officer, and
operationalised at the IFC group-level. RSA executives and teams actively deliver the Global strategy across the business.
Our Climate Strategy focuses on our expertise, scale and resources to address all aspects of climate change, including our
strategy to achieve Net zero, through which we believe we can effectively manage risks, take advantage of market opportunities
and help society.
Our Climate Strategy is guided by the following principles:
We will help people, businesses, and society de-risk the transition to a sustainable future, by leveraging our strengths.
We will take an inclusionary approach to supporting our stakeholders, not an exclusionary one.
We will focus our actions on areas that maximise the overlap between helping and winning.
Our Climate Strategy comprises five big intentions:
Commit: Commit to Net zero by 2050, including an accelerated goal to halve corporate emissions by 2030 from a 2019
baseline.
Adapt: Double down on helping people and society Adapt to climate change.
Shape: Leverage our platform to Shape behaviour
Enable: Enable the transformation of industries key to the transition
Collaborate: Collaborate with governments and industry to help accelerate climate action
RSA plays an important role in enabling the energy transition through the provision of products and services supporting Net-
zero energy generation, supporting clients on their Net-zero transition pathways, and in aligning our underwriting activities with
our Low Carbon Policy. Additionally, we have an opportunity to influence our customers and suppliers to improve their resilience
to climate change through engagement and education, and to place increased focus on adaptation in the geographies and
communities in which we operate.
We work to align our business activities with our commitment to support the development of renewable energy and other clean
energy technologies through our products and services while limiting capacity available to and investments in fossil fuels.
Risk management
Climate change is a challenge that has been faced by the personal and commercial insurance industry for decades. The risk is
constantly evolving and has increased in importance as many global industries and societies address the energy transition shift,
and the frequency and severity of extreme weather events increase.
We have a proven ability to manage climate risks in our operations. Beyond the short-term nature of insurance contracts, which
enables us to respond to a dynamic weather environment and changing climate, we take a number of actions to protect our
business and our customers.
Our risk and operational teams regularly review the emerging risk landscape. We analyse Group-wide data, exposure and
trends, and external research to identify a management approach to climate-related risks. Climate risk is managed through our
operational policies and standards, and categorised by pricing and selection, product innovation, supply chain and claims,
prevention and investments.
Some of our key risk management activities for physical risks include:
Annual insurance 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 risk assessments and underwriting of residential and
commercial properties.
Reinsurance and operational planning processes are 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 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.
Policies are reviewed to ensure that climate change is integrated through relevant requirements and controls. We have also
integrated climate change into our Risk Appetite Statement and ORSA.
18
From a transition risk perspective, in 2022 we reviewed and revised our Low Carbon Policy underwriting guidelines to align
more closely with IFC’s Climate Strategy. This policy formalises our position on investments and underwriting of GHG-intensive
sectors. We target an underwriting portfolio for energy production that is over 75% low GHG by 2030. We have a dynamic
underwriting strategy to support this 75% ambition, that will reflect the needs of the communities in which we operate.
Stress testing
RSA’s stress tests are designed to help the business understand the potential financial consequences of complex risk events,
including climate change-related extreme weather events, where the impacts can be broad, far-reaching and with a range of
outcomes.
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 previous stress testing highlighted the importance of reinsurance protection to mitigate
extreme weather events that occur over an extended period of time. The outcome of any stress testing is considered as part of
RSA’s reinsurance strategy. Increased severity of weather events is likely to be well covered by our existing catastrophe
reinsurance cover.
During 2021, we were one of only 18 firms to participate in the Bank of England’s Climate Biennial Exploratory Scenario (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 risks associated with CBES climate pathways are in line with our Climate
Strategy. These include supporting the drive for internal catastrophe modelling of flood risk in the UK, to facilitate better
understanding of the developing risk.
Climate risks
We have identified climate-related risks and opportunities to our business. Risks and opportunities are presented in the tables
below. Included in the information presented are the ways in which we manage those risks, and how we take advantage of
potential opportunities.
The key climate-related risks with the potential to impact our business include:
Risk
Type
Time Horizon
Risk Description
Risk Management
Physical
Short-term
Increased
operating
costs
from
short-term
changing weather patterns and increased severity
of extreme events
Managed
through
underwriting
actions
and
reinsurance
Long-term
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
Managed
through
underwriting
actions
and
reinsurance
Long-term
Reduction in demand (and associated revenues)
for insurance products/services due to increasing
costs of premiums, reducing affordability
Managed through product offering, innovation and
portfolio management
Transition
Medium-term
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 etc.
Managed
through
underwriting
actions
and
reinsurance
Long-term
Reduction in investment returns due to early
retirement
of
assets,
reduced
demand
for
products or increased costs of business for GHG-
intensive industries
Managed through diversified investment portfolio and
risk appetite on GHG-intensive sectors
Liability Risk
Short/Medium-term
Compensation
could
be
sought
for
losses
resulting from the physical or transition risks
outlined above.
Managed with annual policies, underwriting actions
and reinsurance
Short/Medium-term
Although in its very early stages globally, climate-
related litigation could increase with implications
for certain liability coverages, as well as litigation
against
companies
perceived
to
be
using
“greenwashing” techniques to improve reputation.
Managed through the application of our financial
disclosure practices to our Net zero commitment,
disclosing our progress in a timely manner. We will be
transparent with any changes to our strategy or
ambition with our targets.
Long-term
Net zero commitments are contingent on many
variables, including the role of governments and
their ability to meet climate commitments. There
is a risk that companies have overstated their
ability to meet their target or miss their interim Net
zero targets.
Managed through the application of our financial
disclosure practices to our Net zero commitment,
disclosing our progress in a timely manner. We will be
transparent with any changes to our strategy or
ambition with our targets.
19
Climate opportunities
The key climate-related opportunities with the potential to impact our business include:
Type
Time Horizon
Opportunity Description
Opportunity Management
Physical
Medium-term
Development of climate adaptation and resilience
solutions
Managed
through
product/service
offering,
risk
management expertise and customer engagement
Long-term
Increased demand (and revenues) for insurance
as changes to weather patterns increase public
awareness of the need for cover
Managed
through
product/service
offering
and
customer engagement
Transition
Short/Medium-term
Increased
investment
in
renewable
energy
technologies, increasing demand for renewable
energy insurance and increasing revenue
Managed
through
product/service
offering,
renewables centre of excellence and our Climate
Change and Low Carbon Policy position
Short/Medium-term
New product and service offerings to provide
insurance
for
new
technologies,
resource
efficiency
or
infrastructure,
such
as
electric
vehicles andrail
Managed through product/service offering, customer
engagement and ongoing market analysis
Targets and metrics
We recognise the importance of understanding, measuring and managing the impact of our own operations. Our Climate
Strategy outlines our commitment to achieve Net-zero emissions by 2050 and halve operational emissions by 2030.
We are committed to optimising the efficiency of our corporate real estate and observed a reduction in emissions associated
with our office footprint of 18% in 2022. Overall emissions have increased by 3.7% (using the Location-Based methodology),
which is primarily due to an increase in business travel following the easing of the Covid-19 travel restrictions. 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
26 to 27
.
Metrics
2022
2021
2020
2019
Weather and subsidence related losses (£m)
174
112
83
60
Weather and subsidence loss ratio
6.8%
4.5%
3.3%
2.4%
Energy portfolio GWP in renewable energy
59%
61%
37%
58%
Total GHG emissions (Scopes 1, 2 and 3)
4,710 tonnes CO
2
e
4,543 tonnes CO
2
e
5,461 tonnes CO
2
e
9,670 tonnes CO
2
e
Notes:
All figures have been restated to account for the sale of operations previously under RSA control.
Weather-related losses and weather-loss ratio figures represent ongoing continued business, excluding those areas which have been exited.
Total GHG emissions reported re using the Location-Based methodology. For notes relating to Scope 1, 2 and 3 emissions please see the
section on Streamlined Energy and Carbon Reporting on pages
26 to 27
.
Energy portfolio GWP in renewable energy demonstrates performance up to the end of 2022 against the previous Climate Change and Low
Carbon Policy. This policy set a target for an underwriting portfolio that is over 50% low carbon energy production, well ahead of the IEA’s
Sustainable Development Scenario targeted energy mix for 2040.
Ken Anderson
Chief Financial Officer
02 March 2023
20
RSA Insurance Group Limited
Governance
for the year ended 31 December 2022
Directors and Executive Officers
1
Directors
Mark Hodges (Chair)
Ken Anderson (appointed 1 April 2022)
Alastair Barbour
Sally Bridgeland
Claude Dussault
Robert Leary
Louis Marcotte (appointed 30 June 2022)
Susan McInnes (appointed 1 April 2022)
Ken Norgrove (appointed 10 January 2022)
Andy Parsons
General Counsel & Company Secretary
Jonathan Cope
Executive Team
Ken Norgrove – Chief Executive Officer
Ken Anderson – Chief Finance Officer
Jonathan Cope – General Counsel & Company Secretary
John Crooks – Chief Actuary
Paul Dilley – Director of Underwriting
Yasemin Dogu – Chief Internal Auditor
Nathalie Dufresne – Chief Underwriting Officer
Georgina Farrell – Chief People Officer
Karl Helgesen – Chief Operating Officer
Ollie Holden – Chief Information Officer
Dave Howell – Chief Risk Officer
Louisa Leonard – Managing Director, Personal Lines
Lee Mooney – Managing Director, Commercial Lines
Lynn O’Leary – CEO RSA Luxembourg
Kevin Thompson – CEO RSA Ireland
Steve Watson – Managing Director, UK Speciality
Independent Auditor
KPMG LLP
15 Canada Square
London
E14 5GL
Registered Office
2
22 Bishopsgate
London
United Kingdom
Company Registration Number
02339826
1
Changes to the Board during the year are detailed on page
26
.
2
The Company’s registered office was 20 Fenchurch Street, London, EC3M 3AU until 11
th
October 2022.
21
Corporate Governance
The Company is a wholly owned subsidiary of IFC. The Company applies 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).
Principle 1: Purpose and leadership
The values of RSA and IFC are strongly aligned.
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 Group’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 2: Board composition
Chair and Chief Executive Officer
The roles of Chair and Chief Executive Officer (CEO) are separate and clearly defined. The independent non-executive Chair is
responsible for leading the Board, its overall effectiveness and for facilitating open debate and constructive 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
24
and
25
.
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 two new non-executive Directors as well as a new CEO and a new CFO during
2022. This process required careful consideration of the Group’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.rsainsurance.co.uk and
sets the objective of at least 40% female representation and at least 40% male representation on the Board and at least one
Black, Asian or other ethnic minority Board member. The Board currently has two female Directors representing 20% of the
Board. At the Executive level there are five women, representing 33% 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 Group’s operations and the 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 IFC
Board, and independent non-executive Directors have been appointed who are fully independent from IFC 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 IFC. The Board has received deep-dive presentations on customer and conduct matters as well as
pricing and underwriting. 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. An externally-facilitated review was completed in the second half of 2022. The results of the review were
shared with the Board and the Board Committees and with regular attendees, and action plans to address the areas highlighted
in the review were agreed.
22
Principle 3: Director responsibilities
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 Group’s governance documents including the 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 Group.
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 each 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 Board Committee is compiled of non-executive Directors. Each Committee has terms of reference that have been
approved by the Board which set out its authority and responsibilities.
Further information on the Board committees including their membership and responsibilities can be found on pages
24
and
25
of this report.
Integrity of information
The Board receives regular and timely information on all aspects of the Group’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 on stakeholders, where appropriate, and
includes an assessment of any potential risks to the success of the business. The Group’s financial statements are audited by
KPMG LLP on an annual basis.
Principle 4: Opportunity and risk
Opportunity
The Group strategy is aligned with IFC’s purpose and strategy. RSA’s strategic opportunities were carefully assessed and
analysed during 2022 and those aspects decided upon have been incorporated into the 3-year operational plan. Any proposed
changes in strategic focus are reviewed and approved by the Board.
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 Chief Risk
Officer 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 operating segment. There is a clear
governance structure for the oversight, management and escalation of risks that fall outside risk appetite. This structure is
based on clear processes and a risk culture that promotes accountability and openness.
Further details on risk management are included in the Risk Management section on pages
5
to
9
.
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’s 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; and
when considering the Group’s overall strategy and risk appetite, understand, assess and have oversight on the
financial risks and impacts associated with climate change that affect the Group.
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.
23
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
frameworks are subject to debate and challenge by various management committees and the Risk Committee, which also
oversee 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 5: Remuneration decisions
The GCR Committee is responsible for the oversight of remuneration principles, policy and practices, as well as determining
policy and setting remuneration in respect of the Chair of the Board, Executive Directors and other executives within its scope.
Membership of the GCR Committee is set out on page
25
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 Group.
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.rsainsurance.co.uk
. The Group 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 Group that can result from inappropriate incentives
and excessive reward and the GCR Committee can adjust rewards 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 Chair, Executive Directors and heads of key governance functions is set in agreement with IFC. IFC’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.
Principle 6: Stakeholder relationships and engagement
External impacts
The broad social impact and responsibility of the Group 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
13
to
15
.
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
10
to
12
of
the Strategic Report.
The Board and its committees
An overview of the responsibilities of the Board and its committees for the year ended 31 December 2022 is set out on pages
24
and
25
.
24
The Board and its committees
The Board
The Board is led by Mark Hodges, the independent non-executive Chair of the Group. The Board is composed of the
independent non-executive Chair, 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 Group 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.
Each committee has adopted Terms of Reference, which are reviewed annually, and any changes proposed by the committee
are approved by the Board.
Audit Committee
Members: Andy Parsons (Chair), Alastair Barbour, Robert Leary
The Audit Committee is a committee of the Board. Membership of the Committee is composed of three non-executive Directors,
one of whom acts as Chair. The Committee members have experience and competence in accounting and auditing and also
within the insurance sector. At the invitation of the Committee, the Chair of the Board, Chief Executive Officer, Chief Finance
Officer and representatives from functions within the business attend to advise the Committee. Attendees also include
representatives from Finance, Actuarial, the external auditors, the Head of Corporate Audit Services (Internal Audit) and a
representative from the Corporate Audit Function of IFC. The Audit Committee plays an important role in assisting the Board in
its oversight and monitoring of the Group’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 the external auditors; and
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. 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 Group’s external
auditor in 2013 and has been re-appointed each subsequent year. During 2021, the Committee had considered its position on
the external audit services contract and following engagement with the Group’s regulator received dispensation from the need to
conduct a tender in 2022 due to the context of the Acquisition by IFC and timing of IFRS 17 implementation. The audit tender
process will take place in 2023.
The Group 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 2022.
Risk Committee
Members: Robert Leary (Chair), Sally Bridgeland, Susan McInnes & Andy Parsons
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.
Reviewing the Group’s investment strategy framework and investment portfolio disposition and performance to ensure
these remain within risk appetite and consistent with the Group’s investment strategy.
25
Oversight of the Risk function.
Governance, Conduct & Remuneration Committee
Members: Alastair Barbour (Chair), Claude Dussault, Sally Bridgeland & Susan McInnes
The GCR 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 Committee plays an important role in assisting the Board in its oversight of customer, conduct, compliance and ESG
matters and has oversight of the robustness of the governance framework, delivery of the ESG strategy and internal policies for
the Group. The Committee is responsible for the oversight of RSA’s Remuneration Policy and ensuring this promotes the long-
term sustainable success of the Group. This includes reviewing and setting the remuneration of executive directors and the
Chair of the Board. The 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. 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
20
and comprises Ken Norgrove and Ken Anderson, as well as the Chief Executive Officers of the
European and Ireland businesses and key functional and business leaders.
26
Report of the Directors
Directors
Mark Hodges (Chair)
Ken Anderson (appointed 1 April 2022)
Alastair Barbour
Clare Bousfield (resigned 31 March 2022)
Sally Bridgeland
Charles Brindamour (resigned 30 June 2022)
Claude Dussault
Charlotte Jones (resigned 1 April 2022)
Rob Leary
Louis Marcotte (appointed 30 June 2022)
Susan McInnes (appointed 1 April 2022)
Ken Norgrove (appointed 10 January 2022)
Andy Parsons
Corporate Governance Statement
An overview of the corporate governance code applied by the RSA Insurance Group Limited (the Company) is set out in the
Corporate Governance Report on pages
21
to
23
.
Dividend
No interim dividend was paid during the year ended 31 December 2022. The Company paid a dividend to its preference
shareholders during the period. The Directors do not recommend the payment of a final dividend for the year ended 31
December 2022.
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 review of the Group’s strategic plans and latest forecasts, capital position and liquidity including on demand capital
funding arrangements with IFC. Current economic uncertainty has been considered, including the war in Ukraine, rising inflation,
post Covid-19 impacts and transition to a post Brexit environment. 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. 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 has been no significant change in the estimated
ultimate position based on these updates. 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 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 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
99
.
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 2022 data covers the period 1 January to 31 December. Data from 2022 and previous years has been restated to account
for the sale of RSA’s Scandinavian and Middle East businesses. Emissions from RSA’s legacy Canadian business are reflected
in IFC’s global reporting of its GHG emissions. IFC has committed to Net-zero emissions by 2050 and halving operations
emissions by 2030. We are now integrating carbon emissions data and reporting systems with IFC as part of the global climate
change strategy.
27
We are reporting our Scope 2 market-based emissions to reflect our purchase of REGOs at UK sites where we are directly
responsible for energy procurement or have engaged with landlords to switch to a renewable supply. We now secure REGOs
for 100% of the electricity we purchase directly in the UK.
Emissions from our corporate real estate have decreased 18% year on year. Indirect energy efficiency measures have been
achieved through a continuing reduction in the floor area of UK offices in 2022 to nearly 40% less than 2019, together with
featuring as a design choice in the fit out or move to new office locations. Whilst overall emissions have increased on the
previous year by 3.7% (using a Location-Based methodology), this is primarily due to an increase in business travel following
the easing of Covid-19 restrictions.
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 over five years. We continue to consolidate our approach to the capturing
and reporting of environmental data across IFC and reconcile the potential impact of associated carbon reduction strategies
across the global business. We expect to resume formal assurance of GHG emissions data in future IFC Group level disclosure.
As we progress further with this consolidation, we will then embark on assurance of our GHG inventory.
tCO
2
e emissions
2022
1
2021
1
2020
1
2019
1
2018
1
Scope 1
1,408
1,535
1,437
2,194
1,655
Scope 2 (location-based
LB
)
1
2,060
2,613
3,058
4,066
4,598
Scope 2 (market-based
MB
)
1
1,685
1,968
1,981
N/A
N/A
Scope 3
1
1,242
395
965
3,410
3,787
Business travel
888
125
641
3,042
3,381
Total emissions (Scope 1, 2, 3)
LB
4,710
4,543
5,460
9,670
10,040
Total emissions (Scope 1, 2, 3)
MB
4,335
3,898
4,383
N/A
N/A
Intensity ratio:
Gross tonnes CO
2
e per FTE
LB
0.80
0.79
0.87
1.52
1.60
Gross tonnes CO
2
e per FTE
MB
0.74
0.68
0.70
N/A
N/A
Global energy use (kWh)
2022
2021
2020
Electricity (kWhs)
15,456,712
17,764,683
19,047,094
Gas Combustion (kWhs)
7,000,746
8,058,297
7,425,908
Transportation - vehicles (kWhs)
1,209,955
474,527
1,078,085
Total energy use
23,667,413
26,297,507
27,551,087
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.
Charitable donations
During the year donations to charities were made amounting to £0.92m (2021: £0.87m).
