Directors' report
The directors of Royal & Sun Alliance Insurance Group plc ('RSA') present their report and the audited financial statements of the Company for the year ended 31 December 2007.
Principal activity
The Company is the holding company of the RSA group of companies (the 'Group') whose principal activity is the transaction of personal and commercial general insurance business. The Group writes business in over 130 countries.
Business review
The Company is required by the Companies Act to include a business review in this report. The information that fulfils the requirements of the business review can be found within the Group CEO's review, the Group strategy and the regional business reviews which are incorporated in this report by reference. An overview of the Group's business performance during the year along with an analysis of its financial position is set out in the financial review. The future developments of the business can be found in the Group CEO's review and in the regional business reviews. The principal risks and uncertainties facing the Group are set out in the estimation techniques, uncertainties and contingencies and in the risk framework.
The Group uses Key Performance Indicators ('KPIs') to provide a well balanced and comprehensive review of the Group's overall performance. KPIs are monitored in a number of areas including financial, employee, customer and the environment and community. Financial KPIs include the Group's combined operating ratio, expense ratio, operating result and net written premium growth. Employee KPIs include the percentage of staff that have performance related pay, the percentage of staff taking part in the employee survey and the increase in overall employee satisfaction as measured by the survey. Customer KPIs include the levels of customer retention and the Group's position in the annual benchmarking survey on complaints handling by the Association of British Insurers. Environment and community KPIs include the levels of CO2 emissions and the amount of the Group's charitable donations. Financial KPIs are detailed in the Group CEO's review, the Group strategy and the regional business reviews. The employee, customer and the environment and community KPIs are detailed in the regional business reviews, the corporate responsibility report and in this report.
Dividends
The directors recommend a final dividend of 4.53p per ordinary share in respect of the year ended 31 December 2007 to be paid on 6 June 2008 to holders of ordinary shares on the register at the close of business on 7 March 2008, subject to shareholder approval. This, together with the interim dividend of 2.48p per ordinary share, will make a total dividend for the year of 7.01p per ordinary share.
The preferential dividend at the rate of 3.6875% for the period from 1 October 2007 to 31 March 2008 will be paid on 1 April 2008 to holders of preference shares on the register at the close of business on 7 March 2008.
Employment policy
The Group's employment policy reflects our belief that motivated and skilled employees are critical to our success.
We encourage equal opportunities and diversity across the Group. This involves recruiting, engaging, retaining, rewarding and developing people solely on the grounds of ability to do the job, and establishing and promoting a working environment which is free from discrimination.
The Group is committed to the promotion of equal opportunities for all employees including those with a disability. In order to do this, we will ensure that any reasonable adjustment is made, where it is appropriate to do so, to provide equal opportunities to all in respect of recruitment, terms and conditions of employment, promotions, transfers, grievances, redundancies and vocational training. The Group is committed wherever possible, to supporting the rehabilitation and return to work of employees who become disabled during their career with us.
In 2007 the Group entered the Where Women Want To Work Top 50 produced by The Times for the first time. We were one of only three insurers who made it on to the list.
The Group is committed to fostering a constructive dialogue with recognised independent trade unions, ensuring a regular and constructive dialogue on business issues and early consultation on changes affecting the workforce. In the UK, Unite is formally recognised through a partnership agreement which covers collective consultation and bargaining on behalf of non management employees. The Management Association (TMA) represents managerial employees under a separate consultative agreement. The European Consultative Forum (ECF) is a cross European body created to enable information sharing and consultation on transnational issues with the European workforce. Since 2005, an amended constitution has been in place for the European workforce which enables streamlined consultation arrangements.
The Group continues to focus on the development of employees in order to ensure they can deliver high levels of performance. We believe we can create real competitive advantage by building and maintaining a high performance culture across the Group. In 2007, the focus has been on developing leadership talent and capability for today's business needs and those of the future. We have continued to accelerate the development of our in house executive talent, through the Executive Development Programme which enters its fourth year in 2008. We have also introduced robust strategies to build capability and performance in the areas of sales, underwriting, claims and actuarial.
