RSA INSURANCE GROUP LIMITED - Interim / Quarterly Report 2021

title: jhjhjhj
author: ShahR
date: 2021-08-03 20:50:00+00:00

4 August 2021

RSA Insurance Group Limited

2021 Interim Results

Enquiries:

LEI: 549300HOGQ7E0TY86138

INTERIM MANAGEMENT REPORT

For the 6 month period ended 30 June 2021

The KPIs most relevant to the financial performance of the Group are now as follows:

CONDENSED CONSOLIDATED INCOME STATEMENT

STATUTORY BASIS

For the 6 month period ended 30 June 2021

6 months

30 June 2021

30 June 2020

1,717

Change in provision for unearned reinsurance premiums

127

Net earned premiums

Other operating income

430

268

(249)

Income tax expense

(20)

Profit from discontinued operations, net of tax

4,528

154

Profit for the period

164

Attributable to:

154

Total owners of the Parent Company

152

Non-controlling interests

Profit for the period from discontinued operations

164

Items from continuing operations that may be reclassified to the income statement:

Fair value (losses)/gains on available for sale financial assets net of tax

(58)

Items from continuing operations that will not be reclassified to the income statement:

Other comprehensive (expense)/income for the period from continuing operations

Other comprehensive (expense)/income for the period from discontinued operations

Total other comprehensive (expense)/income for the period

156

Comprehensive (expense)/income for the period from continuing operations

Comprehensive income for the period from discontinued operations (note 5)

230

Total comprehensive income for the period

320

Attributable to:

Owners of the Parent Company from discontinued operations

230

Total owners of the Parent Company

294

Non-controlling interests

3,949

125

297

371

389

1,232

166

4,730

4,259

(111)

4,145

Transfers

234

(1,088)

(389)

125

297

144

751

154

2,799

259

389

173

4,342

152

164

142

156

166

294

320

Transactions with owners of the Group

Share-based payments

306

389

1,163

194

4,656

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

STATUTORY BASIS

As at 30 June 2021

31 December 2020

294

868

Property and equipment

116

237

305

285

Financial assets

5,038

2,446

149

199

Current tax assets

693

840

845

1,062

1,114

154

166

403

751

Insurance contract liabilities

7,200

907

932

132

105

Current tax liabilities

172

682

1,230

762

1,547

289

Tax paid

196

(43)

Proceeds from sales or maturities of:

Purchase of:

132

Cash flows from financing activities

Dividends paid to ordinary shareholders

(6,914)

886

Effect of exchange rate changes on cash and cash equivalents

Cash and cash equivalents at end of the period

1,101

BASIS OF PREPARATION
SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS

The areas where management has applied judgement are as follows:

ADOPTION OF NEW AND REVISED ACCOUNTING STANDARDS

RISK AND CAPITAL MANAGEMENT

RISK AND CAPITAL MANAGEMENT

AAA

BBB

706

1,253

173

706

1,234

938

193

282

Reinsurers’ share of insurance contract liabilities

619

1,711

2,446

926

820

1,830

Other debtors

791

291

107

274

429

Reinsurers’ share of insurance contract liabilities

670

1,554

2,337

928

125

140

178

447

207

343

4,630

282

1,926

Derivative assets

103

10,698

10,724

Loans and receivables

429

2,337

2,340

2,989

Derivative assets

125

178

185

1,094

Market risk for the Group can be broken down into three key components:

Changes in the income statement and other comprehensive income (OCI):

As at:

1 July 2021

1 January 2021

Increase in interest rate markets:

105

193

335

204

Movement in equity attributable to owners of the Parent Company at:

400

397

2,183

981

590

317

202

443

499

570

198

834

Total

667

332

612

475

571

6,715

1Maturity profile shown on an undiscounted basis

350

348

3,106

721

492

979

9,379

121

537

201

811

132

105

145

231

204

Total

918

1,148

127

1Maturity profile shown on an undiscounted basis

SIGNIFICANT TRANSACTIONS AND EVENTS

DISCONTINUED OPERATIONS

169

200

140

154

Attributable to:

154

Non-controlling interests

154

Statement of comprehensive income of discontinued operations

154

Items that may be reclassified to the income statement:

Items that will not be reclassified to the income statement:

Total comprehensive income for the period

230

Attributable to:

230

Non-controlling interests

230

Cash flows from discontinued operations

187

Gain on disposal of discontinued operations

Net assets disposed of:

521

Property and equipment

123

Investments in associates

Financial assets

Current tax assets

Other debtors and other assets

182

Cash and cash equivalents

357

Total assets

159

Borrowings

Deferred tax liabilities

Current tax liabilities

Provisions

Other liabilities

500

Total liabilities

Net assets disposed of attributable to owners of the Parent Company

Gains/(losses) recycled to income statement:

114

Exchange losses on translation of foreign operations

Gain on disposal of discontinued operation

OPERATING SEGMENTS

The Group uses the following key measures to assess the performance of its operating segments:

International

952

363

402

1,717

(27)

134

(9)

Central costs and other activities

171

(14)

(1)

1 Transaction costs relate to central costs incurred in relation to the acquisition of the Group.

926

365

155

1,446

193

207

Investment result

112

Central costs and other activities

245

316

Realised (losses)/gains

(1)

Reorganisation costs

200

211

Tax on operations

154

NET INVESTMENT RETURN

A summary of the net investment return in the income statement is given below:

(5)

Debt securities

(5)

(4)

(16)

130

134

(36)

123

Debt securities

(74)

Other

Discontinued operations

(161)

INCOME TAX
DIVIDENDS

NOTES TO THE CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

GOODWILL AND INTANGIBLE ASSETS

330

251

499

Total goodwill and other intangible assets

294

868

FINANCIAL ASSETS AND FAIR VALUE MEASUREMENTS

126

673

282

429

IFRS 9 ‘Financial Instruments’

SPPI financial assets

126

277

4,630

282

Derivative assets held for trading

462

5,097

673

410

10,712

429

Derivative assets held for trading

305

Available for sale financial assets:

125

126

Debt securities

282

4,630

730

5,079

Derivative assets:

Designated as hedging instruments

Total assets measured at fair value

730

5,140

Derivative liabilities:

Total liabilities measured at fair value

Issued debt

466

Total liabilities not measured at fair value

466

Fair value hierarchy

285

185

179

309

673

422

10,712

Financial assets at fair value through the income statement:

Designated as hedging instruments

Total assets measured at fair value

Designated as hedging instruments

Total liabilities measured at fair value

145

Issued debt

837

Total liabilities not measured at fair value

837

Estimation of the fair value of assets and liabilities

279

375

300

988

Total gains/(losses) recognised in:

(3)

153

221

Disposals

(1)

Transfer from right-of-use assets

Level 3 financial assets at 1 January 2021

309

422

285

1,047

128

173

Disposals1

125

282

305

(2)

305

(28)

285

(25)

Level 3 available for sale financial assets:

125

(2)

309

(4)

282

(6)

422

(7)

730

(38)

deferred tax

149

199

The movement in the UK deferred tax assets from the above changes is summarised below:

181

Impact of change in UK tax rate

Impact of lower profit forecast

1 year reduction in the forecast modelling period

50 basis points decrease in bond yields

CASH AND CASH EQUIVALENTS

921

Add: Bank overdrafts reported in Borrowings

share capital

125

ISSUED DEBT

2021

2020

397

403

348

Total issued debt

403

751

INSURANCE CONTRACT LIABILITIES

Net

RETIREMENT BENEFIT OBLIGATIONS

Other

9,107

500

9,855

409

418

326

275

Defined benefit pension schemes

409

426

326

Other post-retirement benefits

416

433

333

379

Movement during the period:

275

Current service costs

Administration costs

432

Experience losses

406

(420)

162

Benefit payments

176

(176)

421

(378)

Exchange adjustment

(3)

418

Deferred tax

IAS 19 net surplus net of deferred tax

194

Current service costs

186

Administration costs

Total (expenses)/income recognised in income statement

179

950

Effect of changes in financial assumptions

Experience gains

Investment expenses

940

(38)

Benefit payments

376

(376)

275

Deferred tax

IAS 19 net surplus net of deferred tax

290

Related party Transactions

Expenses

Assets

Liabilities

658

Collateral pledged

EVENTS AFTER THE REPORTING PERIOD
results for THE YEAR 2020

NOTES TO THE CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES

The reconciliation of net profit before tax to cash flows from operating activities is as follows:

211

Adjustments for non-cash movements in net profit for the period

100

(29)

238

(24)

(255)

114

144

289

APPENDIX A: EXCHANGE RATES

12 months

1.73

1.72

1.68

1.72

1.74

8.56

8.66

8.55

8.20

8.39

8.31

11.67

11.81

12.21

11.51

11.81

11.22

1.15

1.16

1.15

1.10

1.13

1.12

US Dollar

1.39

1.38

1.26

1.24

1.28

1.37

APPENDIX B: ALTERNATIVE PERFORMANCE MEASURES RECONCILIATIONS

IFRS reconciliation to management P&L

IFRS

Management

127

Other insurance income

Total income

430

(6)

Other insurance income

Total income

268

(3)

(60)

Profit from discontinued operations

154

Profit for the period

We confirm that to the best of our knowledge:

The interim management report includes a fair review of the information required by:

3 August 2021 3 August 2021

INDEPENDENT REVIEW REPORT TO RSA INSURANCE GROUP LIMITED

Conclusion

15 Canada Square

3 August 2021

(the "Company")

In accordance with its obligations under section 4.2.2. of the Disclosure Guidance and Transparency Rules, the Company announces that its Interim Results for the period ended 30 June 2021 are available on the Company's website at www.rsagroup.com. The document has also been submitted to the National Storage Mechanism and will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

In fulfilment of its obligations under sections 6.3.3(2) and 6.3.5(1) of the Disclosure Guidance and Transparency Rules, the Company hereby releases the unedited full text of its 2021 Interim Results for the period ended 30 June 2021.

Matthew Cohen

Group Head of Investor Relations

+44 (0) 7967 343 633

Natalie Whitty

Group Communications Director

+44 (0) 20 7111 7213

+44 (0) 7584 342052

INTERIM MANAGEMENT REPORT

For the 6 month period ended 30 June 2021

RSA Insurance Group Limited (the Company), formerly RSA Insurance Group plc, was re-registered as a private limited company on 26 May 2021 and 100% of the Company’s ordinary share capital was purchased by Regent Bidco Limited (a wholly owned subsidiary of Intact Financial Corporation (IFC)) on 1 June 2021. On 1 June 2021, the Company disposed of its operations in Scandinavia (Codan A/S) and Canada (Roins Holdings Limited), and these have been classified as discontinued operations (refer to note 5 for further information).

Principal activity

The principal activity of the Company, its subsidiaries and associates (together the Group or RSA) remains the transaction of insurance and related financial services predominantly in the United Kingdom, Ireland, Europe and Middle East.

Business review

The Group reports a profit before tax of £4,308m for the six month period to 30 June 2021 of which continuing operations contributed a loss before tax of £(249)m and discontinued operations a profit before tax of £4,557m (six month period to 30 June 2020: £11m and £200m profit before tax respectively).

On a continuing basis, profitable underwriting performance was impacted by specific accounting adjustments. These were in respect of reserve strengthening, primarily to align to IFC practices and to reflect heightened estimation uncertainty along with an increased level of reserve margin to reflect the methodology of IFC (refer to note 16 insurance contract liabilities) and £(61)m write-down of software assets (refer to note 10 goodwill and intangible assets). On the same continuing basis, losses before tax consisted of £(143)m underwriting losses (2020: £14m profit), £57m investment result (2020: £60m), £(6)m central costs (2020: £(3)m) and £(157)m of other charges (2020: £(60)m). Other charges were also hit by £(104)m of costs relating to the transaction and £(16)m of early redemption fees on the repayment of senior debt (within interest costs). Refer to note 6 operating segments for a full profit and loss breakdown.

Profit from discontinued operations before tax included a £4,388m gain on the disposal of the Group’s operations in Scandinavia and Canada (refer to note 5 discontinued operations).

Net written premiums were £2,898m of which £1,717m were in respect of continuing operations and £1,181m from discontinued (2020: £1,446m and £1,689m respectively).

Net assets of the Group are £2,799m (2020: £4,730m).

Other important events that have occurred after the period end include the announcement on 22 July 2021 that Motability Operations Ltd intend to switch to another insurance provider upon completion of the existing contract with RSA in 18 months’ time. No significant impact is anticipated in the 2021 financial results or financial position. Also, on 27 July 2021, the Group entered into a reinsurance contract for adverse development coverage which will reduce the potential volatility in the Group’s claims liabilities. Refer to note 19 Events after the reporting period for more detail.

Related party transactions

The group received a capital injection from Regent Bidco Limited of £1,021m during the period and also declared a dividend in specie of £6,914m. Refer to note 18 for further information on all related party transactions.

Key performance indicators (KPIs)

The Group use both IFRS and non-IFRS financial measures (alternative performance measures (APMs)) to assess performance, including common insurance industry metrics, as well as measures that management and the Board consider are useful to enhance the understanding of its performance and allow meaningful comparisons between periods and business segments.

As the Group is now a wholly owned subsidiary with no publicly listed ordinary share capital, the KPIs reported by the Group have been reassessed and have subsequently reduced.

Net written premiums for continuing operations £1,717m (2020: £1,446m): premiums incepted in the period, irrespective of whether they have been paid, less the amount shared with reinsurers. They represent how much premium the Group gets to keep for assuming risk. The Group targets growth - that is without compromising underwriting performance.

Underwriting result* for continuing operations £(143)m (2020: £14m): net earned premium less net claims and underwriting and policy acquisition costs. The Group aims to achieve an underwriting result that is as sustainably high as possible – that is without uncompetitive pricing or compromising reserves. The Group targets further improvements to its underwriting result.

(Loss)/profit before tax for continuing operations £(249)m (2020: £11m): the Group seeks to maximise its profit before tax, which is a key statutory measure of the earnings of the Group.

*The underwriting result is an Alternative Performance Measure (APM). Refer to Appendix B for reconciliation to the nearest IFRS measure. A ‘Jargon buster’ can also be found on pages 181 to 183 of the RSA Insurance Group plc Annual Report and Accounts 2020.

Principal risks and uncertainties

Following the disposal of the Group’s operations in Scandinavia and Canada, the principal risks and uncertainties of the Group have been reassessed. These are set out in note 4, risk and capital management.