£nil
political donations were made during the year (2021: £nil).
28
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 2022. None of the Directors had an interest in any contract of significance with the Company or any
of its subsidiaries during 2022. 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 2022 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 Group’s suppliers, customers and other key stakeholders is
included in the Company’s s.172 statement on pages
10
to
12
in the Strategic Report.
Further information on workforce engagement, as required by the Companies Act 2006 is also included in the Company’s s.172
statement on pages
10 to 12
.
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 2022, was approved by order of the Board and signed on its behalf.
Jonathan Cope
General Counsel and Company Secretary
02 March 2023
29
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND THE
FINANCIAL STATEMENTS
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.
In accordance with Disclosure Guidance and Transparency Rule 4.1.14R, the financial statements will form part of the annual financial
report prepared using the single electronic reporting format under the Technical Detail European Single Electronic Format (ESEF)
Regulation.
The auditor’s report on these financial statements provides no assurance over the ESEF format.
Responsibility statement
We confirm that, to the best of our knowledge:
The financial statements on pages 29 to 141, 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 on page 2 to 19 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.
Ken Anderson
Ken Norgrove
Chief Financial Officer
Chief Executive Officer
02 March 2023
02 March 2023
30
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”, and collectively with its subsidiaries
“the Group”) for the year ended 31 December 2022 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 2022 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, 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
ten financial years ended 31 December 2022. 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.
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.
Valuation of insurance liabilities
Insurance contract liabilities 2022: £5,671 million gross, £3,890 million net; 2021: £5,276 million gross, £3,628 million net,
relating to provision for losses and loss adjustment expenses
Risk vs 2021
◄►
Refer to pages 52 (accounting policy) and pages 101 to 106 (financial disclosures)
31
The
risk
Our
response
Subjective valuation:
Insurance liabilities represent the single largest liability
for the Group. Valuation of incurred but not reported
claims (IBNR) is highly subjective, requiring a number of
assumptions
to
be
made
with
high
estimation
uncertainty.
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 remains as a result of the Covid-
19 pandemic and the resulting claims and reinsurance
recoveries. For business interruption cases (BI) the
result of the FCA Test Case ruling, and other legal
decisions and pending appeals on such judgements,
whilst not significant in isolation do, alongside the
uncertain long term distortion to claims experience,
continue to evolve. Further uncertainty arises in classes
more sensitive to the assumptions made around future
inflation rates.
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.
The effect of these matters is that, as part of our risk
assessment, we determined that the valuation of
insurance liabilities in relation to IBNR, 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.
With the assistance of our own actuarial specialists at Group and
component level, our procedures included:
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:
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 subjective classes of business;
Challenge of key assumptions:
Our audit approach
responded to the increased uncertainty in the current
economic environment, making explicit allowance for
inflation in our independent re-projections. We performed
incremental tests to separate the impacts on frequency and
severity, including inflation and other factors such as
changes in driving patterns since Covid-19.
Assessing principles:
We inspected the legal advice
received by management in relation to Covid-19 business
interruption (BI) claims and considered the appropriateness
of judgements against this advice. We agreed a sample of
reinsurance recoveries received in the year to appropriate
evidence.
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,
we have sample tested other data elements relevant to the
valuation of insurance liabilities such as premium inputs
and relevant reinsurance contracts, and recalculated the
resulting reinsurance recoveries. From a completeness
perspective, we reconciled the policy level claims listing
subject to sampling, to the actuarial triangles used for our
independent reprojections, with the output then reconciled
to the financial statements.
Margin evaluation:
We evaluated the appropriateness of
the margin to be applied to the actuarial best estimate. In
order to do this we assessed management’s 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 management and with respect to our
understanding of any changes in the Group’s risks.We also
applied our broader sector experience of approaches to
setting the margin and the level of margin held by the
Group’s peers.
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.
Control design and implementation:
We assessed the
design and implementation of controls in relation to the
above valuation. We did not seek to place reliance 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.
32
Our results
We found the valuation of the insurance liabilities to be acceptable
(2021 result: acceptable).
Valuation of deferred tax assets
2022: £186 million of the total deferred tax assets of £267 million; 2021: £146 million of £148 million
Risk vs 2021
◄►
Refer to page 56 (accounting policy) and pages 97-98 (financial disclosures).
The
risk
Our
response
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 of the Group in 2021. 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 with reference to
recent business performance, operating plans, and
allowing for adjustments including the contingency
applied in determining the value of the deferred tax
asset.
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, forecast periods used by peers, 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 and projected
future growth rates.
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.
Control design and implementation
: We assessed
the design and implementation of controls in relation to
the above valuation. We did not seek to place reliance
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
As a result of our work, we found the level of deferred tax assets
recognised to be acceptable (2021 result: acceptable).
33
Valuation of post-employment benefits and obligations
2022: £5,461 million; 2021: £8,679
million
Risk vs 2021
◄►
Refer to pages 56 (accounting policy) and pages 107-113 (financial disclosures).
The
risk
Our
response
Subjective valuation:
The value of the UK defined benefit pension schemes
obligations is significant and, being long-dated liabilities, the
valuations are particularly sensitive to small changes in
assumptions such as the discount rate, RPI inflation rate and
mortality rate, which are highly sensitive to market and
geographic circumstances.
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, RPI 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 principles:
We assessed the Group’s
methodology against the requirements of IAS 19
Assessing
transparency:
We
considered
the
adequacy of the Group’s disclosures in respect of the
sensitivity of the defined pension obligation to these
assumptions and of the post balance sheet event
disclosed in note 49.
Control design and implementation
: We assessed
the design and implementation of controls in relation
to the above valuation. We did not seek to place
reliance 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 post-employment benefits and
obligations to be acceptable (2021 result: acceptable).
Valuation of parent company’s investment in subsidiaries
2022: £2,595 million; 2021: £2,405 million
Risk vs 2021
◄►
Refer
to
page
13
7
(accounting
policy,
Investments
in
Subsidiaries)
and
page
139
(financial
disclosures).
34
The
risk
Our
response
Forecast-based assessment:
The carrying amount of the parent company’s (‘The
Company’) investment in subsidiaries represents 97%
(2021: 63%) 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.
There is inherent uncertainty involved in developing the
Company’s operational plan upon which the discounted
cash flow models are based such that the valuation is
sensitive to the underlying assumptions impacting the
assessment of future cashflows and the discount rate
applied.
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 8) disclose
the sensitivity estimated by the Company.
With the assistance of our own valuation specialists, our
procedures included:
Historical comparisons:
We assessed the accuracy of
the Company’s approved operating plan in relation to
the forecasting process in the past.
We considered
whether
projected
margins
are
achievable
with
reference to recent business performance, operating
plans, and allowing for adjustments including the
contingency applied in determining the valuation of
investment in subsidiaries.
Assessing valuer’s credentials:
We evaluated the
Company’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 Company’s valuer
and benchmark the valuation against the Company’s
competitors.
Test of details:
We agreed net asset values to
underlying
financial
reporting
for
less
material
subsidiaries. We also evaluated and challenged the
underlying data used in the cash flow forecasts, on
which the valuations were based.
Sensitivity analysis:
We carried out independent
sensitivity analysis of the impact on the valuation of
changes to assumptions such as expected weather
losses, the development of claims reserves and claims
inflation, projected future growth rates and the discount
rate applied.
Assessing
transparency:
We
considered
the
adequacy of the Company’s disclosures in respect of
the sensitivity of the valuation to the key assumptions.
Control design and implementation
: We did not seek
to place reliance on the Company’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 assessment of the valuation of the parent
company’s investment in subsidiaries to be acceptable (2021
result: acceptable).
3 Our application of materiality and an overview of the scope of our audit
Materiality for the Group financial statements as a whole was set at £29m (2021: £34m), determined with reference to a
benchmark of net earned premiums (of which it represents 0.9% (2021: 0.8%)).
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 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 £26m (2021: £30m), which is capped at 90% of
Group materiality and with reference to a benchmark of net assets of which it represents 1.1% (2021: 0.9%).
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 75% (2021: 65%) of materiality for the financial statements as a whole, which
equates to £21.7m (2021: £22.1m). We applied this percentage in our determination of performance materiality based on the
level of aggregation risk following disposals and the period of ownership following the acquisition.
35
Performance materiality for the parent company was set at 75% (2021: 75%) of materiality, which equates to £19.5m (2021:
£22.5m). 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 £1.4m (2021:
£1.7m) in the Group financial statements; and £1.3m (2021: £1.5m) in the parent company financial statements, in addition to
other identified misstatements that warranted reporting on qualitative grounds.
In assessing our scoping, we considered the Group’s reporting units as five (2021: seven) components. We subjected the UK
component to a full scope audit. 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 and cash balances within one of the UK-based components, where specific risks were identified. This scoping
decision was made 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.
Following the disposal of Canada and Scandinavia in 2021, they are no longer in scope of our audit
.
The components within the
scope of our work accounted for the percentages illustrated below. For calculation of our scope in relation to profit presented
below, we have included only the full scope component. 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 components within the scope of our work accounted for the following percentages of the Group's results
(comparatives
in
bracket):
Number of
components
Group net
earned premium
Group
insurance
contract
liabilities
Total profits and
losses that made
up Group profit
before
tax
Group total
assets
Audits
for
group
reporting
purposes
1
(3)
92%
(93%)
82%
(77%)
53%
(96%)
87%
(84%)
Specified risk-focused audit
procedures over reinsurance debtors,
insurance liabilities, cash and
investments
2 (2)
0% (2%)
10% (18%)
0% (0%)
2% (10%)
Total
3
(5)
92%
(95%)
92%
(95%)
53%
(96%)
89%
(94%)
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
£12m to £27m (2021: £10m to £27m), having regard to the mix of size and risk profile of the Group across the components. The
audit procedures over the Irish component (2021: Canada, Scandinavia and Ireland) were performed by a component audit
team. The audit procedures over the completeness and accuracy of the investment balances within the in-scope UK reporting
components were conducted by EY’s Intact Financial Corporation audit team in Canada. We communicated our audit risk
assessment, participated in the scoping of planned audit procedures, agreed the information to be reported back and auditor
oversight procedures were performed, including review of the audit documentation.
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 (2021: nil) component overseas locations during the year and instead maintained the virtual
interactions with overseas teams. Video and telephone conference meetings were held with the component auditors and local
management. 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. We reviewed the component team’s audit
documentation.
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”).
36
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 and operational performance;
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 any resulting impact on liquidity and capital strength; and
the impact of post balance sheet event as disclosed in note 49.
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:
Evaluation of the consistency, arithmetical accuracy and reasonableness of the data and assumptions used in
management’s Going Concern assessment paper.
Consideration of 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.
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 the full scope component audit team of relevant fraud risks identified at
the Group level and request to the full scope component audit team 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, in particular
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. In view of the overall quantum of pipeline premium as a proportion of total
premiums, and the minimal judgement and estimation involved in the recognition of the remaining premium income, we rebutted
the presumed risk of fraud in revenue recognition.
37
We also identified fraud risks related to the valuation of insurance contract liabilities and the valuation of deferred tax 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 the full scope component, based on risk criteria and comparing the identified
entries to supporting documentation. These included those posted to seldom-used accounts and those posted by
individuals who do not typically post journals.
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 the full scope component audit team 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 of 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.
38
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.
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 29, 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.
The Company is required to include these financial statements in an annual financial report prepared using the single electronic
reporting format specified in the TD ESEF Regulation. This auditor’s report provides no assurance over whether the annual
financial report has been prepared in accordance with that format.
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.
Thomas Tyler (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
02 March 2023
39
Consolidated income statement
For the year ended 31 December 2022
2022
2021
Note
£m
£m
Continuing operations
Income
Gross written premiums
Less: reinsurance written premiums
(1,071 )
(1,001 )
Net written premiums
9
Change in the gross provision for unearned premiums
(78 )
(44 )
Change in provision for unearned reinsurance premiums
(42 )
Change in provision for net unearned premiums
(86 )
Net earned premiums
Net investment return
10
Other operating income
12
Total income
Expenses
Gross claims incurred
(2,817 )
(2,959 )
Less: claims recoveries from reinsurers
Net claims
11
(2,077 )
(2,200 )
Underwriting and policy acquisition costs
(1,109 )
(1,223 )
Unwind of discount
(6 )
Other operating expenses
13
(93 )
(172 )
(3,276 )
(3,601 )
Finance costs
14
(11 )
(76 )
Profit on disposal of businesses
8
Profit/(loss) before tax from continuing operations
9
(228 )
Income tax credit/(expense)
19
(33 )
Profit/(loss) after tax from continuing operations
(261 )
Profit from discontinued operations, net of tax
7
Profit for the year
Attributable to:
Owners of the Parent Company from continuing operations
(263 )
Owners of the Parent Company from discontinued operations
Total Owners of the Parent Company
Non-controlling interests
(5 )
The attached notes form an integral part of these consolidated financial statements.
40
Consolidated statement of comprehensive income
For the year ended 31 December 2022
2022
2021
Note
£m
£m
Profit/(loss) for the year from continuing operations
(261 )
Profit for the year from discontinued operations
Profit for the year
Items from continuing operations that may be reclassified to the income
statement:
Exchange gains/(losses) net of tax on translation of foreign operations
22
(14 )
Fair value losses on available for sale financial assets net of tax
22
(329 )
(79 )
(309 )
(93 )
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
(355 )
(70 )
Movement in property revaluation surplus net of tax
22
(2 )
Other comprehensive expense for the year from continuing operations
(666 )
(163 )
Other comprehensive expense for the year from discontinued operations
7
(129 )
Total other comprehensive expense for the year
22
(666 )
(292 )
Comprehensive expense for the year from continuing operations
(585 )
(424 )
Comprehensive income for the year from discontinued operations
7
Total comprehensive (expense)/income for the year
(585 )
Attributable to:
Owners of the Parent Company from continuing operations
(597 )
(426 )
Owners of the Parent Company from discontinued operations
Total Owners of the Parent Company
(597 )
Non-controlling interests
(585 )
The attached notes form an integral part of these consolidated financial statements.
41
Consolidated statement of changes in equity
For the year ended 31 December 2022
Ordinary
share
capital
Ordinary
share
premium
Preference
shares
Tier 1
notes
Revaluation
reserves
Capital
redemption
reserve
Foreign
currency
translation
reserve
Retained
earnings
Equity
attributable
to owners
of the
Parent
Company
Non-
controlling
interests
Total
equity
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
Balance at 1 January 2021
Total comprehensive income
Profit for the year
Other comprehensive
income/(expense) (note 22)
(267 )
(58 )
(292 )
(292 )
(267 )
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)
Share
-
based payments (note 34)
Transfers
(1 )
Capital reduction
1
(800 )
(1,095 )
(389 )
(813 )
(389 )
(4,638 )
(5,605 )
(10 )
(5,615 )
Changes in shareholders' interests
in subsidiaries
(2 )
(2 )
Total transactions with owners of
the Group
(813 )
(389 )
(4,638 )
(5,605 )
(12 )
(5,617 )
Balance at 1 January 2022
Total comprehensive income
Profit/(loss) for the year
(5 )
Other comprehensive
(expense)/income (note 22)
(329 )
(355 )
(683 )
(666 )
(329 )
(269 )
(597 )
(585 )
Transactions with owners of the Group
Contribution and distribution
Dividends (note 21/36)
(12 )
(12 )
(2 )
(14 )
Shares issued for cash (note 34)
Tier 1 notes redemption note (35)
(297 )
(275 )
(275 )
(297 )
(2 )
Changes in shareholders' interests
in subsidiaries
(166 )
(166 )
Total transactions with owners of
the Group
(297 )
(168 )
(161 )
Balance at
31 December 2022
(224 )
The attached notes form an integral part of these consolidated financial statements.
42
Consolidated statement of financial position
Company number 02339826
As at 31 December 2022
2022
2021
Note
£m
£m
Assets
Goodwill and other intangible assets
23
Property and equipment
24
Investment property
25
Financial assets
26
Total investments
Reinsurers’ share of insurance contract liabilities
29
Insurance and reinsurance debtors
30
Deferred tax assets
31
Current tax assets
31
Other debtors and other assets
32
Other assets
Cash and cash equivalents
33
Total assets
Equity and
liabilities
Equity
Equity attributable to owners of the Parent Company
Non-controlling interests
Total equity
Liabilities
Issued debt
37
Insurance contract liabilities
39
Insurance and reinsurance liabilities
40
Borrowings
38
Current tax liabilities
31
Provisions
42
Other liabilities
43
Provisions and other liabilities
Total liabilities
Total equity and
liabilities
The attached notes form an integral part of these consolidated financial statements.
02 March 2023
by the Board of Directors and are signed on its behalf by:
Ken Anderson
43
Consolidated statement of cash flows
For the year ended 31 December 2022
2022
2021
Note
£m
£m
Cash flows from operating activities
Cash generated from operating activities
45
Tax paid
(4 )
(99 )
Net cash flows from operating activities
Cash flows from investing activities
Proceeds from sales or maturities of:
Financial assets
Property and equipment
Subsidiaries and associates (net of cash disposed of)
Dividends from associates
Purchase of:
Financial assets
(2,225 )
(2,615 )
Property and equipment
24
(27 )
(13 )
Intangible assets
23
(107 )
(104 )
Subsidiaries
(1 )
Net cash flows from investing activities
(492 )
Cash flows from financing activities
Proceeds from issue of share capital
Dividends paid to ordinary shareholders
21
(6,914 )
Coupon payment on Tier 1 notes
21
(3 )
(15 )
Dividends paid to preference shareholders
21
(9 )
(9 )
Dividends paid to non-controlling interests
36
(2 )
(10 )
Redemption of debt instruments
46
(275 )
(642 )
Payment of lease liabilities
46
(13 )
(24 )
Movement in other borrowings
46
(71 )
Interest paid
46
(11 )
(26 )
Net cash flows from financing activities
(19 )
(6,406 )
Net decrease in cash and cash equivalents
(149 )
(582 )
Cash and cash equivalents at the beginning of the year
Effect of changes in foreign exchange on cash and cash equivalents
(9 )
Cash and cash equivalents at the end of the year
33
The attached notes form an integral part of these consolidated financial statements.
44
subsidiary of IFC) on 1 June 2021 (the acquisition). Regent Bidco Limited was placed into liquidation on 20 September 2022
and the Company's ordinary share capital was purchased by Alberta Limited (a wholly owned subsidiary of IFC) on 20
September 2022.
The Company’s ultimate parent company and controlling party is IFC . The Company is incorporated and
domiciled in England and Wales provides personal
as discontinued operations (refer to note 7 for further information).
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 the Group’s strategic plans and latest forecasts, capital position and liquidity including on demand capital
funding arrangements with IFC. Current economic uncertainty has been considered, including the war in Ukraine, rising inflation,
post Covid-19 impacts and transition to a post Brexit environment. These assessments include stress and scenario testing and
consider significant areas of risk and uncertainty for the Group in a 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. 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 has been no significant change in the estimated
ultimate position based on these updates. 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 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: 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.
In preparing the financial statements, the Directors have considered the impact of climate change, particularly in the context of
the risks identified in the TCFD disclosure on pages
16
to
19
. The potential impact of climate change on the valuation of
insurance contract liabilities is considered in the significant accounting estimates and judgements note (note 2).
The potential
impact of climate change is also considered in the measurement of the deferred tax asset. Otherwise, there has been no
material impact identified on the financial reporting judgements and estimates. The Directors are aware, however, of the ever-
changing risks attached to climate change and will regularly assess these risks against judgements and estimates made in
45
In preparing these consolidated financial statements, management has made judgements and calculated 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 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
reduced over the past couple of years as initial estimates are replaced with maturing claims, case and reinsurance
information, updates for which have been included in the claims estimates at 31 December 2022 .
