![]() RSAInsurance GroupLimited Annual Report and Accounts 2021 ### RSA Insurance Group Limited ### Annual Report and Accounts 2021 ![]() RSA Annual Report and Accounts 2021 1 rsagroup.com Strategic Report GovernanceFinancials ### Contents Strategic Report Business review02 Risk management04 Section 172 statement08 Environmental, Social and Governance11 Environmental riskmanagement14 Directors’ andCorporate GovernanceReport Directors and Officers17 Corporate Governance18 Report of the Directors23 Financialstatements Directors’ responsibilities27 Independent auditor’s report28 Primary statements36 Basis ofpreparation andsignificant accounting policies41 Risk and capitalmanagement50 Significant transactions and events59 Notes to the consolidatedincome statement, consolidated statement of comprehensive incomeand dividends62 Notes to the consolidated statement of financial position72 Notes to the consolidated statement of cash flows105 Other commitments, contingent liabilities and events after the reporting period106 Appendices 107 Parentcompanyfinancial statements117 Notes to the parent company financial statements120 Further information Shareholder information andfinancial calendar125 ### Excellence · Actwith discipline and drive to outperform · Embrace change, improve every day · Celebratesuccess, yetremain humble ### Generosity · Helpothers · Protectthe environment · Makeour communities more resilient ### Our Purpose Tohelp people, businessesand # society prosper in # good times and be # resilient in bad times. ## We built our business with help in mind ## – it’s why we exist. ### Integrity · Behonest, open and fair · Sethigh standards · Stand up for what is right ### Respect · Be kind · See diversity as a strength · Beinclusive and collaborate ### Customer-driven · Listen to our customers · Make it easy, find solutions · Deliver second-to- none experiences ### Our Values ## Our purpose and values are shared with our parent company, ## Intact Financial Corporation. ![]() RSA Annual Report and Accounts 2021 2 rsagroup.com Strategic Report GovernanceFinancials In accordance with the Companies Act 2006, the Directors presenttheir StrategicReport for the year ended 31 December 2021. RSA Insurance GroupLimited(theCompany), formerly RSA Insurance Group plc, was re-registered as a private limited company on 26 May 2021 and 100% of the Company’s ordinary share capital was purchased by Regent Bidco Limited, a wholly owned subsidiary ofIntactFinancial Corporation(IFCor Intact), on1 June 2021 (the Acquisition). On 1June 2021, the Company disposedof its operations in Scandinavia (Codan A/S) and Canada (Roins Holdings Limited), andthese have been classified as discontinued operations (refer to note 7 Discontinued operations for further information 1 ). The Company is a member of the RSA Insurance Groupof companies which continues to operate in the UK, Ireland, ContinentalEurope and the MiddleEast (the Group, RSA or UK&I). A number of theCompany’s subsidiaries are regulated by theFinancial ConductAuthority and/or the Prudential RegulationAuthority. Principalactivity The principal activity of the Group is the transaction of insurance and related financial services. In the UK, RSA holds a top 5 position in each of domestic commerciallines, personal property and pet insurance. Personal motor, property, and pet insurance is offered to our customers through MORE TH>N and affinity partners, which includemajor 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 largestcommercial windenergy insurer. We provide a suite of Personal Lines products in the Middle East. We own 50% of the operations in Bahrain, the United Arab Emirates and Oman (where RSA operates under the Al Ahlia brand) and Saudi Arabia (where RSA operates under the Al Alamiya brand). Business Model a.Productsthatprotect ourcustomers: Our customers areour business. We strive to address their changing needs and continually improve our service. b.Effective productdistribution: We need to reach our target customers effectively and efficiently to continue to develop as a business. Our products are distributed directly to customers, through brokers and affinity partnerships. c.Understanding risk to price correctly: To help ensure we offer the right products, at the right price on the right terms, we work hard to increase our understanding of our customers’ risks and their evolving needs. d.Proactively managing claims: We aim to settle claims quickly and smoothly. We carefully manage our indemnity spend to keep the cost of claims efficient. Business review The Group reports a profit before tax of £4,332m for the year ended 31 December 2021, of which continuing operations contributed a loss of £228m and discontinued operations a profit of £4,560m (31 December 2020: £17m loss and £500m profit respectively). Continuing losses before tax of £228m consisted of £137m underwriting losses (2020: £33m profit), £110m investment result income (2020: £110m), £11m central costs (2020: £12m) and £190m of other charges (2020: £148m). On thesame continuing basis, profitable current year underwritingperformance was outweighed by reserve and margin strengthening of approximately £180m, toreflectevolvingestimation uncertainty and to align to IFC practices (refer to note 39 Insurance contract liabilities 1 ). The underwriting result wasfurther impactedby a £72m write-down of software assets (refer to note 23 Goodwill and intangible assets 1 ) and a £34m net impact relating to a reinsurance contractpurchase foradverse development cover (which will reduce the potential volatility in theGroup’s historical claims liabilities), including partial offset from reduced reserve margin in light of the increased reinsurance protection. Other charges were also impacted, with £136m acquisition and integration costs, and £53m debt buyback costs (refer to note 37 Issued debt 1 ). Profit fromdiscontinued operations before tax included a £4,393m gain on the disposal of the Group’s operations in Scandinavia and Canada (refer to note 7 Discontinued operations 1 ). Net written premiums were £4,474m of which £3,293m were in respect of continuing operations and £1,181m from discontinued (2020: £3,038m and £3,185m respectively). Net assets of the Group are £3,091m (2020: £4,730m). # RSA UK & International For more than 300 years, RSA has been protecting individuals and businesses from risk. In 2021 we became part of Intact, to continue our critical role. ![]() RSA Annual Report and Accounts 2021 3 rsagroup.com Strategic Report GovernanceFinancials Related party transactions The Group received capital injections from Regent Bidco Limited of £1,021m and £275m during the period, the latter of which was used to fund the repurchase of its guaranteed subordinated notes (Tier 2 notes). The Group also declared a dividend in specie of £6,914m. Refer to note 17 for further information on all related party transactions 1 . Keyperformance indicators(KPIs) The Group use both IFRS and non-IFRS financial measures (Alternative Performance Measures, APMs) to assess performance, including common insuranceindustry metrics. As the Group is now a wholly owned subsidiary of IFC, withno publiclylisted ordinary share capital,theKPIsreported by the Group have been reassessed and havereduced. The KPIs most relevant to the financial performance of the Group are now as follows: · Netwritten premiums for continuing operations £3,293m (2020: £3,038m): premiums incepted inthe period, irrespective of whether they have been paid, less the amount shared with reinsurers. They represent how muchpremium the Group gets to keep for assuming risk. The Group targets growth – that is without compromisingunderwriting performance. · Underwriting result 2 for continuing operations £137mloss (2020: £33m profit): net earned premium and other operatingincome less netclaims and underwriting andpolicy acquisition costs. The Group aims to achieve an underwriting result that is assustainably high as possible – that is without uncompetitive pricingor compromising reserves. The Group targets further improvementstoitsunderwriting result. · Loss/profit before tax for continuing operations £228m loss (2020: £17m loss): net loss/profit generated before taxes have been deducted. This is a key statutory measure of the earnings performance of the Group. The impact of tax can vary from company to company, thereforeexcluding this enhances comparability. The Group seeks to maximise its profit before tax. In both 2020 and 2021 the results, and therefore some of these KPIs have been significantly impacted bythe transaction and transition costs of the takeover. Information contained in the Customer section below, the ESG section and the People section in the Directors’ report on pages 23 to 25 and our principal risks on page 7 form the non-financialinformation statement. Our operations The Company’s operationsremained resilient during theyear. The majority of ourworkforce has been working from home during the Covid-19 pandemic, reflecting guidelines set by local governments. Significant resource has been deployed to ensure our people havereceived the appropriatesupport 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 cloudbased mainframeto support our UK systems and processes. During 2021, where and when guidelines permitted, there was somevoluntary return to the office supported by hybrid arrangements to ensure effective working from the office and home. Principalrisksand uncertainties Following the disposal of the Group’s operationsin Scandinavia and Canada, the principal risks and uncertainties of the Group have been reassessed. These are set out in note 6 Risk and capital management 1 . Further detailon how theCompany manages its principal risks and uncertainties is set out in the risk management report on pages 4 to 7. Our strategy Our ambition is to build on RSA’s strengths to deliver a consistently outperforming underwriting result. We will achieve this by leveraging our strong UK domestic Commercial Lines andSpecialty businesses, growingour direct channels inPersonal Lines, and continuingto improveour productivity. Weare therefore focused on simplifying our business and distributionchannels, investing in our technical and digital capabilities, and building acustomer-driven culturethatvalues high performance and develops talent. Wewill build thecustomer proposition and growour European businesses through alignment withIntact’s Specialty businesses in North America and the London Market, while continuing to focus on the underwriting excellence which has enabledthe performance improvement of recent years. Our customers We strive to provide tailored products to meet theevolving needs ofour customers by analysing trends and keeping pace with digital developments. Our customer policy sets out standards for the business to help ensure that we treat all customers fairly, that products andservice continue to meet their needs, and that we monitorcustomer outcomes to understand our performance. Further information on how we support and engage with our customers is contained in the Section 172 statement on pages 8 to 10. We define customer retention as a measure of the amount of business that is renewed with us each year. Strong customer satisfaction translates to high retention levels and improved underwriting results. By ensuring that customers are at the heart of everything we do, we can optimise business performance. We target improving retention over time. Future outlook Weevolve our products andservices 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 theright foundationto target sustainable growth in certain product lines and customer types. The continuation of our programme of business simplification aligned to customer- driven values will assist this growth further. Events after the reporting period The Group haslimited directunderwriting or investment exposure to the war between Ukraine and Russia and is vigilant in its adherence to sanctions.The situation will continue to be closely monitored for any indirect impacts that could emerge. On 7 March 2022 the Company gave notice of redemption to the holders of the two floating rate Restricted Tier 1 notes. The Tier 1 notes will be redeemed at their principal amount together with accrued and unpaid interest up to (but excluding) the first call date on 27 March 2022. 1.Refer to Financial Statements. 2.The underwriting result is an Alternative Performance Measure (APM). Refer to Further information – Jargon buster and Alternative Performance Measures. ![]() RSA Annual Report and Accounts 2021 4 rsagroup.com Strategic Report GovernanceFinancials # Managing risk to deliver for our # customers and achieve our goals ## Aiming to deliver consistently for our customers while achieving good long-term ## sustainable performance. The Group’s operating plan provides a platform forensuring the business remains aligned withits strategic goals, including strong delivery for our customers and sustainable performance with arobustcapital base. The Risk Function takes an active role in challenging thebusiness on its development of our plans and delivery against our objectives and those of our customers. ### Approach to managing risk and our appetite in 2021 Our risk management andcontrols frameworks were created to ensure that we identify, measure and manage risks across the Group before they adversely impact onour customers orthe business. This information, togetherwith the strength of the Group’s capital position, allows the Board to set a risk strategy and appetite that articulates the level of risk the Board is prepared to take in delivering its strategic objectives. Risks are managed within risk appetite, using arisk 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 themback to acceptable positions. This year saw continued progress in some key risk areas, including customer, underwriting discipline, ITand cyber. Risk culture– cultureof 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 insightsfrom 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. Wegiveconsiderable attention to ensuring our customers are treated fairly and our colleagues are passionate about achieving good customer outcomes. Risk management andgovernance approach duringCovid-19 Maintaining effective riskmanagement and a robust internal controlenvironment is essential in times of organisational stress as it helps protect the organisation from harm. Our values continue to drive decision-making inchallenging times, putting our peopleand customer needs first,supported by our operational resilience capabilities.Uncertainty fromCovid-19 conditionscontinues to impact every organisation andthe economic environment; however, our success in embedding remote and hybrid working has allowed us to continue to serve our customers well. Joining Intact and the associated organisational changebrought with itadditionaloperationalrisks.These risks were mitigated through frequent and open communicationwith ourpeople,strong and considered leadership, and appropriate monitoring. Now some monthson,these risks have been, and continue to be, managed. In terms offinancial resilience our capital position hasbeen strengthened during the takeover byIntactproviding additional capital and improving the solvency coverage, as well as increasing the quality of capital held. ![]() RSA Annual Report and Accounts 2021 5 rsagroup.com Strategic Report GovernanceFinancials ### Emerging risk – monitoring future threats Cyber risk Cyber threats arise on a frequent basis; however, there is an increasing risk of hostilestates and organised crimeto engineersevere attacks. Terrorism Terrorist threats remain high. Attacks couldimpact a large number of our customers and colleagues as well as broader society. Inflation Supply chain issues, the impact of Brexit and the effects of the pandemic increase theuncertainty around inflation and the risks of stagflation, with implications on claims fulfilment and economic output. Pandemic While we appear to be throughthe worst of the pandemic the risk of further variants remains and there continuetobe economic, social and political implicationsfrom the direct and indirect consequences. Regulatory activity The pace of regulatory change shows no sign of slowing,withmultiple initiatives that aresignificant in nature andcomplexto implement.The current regulatory change agenda includes a new Consumer Duty, Solvency II developments, diversity and inclusion,climate change, operational resilience and continuingeffortstoembed changes arising fromthe FCA’sGeneral Insurance Pricing Practices reforms. Financialmarket uncertainty Volatilecapital markets negatively impact onthe value of assets and potentially increase capital requirementsfor market/ credit risk, and with a continued lowinterest rate environment. Global socio-political uncertainty Tensions over trade, international relations and EU stability are all factors thatmayhave significant social and economic implications. Persistentor more extreme weather patterns There is potential for further deteriorationofmore extreme weather patterns from awarming planet. Climate change transition risk Transition risk is already underway, and the economic effects are starting to materialise. Thereremains some uncertainty about how disorganised transitionwill be and the extent to which it will have negative economic effects as actions are taken to deliver on net zero targets. Geopolitical tensions Geopolitical tensions could resultin new political,economic, cyber or physical conflicts. Emerged risk Near-termrisk Longevity risk Longevity risk can affect long-term annuity-like bodilyinjury claims and pensions risks. Several factors including medical advances could shift the risk in the future. Autonomous machines Autonomous machines are likely to change insurance needs and could affect both thefrequency and severity oflosses. Transition risk As economies shift to lowcarbon emissions thetransitioncould havematerial microand macroeconomic implications affecting asset values and economic growth. Solar storms Solar flares couldpotentiallyimpact on electronicsand theelectricity supply, having abroadeconomic impact and resulting in a wider range of insurance claims. Medium-termrisk Climate change accelerates Climate change is fully on the agenda and remains a key emerging risk for insurers. While transition risk is nearer term, the physical risks will take longer to fully materialise and come with even greater uncertainty. We are already experiencing some volatility in global weather patterns that are being reflected in weather assumptions but there are substantial risks that these physical effects could accelerate. Long-termrisk ![]() RSA Annual Report and Accounts 2021 6 rsagroup.com Strategic Report GovernanceFinancials ### Risk management approach ### Risk management system The Board sets businessstrategy\* The Boardsets the business strategy which is incorporated in the three-year operationalplan. Risk strategycombined with the RiskFunction challenge of the operational plan provides robust challenge of validity and achievability of plan. Board sets risk strategy and appetite Risk strategy defines the approach to managing principal risks and createstheoverarching principles for setting therisk appetitelimits and indicators. Policies set a framework for operating within appetite Our extensive policy suite sets out the required business processes and controls to deliver the operational planwithinappetite. Robust control testing and monitoring is used to identify risks out of appetite. Monitorappetiteand action tracking The business leaders manage their own risks and define actions, where outof appetite, with oversight provided by UK&I Risk and Control Committees and escalation to the Board viathe RiskCommittee. Own Risk and Solvency Assessment (ORSA) reported to Board Validated output from the model is reported to the Board, so that changes can be made to the three-year operationalplan to ensure the RSA Group remains in appetite. Model outputs used in ORSA The internal model isrun regularly throughout the year in order to assess the risks impacting the RSA Group and determines how much capital theRSA Group needs to hold to remain solvent even after a major stress event(s). This forms part of the ORSA process. Model outputs checkedand used inbusinessdecisions Output from the model is sense checked against non-modelled stress and scenario events to ensure itprovidesa reliable basis for making business decisions, including capital planning, reinsurance purchase, performance analysisand pricing. Risk assessment and updateinternalmodel Significant changes in risk assessments areconsidered by the Internal Model Governance Committee and, where appropriate, the Group’s internal model is updated. ### Risk management system ### underpins the operational planning cycle 587 12 34 6 \*Following the takeover of RSA by IFC a review of strategy for the new perimeter and role of RSA as a part of IFC has commenced and continues. Those aspects decided upon by the time of setting the 2022-24 operational plan are fully incorporated. Those areas still subject to review will become an adjustment or overlayatthe appropriatetime. ![]() RSA Annual Report and Accounts 2021 7 rsagroup.com Strategic Report GovernanceFinancials ### Key risks and mitigants Key risks and exposures Key mitigants and controls Reserving risk This is the risk that the Group’s estimate of future claimsis insufficient, suchthatgross losses could behigher thanprojected or reinsurance does not respond as anticipated.The size of futureclaims payments is uncertain, with the main sources being long-tail linesof business, Covid-19 businessinterruption claims (due to interpretation of policy wordings still being debated in high profile legal cases), as wellas underlying economic inflation. The timing of future claims payments is another key uncertainty especially for our long-tail liabilitiesarising frommotor injury, liability and Profin. · Reserves are reviewed and challenged at the UK&I Reserving Committee meeting which is attended by the Chief Actuary, Chief Risk Officer, Chief Underwriting Officer, Chief Financial Officer and Chief ExecutiveOfficer. · During 2021, we have carried out detailed monitoring of claims, regulatory, legal and reinsurance developments, both within RSA and the industry, to help form assessments and make appropriateallowanceforthe impact onour experience of potential operational,economic orotherdisruptionsarising fromCovid-19 andBrexit. · The Adverse Development Cover mitigates the risk of adverse development in prioryearreleases. · The Group’s reserve assurance programme and independent external reserve reviews have independently verified more than 90% of the UK&I’s net Actuarial Indication during the past three years. · Claims case reserves are set based on best estimate and reviewed at quarterly case Reserving Committee meetings. · Management consider and seek legal advice on the implications of all open legal cases and judgements across the industry relating to interpretation of policy wordings in Covid-19 claims. It is expected that any adverse change would be protected by reinsurance cover. Operational risk This risk relates thoseresultingfrom 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 onour customers. · Operationalrisk andresilience processes andprocedures are inplace,including incident management. · Operational resilience mechanisms continue to be important in 2021 given the ongoingpandemic.Through this time thecustomer focusand governance has continued to be strong, and resilience plans and procedures have ensured service continuity. · Control effectiveness ismonitored through formalValidation and Assurance. · UK Customer Committeeoversees decisions relating to goodcustomer outcomes with aparticular focusin 2021 ontheimplementationof pricingpracticesrules. · IT and data risks remain a key focus, especially cyber threat, and we have made some significant progress over the year, while migrating someservices onto theCloud. Pension risk Our defined benefitpension schemes are exposed to longevity and market risks. Some ofthese, forexamplecredit 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 marketimpactsare examined andwell understood with aspecific focus on Pension risk. This is the risk to our insurance funds arising from movements in macroeconomic variables, including widening credit spreads, fluctuating bond yields and, to a lesser extent, currency fluctuations. Market and credit · RSA adoptsa prudentialinvestment strategy favouring high-quality fixed income bonds, amodest allocation to equities and selected less liquidassetssubject to stronginternal and external governance. · RSA ensures assets are closely duration and currency matched with insurance liabilities tohedge volatility. · Investment positions areregularly monitoredtoensure limits remain within quantitative andqualitative appetite (including ESG factors). · Asset Managers position assets to alignto theLow Carbon PositionStatement. Underwriting and claims risk This is the risk that underwritten business is not in line with appetite or is less profitablethan planneddue to insufficient pricing and settingof claimscase reserves. Key exposures arise from large portfolios where claimstrends are slow to emerge, such as UK Commercial and Marine. · Controlled through well-defined risk appetitestatements (including climate change factors)which arerigorouslymonitored atquarterly portfolio reviews, with remediation action taken wheredeemed necessary. · Risks to inflation and supply chain delays are being monitored and we are ready torespond. · Extensive control validation and assurance activities are performed over underwriting pricing andclaims. · 2020 Covid-19 actions have been effective and in 2021 we focused on supporting customers’ claims in linewith regulatory expectations andrelevant court rulings. Catastrophe risk Arises from the risk of large natural