A Groupwide programme was introduced during 2006 looking at sales effectiveness, with the aim of equipping our salesforce with the tools, skills, career pathways, training, reward and recognition that an effective salesforce would expect. This programme has now been rolled out in the UK, Scandinavia, Canada, Ireland, Italy and a number of countries in the Emerging Markets region. The programme will be rolled out in the remaining countries during 2008.
During 2007 a new Graduate Programme was launched. In this first year it focused on technical roles within claims, underwriting and actuarial. The Graduate Programme is aimed at filling the talent pipeline within our technical roles to support the Group's growth objectives. The programme is run as part of the Technical Academy.
A second year of our accelerated career programme, FastTrack, resulted in us hiring 45 individuals who show potential to swiftly build capability to fulfil leadership positions in the Group. Typically three or four years post graduate, these individuals follow a structured career acceleration programme involving a six month overseas assignment to help bring increased exposure to cultural and organisational differences.
Our fourth annual web based Global Employee Survey was run in 2007. 91% of eligible employees took the opportunity to contribute. Our aim is to consistently seek feedback on the environment we are creating as an employer and to work constructively towards our objective of becoming an employer of choice. Our intention is to continue to conduct an annual survey to ensure we have a current picture of employees' views and to track year on year movement in particular areas of priority. In this way we measure how the culture of our business is changing. For example, in 2007 72% of staff felt that 'My job provides the opportunity to learn new skills and develop new talents', an increase of 2% on 2006. As in previous years, we have used the 2007 results to build a Groupwide action plan which requires every manager to identify and work on areas of particular importance to his or her team.
Our policy is to encourage employee share ownership. Employees from a number of our global businesses are encouraged to participate in Sharesave which is an Employee Sharesave Scheme (HM Revenue and Customs approved). This year 44% of UK based eligible employees participated while overseas the average take up rate was 28%, which was a significant increase on previous years.
Employees are kept well informed of the overall performance and objectives of the Group.
The Group actively encourages employees to become involved in supporting their local communities. Further details are provided in the corporate responsibility report.
Environmental programme
Details of our environmental programme can be found on our website at www.rsagroup.com.
Supplier payment policy
It is the Company's policy to agree appropriate terms and conditions in advance with its suppliers and to make payment in accordance with those terms and conditions, provided the supplier has complied with them. In most cases, agreements for the supply of goods or services are made under the Group's standard terms of contract that lay down payment terms. In the UK these are available on request from UK Procurement, Leadenhall Court, 1 Leadenhall Street, London EC3V 1PP.
The Company's outstanding indebtedness to trade creditors on 31 December 2007 amounted to £5.6m corresponding to 20 days' payment when averaged over the year.
Share capital
During the year, 12,448,823 ordinary shares of 27.5p each were issued in satisfaction of the exercise of employee share options for a total consideration of £9m, and 66,632,200 ordinary shares of 27.5p each were issued under the Company's scrip dividend scheme for a total consideration of £100m. On 24 May 2007 the Company placed 186,350,000 ordinary shares of 27.5p each, raising gross proceeds of approximately £300m. The placing was part of the financing in respect of the recommended offer to purchase the shares in Codan A/S not already held by the Group.
The Company can increase its share capital and authorise the directors to allot further securities by ordinary resolution. As at 31 December 2007, the directors had authority to allot securities up to a nominal amount of £432,165,676.
The Company may purchase any of its own shares (including any redeemable shares). An authority from shareholders for the Company to purchase up to 298,848,845 of its own ordinary shares (representing 10% of its issued share capital as at 22 March 2007) remained in force at 31 December 2007.
Rights and obligations attaching to shares
The rights attaching to the ordinary shares and preference shares are set out in the Company's Articles of Association (the 'Articles'). Details of the rights and obligations attaching to shares as at 31 December 2007 are incorporated into this report by reference and are set out in note 18.
The Articles may be amended subject to shareholder approval by special resolution at a general meeting of the Company. We are proposing to amend the Articles at the 2008 AGM, further details of which are set out in the Notice of AGM.