CONDENSED CONSOLIDATED INCOME STATEMENT

STATUTORY BASIS

For the 6 month period ended 30 June 2021

Re-presented1

(Unaudited)

Note

£m

Continuing operations

Income

Gross written premiums

2,327

1,979

Less: reinsurance written premiums

(610)

(533)

Net written premiums

1,717

1,446

Change in the gross provision for unearned premiums

(155)

Change in provision for unearned reinsurance premiums

127

Change in provision for net unearned premiums

(28)

Net earned premiums

1,689

1,522

Net investment return

Other operating income

Total income

1,788

1,608

Expenses

Gross claims incurred

(1,657)

(1,245)

Less: claims recoveries from reinsurers

430

268

Net claims

(1,227)

(977)

Underwriting and policy acquisition costs

(645)

(576)

Unwind of discount

(3)

Other operating expenses

(131)

(26)

(2,006)

(1,582)

Finance costs

(31)

(15)

(Loss)/profit before tax from continuing operations

(249)

Income tax expense

(20)

(1)

(Loss)/profit after tax from continuing operations

(269)

Profit from discontinued operations, net of tax

4,528

154

Profit for the period

4,259

164

Attributable to:

Owners of the Parent Company from continuing operations

(272)

(2)

Owners of the Parent Company from discontinued operations

4,528

154

Total owners of the Parent Company

4,256

152

Non-controlling interests

4,259

164

1Comparatives have been re-presented to show Scandinavia and Canada as discontinued operations. Refer to note 5 for further information.

The following explanatory notes form an integral part of these condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

STATUTORY BASIS

For the 6 month period ended 30 June 2021

Re-presented1

(Unaudited)

£m

(Loss)/profit for the period from continuing operations

(269)

Profit for the period from discontinued operations

4,528

154

Profit for the period

4,259

164

Items from continuing operations that may be reclassified to the income statement:

Exchange (losses)/gains net of tax on translation of foreign operations

(19)

Fair value (losses)/gains on available for sale financial assets net of tax

(39)

(58)

Items from continuing operations that will not be reclassified to the income statement:

Pension – remeasurement of defined benefit asset/liability net of tax

(123)

Other comprehensive (expense)/income for the period from continuing operations

(181)

Other comprehensive (expense)/income for the period from discontinued operations

(129)

Total other comprehensive (expense)/income for the period

(310)

156

Comprehensive (expense)/income for the period from continuing operations

(450)

Comprehensive income for the period from discontinued operations (note 5)

4,399

230

Total comprehensive income for the period

3,949

320

Attributable to:

Owners of the Parent Company from continuing operations

(450)

Owners of the Parent Company from discontinued operations

4,399

230

Total owners of the Parent Company

3,949

294

Non-controlling interests

3,949

320

1Comparatives have been re-presented to show Scandinavia and Canada as discontinued operations. Refer to note 5 for further information.

The following explanatory notes form an integral part of these condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

STATUTORY BASIS

For the 6 month period ended 30 June 2021

(Unaudited)

Ordinary share capital

Ordinary share premium

Preference shares

Tier 1 notes

Revaluation reserves

Capital redemption reserve

Foreign currency translation reserve

Retained earnings

Equity attributable to owners of the Parent Company2

Non-controlling interests

Total

equity

£m

Balance at 1 January 2021

1,035

1,095

125

297

371

389

1,232

4,564

166

4,730

Total comprehensive income

Profit for the period

4,256

4,259

Other comprehensive expense for the period

(228)

(111)

(307)

(3)

(310)

(228)

4,145

3,949

Transactions with owners of the Group

Contribution and distribution

Dividends (note 9)

(6,926)

(10)

(6,936)

Shares issued for cash

1,023

1,030

Share-based payments

Transfers

(1)

Capital reduction1

(800)

(1,095)

(389)

2,284

234

(1,088)

(389)

(4,626)

(5,868)

(10)

(5,878)

Changes in shareholders' interests in subsidiaries

(2)

Total transactions with owners of the Group

234

(1,088)

(389)

(4,626)

(5,868)

(12)

(5,880)

Balance at 30 June 2021

1,269

125

297

144

751

2,645

154

2,799

Balance at 1 January 2020

1,032

1,090

125

297

259

389

(26)

1,003

4,169

173

4,342

Total comprehensive income

Profit for the period

152

164

Other comprehensive income for the period

142

156

166

294

320

Transactions with owners of the Group

Contribution and distribution

Dividends (note 9)

(12)

(5)

(17)

Shares issued for cash

Share-based payments

(6)

(1)

(5)

(6)

Balance at 30 June 2020

1,035

1,092

125

297

306

389

1,163

4,462

194

4,656

1 A reduction of the Company’s share capital of £800m, share premium of £1,095m and capital redemption reserve of £389m was effected in June 2021 by special resolution supported by a solvency statement which resulted in the creation of distributable reserves of £2,284m

2 Equity attributable to owners of the Parent Company was a new sub total at 31 December 2020 and includes Tier 1 notes. This has replaced the shareholders equity sub total disclosed in the 2020 interim financial statements, which did not include Tier 1 notes.

The following explanatory notes form an integral part of these condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

STATUTORY BASIS

As at 30 June 2021

(Unaudited)

(Audited)

Note

£m

Assets

Goodwill and other intangible assets

294

868

Property and equipment

116

237

Investment property

305

285

Investments in associates

Financial assets

5,038

11,826

Total investments

5,343

12,116

Reinsurers’ share of insurance contract liabilities

2,446

2,340

Insurance and reinsurance debtors

1,926

2,989

Deferred tax assets

149

199

Current tax assets

Other debtors and other assets

693

840

Other assets

845

1,062

Cash and cash equivalents

1,114

1,094

Total assets

12,084

20,706

Equity and liabilities

Equity

Equity attributable to owners of the Parent Company

2,645

4,564

Non-controlling interests

154

166

Total equity

2,799

4,730

Liabilities

Issued debt

403

751

Insurance contract liabilities

7,200

12,614

Insurance and reinsurance liabilities

907

932

Borrowings

132

Deferred tax liabilities

105

Current tax liabilities

Provisions

172

Other liabilities

682

1,230

Provisions and other liabilities

762

1,547

Total liabilities

9,285

15,976

Total equity and liabilities

12,084

20,706

The following explanatory notes form an integral part of these condensed consolidated financial statements.

The condensed financial statements were approved on 3 August 2021 by the Board of Directors and are signed on its behalf by:

Charlotte Jones

Group Chief Financial Officer

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

STATUTORY BASIS

For the 6 month period ended 30 June 2021

(Unaudited)

Note

£m

Cash flows from operating activities

Cash generated from operating activities

289

Tax paid

(93)

(51)

Net cash flows from operating activities

196

(43)

Cash flows from investing activities

Financial assets

1,115

1,560

Subsidiaries and associates (net of cash disposed of)

6,559

Financial assets

(1,411)

(1,364)

Property and equipment

(8)

(10)

Intangible assets

(53)

(54)

Subsidiaries

(1)

Net cash flows from investing activities

6,201

132

Cash flows from financing activities

Proceeds from issue of share capital

1,029

Dividends paid to ordinary shareholders

(6,914)

Coupon payment on Tier 1 notes

(7)

Dividends paid to preference shareholders

(5)

Dividends paid to non-controlling interests

(10)

(5)

Redemption of debt instruments

(350)

Payment of lease liabilities

(17)

(21)

Movement in other borrowings

(71)

(42)

Interest paid

(24)

(4)

Net cash flows from financing activities

(6,369)

(81)

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of the period

1,083

886

Effect of exchange rate changes on cash and cash equivalents

(10)

Cash and cash equivalents at end of the period

1,101

921

The following explanatory notes form an integral part of these condensed consolidated financial statements.

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 the Company’s ordinary share capital was purchased by Regent Bidco Limited (a wholly owned subsidiary of Intact Financial Corporation) on 1 June 2021 (the acquisition). The company is incorporated and domiciled in England and Wales and, through its subsidiaries and associates (together the Group or RSA), provides personal and commercial insurance products to its global customer base, principally in the UK, Ireland, Europe and Middle East. On 1 June 2021, the Group disposed of its operations in Scandinavia (Codan A/S) and Canada (Roins Holdings Limited), and these have been classified as discontinued operations (refer to note 5 for further information).