disasters,withour mainexposure being to North European windstorms and UK flood. · Our reinsurance programmesignificantly reduces our exposure to catastrophe risks, with historical losses being well covered by our programme. The programme is designed to cover at least 1-in-200-year events and is stress-tested for climatechange scenarios. ![]() RSA Annual Report and Accounts 2021 8 rsagroup.com Strategic Report GovernanceFinancials # Section 172(1) Companies Act # 2006 statement The Board has balanced the views and interests of our stakeholders, ## alongside the need to promote the long-term success of the Company. The Board has acted in a way that it considers, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole. This section sets out how the Board, in doing so, has had regard to the matters set out in Section 172 of the Companies Act 2006. A balancedand collaborative approachtostakeholder 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 collaborativedialogue and interactionis in the best interests of RSA and helps us to makea positive contribution to society. Throughout 2021, the Directors and senior management engagedwith key stakeholder groupsacross the business.These engagements were adapted as internal and external demands continued to impact the business, inparticular, completionof the Acquisitionand theongoing Covid-19 restrictions on operations and travel. The compositionof the Boardchanged significantly during2021 to reflect thechange to the Company’s scope and jurisdiction under itsnew ownership.The Boardremained committed to maintaining a range of direct and indirect engagement with its stakeholders and has approved the stakeholder engagement plan for 2022. As part of its decision-makingthroughout the year, the Board has considered and balanced the views and interests gained throughits stakeholder engagement, as well as the need to promote the long-term success of the Company. Customers Why the Board engages Good business starts withour customers and we strive to keep them at the heart of what we do. The Board works hard to increase its understanding of our customers’ risks so that we continue to provide tailored products and services that meet their diverse and evolvingneeds. Customer satisfaction and customer retention are critical to the long-term sustainable prospects of theCompany. How the Board engages The Board receives regular updates from senior management oncustomer and conduct matters and monitors andtracks KPIs on customer outcomes. In addition, the Board receives management information and updates from the UK Customer Committee,which ensuresgood customer outcomesare central to ourdecision-making. These updates keep the Board informed on customer priorities and key risks to the consistentdelivery of good customer outcomes, and future areas of focus. They help to ensure that theCompany has promoted and secured positive outcomesfor its customers. The Board ensured that it was well informed on how management was ensuring a customer centric androbustconduct culture during challenging and difficult times due to the Covid-19 pandemic. During the year, the Board received deep-dive updates from both the Managing Directorofthe Commercial Lines business and the Managing Director of the Personal Lines business. TheCommercial Lines update included afocuson broker feedback and customer expectations, includingthe increasing importance of retentionlinkedto price, service and value.The presentation on thePersonal Linesbusiness included customer and market insight and how the businessis respondingto customer expectationsaround customer service and digital offerings. The Board also received an update on RSA’s response to the FCA’s new rules on Pricing Practices and ProductGovernance,which will bring broad industry focus oncustomer outcomes. These business reviews havebeen a forum for the Board and management to discuss long-term strategic goals on customer matters. Long-term implications Customer satisfactionand retention are criticalto thelong-termsustainable prospects of RSA. The Board has engaged with and responded to the needs of customers with this in mind. During the second half of 2021, the Board was engaged in detailedstrategicanalysis and planning, and considering how any change in strategic focus will impact and benefit customers. ![]() RSA Annual Report and Accounts 2021 9 rsagroup.com Strategic Report GovernanceFinancials Workforce Why the Board engages The Boardvalues meaningful engagement with ourpeople and recognises thata healthy, transparent and open culture and empowered individualssupport our strategic objectives of excellent customer service and a high-performing workforce. We define our workforce as our employees, individuals on a contract for service and agency workers across the UK&I business. The Board recognises the central role that our workforceplaysin sustaining our positive culture and diverse capabilities as we continue to progress under new ownership. Much of the engagement of the Board in the first half of the year was focused on guiding our people throughthistransition. Followingcompletion of the acquisition,theBoard hassupported management’s communicationstrategy to ensure employees are engaged and informed on changes and opportunities for the business and its people as part of Intact. How the Board engages We know how important culture and shared values are to the success of an organisation and of setting the tone from the top. New Board members are inducted on the organisationalcontext,including briefings with the Director of HR. Culture is a Board level matter and during the year the Board received and supported a number of updates on people strategy and in 2022 approved the adoption of Intact’s purpose and values. RSA’s organisational structurechanged during 2021 following the Acquisition and to support the futurestrategicambitions of the business. Thishas included somechanges to senior leadership in the region. The Board reflected on the actions and precautions being taken to deliver these organisational changes and has been satisfied that management is appropriately considering and protectingthe well-being of our people. The Board continues to engage with the Executive Team and to support them inproviding reassurance and clear communicationsto employees. The Board has considered reports and updates from senior management with feedback from employees gained through various methods, includingmanagement group meetings with leaders across the business and HR-led people sessions, employee surveys and virtual ‘coffee chat’ discussion groups. The Board also reviewed updates on progress to achieve diversity and inclusion ambitions; forexample, enhanced UK family policies proposed bymanagement which were well received by employees. Direct engagement with the workforce was challenging during2021 due to ongoing changes in Covid-19-related restrictions. That said, Executive Directors have taken opportunities to engage by virtual means, such as aroundtablediscussion onthe topic of career progression between non- executiveDirectors and female colleagues on International Women’s Day, and town halls and Q&A sessions with colleagues. The Board has been engaged in key decisions to support the workforce during a period of heightened change, including hybrid (a mix of home and office) working arrangements and an accelerated pay review for UK employees. Long-term implications The Board understands that responding to our workforce’s needs and removing any barriers to enablement in evolving working environments are key to the long-term success of RSA. The Board has responded to the short and medium-term impact of Covid-19 on theworkforce andorganisational structural changes related to the change to the Company’s ownership. Regulators and rating agencies Why the Board engages RSA is regulated by the PRA and the FCA and committed to working withits regulators in an open, cooperative and transparent manner. We seek to ensure a strong regulatory compliance culturethroughout RSA in order to pre-empt and, where necessary, resolve regulatory issues and to avoid or minimise business impact andthe risk of customer harm. The Board continues to have constructive engagement with our regulators, ensuring that they gain a comprehensive view oftheGroup’s financial soundness, strategic andoperational priorities, governance andculture, and that we understand the issues of interest to them. The Board regularly engages with RSA’s regulators across all the regions that it operates. Due to the significance of the Acquisition, RSA’s regulators were informed of the arrangements and terms of the transaction. The regulatory capital requirements of RSA was a central topic of discussion withrelevant regulators as well as itscultureand governance,solvency, liquidity and treating customers fairly. The PRA and the FCA attended Board meetings in 2021 to discuss regulatory priorities. How the Boardresponds We believe that open and regular dialogue promotes transparency between the Group and its regulators and ensures that we are in a positionto reflect theviews of ourregulators when setting strategy. The outcomes of our engagement with our regulatorsinfluence RSA’s priorities and focus for the year are set out in the regulatory compliance plan, which is considered and approved by the Governance, Conduct & Remuneration (‘GCR’) Committee. Long-term implications The Board is committed to engagement with the Company’s regulators in order to ensure that we maintain positive relationships and take account of their views and interests. Environmental, Social and Governance issues Why the Board engages The Board is committed to high standards in ESG matters. This is manifested by our contribution to communities and how we work tomitigate the impactofour business onthe environment, in particular how we work with business partners, suppliers andcustomers in relation to our shared response to the challenges posed by climate change. How the Boardresponds The Board hasoversight of RSA’s policies on climate change and is engaged on how the business is supporting the transitioningtoa low carboneconomy. Further information on the Board’s oversight and engagement on ESG matters and its oversight of non- financial KPIs is set out in the ESG Report and Environmental Risk Management Report on pages 11 to 16. Long-term implications The Board recognises that stakeholders have an interest in understanding how our business is responding to issues that concern wider society. The Board has been particularly engaged inunderstanding both the near and long-term risks associated with climate change andin preparing our business torespond to the associated physical, regulatory, social and economic impacts. ![]() RSA Annual Report and Accounts 2021 10 rsagroup.com Strategic Report GovernanceFinancials ### Section 172(1) Companies Act 2006 statement continued Shareholders The Company’s ultimate owner is Intact Financial Corporation,a publiccompany listed on the Toronto Stock Exchange. During 2022, RSA adopted the purpose and values of Intact and is aligned with Intact’s strategic objectives to deliver outperformance and value for its shareholders. The Company’s Board has an equal balance of independent and non-independent Directors. There are three shareholder- nominated Directors on the Board; which supports theBoard’s understanding and integration with Intact. Further detailon thecompositionof the Board is included in the Governance Report on pages 21 and 22. Suppliers Our suppliers arecritical 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 havestructured supplier management practices in place across all regions and are investing in further tools and processes to manage risk in the supply chain and ensurethatour supplierrelationships are managed in acooperative and proportionate manner. Further detail on how we engaged with oursuppliers during the year is included on page 12 of the ESG Report. Pension schemes The Board continues to view the pension trustees as a key stakeholder group. In 2021, the UK pension trustees were provided with quarterly updates on RSA performance and offered meetings with RSA and Intact senior executives. RSA also continued to engage with and support the development of investment strategy in the pension schemes (noting that this is ultimately controlled bythetrustees). ![]() RSA Annual Report and Accounts 2021 11 rsagroup.com Strategic Report GovernanceFinancials ### ESG # Building a # resilient future ## As people and communities look to the future, our focus on helping ## them to navigate change and build resilience has never been more important Weare committed tointegrating key environmental andsocial issues with our business practices. The information contained in the Customer section of the Business Review on page 3, the ESG section and thePeoplesection inthe Directors’ report on pages 23 to 25 and our principal risks on page 7 form the non-financial informationstatement. We believe that strengthening relationships with colleagues, customers,suppliers and communities through addressing issues of mutual concern helps to create value that is sustainable andultimately benefitsboth RSA and the society in which we operate. The pandemic has surfaced social and environmental issues that were already important toour business,but havebeen given greater prominence as a result of the challenges faced byour employees, customers and communitiesduring this period. Our approach to ESG, articulated in our Confident Futures strategy in 2018, is one way RSA demonstrates the integrated approach we take to these important issues and the contribution we make to realising the UNSustainable Development Goals that are most relevant to our business. In 2022, we will review how this strategy should evolvetobenefit fromthepriorities, skills and ambitions of Intact. Environment The insurance industry is critical to helping people and communities to both understand and manage the impacts of climate change, particularly morefrequent and severe weather events, and the transition to a low carbon economy. We engage with the rapidly evolving approach to climate change by business and government through both our own direct actionand our activeengagement with sector groups suchas ClimateWise, the United Nations Principles forSustainable Insurance, and the ClimateFinancial Risk Forum.Alongside ourpeers, thesegroups provideRSA with theopportunity to develop and share best practice on reporting, new ways to integrate ESG concerns with ourstrategicdecision-making, and to innovate new products that will better serve thecommunity. Our Climate Change ActionPlan,first developed in 2019 and aligned with the PRA Supervisory Statement SS3/19 is a central component in ourapproach to embedding climate change in our risk framework. As a result of the plan we have put in place measures to manageclimate-related financial risks, with a number of actions now forming part of our BAU activity or being integrated with Intact’s new climate change strategy, which will be disclosed in 2022. In 2021, we completed detailed scenario analysis to determine the material financial impact of risks to our business from changes in the climate and submitted this to our regulator, the PRA, as part of the Climate Biennial Exploratory Scenario (CBES). The process ofcompletingour CBES submission has also helped us to both validate and update our Climate Change ActionPlan to ensure we are taking full account of the risks and acting to mitigate them through an integrated response. More on our approach tomanaging the risksassociated withclimate change can be found in our TCFD disclosure on pages 14 to 16. Wemaintainedour Climate Change and LowCarbon Policy position, first implemented in 2020, as a key tool to demonstrate our commitment to responsible investmentand underwriting. The policy is a framework for assessing the carbonintensity of ourScope 3 emissions and a baseline for long-term ambitions towards ourcommitmentto achieving Net-Zero by 2050. The policy will be reviewed in 2022 to assess whether there are opportunities to increase itsimpact and efficiency in supporting lowcarbon transition and ensure it continues to reflect the changing shape of our business as part of Intact. ![]() RSA Annual Report and Accounts 2021 12 rsagroup.com Strategic Report GovernanceFinancials ### ESG continued Carbon emissions from our operations have reduced this year by 13%, in part as a by-productof the changing work patterns caused by the pandemic. More details are available on pages 23 and 24 in the Streamlined Energy andCarbon Reporting (SECR) section. We have also maintained our leadership positionin theCarbon Disclosure Project (CDP) assessment with an A- score. Across the UK&I region, 55% of electricity for our premises is from renewable sources. In the UK this figure is 66%. Scope 1, 2 and 3 emissions data can be found on page 24 as part of our SECR report. Emissions from business travel wereonce again down compared to pre-pandemic levels, with a 65% reduction in carbon emissions frombusiness travel onthe previous year. Our employees are increasingly interested to understand how we can help them to makemore sustainable choices.Wehave installed chargersfor electricvehicles at our Chelmsford offices with installations planned forour offices in Horsham and Liverpool in early 2022. In 2021, chargers were installed in our Bristol office, with Birmingham and Peterborough to follow in 2022. In addition, our Executive Team agreed in 2021 that from March 2022 our Essential Car User policy will change so that all new vehicles supplied by RSA to employees will be low emission (<50g/km), either Plugin Hybridor electric vehicle. Communities Our community programmecontinues to harness the generosity and enthusiasm of employees to support some of the most vulnerable in society. Food distribution, education andlearning,mental health services and projectstocombat loneliness are among those having received more than £1.47 million in cash, the value of volunteering time and in-kind support. £0.87m of this total community contributionwasin theform of charitable donations fromRSA. We are particularly committed to leveraging our expertise and investment to improve risk education in schools, in the workplace and in thehome through abehaviour change programme. In the UK this includes a partnership with theRoyal Society for the Prevention of Accidents (RoSPA), targeted at over 65s to reduce the risk of falls in the home. The pandemic created challenges in delivering traditional areas ofour community programme; for example through in-person employeevolunteering.Our focusturned toalternativeprogrammes including the RSA Climate and Risk Education Grant Programme, whichutilisedfunds fromthe UK Dividend Forfeiture Scheme to donate to organisations tackling climate change and reducing carbon emissions or supporting risk education and behaviour change. In total we contributed £295k funds to 43 causes. Employee fundraisinghas increased 5% despite the challenges of delivering fundraising activities.Employees raised £66k for charitable causes,supplemented with anadditional£17k through ourmatched funding programme. In 2021, we also achieved the Charities Aid Foundation Silver Payroll Giving Mark for our GAYE scheme. 262 employees are signed up to this benefit in which RSA offers matched donations of up to £10/month, with participantsmaking an averagedonation of £28/month. RSA donated afurther £39,412 in match funding. As we emerge from the pandemic, we believe2022 offers an excitingopportunity torelaunch, reinvigorate andemphasise the importance of community engagement. Suppliers Our suppliers are critical to the service we provide to our customers and make an important contributionto our business. In 2021, we continued to engage with our suppliers throughstructuredsupplier management practices across all regions, establishing new or enhanced standards and sharing best practice. We are investing in new tools and processes to manage risk in the supply chain and ensure that our supplier relationships are managed ina cooperativeand proportionate manner. Our Claims SupplyChain team hascontinued toworkclosely with suppliers during the emergence from Covid-19 lockdowns to ensure that they could continue to offer services safely and in an environment where manypeople were isolating.We havemonitored the ongoingimpact of the pandemic on service levels and supplier confidence through surveysand other engagement tools. We improved our payment terms for motor repair and provided increased levels of support to repairers in recognition of both increased labour rates and energy costs affecting the sector. RSA iscommitted to the principles of the Prompt Payment Code, which recognises the key role that small and medium sized enterprises play in the local economy and the need to ensure costs are covered in a timely fashion. We aim to treat suppliers fairly and consistently – for example, by offering equivalent payment terms between suppliers, in order to build strong and lasting relationships. ![]() RSA Annual Report and Accounts 2021 13 rsagroup.com Strategic Report GovernanceFinancials Human rights As a signatory to the UNGlobal Compact, RSA iscommitted to aligning itsoperations with the ten universal principlesthattogether cover our approach to environment, human rights, labour andanti-corruption. Our Human Rights Policyis designed to operationalisethe Universal Declaration of HumanRights, the InternationalLabour Organization’s Declaration onFundamental Principles and Rights at Work, and the UN Guiding Principleson Business andHuman Rights. It sets the standard we expect for our employment practices, theactions of our supply chain, and principles we apply to our investment and underwriting portfolios. In 2021, we continued a programme of due diligence that monitors theapproach of our supply chain to human rights, tracks performance,and engages with suppliers to improve transparency where necessary. Supplier Relationship Managers have completedour e-learning module,which addresses the potential risks of modern slavery and human trafficking in thesupply chain, raises awareness of this issue among our people andthe circumstances under which theyshould seek specialist advice. Our procurement team considers human rights whenreviewingsupplier tenders, as well as existing supplier contracts. Our aim is to raise awareness of issues, ensure that procedures are in place to prevent breaches, and conduct appropriate due diligence. We are subscribers to the Financial Services Qualification System (FSQS) operated by Hellios – acommunity offinancial institutions collaboratingto agree a singlestandardfor managing suppliercompliance,including with ESG policy areas such as modern slavery and environmental impact. All relevant policies are reviewed on an annual basis,including ourModern Slavery and Human Trafficking Statement,which was published in March 2021 and is linked to a number ofpolicies that provide confidence we are helping to raise awareness of modern slavery among ourpeople 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 policywhich exists to ensure that appropriate assessments of risks associated with services are undertaken to meet our human rightscommitments; and our Speaking-up & WhistleblowingPolicy, which encourages our peopletoraise concerns, without fear of retaliation, about how we do business or operate as an employer. Our overarching approachto ensuring we are respecting and helping to fulfil human rights is foundin ourHuman Rights Policy. Further information onour approach to addressing modern slavery can be found in our Modern Slavery and Human Trafficking Statement:www.rsagroup.com Anti-bribery and corruption We do not tolerate bribery and corruption anywhere in our business. Our Anti-Bribery and Corruption Policy and Conflicts of Interest, Gifts andHospitality Policy apply across our business.Directors, peopleleaders and otherswith supervisory responsibility must ensure that employees,contractors, business partners and suppliers are aware of these policies and complywith them. The policies establish detailed guidance on facilitation payments, gifts and hospitality and relationships with third parties, as well as the systems and controls to ensure effective implementation. Allemployees,contractors, business partners and suppliers areexpected 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 ContractsPolicy, which set out requirements for payments to brokers and procurement activity. In 2021, all colleagues were enrolled in a mandatory e-learning training module coveringanti-bribery andcorruption. The training is an annual assignment to all staff and is translated into a number of different languages forour colleagues in different parts of the world. Employees are encouraged to identify and escalate concerns tomanagement orthroughour confidential third-party whistleblowing hotlinein 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 continuousimprovementtocontrols. The Audit Committee periodically reviews Internal Audit findings inrelationto our Anti-Bribery and CorruptionPolicy. ![]() RSA Annual Report and Accounts 2021 14 rsagroup.com Strategic Report GovernanceFinancials ### Environmental risk management # Task Force on Climate-related # Financial Disclosures (TCFD) Reporting in line with the recommendations of the TCFD helps us tomanage the impacts of climate change through our strategy and approach to risk management. The TCFDrecommendations provide guidanceforbusinesses on increasingdisclosure of climate-related information. RSA has adopted the TCFD recommendationsreporting on governance, risk management and business strategy to manage climate-related risksand low-carbon opportunities, targets andmetrics. Governance The Board is responsiblefor considering climate-related issues inbusiness plans, our exposureto climate-related riskstogether with opportunities for RSAto achieve energy