Key points which
could give rise to significant changes in the BI claims cost estimates continue to be challenged (and appealed) in high
profile industry court cases such as Stonegate.
These uncertainties are likely to persist for some time and, in the
meantime, our booked reserves reflect our up-to-date views on the expected outcomes and are supported by our latest
legal advice. 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 practice,
relevant reserve assumptions have been strengthened during 2022 and margin is held above best estimates given the
uncertainty. Given the emergence of significantly increased inflation trends over the past 1-2 years, our Inflation
Committee and Working Groups have increased the frequency of meetings and depth of analysis, new methods have
been adopted in some areas, increasing weight has been assigned to more recent trends where appropriate, and
extensive sensitivity analysis has been carried out to help inform selections. Our judgements have been mindful of the
uncertainty arising from the combined impacts of post-pandemic effects (such as supply chain disruption) combined
with inflation pressure.
An external reserve review was commissioned and completed on major segments of our reserves during 2022 to give
management additional comfort that our internal estimates were robust and reflected external perspectives. The
Adverse Development Cover (ADC) reinsurance contract placed in 2021 provides significant protection against inflation
increases on 2020 and prior accident years.
Climate change trends are giving rise over time to different weather patterns and therefore general insurance claims
experience. During 2022, the UK observed severe windstorms in February, record high temperatures in the summer
and a severe prolonged freeze event in December, leading to heightened storm, subsidence, escape of water and fire
loss experience in the year. It is possible that climate change is a factor in this weather experience. The judgements
made in respect of claims reserves and claims provisions take our observed reported experience into account and use
common actuarial techniques to estimate ultimate costs. When selecting our future weather event claims experience
assumption for our operational plan, we consider average experience over a recent period plus a judgmental allowance
in recognition of climate change trends, along with any other relevant considerations such as exposure changes.
Refer to note 39 for additional information.
46
Measurement of defined benefit obligations: the use of key actuarial assumptions, such as discount rates, inflation
rates and mortality rates. The valuation of the defined benefit pension schemes is sensitive to small changes in key
assumptions. The setting of assumptions involves significant judgement by management. Updates to the inflation and
mortality assumptions have been made at 31 December 2022 following advice from management’s in house pension
specialists, supported by independent third party actuarial advice. These updates result in a net balance sheet gain of
£30m
. The asset valuation on the UK pension scheme requires assumptions to be made around the complex and
bespoke arrangement that provides coverage against longevity risk. 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. Management apply judgement in the application of contingency on the
estimation of future forecast taxable profits in determining the value of deferred tax asset to be recognised.
Management use a 5 year forecast period when calculating future forecast taxable profits (previously 7 years). There
has been a
£119m
increase
in the deferred tax asset at 31 December 2022. This has been predominantly driven by
the recognition of a deferred tax asset of
£83m
in respect of unrealised losses on the available-for-sale bond portfolio
in the UK and Ireland and
£36m
relating to the increase in forecast profits. The increase in forecast profits includes the
UK impact of the transition to IFRS17. 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: management apply judgement in the valuation of the
recoverable amount and the estimation of the useful economic life. The value in use calculations are based on
management’s latest operational plans and consider 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 2022,
£10m
of impairments have been recognised on a continuing operations basis (31
December 2021: £7m). Refer to note 10 for additional information. The value of unrealised losses from continuing
operations in the revaluation reserve at 31 December 2022 is
£329m
(31 December 2021: losses of £79m). Refer to
note 22 for additional information.
Valuation of intangible assets: 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 2022,
£30m
of internally generated
software assets were identified as no longer generating future economic benefit and were derecognised (12 months to
31 December 2021: £72m). Refer to note 23 for additional information.
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.
47
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) is £34m at 31 December 2022 and relates to
illiquid investments.
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 2022. The Group has evaluated these changes,
IFRS 17 'Insurance Contracts' and IFRS 9 'Financial Instruments'
Glossary
of
abbreviations
CSM
Contractual service margin
LIC
Liabilities for incurred claims
ECL
Expected credit loss
LRC
Liability for remaining coverage
FVTOCI
Fair value through other comprehensive income
PAA
Premium allocation approach
FVTPL
Fair value through profit and loss
AFS
Available For Sale
GMM
General measurement model
SPPI
Solely payments of principal and interest
The Group will adopt IFRS 17 – Insurance Contracts (“IFRS 17”) in conjunction with IFRS 9 – Financial instruments (“IFRS 9”)
on the required effective date of 1 January 2023, which will replace IFRS 4 – Insurance Contracts (“IFRS 4”) and IAS 39 –
Financial instruments: recognition and measurement (“IAS 39”), respectively. While IFRS 9 was effective for annual periods
beginning on or after January 1, 2018, IFRS 4 allows a temporary exemption to delay the implementation of IFRS 9 until IFRS
17 is applied. The Group's 2023 interim financial statements will be prepared under IFRS 17 and IFRS 9.
IFRS 17 will be applied retrospectively as at 1 January 2022 to each group of insurance contracts. As a result comparative
information will be restated. Where full retrospective application is impracticable, the modified retrospective approach has been
applied.
The Group will recognise any IFRS 9 measurement differences by adjusting its Consolidated statement of financial position on 1
January 2023. As a result comparative information will not be restated.
Financial impact
IFRS 17
On transition to IFRS 17 on 1 January 2022, the Group’s Equity attributable to owners of the Parent Company will be positively
impacted by approximately £40m (IFRS 4: £3,091m; IFRS 17: £3,131m), mainly due to the discounting of Claims liabilities
applying the principles of the new standard. IFRS 17 will result in presentation reclassifications as insurance related assets and
liabilities are presented together on a single line, and reinsurance related assets and liabilities and presented together on a
single line.
IFRS 9
On transition to IFRS 9 on 1 January 2023, the Group’s Equity attributable to owners of the Parent Company will be negatively
impacted by £1m, which corresponds to the ECL calculated on its amortised cost loans and receivables.
IFRS 9 will also result in reclassifications from Revaluation Reserve to Retained Earnings as follows:
Certain equity instruments currently classified as AFS will be classified as FVTPL, which will increase volatility in the
Income statement;
The FVTPL designation of some fixed income instruments will change on transition date; and
The ECL calculated on instruments at fair value currently in Other Comprehensive Income (OCI) will be recognised in
Retained earnings.
As at 1 January 2023, the Group will reclassify approximately £100m of unrealised gains or losses (after tax) from Revaluation
reserves to Retained earnings.
48
The table below summarises the preliminary classification and measurement impacts of IFRS 9 on the Group’s investments on
transition.
Measurement category
Carrying amount
As at 1 January, 2023
IAS 39
IFRS 9
IAS 39
Reclassification
Measurement
IFRS 9
Cash and cash equivalents
Amortised cost
Amortised cost
362
-
-
362
Debt securities
AFS
FVOCI
4,689
(2,471)
-
2,218
n/a
FVTPL
-
2,471
-
2,471
Equities
AFS
n/a
212
(212)
-
-
n/a
FVTPL
-
212
-
212
Loans and receivables
Amortised cost
Amortised cost
433
-
(1)
432
IFRS 17 ‘Insurance Contracts’
The following summarises the Group’s main accounting policies under IFRS 17 compared to IFRS 4:
Topic
Description
Impact
Scope
and
separating
components
Similar to IFRS 4, under IFRS 17 the Group will evaluate if a contract
is in scope of the insurance contract standard and will separate its
components if necessary.
Insurance contracts transfer significant insurance risk at the inception
of the contract. Insurance risk is transferred when the Group agrees
to compensate a policyholder on the occurrence of an adverse
specified uncertain future event.
The Group issues insurance contracts in the normal course of
business (direct business). The Group also holds reinsurance
contracts (ceded business), under which it is compensated by other
entities for claims arising from one or more insurance contracts
issued by the Group.
As a result, the Group will
continue to assess its insurance
and
reinsurance
contracts
to
determine whether they contain
components
which
must
be
accounted for under an IFRS
standard
other
than
the
insurance
contract
standard.
The Group’s insurance policies
do not include any components
that require separation.
Level
of
aggregation of
insurance
contracts
IFRS 17 introduces a new concept of aggregating insurance and
reinsurance contracts into portfolios and groups for measurement
purposes. Portfolios are comprised of contracts with similar risks
which are managed together. The Group divides its direct and ceded
business into portfolios. Management uses judgement in considering
the main geographic areas, lines of businesses, distribution channels
and legal entities in which it operates as the relevant drivers for
establishing its various portfolios. Portfolios are then divided into
groups of contracts based on expected profitability. Groups do not
contain contracts issued more than one year apart since they are
further subdivided into annual cohorts. This is the level at which the
Group will apply the requirements of IFRS 17.
Portfolios of insurance contracts
issued that are assets and those
that are liabilities and portfolios
of reinsurance contracts held
that are assets and those that
are liabilities will be presented
separately in the Consolidated
statement of financial position,
resulting
in
presentation
changes
when
compared
to
IFRS 4, as described below in
Presentation and disclosures.
49
Measurement
models
IFRS 17 introduces a new concept of the GMM for the measurement
of insurance contracts. Entities also have the option to use a
simplified measurement model (the PAA), for contracts that have a
coverage period of one year or less or if the resulting LRC, which
represents insurance coverage to be provided after the reporting
period, is not expected to materially differ from the LRC measured
using the GMM. The accounting under the PAA is similar to the
current approach under IFRS 4 for the LRC.
The GMM is required for a limited number of contracts within the
Group, primarily in relation to retroactive reinsurance which covers
adverse development of existing claims. The GMM requires
measuring insurance and reinsurance contracts using updated
estimates and assumptions that reflect the timing of cash flows and
any uncertainty relating to insurance and reinsurance contracts.
Under this model the LRC is the sum of discounted expected future
cash flows, risk adjustment and CSM representing the unearned
profit the Group will recognise as it provides service under the
insurance contracts in the group.
The Group does not have any
significant
contracts
with
coverage
periods
that
are
greater than one year and has
developed a methodology for
determining
whether
those
contracts are eligible to apply
the PAA. Based on its models
the PAA will be applicable to all
the insurance and reinsurance
contracts
except
in
limited
circumstances where the GMM
is required.
Onerous
contracts
IFRS 17 requires the identification of groups of onerous contracts at
a more granular level than the liability adequacy test performed
under IFRS 4. Under the PAA, the Group assumes that no contracts
in the portfolio are potentially onerous at initial recognition unless
facts and circumstances indicate otherwise. The Group has
developed a methodology for identifying indicators of possible
onerous contracts, which includes internal management information
on planning information, forecast information and historic experience.
The Group has developed models for measuring potential onerous
contract losses.
For onerous contracts, a loss component determined based on
estimated fulfilment cash flows is included in the LRC when
insurance contracts are issued with a loss recognised immediately in
the Income statement, resulting in early recognition of the loss
compared to IFRS 4. The loss component will be reversed to the
Income statement over the coverage period, therefore offsetting
incurred claims. The loss component is measured on a gross basis
but a loss recovery component may be recognised to the extent that
the gross loss component is covered by reinsurance contracts held.
The Group has developed a
methodology
for
determining
onerous
contracts
and
calculated
the
impact
on
transition to IFRS 17. This will
be assessed on an ongoing
basis as part of the Group’s
reporting processes.
Discount rate
IFRS 17 requires estimates of future cash flows to be discounted to
reflect the time value of money and financial risk that reflects the
characteristics of the liabilities and the duration of each group of
contracts. The Group has established discount yield curves using
risk-free
rates
adjusted
to
reflect
the
appropriate
illiquidity
characteristics of each group of the applicable insurance contracts.
The LRC of contracts measured under the GMM approach and the
LIC will be discounted using this methodology. The Group will not
discount the LRC of contracts measured under the PAA approach on
the basis that it does not have contracts with significant financing
components.
Under IFRS 4, claims liabilities are discounted using a rate that
reflects the estimated market yield of the underlying assets backing
these claims liabilities at the reporting date.
The changes in discount rate
methodology
will
have
a
significant
impact
on
the
measurement
of
groups
of
insurance contracts at transition
and on an ongoing basis.
Risk
adjustment
The measurement of insurance contract liabilities includes an explicit
risk adjustment which will replace the implicit risk margin included
under IFRS 4. The IFRS 4 risk margin reflects the inherent
uncertainty in the net discounted claim liabilities estimates, whereas
the IFRS 17 risk adjustment is the compensation required for bearing
the uncertainty that arises from non-financial risk.
Like the risk margin, the risk
adjustment includes the benefit
of diversification, therefore the
two methodologies are closely
aligned.
50
Insurance
revenue
Under IFRS 17, direct premiums written will no longer be presented
in the Consolidated income statement, instead insurance revenues
on direct business will be allocated to the period and will include
allocations of:
Premium receipts net of cancellations, promotional returns,
and sales taxes, similar to IFRS 4; and
Other insurance revenue currently recognised in Other
operating income under IFRS 4. This includes fees collected
from policyholders in connection with the costs incurred for
the Group’s monthly payment plans and fees received for
the administration of other policies.
For contracts measured under
the PAA, the allocation will be
based on the passage of time
which is usually 12 months,
similar to earned premiums.
Insurance
service
expenses
Insurance service expenses will include fulfilment and acquisition
cash flows which are costs directly attributable to insurance contracts
and are comprised of both direct costs and an allocation of fixed and
variable overhead costs. It will be composed of the following:
Incurred claims and other insurance service expenses,
which are fulfilment cash flows, and include direct incurred
claims and non-acquisition costs directly related to fulfilling
insurance contracts;
Amortisation of insurance acquisition cash flows (see
below); and
Losses and reversal of losses on onerous contracts (see
above).
Insurance acquisition cash flows
Insurance acquisition cash flows are costs directly attributable to
selling or underwriting a portfolio of insurance contracts and are
included in the LRC. These cash flows include direct costs such as
commissions and indirect costs such as salaries, rent and technology
costs. Under IFRS 17, the PAA provides the option to expense
insurance acquisition cash flows as they are incurred. The Group will
elect to amortise these costs on a straight-line basis over the
coverage period of the related groups.
IFRS 17
will
result
in
presentation changes to IFRS
4’s
Underwriting
and
policy
acquisition costs since expenses
will
be
classified
either
as
insurance acquisition cash flows
and fulfilment cash flows within
insurance service expenses or
as other expenses when they
are not directly attributable to
insurance contracts. As a result,
a portion of expenses currently
classified as Underwriting and
policy acquisition costs under
IFRS 4 will be presented as
other expenses under IFRS 17.
Insurance acquisition cash flows
are similar to IFRS 4’s deferred
acquisition costs except they
also include a portion of indirect
costs. The impact on transition
will
not
be
significant
in
proportion
to
Shareholders’
equity and will have a limited
impact on an ongoing basis.
Presentation
and
disclosures
IFRS 17 introduces significant changes to the disclosure and presentation of insurance items in the
financial statements including:
Changes in presentation in the Consolidated statement of financial position where the
premiums receivable, deferred acquisition costs, claims liabilities, unearned premiums and
other related assets and liabilities will be presented together by portfolio on two lines called
insurance contract liabilities or assets. Reinsurance assets, reinsurance receivables, deferred
acquisition costs ceded, and other related assets and liabilities will be presented together by
portfolio on two lines, reinsurance contract assets or liabilities;
Changes in presentation in the Consolidated income statement where direct insurance results
will be presented separately from reinsurance results;
Underwriting performance will be presented in the Consolidated income statement under
insurance service result which will be composed of:
o
Insurance revenue which includes revenues related to direct business as described
above;
o
Insurance service expenses which include expenses related to direct business as
described above; and
o
net income (expenses) from reinsurance contracts held which includes revenues and
expenses related to ceded business.
The insurance service result will be presented without the impact of discount unwinding which
will be shown separately under insurance finance income and expenses; and
Extensive disclosures are required on the recognised amounts from insurance contracts and
the nature and extent of risks arising from these contracts.
51
IFRS 9 ‘Financial Instruments’
The following summarises the Group’s main accounting policies under IFRS 9 compared to IAS 39:
Classification and measurement
Business model
Under IFRS 9, the classification of debt instruments is dependent on the business model under which the Group manages its
investments as well as their cash flow characteristics.
The Group’s primary business model will be held-to-collect and sell because debt securities (except non-rated investments that
are not liquid) are held to collect contractual cash flows and sold when required to fund insurance contract liabilities. These
financial assets will be classified as FVTOCI with changes in fair value recognised in OCI (when unrealised) or in net investment
gains/(losses) when realised or impaired.
A portion of the debt securities used to back insurance liabilities will also be voluntarily designated as FVTPL to reduce an
accounting mismatch caused by fluctuations in fair values of the underlying insurance liabilities due to changes in discount
rates. Changes in fair value will be recognised in net investment gains/(losses). This designation will be done on an individual
basis on 1 January 2023 and will be irrevocable.
The Group’s cash and cash equivalents and loans and receivables will fall under the held-to-collect business model where the
emphasis is to collect contractual cash flows. These financial assets will be classified as amortised cost.
Equities will be classified at FVTPL.
Solely payments of principal and interest assessment
Financial assets which are held within held-to-collect and sell and held to collect business models are assessed to evaluate if
their contractual cash flows are comprised of SPPI. Contractual cash flows generally meet SPPI criteria if such cash flows
reflect compensation for basic credit risk and customary returns from a debt instrument which also includes time value for
money. Where the contractual terms introduce exposure to risk or variability of cash flows that are inconsistent with a basic
lending arrangement, the related financial asset will be classified and measured at FVTPL.
The new impairment model applies only to financial assets classified as amortised cost and debt securities classified as
FVTOCI. The ECL model is forward looking, resulting in a loss allowance being recognised earlier as described below rather
¹Forward looking for 12 months following the balance sheet date.
²Forward looking over the lifetime of the instrument.
IFRS 9 provides a simplification where an entity may assume that the criterion for recognising lifetime ECL is not met if the
credit risk on the financial instrument is low (“investment grade”) at the reporting date. The Group will use the low credit risk
simplification as approximatively 95% of the debt securities portfolio consists of investment-grade financial instruments with a
quoted market price.
The ECL model will not have a significant impact, due to the high quality of the Group’s investment portfolio.
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.
Staging
Debt
securities
Stage 1 (12 months ECL)¹
Credit risk of the financial instrument is low (investment grade) or credit risk has not
increased significantly since initial recognition (performing)
Stage 2 (Lifetime ECL)²
Credit risk has increased significantly since inception (underperforming) but the
financial instrument is not credit impaired
Stage 3 (Lifetime ECL)²
52
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 2022. Following the Group’s disposal of its
operations in Scandinavia and Canada in 2021, the policy relating to discontinued operations has been included as a significant
accounting policy.
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
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
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.
53
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.
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.
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 FVTPL
Held for trading
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.
54
The table below summarises the classification and treatment of the Group's financial assets and financial liabilities.
Category
Financial
instrument
Description
Subsequent
measurement
Recognition of change in fair
value
Designated at
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)
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
OCI - 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)
55
Category
Financial
instrument
Description
Subsequent
measurement
Recognition of change in fair
value
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
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 OCI, 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 OCI is recognised in the consolidated income statement.
Further information can be found in note 10.
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 25% for a continuous
nine-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 50% 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.
56
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 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.
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
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.
57
Remeasurements of the net defined benefit liability/asset recognised in OCI 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
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
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.
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.
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
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.