Employee Benefit Trusts
The Company operates the Royal & SunAlliance ESOP Trust, the Royal & SunAlliance ESOP Trust No. 2 and the Royal & SunAlliance ESOP Trust No. 3 (the 'Trusts'). In each case, the trustee is Lloyds TSB Offshore Trust Company Limited. In respect of any shares held in the Trusts, the trustee may vote in respect of those shares, but is not obliged to. In respect of the Royal & SunAlliance ESOP Trust No.3, the trustee may have regard to the financial interests of the beneficiaries in exercising its voting rights over the Company's shares.
Substantial share interests
At the date of this report we have been notified, in accordance with the Disclosure and Transparency Rules, of the following interests in the ordinary share capital of the Company:
| Number of shares in which there is a direct interest | Number of shares in which there is an indirect interest | Interest in issued share capital | |
|---|---|---|---|
| AXA S.A. | 24,458,659 | 214,735,733 | 7.35% |
| Goldman Sachs | |||
| Asset Management | – | 192,491,038 | 5.92% |
| Legal & General Group plc | 159,445,835 | – | 4.90% |
| Schroders plc | – | 147,476,133 | 4.53% |
| Standard Life Investments | 108,621,140 | 17,201,130 | 3.87% |
Directors
The names of the directors, together with biographical details are set out in the Board of Directors section.
Details of the directors' service contracts and terms of appointment, together with their interests in the Company's shares are shown in the remuneration report.
Details of directors' powers are set out in the corporate governance report and are incorporated into this report by reference.
Directors' indemnity
Article 154 of the Company's Articles provides that, among other things and insofar as permitted by law, every director shall be indemnified by the Company against all costs, charges, expenses, losses or liabilities incurred in the execution and discharge of the director's duties, power or office.
Since 12 July 2006, the Company has granted an indemnity to each of the directors pursuant to the power conferred by Article 154. The indemnities granted constitute qualifying third party indemnity provisions (as defined by section 234 of the Companies Act 2006). The Board of Directors (the 'Board') believes that it promotes the success of the Company to provide this indemnity to its directors in order to ensure that the Group attracts and retains high calibre directors through competitive terms of employment in line with market standards.
Directors and officers of the Company and its subsidiaries also have the benefit of an insurance policy which provides suitable cover in respect of legal actions brought against the directors.
None of the directors had any interest in any other contract with the Company or any of its subsidiaries during 2007.
Related party transactions
Related party transactions are set out in note 32.
Charitable and political contributions
The Company and its subsidiaries worldwide made charitable donations of £2,370,003 during the year. The largest contribution of £251,935 was made for the Danish life buoy programme promoting safety around water. The Group did not make any donations to European Union (EU) political parties nor to political parties outside the EU during 2007, and it is not the Group's policy to do so.
Annual General Meeting
The AGM will be held at the Queen Elizabeth II Conference Centre, Broad Sanctuary, Westminster, London SW1P 3EE on Monday, 19 May 2008 at 11.00 am.
Enclosed with the Annual Report and Accounts is a letter from the Chairman to shareholders. Attached to the letter is the Notice convening the AGM which will include items of ordinary and special business as detailed in the Notice.
Change of name
It is proposed that a resolution be put to the shareholders of the Company at the 2008 AGM that the name of the Company be changed to RSA Insurance Group plc.
Auditors
So far as each director is aware, there is no relevant audit information (as defined in section 234ZA(3) of the Companies Act 1985) of which the Company's auditors are unaware, and each director has taken all steps that he or she ought to have taken as a director in order to make himself or herself aware of, and to establish that the auditors are aware of, any relevant audit information.
Deloitte & Touche LLP have confirmed their willingness to continue in office as auditors of the Company for the year ending 31 December 2008. A resolution for their reappointment will be proposed at the 2008 AGM.
Going concern
The directors have satisfied themselves that the Group has adequate resources to continue in operation for the foreseeable future having given consideration to the uncertainties and contingencies disclosed in the financial statements and have therefore prepared the financial statements on a going concern basis.
By order of the Board
Mark R Chambers
General Counsel and Group Company Secretary
26 February 2008