efficiency and climate mitigationmeasures in its own business and supply chain, and support customers inthetransitionto a low-carbon economy. The Boardvia the Risk Committeereceives updates onthe implementationofRSA’s Climate Change ActionPlan,together with ourClimate Change and Low CarbonPolicyposition, andconsider how climate change risks and opportunities are addressed through theoperationalplan. Responsibility for climate change isintegrated into theroles andresponsibilities ofsenior managers across several key functions, including Finance, Underwriting, Investments and Risk. Our Director of Strategy has overall responsibility for the RSA UK&I’s Environmental Policyand shares responsibility for delivery of our Climate Change Action Plan and the risks it seeks to address with our Chief Risk Officer and our Director of Underwriting and Pricing. Our Director of Strategy chairs our ESG Committee, whichregularly updates our senior managers and the Boardon activities and progress against targets. Within each part of the RSA UK&I region, country-level senior management is responsible forensuring that the business strategy is executed and that our business planstakeinto consideration the operating environment and material risks and associated policies, includingin relation toclimate change. Our ESG Committee and our UK&I Corporate Responsibility Committee jointly oversee the relevantcomponents of ourESG strategy, including ourstrategic focuson responsible investment and underwriting and thesustainability ofour operations. This encompasses actions to respond to climate risksand opportunities,including minimising theimpact of our direct operations by setting targets and monitoring progress, and supporting thetransition to alow-carbon economy. Formore information onour approach to ESG, see pages 11 to 13. In 2022, we intend to align the RSA approach to climate change strategy with Intact. We will be reviewing our approach to governance of these matters to ensure they are fit for purpose. Strategy As an insurer, the risks and demands of a changing climate are of critical importance to our business,customers and stakeholders. The climate-related risksand opportunities outlined in this section are integrated into strategic decisions covering: · Corporate strategy – includingintegrating actions that respond to climate change into our five-year roadmap to ensure that our business evolves in a way that is consistent with ourresponsibilities under ESG. · Underwriting strategyand portfolio management – particularly in relation to physical risks and reinsurance decisions. · Reducingour own operational environmental impacts,including within our supply chain. · Investment decisions. · Riskmanagement governance, policies, processes and systems. ![]() RSA Annual Report and Accounts 2021 15 rsagroup.com Strategic Report GovernanceFinancials Managing physicalrisk RSA’s risk and operational teams regularly review the emerging risk landscape – analysingCompany-wide data, exposure and trends, and external research to identify a management approach to climate-related risks. Climate risk is well managed through our operationalpolicies and standards: · Annual policies mean we can respond to changing weather patterns. · Reinsurance provides protection against losses from severe weather events. · We work with our customers to promote measures that improveresilience to extreme weather. · We use weather peril models and geolocation tools to support sophisticated risk assessmentsand underwriting of residential andcommercial properties. Reinsurance is our primary means of reducing the financialimpactsofclimate-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 reinsuranceprogramme is designed to cover at least 1-in-200-year events and is optimised to mitigate the impact of extreme weather. We have tested the value and effectiveness of our reinsurance programme against a scenario of rapidly increasing severe weather, which has informed the Board’s decision onour forward-looking reinsurance strategy. Our operationalplanning processes also consider changing weather patterns. Using up-to-date catastrophe models andbuilding identifiable trends intoour weather planning, technical pricing andexposuremanagement are key parts of our underwriting guidance. Opportunities to support low-carbon transition Our Climate Change and Low Carbon Policypositionsetsout theimportant role we can play in helping society transition to a low-carbon economy. We seek to ensure that our business activities areconsistent with our commitment to support thedevelopmentof renewableenergy and other lower-carbon technologies through our products and services while limiting capacity available to and investments in certain fossil fuels. This policy, which came into effect in January 2020, formalises our position oninvestments and underwriting of carbon-intensive sectors. Wehold positions inrenewable energy insurance across our portfolio and our Commercial Lines business includes a team of specialist underwriters and risk engineers with the skills, technical knowledge and industry experience to handle construction and operation ofrenewable energy projects around the world. Asa result ofthe acquisition by Intactand newopportunities and challenges associated with the changing shape ofour business,our Climate Change and Low Carbon Policy will be reviewed to coincide withthe developmentof ournew climatechange strategy. We have an opportunity to influence our customers and suppliers to improve their resilience to climate change through risk management tools and advice. In 2021, we worked with Intact to develop a new climate change strategy forthe Group, one which isdesigned to foster positive approaches to addressing climate change across the value chain,includingultimately with customers,suppliers and inthe wider community. Scenario analysis RSA’s stress and scenario testing programmes aredesigned to helpthe business understand thepotentialfinancial consequences of complex riskevents,such as climate change, where the impacts will be broad, far-reaching and with a range of future outcomes. The use of climate scenario analysis to assess climate-related financial risks is a growing focus of insurance regulators and provides a valuable input to informstrategic business decisions. Global catastrophe risk is a material part of RSA’s risk profile, and extensive reinsurance arrangements are in place to manage and mitigate this risk. The results of ongoing scenario analysis highlight theimportance of reinsurance protectionto mitigate extreme weather events that occur over an extended period of time. Increased severity of weather events is likely to be well covered by our existing catastrophe reinsurance cover. The outcome of any scenario analysis is considered as part of RSA’s short- and long-term reinsurance strategy. The impactof transitionrisks associated with the 2°C scenario were limited as RSA’s investment portfolio is composed of high-rated assetswith minimalexposures to carbon-intensive sectors, as well as governmentbonds (Scandinavia, Canada, the US and the UK) issued by countries that areamong the highest ranking in the Notre Dame Global Adaptation Initiative (NDGAIN), climatechange adaptation rankings. During 2021, we were one of only 18 firms to participate in the Bank of England’s CBES exercise, which explored the financial risks posed by climate change and tested the resilience of thefinancial services sector. Subsequent management actionstomitigate the riskassociated withCBESclimate pathways are in line with the existing RSA Climate Change Action Plan, which was set in 2019. However, we have proposed that the remit of the Action Plan be expanded to captureadditionalactionsarising from the CBESexerciseon an ongoingbasis. Risk management Our enterprise-wide approach to risk management (covered in more detail on pages 4 to 7) ensures that the right processes and procedures are in place to identify, understand and monitor the risks associatedwith achanging climate across our operations. Climate risks feature on our emerging risk profile and are built into our risk control environment for assets and underwriting. Policies are reviewed to ensure that climate change is integrated into relevant requirements and controls. We have also integrated climate change into our UK&I Risk Appetite Statement and ORSA and will be refreshing this in line with the approach taken by Intact. The key climate-relatedrisks with thepotential toimpactour business include: · Increased operating costs from short-term changing weather patterns and increased severity of extreme events (physical, short term) –managed through underwriting actions and reinsurance. · Increased operating costs from damage caused by increased severity and/or duration of extreme weather events such as cyclone, floods, wildfire and/or cumulative gradual climaticchanges – forexample, in precipitation orsea level (physical,long term) –managed through underwriting actions and reinsurance. ![]() RSA Annual Report and Accounts 2021 16 rsagroup.com Strategic Report GovernanceFinancials ### Environmental risk management continued · Changes intheoperationalcost baseor claims profile due to new or unproven technologies associatedwith the switch toelectric vehicles, largerturbine size, battery storage (transition, medium term) – managed through actions designed to help us achieve netzero, underwriting actions and customer engagement. · Reduction in investment returns due to early retirement of assets, reduced demand for productsor increased costsofbusiness for carbon-intensive industries (transition, long term)– managed throughdiversified investment portfolio and risk appetite on carbon-intensive sectors. · Reduction in demand(and associated revenues) for insurance products/services due to increasing costs of premiums, reducing affordability (physical,long term) – managed through productoffering, innovationand portfoliomanagement. The key climate-relatedopportunities with the potentialtoimpactour business include: · Increasedinvestmentin renewable energy technologies,increasingdemand for renewableenergy insuranceand increasing revenue (transition, short/medium term)– managed throughproduct/service offering, renewables centre of excellence and our Climate Change and Low Carbon Policyposition. · Newproduct andservice offerings to provideinsurance for new technologies, resourceefficiency or infrastructure, such as electricvehicles,rail (transition, short/medium term)– managedthrough product/service offering, customer engagement and ongoingmarketanalysis. · Development of climate adaptation and resilience solutions (physical,medium term) – managedthrough product/service offering, risk management expertise and customer engagement. · Increased demand (and revenues) for insurance as changes to weather patterns increase public awareness of the need for cover (physical, long term) – managed throughproduct/service offering and customer engagement. Targetsand metrics We recognise the importance of understanding, measuring and managing the impact of our own operations. Our overall commitment is to achieve Net-Zero emissions by 2050 and halve operational emissions by 2030. These targets are part of an ambitious climate change strategy developed by Intact, which will be disclosed in 2022. In 2020, RSA achieved ‘Leadership’ level in CDP (formerly the Carbon Disclosure Project) increasing our score from B to A-. We retained a score of A- in 2021. This reflects the strategic approach we have adopted to managing climate-related issues. In 2021, the majority ofRSAoffices remained largely unoccupied untilthe gradual return of a form of hybrid working in Q3. We observed a reduction of 13% in our total carbon emissions and a65% reduction associated with business travel. More informationon how we measure the environmental impact of our own operations, including a breakdown of Scope 1, 2 and 3 emissions can be found in the Streamlined Energy and Carbon Reporting section on pages 23 to 24. We are committed to using the lessons from the pandemic to inform our approach to optimising the efficiency of corporate real estate and virtual working opportunities as we progress our ambition to continually reduce emissions fromour operations. Metrics2021 20202019 Weather and subsidence related losses £114m £85m£61m Weather and subsidence loss ratio 4.3% 3.2%2.2% Energy portfolio GWP in renewable energy 60% 37%57% Total carbon emissions (Scopes 1, 2 and 3) 4,977 tonnes CO 2 e 5,737 tonnes CO 2 e 9,997 tonnes CO 2 e Notes: All figures have been restated to account for the disposal of our Scandinavian businesses following the acquisition by Intact. The Canada portfolio and footprint will now be accounted for in the global figures for Intact. Weather-relatedlosses and weather-loss ratio figuresrepresent ongoing continued business, excludingthose areas which have been exited. These figures also exclude the impact of internal reinsurance between the UK&I business and the legacy RSA Group head office. This will no longer be in place from 2022 onwards. For notes relating to Scope 1, 2 and 3 emissions please see the section on Streamlined Energy and Carbon Reporting on page 24. Charlotte Jones Chief Financial Officer 11 March 2022 ![]() RSA Annual Report and Accounts 2021 17 rsagroup.com StrategicReport Governance Financials ### Directors and Executive Officers 1 Non-ExecutiveDirectors General Counsel & Secretary Mark Hodges Appointed 1 June 2021 Chair Alastair Barbour Sally Bridgeland Appointed 1 June 2021 Charles Brindamour Appointed 1 June 2021 (Shareholder-nominated) Clare Bousfield Claude Dussault Appointed 1 June 2021 (Shareholder-nominated) Robert Leary Appointed 1 June 2021 (Shareholder-nominated) Andy Parsons Appointed 1 June 2021 Executive Directors Ken Norgrove Appointed 10 January 2022 Chief Executive Officer 2 Charlotte Jones 3 Chief Finance Officer Jonathan Cope Appointed 1 June 2021 Independentauditor KPMG LLP 15 Canada Square London E145GL Registered office 20FenchurchStreet London EC3M3AU Company registerednumber 02339826 KenNorgrove Chief Executive Officer 2 Appointed 10 February 2022 Charlotte Jones 3 Chief Financial Officer Ken Anderson 4 Chief Financial Officer Appointed 1 January 2022 Karen Caddick HR Director Jonathan Cope General Counsel & Company Secretary Paul Dilley Chief Underwriting Officer Karl Helgesen Chief Claims Officer Dave Howell Chief Auditor Oliver Holden Chief Information Officer Appointed 21 February 2022 Louisa Leonard Chief Operating Officer Kay Martin Managing Director, Personal Lines Lee Mooney Managing Director, Commercial Lines Appointed 1 December 2021 AndrewPodd Chief Risk Officer Appointed 17 May 2021 Steve Watson Managing Director, UK Specialty Appointed 1 December 2021 Natalie Whitty Strategy, Communications & Marketing Director RachelConran CEO RSALuxembourg Kevin Thompson CEO RSA Ireland MartinRueeg CEO RSA Middle East Executive Committee (UK&I) 1.Changes to the Board and Executive Committee during the year are detailed on pages 21 and 22. 2.Subject to regulatory approval. 3.Charlotte Jones will leave RSA on 31 March 2022. 4.Ken Anderson has started to transition into his role and has been approved to take up his position as CFO and become an Executive Director of the Board from 1 April 2022. ![]() RSA Annual Report and Accounts 2021 18 rsagroup.com StrategicReport Governance Financials ### Corporate Governance Chair and CEO The roles of Chairand ChiefExecutive Officer are separate and clearly defined. The independent non-executiveChair is responsibleforthe Board’s overall effectiveness, promoting open debate and facilitating constructivediscussion. The Chair is responsibleforleading theBoard, its overall effectiveness and forfacilitatingconstructive debate and challenge. The CEO isresponsible for implementing the strategy and decisions of the Board and its committees and leading the Executive Committee. Sizeand structure An overview of thecompositionof the Board has been included on pages 21 and 22. The Board considers thatit has anappropriate combinationofskills, backgrounds, experience and knowledge, and that there is an effective balance of independent Directorsto ensureconstructive challenge. Balance and diversity Ensuring an appropriate balance of skills and experience has been a key focus of the Board. A thorough and detailed recruitmentprocess was undertaken to appoint three new independent non-executive Directors as well as a new CEO and a new CFO. This process required careful considerationofthe Company’s strategy and the interests of its key stakeholders. The Board has approved a Board Diversity Policy which is available to view on the RSA websitewww.rsagroup.com and sets the objective of a minimum of 33% of women on the Board and at least one Black, Asianor other ethnic minority Board member. The Board currently has three female Directors representing 30% of the Board. At the Executive level there are 6 females, representing 38% of the ExecutiveCommittee. 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-executiveDirectors bring a broad range of experience and skills which are highly relevant to the Company’s operations and sectors in which it operates. The shareholder-nominated Directors also bring experience and knowledge of the widerGroup. Effectiveness A governance framework has been established to ensure that independent decision-making by theBoard is clear. The Board has approved a Matters Reserved for the Board and adopted a Matters Reserved for the Shareholder, as approved by the Intact Board and independent non-executive Directors have been appointed who are fully independent from Intact as well as the RSA Group. On joining the Board, Directors are provided with atailored induction programme.With the high volume ofchange to the composition of the Board and within the Executive leadership team, detailed handovers were provided by the Chair, theCommittee Chairs andfrom the exiting Executive Directors to ensure effective handoversand continuity. The Board sets the strategy for the business and during the year has overseen a review of strategy for the Group’s new perimeter and role as part of Intact. The Board has received deep-dive presentations on both the CommercialLines and Personal Lines business areas. It has also received updates and reports throughout the year on the regulatory change agenda andoutcomes for customers. The Board conducts an annual review of its effectiveness, includingengagement of an external provider to carry out a review every three years. Due to the acquisition by Intact during 2021 and the appointment of a new Chair and non-executive Directors it was decided that an effectiveness review would not be undertaken in 2021 and that an externally-facilitated review would be completedin the second halfof 2022. Principle2: Board composition The Company became a wholly owned subsidiary of Intact on 1 June 2021. The Company re-registered as a private limited company on 26 May 2021 and in accordancewith TheCompanies (Miscellaneous Reporting) Regulations2018, the Company applied the Wates Corporate Governance Principles forLarge Private Companies (published by theFinancial Reporting Council in December 2018 and availableat www.frc.org.uk). For the period from 1 January 2021 to 1 June 2021 the Company appliedthe UK Corporate Governance Code. The values of RSA and Intact are strongly aligned and in February 2022 RSA formally adopted Intact’s purpose and values. Purpose Our purpose isto help people, business and society prosper in good times and be resilient in bad times. Values and culture In line with our purpose, the Company’s values are (i) integrity, (ii) respect, (iii) customer- driven, (iv) excellence; and (v) generosity. Our values are designed to guide our decision-making and everything that we do. They underpin how we seek to deliver for our customers and other stakeholders. Weare apeople-centred businesswhich aims for a culture of high performance, where working together as a team is valued and the businessinvests inits people. Thereare various mechanismsin place to monitorour culture, including employee surveysand cultural health assessments. Principle1: Purpose and leadership ![]() RSA Annual Report and Accounts 2021 19 rsagroup.com StrategicReport Governance Financials Accountability The Board is committed to effective governance, soundrisk management and a robust control environment. The Board considers that the foundation of an effective risk management framework is the cultivation of arisk culture that promotes accountability and openness. The Board periodically reviews and approves the Company’s governance documents including a System of Governance, UK Corporate Governance Framework,Delegated Authority Framework, and a suite of governance policies. The Board has also reviewed and adopted its ownconstitutional documents including the Matters Reserved for the Board and Conflicts of Interest policy. These documents setout thepolicies and practices that govern the internal affairs of the Company. The responsibilities ofthe Directorsare set out in their letters of appointment and role profiles. All Directors are expected to report any potential conflicts of interest. The Conflicts of Interest register is reviewed at every Board meeting and the Directors declare any actual conflicts of interest at each Board meeting. Board committees In order that it can operate efficiently and give the appropriate level of attention and considerationto relevant matters,the Board delegates certain activitiesto theAudit Committee,the Risk Committee andthe GCR Committee. The Chair and membership of eachCommittee iscompiled of non- executive Directors. Each Committee has terms of reference that have been approved by the Board which sets out its authority and responsibilities. Further information of the Boardcommittees including their membership and responsibilities can be found on pages 21 and 22 of this report. Integrity of information The Board receives regular and timely information on all aspects of the Company’s business. Thisincludes financial performance, strategy, performance against theoperational plan, internal audit, risk andcompliance, 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 totheBoard includesconsiderationofthe impact to stakeholders, where appropriate and includes an assessment of any potential risks to the success of the business.The Company’s financial statementsare audited by KPMGLLP on an annual basis. Opportunity The Acquisition wasthe focus of the Board during the first half of 2021, with the transactioncompleting on 1June 2021. The RSA Group strategy is aligned with the Intact’s purpose and strategy. RSA’s strategic opportunities were carefullyassessed and analysed during the second half of 2021 and those aspects decided upon have been incorporated into the 3 year Operational Plan. Any changes in strategic focus will be approved by the Board in 2022, following completionof this detailed programmeof work. Risk RSA’s Risk Management System provides a framework for the management of risks by management. The Board sets the risk strategy and appetite that articulates the level of risk the Board is prepared to take in delivering its strategic objectives. The Board delegates totheRisk Committeeoversightofboth current and emerging risks that the business faces. The UK&I CRO is a member of the ExecutiveCommittee.The Chief Risk Officer is supported by the Risk Function, which is responsible for providing expert review and challenge of Line 1’s management of risks within their own business units. There is a clear governance structure forthe oversight, management and escalation of risks that fall outside of risk appetite. This structure relies on clear processes and a risk culture that promotes accountability and openness. A Governance Committee of seniorleadership across the business is in place to oversee the Group’s suite ofpolicies,reviewofthe system of governance and the UK’s corporate governance framework to ensure these remain effective and appropriate for the needs of the business. Further details on risk management are included inthe RiskManagement section on pages 4 to 7. Responsibilities The Matters Reserved for the Board states that the Board will: · Approve the Group’s overall risk appetite and high-level business strategy, including portfolio risk, claims management and financial controls,and capital management. · Approve the Group approach to Own Risk Solvency Assessment (ORSA). · Review the effectiveness of the Group’s system of risk management and internal controls, including allmaterial controls, and includingfinancial,operationaland compliance controls. · When consideringthe Group’s overall strategy and risk appetite, understand, assess and have oversightof the financial risks andimpact associated with climate change thataffect theCompany. The Risk Management Internal Controls Policydocumentsthe requirementsfor the identification, measurement, management, monitoring and reporting of all risk types. It sets out the processes and procedures for the effective operation of the Risk Management and Internal Control systems. The Risk Committeesupports the Board to ensure that the key risks to the Group are identified, understood and effectively managed within risk appetite. The Risk Committeeadvises theBoard on risk managementmatters,including solvency needsand therisk management arrangements fortheGroup. Itmonitors the Group’s solvency by reviewing the outputs of the ORSA process, the Internal Model and conclusionsof modelvalidation, making recommendationsto theBoard on capital adequacy. The Risk function,alongside thebusiness functions and Conduct& Risk function facilitate the determinationofthe principal risks facing thebusiness, throughapplication of the Risk Management Framework and the Conduct Risk Framework. These are subject to debate and challenge by various management committees andthe Risk Committee, as well as plans to mitigate and manage