Integration costs represent expenses directly attributable to the integration of the Group into IFC. They include restructuring costs
incurred following the acquisition.
58
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.
59
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 the geographical area in which risks have been underwritten 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 operating segments 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 from the economic and inflationary environment combined with post-
pandemic distortions. There is also uncertainty in the level of future costs of handling and settling the outstanding claims.
60
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 RSA Reserving Committee 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 or assumed trends, future
legislative changes and the emergence of latent exposures beyond levels assumed. The RSA Reserving Committee reviews
these regional submissions and recommends the final level of reserves to be held by the Group. The RSA Reserving Committee
is chaired by the Chief Actuary and includes the Chief Executive, Underwriting Director, Claims Director, Managing Directors for
key operating segments, Chief Actuary and Chief Risk Officer. A similar committee has been established in each of the Group’s
primary operating segments. The RSA Reserving Committee monitors the decisions and judgements made by the operating
segments as to the level of reserves to be held. It then recommends to the Board via the 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:
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 and
supply chain delays 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 IFC Group
Actuarial Function to assess the reasonableness of regional actuarial indication estimates.
Changes in the external claims environment in areas such as legal and medical activities, settlement & supply chain
delays which impact the speed of claims development. The distortions in data caused by the Covid 19 pandemic
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. Whilst experience has tracked in line with the Group’s 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 current assessment of Claims liabilities reflects court
judgements across the jurisdictions that the business operates in, including those recently announced in the UK in
October 2022. These most recent judgements are complex and create a number of uncertainties and the Company will
continue to monitor the progression of the judgements, including the appeals.
There is considerable uncertainty in the economic environment beyond 2022, and changes such as ongoing
inflationary pressure could have an impact on claims costs. This is a key uncertainty that is monitored by the RSA
Reserving Committee with sensitivity testing to monitor, assess and understand potential impacts should the risks
manifest.
61
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 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 an operational 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 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.
In defining its appetite for credit risk the Group looks at exposures at both an aggregate and operating segment 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 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
2022 the extent of collateral held by the Group against reinsurers’ share of insurance contract liabilities was
£47m
(2021: £40m), 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 (RRMP)) as a percentage of IFC’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 RRMP. The Group’s largest reinsurance exposures to active reinsurance groups are
Berkshire Hathaway, Lloyd’s of London and Talanx. At 31 December 2022 the reinsurance asset recoverable from these groups does
not exceed
7.8%
(2021: 7.8%) of the Group’s total financial assets.
62
The credit profile of the Group’s assets exposed to credit risk is shown below. The table below sets out the Group’s aggregated credit
risk exposure for its financial and insurance assets.
As at 31 December 2022
Credit rating relating to financial assets that are neither past due nor impaired
AAA
AA
A
BBB
<BBB
Not
rated
Total financial
assets that are
neither past
due nor
impaired
£m
£m
£m
£m
£m
£m
£m
Debt securities
1,413
1,089
1,063
987
137
-
4,689
Of which would qualify as solely for payment of
principal and interest (SPPI) under IFRS 9
1
1,413
1,088
1,060
798
27
-
4,386
Loans and receivables
2
-
-
83
275
75
-
433
Reinsurers’ share of insurance contract liabilities
38
574
1,779
48
62
15
2,516
Insurance and reinsurance debtors
3
-
28
959
32
43
743
1,805
Derivative assets
-
-
50
-
-
-
50
Other debtors
-
-
1
-
-
85
86
Cash and cash equivalents
161
1
192
-
4
4
362
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.
As at 31 December 2021
Credit rating relating to financial assets that are neither past due nor impaired
AAA
AA
A
BBB
<BBB
Not rated
Total financial
assets that are
neither past
due nor
impaired
£m
£m
£m
£m
£m
£m
£m
Debt securities
907
1,296
1,345
1,047
218
-
4,813
Of which would qualify as SPPI under IFRS 9
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.
With the exception of government debt securities, the largest single aggregate credit exposure does not exceed 2%
(2021: 2%)
of the Group’s total financial assets.
63
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 2022
Financial assets that are past due but not
impaired
Financial
assets
that have
been
impaired
Carrying
value in
the
statement
of
financial
position
Impairment losses
charged to the
income statement
during the year
Neither
past due
nor
impaired
Up to
three
months
Three to
six
months
Six
months
to one
year
Greater
than one
year
Note
£m
£m
£m
£m
£m
£m
£m
£m
Debt securities
26
4,689
-
-
-
-
-
4,689
-
Loans and receivables
26
433
-
-
-
-
-
433
-
Reinsurers’ share of
insurance contract liabilities
29
2,516
-
-
-
-
-
2,516
-
Insurance and reinsurance
debtors
1
30
1,805
47
40
15
5
17
1,929
3
Derivative assets
32
50
-
-
-
-
-
50
-
Other debtors
32
86
-
-
-
-
-
86
-
Cash and cash equivalents
33
362
-
-
-
-
-
362
-
1
Debtors with similar credit risk characteristics are collectively assessed for impairment with provisions being made based on
past experience.
As at 31 December 2021
Neither
past due
nor
impaired
Financial assets that are past due but not
impaired
Financial
assets that
have been
impaired
Carrying
value in the
statement
of financial
position
Impairment losses
charged to the
income statement
during the year
Up to
three
months
Three to
six
months
Six
months to
one year
Greater
than one
year
Note
£m
£m
£m
£m
£m
£m
£m
£m
Debt securities
26
4,813
-
-
-
-
-
4,813
9
Loans and receivables
26
359
-
-
-
-
-
359
-
Reinsurers’ share of
insurance contract liabilities
29
2,291
-
-
-
-
-
2,291
-
Insurance and reinsurance
debtors
1,
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
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
international businesses, through foreign currency risk. Market risk is subject to the BRC’s risk management framework, which is
subject to review and approval by the Board.
Market risk can be broken down into three key components:
64
i.
Equity and property risk
At 31 December 2022 the Group held investments classified as AFS equity securities of
£212m
(2021: £358m). 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
£121m
(2021: £245m) 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
£15m
(2021: £37m) 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
£44m
(2021: £56m) in the income statement and
£3m
(2021: £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 2022, 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.
Changes in the income statement and other comprehensive income (OCI):
(Decrease)/Increase in
income statement
Decrease in other
comprehensive income
2023
2022
2023
2022
£m
£m
£m
£m
Increase in interest rate markets:
Impact on fixed income securities and cash of an increase in interest rates
of 100bps
(57)
14
(68)
(144)
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 2023 and 1 January 2022 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 operating segments 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.
65
The sale of the Canadian and Scandinavian subsidiaries on 1 June 2021 and the disposal of the Middle East subsidiaries on 7 July
2022 have simplified the structural currency exposure of the Group, noting the remaining material foreign currency denominated
subsidiaries are exclusively denominated in EUR.
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 2022, the Group’s equity attributable to owners of the Parent Company deployed by currency was:
Pounds
Sterling
Euro
United
States
Dollar
1
Other
Total
£m
£m
£m
£m
£m
Equity attributable to owners of the Parent Company at
31 December 2022
2,246
84
38
(23)
2,345
Equity attributable to owners of the Parent Company at 31
December 2021
2,688
50
181
16
2,935
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.
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.
The table below illustrates the impact of a hypothetical 10% change in the Euro exchange rate on equity attributable to owners
of the Parent Company when retranslating into sterling.
10%
strengthening in
Pounds Sterling
against Euro
10% weakening
in Pounds
Sterling against
Euro
£m
£m
Movement in equity attributable to owners of the Parent
Company at 31 December 2022
(8)
9
Movement in equity attributable to owners of the Parent
Company at 31 December 2021
(5)
6
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
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.
66
As at 31 December 2022
Less than
one year
One to two
years
Two to
three
years
Three to
four years
Four to
five years
Five to ten
years
Greater
than
ten years
Total
Carrying
value in the
statement
of financial
position
Note
£m
£m
£m
£m
£m
£m
£m
£m
£m
Subordinated guaranteed
US$ bonds
1
37
-
-
-
-
-
7
-
7
7
Guaranteed subordinated
notes due 2045
1
37
-
-
159
-
-
-
-
159
159
Provisions for losses and loss
adjustment expenses
39
2,593
858
494
290
183
358
895
5,671
5,671
Direct insurance creditors
40
59
-
-
-
-
-
-
59
59
Reinsurance creditors
40
578
197
70
-
-
-
-
845
845
Borrowings
38
8
-
-
-
-
-
-
8
8
Derivative liabilities
43
-
8
4
3
-
1
9
25
25
Lease liabilities
1
43
10
10
10
5
5
22
20
82
71
Total
3,248
1,073
737
298
188
388
924
6,856
6,845
Interest on bonds and notes
9
9
7
1
1
2
-
29
1
Maturity profile shown on an undiscounted basis.
As at 31 December 2021
Less than
one year
One to
two years
Two to
three
years
Three to
four years
Four to
five years
Five to ten
years
Greater
than
ten years
Total
Carrying
value in the
statement
of financial
position
Note
£m
£m
£m
£m
£m
£m
£m
£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
Deposits received from
reinsurers
43
-
-
-
-
-
-
-
-
-
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
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
67
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 BRC mandate, for the protection of the Group’s policyholders and the continuation of the Group’s ability to
Regulatory solvency position during 2022
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 Regent Bidco Limited being placed into liquidation in a planned organisational restructure on 20 September 2022, the
Group is subject to regulatory supervision.
As at 31 December 2022, the Group’s unaudited estimated coverage of its Solvency II SCR is approximately
1.7 times
(31
December 2021: 1.8 times).
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:
2022
2021
£m
£m
Equity attributable to owners of the Parent Company at 31 December
2,345
2,935
Less: tier 1 notes
-
(297)
Less: preference share capital
(125)
(125)
Less: goodwill and intangibles
(331)
(312)
TNAV at 31 December
1,889
2,201
The key movements in TNAV are as follows:
2022
2021
£m
£m
As at 1 January
2,201
3,274
Profit after tax
1
125
4,328
Exchange (losses)/gains net of tax
(2)
34
Fair value gains net of tax
(329)
(261)
Pension fund losses net of tax
(355)
(58)
Dividends
2
(12)
(6,938)
Goodwill and intangible additions and disposals
(53)
489
Share issue
294
1,305
Share-based payments
20
28
As at 31 December
1,889
2,201
1
Profit after tax excludes amortisation and impairment of intangible assets.
2
Refer to note 21.
68
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 reviewed by the BRC and approved by the Board.
The ORSA report was delivered to the Board in July 2022. This outlined the balance sheet resilience to market stresses through
the consideration of reverse stress testing, based on market and pensions impacts.
Further consideration of market and insurance stresses were presented at the November 2022 BRC. Analysis of the PRA Natural
Catastrophe and Cyber stress tests demonstrated the resilience of the underwriting discipline and reinsurance protection. A
combined market and insurance shock was used to illustrate the robust capital position and forecast capital generation. Analysis of
the capital risk appetite was assessed with respect to these stresses, and demonstrated to be appropriate even through a period
69
Significant transactions and events
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 comparative consolidated
income statement and consolidated statement of comprehensive income.
Income statement of discontinued operations
For the year ended 31 December 2022
2022
2021
£m
£m
Income
Gross written premiums
-
1,269
Less: reinsurance written premiums
-
(88)
Net written premiums
-
1,181
Change in the gross provision for unearned premiums
-
(97)
Change in provision for unearned reinsurance premiums
-
39
Change in provision for net unearned premiums
-
(58)
Net earned premiums
-
1,123
Net investment return
-
65
Other operating income
-
15
Total income
-
1,203
Expenses
Gross claims incurred
-
(711)
Less: claims recoveries from reinsurers
-
2
Net claims
-
(709)
Underwriting and policy acquisition costs
-
(297)
Unwind of discount and change in economic assumptions
-
(10)
Other operating expenses
-
(21)
-
(1,037)
Finance costs
-
(1)
Profit on disposal of business
-
2
Profit before tax from operating activities
-
167
Income tax expense
-
(29)
Profit after tax from operating activities
-
138
Gain on disposal of discontinued operation
-
4,393
Profit
after tax from discontinued operation
-
4,531
Attributable to:
Owners of the Parent Company
-
4,531
Non-controlling interests
-
-
-
4,531
70
Statement of comprehensive income of discontinued operations
For the year ended 31
December 2022
2022
2021
£m
£m
Profit for the period
-
4,531
Items that may be reclassified to the income statement:
Exchange gains net of tax on translation of foreign operations
-
42
Fair value losses on available for sale financial assets net of tax
-
(183)
-
(141)
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 for the period
-
(129)
Total comprehensive income for the period
-
4,402
Attributable to:
Owners of the Parent Company
-
4,402
Non-controlling interests
-
-
-
4,402
Cash flows from discontinued
operations
For the year ended 31 December 2022
2022
2021
£m
£m
Net cash flows from operating activities
-
53
Net cash flows from investing activities
-
6,565
Net cash flows from financing activities
-
(81)
Net increase in cash
and cash equivalents
-
6,537
71
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
On 7 July 2022, the Group sold its 50% shareholding in Royal & Sun Alliance Insurance (Middle East). The Group recorded a
profit of £31m on the sale. The results for Royal & Sun Alliance Insurance (Middle East) are included in continuing operations as
it did not represent a separate major line of business or a geographical area of operation.
On 1 January 2022 the Group sold its 100% shareholding in Royal & Sun Alliance Insurance Agency inc, recording a profit of
72
Notes to the consolidated income statement, consolidated statement of comprehensive income
and dividends
The Group’s primary operating segments comprise UK, International and Central Functions. 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 to the date of disposal, which individually
do not meet the criteria of a reportable segment. Central Functions include the Group’s internal reinsurance function and Group
Corporate Centre.
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 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 2022
UK
International
Central
Functions
Total
continuing
operations
Discontinued
operations
Total
Group
£m
£m
£m
£m
£m
Net written premiums
2,005
687
418
3,110
-
3,110
Underwriting result
(42)
33
25
16
-
16
Investment result
140
-
140
Central costs and other activities
(24)
-
(24)
Business operating result
132
-
132
Realised losses
(5)
-
(5)
Unrealised losses, impairments of investments and foreign
exchange
(36)
-
(36)
Interest costs (note 14)
(11)
-
(11)
Pension net interest and administration costs (note12/41)
7
-
7
Integration, acquisition and reorganisation costs (note 13)
(61)
-
(61)
Gain on disposal of businesses
39
-
39
Profit before tax
65
-
65
Tax on operations (note 19)
16
-
16
Profit after tax
81
-
81
73
Year ended 31 December 2021
UK
International
Central
Functions
Total
continuing
operations
Discontinued
operations
Total
Group
£m
£m
£m
£m
£m
£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)
Impairment of goodwill (note 23)
-
-
-
Pension net interest and administration costs (note 12/41)
3
(1)
2
Integration, acquisition and reorganisation costs (note 13)
(136)
(13)
(149)
Change in economic assumptions (note 39)
-
-
-
Gain on disposal of businesses (note 8)
-
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
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.
2022
2021
£m
£m
UK
686
698
International
71
91
Total Group
757
74
investment return
A summary of the net investment return in the income statement is given below:
Investment income
Net realised
(losses)/gains
Net unrealised
(losses)/gains
Impairments
Total investment
return
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
Investment property
14
17
14
-
(27)
45
-
-
1
62
Equity securities
Available for sale
14
6
(9)
3
-
-
(10)
(7)
(5)
2
Debt securities
Available for sale
98
86
(10)
(2)
-
-
-
-
88
84
At FVTPL
-
-
-
-
-
(12)
-
-
-
(12)
Other loans and receivables
Loans secured by mortgages
-
-
-
-
-
-
-
-
-
-
Other loans
14
28
-
-
-
-
-
-
14
28
Deposits, cash and cash
equivalents
1
-
1
-
-
-
-
-
2
-
Derivatives
3
-
(1)
(1)
(14)
(3)
-
-
(12)
(4)
Other
1
2
-
(2)
-
-
-
-
1
-
Total from continuing
operations
145
139
(5)
(2)
(41)
30
(10)
(7)
89
160
Direct operating expenses (including repairs and maintenance) arising from investment properties were not material in 2022 or
2021.
Unrealised gains and losses recognised in other comprehensive income for available for sale assets are as follows:
Net unrealised
(losses)/gains
Net realised gains/(losses)
transferred to income
statement
Impairments transferred
to income statement
Net movement recognised
in other comprehensive
income
2022
2021
2022
2021
2022
2021
2022
2021
£m
£m
£m
£m
£m
£m
£m
£m
Equity securities
(20)
5
9
(3)
10
7
(1)
9
Debt securities
(468)
(135)
13
2
-
-
(455)
(133)
Other
-
-
-
3
-
-
-
3
Total from continuing
operations
(488)
(130)
22
2
10
7
(456)
2022
2021
£m
£m
Gross claims paid
1
2,477
2,358
Gross changes in provision for losses and loss adjustment expenses
340
601
Reinsurance recoveries on claims paid
(613)
(440)
Reinsurers’ share of changes in provision for losses and loss adjustment expenses
(127)
(319)
Total net claims from continuing operations
2,077
2,200
1
75
2022
2021
£m
£m
Administration fee income
5
5
Instalment policy fee income
14
16
Introductory commissions
-
7
Service income
9
8
Other fees
49
43
Pension net interest and administration expenses (note 9/41)
7
3
Foreign exchange gain
15
-
Total other operating income from continuing operations
99
2022
2021
£m
£m
Administration and other expenses
24
11
Investment expenses and charges
8
23
Acquisition costs
1
-
96
Integration costs
2
61
40
Foreign exchange loss
-
2
Total other operating expenses from continuing operations
93
172
1
Acquisition costs represent expenses incurred to effect the acquisition and include restructuring costs incurred before the
acquisition.
2
Integration costs are expenses that are directly attributable to the integration of the Group with IFC, following the acquisition of
the Group on 1 June 2021. The majority of the integration costs have been incurred by the end of 2022, with a limited amount
2022
2021
£m
£m
Interest expense on issued debt
9
21
Interest on lease liabilities
2
2
Premium on debt buy back
1
-
53
Total finance costs from continuing operations
11
76
1
During 2021 the Group repurchased
£240m
loan capital and
£350m
senior notes, on which premiums were paid for early
redemption of
£37m
and
£16m
76
15) Employee expenses
Staff costs for all employees
1
comprise:
2022
2021
£m
£m
Wages and salaries
272
405
Redundancy costs
8
10
Social security costs
35
55
Pension costs
29
49
Share-based payments to directors and employees
11
30
Total staff costs
355
549
2022
2021
UK
5,071
4,929
International
1,063
1,239
Continuing operations
6,134
6,168
Discontinued operations
-
2,425
Total average number of employees during the year
6,134
1
Total staff costs in the prior year 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.
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.
16) Directors' emoluments
The aggregate emoluments of the Group's directors were as follows:
2022
2021
£000
£000
Short term benefits (salaries, bonuses, allowances and other benefits)
4,597
7,147
Compensation for loss of office
2
6
Total
4,599
7,153
The criteria for making bonus awards is based on targeted levels of business sector profit and specific business objectives.
During 2022 £45,128 in retirement benefits were accrued for one director under defined benefit pension schemes (2021: £nil),
and no contributions were made to defined contribution pension schemes (2021: £Nil).
During 2022, no directors (2021: no directors) exercised share options, no directors (2021: three directors) had share awards
vesting under long term incentive schemes in respect of ordinary shares of the Company, one director (2021: no directors)
and two non-executive directors (2021: one) had Performance Share Units (PSUs) and Restricted Share Units (RSUs) vesting
in the Group’s ultimate parent company, IFC, as part of their remuneration for service as executives of IFC, and two non-
executive directors (2021: two) had Deferred Share Units (DSUs) vesting in 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.