The annual financial statements were prepared in accordance with International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applied in the European Union and in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006, and the next annual financial statements will be prepared in accordance with UK-adopted International Accounting Standards. The condensed consolidated financial information in this half-yearly financial report has been prepared in accordance with the UK-adopted International Accounting Standard 34 ‘Interim Financial Reporting’ (IAS 34).

The condensed consolidated financial statements have been prepared on a going concern basis. In adopting the going concern basis, the Board has reviewed the Group’s ongoing commitments for the next twelve months and beyond. The Board’s assessment included the review of Group’s strategic plans and latest forecasts, capital position and liquidity including on demand capital funding arrangements with Intact Financial Corporation. These assessments include stress and scenario testing and consider significant areas of risk and uncertainty for the Group in the current challenging economic environment. Scenarios considered include the impacts and uncertainty as a result of the COVID-19 pandemic and the transition to a post Brexit environment. In making their assessment, the Board have reviewed the latest position on business interruption losses and availability of reinsurance to recover incurred claims and there have been no significant changes. 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 condensed consolidated statement of financial position and the approval of the condensed consolidated financial statements.

These condensed consolidated financial statements have been prepared by applying the accounting policies used in the 2020 Annual Report and Accounts (see note 5 and Appendix A therein), with the addition of the following discontinued operations accounting policy.

Discontinued operations accounting policy

A discontinued operation is a component of the Group that has been disposed of and represents a separate major line of business or geographical area of operation.

The profit from discontinued operations is shown separately on the face of the consolidated income statement as a single amount. It comprises the profit or loss after tax from discontinued operations together with the gain or loss after tax recognised on disposal. Further information can be found in note 5.

In the period 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.

In preparing these condensed consolidated financial statements, management has made judgements and calculated estimates in accordance with the Group’s accounting policies. Estimates are based on management’s best knowledge of current circumstances and expectation of future events and actions, which may subsequently differ from those used in determining the accounting estimates.

Estimates and their underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively. The significant estimates described below, including the underlying estimation techniques and assumptions, remain consistent with those reported in the 2020 Annual Report and Accounts (see note 2 for more information). 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.

Valuation of insurance contract liabilities: the assumptions used in the estimation of the eventual outcome of the claim events that have occurred but remain unsettled at the end of the reporting period. Refer to note 16 of this interim report and note 39 of the 2020 Annual Report and Accounts for additional information.

Measurement of defined benefit obligations: key actuarial assumptions. Refer to note 17 of this interim report and note 41 of the 2020 Annual Report and Accounts.

Recognition of deferred tax assets: availability of future taxable profits against which deductible temporary differences and tax losses carried forward can be utilised. Forecast future taxable profits include the potential impact of COVID-19 and are based on the continuing Group composition following the disposals of the Canadian and Scandinavian operations. Refer to note 12 of this interim report and note 31 of the 2020 Annual Report and Accounts for additional information.

Valuation of level 3 financial assets and investment properties: use of significant unobservable inputs. The continued economic uncertainty means that asset valuation techniques that rely on unobservable inputs have a greater degree of estimation uncertainty. Refer to note 11 of this interim report for additional information.

Measurement and impairment of goodwill and intangible assets: key assumptions applied in the valuation of the recoverable amount and the estimation of useful economic life. The value in use calculations are based on management’s latest operational plans, which include the potential impact of COVID-19 and are based on the continuing Group composition following the disposals of the Canadian and Scandinavian operations, and considering both RSA, and Intact Financial Corporation management future intent. Refer to note 10 of this interim report and note 23 of the 2020 Annual Report and Accounts for additional information.

Classification of financial assets in fair value hierarchy: management apply judgement when deciding to classify financial instruments for which immediate prices are available as being level 1 in the fair value hierarchy and financial assets for which observable prices are also available as level 2 on the basis of a lower level of activity in the market from which those prices are quoted. Refer to note 11 for additional information.

Impairment of financial assets: determining if there is objective evidence of impairment requires judgement and, in the 6 months to 30 June 2021, £2m of impairments have been recognised on a continuing basis (6 months to 30 June 2020: £2m) (note 7). The value of unrealised losses in the revaluation reserve at 30 June 2021 is £13m (31 December 2020: £84m).

Valuation of intangible assets: determining if there is evidence of impairment requires judgement and in the 6 months to 30 June 2021, £61m of internally generated software assets not yet available for use were written down (6 months to 30 June 2020: £nil). Refer to note 10 of this interim report for more information.

Valuation of insurance contract liabilities: management continually monitors claims experience, key assumptions and estimation techniques to determine best estimate provisions. As a result of management’s review given the current uncertain economic environment and in alignment with IFC practices, reserves have been strengthened and additional margin is held. Refer to note 16 for additional information.

Recognition of deferred tax assets: management apply judgement in the application of contingency on the estimation of future forecast taxable profits in determining the value of deferred tax asset to be recognised. Following the acquisition, the UK profit forecasts have been updated to reflect the latest view of taxable profits. A number of transactions post acquisition and a higher DTA contingency have reduced forecast UK taxable profits and have resulted in a £83m reduction in the UK deferred tax asset at 30 June 2021. This impact was offset by the effect of the UK tax rate increase on the UK deferred tax asset (£49m). Refer to note 12 of this interim report for additional information on these changes.

Transition from EU-adopted IAS to UK-adopted IAS

Following the end of the Brexit Transition Period, SI 2019/685 brought the International Accounting Standards (IAS) already endorsed in the EU into UK law as ‘UK-adopted international accounting standards’. The Group has applied UK-adopted IAS from 1 January 2021. As there are no changes when applying UK-adopted IAS, there has not been an impact on the Group with the exception of the following narrow scope amendments:

Extension of the Temporary Exemption from Applying IFRS 9

IFRS 9 has been issued to replace IAS 39 ‘Financial Instruments: Recognition and Measurement’ (IAS 39). IFRS 4 ‘Insurance Contracts’ (IFRS 4) permits an insurance company that meets the criteria a temporary exemption from applying IFRS 9 and continue to apply IAS 39. The exemption has been extended by two years to annual periods beginning before 1 January 2023.

The Group meets the criteria and has elected to defer the application of IFRS 9 to the reporting period beginning on 1 January 2023, alongside IFRS 17.

Other standards

Other amendments to UK-adopted IAS became mandatory as of 1 January 2021. The Group has evaluated these changes, none of which have had a significant impact on the condensed consolidated financial statements.

Risk management

Following the disposals of the Group’s operations in Scandinavia and Canada, the Group’s exposures to certain risks arising from its financial instruments have materially changed as at 30 June 2021 and the updated positions have been set out below.

Except for the quantitative impact of the disposals on exposures, the Group’s principal risks and uncertainties are broadly consistent with those reported in the 2020 Annual Report & Accounts. Where there have been any changes since those last reported updates have been included in the relevant sections.

Risk and capital management information can be found in note 6 on pages 114 to 122 of the 2020 Annual Report & Accounts.

Insurance risk - reserving risk

There is a risk to the Group from the inherent uncertainty in estimating provisions at the end of the reporting period for the eventual outcome of outstanding notified claims as well as estimating the number and value of claims that are still to be notified. This is especially true due to the heightened uncertainty arising through 2020 and 2021 as the direct and indirect impacts of the COVID-19 pandemic evolve. There is also uncertainty in the level of future costs of handling and settling the outstanding claims.