high and medium rated risks. There areclear internal communication channels on theidentification of riskfactors. Externally, the Group’s risk profile is outlined in the Annual Report and the Solvency and Financial ConditionReports of its regulated insurance subsidiaries. Principle4: Opportunity and risk Principle3: Director responsibilities ![]() RSA Annual Report and Accounts 2021 20 rsagroup.com StrategicReport Governance Financials Prior to 1June 2021, the Group Remuneration Committee wasresponsiblefor the oversight of remunerationprinciples, policy and practices for RSA Insurance Group plc, as well as determining policy and setting remuneration in respect of the Chair of the Board, Executive Directors and other executives within its scope. The Group RemunerationCommittee dischargedits responsibilitiesin linewith the UK Corporate Governance Code. Since 1 June 2021, the GCRCommittee has assumed theseresponsibilities. Membership of the GCR Committee is set out on page 22 and includes independent non-executiveDirectors. TheGCR Committee discharges itsresponsibilities in line withthe Wates Principles. Policies The GCR Committee ensures appropriate remunerationarrangements arein place throughthe adoptionofa Remuneration Policy, which is designedtosupport the business strategy byappropriately rewarding performance and promotingsound and effectiverisk management, compliance with external regulatory requirements and alignment to long-term interests of the Company. Setting remuneration The remuneration principles that the Committee followsare: · Competitiveness andcost effectiveness: remuneration packages are set at competitive levels to attract, retain and reward high calibre talent in the context of marketconditions. · Fair-minded:appropriate reward complying withprinciples ofgood risk management (includingdeferral andmalus arrangements), inclusivity and avoiding conflictsofinterest and unconscious bias. Information on our Gender Pay Gap figures and our actions in this area can be found at www.rsagroup.com.The Companyhas been accredited by the UK’s Living Wage Foundation as a Living Wage Employer since2016. · Payfor performance:variable remuneration thatstronglyaligns employees with shareholders and/or is fully contingent on the achievement ofstretchingobjectives which support strategic priorities and adherence to ourorganisational 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 aperformance-related bonus, andthose in the UK and Ireland can participate in all- employeeshare plans. General remuneration arrangements for our employees (for example, salary increases and pension and incentiveopportunities)are considered by the GCR Committee whendetermining total remuneration for senior executives. Consideration is also given to the reputational and behavioural risks to the Company that can result from inappropriate incentives and excessive reward and the GCR Committee can adjust based on consideration of risk factors. Asignificant proportion ofsenior- levelremunerationis variable, long term and at risk,withan emphasis onshare-based remuneration; bonus deferralis operated (and also where required by Solvency II), as is participation inthelong-term incentiveplan. Remunerationfor the RSAChair, Executive Directors and heads of key governance functions is set in agreement with Intact. Intact’s compensation framework can be found at www.intactfc.com. PricewaterhouseCoopers (PwC)is appointed by the Committee as its independent adviser. PwC is a member of the Remuneration Consultants’ Group and asignatory toits Code ofConduct. Inaddition, the Committee has satisfied itself that the advice it receives is objective and independent as PwC has confirmed there are no conflicts of interest arising between it, its advisers and RSA. External impacts The broadsocial impact and responsibility of the Company to its customers is core to the policies and practices of the Group. The key objective of the Group is to ensure good outcomes for customers, and this is a central principle of the Board decision- making processes. Further information ontheGroup’s approach to ESG matters can be found on pages 11 to 13. Stakeholders The Group hasa numberof material stakeholders,which includesits workforce, customers, partners and brokers,suppliers and regulators. Information onthe Group’s stakeholder relationships and engagement can be found in the s172 statement on pages 8 to 10 of the Company’s Strategic Report. The Board and its committees An overview of theresponsibilities ofthe Board and its committees for the year ended 31 December 2021 is set out on pages 21 and 22. ### Corporate Governance continued Principle5: Remunerationdecisions Principle6: Stakeholder relationships and engagement ![]() RSA Annual Report and Accounts 2021 21 rsagroup.com StrategicReport Governance Financials The Board and its Committees The Board Since 1 June 2021, the Board has been led by Mark Hodges, the independent non-executiveChair of theCompany. The Board is composed of the independent non-executive Chairman,seven non-executive Directors and two Executive Directors. The primary responsibility of the Boardis to provide effective leadership to ensure it promotes the success oftheCompany for the benefit of all stakeholders. Committees The Board has established a number of committees to which ithas delegated responsibility foroversight of some of its activities, as detailed below. Eachcommittee has adopted Terms of Reference, which are reviewed annually, and any changes are approved by the Board. Audit Committee Members: Clare Bousfield (Chair), Robert Leary, Alastair Barbour, Andy Parsons The Audit Committee is acommittee of the Board. Membership of the Committee iscomposed offour non-executiveDirectors,one ofwhom acts asChair. The Committee members have experience and competence in accounting,auditing and withinthe insurance sector. Atthe invitation oftheCommittee, the Chairman, ChiefExecutiveOfficer, Chief Finance Officer and representatives from functions withinthebusiness attend toadvise the Committee, including from Finance,the external auditors,the Headof Internal Audit (Corporate Audit Services)and a representativefromthe Corporate Audit Function of Intact.The AuditCommittee plays an important role in assisting the Board in its oversight and monitoring of theCompany’s financial statementsand therobustness of RSA’s systems of internal control. The Committee oversees theeffectiveness and objectivity ofthe internal andexternal auditors. The Audit Committee is responsible for: · Monitoring the financial reportingprocess and making recommendations or proposals to ensure itsintegrity. · Monitoring the effectiveness of internal quality controland riskmanagement systems and internal audit. · Monitoring the statutory auditofthe financial statements. · Reviewing and monitoring the independence of external audit. · Reporting to the Board the outcome of the external audit andthe integrity of financial reporting. Auditor tenure The Committee isresponsible for overseeing relationswiththe external auditor, including the proposed external audit plan andthe approval of fees and the Committee assesses the independence and effectiveness of the external auditor each year and makes a recommendation to the Board on their appointment or re-appointment. KPMG was appointed as the Company’s external auditor in 2013 and has been re-appointed at each subsequent AGM. During the year, the Committee considered its positionon the external audit services contract and following engagement with the Company’s regulator received dispensation from the need to conduct a tender in 2022 due to the context of the Acquisition by Intact and timing of IFRS 17 implementation.The audittender is expected to take place in 2023. The Companyhas complied with the Statutory Audit Services for Large Companies Market Investigation (Mandatory Uses of Competitive Tender Process and Audit Committee Responsibilities)Order 2014 for the year ended 31 December 2021. Risk Committee Members: Robert Leary (Chair), Clare Bousfield, Andy Parsons, Sally Bridgeland The Risk Committeeis acommittee of the Board.Membership ofthe Committee comprises four non-executive Directors, one ofwhom acts as Chair oftheCommittee. The Risk Committeehas apivotalrolein 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 Committeeis responsible for: · Advising the Board on risk management matters,includingsolvency needs. · Overseeing the risk management arrangements of the Group. · Monitoring theemerging and principal material risks facing theGroup, 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 recommendationsto theBoard oncapital adequacy and the ORSA Report. · Reviewing the Company’s investment strategy framework and investment portfolio disposition andperformance to ensure these remain within risk appetite and consistent with theCompany’s investment strategy. · Oversightofthe Risk function. ![]() RSA Annual Report and Accounts 2021 22 rsagroup.com StrategicReport Governance Financials Governance, Conduct& Remuneration Committee Members: Alastair Barbour (Chair), Claude Dussault, Sally Bridgeland The GCR Committee is acommittee of the Board.Membership of the Committee comprises three non-executive Directors, one ofwhom acts as Chair oftheCommittee. The Committee plays animportant role in assisting the Board in its oversight of customer, conductand compliance matters and has oversightofthe robustness of the governance framework andinternal policies for the RSAGroup. The Committee is responsible for theoversight of Remuneration Policy and ensuring this promotes the long-term sustainable success of the Company. This includes reviewing and setting the remuneration of Executive Directors and the Chairman of the Board. The RemunerationCommittee alsoreviews workforce remuneration andrelated policies and the alignment of incentives and rewards with culture, and takes these into account when setting the policy for Executive Director remuneration. TheCommittee appointed PwC as its independent adviser during theyear. The Committee alsohas oversight of customer and conduct risks. Executive Committee The ExecutiveCommittee isthe management committee that assiststheChief Executive Officer in discharging his responsibilities and delegated authority. The previousGroup Executive Committee was disbanded following theAcquisition.It isnota committee of the Board. The ExecutiveCommittee iscollectively responsible for implementing strategy and delivering performance. The members have a broad range of skills and expertise that are updatedthroughtraining anddevelopment. Membership of the Executive Committee is set out on page 17 and comprises Ken Norgrove and Charlotte Jones, as well as the Chief Executive Officers of the European, Ireland, andMiddle East businesses and key functionaland business leaders. On 31 December 2021, Scott Egan stepped down as Chief Executive Officer and left RSA. Ken Norgrove was appointed as Chief Executive Officer effective 10 January 2022 (subject to regulatory approval). Charlotte Jones acted as interim Chief Executive and supported thetransition. Following the reorganisation of the Commercial Lines business intheUK to align LondonMarkets withIntact’s Global Specialty Lines business, RobGibbs left RSA effective 31 December 2021. Lee Mooney and Steve Watson were appointed to the ExecutiveCommittee as ManagingDirector, Commercial Lines andManaging Director, UK Specialty, respectively, on 1 December 2021. David Germain, ChiefInformation Officer, left RSA effective 30 November 2021. Oliver Holden joined RSA as Chief Information Officer and a member of the Executive Committee on 21 February 2022. ### Corporate Governance continued ![]() RSA Annual Report and Accounts 2021 23 rsagroup.com StrategicReport Governance Financials Going concern The consolidated financialstatementshave been prepared on a going concern basis. In adoptingthe goingconcern basis, the Board hasreviewed theGroup’s ongoing commitmentsfor the next twelve months and beyond. The Board’s assessment included the review of Group’s strategic plans and latestforecasts, capitalposition and liquidity includingon demand capital funding arrangements with Intact Financial Corporation. The impact anduncertainty as a result of the Covid-19 pandemic, rising inflation, and the transition to a post Brexit environment has also been considered. These assessments include stress and scenario testing and consider significant areas of risk and uncertainty for the Group in the current challenging economic environment. Scenarios considered includea market risk shock involving severalcomponent stresses, plus deterioration oftheunderwriting result and a subsequent catastrophe loss. Climate stress testing has also been completed. In making their assessment, the Board have reviewed thelatest position on business interruption lossesand availability of reinsurance to recover incurred claims and there have been no significant changes. The Board have considered the impact of events after the balance sheet date with none identified which couldimpact theGroup’s ability to continue as a going concern. Based on this review nomaterial uncertainties that would require disclosure have been identified inrelation to the ability oftheGroup to remain a going concern for at least the next twelve months, from both the date of the consolidated statement of financial position andtheapproval of theconsolidated financial statements. Share capital More informationon the Company’s share capital can be found in note 34 on page 88. Preference shareholders are only entitled to receive notice of, attend, speak and vote at general meetings if the dividend payable on the preference shares is in arrears at the date of the Notice, a resolution is proposed that affects the rights of the preference shareholders, a resolution is proposed to wind-up the Company, a resolutionis proposed to reducethe capital of the Company (other thana redemption or purchase of shares), or in such other circumstances as the Board shall determine. In any of these situations, the preference shareholders mayonly vote onthe relevant resolution and not on all the business of the general meeting. Streamlined Energyand Carbon Reporting We have reported on all sources of greenhouse gas (GHG) emissions asrequired by the Companies Act 2006 (Strategic Report and Directors’Report) Regulations 2013 and theCompanies (Directors’ Report) and LimitedLiability Partnerships (Energy and Carbon Report)Regulations2018. Our reporting has been conducted in accordance withtheWorldResources Institute’s GHGProtocol Corporate Accountingand Reporting Standard. Wehave consolidatedour organisational boundary according to the operational control approach,which includes emissions fromall operations with 50 or more full-time equivalent employees. Where data is not provided by an operating entity, values have been estimated using either extrapolationofintensities from similarsites withinRSA orusing the previous data as a proxy. All conversion factors havebeen sourced from recognised publicsources,including the UK’s Department for Business, Energy & Industrial Strategy, theInternational Energy Agency and the GHG Protocol’s stationary combustion tool. The 2021 data covers the period 1 January to 31 December. Data from 2021 and previous years has been restated to account for the disposal of RSA’s Scandinavian business. Emissions from our legacy Canadian business will now be reflected in Intact’s global reporting ofits environmental footprint. Intacthas committedtoNet-Zero emissions by 2050 and halving operations emissions by 2030. We are integrating global carbon emissions data and reporting systems with Intact and will disclose a new climate change strategy in 2022. Data has been subject to quality control by our external carbon footprint verifiers and consultants,EcoAct.EcoAct has supported RSA inour GHGemissions disclosures for five years. As we consolidate our approach to the capturing of environmental data across Intact and reconcile the potential impact of associatedcarbon reductionstrategiesacross the global business we have postponed assurance in 2021. We will resume assurance in 2022 once our Group-wide climate change strategy and associated systems are in place. ### Report of the Directors Directors Following theacquisitionofthe Company by Intact and the de-listing of the Company’s ordinary shares from the London Stock Exchange,the composition of theBoard was reviewed and it was agreed that on 1 June 2021 the following Directors would resign fromtheBoard of theCompany: MartinScicluna, Stephen Hester, Kath Cates, Enrico Cucchiani,Sonia Baxendale and Martin Strobel. The following individuals were appointed as Directors of the Company: Mark Hodges (as Chair), SallyBridgeland, Andy Parsons, Charles Brindamour, Claude Dussault and Robert Leary. Alastair Barbour (appointed October 2011) and Clare Bousfield (appointed April 2020) remained on the Board. Clare Bousfieldhas indicated her intention to step down as a Director of the Board and Chair of the Audit Committee in Q1 2022. A new independent Non-executive Director will be recruited to join the Board in 2022. Alastair Barbour remained on theBoard following theAcquisition to provide continuity and experience on the Board. Alastair intended to step down during 2021 having served on the Board for over 10 years. However, the Board requested that Alastair continue as a Director for a further year. The Board remains confident that Alastair continues to demonstrate independence of thoughtand judgement. Charlotte Jones will step down as CFO and a Director of the Board on 31 March 2022. She will be succeeded by Ken Anderson with effect from 1 April 2022. Scott Egan stepped down as CEO and a Director of the Board effective 31 December 2021. Ken Norgrove was appointed as CEO and a Director of the Board effective 10 January 2022 (subject to regulatory approval). Corporate GovernanceStatement An overview of thecorporate governance code applied by the Company is set out in theCorporate Governance Report on pages 18 to 20. Dividend No interim dividend was paid during the year ended 31 December 2021. The Company paid a dividend to its preference shareholders during the period and also declared a dividend in specie of £6,914m. The Directors do not recommend the payment of a final dividend for the year ended 31 December 2021. ![]() RSA Annual Report and Accounts 2021 24 rsagroup.com StrategicReport Governance Financials ### Report of the Directors continued tCO 2 e emissions 2021 2020 1 2019 1 2018 1 2017 1 Scope 1 1,546 1,434 2,184 1,704 2,078 Scope 2 (location-based LB ) 2,840 3,160 4,218 4,903 6,227 Scope 2 (market-based MB ) 1,914 2,033 N/AN/AN/A Scope 3 591 1,142 3,596 4,075 3,902 Business travel 285 811 3,226 3,658 3,503 Total emissions (Scope 1, 2, 3) LB 4,977 5,737 9,997 10,682 12,207 Total emissions (Scope 1, 2, 3) MB 4,051 4,610 N/AN/AN/A Intensity ratio: Gross tonnes CO 2 e per FTE LB 0.87 0.89 1.531.611.81 Gross tonnes CO 2 e per FTE MB 0.70 0.72 N/AN/AN/A Global energy use (kWh) 2021 2020 Electricity, district heatingand cooling 17,962,864 19,001,387 Gas consumption 7,975,731 7,376,613 Transportation– vehicles 930,564 1,513,683 Totalenergyuse 26,869,159 27,891,683 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 inmethodology(including updated emissionsfactors). The GHG referenced in the table cover: Scope 1:Direct emissions from RSA’s activities, including natural gas consumption, diesel and company-owned vehicles. Scope 2:Indirect emissions from purchased electricity, district cooling and district heating. This year we are reporting Scope 2 emissions according to two different methodologies (dual reporting): (i) the location- based method, using average emissions factors for the country in which the reported operations take place; and (ii) the market-based method, which uses the actual emissions factors of the energy procured. Scope 3:Emissions relating to RSA activities not within our direct control, including business travel, water supply, wastewater treatment, paper consumption and waste generated. These are the only Scope 3 categories included. Business travel: Emissions from flights, trains and vehicles not owned by the organisation. Among carbon reduction activities explored in the Environment section on pages 11 and 12, this year our Corporate Real Estate teams have been reviewing the practicalities of installing electric vehicle (EV) charging points at our sites. Our Chelmsford office now has nine spaces available forEV charging with a rollout plan in 2022 for Horsham and Liverpool. In addition, chargers have been installed in Bristol withBirmingham and Peterborough expected to follow in 2022. We are reporting our Scope 2 market-based emissions to reflect our purchase of REGO- backedrenewable electricity at UKsites where we are directly responsible for energy procurementor have engagedwith landlords to switch to a renewable supply. Across the UK&I region 55% of electricity for our premises is from renewable sources. In the UK this figure is 66%. Charitable donations During theyear donations to charities were made amounting to £0.87m. No politicaldonationsweremade during theyear. Conflicts ofinterest 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,conflictsofinterest may be authorised by the Board or a Board committee. Directors are required to notify the Company Secretary when a potentialconflict 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 notcounttowardsthequorum 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, restrictionsmay beimposed on the conflicted director, such as excluding the directorfrom the discussion or restricting the receipt of information inconnection with theconflict of interest. The Board confirms that it has reviewed the schedule of directors’ conflicts of interest during the year and that the procedures in place operated effectively in 2021. None of the Directors had an interest in any contract of significance with the Company or any of its subsidiaries during 2021. The Board also considers at each meeting whether there is any potential conflict of interest for the shareholder-nominatedDirectors. Directors’ Indemnity Article 84ofthe Articles ofAssociation 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 hasgranted an indemnity to each of the directors pursuant to the power conferred by Article 84.1 of the Articles of Association. The indemnities grantedconstitute qualifying third-party indemnity provisions, as defined by section 234 of the Companies Act 2006, and is inaddition to appropriateinsurance cover. The Companybelievesthatit promotes the success of the Company to provide this indemnity to its Directors in order to ensure that RSA attracts and retains high calibre Directorsthrough competitivetermsof employment in line with market standards. The Directors and officers of the Company and itssubsidiaries also havethe benefitof Directors & Officers insurance which provides suitable cover in respect of legal actions broughtagainst them. In addition,the Company maintains apension trustee liability insurancepolicy for the directors of SAL Pension Fund Limited and Royal & Sun Alliance Pension Trustee Limited, subsidiaries ofthe Group, inrelation to such person’s role as a trustee of an occupational pension scheme.This insuranceconstitutes a qualifying pension schemeindemnity provisionunder section235 oftheCompanies Act 2006. These insurances were in force during the year ended 31 December 2021 and remain in force as at the date of this report. Workforce and stakeholder engagementstatements An overview of how the Directors have fostered relationswith the Company’s suppliers, customersand other key stakeholders is included in the Company’s s.172 statement on pages 8 to 10 of the StrategicReport. Further information onworkforce engagement, as required by the Companies Act 2006 is also included below under Our people. ![]() RSA Annual Report and Accounts 2021 25 rsagroup.com StrategicReport Governance Financials Our people The Board and members of the Executive Committee engaged extensively with colleagues via town halls and internal communications includingemails and intranet postings to provide updates, where possible,on theacquisitionofRSA by Intact. Following completion oftheAcquisition, Intact and RSA’s Chief Executive Officers have hosted live webinars and Q&A sessions for all colleagues to provide updates on RSA’s integrationwith Intact, strategic ambitions and key factors affecting the structure and performance of theCompany. Our people have always been central to achieving our core purpose,and our culture of support for personal well-being,diversity and equal opportunity to excel is important to us. This is underpinned by Company-wide HR policies and ourPeoplePrinciples of: Building High Performance, SustainingDiverse Capabilities andWorking Together Effectively. Building HighPerformance We believe in enabling our people to bring their best selves to work. We encourage continuousfeedback anddevelopmentand haveformal biannualreviews for employees and theirmanagers to discussbusiness goals and performance, as well as an opportunity to talk about career plans. Formal reviews generate ratings which take into account ‘what’ has been delivered along with ‘how’ and contribute to reward decisions. This ensures that ourvalues-basedculture and the way we do things have equal status with end resultsand support individuals in driving their personaldevelopmentplans. As development can take many forms and evolve over time, we offer a range of options such as apprenticeship and leadership programmes, technical career pathways, online training, coaching and mentoring. These run fromentry-level roles right through to degree and masters qualifications. We take time to share and celebrate achievements by our people within theCompany andin the community through year-round peer recognition schemes. In the UK,Europe and Ireland, senior leaders also host