77
The emoluments of the highest paid director were:
2022
2021
£000
£000
Short term benefits and compensation for loss of office
1,700
2,646
During 2022, no retirement benefits were accrued under defined benefit pension schemes (2021: £nil) and no contributions
were made to defined contribution schemes (2021: £nil) for the highest paid director.
During 2022 the highest paid director had no share awards vesting under long term incentive schemes in respect of ordinary
shares of the Company (2021: the highest paid director had share awards vesting under long term incentive schemes).
Transactions with parent company
The Group’s parent company up to 20 September 2022 was Regent Bidco Limited, and thereafter Alberta Limited, both wholly
owned subsidiaries of IFC, the ultimate controlling party.
During the year ended 31 December 2022, the following related party transaction has taken place with Regent Bidco Limited:
On 27 March, the Group received a capital injection from Regent Bidco Limited of
£294m
to fund the repurchase of the
Tier 1 notes.
Other related party transactions
The Group has a reinsurance arrangement with Unifund Assurance Company (Unifund), a member of the IFC 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%. 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 IFC Group, including its associates.
The Group had a derivative contract hedging foreign exchange risk between the Group and IFC. This matured during the period,
realising an £11m loss in net investment return in the Group’s consolidated Income Statement.
The amounts relating to the above related party transactions included in the consolidated income statement for the year ended
31 December 2022, the consolidated statement of financial position as at 31 December 2022, and the collateral pledged, are
provided in the table below.
2022
£m
Income
388
Expenses
369
Assets
39
Liabilities
740
Collateral pledged
960
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.
78
Key management personnel comprise members of the Group’s Executive Committee, executive directors, and non-executive
directors. The compensation of key management personnel is set out below.
Key management personnel compensation
2022
2021
£m
£m
Short term employee benefits (salaries, bonuses, allowances and other benefits)
9
15
Termination benefits
-
2
Share-based awards
4
12
Total
13
29
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
2022
2021
£m
£m
Fees payable to the auditor for audit of the Company's annual accounts
2.0
2.0
Fees payable to the auditor and its associates for other services:
The audit of the Company's subsidiaries, pursuant to legislation
1
5.9
4.5
Additional audit performed during the year
2
-
5.2
Non-audit services:
Audit related assurance services
1 3
1.5
2.9
Total auditor's remuneration
9.4
14.6
1
2021 includes audit fees, audit assurance and other services for discontinued operations.
2
The additional audit performed during the prior 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 2022 is
£0.8m
(2021: £0.9m) of assurance work in respect of Solvency II
reporting. The remainder of
£0.7m
(2021: £2.0m) represents in aggregate
9%
(2021: 18%) of the Group IFRS audit fee of
£7.9m
79
The tax amounts (credited)/charged in the income statement from continuing operations are as follows:
2022
2021
£m
£m
Current tax:
Charge for the year
4
10
Adjustments in respect of prior years
-
1
Total current tax
4
11
Deferred tax:
(Credit)/charge for the year
(20)
24
Adjustments in respect of prior years
-
(2)
Total deferred tax
(20)
22
Total tax (credit)/charged to income statement attributable to continuing operations
(16)
33
Reconciliation of the income tax expense
2022
2021
£m
£m
Profit/(loss) before tax from continuing operations
65
(228)
Tax at the UK rate of
19.0%
(2021: 19.0%)
12
(43)
Tax effect of:
Income/gains not taxable (or taxed at lower rate)
(1)
1
Expenses not deductible for tax purposes
1
11
Non-taxable loss on sale of subsidiaries
(7)
-
Increase of current tax in respect of prior periods
-
1
Decrease of deferred tax in respect of prior periods
-
(2)
(Recognition)/derecognition of prior year deferred tax assets
(15)
72
Non-recognition of current year deferred tax assets
1
53
Different tax rates of subsidiaries operating in other jurisdictions
5
(9)
Withholding tax on dividends and interest from subsidiaries
(1)
2
Effect of change in tax rates
(7)
(50)
Deductible Restricted Tier 1 coupon in equity
(1)
(3)
Other
(3)
-
Income tax (credit)/expense attributable to continuing operations
(16)
33
Effective tax rate
(25)%
(15)%
The main drivers of the Group’s tax charge (and negative effective tax rate) for the continuing operations for the year ended
31 December 2022 are as follows:
The Group realised non-taxable gains on the sale of subsidiaries (£39m), predominantly in relation to the Middle East and US
Agency disposals.
The UK deferred tax rate increased from 24% to 25% which resulted in a credit of £7m in the consolidated income statement.
The UK and Irish deferred tax assets were also increased in the period by a net £13m following the latest view of taxable
profits statement.
The combined impact of the two deferred tax items resulted in a £20m deferred tax credit to the income statement (see note
31 for further detail).
80
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
2022
2021
2022
2021
2022
2021
£m
£m
£m
£m
£m
£m
Exchange gains and losses
-
(1)
-
-
-
(1)
Fair value gains and losses
-
(2)
100
36
100
34
Remeasurement of net defined benefit pension liability
-
1
(1)
(48)
(1)
(47)
Total credited/(charged) to OCI from continuing operations
-
(2)
99
(12)
99
(14)
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
(2021: £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
(2021: 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.
2022
2021
Current Tax
Deferred Tax
Current Tax
Deferred Tax
UK
19.0%
25.0%
19.0%
24.0%
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. For 2022 a 25% deferred tax rate results from the expected unwind pattern of the UK temporary differences, an
The total amount included within staff costs in the consolidated income statement in respect of all share scheme plans in
2022
is set
out below.
Analysis of share scheme costs:
2022
2021
£m
£m
Performance share plan (PSP) - RSA shares
-
18
Save as you earn (SAYE) - RSA shares
-
3
Long term incentive plan (LTIP) - IFC shares
9
2
Save as you earn (SAYE) - IFC shares
2
-
Total from continuing operations
11
23
81
Analysis of new award costs:
2022
2021
Charge for
year
Total
value
granted
Charge for
year
Total
value
granted
£m
£m
£m
£m
PSP - RSA shares
-
-
4
4
SAYE - RSA shares
-
-
-
LTIP - IFC shares
4
16
2
8
SAYE - IFC shares
-
2
-
4
Total from continuing operations
4
18
6
16
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 2022
161,228
share awards under the IFC 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$163.39
,
amounting to a total of
£16m
.
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 IFC 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, IFC. 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:
IFC’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 the weighted average fair value on the grant date, which corresponds to the
total estimated charge at the grant date, divided by the total shares in issuance, as provided by IFC.
As the Group has the obligation to settle the liabilities of LTIP awards, which grant rights to receive shares in the ultimate
parent company, IFC, 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.
82
Save as you earn IFC 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, IFC, 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
2022
2021
£m
£m
Ordinary dividend
-
6,914
Preference dividend
9
9
Tier 1 notes coupon payment
3
15
12
6,938
During 2021, 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.
Total other comprehensive income
Year ended 31 December 2022
Total
revaluation
reserves
Foreign
currency
translation
reserve
Retained
earnings
Equity
attributable to
owners of the
Parent
Company
Non-
controlling
interests
Total
equity
£m
£m
£m
£m
£m
£m
Exchange (losses)/gains net of tax
(1)
2
-
1
19
20
Fair value losses net of tax
(327)
-
-
(327)
(2)
(329)
Pension - remeasurement of net defined benefit
asset/liability net of tax
-
-
(355)
(355)
-
(355)
Movement in property revaluation net of tax
(2)
-
-
(2)
-
(2)
Total other comprehensive (expense)/income for the
year
(330)
2
(355)
(683)
17
(666)
Year ended 31 December 2021
Total
revaluation
reserves
Foreign
currency
translation
reserve
Retained
earnings
Equity
attributable to
owners of the
Parent Company
Non-
controlling
interests
Total
equity
£m
£m
£m
£m
£m
£m
Exchange (losses)/gains net of tax
-
(15)
-
(15)
1
(14)
Fair value gains 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 income/(expense) for
the year
(267)
33
(58)
(292)
-
83
Notes to the consolidated statement of financial position
Goodwill
Intangible
assets
arising from
acquired
claims
provisions
Externally
acquired
software
Internally
generated
software
Customer
related
intangibles
1
Total
£m
£m
£m
£m
£m
£m
Cost
At 1 January 2022
99
1
79
558
13
750
Additions
-
-
-
107
-
107
Disposals
(34)
-
(8)
(7)
(11)
(60)
Derecognised
2
-
-
-
(34)
-
(34)
Exchange adjustment
8
-
1
2
1
12
At
31 December 2022
73
1
72
626
3
775
Accumulated amortisation
At 1 January 2022
-
1
76
289
12
378
Amortisation charge
-
-
1
38
-
39
Amortisation on disposals
-
-
(6)
(4)
(11)
(21)
Amortisation on derecognition
2
-
-
-
(4)
-
(4)
Exchange adjustment
-
-
1
1
1
3
At 31 December 2022
-
1
72
320
2
395
Accumulated impairment
At 1 January 2022
60
-
-
-
-
60
Impairment on disposals
(15)
-
-
-
-
(15)
Exchange adjustment
4
-
-
-
-
4
At 31 December 2022
49
-
-
-
-
49
Carrying amount at 31 December 2022
24
-
-
306
1
331
1
Customer related intangibles includes customer lists and renewal rights.
2
Ongoing strategic review of internally generated software assets and as a result has identified certain assets for which
there are no future economic benefits expected. As a result of this the Group has derecognised assets with a net book value
of
£30m
, with the cost recognised in Underwriting and policy acquisition costs.
3
The disposal of the Group's operations in the Middle East reduced goodwill and other intangible assets by
£22m
in 2022.
84
Goodwill
Intangible
assets arising
from acquired
claims
provisions
Externally
acquired
software
Internally
generated
software
Customer
related
intangibles
1
Total
£m
£m
£m
£m
£m
£m
Cost
At 1 January 2021
422
118
81
1,063
246
1,930
Additions
-
-
1
96
7
104
Disposals
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
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 reduced goodwill and other intangible assets by £521m in
2021. Refer to note 7 for further detail.
3
The acquisition 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
Group derecognised assets with a net book value of £27m, with the cost recognised in Underwriting and policy acquisition
costs.
The carrying value of intangible assets not yet available for use at 31 December 2022 is
£146m
(31 December 2021: £99m). This
primarily relates to the implementation of strategic software assets in the UK and Ireland.
The aggregate amount of research and development expenditure recognised as an expense during the period was
£nil
(2021:
£1m
).
Amortisation
Amortisation expense of
£38m
(2021: £58m) has been charged to underwriting and policy acquisition costs with the remainder
recognised in other operating expenses.
Following the disposal of the Middle East operations in 2022, Oman is no longer part of the International CGU. There have been no
other changes to the CGUs recognised by the Group.
When testing for impairment, the 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.
85
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 the financial impacts of climate-related losses associated with the physical risks of 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 the Group's underwriting guidance.
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.
Goodwill is allocated to the Group's CGUs, which are contained within the following operating segments:
2022
2021
£m
£m
International (Ireland, Oman)
24
39
Total goodwill
24
39
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 2022 for the CGUs within each operating segment are shown
below. The pre-tax discount rate reflects an assessment of IFC’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
2022
2021
2022
2021
UK
11%
16%
6%
2%
International
9%
10%-13%
2%
2%-4%
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.
Recoverable
amount less
carrying value
Change in recoverable amount less carrying value
Goodwill
Discount rate +1%
Weighted average
growth rate
-
1%
£m
£m
£m
£m
UK
-
585
(45)
39
International (Ireland)
24
225
(43)
(34)
Total goodwill
24
810
(88)
86
Property and equipment is split between property and equipment owned and right-of-use assets as follows:
2022
2021
£m
£m
Property and equipment owned (see below)
66
54
Right-of-use assets (note 44)
55
37
Total property and equipment
121
91
The disposal of the Group's operations in the Middle East reduced property and equipment by
£3m
in 2022.
Right-of-use assets relate to leased properties and other equipment. Further information can be found in note 44.
Property and
equipment owned
Group
occupied
property -
land and
buildings
Other
Total
Group
occupied
property - land
and buildings
Other
Total
2022
2022
2022
2021
2021
2021
£m
£m
£m
£m
£m
£m
Cost/valuation
At 1 January
18
125
143
19
223
242
Additions
4
23
27
-
13
13
Disposals
-
(15)
(15)
(1)
(111)
(112)
Revaluation adjustments
(3)
-
(3)
-
-
-
Exchange adjustment
-
2
2
-
-
-
At 31 December
19
135
154
18
125
143
Accumulated depreciation
At 1 January
-
80
80
-
152
152
Depreciation charge
1
9
10
(1)
11
10
Depreciation on disposals
-
(12)
(12)
-
(83)
(83)
Revaluation adjustments
(1)
-
(1)
1
-
1
Exchange adjustment
-
1
1
-
-
-
At 31 December
-
78
78
-
80
80
Accumulated impairment
At 1 January
-
9
9
-
4
4
Impairment charge
-
1
1
-
6
6
Impairment on disposals
-
-
-
-
(1)
(1)
At 31 December
-
10
10
-
9
9
Carrying amount at 31 December
19
47
66
18
36
54
Other includes fixtures, fittings and other equipment.
Depreciation expenses of
£10m
(2021: £10m) have been charged to underwriting and policy acquisition costs.
Impairments of
£1m
(2021: £6m) 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 2022
is £6m
(2021: £3m).
The Group occupied property reserve at 31 December 2022 is
£19m
Investment property of
£291
m (2021: 371m), relating to freehold and leasehold land and buildings, is held for long term rental yields
and is not occupied by the Group.
87
The movement in the carrying value of investment property is detailed below:
2022
2021
£m
£m
At 1 January
371
285
Purchases
7
50
Sales
(60)
(8)
Fair value (losses)/gains
(27)
44
Investment property at 31 December
291
371
Expected to be recovered after 12 months
291
371
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.
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 2022 reflects equivalent yield ranges between
5.0% and 10.8%
The following tables analyse the Group's financial assets by classification as at 31 December 2022 and 31 December 2021.
As at 31 December 2022
Expected to be recovered
Available for sale
Loans and
receivables
Total
Within 12 months
After 12 months
£m
£m
£m
£m
£m
Equity securities
212
-
212
-
212
Debt securities
4,689
-
4,689
656
4,033
Financial assets measured at fair value
4,901
-
4,901
656
4,245
Loans and receivables
-
433
433
-
433
Total financial assets
4,901
433
5,334
656
4,678
The disposal of the Group's operations in the Middle East reduced financial assets by
£318m
in 2022.
88
As at 31 December 2021
Expected to be recovered
Available for sale
Loans and
receivables
Total
Within 12 months
After 12 months
£m
£m
£m
£m
£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
The disposal of the group’s operations in Scandinavia and Canada reduced financial assets by £6,603m in 2021. Refer to note
7 for further detail.
The following table analyses the cost/amortised cost, gross unrealised gains and losses, and fair value of financial assets.
2022
2021
Cost/amortised
cost
Unrealised gains
Unrealised
losses
Fair value
Fair value
£m
£m
£m
£m
£m
Equity securities
208
13
(9)
212
358
Available for sale debt securities
5,028
15
(354)
4,689
4,813
FVTPL debt securities
118
-
(118)
-
-
Financial assets measured at fair value
5,354
28
(481)
4,901
5,171
Loans and receivables
433
-
-
433
359
Total financial assets
5,787
28
(481)
5,334
5,530
At 31 December 2022, the Group had pledged
£359m
(2021: £355m) of financial assets as collateral for liabilities or contingent
liabilities, consisting of government debt securities of
£40m
(2021: £151m), non-government debt securities of
£313m
(2021: £192m),
and cash and cash equivalents of
£6m
(2021: £12m).
The debt securities of
£353m
(2021: £343m) are included in the balance sheet
as available for sale debt securities and the Group’s right to recover the cash pledged of
£7m
(2021: £12m) 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
£1,319m
(2021: £1,237m) including the collateral pledged pertinent to reinsurance arrangements with
related parties (note 17).
At 31 December 2022, the Group has accepted
£446m
(2021: £642m) in collateral, consisting of government and non-government
debt securities of
£416m
(2021: £631m), which the Group is permitted to sell or repledge in the event of default by the owner, and
cash and cash equivalents of
£30m
(2021: £11m). 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
£446m
(2021: £642m). The
89
The following table presents the fair value and notional amount of derivatives by term to maturity and nature of risk.
As at 31 December 2022
Notional Amount
Fair Value
Less than 1
year
From 1 to 5
years
Over 5 years
Total
Asset
Liability
£m
£m
£m
£m
£m
£m
Designated as hedging
instruments
Currency risk (net investment in foreign
operation)
168
-
-
168
-
5
Cross currency interest swaps (fair
value/cash flow)
-
34
16
50
18
9
Total (note 32 / 43)
18
14
At FVTPL
Currency risk mitigation
304
-
16
320
4
11
Inflation risk mitigation
-
-
104
104
28
-
Total (note 32 / 43)
32
11
Total derivatives
50
25
As at 31 December 2021
Notional Amount
Fair Value
Less than 1
year
From 1 to 5
years
Over 5 years
Total
Asset
Liability
£m
£m
£m
£m
£m
£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
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.
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 2022 or 2021.
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 2 and 33 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.
90
The total losses on cash flow hedge instruments during 2022 were
£5m
(2021: £1m losses) in the consolidated statement of other
comprehensive income, and the amount reclassified to the income statement was a gain of
£5m
(2021: £1m 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 2022 or 2021.
The total losses on the fair value hedge instruments recognised in the income statement were
£87m
(2021: £61m losses) and
the offsetting gains related to the hedged risk were
£61m
(2021: £53m 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 2022, the Group has
£nil
borrowings from credit institutions under repurchase agreements (2021: £nil)
(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.
As at 31 December 2022
Amounts subject to enforceable netting arrangements
Effect of offsetting in statement of financial
position
Related items not offset
Gross amounts
Amounts offset
Net amounts
reported
Financial
instruments
Financial
collateral
Net amount
£m
£m
£m
£m
£m
£m
Derivative financial assets
50
-
50
(19)
(31)
-
Cash received under repurchase
arrangements
-
-
-
-
-
-
Total assets
50
-
50
(19)
(31)
-
Derivative financial liabilities
25
-
25
(19)
(6)
-
Repurchase arrangements and other
similar secured borrowing
-
-
-
-
-
-
Total liabilities
25
-
25
(19)
(6)
-
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
Amounts offset
Net amounts
reported
Financial
instruments
Financial
collateral
Net amount
£m
£m
£m
£m
£m
£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
Repurchase arrangements are settled “delivery versus principal” and so are disclosed in the above table net of associated
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.
91
The fair value at 31 December 2022 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 2022
SPPI financial
assets
Other financial
assets
Total
£m
£m
£m
Available for sale equity securities
-
212
212
Available for sale debt securities
4,385
304
4,689
Loans and receivables
433
-
433
Derivative assets held for trading
-
50
50
Fair value at 31 December 2022
4,818
566
5,384
As at 31 December 2021
SPPI financial assets
Other financial
assets
Total
£m
£m
£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
The fair value losses on SPPI financial assets and other financial assets during the year are
£482m losses
(2021: £141m losses) and
£10m gains
(2021: £11m losses) 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 in 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.
Further information in respect of the application and financial impact of IFRS 9 is provided in the new accounting standards,
interpretations and amendments yet to be adopted note (note 4). 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
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.