The Group seeks to reduce its reserving risk through the use of experienced, regional actuaries who estimate the actuarial indication of the required reserves based on claims experience, business volume, anticipated change in the claims environment and claims cost. This information is used by local reserving committees to recommend to the newly established UK&I Reserving Committee (formed to replace the former RSA Group Reserving Committee further to the acquisition) the appropriate level of reserves for each region. This will include adding a margin onto the actuarial indication as a provision for unforeseen developments such as future claims patterns differing from historical experience, future legislative changes and the emergence of latent exposures. The UK&I Reserving Committee reviews these local submissions and recommends the final level of reserves to be held by the Group. The UK&I Reserving Committee is chaired by the UK&I Chief Financial Officer and includes the UK&I Chief Executive, UK&I Underwriting Director, UK&I Claims Director, Managing Directors for key business units, UK&I Chief Actuary and UK&I Chief Risk Officer. A similar committee has been established in each of the UK&I’s primary operating segments. The UK&I Reserving Committee monitors the decisions and judgements made by the business units as to the level of reserves to be held. It then recommends to the Group Board via the Group Audit Committee the final decision on the level of reserves to be included within the consolidated financial statements. In forming its collective judgement, the committee considers the following information:

The actuarial indication of ultimate losses together with an assessment of risks and possible favourable or adverse developments that may not have been fully reflected in calculating these indications. These risks and developments include: the possibility of future legislative change having a retrospective effect on open claims or changes in interpretation or regulatory application of existing legislation; changes in claims settlement practice or procedures potentially leading to future claims payment patterns differing from historical experience; the possibility of new types of claim arising either from changes in business mix, or, such as disease claims emerging from historical business; general uncertainty in the claims environment and emerging claims trends; the emergence of latent exposures; the outcome of litigation on claims received; failure to recover reinsurance as we expect and unanticipated changes in claims inflation.

How previous actuarial indications have developed as claims experience has evolved.

The views of internal peer reviewers of the reserves and of other parties including actuaries, legal counsel, risk directors, underwriters and claims managers.

The outcome from independent assurance reviews performed by both external actuarial consultants and the Intact Financial Corporation Group Actuarial Function to assess the reasonableness of regional actuarial indication estimates.

Emerging trends where COVID-19 has caused changes in experience along with analysis to demonstrate the impact on reserving estimates. Some areas such as business interruption have observed direct claims, whereas other lines have seen indirect changes in policyholder behaviour such as reduced motor frequency during lockdown which can change the mix of claims.

Changes in the external claims environment in areas such as legal and medical activities which impact the speed of claims development. The distortions in data caused by the various issues means identification of trends is more difficult than normal. Claims experience may exhibit different characteristics and runoff trends compared to historic experience, resulting in increased uncertainty relating to actuarial indications of ultimate losses.

COVID-19 claims experience, which continues to be monitored closely and the Group is engaging with its reinsurers as payment and settlement activity grows following the increased clarity brought by the Supreme Court judgement on 15 January 2021. Whilst experience has tracked in line with the Groups expectations to this stage, it is still relatively early in the process. 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. It may take many months before clarity increases on these gross and reinsurance uncertainties as claims details and consideration of these evolve.

Given the COVID-19 pandemic and other changes such as Brexit, there is considerable uncertainty in the economic environment through 2021 and beyond, and the potential impacts any changes in the economic environment could have on claims costs, such as inflationary pressure. This is a key uncertainty that is monitored by Reserving Committee with sensitivity testing to monitor, assess and understand potential impacts should the risks manifest.

As a result of the disposal of Codan A/S on 1 June 2021, the Group is no longer exposed to very long-tail liabilities in Scandinavia that are closely tied to the economic, legislative and social environment. The relevant classes of business that fell into this category were Denmark Workers Compensation, Swedish Personal Accident, and Swedish Motor annuities. Selling these liabilities has materially reduced the Group’s exposure to this type of risk.

Credit risk

The Group’s largest reinsurance exposures to active reinsurance groups are Berkshire Hathaway, Lloyd’s of London and Talanx. At 30 June 2021 the reinsurance asset recoverable from these groups does not exceed 8.5% (31 December 2020: 3.9%) of the Group’s total financial assets. Stress tests are performed by reinsurer counterparty and the limits are set such that in a catastrophic event, the exposure to a single reinsurer is estimated not to exceed 14.9% (31 December 2020: 6.3%) of the Group’s total financial assets.

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 30 June 2021

Credit rating relating to financial assets that are neither past due nor impaired

AAA

BBB

<BBB

Not rated

Total financial assets that are neither past due nor impaired

£m

Debt securities

706

1,253

1,456

1,042

173

4,630

Of which would qualify as solely for payment of principal and interest (SPPI) under IFRS 91

706

1,234

1,400

938

4,353

Loans and receivables2

193

282

Reinsurers’ share of insurance contract liabilities

619

1,711

2,446

Insurance and reinsurance debtors3

926

820

1,830

Derivative assets

Other debtors

Cash and cash equivalents

791

291

1,114

1 The debt securities meeting SPPI criteria under IFRS 9 which are below investment grade are stated under IAS 39 at fair value.

2 Loans and receivables are measured using amortised cost and their carrying amounts are considered to be as approximate fair values.

3 The insurance and reinsurance debtors classified as not rated comprise personal policyholders and small corporate customers that do not have individual credit ratings. Credit risk of this balance is managed through close monitoring of ageing profiles and cover can be cancelled if payment isn’t received in accordance with agreed credit terms.

As at 31 December 2020

Credit rating relating to financial assets that are neither past due nor impaired

AAA

BBB

<BBB

Not rated

Total financial assets that are neither past due nor impaired

£m

Debt securities

4,978

2,026

2,295

1,288

107

10,698

Of which would qualify as SPPI under IFRS 91

4,977

2,006

2,065

1,159

10,302

Loans and receivables2

274

429

Reinsurers’ share of insurance contract liabilities

670

1,554

2,337

Insurance and reinsurance debtors3

928

1,803

2,842

Derivative assets

125

Other debtors

140

178

Cash and cash equivalents

447

207

343

1,094

1 The debt securities meeting SPPI criteria under IFRS 9 which are below investment grade are stated under IAS 39 at fair value.

2 Loans and receivables are measured using amortised cost and their carrying amounts are considered to be as approximate fair values.

With the exception of government debt securities, the largest single aggregate credit exposure does not exceed 3% (31 December 2020: 2%) of the Group’s total financial assets.

Ageing of financial assets that are past due but not impaired

The following table provides information regarding the carrying value of financial assets that have been impaired and the ageing of financial assets that are past due but not impaired, excluding those assets that have been classified as held for sale.

As at 30 June 2021

Financial assets that are past due but not impaired

Financial assets that have been impaired

Carrying value in the statement of financial position

Impairment losses charged/(reversed) to the income statement during the period

Neither past due nor impaired

Up to three months

Three to six months

Six months to one year

Greater than one year

Note

£m

Debt securities

4,630

Loans and receivables

282

Reinsurers’ share of insurance contract liabilities

2,446

Insurance and reinsurance debtors1

1,830

1,926

Derivative assets

Other debtors

103

Cash and cash equivalents

1,114

1 Debtors with similar credit risk characteristics are collectively assessed for impairment with provisions being made based on past experience.

As at 31 December 2020

Neither past due nor impaired

Financial assets that are past due but not impaired

Financial assets that have been impaired

Carrying value in the statement of financial position

Impairment losses charged/(reversed) to the income statement during the period

Up to three months

Three to six months

Six months to one year

Greater than one year

Note

£m

Debt securities

10,698

10,724

Loans and receivables

429

Reinsurers’ share of insurance contract liabilities

2,337

2,340

Insurance and reinsurance debtors1, 2

2,842

2,989

Derivative assets

125

Other debtors

178

185

Cash and cash equivalents

1,094

1 Debtors with similar credit risk characteristics are collectively assessed for impairment with provisions being made based on past experience.