events to showcase the stand-out behaviours of individuals who were nominated by peers for special recognition. In 2021, our people made just over 3,500 nominations for this special recognition. Sustaining Diverse Capabilities Having experienced the benefits of diverse opinions and perspectives, we continue to promote inclusivity, including ensuringthere is no less favourable treatment on the grounds of sex,sexualorientation, gender re-assignment, marital orcivil partnership status, race (includingcolour, nationality, ethnic ornationalorigin), disability, religion or belief, age, and pregnancy and maternity, and that reasonable adjustments areprovided for peoplewith disabilities who are applying to or already working with us. An executive-ledDiversity & Inclusion Council oversees our diversity strategy which aligns to ourcommitments as signatories to the Women in Finance Charter, Race at Work Charter, the 10,000 Black Interns Programmeand theValuable 500. Our network of Employee Resource Groups, mental health first-aiders and membership of the UKBusiness Disability Forum contribute to how we can best support colleagues. These groups are incredibly well-received in thebusiness and participation isstrong. For example, weenhanced UK support for parents and carers, and ‘listening groups’ with ourUK Black,Asian and otherethnic minority colleagues and contributed to training on Inclusive Language & Communications, Understanding Race Bias and focused Anti-racism & Allyship sessions with leaders. Working Together Effectively Company-wideEmploymentPractices and Speaking-up & Whistleblowingpolicies set out thestandardsfor localpeople policies and practices and are reviewed annually via our risk governance which is reviewed at Board level. We believe in transparency; therefore all colleagues haveaccess to confidential procedures to raiseconcerns impacting them personally and anybroadersuspicions of wrongdoing within the Company. In addition, we promote many communication channels and also welcome views from our workforce throughregular and constructive dialogue with trade unions and a European Works Council.These range from formaltoinformal mechanisms to support an open andinclusive culture where speaking up and having a voice is at the heart of how we operate. Scores from 2021 employee surveys in each of our countries range from 74% to 81%, which indicates ourpeople are highly engaged. Areas of particular strength were our inclusive culture and solid understanding of goals. Covid-19 meant a significant shift in the way we work and our colleagues rallied to this. As we look forward, we are taking onboard employeefeedback for sustainedflexibility in the long term. We are developing hybrid working (a mix of home and office bases) which strikes a balance in patterns that work for individual employees and serve our customers well. We trust our people to deliver good outcomes forour customers andour business, regardless ofwhere they work; we have learned that we can collaborate and solve problems wherever we are. As always, protecting the health, safety and well-being of colleagues is a priority and this will continue to be at the top of our agenda by listening to our people, understanding what they need to be effective at work and providing resources for practical and emotional support. Our transition as part of Intact provides opportunities tobuildon our ambitions. Equally, we recognise that change can sometimes also create uncertainty; therefore guiding our people through this is front of mind.We have already completed significant integrationactivitiesfollowing theAcquisition and identified ways to share best practice between Intact and RSA. We look forward tofurther developing these as the alignment of values and ways of working bed down further in 2022. Modernslavery 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. Managementreport The Strategic Report is considered to form the management report forthe purpose of DTR 4.1.8.R. Directors’ Report The Directors’ Report for the year ended 31 December 2021, was approved by order of the Boardand signedon itsbehalf. Jonathan Cope General Counsel and Company Secretary 11 March 2022 ![]() RSA Annual Report and Accounts 2021 26 rsagroup.com StrategicReport Governance Financials Table of contents Directors’ responsibilities27 Independent auditor’s report28 Primary statements36 Basisofpreparation andsignificant accounting policies 1Basis of preparation41 2Significant accounting estimates and judgements42 3Adoption of new and revised accounting standards43 4New accounting standards, interpretations and amendments yet to be adopted43 5Significant accounting policies44 Risk andcapital management 6Risk and capital management50 Significanttransactionsand events 7Discontinued operations59 8Loss on disposal of businesses61 Notes to the consolidated income statement, consolidated statement of comprehensiveincomeand dividends 9Operating segments62 10Net investment return64 11Net claims64 12Other operating income64 13Other operating expenses65 14Finance costs65 15Employee expenses65 16Directors’ emoluments66 17Related party transactions66 18Auditor’s remuneration67 19Income tax67 20Share-based payments69 21Dividends paid and proposed71 22Total other comprehensive income71 Notes tothe consolidated statement of financialposition 23Goodwill and intangible assets72 24Property and equipment74 25Investment property76 26Financial assets76 27Fair value measurement80 28Interests in structured entities84 29Reinsurers’ shareof insurance contract liabilities84 30Insurance and reinsurance debtors85 31Current and deferred tax86 32Other debtors and other assets88 33Cash and cash equivalents88 34Share capital88 35Other equity instruments – Tier 1 notes89 36Non-controlling interests89 37Issued debt89 38Other borrowings90 39Insurance contract liabilities90 40Insurance andreinsurance liabilities95 41Post-employment benefits andobligations96 42Provisions101 43Other liabilities102 44 Leases102 Notes to the consolidated statement of cash flows 45Reconciliation of cash flows from operating activities105 46Reconciliationofmovements of liabilities arising from financing activities105 Other commitments, contingent liabilities and events after the reporting period 47Other commitments106 48Other contingentliabilities106 49Events after the reporting period106 Appendices AOther accounting policies107 BExchange rates110 CSubsidiaries and associates111 DJargon buster and alternative performance measures reconciliations 113 ParentCompanyfinancialstatements Primary statements117 Notes to the Parent Company financial statements 1Basis of preparation120 2Significant accounting estimates and judgements120 3Adoption of new and revised accounting standards120 4Significant accounting policies120 5Risk and capital management121 6Related party transactions121 7Share-based payments122 8Dividends paid and proposed122 9 Investments122 10Current and deferred tax123 11Other debtors and other assets124 12Share capital124 13Tier 1 notes124 14Issued debt124 15Events after the reporting period124 ### Group consolidated financial statements ![]() RSA Annual Report and Accounts 2021 27 rsagroup.com StrategicReport Governance Financials The directors areresponsiblefor preparing theAnnual Report and the RSA InsuranceGroup 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 suitableaccounting policies andthen applythem consistently · Make judgementsand estimates thatare 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 disclosewith reasonable accuracyat any time thefinancial position oftheParentCompanyand enable themto ensurethatits financial statements complywith the Companies Act 2006. They areresponsiblefor suchinternal control astheydetermine is necessary to enablethe 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 areresponsiblefor the maintenance and integrity ofthecorporate and financialinformation included on the Company’s website. Legislationin the UK governingthe preparationand dissemination of financial statements may differ from legislation inother jurisdictions. Responsibility statement We confirm that, to the best of our knowledge: · The financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets,liabilities,financial position and profitor loss of the Parent Company and the undertakings included in the consolidation taken as a whole. · The Strategic Report includes a fair review of the development and performance of the business and the position of the Parent Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. We consider the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders toassess theGroup’s position and performance, businessmodel and strategy. ### Directors’ responsibilities KenNorgrove Group Chief Executive 11 March 2022 Charlotte Jones Group ChiefFinancial Officer 11 March 2022 ![]() RSA Annual Report and Accounts 2021 28 rsagroup.com StrategicReport Governance Financials ### Independent auditor’s report to the members of RSA Insurance Group Limited 1.Our opinionisunmodified We have audited the financial statements of RSA Insurance Group Limited (“the Company”) for the year ended 31 December 2021 which comprise theconsolidated incomestatement, consolidatedand parent company statementofcomprehensive income, consolidated and parent company statement of changes in equity, consolidated and parentcompanystatement 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 ouropinion: · the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 December 2021 and of the Group’s profit for the year then ended; · the Group financial statements have been properly prepared in accordance withUK-adopted international accounting standards; · the parentcompanyfinancial statementshave been properly prepared inaccordancewith UK-adopted international accounting standards and as applied in accordance with the provisions of the Companies Act 2006; and · the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Basis foropinion Weconducted our audit in accordance withInternationalStandards on Auditing(UK) (“ISAs(UK)”) andapplicable law. Our responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient andappropriate basisforour opinion. Ouraudit opinionis consistent withour report to theAuditCommittee. We were first appointed as auditor by the shareholders on 13 May 2013. The period of total uninterrupted engagement is for the nine financial years ended 31 December 2021. We have fulfilled our ethical responsibilities under, and we remain independent of the Group in accordance with, UK ethical requirementsincluding the FRCEthical Standard as applied to listed public interest entities. No non-audit services prohibited by that standard were provided. Overview Materiality: group financial statements as a whole £34m (2020: £35m) 0.8% (2020: 0.6%) of net earned premiums Coverage 95% (2020: 96%) of net earned premiums Key audit mattersvs 2020 Recurring risks Valuation of insurance liabilities  Valuation of post-employment benefits and obligations  Valuation of deferred tax assets  Valuation of parent company’s investment in subsidiaries  ![]() RSA Annual Report and Accounts 2021 29 rsagroup.com StrategicReport Governance Financials 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. Wesummarise belowthekey auditmatters,in decreasingorder of auditsignificance,in arriving atour auditopinion above, togetherwith 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 onthese matters. The riskOur response Valuation of insurance liabilities Insurance contract liabilities 2021: £5,276 million gross, £3,628 million net; 2020: £9,379 million gross, £7,755 million net, relating to provision for losses and loss adjustment expenses Refer to pages 44 and 45 (accounting policy) and pages 90 to 95 (financial disclosures) Subjective valuation: Insurance liabilities represent the single largest liability for the Group. Valuation of these liabilities is highly subjective, requiring a number of assumptions to be made with high estimation uncertainty. The determination and application of the methodologies are also complex. A margin is added to the actuarial best estimate of insurance liabilities to make allowance for specific risks and uncertainties that are not specifically allowed for in establishing the actuarial best estimate. The appropriate margin to recognise is a subjective judgment and estimate taken by the directors, based on the perceived uncertainty and potential for volatility in the underlying claims. Certain lines of business have greater inherent uncertainty, such as those where claims emerge slowly over time, or where there is greater potential exposure to large losses due to the effect of uncertain or unknown incurred events. Additional uncertainty is currently being experienced as a result of the COVID-19 pandemic and the estimation of resulting claims and reinsurance cover, particularly for business interruption cases and the impact of the FCA Test Case ruling, and reductions in claims frequency experienced for some classes of business. Reinsurance recoveries are inherently linked to gross insurance liabilities. The extent of recoveries from the Group’s ‘Group Volatility Cover’ (‘GVC’) reinsurance contract is a key area of uncertainty due to the judgement applied in determining the value of individual claims eligible for the GVC, some of which are no longer managed within the RSA Group, and aggregation of eligible claims required to trigger a recovery. With the assistance of our own actuarial specialists across the Group and component audit teams, our procedures included: · Data comparisons: We inspected reconciliations between the claims data recorded in the policy administration systems and the data used in the actuarial reserving calculations to test the completeness of the data used in the actuarial reserving process; · Independent re-performance: We performed independent re-projections of reserve balances using our own models for certain classes of business. The determination of which classes to re-project was based on risk assessment and consideration of the evidence available from other alternative data analysis procedures; · Our sector experience and benchmarking assumptions: We applied our industry experience and market benchmarks to support our consideration and challenge of the Group’s reserving methodology, key judgements and assumptions for the most significant and objective classes of business; · Sensitivity analysis: We evaluated sensitivity analysis over key judgments and assumptions, such as large claims, the impact of COVID-19 and the discount rates for longer tail classes of business; · Margin evaluation: We evaluated the appropriateness of the margin to be applied to the actuarial best estimate. In order to do this we assessed the directors’ approach to setting the margin. In particular we considered the allowance for uncertainties inherent in the data and assumptions in developing the actuarial best estimate through inquiry with the directors and with respect to our understanding of any changes in the Group’s risks and our own sector experience of approaches to setting the margin and the level of margin held by the Group’s peers; ![]() RSA Annual Report and Accounts 2021 30 rsagroup.com StrategicReport Governance Financials ### Independent auditor’s report to the members of RSA Insurance Group Limited continued The riskOur response Valuation of insurance liabilities (cont.) The RSA Group has recently entered into a new adverse development reinsurance arrangement. The accounting treatment, including the assessment of risk transfer, is dependent on the contractual terms and will have a significant impact on the financial statements. The effect of these matters is that, as part of our risk assessment, we determined that the valuation of insurance liabilities has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole, and possibly many times that amount. The financial statements (note 39) disclose the sensitivity estimated by the Group. Data capture: The valuation of insurance liabilities depends on complete and accurate data about the volume, amount and pattern of current and historical claims since they are often used to form expectations about incurred claims. If the data used in calculating insurance liabilities, or for forming judgments over key assumptions, is not complete and accurate then material impacts on the valuation of insurance liabilities may arise. · Assessing principles: We inspected selected Business Interruption policy documents, and external information to verify exposure as a result of COVID-19 business interruption (BI) claims and the resulting reinsurance recoveries recognised. We inspected the legal advice received by management and considered the appropriateness of management judgements against this advice; · Tests of details: We compared samples of claims case reserves to appropriate documentation, such as reports from loss adjusters in order to test the valuation of individual claims reserves focused on portfolios deemed higher risk, whether that be due to size, complexity or uncertainty. This covered the accuracy of the relevant policy data elements relied upon within actuarial methods in their testing of the valuation of insurance liabilities. Further, for the COVID-19 BI claims, we inspected management’s date of loss analysis which underpins the reinsurance recoveries recognised and assessed the reasonableness of this analysis and management’s conclusions. We obtained the relevant reinsurance contracts and recalculated the resulting reinsurance recoveries. We have also assessed the appropriateness of the accounting treatment adopted in respect of the new adverse development cover entered into during the year; · Assessing transparency: We considered the adequacy of the Group’s disclosures in respect of the sensitivity of the insurance liabilities and key assumptions applied to key areas of judgement and estimation uncertainty. We performed the tests above over the valuation rather than seeking to rely on the Group’s controls because the nature of the balance is such that we would expect to obtain audit evidence primarily through the detailed procedures described. Our results We found the valuation of the insurance liabilities to be acceptable (2020 result: acceptable). Valuation of post- employment benefits and obligations (2021: £8,679 million; 2020: £9,401 million) Refer to page 48 (accounting policy) and pages 96 to 101 (financial disclosures). Subjective valuation: Small changes in the assumptions and estimates used, in particular the discount rate, inflation rate and mortality rate, which are highly sensitive to market and geographic circumstances can have a significant effect on the valuation of the Group’s post-employment obligations and therefore the amount of the post-employment benefits and obligations and the Group’s financial position. The effect of these matters is that, as part of our risk assessment, we determined that the valuation of post-employment benefits and obligations has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole and possibly many times that amount. The financial statements (note 41) disclose the sensitivity estimated by the Group. With the assistance of our own pension actuarial specialists, our procedures included: · Benchmarking assumptions and our experience: We compared the key assumptions such as discount rate, inflation rate and mortality rate against our independent models using external data and information relating to the pension schemes’ liability and demographic profile. · Assessing valuer’s credentials: We evaluated the Group’s external valuer’s competence, objectivity, capability and scope of work. · Assessing transparency: We considered the adequacy of the Group’s disclosures in respect of the sensitivity of the defined pension obligation to these assumptions. We performed the tests above rather than seeking to rely on any of the Group’s controls because the nature of the balance is such that we would expect to obtain audit evidence primarily through the detailed procedures described. Our results We found the valuation of the post-employment benefits and obligations to be acceptable (2020 result: acceptable). ![]() RSA Annual Report and Accounts 2021 31 rsagroup.com StrategicReport Governance Financials The riskOur response Valuation of deferred tax assets (2021: £146 million of the total deferred tax assets of £148 million; 2020: £181 million of £199 million) Refer to page 47 (accounting policy) and pages 86 and 87 (financial disclosures). Forecast-based assessment: The recoverability of the recognised deferred tax asset is dependent on the future profitability of the UK business, in particular Royal & Sun Alliance Insurance Limited, as the taxable legal entity. There is inherent uncertainty involved in developing the Group’s operational plan upon which forecast future taxable profits are based and further judgement in assessing to what extent the deferred tax assets can be recovered against those forecast taxable profits, particularly following the acquisition transaction of the Group. These forecasts determine the extent to which deferred tax assets are or are not recognised in the financial statements. The effect of these matters is that, as part of our risk assessment, we determined that the recoverable amount of deferred tax assets has a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the financial statements as a whole. The financial statements (note 31) disclose the sensitivity estimated by the Group. Our procedures included: · Historical comparisons: We assessed the accuracy of the Group’s approved operating plan in relation to the forecasting process in the past. We considered whether projected margins are achievable in light of the acquisition and with reference to the business’ recent performance and operating plans. · Our experience: We assessed the Group’s approach to the assessment of recoverability and challenged the approach with reference to our understanding of the business and the requirements of the relevant accounting standards. · Sensitivity analysis: We carried out independent sensitivity analyses of taxable profits to assumptions such as expected weather losses, the development of claims reserves and claims inflation, projected future growth rates and improvements in operating margins, future investment returns, and the projection period used for the forecast taxable profits. · Our tax expertise: With the support of our own tax specialists and their knowledge of tax legislation, we also assessed the extent to which projected profits were taxable, in particular the Group’s assumptions about how accumulated tax losses and other similar items can be utilised within the Group against the UK business, and Royal & Sun Alliance Insurance Limited as the taxable legal entity, in particular. · Assessing transparency: We assessed the adequacy of the Group’s disclosures in respect of the assumptions applied in the calculation and the adequacy of the Group’s disclosures in respect of the sensitivity of the valuation of the deferred tax asset to key assumptions. We performed the tests above rather than seeking to rely on any of the Group’s controls because the nature of the balance is such that we would expect to obtain audit evidence primarily through the detailed procedures described. Our results As a result of our work, we found the level of deferred tax assets recognised to be acceptable (2020 result: acceptable). Valuation of parent company’s investment in subsidiaries (2021: £2,405 million; 2020: £6,276 million) Refer to page 120 (accounting policy, Investments in Subsidiaries) and page 122 (financial disclosures). The carrying amount of the parent company’s investments in subsidiaries represents 63% (2020: 71%) of the company’s total assets. Fair value for the key operating subsidiaries is calculated by applying the income approach which uses discounted cash flow models to assess the present value of expected future economic benefits. Key assumptions include the discount rate and cash flows. The effect of these matters is that, as part of our risk assessment, we determined that the valuation of investment in subsidiaries has estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality for the parent company’s financial statements as a whole. The parent company’s financial statements (note 9) disclose the sensitivity estimated by the Company. With the assistance of our own valuation specialists, our procedures included: · Assessing valuer’s credentials: We evaluated the Group’s external valuer’s competence, objectivity, capability and scope of work. · Our experience and benchmarking assumptions: We applied our market experience and knowledge of the operating subsidiaries to challenge the methodology and key assumptions applied by the Group’s valuer. · Test of details: We agreed net asset values to underlying financial reporting for less material subsidiaries. We also evaluated the underlying data used in the cash flow forecasts, on which the valuations were based. · Assessing transparency: We considered the adequacy of the Company’s disclosures in respect of the sensitivity of the valuation to the key assumptions. We performed the tests above rather than seeking to rely on any of the Company’s controls because the nature of the balance is such that we would expect to obtain audit evidence through the detailed procedures described. Our results: We found the assessment of the valuation of the parent company’s investment in subsidiaries to be acceptable (2020 result: acceptable). We previously reported a key audit matter in relation to the existence of insurance debtors. However, following the correcting adjustment required in 2020 to address an issue relating to the historic reconciliation of insurance debtor balances in Sweden, we have not assessed this as one of the most significant risks in our current year audit and, therefore, it is not separately identified in our report this