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.
92
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.
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 2022 reflects equivalent yield ranges between
5.0% and 10.8%
(2021: 3.6% and 11.5%).
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 2022 range from
3.0% to 11.6%
(2021: 0.2% to 4.8%). If necessary 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.
93
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
2022
Level 1
Level 2
Level 3
Total
£m
£m
£m
£m
Group occupied property - land and buildings
-
-
18
18
Investment properties
-
-
291
291
Available for sale financial assets:
Equity securities
122
-
90
212
Debt securities
806
3,598
285
4,689
928
3,598
684
5,210
Derivative assets:
At FVTPL
-
32
-
32
Designated as hedging instruments
-
18
-
18
Total assets measured at fair value
928
3,648
684
5,260
Derivative liabilities:
At FVTPL
-
11
-
11
Designated as hedging instruments
-
14
-
14
Total liabilities measured at fair value
-
25
-
25
Issued debt
-
162
-
162
Total value of liabilities not measured at fair value
-
162
-
162
Fair value hierarchy
2021
Level 1
Level 2
Level 3
Total
£m
£m
£m
£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
94
The movement in the fair value measurements of level 3 financial assets is shown in the table below:
Available for sale
investments
Equity
securities
Debt
securities
Debt
securities at
FVTPL
Investment
property
Group
occupied
property
Total
£m
£m
£m
£m
£m
£m
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)
At 1 January 2022
111
250
-
371
18
750
Total gains/(losses) recognised in:
Income statement
2
8
-
(27)
-
(17)
Other comprehensive income
5
(3)
-
-
(3)
(1)
Purchases
12
142
-
7
3
164
Disposals
(41)
(129)
-
(60)
-
(230)
Exchange adjustment
1
17
-
-
-
18
Level 3 financial assets at 31 December 2022
90
285
-
291
18
684
1
AFS equity and AFS debt securities disposals in 2021 included
£160m
and
£218m
respectively in relation to the disposals of
Codan A/S and Roins Holdings Limited.
In 2022, unrealised losses of
£nil
(2021: £12m) attributable to FVTPL debt securities were recognised in the consolidated
income statement in relation to an asset that is still held at the end of the year 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.
Reasonably possible alternative assumptions
2022
2021
Current
fair value
Decrease
in fair
value
Current fair
value
Decrease in
fair value
Available for sale financial assets and property
Main assumptions
£m
£m
£m
£m
Group occupied property - land and buildings
1
Property valuation
18
(1)
18
(1)
Investment properties
1
Cash flows; discount rate
291
(20)
371
(19)
Level 3 available for sale financial assets:
Equity securities
1
Cash flows; discount rate
90
(1)
111
(1)
Debt securities
1
Cash flows; discount rate
285
(3)
250
(2)
Total
684
(25)
750
(23)
1
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 50bps in
95
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 2022 are summarised in the table below:
Class of investments
Nature of the underlying
investments of the vehicle
Carrying
value
Undrawn
commitments
Exposure
Carrying
value
Undrawn
commitments
Exposure
2022
2022
2022
2021
2021
2021
£m
£m
£m
£m
£m
£m
Mortgage backed
securities
Mainly consists of
domestic mortgage backed
securities
3
-
3
45
-
45
Collateralised debt
obligations
Structured debt security
backed by bonds
234
16
250
243
4
247
Cash money market funds
Short term cash deposits
84
-
84
298
-
298
Collective investment
undertakings
Mainly consists of property
funds
97
2
99
109
20
129
Other
Mainly consists of property
funds
9
-
9
64
-
64
427
18
445
759
24
783
Structured entities are not consolidated and are disclosed as follows in the consolidated statement of financial position:
2022
2021
£m
£m
Investments - financial assets - equity securities
97
109
Investments - financial assets - debt securities
246
352
Cash and cash equivalents
84
298
427
96
Reinsurers' share of insurance contract liabilities
2022
2021
£m
£m
Reinsurers’ share of provisions for unearned premiums
735
643
Reinsurers’ share of provisions for losses and loss adjustment expenses
1,781
1,648
Total reinsurers’ share of
insurance contract liabilities
2,516
2,291
To be settled within 12 months
1,140
892
To be settled after 12 months
1,376
1,399
The following changes have occurred in the reinsurers' share of provision for unearned premiums during the year:
2022
2021
£m
£m
Reinsurers’ share of provision for unearned premiums at 1 January
643
716
Premiums ceded to reinsurers
1,071
1,089
Reinsurers' share of premiums earned
(978)
(1,092)
Changes in reinsurance asset
93
(3)
Reinsurers’ share of disposal of subsidiaries
(9)
(70)
Exchange adjustment
8
-
Total reinsurers’ share of provision for unearned premiums at 31 December
735
643
The following changes have occurred in the reinsurers’ share of provision for losses and loss adjustment expenses during the
year:
2022
2021
£m
£m
Reinsurers’ share of provisions for losses and loss adjustment expenses at 1 January
1,648
1,624
Reinsurers’ share of total claims incurred
740
761
Total reinsurance recoveries received
(613)
(558)
Disposal of subsidiaries
(29)
(172)
Exchange adjustment
30
(12)
Other movements
5
5
Reinsurers’ share of provisions for losses and loss adjustment expenses at 31 December
1,781
30) Insurance and reinsurance debtors
2022
2021
£m
£m
Insurance debtors comprise:
Due from policyholders
362
390
Due from intermediaries
1,404
1,343
Total insurance debtors
1,766
1,733
Reinsurance debtors
163
183
Total insurance and reinsurance debtors
1,929
1,916
To be settled within 12 months
1,589
1,698
To be settled after 12 months
340
218
The disposal of the Group's operations in the Middle East reduced insurance and reinsurance debtors by £54m in 2022.
The disposal of the Group's operations in Scandinavia and Canada reduced insurance and reinsurance debtors by £1,194m in
2021. Refer to note 7 for further detail.
97
31) Current and deferred tax
Current tax
Asset
Liability
2022
2021
2022
2021
£m
£m
£m
£m
To be settled within 12 months
1
2
1
4
To be settled after 12 months
-
-
-
-
Current tax position at 31 December
1
2
1
4
Asset
Liability
2022
2021
2022
2021
£m
£m
£m
£m
Deferred tax position at 31 December
267
148
-
-
Of the
£267m
(31 December 2021: £148m) deferred tax asset recognised by the Group,
£261m
(31 December 2021: £146m) relates
to the UK. The
£119m
increase in deferred tax assets during the period is predominantly due to the recognition of a deferred tax asset
in respect of the unrealised loss on the available-for-sale bond portfolio of
£83m
, of which
£80m
relates to the UK, and an increase due
to the latest view of taxable profits of
£36m
. During 2022 there has been a significant negative movement in the value of the bond
portfolio due to market volatility and interest rate changes which has resulted in the recognition of a deferred tax asset of
£83m
(31
December 2021: deferred tax liability £25m).
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 five-year forecast (2021: seven-year forecast) based on the three year operational plans prepared by the relevant
businesses and a further two years of extrapolation, which are subject to internal review and challenge, including by the Board. The
two years of extrapolation assumes average premium growth of 4.0% per annum across UK business lines and no overseas premium
growth where relevant to UK profit projections. The forecasts incorporate a contingency of £35m per annum as well as prudent COR
assumptions, the impact of the transition to IFRS17 and the impact of forecast future transactions where appropriate. The three year
operational plans prepared by the relevant businesses and a further two years of extrapolation is the basis of the future taxable profits
in all jurisdictions in which a deferred tax asset is recognised.
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.
98
2022
2021
£m
£m
1% increase in combined operating ratio
1
across all 5 years (2021: 7 years)
(18)
(40)
1 year reduction in the forecast modelling period
(47)
(47)
50 basis points decrease in bond yields
(7)
(18)
No annual premium growth
2
(7)
(3)
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 five only (2021: four to seven only).
The following table summarises the main categories of deferred tax assets/(liabilities) recognised by the Group:
2022
2021
£m
£m
Net unrealised losses/(gains) on investments
83
(25)
Tax losses and unused tax credits
15
15
Other deferred tax reliefs
95
76
Net insurance contract liabilities
2
(1)
Retirement benefit obligations
(1)
(1)
Capital allowances
82
82
Provisions and other temporary differences
(9)
2
Net deferred tax asset at 31 December
267
148
The movement in the net deferred tax assets recognised by the Group is as follows:
2022
2021
£m
£m
Net deferred tax asset at 1 January
148
94
Amounts credited/(charged) to income statement
13
(72)
Amounts credited/(charged) to other comprehensive income
99
(12)
Net amount arising on disposal/acquisition of subsidiaries and other transfers
-
88
Effect of change in tax rates - income statement
7
50
Net deferred tax asset at 31 December
267
148
At the end of the reporting period, the Group had the following unrecognised tax assets:
2022
2021
Gross amount
Tax effect
Gross amount
Tax effect
£m
£m
£m
£m
Trading tax losses
2,119
496
2,018
455
Capital tax losses
1,285
321
1,285
308
Deductible temporary differences
272
68
381
91
Unrecognised tax assets as at 31 December
3,676
885
3,684
854
The Group’s unrecognised trading losses are predominantly located in the UK, France 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
99
2022
2021
£m
£m
Derivatives designated as accounting hedging instruments (note 26)
18
4
Other derivatives (note 26)
32
43
Other debtors
86
99
Pension scheme surplus (note 41)
225
490
Accrued interest and rent
51
60
Prepayments
36
41
Total other debtors and assets
448
737
To be settled within 12 months
160
173
To be settled after 12 months
288
564
The disposal of the Group's operations in Scandinavia and Canada reduced other debtors and other assets by
£182m
in 2021.
2022
2021
£m
£m
Cash and cash equivalents, and bank overdrafts (consolidated statement of cash flows)
354
492
Add: Overdrafts reported in other borrowings (note 38)
8
8
Total cash and cash equivalents (consolidated statement of financial position)
362
500
The disposal of the Group's operations in the Middle East reduced cash and cash equivalents by
£41m
in 2022.
The disposal of the Group's operations in Scandinavia and Canada reduced cash and cash equivalents by
£357m
in 2021.
Refer to note 7 for further detail.
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 2022 is:
2022
2021
£m
£m
Issued and fully paid
1,563,286,973 Ordinary Shares of £1 each (31 December 2021: 1,269,484,814 Ordinary Shares
of £1 each)
1,563
1,269
125,000,000 Preference Shares of £1 each (2021: 125,000,000 Preference Shares of £1 each)
125
125
1,688
1,394
100
The movement of Ordinary Shares in issue, their nominal value and the associated share premiums during 2022 are as follows:
Number of
shares
Nominal
value
Share
premium
£m
£m
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 1 January 2022
1,269,484,814
1,269
282
Issued in respect of employee share options and employee share awards
183
-
-
Capital injection from Regent Bidco Limited
1
293,801,976
294
-
At 31 December 2022
1,563,286,973
1,563
282
1
The consolidated statement of changes in equity show
shares issued for cash from Bidco for
£294m
.
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.
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 included
183 shares issued under the Group
35) Other equity instruments - Tier 1 notes
On 27 March 2022, the group redeemed the restricted Tier 1 notes at their principal amount (
£275m
) together with accrued and
unpaid interest. The Tier 1 notes had a carrying value of
£297m
with the resulting gain of
£22m
being recognised directly in
retained earnings.
The redemption of the Tier 1 notes was financed by a capital injection from the Group’s parent company (see note 34 Share
-
controlling interests
The non-controlling interests (NCI) of the Group included the interest in the following Group entity:
NCI shares at 31 December 2022
NCI shares at 31 December 2021
Share of net assets
Share of net assets
%
£m
%
£m
Royal & Sun Alliance Insurance (Middle East) BSC (c)
-
-
50
156
101
Royal & Sun Alliance Insurance (Middle East) BSC (c) owned 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. These shareholdings were sold on 7 July 2022 (see note 8). They were valued
in the statement of financial position at share of net assets in 2021 as follows:
2022
2021
Share of net assets
Share of net assets
£m
£m
Al Alamiya for Cooperative Insurance Company
-
36
Al Ahlia Insurance Company SAOG
-
32
During 2022 the dividends paid to the non-controlling interests in the Middle East were
£2m
2022
2021
£m
£m
Subordinated guaranteed US$ bonds
7
6
Guaranteed subordinated notes due 2045
159
159
Total loan capital
166
165
Total issued debt
166
165
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 in 2021, and
are presented in finance costs in the prior year 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.
All issued debt
The 2022 other borrowings relate to bank accounts in overdraft
£8m
(2021: £8m).
The disposal of the Group's operations in Scandinavia and Canada reduced borrowings by
£46m
in 2021. Refer to note 7 for
Estimation techniques and uncertainties
Provisions for losses and loss adjustment expenses are subject to a robust reserving process by each of the Group’s regional
operating segments and by Corporate Actuarial, as detailed in the Risk and capital 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.
102
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.
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 current assessment of claims liabilities reflects court judgements across the jurisdictions that
business operates in, including those recently announced in the UK in October 2022. These most recent judgements are
complex and create a number of uncertainties and the Group will continue to monitor the progression of these judgements,
including the appeals. Based on information currently known and management’s assumptions, the Group has made adequate
provisions for, or has adequate reinsurance to cover all insurance claims and legal proceedings.
BI claims are the main direct Covid-19 claim type that remain subject to significant ongoing uncertainty. These estimates have
been fully reviewed during 2022 and reflect the latest experience, judgements, legal advice and qualitative assessments. Small
changes in gross and reinsurance estimates offset one another resulting in neutral net impact from the Covid BI review.
Whilst the gross estimate remains uncertain due to issues such as the noted ongoing litigation in the industry, 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 (GVC) 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
catastrophe cover and GVC are dependent on the identification and timing of events which trigger a reinsurance recovery claim,
and 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.
All
key assumptions were reviewed and updated during 2022. Reinsurance recoveries to date are in line with the Group’s
expectation. Failure to recover outstanding assumed reinsurance recoveries in line with the expectations could lead to a
material increase in the reported net liability.
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 increasing inflationary pressure arising from the wider economic environment during 2022, combined with the post-
pandemic distortions over the same period, complicates assessment of the ultimate claims costs. Different factors are
contributing to severity changes such as settlement delays and supply chain issues which are likely to have been impacted by
Covid-19 and geo-political issues. Inflation increases are the largest in a generation and impact elements of the claims cost in
different ways. For some claim types, it will take time before the full impact of increased inflation becomes apparent. In the
meantime our estimates require increased reliance on our assumptions compared to the previous stable inflation environment.
The level of provision carried by the Group includes a margin over and above the actuarial indication. 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.
103
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.
2022
2021
Impact on net claims reserves
£m
£m
Current year attritional loss ratios frequency or severity assumptions +5%
65
-
75
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
Discount assumptions
The total value of provisions for losses and loss adjustment expenses less related reinsurance recoveries before discounting is
£4,102m
(2021: £3,844m related to continuing operations).
Key discount rates on certain classes of business are as follows:
Discount rate
Average number of years to
settlement from reporting date
2022
2021
2022
2021
Category
%
%
Years
Years
UK
Periodic Payment Orders
4.0
4.0
18
18
In 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 2022, the value of the discount on net claims liability reserves is
£15m
(2021: £15m) 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
(2021: £2m).
As at 31 December 2022, the net of reinsurance value of the discount on UK annuities (PPOs) is
£199m
(2021: £201m). 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
2022
2022
2022
£m
£m
£m
Provision for unearned premiums
1,936
(735)
1,201
Provision for losses and loss adjustment expenses
5,671
(1,781)
3,890
Total insurance contract liabilities
7,607
(2,516)
5,091
Gross
RI
Net
2021
2021
2021
£m
£m
£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
104
The disposal of the Group's operations in the Middle East reduced gross insurance contract liabilities by
£89m
and reinsurers'
(RI) share of insurance contract liabilities by
£47m
in 2022.
The disposal of the Group's operations in Scandinavia and Canada reduced gross insurance contract liabilities by
£6,659m
and
reinsurers' (RI) share of insurance contract liabilities by
£1,073m
in 2021. Refer to note 7 for further detail.
Provision for unearned premiums, gross of acquisition costs
2022
2021
£m
£m
Provision for unearned premiums (gross of acquisition costs) at 1 January
2,335
3,860
Premiums written
4,181
5,563
Less: Premiums earned
(4,103)
(5,423)
Changes in provision for unearned premiums
78
140
Disposal of subsidiaries
(99)
(1,628)
Exchange adjustment
50
(37)
Provision for unearned premiums (gross of acquisition costs) at 31 December
2,364
2,335
The provision for unearned premiums is shown net of deferred acquisition costs of
£426m
(2021: £426m). Movements in deferred
acquisition costs during the year are as follows:
2022
2021
£m
£m
Deferred acquisition costs at 1 January
426
625
Acquisition costs deferred during the year
73
55
Amortisation charged during the year
(55)
(59)
Exchange gains
5
(2)
Disposal of subsidiaries
(23)
(193)
Deferred acquisition costs at 31 December
426
426
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:
2022
2021¹
£m
£m
Provisions for losses and loss adjustment expenses at 1 January
5,276
9,379
Gross claims incurred and loss adjustment expenses
2,817
3,670
Total claims payments made in the year net of salvage and other recoveries
(2,477)
(3,189)
Disposal of subsidiary
(84)
(4,451)
Exchange adjustment
138
(154)
Unwind of discount and change in economic assumptions
9
16
Other movements
(8)
5
Provisions for losses and loss adjustment expenses at 31 December
5,671
5,276
1
Including discontinued operations.
105
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 2012 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.
Consolidated claims development table gross of reinsurance
2012 and
prior
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Total
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
Estimate of cumulative claims
At end of accident year
1,501
1,457
1,494
1,403
1,897
1,670
1,529
1,374
1,488
1,795
One year later
1,599
1,587
1,555
1,449
1,897
1,751
1,543
1,515
1,386
Two years later
1,563
1,545
1,579
1,423
1,895
1,730
1,599
1,494
Three years later
1,529
1,552
1,519
1,421
1,899
1,763
1,599
Four years later
1,548
1,518
1,518
1,421
1,954
1,744
Five years later
1,525
1,504
1,519
1,432
1,943
Six years later
1,515
1,499
1,574
1,424
Seven years later
1,504
1,505
1,560
Eight years later
1,505
1,492
Nine years later
1,494
Ten years later
Current estimate of cumulative
claims
1,494
1,492
1,560
1,424
1,943
1,744
1,599
1,494
1,386
1,795
Claims paid to date
1,397
1,372
1,545
1,248
1,621
1,356
1,112
699
448
-
Reconciliation to the statement of financial position
Current year provision before
discounting
265
97
120
15
176
322
388
487
795
938
1,795
5,398
Exchange adjustment to closing rates
60
Discounting
(23)
Annuities
236
Present value recognised in the consolidated
statement of financial position
5,671
2022 movement
(30)
11
13
14
8
11
19
-
21
102
169
106
Consolidated claims development table net of reinsurance
2012 and
prior
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Total
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
Estimate of cumulative claims
At end of accident year
1,454
1,233
1,198
1,048
1,368
1,221
958
984
1,182
1,276
One year later
1,552
1,305
1,152
1,089
1,423
1,274
1,017
1,044
1,089
Two years later
1,524
1,296
1,137
1,074
1,405
1,255
1,030
1,035
Three years later
1,506
1,265
1,087
1,076
1,407
1,273
1,029
Four years later
1,478
1,249
1,083
1,075
1,449
1,266
Five years later
1,471
1,245
1,084
1,073
1,444
Six years later
1,463
1,242
1,132
1,068
Seven years later
1,461
1,245
1,128
Eight years later
1,457
1,236
Nine years later
1,454
Ten years later
Current estimate of cumulative
claims
1,454
1,236
1,128
1,068
1,444
1,266
1,029
1,035
1,089
1,276
Claims paid to date
1,387
1,128
1,154
956
1,222
1,019
689
521
423
-
Reconciliation to the statement of financial position
Current year provision before
discounting
219
67
108
(26)
112
222
247
340
514
666
1,276
3,745
Exchange adjustment to closing rates
32
Discounting
(15)
Annuities
128
Present value recognised in the consolidated
statement of financial position
3,890
2021 movement
(10)
3
9
4
5
5
7
1
9
93
2022
2021
£m
£m
Direct insurance creditors
59
79
Reinsurance creditors
845
763
Total insurance and reinsurance liabilities
904
842
The disposal of the Group's operations in the Middle East reduced insurance and reinsurance liabilities by
£27m
in 2022.