2 Included within impairment losses charged in the period is a £10m write off in relation to aged debtors in Sweden.

Market risk

Equity risk

At 30 June 2021 the Group held investments classified as AFS equity securities of £126m (31 December 2020: £673m). These include interests in structured entities and other investments where the price risk arises from interest rate risk rather than from equity market price risk. The Group considers that within AFS equity securities, investments with a fair value of £1m (31 December 2020: £190m) may be more affected by equity index market price risk than by interest rate risk. The significant reduction in exposure to equity index market price risk is due to the disposals of the Group’s operations in Scandinavia and Canada. On this basis a 15% fall in the value of equity index prices would result in the recognition of losses of £nil (2020: £29m) in other comprehensive income.

This analysis assumes that all other assets and liabilities remain unchanged and that no management action is taken. This analysis does not represent management’s view of future market change, but reflects management’s view of key sensitivities.

This analysis is presented gross of the corresponding tax credits/(charges).

Interest rate risk

Given the composition of the Group’s investments as at 30 June 2021, the table below illustrates the impact to the income statement and other comprehensive income of a hypothetical 100bps change in interest rates on fixed income securities and cash that are subject to interest rate risk.

Increase in income statement

Decrease in other comprehensive income

£m

Impact on fixed income securities and cash of an increase in interest rates of 100bps

(149)

(440)

The Group principally manages interest rate risk by holding investment assets (predominantly fixed income) that generate cash flows which broadly match the duration of expected claim settlements and other associated costs.

The sensitivity of the fixed interest securities of the Group has been modelled by reference to a reasonable approximation of the average interest rate sensitivity of the investments held within each of the portfolios. The effect of movement in interest rates is reflected as a one time rise of 100bps on 1 July 2021 and 1 January 2021 on the following year’s income statement and other comprehensive income. The impact of an increase in interest rates on the fair value of fixed income securities that would be initially recognised in OCI will reduce over time as the maturity date approaches.

Currency risk

The sale of the Canadian and Scandinavian subsidiaries on 1 June 2021 has simplified the structural currency exposure of the Group, noting the remaining material subsidiaries are exclusively denominated in EUR or USD.

At 30 June 2021, the Group’s equity attributable to owners of the Parent Company deployed by currency was:

Pounds Sterling

Euro

United States Dollar1

Other2

Total

£m

Equity attributable to owners of the Parent Company at 30 June 2021

2,354

105

193

(7)

2,645

Equity attributable to owners of the Parent Company at 31 December 2020

2,579

335

204

1,446

4,564

1 United States Dollar equity includes equity denominated in Bahraini Dinar, Omani Rihal, Saudi Arabian Riyal and UAE Dirham, currencies which are pegged to the United States Dollar.

2 Other as at 31 December 2020 includes the Danish Krone, Swedish Krona and Canadian Dollar equity in respect of the subsidiaries disposed of.

Equity attributable to owners of the Parent Company is stated after taking account of the effect of currency forward contracts, swaps and foreign exchange options. Hedging arrangements in place to manage the structural currency risk related to the Group’s operations in Scandinavia and Canada have been closed out following the disposals on 1 June 2021.

The table below illustrates the impact of a hypothetical 10% change in Euro or US Dollar exchange rates on equity attributable to owners of the Parent Company when retranslating into sterling.

£m

10% strengthening in Pounds Sterling against Euro

(10)

(30)

10% weakening in Pounds Sterling against Euro

10% strengthening in Pounds Sterling against US Dollar

(18)

(19)

10% weakening in Pounds Sterling against US Dollar

Changes arising from the retranslation of foreign subsidiaries’ net asset positions from their primary currencies into Sterling are taken through the foreign currency translation reserve and so consequently these movements in exchange rates have no impact on profit or loss.

Liquidity risk

The following table summarises the contractual repricing or maturity dates, whichever is earlier. Provision for losses and loss adjustment expenses are presented and are analysed by remaining estimated duration until settlement.

As at 30 June 2021

Less than

one year

One to two years

Two to three years

Three to four years

Four to five years

Five to ten years

Greater than

ten years

Total

Carrying value in the statement of financial position

Note

£m

Subordinated guaranteed US$ bonds1

Guaranteed subordinated notes due 20451

400

397

Provisions for losses and loss adjustment expenses

2,183

981

590

317

202

443

499

5,215

Direct insurance creditors

Reinsurance creditors

570

198

834

Borrowings

Deposits received from reinsurers

Derivative liabilities

Lease liabilities1

Total

2,863

1,195

667

332

612

475

571

6,715

6,700

Interest on bonds and notes

1Maturity profile shown on an undiscounted basis

As at 31 December 2020

Less than

one year

One to two years

Two to three years

Three to four years

Four to five years

Five to ten years

Greater than

ten years

Total

Carrying value in the statement of financial position

Note

£m

Subordinated guaranteed US$ bonds1

Senior notes due 20241

350

348

Guaranteed subordinated notes due 20451

400

397

Provisions for losses and loss adjustment expenses

3,106

1,885

1,108

721

492

1,088

979

9,379

Direct insurance creditors

121

Reinsurance creditors

537

201

811

Borrowings

132

Deposits received from reinsurers

Derivative liabilities

105

145

Lease liabilities1

231

204

Total

3,975

2,121

1,211

1,098

918

1,148

1,113

11,584

11,551

Interest on bonds and notes

127

1Maturity profile shown on an undiscounted basis

The above maturity analysis is presented on a discounted basis, with the exception of issued debt and lease liabilities, for consistency with the consolidated statement of financial position and supporting notes.

The capital and interest payable on the bonds and notes have been included until the earliest dates on which the Group has the option to call the instruments and the interest rates are reset.

Capital management

Following the acquisition of the Group by Regent Bidco Limited on 1 June 2021, the Company is no longer a regulated entity, however its principal operating subsidiary, Royal & Sun Alliance Insurance Limited (RSAI) is deemed to be equivalent from a risk perspective and therefore is covered within the capital management section.

It is a key regulatory requirement that RSAI maintains sufficient capital to support its exposure to risk. Accordingly, RSAI’s capital management strategy is closely linked to its monitoring and management of risk. RSAI’s capital objectives consist of striking the right balance between the need to support claims liabilities and ensure the confidence of policyholders, exposure to other risks, support competitive pricing strategies, meet regulatory capital requirements, and providing adequate returns for its shareholder.

RSAI’s overall capital position is primarily comprised of shareholders’ equity and subordinated loan capital and aims to maximise shareholder value, while maintaining financial strength and adequate regulatory capital. In addition RSAI aims to hold sufficient capital so as to maintain its single ‘A’ credit rating.

RSAI holds an appropriate level of capital to satisfy all applicable regulations. Compliance with regulatory requirements is embedded within the Board Risk Committee mandate, for the protection of RSAI’s policyholders and the continuation of the RSAI’s ability to underwrite.

Regulatory solvency position

RSAI operates a Prudential Regulation Authority (PRA) approved Solvency II Internal Model which forms the basis of the primary Solvency II solvency capital ratio (SCR) measure. The internal model is used to support, inform and improve RSAI’s decision making. It is used to inform RSAI’s optimum capital structure, its investment strategy, its reinsurance programme and target returns for each portfolio.

As at 30 June 2021, RSAI’s estimated coverage of its Solvency II SCR is approximately 1.6 times (31 December 2020: 2.0 times).

On 1 June 2021, the Group disposed of its operations in Scandinavia and Canada. These have been classified as discontinued operations in the consolidated income statement and consolidated statement of comprehensive income, and the comparatives have been re-presented on this basis.