year. ![]() RSA Annual Report and Accounts 2021 32 rsagroup.com StrategicReport Governance Financials 3.Our application of Group materiality and an overview of the scope of our audit Materiality for the group financial statements as a whole was set at £34m (2020: £35m), determined with reference to a benchmark of net earned premiums (of which it represents 0.8% (2020: 0.6%)). We continue to consider net earned premiums to be the most appropriate benchmark and a fair reflection of revenue from the Group’s operations because it is a revenue metric per the accounting standards, matches to claims cost, is less distorted by seasonal fluctuations and takes into account the reinsurance programme in place. Materiality for theparent company financialstatementsas a whole was set at £30m (2020: £32m), which is capped at 90% of Group materiality and with reference to a benchmark of net assets of which itrepresents0.9% (2020: 0.4%). In line with our auditmethodology, ourprocedures on individual account balances and disclosures were performed to a lower threshold, performance materiality, so as to reduce to an acceptable level the risk that individually immaterial misstatements in individual account balances add up to a material amount across the financial statements as a whole. Performance materiality for the group was set at 65% (2020: 65%) of materiality for the financial statements as a whole, which equates to £22.1m (2020: £22.8m). We applied this percentage in our determination of performance materiality based on thelevel of identified controldeficiencies during the prior period andthe number ofareas of significantjudgement in the audit. Performance materiality for the parent company was set at 75% (2020: 75%) of materiality, which equates to £22.5m (2020: £24.0m). We applied this percentage in our determination of performance materiality because we did not identify any factors indicating an elevated level of risk for the parent company. We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £1.70m (2020: £1.75m) in the group financial statements; and £1.50m (2020: £1.50m) in the parent company financial statements, in addition to other identified misstatements that warranted reporting on qualitativegrounds. Of the group’s seven (2020: seven) reporting components, we subjected the UK component to a full scope audit and the components located in Canada andScandinavia to full scope audits for the period they were owned bythegroup. TheIreland component was instructed to perform specific risk-focusedaudit procedures relatingto insuranceliabilitiesand cash duringthe year. Specified risk-focused audit procedures were also performed over investments, cash and reinsurance debtors balances within two of the reporting components,where specificrisks were identified. Thisscoping decision was made for the first time in order to provide further coverage over the group’s results. The components for which we performed specified risk-focused procedures were not financially significant enough to subject to a full scope audit for group reporting purposes, but did present specific individual risks that needed to be addressed. Net earned premium £34m Wholefinancial statements materiality (2020:£35m) Group Materiality £27m Range of materiality at five components (£10m to£27m) (2020: £10m to£28m) £1.70m Misstatements reported tothe audit committee (2020: £1.75m) Net earned premium Groupmateriality £4,330m(2020:£6,199m) £34m(2019: £35m) £22.1m Wholefinancial statements performancemateriality (2020: £22.8m) Group insurance contract liabilities 95% (2020: 96%) 95 93 95% (2020: 93%) 87 77 94% (2020: 94%) 89 5 1 84 10 96% (2020:87%) 78 96 2021 2020 Full scope for group auditpurposes Specifiedrisk-focusedaudit procedures Residualcomponents Group net earned premium Group total assets Total profits and losses that made up Group profit before tax 9 2 6 18 ### Independent auditor’s report to the members of RSA Insurance Group Limited continued ![]() RSA Annual Report and Accounts 2021 33 rsagroup.com StrategicReport Governance Financials The parentcompany’s financial assets had previously been subjected to specific risk-focused audit procedures. Due to the fact that the parent company had transferred all of its financial assets to its subsidiary during the year, itwas descoped from thegroupaudit for the 2021 year-end audit.Other scoping decisions remained unchanged from the previous year’s audit. The componentswithin the scope of ourwork accountedforthe percentages illustrated below. For the residual components, we performed analysis at an aggregated group level to re-examine our assessment that there were no significant risks of material misstatement within these. The Group team instructedcomponent auditors astothesignificant areas to be covered, including the relevant risks detailed above and the information to be reported back. The Group team approved the componentmaterialities,which ranged from £10m to£27m (2020: £10m to £28m), having regard to the mix of size and risk profile of the Groupacrossthe components.The audit procedures over the Canada, Scandinavia and Ireland components(2020:Canada, Scandinavia andIreland) were performed bycomponent auditors. All other audit procedures, as well as the parent company audit, were performed by the Group team. The scope of theaudit work performed was predominatelysubstantive as we placed limited reliance upon the Group’s internal control over financial reporting. The Group team visited nil(2020:nil) componentlocationsduring the year due to travels restrictions as a result of the pandemic and instead maintainedthe virtual interactions withcomponent teams. Video and telephone conference meetings were held with the component auditors andlocal management sincetheywerenot physically visited. Atthese meetings,the findings reported to the Group team were discussed in more detail, and any further work required by the Group team wasthen performed bythe componentauditor. 4. Going concern The directors haveprepared the financial statements onthe going concern basis as they do not intend to liquidate the Group or the Company orto cease their operations, andas they haveconcluded thatthe Group’s and theCompany’s financial positionmeans that this is realistic. They have also concluded that there are no material uncertaintiesthatcould have castsignificant doubt over their ability to continue as a going concern for at least a year from the date of approval of the financial statements (“the going concern period”). We used our knowledge of the Group, its industry, and the general economic environment to identify the inherentrisks to its business model and analysed how those risks might affect the Group’s and Company’s financial resources orability tocontinue operations over the going concern period. The risks that we considered most likely toadversely affect TheGroup’s and Company’s available financial resources over this period were: · adverse insurance reserves development, potentially causedby ongoing impactsofthe COVID-19 pandemic; · a deterioration in claims experience, potentially caused by market wide catastrophe event(s)or economicfactors such asinflation; · a deterioration in the valuation of the Group’s investments arising from asignificant change in theeconomic environment; and · a decrease in the Group’s net pension surplus. Weconsidered whether theserisks couldplausibly affect theGroup’s regulatory capital orliquidity in thegoing concern period byassessing the directors’ sensitivities over the level ofavailable financial resources indicated by the Group’s financial forecasts taking account of severe but plausible adverse effects that could arise from these risks individuallyand collectively. Our proceduresalso included: · Consideration of specific scenarios that could reasonably arisein relationtothe COVID-19 pandemic including adverse outcomes in respect ofBusiness Interruptionclaims. · Evaluation of the consistency, arithmetical accuracy and reasonableness of the data and assumptionsused in management’s Going Concern assessmentpaper. · We considered whether the goingconcern disclosurein note1 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, maycast significantdoubton 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 todetect Identifying and respondingto risks ofmaterial 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 orprovidean opportunity tocommit fraud. Our risk assessmentproceduresincluded: · Enquiring ofdirectors,the Audit Committee, internal audit and management and inspection of policy documentation as to the Group’s high-level policies and procedures to prevent anddetect fraud,including the internal auditfunction, andthe Group’s channel for “whistleblowing”, as well as whether they have knowledge of any actual, suspected or alleged fraud. · ReadingBoard, AuditCommittee andRisk Committeeminutes. · Consideringremunerationincentive schemes and performance targets for management and directors. · Using professionals with forensic knowledge to assist us in identifying fraudrisks and designing appropriateprocedures based on discussionsofthe circumstances of theGroup andCompany. · Performing analytical procedures to identify any unusual or unexpectedfluctuations andrelationships inthe account balances. ![]() RSA Annual Report and Accounts 2021 34 rsagroup.com StrategicReport Governance Financials Wecommunicated identifiedfraud risks throughout theaudit team and remained alert to any indications of fraud throughout the audit. This included communication from thegrouptofull scopecomponent audit teams of relevant fraud risks identified at the Group level and request to full scope component audit teams to report to the Group audit team any instances of fraud that could give rise to a material misstatement at the Group level. As required by auditing standards, we perform procedures to address the risk of management override of controls and the risk of fraudulent revenue recognition, in particular the risk that estimated premium is valued incorrectly or recorded in the wrong period and the risk that Group andcomponent management may bein a position to make inappropriate accounting entries, and the risk of bias in accounting estimates and judgements,including premium estimates. We also identified fraud risks related to the valuation of insurance contract liabilities, the valuation of deferred tax assets and the valuation of intangible assets, in response to the level of estimation and judgement in these balances and possible pressures to meet profit targets. Further detail in respect of insurance contract liabilities and the deferred tax asset is set out in the key audit matter disclosures in section 2 of this report. Weperformed procedures including: · Identifying journal entries to test for all full scope components, based on risk criteria and comparingtheidentified entries to supporting documentation. These included thoseposted bysenior finance management and those posted to unusual accounts. · Assessing significant accounting estimatesforbias. Identifying and responding to risks of material misstatement due tonon-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 ourgeneral commercial andsectorexperience,and through discussion with the directors and other management (as required by auditingstandards), and from inspection oftheGroup’s regulatory and legal correspondence and discussed with the directors and other management thepolicies 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. Wecommunicatedidentified laws and regulations throughout our team and remained alert toanyindicationsofnon-compliance throughout the audit. This included communication fromthe Group to fullscope component auditteamsof relevantlawsand regulationsidentified at Group level,and arequest for full scopecomponent 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 financialstatements including financialreporting legislation (including relatedcompanies legislation), distributableprofits legislation, pension legislation and taxationlegislation, andweassessed the extent of compliance with these laws and regulations as part of our procedures onthe related financial statementitems. Secondly, the Group is subject to many other laws and regulations where theconsequences ofnon-compliance couldhavea material effect on amountsor disclosures inthe financialstatements, for instance through the imposition of fines orlitigation orthe lossofthe 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 andcertain aspectsofcompany legislation recognising the financial andregulated natureof the Group’s activities. Auditingstandardslimit the required audit procedures to identify non-compliance withthese laws andregulations to enquiry ofthe directors and other management and inspection of regulatory and legal correspondence,if any. Therefore ifa breach ofoperational 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 theinherentlimitations of an audit, there isan unavoidable risk that we may not have detected some material misstatements in thefinancial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, thefurther removednon-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it. In addition, as with any audit, there remained a higher risk non-detection of irregularities, asthese may involvecollusion, forgery, intentional omissions, misrepresentations, ortheoverride of internal controls. Our procedures are designed to detect material misstatement.We arenotresponsible 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 areresponsiblefor the other informationpresented in the Annual Report together with thefinancial statements. Ouropinion on thefinancial statements does not cover theother informationand, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assuranceconclusion thereon. Our responsibility isto readthe other information and, indoing so, consider whether, based onour financial statements auditwork,the information therein is materiallymisstated or inconsistent withthe financial statementsor our audit knowledge. Based solelyon that work we have not identified material misstatements in the other information. Strategic report and directors’ report Based solely onour workon theother information: · we have not identified material misstatements in the strategic report and the directors’ report; · inour opinionthe information givenin those reports forthefinancial year is consistent with the financial statements; and · in our opinion those reports have been prepared in accordance with the CompaniesAct 2006. ### Independent auditor’s report to the members of RSA Insurance Group Limited continued ![]() RSA Annual Report and Accounts 2021 35 rsagroup.com StrategicReport Governance Financials 7. We have nothing to report on the other matters on whichweare required to report byexception Under the Companies Act 2006, we are required to report to you if, in ouropinion: · 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 andreturns;or · certain disclosures of directors’ remunerationspecified bylaw are not made; or · we have not received all the information and explanations we require for ouraudit. We have nothing to report in these respects. 8. Respective responsibilities Directors’ responsibilities As explained more fully in their statement set out on page 27, the directors areresponsible for:the preparationofthe financialstatements 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 statementsthatare freefrom material misstatement,whether due to fraud or error; assessing the Group and parent Company’s ability tocontinue as agoing concern,disclosing, asapplicable, matters relatedto going concern; and using thegoing 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 atwww.frc.org.uk/auditorsresponsibilities. 9. The purpose of our audit work and to whom we owe our responsibilities This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed. Salim Tharani (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants 15 Canada Square London E145GL 11 March 2022 ![]() RSA Annual Report and Accounts 2021 36 rsagroup.com StrategicReport Governance Financials Note 2021 £m Re- presented 1 2020 £m Continuing operations Income Gross written premiums 4,294 3,988 Less: reinsurance written premiums (1,001) (950) Net written premiums 9 3,293 3,038 Change in the gross provision for unearned premiums (44) 29 Change in provision for unearned reinsurance premiums (42) (34) Change in provision for net unearned premiums (86) (5) Net earned premiums 3,207 3,033 Net investment return 10 160 110 Other operating income 12 82 93 Total income 3,449 3,236 Expenses Gross claims incurred (2,959) (2,527) Less: claims recoveries from reinsurers 759 607 Net claims 11 (2,200) (1,920) Underwriting and policy acquisition costs (1,223) (1,169) Unwind of discount (6) (7) Other operating expenses 13 (172) (123) (3,601) (3,219) Finance costs 14 (76) (30) Loss on disposal of businesses 8 – (5) Net share of profit after tax of associates – 1 Loss before tax from continuing operations 9 (228) (17) Income tax expense 19 (33) (2) Loss after tax from continuing operations (261) (19) Profit from discontinued operations, net of tax 7 4,531 383 Profit for the year 4,270 364 Attributable to: Owners of the Parent Company from continuing operations (263) (38) Owners of the Parent Company from discontinued operations 4,531 383 Total Owners of the Parent Company 4,268 345 Non-controlling interests 2 19 4,270 364 1.Comparatives have been re-presented to show Scandinavia and Canada as discontinued operations. Refer to note 7 for further information. The attached notes form an integral part of these consolidated financial statements. ### Consolidated income statement ### For the year ended 31 December 2021 ![]() RSA Annual Report and Accounts 2021 37 rsagroup.com StrategicReport Governance Financials Note 2021 £m Re- presented 1 2020 £m Loss for the year from continuing operations (261) (19) Profit for the year from discontinued operations 4,531 383 Profit for the year 4,270 364 Items from continuing operations that may be reclassified to the income statement: Exchange losses net of tax on translation of foreign operations 22 (14) (5) Fair value (losses)/gains on available for sale financial assets net of tax 22 (79) 79 (93) 74 Items from continuing operations that will not be reclassified to the income statement: Pension – remeasurement of net defined benefit asset/liability net of tax 22 (70) (25) Other comprehensive (expense)/income for the year from continuing operations (163) 49 Other comprehensive (expense)/income for the year from discontinued operations 7 (129) 79 Total other comprehensive (expense)/income for the year 22 (292) 128 Comprehensive (expense)/income for the year from continuing operations (424) 30 Comprehensive income for the year from discontinued operations 7 4,402 462 Total comprehensive income for the year 3,978 492 Attributable to: Owners of the Parent Company from continuing operations (426) 16 Owners of the Parent Company from discontinued operations 4,402 462 Total Owners of the Parent Company 3,976 478 Non-controlling interests 2 14 3,978 492 1. Comparatives have been re-presented to show Scandinavia and Canada as discontinued operations. Refer to note 7 for further information. The attached notes form an integral part of these consolidated financial statements. ### Consolidated statement of comprehensive income ### For the year ended 31 December 2021 ![]() RSA Annual Report and Accounts 2021 38 rsagroup.com StrategicReport Governance Financials Ordinary share capital £m Ordinary share premium £m Preference shares £m Tier 1 notes £m Revaluation reserves £m Capital redemption reserve £m Foreign currency translation reserve £m Retained earnings £m Equity attributable to owners of the Parent Company £m Non- controlling interests £m Total equity £m Balance at 1 January 2020 1,0321,090125297259389(26)1,0034,1691734,342 Total comprehensive income Profit for the year –––––––34534519364 Other comprehensive income/(expense) (note 22) ––––112–46(25)133(5)128 ––––112–4632047814492 Transactions with owners of the Group Contribution and distribution Dividends (note 21/36) –––––––(108)(108)(13)(121) Shares issued for cash (note 34) 15––––––6–6 Share-based payments (note 34) 2––––––1719–19 35–––––(91)(83)(13)(96) Changes in shareholders’ interests in subsidiaries –––––––––(8)(8) Total transactions with owners of the Group 35–––––(91)(83)(21)(104) Balance at 1 January 2021 1,0351,095125297371389201,2324,5641664,730 Total comprehensive income Profit for the year –––––––4,2684,26824,270 Other comprehensive (expense)/income (note 22) ––––(267)–33(58)(292)–(292) ––––(267)–334,2103,97623,978 Transactions with owners of the Group Contribution and distribution Dividends (note 21/36) –––––––(6,938)(6,938)(10)(6,948) Shares issued for cash (note 34) 1,023282––––––1,305–1,305 Share-based payments (note 34) 11––––––1728–28 Transfers ––––1––(1)––– Capital reduction 1 (800)(1,095)–––(389)–2,284––– 234(813)––1(389)–(4,638)(5,605)(10)(5,615) Changes in shareholders’ interests in subsidiaries –––––––––(2)(2) Total transactions with owners of the Group 234(813)––1(389)–(4,638)(5,605)(12)(5,617) Balance at 31 December 2021 1,269282125297105–538042,9351563,091 1.A reduction of the Company’s share capital of £800m, share premiumof £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 . The attached notes form an integral part of these consolidated financial statements. ### Consolidated statement of changes in equity ### For the year ended 31 December 2021 ![]() RSA Annual Report and Accounts 2021 39 rsagroup.com StrategicReport Governance Financials Note 2021 £m 2020 £m Assets Goodwill and other intangible assets 23 312 868 Property and equipment 24 91 237 Investment property 25 371 285 Investments in associates – 5 Financial assets 26 5,530 11,826 Total investments 5,901 12,116 Reinsurers’ share of insurance contract liabilities 29 2,291 2,340 Insurance and reinsurance debtors 30 1,916 2,989 Deferred tax assets 31 148 199 Current tax assets 31 2 23 Other debtors and other assets 32 737 840 Other assets 887 1,062 Cash and cash equivalents 33 500 1,094 Total assets 11,898 20,706 Equity and liabilities Equity Equity attributable to owners of the Parent Company 2,935 4,564 Non-controlling interests 156 166 Total equity 3,091 4,730 Liabilities Issued debt 37 165 751 Insurance contract liabilities 39 7,185 12,614 Insurance and reinsurance liabilities 40 842 932 Borrowings38 8 132 Deferred tax liabilities 31 – 105 Current tax liabilities 31 4 40 Provisions42 50 172 Other liabilities 43 553 1,230 Provisions and other liabilities 607 1,547 Total liabilities 8,807 15,976 Total equity and liabilities 11,898 20,706 The attached notes form an integral part of these consolidated financial statements. The financial statements were approved on 11 March 2022 by the Board of Directors and are signed on its behalf by: Charlotte Jones Group ChiefFinancial Officer ### Consolidated statement of financial position ### As at 31 December 2021 ![]() RSA Annual Report and Accounts 2021 40 rsagroup.com StrategicReport Governance Financials Note 2021 £m 2020 £m Cash flows from operating activities Cash generated from operating activities 45 357 661 Tax paid (99) (87) Net cash flows from operating activities 258 574 Cash flows from investing activities Proceeds from sales or maturities of: Financial assets 1,738 3,244 Property and equipment 1 – Intangible assets – 1 Subsidiaries and associates (net of cash disposed of) 6,559 3 Dividends from associates 1 – Purchase of: Financial assets (2,615) (3,261) Property and equipment 24 (13) (23) Intangible assets 23 (104) (122) Subsidiaries (1) – Net cash flows from investing activities 5,566 (158) Cash flows from financing activities Proceeds from issue of share capital 1,305 6 Dividends paid to ordinary shareholders 21 (6,914) (83) Coupon payment on Tier 1 notes 21 (15) (16) Dividends paid to preference shareholders 21 (9) (9) Dividends paid to non-controlling interests 36 (10) (13) Redemption of debt instruments 46 (642) – Payment of lease liabilities 46 (24) (44) Movement in other borrowings 46 (71) (33) Interest paid 46 (26) (33) Net cash flows from financing activities (6,406) (225) Net increase in cash and cash equivalents (582) 191 Cash and cash equivalents at the beginning of the year 1,083 886 Effect of changes in foreign exchange on cash and cash equivalents (9) 6 Cash and cash equivalents at the end of the year 33 492 1,083 The attached notes form an integral part of these consolidated financial statements. ### Consolidated statement of cash flows ### For the year ended 31 December 2021 ![]() RSA Annual Report and Accounts 2021 41 rsagroup.com StrategicReport Governance Financials ### Basis of preparation and significant accounting policies RSA Insurance Group Limited (the Company), formerly RSA Insurance Group plc, was re-registered as a private limited company on 26 May 2021 and theCompany’s ordinary sharecapital waspurchased by RegentBidco Limited (a whollyowned subsidiary of Intact Financial Corporation) on 1 June2021 (the acquisition). TheCompany’s ultimate parent companyand controllingparty is IntactFinancial Corporation.The Company is incorporated and domiciled in England and Wales and, through its subsidiaries andassociates (togetherthe Group orRSA), provides personal and commercialinsurance products to its globalcustomer base, principallyin theUK, Ireland,Europeand MiddleEast.On 1June 2021, the Group disposed of its operations in Scandinavia (Codan A/S) and Canada (Roins Holdings Limited), and these have been classified as discontinuedoperations(referto note 7 for further information). 