The disposal of the Group's operations in Scandinavia and Canada reduced insurance and reinsurance liabilities by
£159m
in
107
41) Post-employment benefits and obligations
Defined contribution pension schemes
Costs of
£36m
(2021: £47m) 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:
2022
2021
UK
Other
Total
UK
Other
Total
£m
£m
£m
£m
£m
£m
Present value of funded obligations
(5,404)
(53)
(5,457)
(8,583)
(83)
(8,666)
Present value of unfunded obligations
(4)
(4)
(5)
(8)
(13)
Fair value of plan assets
5,719
73
5,792
9,310
100
9,410
Other net surplus remeasurements
(110)
(110)
(254)
-
(254)
Net IAS 19 surplus in the schemes
201
20
221
468
9
477
Defined benefit pension schemes
201
20
221
468
17
485
Other post-employment benefits
-
-
-
-
(8)
(8)
Schemes in surplus (note 32)
205
20
225
473
17
490
Schemes in deficit (note 42)
(4)
-
(4)
(5)
(8)
(13)
The disposal of the Group's operations in the Middle East reduced pensions and post-employment net obligations by
£9m
in
2022. The disposal of the Group's operations in Scandinavia and Canada 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 inflation, the employees’ age upon termination and
retirement, mortality rates and future pension increases.
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 June 2022 (the latest date at which full information is available)
is as follows:
Deferred members - members no longer accruing and not yet receiving benefits
20,950
Pensioners - members and dependents receiving benefits
19,340
Total members at 30 June 2022
40,290
108
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.
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.30% 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 2022 is
£1,073m
(2021: £1,523m). 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.
The schemes use a range of physical assets and derivative instruments to protect against adverse movements in interest rates and
inflation. In the case of interest rates, these provide protection against falls in rates which increase the value of a scheme’s liabilities.
However, when interest rates rise, the schemes are required to post collateral against the derivatives in order to maintain the same
level of interest rate protection.
The schemes’ liquidity position is closely monitored with a well-developed liquidity management plan to ensure that sufficient liquidity is
available to meet any such collateral calls. As at 31 December 2022, the schemes are estimated to have sufficient immediately
available liquidity (i.e. collateral headroom) to meet further rises in interest rates of more than
4%
. The schemes also hold other assets
that could be liquidated within a week if needed.
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 2021.
At the most recent funding valuations, the main UK funds had an aggregate funding deficit of
£138m
, equivalent to a funding level of
98%
. The Group and the Trustees have agreed funding plans to eliminate the funding deficits by 2025. Details of the deficit
contributions paid in 2022 and that are due to be paid in 2023 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 2024.
For the two main UK defined benefit schemes, the level of contributions in 2022 was
£84m
(2021: £160m) of which
£75m
(2021:
£150m) were additional contributions to reduce funding deficits. Expected contributions to the two schemes for the year ending 31
December 2023 are approximately
£83m
including
£75m
of additional contributions to reduce the deficit.
109
The maturity profile of the undiscounted cash flows of the two main UK schemes is shown below:
0
50000000
100000000
150000000
200000000
250000000
300000000
350000000
400000000
Cashflow - total liability
Deferred
Pensioner
The weighted average duration of the defined benefit obligation of the two main UK schemes at the end of the reporting period is
13.5
years
(2021: 17.5 years). The reduction since 2021 is a result of the significant rise in interest rates over the year which results in
heavier discounting of cashflows to determine the defined benefit obligation at 31 December 2022.
Non-UK schemes
The Group also operates a defined benefits scheme in Ireland.
All schemes
The estimated discounted present values of the accumulated obligations are calculated in accordance with the advice of
independent, qualified actuaries.
110
Movement during the year:
2022
Present value
of obligations
Fair value of
plan assets
Other net surplus
remeasurements
Net surplus/
(deficit)
£m
£m
£m
£m
At 1 January
(8,679)
9,410
(254)
477
Termination payments
-
-
-
-
Interest (expense)/income
(156)
171
-
15
Administration costs
-
(8)
-
(8)
T
otal (expenses)/income recognised in income statement
(156)
163
-
7
Return on scheme assets less amounts in interest income
-
(3,546)
-
(3,546)
Effect of changes in financial assumptions
3,233
-
-
3,233
Effect of changes in demographic assumptions
17
-
-
17
Experience losses
(188)
-
-
(188)
Investment expenses
-
(15)
-
(15)
Other net surplus remeasurements
-
-
144
144
Remeasurements recognised in other comprehensive income
3,062
(3,561)
144
(355)
Employer contribution
-
84
-
84
Benefit payments
309
(309)
-
-
Increase due to disposals
8
-
-
8
Exchange adjustment
(5)
5
-
-
At 31 December
(5,461)
5,792
(110)
221
Deferred tax
(1)
IAS 19 net surplus net of deferred tax
220
2021
Present value
of obligations
Fair value of
plan assets
Other net surplus
remeasurements
Net surplus/
(deficit)
£m
£m
£m
£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)
T
otal (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 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
Employer contributions include
£75m
of deficit funding paid in the year to 31 December 2022.
In 2021 the
£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 7 as
£35m
within other debtors and other assets and
£79m
within provisions.
111
The values of scheme assets are as follows:
2022
2021
UK
Other
Total
UK
Other
Total
£m
£m
£m
£m
£m
£m
Equities
9
14
23
579
17
596
Government debt
4,010
38
4,048
6,567
49
6,616
Non-government debt
1,777
4
1,781
3,651
5
3,656
Derivatives
(13)
(5)
(18)
1,041
12
1,053
Property
421
-
421
659
-
659
Cash
1,256
22
1,278
86
-
86
Other (including annuity contracts, infrastructure and growth
alternatives)
303
303
363
17
380
Investments
7,763
73
7,836
12,946
100
13,046
Value of asset and longevity swaps
(2,044)
(2,044)
(3,636)
-
(3,636)
Total assets in the schemes
5,719
73
5,792
9,310
100
9,410
The scheme assets analysed by those that have a quoted market price in active markets and unquoted are as follows:
2022
2021
Total
Quoted
Total
Unquoted
Total
Total
Quoted
Total
Unquoted
Total
£m
£m
£m
£m
£m
£m
Equities
20
3
23
568
28
596
Government debt
4,048
-
4,048
6,616
-
6,616
Non-government debt
996
785
1,781
2,482
1,174
3,656
Derivatives
-
(18)
(18)
-
1,053
1,053
Property
1
420
421
1
658
659
Cash
1,278
-
1,278
86
-
86
Other (including annuity contracts, infrastructure and growth
alternatives)
-
303
303
-
380
380
Investments
6,343
1,493
7,836
9,753
3,293
13,046
Value of asset and longevity swaps
(2,044)
(2,044)
-
(3,636)
(3,636)
Total assets in the schemes
6,343
(551)
5,792
9,753
(343)
9,410
Where assets are classified as unquoted the valuations are firstly:
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
During Q4 2022 firm bids were received for some of the unquoted and more illiquid assets at a discount to the valuations
provided by the managers. While no final decision has been taken to sell these assets at the bid levels, these discounts have
been applied in the valuations above based on a view that the bids reflect a more appropriate measurement technique for
determining fair value under IFRS 13 at 31 December 2022. This reflects a change in accounting estimate under IAS 8 for the
assets where bids have been received.
112
Assumptions
The weighted average principal actuarial assumptions used are:
UK
Other
2022
2021
2022
2021
%
%
%
%
Assumptions used in calculation of retirement benefit obligations:
Discount rate
4.86
1.84
4.25
1.63
Annual rate of inflation (RPI)
3.11
3.35
-
-
Annual rate of inflation (CPI)
2.46
2.71
2.60
2.19
Annual rate of increase in salaries
1
n/a
n/a
n/a
4.00
Annual rate of increase in pensions
2
2.96
3.14
2.60
2.20
Assumptions used in calculation of pension net interest costs for the
year:
Discount rate
1.84
1.38
1.60
1.42
1
2021 average weighted assumptions included Middle East.
2
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.
Reductions in future mortality rates are allowed for by using the CMI 2021 tables (2021: CMI 2020 tables) with a long term
improvement rate of
1.25%
(2021: 1.25%). For the year ending 31 December 2022, reductions in future mortality rates have been
assumed to slowdown temporarily as a result of Covid-19, this broadly reduces liabilities by around 0.7%. The weighted average
assumptions imply that a current pensioner aged 60 has an expected future lifetime of
26.9
(2021: 27.1) years for males and
28.7
(2021: 28.9) years for females and a future pensioner aged 60 in 15 years’ time has a future expected lifetime from age 60 of
27.8
(2021: 28.0) years for males and
29.7
(2021: 29.8) years for females.
113
Sensitivity analysis
Sensitivities for the defined benefit obligations of the two main UK schemes are shown below:
2022
2021
Changes in assumption
£m
£m
Discount rate
Increase by 0.25%
(168)
(356)
Decrease by 0.25%
178
380
Increase by 1.00%
(624)
(1,298)
Decrease by 1.00%
772
1,684
RPI/CPI
1
Increase by 0.25%
112
228
Decrease by 0.25%
(110)
(226)
Core mortality rates
2
Decrease by 13% (2021: 12%)
191
355
Increase by 13% (2021: 12%)
(172)
(325)
Long-term future improvements to mortality rates
Increase by 0.25%
29
82
Decrease by 0.25%
(29)
(81)
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 13% is the equivalent of increasing the life expectancy of a male aged 60 years by 1
year at 31 December 2022.
2022
2021
£m
£m
Pensions and post-employment obligations (note 41)
4
13
Reorganisation provisions
3
8
Other provisions
24
29
Total provisions at 31 December
31
50
To be settled within 12 months
12
19
To be settled after 12 months
19
31
Other provisions include
£13m
(2021: £11m) 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 19 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
2022
2022
£m
£m
Provisions at 1 January 2022
8
29
Exchange adjustment
-
-
Additional provisions during the year
2
5
Utilised
(7)
(6)
Released
-
(4)
Disposals
-
-
Provisions at 31 December 2022
3
114
2022
2021
£m
£m
Derivatives designated as accounting hedges (note 26)
14
15
Other derivatives (note 26)
11
43
Payroll and Indirect taxes
84
85
Outstanding settlements for investment purchases
1
-
Other creditors
78
57
Accruals
257
283
Deferred income
22
15
Lease liabilities (note 44)
71
55
Total other liabilities
538
553
To be settled within 12 months
441
447
To be settled after 12 months
97
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
Other
Total
£m
£m
£m
Amounts recognised
at transition on 1 January 2021
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
(2)
-
(2)
Balance at 31 December 2021
35
2
37
Depreciation charge for the year
(9)
(1)
(10)
Additions to right-of-use assets
25
1
26
Remeasurements
4
-
4
Impairments
(2)
-
(2)
Disposals
(1)
-
(1)
Other
1
-
1
Balance at 31 December 2022
53
2
55
115
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 2022. 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
£71m
(2021: £55m) 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.
2022
2021
£m
£m
Balance at 1 January
55
204
Lease payments
(15)
(27)
Additions to lease liabilities
26
5
Remeasurements
3
(12)
Interest on lease liabilities
2
3
Disposals
(1)
(116)
Foreign exchange
1
(2)
Balance at 31 December
71
55
Other amounts recognised in profit or loss from continuing operations
2022
2021
Leases under IFRS 16
£m
£m
Interest on lease liabilities
1
3
Expenses relating to variable lease payments
18
8
Amounts recognised in statement of cash flows
2022
2021
£m
£m
Total cash outflow for leases
33
35
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.
116
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.
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 2022, on a continuing basis the Group recognised interest income on lease receivables of
£nil
(2021: £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
2022
2021
£m
£m
Less than one year
2
2
One to two years
2
2
Two to three years
2
2
Three to four years
-
2
Total undiscounted lease receivable
6
8
Unearned finance income
-
-
Net investment in the lease
6
8
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 2022, the Group recognised
£14m
of rental income within its net investment return (2021: £17m).
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
2022
2021
£m
£m
Less than one year
15
17
One to two years
14
16
Two to three years
14
15
Three to four years
12
15
Four to five years
12
13
More than five years
65
73
Total
132
117
Notes to the consolidated statement of cash flows
The reconciliation of net profit before tax to cash flows from operating activities is as follows:
2022
2021
Note
£m
£m
Cash flows from
operating activities
Profit for the year before tax
9
65
4,332
Adjustments for non
-
cash movements in net profit for the year
Amortisation of available for sale assets
26
37
Depreciation and impairment of tangible assets
24/44
22
35
Amortisation and impairment of intangible assets and goodwill
23
39
60
Fair value losses/(gains) on financial assets
75
(46)
Impairment charge on available for sale financial assets
10
18
Gain on disposal of businesses
8
(39)
(4,395)
Derecognition of intangibles
32
73
Share based payments
-
28
Foreign exchange loss
(31)
-
Other non-cash movements
-
13
Changes in operating assets/liabilities
Loss and loss adjustment expenses
209
293
Unearned premiums
(25)
140
Movement in working capital
48
(160)
Reclassification of investment income and interest paid
(159)
(122)
Pension deficit funding
41
(75)
(150)
Cash generated from investment of insurance assets
Dividend income
14
16
Interest and other investment income
155
185
Cash flows from operating activities
366
118
The table below details changes in liabilities arising from the Group’s financing activities.
Issued
debt
Accrued
interest
payable on
issued debt
Lease
liabilities
Borrowings from
credit institutions
under repurchase
agreements
Tier 1
Notes
Total
£m
£m
£m
£m
£m
£m
Balance at 1 January 2022
165
2
55
-
297
519
Changes from
financing cash flows
Redemption of debt instruments
-
-
-
-
(275)
(275)
Gain on redemption of debt instruments
-
-
-
-
(22)
(22)
Payment of lease liabilities
-
-
(13)
-
-
(13)
Interest paid
-
(9)
(2)
-
-
(11)
Total changes from
financing cash flows
-
(9)
(15)
-
(297)
(321)
Acquisition / Disposal of subsidiary
-
-
(1)
-
-
(1)
The effect of changes in foreign exchange rates
1
-
2
-
-
3
Interest Charge
-
-
1
-
-
1
Other changes
-
9
29
-
-
38
Balance at
31 December 2022
166
2
71
-
-
239
Issued debt
Accrued
interest
payable on
issued debt
Lease
liabilities
Borrowings from
credit institutions
under repurchase
agreements
Tier 1
Notes
Total
£m
£m
£m
£m
£m
£m
Balance at
1 January 2021
751
7
204
121
297
1,380
Changes from financing cash flows
Redemption of debt instruments
(642)
-
-
-
-
(642)
Payment of lease liabilities
-
-
(24)
-
-
(24)
Net movement in other borrowings
-
-
-
(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
56
18
3
-
-
77
Other changes
-
-
(7)
-
-
(7)
Balance at 31 December 2021
165
2
55
-
297
119
Other commitments, contingent liabilities and events after the reporting period
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:
2022
2021
£m
£m
Investment Property
5
3
Property and equipment
8
7
Intangible assets
16
9
Total
29
19
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
£149m
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
Subsequent to the year-end, on 27 February 2023, the Trustees of the two major defined benefit pension schemes in the UK,
the Royal Insurance Group Pension Scheme and the Sal Pension Scheme (“the Schemes”), entered into an agreement with
Pension Insurance Corporation plc (“PIC”) to purchase bulk annuity insurance policies that operate as investment assets. Such
arrangements are commonly referred to as a “buy-in”. The Schemes made up around 99% of total defined benefit assets and
obligations on the balance sheet at 31 December 2022. The buy-in removes all remaining material pension exposure from the
balance sheet, while maintaining the security of benefits to the Scheme members. The buy-in premium has initially been funded
through the transfer of the majority of the Schemes’ assets to PIC, as well as by an upfront contribution from the Company of
approximately £480m. The Schemes have retained ownership of various assets, including some less liquid investments, which
will be liquidated over the next 12-18 months in order to settle the remainder of the buy-in premium, and cash, some of which
will be required to meet ongoing expenses. In addition, the annual pension deficit funding contribution of £75m was paid in
January 2023
The upfront contribution of the Company was part funded through a capital injection by IFC, via a subscription of one share in
the Company at a premium of approximately £480m.
The Schemes already had coverage against longevity risk for around 30% of the existing pensioner population through an
insurance policy entered into in 2009 with Rothesay Life. Together with the newly purchased PIC annuity assurance policies,
the Schemes will now have protection against longevity risk and market risk for the material obligations of all deferred and
pensioner members. As a result, the pension surplus included within the Balance Sheet at 31 December 2022 of £200m net of
tax, is expected to be largely removed as the fair value of these insurance policies, held as assets of the Schemes, will be set
equal to the value of the defined benefit obligations covered under IAS 19. An initial net loss of approximately £700m, based on
recent fluctuate going forward based on changes in the value of the defined benefit obligations covered.
The transaction will
temporarily increase the income tax expense as the deductibility of the upfront contribution will be spread out over three years.
This results in deferred tax assets being reclassified to Other Comprehensive Income from income tax expense, with a neutral
120
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.
121
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.
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.
122
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
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.
123
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.
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.
124
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:
2022
2021
Local
currency/£
Average
Closing
Average
Closing
United States Dollar
1.23
1.20
1.37
1.35
Canadian Dollar
1.61
1.64
1.72
1.71
Euro
1.17
1.13
1.16
1.19
Swedish Krona
12.46
12.61
11.80
12.26
Danish Krone
8.72
8.38
8.65
8.86
125
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 (%)
Brazil
Royal & Sun Alliance Insurance Limited -
Escritório de Representação no Brasil Ltda.
Avenida Doutor Chucri Zaidan, 296, 23
ᵒ
andar,
parte, City of São Paulo, State of São Paulo,
04583-110, 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,
RSA House, Dundrum Town Centre,
Sandyford Road, Dublin 16, Ireland
B1 Ordinary
123 Money Limited
4,
RSA House, Dundrum Town Centre,
Sandyford Road, Dublin 16, Ireland
B2 Ordinary
123 Money Limited
4,
RSA House, Dundrum Town Centre,
Sandyford Road, Dublin 16, Ireland
B3 Ordinary
123 Money Limited
4,
RSA House, Dundrum Town Centre,
Sandyford Road, Dublin 16, Ireland
B4 Ordinary
123 Money Limited
4,
RSA House, Dundrum Town Centre,
Sandyford Road, Dublin 16, Ireland
B5 Ordinary
123 Money Limited
4,
RSA House, Dundrum Town Centre,
Sandyford Road, Dublin 16, Ireland
C Ordinary
123 Money Limited
RSA House, Dundrum Town Centre,
Sandyford Road, Dublin 16, Ireland
123 Money Limited
RSA House, Dundrum Town Centre,
Sandyford Road, Dublin 16, Ireland
€1 redeemable
shares
Benchmark Underwriting Limited
RSA House, Dundrum Town Centre,
Sandyford Road, Dublin 16, Ireland
EGI Holdings Limited
RSA House, Dundrum Town Centre,
Sandyford Road, Dublin 16, Ireland
RSA Insurance Ireland DAC
RSA House, Dundrum Town Centre,
Sandyford Road, Dublin 16, Ireland
RSA Overseas Holdings (No 1) Unlimited
Company
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)
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
Tower Insurance Company Limited
Jubilee Buildings, 1 Victoria Street, Douglas,
IM99 1BF, Isle of Man
Luxembourg
RSA Luxembourg S.A.