Income statement of discontinued operations

For the 6 month period ended 30 June 2021

£m

Income

Gross written premiums

1,269

1,773

Less: reinsurance written premiums

(88)

(84)

Net written premiums

1,181

1,689

Change in the gross provision for unearned premiums

(97)

(160)

Change in provision for unearned reinsurance premiums

Change in provision for net unearned premiums

(58)

(127)

Net earned premiums

1,123

1,562

Net investment return

Other operating income

Total income

1,203

1,624

Expenses

Gross claims incurred

(711)

(1,017)

Less: claims recoveries from reinsurers

Net claims

(709)

(1,014)

Underwriting and policy acquisition costs

(297)

(375)

Unwind of discount and change in economic assumptions

(10)

(20)

Other operating expenses

(19)

(13)

(1,035)

(1,422)

Finance costs

(1)

(2)

Gain on disposal of business

Profit before tax from operating activities

169

200

Income tax expense

(29)

(46)

Profit after tax from operating activities

140

154

Gain on disposal of discontinued operation

4,388

Profit after tax from discontinued operation

4,528

154

Attributable to:

Owners of the Parent Company

4,528

154

Non-controlling interests

4,528

154

Statement of comprehensive income of discontinued operations

For the 6 month period ended 30 June 2021

£m

Profit for the period

4,528

154

Items that may be reclassified to the income statement:

Exchange gains net of tax on translation of foreign operations

Fair value losses on available for sale financial assets net of tax

(183)

(13)

(141)

Items that will not be reclassified to the income statement:

Pension – remeasurement of defined benefit asset/liability net of tax

Total other comprehensive (expense)/income for the period

(129)

Total comprehensive income for the period

4,399

230

Attributable to:

Owners of the Parent Company

4,399

230

Non-controlling interests

4,399

230

Cash flows from discontinued operations

For the 6 month period ended 30 June 2021

£m

Net cash flows from operating activities

187

Net cash flows from investing activities

6,562

(25)

Net cash flows from financing activities

(81)

(115)

Net increase in cash and cash equivalents

6,535

Gain on disposal of discontinued operations

£m

Consideration

6,913

Goodwill and other intangible assets

521

Property and equipment

123

Investments in associates

Financial assets

6,603

Reinsurers' share of insurance contract liabilities

1,073

Insurance and reinsurance debtors

1,194

Deferred tax assets

Current tax assets

Other debtors and other assets

182

Cash and cash equivalents

357

Total assets

10,122

Insurance contract liabilities

6,659

Insurance and reinsurance liabilities

159

Borrowings

Deferred tax liabilities

Current tax liabilities

Provisions

Other liabilities

500

Total liabilities

7,550

Total net assets disposed of

2,572

Net assets disposed of attributable to non-controlling interests

Net assets disposed of attributable to owners of the Parent Company

2,570

Gain on disposal of discontinued operation before recycling of items from other comprehensive income

4,343

Fair value gains on available for sale financial assets

114

Exchange losses on translation of foreign operations

(69)

Total gains recycled to income statement

Gain on disposal of discontinued operation

4,388

NOTES TO THE CONDENSED CONSOLIDATED INCOME STATEMENT, CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND DIVIDENDS

The Group’s primary operating segments comprise UK, International and Central Functions. Canada and Scandinavia are shown as discontinued operations following the disposal of these operations. The primary operating segments are based on geography and are all engaged in providing personal and commercial general insurance services. International comprises of all other operating segments based in Middle East, Ireland, and Europe, which individually do not meet the criteria of a reportable segment. Central Functions include the Group’s internal reinsurance function and Group Corporate Centre.

The basis of the segmental disclosure has been reassessed following the acquisition of the Group and the disposal of the Group’s operations in Scandinavia and Canada, with UK and International now shown separately.

Each operating segment is managed by individuals who are accountable to the Group Chief Executive and the Group Board of Directors, who together are considered to be the chief operating decision maker in respect of the operating activities of the Group. The UK is the Group’s country of domicile and one of its principal markets.

As explained in note 1, where intragroup arrangements between continuing and discontinued operations continue after the disposal, the continuing operations are presented as if the income/expense had always been an external party, with the result of the discontinued operation being reduced to offset.

Assessing segment performance

Net written premiums

Underwriting result

Net written premiums are the key measure of revenue used in internal reporting.

Underwriting result is the key internal measure of profitability of the operating segments.

Underwriting result and business operating result are Alternative Performance Measures (APMs). Refer to Appendix B for a reconciliation to the nearest IFRS measure. A ‘Jargon buster’ can also be found on pages 181 to 183 of the RSA Insurance Group plc Annual Report and Accounts 2020.

Transfers or transactions between segments are entered into under normal commercial terms and conditions that would also be available to unrelated third parties.

Segment revenue and results

Period ended 30 June 2021

International

Central Functions

Total continuing operations

Discontinued operations

Total Group

£m

Net written premiums

952

363

402

1,717

1,181

2,898

Underwriting result2

(143)

(27)

(143)

134

(9)

Investment result

Central costs and other activities

(6)

Business operating result (management basis)

(92)

171

Realised (losses)/gains

(7)

Unrealised (losses)/gains, impairments and foreign exchange

(16)

(14)

Interest costs

(31)

(1)

(32)

Amortisation of intangible assets

(2)

Pension net interest and administration costs (note 17)

(1)

Transaction costs1

(104)

(11)

(115)

Gain on disposal of business

4,390

Profit before tax

(249)

4,557

4,308

Tax on operations

(20)

(29)

(49)

Profit after tax

(269)

4,528

4,259

2 A profitable UK underwriting result has been offset by the impacts of reserve strengthening in aligning to IFC practices and due to heightened uncertainty and an increased level of reserve margin to reflect the methodology of IFC (note 16) and £(61)m write down of internally generated software (note 10).

Period ended 30 June 2020

Re-presented1

International

Central Functions

Total continuing operations

Discontinued operations

Total Group

£m

Net written premiums

926

365

155

1,446

1,689

3,135

Underwriting result

(42)

193

207

Investment result

112

Central costs and other activities

(3)

Business operating result (management basis)

245

316

Realised (losses)/gains

(4)

(1)

Unrealised losses, impairments and foreign exchange

(24)

(27)

(51)

Interest costs

(15)

(2)

(17)

Amortisation of intangible assets

(1)

(5)

(6)

Impairment of goodwill

(5)

Pension net interest and administration costs

(1)

Reorganisation costs

(18)

Changes in economic assumptions

(8)

Profit before tax

200

211

Tax on operations

(1)

(46)

(47)

Profit after tax

154

164

1Comparatives have been re-presented to show Scandinavia and Canada as discontinued operations (see note 5 for further information) and for the new segmental basis explained above, with UK shown separately from International.

Investment income

Net realised (losses)/gains

Net unrealised (losses)/gains

Impairments

Total investment return

£m

Investment property

(1)

(14)

(5)

Equity securities

Available for sale

(2)

(1)

Debt securities

Available for sale

(5)

(1)

(2)

At FVTPL

(12)

(1)

(12)

(1)

Other loans and receivables

Loans secured by mortgages

Other loans

Deposits, cash and cash equivalents

(4)

(2)

Derivatives

(5)

(4)

Other

(2)

Continuing operations

(7)

(4)

(12)

(20)

(2)

Discontinued operations

(16)

(11)

(18)

Total net investment return

130

134

(1)

(36)

(13)

(20)

123

Unrealised gains and losses recognised in other comprehensive income for available for sale assets are as follows:

Net unrealised (losses)/gains

Net realised losses/(gains) transferred to income

statement

Impairments transferred to income statement

Net movement recognised in other comprehensive income

£m

Equity securities

(2)

(1)

Debt securities

(79)

(74)

Other

Continuing operations

(81)

(72)

Discontinued operations

(85)

(29)

(168)

(3)

(242)

(14)

Total

(166)

(161)

(3)

(314)

INCOME TAX

Income tax expense is calculated based on management’s estimate of the weighted average effective annual income tax rate expected for the full financial year by region, adjusted for the tax effect of certain items recognised in full in the interim period. As such, the effective tax rate in the interim financial statements may differ from management’s estimate of the effective tax rate for the annual financial statements.