1) Basis ofpreparation The consolidated financialstatementshavebeen preparedin accordance with UK-adoptedInternationalAccountingStandardsand the requirements of Companies Act 2006. The consolidated financial statements are prepared on a historical cost basis. Where other bases are applied,these areidentified in therelevant accounting policy. The consolidated financial statements have been prepared on a going concern basis. In adopting the going concern basis, the Board has reviewed the Group’s ongoing commitments for the next twelve months and beyond. The Board’s assessment included the review of Group’s strategic plansand latest forecasts, capital position and liquidity including ondemand capital fundingarrangements withIntactFinancial Corporation. The impact and uncertainty as a result of the Covid-19 pandemic, rising inflation, and the transition to a post Brexit environment has also been considered. These assessments include stress and scenario testing and consider significant areas of risk and uncertainty for the Group inthe current challengingeconomic environment.Scenarios considered include a market riskshock involving several component stresses, plus deterioration of the underwriting result and a subsequent catastrophe loss. Climate stress testing has also been completed. In making their assessment, the Boardhave reviewedthe latestpositionon business interruption losses andavailability of reinsurance to recover incurred claims and there have been no significant changes. The Board have considered the impact of events after the balance sheet date with none identified which could impact the Group’s ability to continue as a going concern. Based on this review no material uncertainties that would require disclosure have been identified in relation to the ability of the Group to remain a going concern for at least the next twelve months, from both the date of the consolidated statementoffinancial positionand theapproval of the consolidatedfinancial statements. In line with industry practice, the Group’s consolidated statement of financial position is not presented using current and non-current classifications, but broadly in increasing order of liquidity. The assets and liabilities considered as non-current include: investments in associates, deferred tax assets, property and equipment, intangible assets, goodwill, deferred tax liabilities, outstanding debt including issued debt and elements of financial investments, insurance contract liabilities and reinsurers’share of insurance contract liabilities. The assets and liabilities considered as current include cash and cash equivalents, insurance and reinsurance debtors, and elements of financial investments, insurancecontract liabilitiesand reinsurers’ shareof 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. ![]() RSA Annual Report and Accounts 2021 42 rsagroup.com StrategicReport Governance Financials ### Basis of preparation and significant accounting policies continued 2) Significant accounting estimates and judgements In preparingthese consolidated financial statements,management has madejudgements andcalculated estimatesin accordance with Group’s accounting policies. Estimates are based on management’s best knowledge of current circumstances and expectation of future events and actions,which maysubsequently differ from those used indetermining the accounting estimates. Estimates and their underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively. These estimates have been reviewed following the disposals of the Group’s operations in Scandinavia and Canada, and any changes as a result of this have been disclosed below or in the relevant note. The most significant estimatesare described below. Additional informationon estimationtechniques andassumptions ispresented in the relevant note in order to provide context to the figures presented. · Valuation of insurancecontract liabilities:the assumptionsused in the estimationof the ultimate outcome of theclaim eventsthathave 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 oftheinsurance contractliabilities.Covid-19 business interruption (BI) gross claims costuncertainty remainshigh butreduces over time asinitialestimates arereplaced with maturing claimsand case information, updatesfor whichhave been includedin theclaims estimates at 31 December 2021. The ultimateCovid-19 BIclaims liability couldbe materially different fromthe current estimate as claimsinformation developsfurther, as legal and regulatory interpretationsthroughout theindustry evolve andclarify thecriteriafor eligibleclaims andthe level of coveravailableand asclaims informationmatures given the complexity. Whilst theGroup hasconsiderable 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 claimsexperience,emerging trends and changesin thebusiness or intheexternal environment tohelp ensurethekey assumptions andestimation techniques used to determine best estimate provisionsreflect up-to-date informationand remain appropriate. Asa result ofmanagement’s reviewgiven the currentuncertain economic environment, including inflationary increases, and in alignment with IFC practices, reserves have been strengthened during 2021 and additional margin is held. Refer to note 39 for additional information. · Measurement of defined benefit obligations: the use of key actuarial assumptions, such as discount rates, inflation rates and mortality rates. Refer to note 41 for additional information. · Recognition of deferred tax assets: availability of future taxable profits against which deductible temporary differences and tax losses carried forward can be utilised. Forecast future taxable profits include the potential impact of Covid-19 and are based on the continuing Group composition followingthedisposals oftheCanadian andScandinavian operations.Sensitivities havebeen used to assess the impactof changes in the key assumptions supporting profit forecasts in the forecast period. Management further assess the application of contingency on the estimation of future forecast taxable profits in determining the value of deferred tax asset to be recognised. Following the acquisition, the UK profit forecasts have been updated to reflect the latest view of taxable profits. Changes to intragroup transactions and increased contingency in the UK forecast taxable profits have resulted in a £83m reduction of the UK deferred tax asset at 31 December 2021. This impact was offset by the effect of the UK tax rate increase on the UK deferred tax asset (£48m). Refer to note 31 for additional information. · Valuation of level 3 financial assetsand investmentproperties: use ofsignificant unobservable inputs. Thecurrent ongoing economic uncertainty means that asset valuation techniques that rely on unobservable inputs have a greater degree of estimation uncertainty. Refer to note 27 for additional information. · Measurement and impairment of goodwill and intangible assets: key assumptions applied in the valuation of the recoverable amount and the estimation ofuseful economiclife. The value inuse calculations arebased onmanagement’s latest operationalplans,which includethe potential impact of Covid-19 and are based on the continuing Group composition following the disposals of the Canadian and Scandinavian operations, and considering management’s future intent. Refer to note23foradditionalinformation. The areas wheremanagement has appliedjudgement areas follows: · Classification of financial assets inthe fair valuehierarchy: managementapply judgement when decidingto classify financial instruments for which immediate prices are available as being level 1 in the fair value hierarchy and financial assets for which observable prices are also available as level 2 on the basis of a lower level of activity in the market from which those prices are quoted. Refer to note 27 for additional information. · Impairment of financial assets: determining if there is objective evidence of impairment requires judgement and, in the year to 31 December 2021, £7m of impairments have been recognised on a continuing operations basis (31 December 2020: £4m). The value of unrealised losses from continuing operations in the revaluation reserve at 31 December 2021 is £121m (31 December 2020: gains of £79m). Refer to note 10 for additionalinformation. · Valuation of intangible assets: The acquisition has resulted in a strategic reassessment of programme plans for internally generated software assets. Determining if existing internally generated software would no longer generate future economic benefit and should therefore be derecognised requires judgement. In the year to 31 December 2021, £72m of internally generated software assets were identified as no longer generating future economic benefit and were derecognised (12 months to 31 December 2020: £nil). Refer to note 23 for additional information. The Group Audit Committeereviews thereasonableness ofsignificant judgementsand estimates. ![]() RSA Annual Report and Accounts 2021 43 rsagroup.com StrategicReport Governance Financials 3) Adoption of new and revised accounting standards Transition from EU-adopted IAS toUK-adopted IAS Following the end of the Brexit Transition Period, SI 2019/685 brought the International Accounting Standards (IAS) already endorsed in the EU into UK law as ‘UK-adopted international accounting standards’. The Group has applied UK-adopted IAS from 1 January 2021. As there are no changes when applying UK-adopted IAS, there has not been an impact on the Group. The following narrow scope amendments have been adopted by the Group: Extensionof theTemporary Exemption fromApplying 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 IFRS17. Interest Rate Benchmark Reform (IBOR) —Phase 2 In August 2020, the IASB issued amendments to IAS 39, IFRS 7 ‘Financial instruments: Disclosures’ (IFRS 7), IFRS 4 and IFRS 16 ‘Leases’ (IFRS 16). The amendments complement those issued in 2019 and focus on the effects on financial statements when an entity replaces an old interest rate benchmark with an alternative risk-free rate (ARRs) as part of the IBOR reform. The amendments clarify that, if the contractual cash flows of a financial instrument are modified as a result of the reform, an entity updates the effective interest rate to reflect the change instead of derecognising it or adjusting its carrying amount. In addition, hedge accounting relationships shall not be discontinued if changes are required by the reform, as long as the hedge meets other hedge accounting criteria. The Group’s exposure to IBORs (Interbank Offered Rates) that have yet to transition from LIBOR and USD IBOR to Sterling Overnight Index Average (SONIA) and Secured Overnight Financing Rate (SOFR) respectively relates to illiquid investments and is £155m (notional amountas at 31 December 2021). Given the transition to ARRs has no significant impact on the Group, there has been no significant change in the risk management strategies as result of the IBOR reform. The amendments did not impact the consolidated financial statements. Other standards Other amendments to UK-adopted IAS, became mandatory as of 1 January 2021. The Group has evaluated these changes, none of which have had asignificant impacton the consolidatedfinancial statements. 4) New accounting standards, interpretations and amendments yet to be adopted IFRS17 ‘Insurance Contracts’ In May 2017, the IASB published IFRS 17 – Insurance Contracts (“IFRS 17”) a comprehensive new accounting standard for insurance contracts covering recognition, measurement, presentation and disclosure, which replaces IFRS 4 – Insurance Contracts (“IFRS 4”) and introduces consistent accounting for all insurance contracts. The original effective date was for annual periods beginning on or after 1 January 2021. However, in June 2020, amendments to the standard were issued and the IASB officially extended the deferral of the effective date and the deferral of the temporary exemption from applying IFRS 9 as provided by IFRS 4 to 1 January 2023. The Group plans to adopt the new standard on the required effective date together with IFRS 9. In July 2021, the IASB issued an exposure draft proposing a narrow-scope amendment to the IFRS 17 transition requirements for entities that first apply IFRS 17 and IFRS 9 at the same time. This proposed amendment relates to financial assets for which comparative information presented on initial application of IFRS 17 and IFRS 9 has not been restated for IFRS 9. Applying the proposed amendment, an entity would be permitted to present comparative information about such a financial asset as if the classification and measurement requirements of IFRS 9 had been applied to that financial asset. The Group has devoted considerable resources and efforts to the implementation of IFRS 17 since its issuance in May 2017. A program structure was put in place, comprised of a dedicated multi-disciplinary team representing Finance, Actuarial and Information Systems. Strong governance was established to assist program sponsors who report regularly to the IFRS 17 Steering Committee. The Group has also made progress in developing and testing the technological solutions required for the compliance with IFRS 17 requirements and continues to join discussions with industry groups and other stakeholders regarding the adoption and interpretation of the standard. In 2022, the Group is aiming to monitor changes in regulatory requirements, evaluate the impact on processes and continue the development and testing of the technological solutions. The Group is currently evaluating the impact that IFRS 17, in conjunction with IFRS 9, will have on its financial statements but has not yet determined the impact. The standard has not been adopted for use in the UK. On 11 November 2021 the UK Endorsement Board issued for public consultation its draft Endorsement Criteria Assessment:IFRS17 Insurance Contractsand theGroup ismonitoring the process closely. ![]() RSA Annual Report and Accounts 2021 44rsagroup.com StrategicReport Governance Financials 4) New accounting standards, interpretations and amendments yet to be adopted continued IFRS 9 ‘Financial Instruments’ As outlined in Note 3, the group has deferred the application of IFRS 9 to the reporting period beginning on 1 January 2023, alongside IFRS 17. Implementation plans have been updated to reflect the amended effective date and are on track. Information required by IFRS 4 when applying the temporary exemption can be found in note 26 and note 6. Other standards There are a number of amendments that have been issued by the IASB that have not yet been adopted for use in the UK. The Group has evaluated the impact of these amendments and none are expected to have a significant impact on the consolidated financial statements. 5) Significant accounting policies The significant accountingpolicies used inthe preparationofthese consolidated financial statements,as setout below, have been applied consistently to all periods presented in these consolidated financial statements, unless otherwise stated. There have been no significant changes to the Group’s accounting policies during 2021. Following the Group’s disposals of its operations in Scandinavia andCanada,the policy relating to discontinued operations hasbeen included asa significantaccountingpolicy. Discontinued operations A discontinued operation is a component of the Group that has been disposed of and represents a separate major line of business or geographical area of operation. The profit from discontinued operations is shown separately on the face of the consolidated income statement as a single amount. It comprises the profit or loss after tax from discontinued operations together with the gain or loss after tax recognised on disposal. Further information can be found in note 7. In the year in which an operation is first classified as discontinued, the consolidated income statement and consolidated statement of other comprehensive income for the comparative prior period is re-presented to present those operations as discontinued. Where intragroup arrangements between continuing and discontinued operations continue after the point of disposal, the continuing operations are presented as if the income/expense had always been an external party, with the result of the discontinued operation being reduced to offset. Where the arrangement ceased at the point of disposal the income/expense of the continuing operation in relation to the arrangement with the discontinued operation is eliminated. Premium income Written premium is recognised in the period in which the Group is legally bound through a contract to provide insurance cover. It represents the full amount of premiums receivable under the contract, including estimates where the amounts are not known at the date they are written. These are deferred as a provision for unearned premiums until recognised as revenue principally computed on a monthly or daily pro-rata basis. Net earned premiums are stated net of amounts passed (‘ceded’) to reinsurers. Premiums are shown before deduction of commission and exclude any sales-based taxes or duties. Insurance receivables Premium receivables due from policyholders or intermediaries at the end of the reporting period are presented within insurance and reinsurance debtors in the consolidated statement of financial position. The amount recoverable is reduced when there is an event arising after the initial recognition that provides objective evidence that the Group may not receive all amounts due under the insurance contract. Impairment losses for non-recoverable amounts are charged to underwriting and policy acquisition costs in the consolidated income statement and directly reduce the carrying amount ofinsurancedebtors in the consolidatedstatement of financial position. Gross claims incurred andinsurance contract liabilities Gross claims incurred represent the cost of agreeing and settling insurance claims on insurance contracts underwritten by the Group. Provisions for losses and loss adjustment expenses are recognised at the estimated ultimate cost, net of expected salvage and subrogation recoveries when a claim is incurred. The provisions for losses and loss adjustment expenses, and related reinsurance recoveries, are discounted where there is a long period from incident to claims settlement or when nominal interest rates are high and where there exists a suitable claims payment pattern from which to calculate the discount. In defining those claims with a long period from incident to claims settlement, an average period of settlement of six years or more has been used as a guide. The discount rate used is based upon an investment return expected to be earned by financial assets which are appropriate in value and duration to match the provisions for insurance contract liabilities being discounted during the period expected before the final settlement of such claims. Differences between the estimated cost and subsequent settlement of claims or re-estimated costs are recognised in the consolidated income statement in the year in which they are settled or in which the insurance contract liabilities are re-estimated. Acquisition costs comprise the direct and indirect costs of obtaining and processing new insurance business. Levies payable are treated as costs of underwriting business. These costs are recognised as deferred acquisition costs (DAC) and are deducted from the provision for unearned premium. DAC is amortised on the same basis as the related unearned premiums are earned. ### Basis of preparation and significant accounting policies continued ![]() RSA Annual Report and Accounts 2021 45 rsagroup.com StrategicReport Governance Financials 5) Significant accounting policies continued At the end of each reporting period tests are performed to ensure the adequacy of the Group’s insurance contract liabilities by considering the cash flows associated with the provision for unearned premium net of related DAC. In performing these tests, best estimates of future contractual cash flows, including loss adjustment and administrative expenses as well as investment income on financial assets backing such liabilities are used. Any deficiency is charged to the consolidated income statement immediately by establishing a provision for liability adequacy known as the unexpired riskprovision.The requirementfor anunexpiredrisk provision isassessed in aggregate forbusiness classes which are managed together and where there are no restraints on the ability to use assets held in relation to such business to meet any of the associated liabilities. Further information on net claims can be found in note 11, and insurance contract liabilities in note 39. Reinsurance Written premiums ceded to a reinsurer are recognised in the period in which the reinsurance contract is entered into and include estimates where the amounts are not finalised at the end of the reporting period. The ceded written premiums are recognised in the consolidated income statement over the period of the reinsurance contract, based on the expected earning pattern in relation to the underlying insurance contract(s). Gains or losses on buying retroactive reinsurance are recognised in the income statement immediately at the date of purchase and are not amortised. Premiums ceded and claims reimbursed are presented on a gross basis in the consolidated income statement and statement of financial positionas appropriate. Reinsurers’ shareofinsurance contract liabilities within theconsolidated statement offinancial position includes the reinsurers’share of provisions for losses and loss adjustment expenses and unearned premiums. The Group reports third party reinsurance balances on the consolidated balance sheet on a gross basis to present the exposure to credit risk related to third party reinsurance. The amount recoverable is reduced when there is an event arising after the initial recognition that provides objective evidence that the Group may not receive all amounts due under the reinsurance contract. Annuities purchased by the Group to provide for payments under structured settlement arrangements are accounted for as reinsurance ceded and a corresponding reinsurers’ share of insurance contract liabilities in cases where the Group remains liable for the settlement in the event of default by the annuity provider. Any gain or loss arising on the purchase of an annuity is recognised in the consolidated income statement at the date of purchase. Further information can be found in note 29. Financial Instruments Classification andmeasurement of financialassets andfinancial liabilities The Group initially recognises financial instruments at their fair value on the date at which they are purchased. Atinitial measurement,the Group classifies itsfinancial assets and financial liabilitiesin oneof the followingcategories: · Designated at fair value through profit and loss (FVTPL) · Held for trading · Available for sale (AFS) · Cash andcash equivalents · Loansand receivables · Financialliabilities · 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. ![]() RSA Annual Report and Accounts 2021 46 rsagroup.com StrategicReport Governance Financials 5) Significant accounting policies continued The table belowsummarises theclassificationand treatmentof the Group’s financial assets andfinancial liabilities. Category Financial instrument Description Subsequent measurement Recognition of change in fair value Designated at fair value through profit and loss (FVTPL) on initial recognition Debt securitiesWhere the investment return is managed on the basis of the total return on investment (including unrealised investment gains) Fair value using prices at the end of the period Income statement – net investment gains/(losses) Available for sale (AFS) Debt securities, equity securities Where the investment return on equity or debt securities is managed on the basis of the periodic cash flows arising from the investment Fair value using prices at the end of the period Other comprehensive income – unrealised gains/(losses) Income statement – net investment gains/(losses) when realised or impaired Cash and cash equivalents Cash and cash equivalentsConsist 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 borrowingsFinancial liabilities with fixed or determinable payments Amortised cost using the effective interest method Income statement – net investment gains/(losses) when settled Issued debtFinancial liabilities with fixed or determinable payments and maturity date Amortised cost using the effective interest method Income statement – net investment gains/(losses) when settled Derivative assets/ (liabilities) not designated as hedging instruments Derivative assets/(liabilities) not designated as hedging instruments Economic hedges that do not qualify for hedge accounting Carried at fair value Derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative Income statement – net investment gains/(losses) Derivatives designated as hedging instruments Derivative assets/(liabilities) designated as hedging instruments Hedge of a net investment in a foreign operation or hedge of future cash flows or hedge of fair value of fixed interest securities Carried at fair value Derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative Hedge of future cash flows – effective portion is initially recognised in other comprehensive income (OCI); subsequently recognised in the income statement when the hedged cash flows affect profit or loss Hedge of a net investment in a foreign operation – effective portion is recognised in OCI, ineffective portion is immediately recognised in the income statement Hedge of fair value – recognised in the income statement. The change in fair value of the hedged investments (classified as AFS) attributable to the hedged risk is transferred from the revaluation reserve to the income statement ### Basis of preparation and significant accounting policies continued ![]() RSA Annual Report and Accounts 2021 47 rsagroup.com StrategicReport Governance Financials 5) Significant accounting policies continued Investment income Dividends on equity investments are recognised as investment income in the consolidated income statement on the date at which the investment is priced ‘ex dividend’. Interest income is recognised in the consolidated