40 rue du Cure, L-1368 Luxembourg
Netherlands
IDIP Direct Insurance B.V.
22 Bishopsgate, London, EC2N 4BQ
Intouch Insurance Group B.V.
22 Bishopsgate, London, EC2N 4BQ
RSA Overseas (Netherlands) B.V.
22 Bishopsgate, London, EC2N 4BQ
RSA Overseas Holdings B.V.
22 Bishopsgate, London, EC2N 4BQ
GDII - Global Direct Insurance Investments
V.O.F.
Wilhelminakade 97-99, 3072 AP Rotterdam,
Netherlands
Partnership Interest
Royal Insurance Global B.V.
⁹
Wilhelminakade 97-99, 3072 AP Rotterdam,
Netherlands
126
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
Polaris U.K. Limited
3
New London House, 6 London Street,
London, EC3R 7LP, United Kingdom
25.38
RSA Northern Ireland Insurance Limited
7
Artola House, 91-97Victoria Street,
Belfast, BT1 4PB, 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
62.50
Alliance Assurance Company Limited
7
St Mark’s Court, Chart Way, Horsham, West
Sussex, RH12 1XL, United Kingdom
Regent Subco Limited
8
St Mark’s Court, Chart Way, Horsham, West
Sussex, RH12 1XL, United Kingdom
Non-Destructive Testers Limited
7
St Mark's Court, Chart Way, Horsham, West
Sussex, RH12 1XL, United Kingdom
R&SA Marketing Services 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
4,6
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, 8
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, 8
St Mark's Court, Chart Way, Horsham, West
Sussex, RH12 1XL, United Kingdom
£1.00 Ordinary
Royal International Insurance Holdings
Limited
7, 8
St Mark's Court, Chart Way, Horsham, West
Sussex, RH12 1XL, United Kingdom
US$1.00 Ordinary
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, 8
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
RSA Pension Funding GP Limited
50 Lothian Road, Festival Square, Edinburgh,
EH3 9WJ
RSA Pension Funding LP
50 Lothian Road, Festival Square, Edinburgh,
EH3 9WJ
Partnership Interest
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, 8
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, 8
St Mark's Court, Chart Way, Horsham, West
Sussex, RH12 1XL, United Kingdom
Sun Insurance Office Limited
7, 8
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, 8
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
UK Investment Management Limited
St Mark's Court, Chart Way, Horsham, West
Sussex, RH12 1XL, United Kingdom
Westgate Properties Limited
7, 8
St Mark's Court, Chart Way, Horsham, West
Sussex, RH12 1XL, United Kingdom
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.
127
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.
IFC hold 73.54% of the share capital of Royal & Sun Alliance Insurance Limited in non-voting “nil-paid” shares.
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.
Denotes the UK subsidiaries that will take advantage of the audit exemption by virtue of section 479A of the Companies Act
2006 for the year ended 31 December 2022.
9.
On 1 January 2023 Royal Insurance Group B.V. was merged into RSA Luxembourg S.A. by means of a cross-border merger
and no longer exists as a separate entity.
128
Jargon Buster
(unaudited)
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.
Contractual Service Margin
(CSM)
A component of the carrying amount of the asset or liability for a group of insurance contracts
representing the unearned profit the entity will recognise as it provides services under the insurance
contracts in 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.
Expected Credit Loss (ECL)
An expected credit loss (ECL) is the estimated impairment of a loan, lease or other financial asset over
its lifetime
Expense Ratio
Underwriting and policy acquisition expenses less other insurance income expressed as a percentage of
net earned premium.
Fair Value Through Other
Comprehensive Income
(FVTOCI)
Financial assets are classified and measured at fair value through other comprehensive income if they
are held in a business model whose objective is achieved by both collecting contractual cash flows and
selling financial assets. Gains and losses are recorded in Other Comprehensive Incme and not in the
Income Statement.
Financial Conduct Authority
(FCA)
The regulatory authority with responsibility for the conduct of the UK financial services industry.
General Measurement Model
(GMM)
The GMM is the standard model, for IFRS 17 insurance contracts, which involves measurement on initial
recognition and subsequent measurement across 3 ‘building blocks’: the NPV of Future Cashflows, the
Non-Financial Risk Adjustment and the Contractual Service Margin (CSM). It requires measuring
insurance and reinsurance contracts using updated estimates and assumptions that reflect the timing of
cash flows and any uncertainty relating to insurance and reinsurance contracts. Under this model the
LRC is the sum of discounted future cash flows, risk adjustment and CSM
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.
129
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. The GVC cover
was not renewed in 2022, and is now in runoff, only protecting on eligible claims up to and including
2021.
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.
Liability for Incurred Claims
(LFIC)
Liability for incurred claims is an insurer’s obligation to investigate and pay claims for insured events that
have already occurred. This includes events that have occurred but have not been reported, and other
incurred insurance expenses.
Liability for Remaining
Coverage (LFRC)
An entity’s obligation to:
(a) investigate and pay valid claims under existing insurance contracts for insured events that have not
yet occurred (i.e. the obligation that relates to the unexpired portion of the insurance coverage); and
(b) pay amounts under existing insurance contracts that are not included in (a) and that relate to
insurance contract services not yet provided (i.e. the obligations that relate to future provision of
insurance contract services).
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.
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.
Premium Allocation
Approach (PAA)
The Premium Allocation Approach (PAA) is a method of valuing insurance contracts under IFRS17. It is
an optional simplification approach of the GMM, which an entity may use as an approximation for
measuring contracts over the remaining coverage period. To use PAA, a group of contracts has to have
1 year or less of coverage period or the measurement of the liability for the remaining coverage would
not differ materially from the measurement that would result from applying the full GMM.
130
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).
Solely Payments of Principal
and Interest (SPPI)
Contractual cash flows from financial assets generally meet SPPI criteria if such cash flows reflect
compensation for basic credit risk and customary returns from a debt instrument which also includes time
value for money.
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.
131
Alternative Performance Measures Reconciliations (unaudited)
IFRS
reconciliation to management P&L
For the year ended 31 December 2022
Underwriting
result
Investment
result
Central
costs
Business
operating
result
Other
charges
Proft
before
tax from
continuing
operations
£m
IFRS
Management
Continuing operations
Income
Gross written premiums
4,181
4,181
Less: reinsurance written premiums
(1,071)
(1,071)
Net written premiums
3,110
3,110
Change in the gross provision for
unearned premiums
(78)
(78)
Change in provision for unearned
reinsurance premiums
93
93
Change in provision for net unearned
premiums
15
15
Net earned premiums
3,125
3,125
Investment income
145
145
Realised losses on investments
(5)
(5)
Unrealised gains, impairments and
foreign exchange
(51)
(51)
Net investment return
89
Other insurance income
77
77
Foreign exchange gains
15
15
Pension net interest and administration
costs
7
7
Other operating income
99
Total income
3,313
Expenses
Gross claims incurred
(2,817)
(2,817)
Less: claims recoveries from reinsurers
740
740
Net claims
(2,077)
(2,077)
Underwriting and policy acquisition costs
(1,109)
(1,109)
Unwind of discount
3
3
Investment expenses
(8)
(8)
Central expenses
(24)
(24)
Foreign exchange losses
-
Integration costs
(61)
(61)
Transaction costs
-
Other operating expenses
(93)
(3,276)
Finance costs
(11)
(11)
Gain on disposal of businesses
39
39
Profit/(loss) before tax from continuing
operations
65
16
140
(24)
132
(67)
65
Income tax income
16
Profit after tax from continuing
operations
81
Profit from discontinued operations
-
Profit for the period
81
132
IFRS reconciliation to management P&L
For the year
ended 31 December 2021
Underwriting
result
Investment
result
Central
costs
Business
operating
result
Other
charges
Loss
before tax
from
continuing
operations
£m
IFRS
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 losses, 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)
Amortisation of intangibles
-
-
Transaction costs
(96)
(96)
Foreign exchange losses
(2)
(2)
Integration costs
(40)
(40)
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
133
For the year ended 31
December 2022
2022
2021
£m
£m
Profit for the year net of tax
103
6,038
Items that may be reclassified to the income statement:
Fair value losses on debt securities net of tax
-
(10)
Items that will not be
reclassified to the income statement:
Fair value losses on investment in subsidiaries
(1,087)
(4,876)
Total other comprehensive expense for the year
(1,087)
(4,886)
Total comprehensive (expense)/income for the year
(984)
1,152
The profit for the year net of tax includes dividend income of
£137m
received from Royal Insurance Holdings Limited (2021:
£6,210m) and a tax credit of
£8m
(2021: £8m tax charge). Fair value losses on debt securities include a tax credit of
£nil
(2021:
£2m tax credit).
134
Parent Company statement of changes in equity
For the year ended 31 December 2022
Ordinary
share
capital
Ordinary
share
premium
Preference
shares
Revaluation
reserves
Capital
redemption
reserve
Retained
earnings
Tier 1
notes
Total
equity
£m
£m
£m
£m
£m
£m
£m
£m
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 gains net of tax
-
-
-
(3,721)
-
(1,165)
-
(4,886)
-
-
-
(3,721)
-
4,873
-
1,152
Dividends
–
paid
2
(note 7)
-
-
-
-
-
(6,938)
-
(6,938)
Shares issued for cash (note 11)
1,023
282
-
-
-
-
-
1,305
Share
-
based payments (note 10)
11
-
-
-
-
17
-
28
Capital reduction
1
(800)
(1,095)
-
-
(389)
2,284
-
-
Balance at 1 January 2022
1,269
282
125
4
-
1,249
297
3,226
Total comprehensive income/(expense) for the year
Profit for the year net of tax
-
-
-
-
-
103
-
103
Fair value losses net of tax
-
-
-
-
-
(1,087)
-
(1,087)
-
-
-
-
-
(984)
-
(984)
Dividends
–
paid
2
(note 7)
-
-
-
-
-
(12)
-
(12)
Tier 1 note redemption (note 11)
-
-
-
-
-
22
(297)
(275)
Shares issued for cash (note 10)
294
-
-
-
-
-
-
294
Balance at 31 December 2022
1,563
282
125
4
-
275
-
2,249
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.
135
Parent Company statement of financial position
Company number 02339826
As at 31 December 2022
2022
2021
Note
£m
£m
Assets
Investments in subsidiaries
8
2,595
2,405
Amounts owed by subsidiaries
6
63
1,408
Current tax assets
9
8
-
Other assets
71
1,408
Cash and cash equivalents
1
1
Total
assets
2,667
3,814
Equity and liabilities
Equity attributable to owners of the Parent Company
2,249
3,226
Liabilities
Amounts owed to subsidiaries
6
234
403
Issued debt
12
166
165
Current tax liabilities
9
-
2
Accruals and other liabilities
18
18
Total liabilities
418
588
Total equity and liabilities
2,667
3,814
The attached notes form an integral part of these Parent Company financial statements.
The profit for the year net of tax was
£103m
(2021: £6,038m profit).
The Parent Company financial statements were approved on 02 March 2023 by the Board of Directors and are signed on its
behalf by:
Ken Anderson
Chief Financial Officer
136
Parent Company statement of cash flows
For the year ended 31
December 2022
2022
2021
£m
£m
Cash flows from operating activities
Profit for the year before tax
95
6,046
Adjustments for non
-
cash movements in net profit for the year
Share
-
based payments
-
28
Other non
-
cash movements
10
10
Changes in operating assets/liabilities
Movement in working capital
(10)
(31)
Reclassification of investment income and interest paid
(244)
(6,251)
Cash generated from investments
Dividend income
137
6,210
Interest and other
investment income
116
117
Tax (paid)/recovered
(2)
3
Net cash flows from operating activities
102
6,132
Cash flows from investing activities
Purchase of shares in subsidiaries
(1,277)
(652)
Proceeds from sales of financial assets
-
3
Net
movement in amounts owed by subsidiaries
16
121
Repayment of issued debt from subsidiaries
1,161
693
Net cash flows from investing activities
(100)
165
Cash flows from financing activities
Proceeds from issue of share capital
294
1,304
Dividends paid to ordinary shareholders
-
(6,914)
Coupon payment on Tier 1 notes
(3)
(15)
Dividends paid to preference shareholders
(9)
(9)
Redemption of debt instruments
(275)
(642)
Interest paid
(9)
(23)
Net cash flows from financing
activities
(2)
(6,299)
Net decrease in cash and cash equivalents
-
(2)
Cash and cash equivalents at the beginning of the year
1
3
Cash and cash equivalents at the end of the year
1
1
137
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 IFC 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 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 8.
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 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 OCI 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 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.
Dividend income
Dividend income from investment in subsidiaries is recognised when the right to receive payment is established.
138
Interest income
Interest income is recognised using the effective interest rate method.
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 benefits to its subsidiary companies operating within the UK and oversees in the form 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
£9m
(2021: £5m).
Provision of technical support in relation to risk management, information technology and reinsurance services are now provided by
IFC, see note 17 of the consolidated Group Accounts. During 2021, these services were provided by RSA Insurance Group Limited on
a cost plus basis, allowing for a margin of 7% (2021: 7%).
Key management compensation
2022
2021
£m
£m
Short term employee benefits
9
15
Termination benefits
-
2
Share-based awards
4
12
Total
13
29
Transactions with parent company
The Company’s parent company up to 20 September 2022 was Regent Bidco Limited, and thereafter Alberta Limited, both
wholly owned subsidiaries of IFC, the ultimate controlling party.
During the year ended 31 December 2022, the following related party transactions have taken place with Regent Bidco Limited:
On 27 March, the Group received a capital injection from Regent Bidco Limited of
£294m
to fund the repurchase of the
Tier 1 notes.
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
£3m
(2021: £13m), and interest charged to subsidiaries is
£2m
(2021: £1m). Dividends of
£137m
were received from a subsidiary, Royal Insurance Holdings Limited, during the year (2021: £6,210m).
The company also incurred losses of
£11m
(2021: £9m) on foreign exchange derivatives with IFC.
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.
139
Related party balances
Year end balances with related parties are set out below:
2022
2021
£m
£m
Receivable from related parties:
Receivable from subsidiaries, interest bearing loans
3
1,164
Receivable from subsidiaries, non interest bearing loans
60
244
Total receivable from subsidiaries/related parties
63
1,408
Payable to related parties:
Payable to subsidiaries, interest bearing loans
21
171
Payable to subsidiaries, non interest bearing loans
213
232
Total payable to subsidiaries
234
403
Payable to other related parties, derivative liabilities
-
9
Total payable to related parties
234
412
7) Dividends paid and proposed
Full details of the dividends paid and proposed by the Company are set out in note 21 to the consolidated financial statements.
8) Investments
Debt
securities
Subsidiaries
Total
£m
£m
£m
Investments at 1 January 2021
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
Purchases
2
-
1,277
1,277
Total losses recognised in:
-
-
-
Other comprehensive income
-
(1,087)
(1,087)
Investments at 31 December 2022
-
2,595
2,595
1
The Company contributed its entire investment portfolio in debt securities of
£354m
to Royal Insurance Holdings Limited in
exchange for ordinary shares.
2
During the year, as part of an internal loan rationalisation exercise, the Company acquired 1 share from the subsidiary entity
Royal Insurance Holdings Limited. The Company paid £1 for the share, along with a share premium of
£1,277m
.
Investments in subsidiaries
Fair value of the major operating entities is determined by applying the income approach. For other smaller entities, fair value is
determined to be net asset value. The split of the total valuation between these two approaches is below.
140
Net asset
value
Income
approach
Total fair
value
£m
£m
£m
Investments at 1 January 2022
162
2,243
2,405
Purchases
1,277
-
1,277
Fair value (losses)/gains in OCI
(1,434)
347
(1,087)
Investments at 31 December 2022
5
2,590
2,595
The valuation methodology described in this note was adopted when the Group was acquired by IFC on 1 June 2021. Comparative
information is therefore not available for the above table.
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 of the
major operating entities 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 are based on the latest 3 year Board approved
operational plan, with the final year being forecasted to perpetuity, by applying a long-term growth rate assumption. The forecast
incorporates a contingency of £35m per annum, holds COR at 2023 forecast level plus 1%, and assumes ongoing investment return at
current market yields.
The following sensitivity analysis has been performed to assess the impact of changes in key assumptions.
Decrease in fair value through
OCI
2022
2021
£m
£m
1% increase in discount rate
(314)
(277)
1% reduction in long-term growth rate
(236)
(188)
1% increase in combined operating ratio across all years
1
(294)
(355)
1% reduction in investment return across all years
(264)
(174)
1
Combined operating ratio (COR) is a measure of underwriting performance and is the ratio of underwriting costs expressed in
relation to earned premiums.
Full details of the principal subsidiaries of the Company are set out in Appendix C to the consolidated financial statements.
9) Current and deferred tax
Current tax
Asset
Liability
2022
2021
2022
2021
£m
£m
£m
£m
To be settled within 12 months
8
-
-
2
The movement in the net deferred tax assets recognised by the Company was as follows:
2022
2021
£m
£m
Net deferred tax position at 1 January
-
4
Amount charged to income statement
-
(8)
Amount charged to other comprehensive income
-
3
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
-
-
No deferred tax has been recognised in respect of
£149m
(2021: £153m) of deferred tax reliefs, predominantly relating to tax losses of
£113m
(2021:
£115m
) and capital expenditure of
£36m
(2021: £36m), due to the unpredictability of future profit streams.
141
10) Share capital
Full details of the share capital of the Company are set out in note 34 to the consolidated financial statements.
11) Tier 1 notes
Full details of the Tier 1 notes are set out in note 35 to the consolidated financial statements.
12) Issued debt
Full details of the issued debt of the Company are set out in note 37 to the consolidated financial statements.
13) Events after the reporting period
A capital injection was made into the Company on 27 February 2023 by IFC, via a subscription of one share in the Company at a
premium of approximately £500m.
On the same date, the Company made an equity injection for the same value into its wholly owned
subsidiary Royal Insurance Holdings Limited.
142
Shareholder Information
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, 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 5.30pm (UK time), Monday to Friday, excluding public holidays in
England and Wales.
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. Shareholders may elect to receive a printed
copy of the Annual Report and Accounts at any time by contacting Equiniti.
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 21 Feb
2023 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
4.30pm (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
16 March 2023
Ex-dividend date for the first preference dividend for 2023
17 March 2023
Record date for the first preference dividend for 2023
3 April 2022
Payment date for the first preference dividend for 2023
4 August 2022*
Announcement of the half-year results for the six months ended 30 June 2023
17 August 2022*
Ex-dividend date for the second preference dividend for 2023
18 August 2022*
Record date for the second preference dividend for 2023
2 October 2023*
Payment date for the second preference dividend for 2023
* Provisional date
143
Shareholder information
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.