income statement using the effective interest rate method. Unrealised gains and losses on AFS investments are recognised in other comprehensive income, except for impairment losses and foreign exchange gains and losses on monetary items which are recognised in the consolidated income statement. On derecognition of an investment classified as AFS,the cumulativegain orloss previously recognised in other comprehensiveincome isrecognised inthe consolidated income statement. Further information can be found in note 10. Impairment of financial instruments The Group determines, at each reporting date, whether there is evidence that the value of a financial asset or a group of financial assets, other than those measured as FVTPL are impaired. A financial asset is impaired if there is objective evidence that indicates that an event has occurred after the initial recognition of the asset that may have resulted in a loss of value as a result of having a negative effect on the estimated future cash flows generated by that asset which can be estimated reliably. Financial assets are impaired according to either a debt, equity, or loans and receivables impairment model. The appropriate impairment model is determined based on the characteristics of each instrument. An impairment loss in respect of debt instruments is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate of the instrument and is recognised in the consolidated income statement. Interest on the impaired asset continues to be recognised using the effective interest rate method. An equity security is considered impaired if there is objective evidence that the cost may not be recovered. In addition to qualitative impairment criteria, a significant or prolonged decline in fair value below cost is considered as indication of potential impairment. Impairment is considered to have occurred when the decline in fair value relative to cost has been more than 30% for a continuous twelve-month period. Unless there is evidence to the contrary, an equity security is also considered impaired when the decline in fair value relative to cost is more than 40% at the end of the reporting period, or when it has been in an unrealised loss position for a continuous fifteen-month period. Where there is objective evidence thatimpairment exists,thecumulative unrealisedloss previously recognisedin other comprehensiveincome isreclassified to the consolidated income statement. If the fair value of a previously impaired debt security increases and the increase can be objectively related to an event occurring after the impairment loss was recognised, the impairment loss is reversed and the reversal recognised in the consolidated income statement. Impairment losses on equity investments are not reversed. Further information can be found in note 10. When financial assets are impaired by credit losses, the impairment charge directly reduces the carrying amount of the asset. Current and deferred tax Current and deferred tax are recognised in the consolidated income statement, except to the extent that the tax arises from a transaction or event recognised either in other comprehensive income (OCI) or directly in equity. Any exceptions permitted under IAS 12 ‘Income Taxes’ are disclosed in the notes. To the extent that deferred tax assets are recognised or derecognised in the period and it is not possible to attribute this directly to either the consolidated income statement or OCI, as is the case typically for brought forward tax losses, then these amounts are attributed between the income statement and OCI transactions using a reasonable pro rata split based on historical movements. Current taxation is based on profits and income for the year as determined in accordance with the relevant tax legislation, together with adjustments for prior years. Deferred tax is provided in full using the liability method on temporary differences arising between the tax bases of assets and liabilities and the carrying amounts in the consolidated financial statements. However, if the deferred tax arises from initial recognition of an asset or liability in a transactionother thana business combination that at thetimeof the transaction affects neither accounting,nor taxable profit orloss, itis 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 Groupconsiders that it isprobablethatthe taxation authority willaccept those positions.Otherwise,provisions areestablished based on management’s estimate and judgement of the likely amount of the liability/recovery by providing for the single best estimate of the most likely outcome or the weighted average expected value where there are multiple outcomes. ![]() RSA Annual Report and Accounts 2021 48 rsagroup.com StrategicReport Governance Financials 5) Significant accounting policies continued Post-employment benefitsand obligations The Group operates both defined contribution and defined benefit schemes. A defined contribution scheme is a pension scheme under which the Group pays fixed contributions and has no further payment obligations once the contributions have been paid. Contributions to defined contribution pension schemes are charged in the consolidated income statement in the period in which the underlying employment services are provided to the Group. A defined benefit scheme refers to any other pension scheme; specifically, the Group’s defined benefit schemes define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and salary. The valueof the netdefined benefitliability/asset recognisedin theconsolidated statement offinancial positionforeach 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 ina netliability (deficit) position,the net liability isrecognised inthe consolidated statement of financial position inprovisions. 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 somepoint duringthelife of the scheme orwhen thescheme liabilitiesare settled. The amountscharged (or credited whererelevant)in the consolidatedincome statementrelatingto post-employment defined benefitschemes 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 restructuringcostsor terminationbenefits. · Netinterest onthe net definedbenefit liability/asset: this isdetermined byapplying thediscount rate applied to the defined benefitobligation for the period to the net defined benefit liability/asset, and results in a net interest expense/income. · The administration costs of operating the pension schemes. Remeasurements of thenet defined benefit liability/asset recognised inothercomprehensive income comprises actuarial gains andlosses as a result of changes inassumptionsand experience adjustmentsin the calculation of thedefined benefitobligation, andreturn on scheme assets excluding interest during the year. The most significant of these is the selection of the discount rate used to calculate the defined benefit obligation, details of which are set out in note 41. Intangible assets and Goodwill Goodwill Goodwill is the difference between the cost of a business acquisition and the net fair value of the identifiable assets, liabilities and contingent liabilities acquired.Goodwill isinitiallycapitalised in the consolidatedstatement of financial position at cost andis subsequently recognised at cost less accumulated impairment losses (see below). The cost of the acquisition is the amount of cash paid and the fair value of other purchase consideration. Customer related intangible assets Customer related intangible assets are valued at cost less accumulated amortisation, and less any accumulated impairment losses. Customer related intangible assets comprise acquired renewal rights and customer lists. The useful economic lives are generally between one and ten years and are estimated considering relevant metrics such as customer retention rates and contract length. The asset is amortised on a basis which reflectsusage ofeconomic benefit. Internally developed and externally acquired software The Group capitalises internal and external software development costs where the software is separately identifiable; the Group has control over the software; and where it can be demonstrated that they provide future economic benefits for the Group through facilitating revenue or improved processes. In respect of internally developed software, the costs capitalised include administrative and other general overhead expenditure when they can be directly attributed to the software development and preparing it for use. Amortisation is calculated on a straight line basis and commences when the asset is availablefor use in the manner intended by management. The useful economic lifeofexternally acquired and internally generated software is normally estimated to be between three and ten years, and is reviewed on an annual basis. Where no future economic benefits are expected from its use or disposal, the software asset is derecognised. Any gain or loss arising from the derecognition of the asset is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the asset and is recognised in profit or loss when the asset is derecognised. Further information on goodwill and other intangibles can be found in note 23. ### Basis of preparation and significant accounting policies continued ![]() RSA Annual Report and Accounts 2021 49 rsagroup.com StrategicReport Governance Financials 5) Significant accounting policies continued Impairment of goodwill, other intangible assets, and internally developed and externally acquired software Goodwill and intangible assets not yet available to use are subject to an impairment test on an annual basis or more frequently if there has been an indication of impairment. Other intangible assets, and internally developed and externally acquired software, are reviewed for indications of impairment on an annual basis and are subject to an impairment test only if there is an indication of impairment. Goodwill, other intangible assets, and internally developed and externally acquired software are allocated to cash generating units (CGUs) for the purpose of impairment testing. When testing for impairment, the recoverable amount of a CGU is determined based on value in use calculations. Further information on how the value in use is calculated can be found in note 23. Where the carrying amount is more than the recoverable amount, impairment of goodwill or intangible assets is recognised in the consolidated income statement. Impairment losses previously recognised on other intangible assets may be reversed in subsequent periods provided that the revised carrying amount does not exceed the value that would have been determined (net of amortisation) had no impairment loss been recognised. An impairment loss recognised for goodwill is not reversed in a subsequent period. Reorganisation,acquisitionand 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 improveprofitability. Acquisitioncostsrepresent expenses incurredtoeffect the acquisition of RSA byIntact Financial Corporation andinclude restructuring costs incurred priortotheacquisition. Integrationcostsrepresent expenses directlyattributable to the integration oftheGroup intoIntact Financial Corporation. They include restructuringcostsincurred followingthe acquisition. Employee termination costs are only recognised when they are part of a restructuring programme or a detailed plan of redundancies that has been communicated to those affected. Reorganisation, integration or acquisition costs that are uncertain in terms of their amount and timing are included within provisions (see note42). Provisions for onerous contracts are recognised when action is taken by the Group as part of a restructuring programme that reduces any remaining benefit expected under a contract to below its remaining unavoidable costs. Further information can be found in note 13. ![]() RSA Annual Report and Accounts 2021 50 rsagroup.com StrategicReport Governance Financials ### Risk and capital management 6) Risk and capital management Insurance risk The Group is exposed to risks arising from insurance contracts as set out below: A) Underwriting risk B) Reserving risk A) Underwritingrisk Underwriting risk refers to the risk that claims arising are higher (or lower) than assumed in pricing due to bad experience including catastrophes, weakness in controls over underwriting or portfolio management, claims management issues or policy wording interpretation issues. The majority of underwriting risk to which the Group is exposed is of a short-term nature, and generally does not exceed 12 months. Annual policies allow the Group to respond to changing weather patterns when managing the global catastrophe risk. The Group’s underwriting strategy aims to ensure that the underwritten risks are well diversified in terms of the type, amount of risk, and geography in order to ensure that the Group minimises the volatility of its insurance result. The Group’s exposure to concentration of Insurance risk in terms of geographical area has been provided in note 9 – Operating segments. Underwriting limits are in place to enforce appropriate risk selection criteria and pricing with all of the Group’s underwriters having specific licences that set clear parameters for the business they can underwrite, based on their expertise. The Group has developed enhanced methods of recording exposures and concentrations of risk and has a centrally managed forum looking at Groupunderwriting issues,reviewingand agreeing underwriting direction and setting policy anddirectiveswhere appropriate.The Group has a monthly portfolio management process across all its business units where key risk indicators are tracked to monitor emerging trends, opportunities and risks. This provides greater control of exposures in high risk areas as well as enabling a prompt response to adverse claims development. Pricing for theGroup’s productsis generally basedupon historical claim frequencies and claim severity averages, adjusted forinflation 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 aggregationacrossthe 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 riskit has contractually accepted responsibility for. B) Reservingrisk Reserving risk refers to the risk that the Group’s estimates of future claims payments will be insufficient. The Group establishes a provision for losses and loss adjustment expenses for the anticipated costs of all losses that have already occurred but have not yet been paid. Such estimates are made for losses already reported to the Group as well as for the losses that have already occurred but are not yet reported together with a provision for the future costs of handling and settling the outstanding claims. There is a risk to the Group from the inherent uncertainty in estimating provisions at the end of the reporting period for the eventual outcome of outstanding notified claims as well as estimating the number and value of claims that are still to be notified. This is especially true due to the heightened uncertainty arising through 2020 and 2021 as the direct and indirect impacts of the Covid-19 pandemic evolve. There is also uncertainty in the level of future costs of handling and settling the outstanding claims. The Group seeks to reduce its reserving risk through the use of experienced, regional actuaries who estimate the actuarial indication of the requiredreserves basedon claimsexperience,business volume, anticipated change in theclaims environment andclaims cost. Thisinformation is used by local reserving committees to recommend to the newly established UK&I Reserving Committee (formed to replace the former RSA Group Reserving Committee further to the acquisition) the appropriate level of reserves for each region. This will include adding a margin onto the actuarial indication as a provision for unforeseen developments such as future claims patterns differing from historical experience, future legislative changes and the emergence of latent exposures. The UK&I Reserving Committee reviews these local submissions and recommends the final level of reserves to be held by the Group. The UK&I Reserving Committee is chaired by the UK&I Chief Financial Officer and includes the UK&I Chief Executive, UK&I Underwriting Director, UK&I Claims Director, Managing Directors for key business units, UK&I Chief Actuary and UK&I Chief Risk Officer. A similar committee has been established in each of the UK&I’s primary operating segments. The UK&I Reserving Committee monitors the decisions and judgements made by the business units as to the level of reserves to be held. It then recommends to the Group Board via theGroup Audit Committee the finaldecision on the level ofreserves tobe includedwithin the consolidatedfinancial statements. Informingits collectivejudgement,thecommittee considers the following information: ![]() RSA Annual Report and Accounts 2021 51 rsagroup.com StrategicReport Governance Financials 6) Risk and capital management continued · The actuarial indication of ultimate losses together with an assessment of risks and possible favourable or adverse developments that may not have been fully reflected in calculating these indications. These risks and developments include: the possibility of future legislative change having a retrospective effect on openclaims orchanges in interpretation orregulatory application of existinglegislation; changes in claims settlement practice or procedures potentially leading to future claims payment patterns differing from historical experience; the possibility of new types of claimarising eitherfrom changes inbusiness mix,or, such as diseaseclaims emergingfrom historicalbusiness;general uncertainty inthe 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 indicationshave developed as claims experience hasevolved. · 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 reviewsperformed by both external actuarialconsultantsand theIntactFinancial Corporation Group Actuarial Functionto assess thereasonableness ofregional actuarial indication estimates. · Emerging trends where Covid-19 has caused changes in experience along with analysis to demonstrate the impact on reserving estimates. Some areas such as business interruption have observed direct claims, whereas other lines have seen indirect changes in policyholder behaviour such as reduced motor frequency during lockdown which can change the mix of claims. · Changes in the external claims environment in areas such as legal and medical activities which impact the speed of claims development. The distortions in data caused by the various issues means identification of trends is more difficult than normal. Claims experience may exhibit different characteristics and runoff trends compared to historic experience, resulting in increased uncertainty relating to actuarial indications of ultimate losses. · Covid-19 claims experience, which continues to be monitored closely and the Group is engaging with its reinsurers as payment and settlement activity grows following the increased clarity brought by the Supreme Court judgment on 15 January 2021. Whilst experience has tracked in line with the Groups expectations to this stage, many key areas of uncertainty remain such as the value of eligible claims and the extent to which reinsurance will ultimately respond compared to how the Group expects. The Company considers and seek legal advice on the implications of all open legal cases and judgments across the industry relating to the interpretation of policy wordings in Covid-19 claims however it may take many months beforeclarity increases on these grossand reinsuranceuncertainties as claimsdetailsand consideration ofthese evolve. · Given the Covid-19 pandemic and other changes such as Brexit, there is considerable uncertainty in the economic environment beyond 2021, and the potential impacts any changes in the economic environment could have on claims costs, such as inflationary pressure. This is a key uncertainty thatis monitored by Reserving Committee withsensitivity testing to monitor, assess and understand potential impacts shouldthe risks manifest. As a result of the disposal of Codan A/S on 1 June 2021, the Group is no longer exposed to very long-tail liabilities in Scandinavia that are closely tied to the economic, legislative and social environment. The relevant classes of business that fell into this category were Danish Workers Compensation, SwedishPersonal Accident, and Swedish Motorannuities.Selling these liabilities has materially reduced the Group’s exposure to this type of risk. Financial risk Financial risk refers to the risk of financial loss predominantly arising from investment transactions entered into by the Group, and also to a lesser extent arising from insurance contracts, and includes the following risks: · Credit risk · Market risk, including price, interest rate and currency rate risks · Liquidity risk The Group undertakes a number of strategies to manage these risks including the use of derivative financial instruments for the purpose of reducing its exposure to adverse fluctuations in interest rates, foreign exchange rates and long-term inflation. The Group does not use derivatives to leverage its exposure to markets and does not hold or issue derivative financial instruments for speculative purposes. The policy on use of derivatives is approved by the Board Risk Committee (BRC). Credit risk Credit risk is the risk of loss resulting from the failure of a counterparty to honour its financial or contractual obligations to the Group. RSA ensures thatassets are broadly matched in durationand currencywithinsurance liabilities to hedgevolatility. The Group’s creditrisk exposure islargely concentrated in its predominantly investment grade fixed income investment portfolio reducing the risk of default. Also to a lesser extent credit risk exists in its premium receivables and reinsurance assets. Credit risk is managed at both a Group level and at a local level. Local operations are responsible for assessing and monitoring the creditworthiness of their counterparties (e.g.brokers and policyholders). Local credit committees are responsible forensuring 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 throughoutthe organisationwith aggregatecreditpositions reported and monitored at Grouplevel. Inaddition, the Group’s Credit RatingsReview Committee reviews the creditratings ofmaterial investmentexposuresand 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. ![]() RSA Annual Report and Accounts 2021 52 rsagroup.com StrategicReport Governance Financials 6) Risk and capital management continued In defining its appetite for credit risk the Group looks at exposures at both an aggregate and business unit level, distinguishing between credit risks incurred as a result of offsetting insurance risks or operating in the insurance market (e.g. reinsurance credit risks and risks to receiving premiums due from policyholders and intermediaries) and credit risks incurred for the purposes of generating a return (e.g. invested assets’ credit risk). Limits are set at both a portfolio and counterparty level based on likelihood of default, derived from the credit rating of the counterparty, to ensure thatthe Group’s overall creditprofile and specificconcentrations aremanaged andcontrolled withinrisk appetite. The Group’s investment management strategy primarily focuses on debt instruments of investment grade issuers and seeks to limit the overall credit exposure with respect to any one issuer by ensuring limits have been based upon credit quality. Restrictions are placed on the Group’s core fixed income investment manager as to the level of exposure to various credit rating categories including unrated securities. The Group is also exposed to credit risk from the use of reinsurance in the event that a reinsurer fails to settle its liability to the Group. The Intact Reinsurance Credit Committee oversees the management of credit risk arising from the reinsurer failing to settle its liability to the Group. Group standards are set such that reinsurers that have a financial strength rating of less than ‘A-’ with Standard & Poor’s, or a comparable rating, are rarely used and are excluded from the Group’s list of approved reinsurers. The exceptions are fronting arrangements for captives, where some form of collateral is generally obtained, and some global network partners. At 31 December 2021 the extent of collateral held by the Group against reinsurers’ share ofinsurancecontractliabilitieswas £40m (2020: £36m), which in the event of a default would be called and recognised on the balance sheet. The Group’s use of reinsurance is sufficiently diversified that it is not concentrated on a single reinsurer, or any single reinsurance contract. The Group monitors its aggregate exposures by reinsurer group, being total exposure (as defined in the Reinsurance Risk Management Policy) as a percentage of Intact Financial Corporation’s shareholders’ equity, the maximum percentages allowed depending on the Reinsurer’s financial credit rating. The Group regularly monitors its aggregate exposures by reinsurer groupagainst predetermined reinsurergroup limits,in accordance with the methodology agreed by the BRC. The Group’s largest reinsurance exposures to active reinsurance groups are Berkshire Hathaway, Lloyd’s of London and Talanx. At 31 December 2021 the reinsurance asset recoverable from these groups does not exceed 7.8% (2020: 3.9%) of the Group’s total financial assets. Stress tests are performed by reinsurer counterparty such that in a catastrophic event, the exposure to a single reinsurer is estimated currently to not exceed £168m . The credit profile of the Group’s assets exposed to credit risk is shown below. The credit rating bands are provided by independent rating agencies. The table below sets out the Group’s aggregated credit risk exposure for its financial and insurance assets. As at 31 December 2021 Credit rating relating to financial assets that are neither past due nor impaired AAA £m AA £m A £m BBB £m