The Group reported a tax charge for continuing operations for the six months ended 30 June 2021 of £20m (six months ended 30 June 2020: £1m), giving an effective tax rate of (8.1)% (six months ended 30 June 2020: 9%).

The main drivers of the Group’s tax charge (and effective tax rate) for the continuing operations for the six months to 30 June 2021 are as follows:

The Group made a loss for tax purposes in the period to 30 June 2021 on its continuing UK operations of £209m. These tax losses have not been recognised for deferred tax purposes due to insufficient future taxable profits. The tax loss of £209m includes the impact of non-deductible expenses predominantly related to the acquisition of the Group (£86m). The tax impact of the unrecognised losses in the income statement is an increased tax charge of £40m.

In May 2021, the change in the UK tax rate from 19% to 25% from 1 April 2023 was substantively enacted. The change in tax rate increased the valuation of the Group’s UK deferred tax assets, which has been reflected in the period to 30 June 2021. In addition, the UK deferred tax asset was partially derecognised in the period to 30 June 2021 following the latest view of taxable profits post the acquisition (see note 12 for further detail). The combined impact of the tax rate change and derecognition on the deferred tax asset reported in the income statement is an £11m charge.

A £4m current tax charge arose in relation to intra-group interest received from Canada for which no UK group relief was claimed.

The low effective tax rate of 1.1% in respect of total profits (including discontinued operations) for the period to 30 June 2021 is mainly due to the non-taxable gain realised on the disposal by the Group of its Canadian and Scandinavian subgroups as part of the restructuring post the acquisition. The £4.4bn gain realised on these disposals is not subject to tax due to the applicability of the UK substantial shareholding exemption. This had a c£830m favourable impact on the Group’s tax charge for discontinued operations.

£m

Ordinary dividend

6,914

Preference dividend

Tier 1 notes coupon payment

6,926

Following the acquisition of the Group and the disposal of the Group's operations in Scandinavia and Canada, a dividend in specie of £6,914m was paid to Regent Bidco Limited. The dividend was settled with highly liquid financial instruments, classified as cash equivalents.

£m

Goodwill

330

Externally acquired software

Internally generated software

251

499

Customer related intangibles1

Total goodwill and other intangible assets

294

868

1Customer related intangibles includes customer lists and renewal rights.

The disposal of the Group's operations in Scandinavia and Canada has reduced goodwill and other intangible assets by £521m in the period. Refer to note 5 for further detail.

The carrying value of intangible assets not yet available for use at 30 June 2021 is £74m (31 December 2020: £188m). This primarily relates to the implementation of strategic software assets in the UK and Ireland (2020 including Canada and Scandinavia also).

Impairment assessments

A review for indications of impairment since the end of the last annual reporting period has been performed.

The disposals as detailed above, were in respect of the Canadian and Scandinavian Cash Generating Units (CGU’s). There have been no other changes to the CGU’s recognised by the Group.

The appropriateness of key assumptions and operational plans underpinning the 2020 year end value in use calculations have been reviewed, including the potential impact of the acquisition on cash flow projections. Lower forecast profits are expected in the UK due to transitional costs associated with the acquisition along with increased contingency to reflect increased uncertainty in the forecast following the acquisition. This change in cashflow projections did not significantly impact headroom. Overall, no material adverse changes have been identified.

Following this review, no impairments of Goodwill were required as at 30 June 2021 with recoverable values sufficiently exceeding carrying values. For more information on the headroom for the remaining CGU’s and sensitivities relating to the key assumptions refer to note 23 of the 2020 Annual Report and Accounts.

The acquisition has resulted in a strategic reassessment of programme plans for certain UK internally generated software assets. Impairment indicators were identified for assets not yet available for use for which there are no future economic benefits expected. As a result of this a £61m write down has been recognised in Underwriting and policy acquisition costs.

Financial assets

£m

Equity securities

126

673

Debt securities

4,630

10,724

Financial assets measured at fair value

4,756

11,397

Loans and receivables

282

429

Total financial assets

5,038

11,826

The disposal of the Group's operations in Scandinavia and Canada has reduced financial assets by £6,603m in the period. Refer to note 5 for further detail.

The Group qualifies for temporary exemption from applying IFRS 9 ‘Financial Instruments’ on the grounds that it has not previously applied any version of IFRS 9 and its activities are predominantly connected with insurance, with the carrying amount of its liabilities within the scope of IFRS 4 and debt instruments included within regulatory capital being greater than 90% of the total carrying amount of all its liabilities at 31 December 2015 and with no subsequent change in its activities.

The fair value at 30 June 2021 and change during the period of financial assets that are held to collect cash flows on specified dates that are solely for payment of principal and interest (SPPI) and are not held for trading as defined under IFRS 9, nor are managed or evaluated on a fair value basis, is set out below, together with the same information for other financial assets:

As at 30 June 2021

Other financial assets

Total

£m

Available for sale equity securities

126

Available for sale debt securities

4,353

277

4,630

Loans and receivables

282

Derivative assets held for trading

Total

4,635

462

5,097

As at 31 December 2020

Other financial assets

Total

£m

Available for sale equity securities

673

Available for sale debt securities

10,302

410

10,712

Debt securities at FVTPL

Loans and receivables

429

Derivative assets held for trading

Total

10,731

1,180

11,911

The fair value gains/losses of SPPI financial assets and other financial assets during the six months to 30 June 2021 are £356m losses (12 months to 31 December 2020: £144m gains) and £36m gains (12 months to 31 December 2020: £80m losses) respectively.

When IFRS 9 is adopted by the Group (currently expected to be 2023) an expected credit loss provision will be recognised replacing the incurred credit loss provision under IAS 39, the impact of which will be determined by the financial instruments held at that time.

Companies within the Group that are applying IFRS 9 and disclose relevant information in their own published financial statements in addition to that already included in these condensed consolidated financial statements are indicated in Appendix B of the 2020 Annual Report and Accounts.

Fair value measurements recognised in the statement of financial position

The following table provides an analysis of financial instruments and other items that are measured subsequent to initial recognition at fair value as well as financial liabilities not measured at fair value, grouped into Levels 1 to 3. The table does not include financial assets and liabilities not measured at fair value if the carrying value is a reasonable approximation of fair value.

Fair value hierarchy

Level 1

Level 2

Level 3

Total

£m

Group occupied property - land and buildings

Investment property

305

Equity securities

125

126

Debt securities

1,405

2,943

282

4,630

1,405

2,944

730

5,079

At fair value through the income statement

Designated as hedging instruments

Total assets measured at fair value

1,405

3,005

730

5,140

At fair value through the income statement

Designated as hedging instruments

Total liabilities measured at fair value

Issued debt

466

Total liabilities not measured at fair value

466

Fair value hierarchy

Level 1

Level 2

Level 3

Total

£m

Group occupied property - land and buildings

Investment property

285

Equity securities

185

179

309

673

Debt securities

2,416

7,874

422

10,712

Debt securities

2,601

8,053

1,047

11,701

At fair value through the income statement

Designated as hedging instruments

Total assets measured at fair value

2,601

8,178

1,047

11,826

At fair value through the income statement

Designated as hedging instruments

Total liabilities measured at fair value

145

Issued debt

837

Total liabilities not measured at fair value

837

Estimation of the fair value of assets and liabilities

Fair value is used to value a number of assets within the statement of financial position and represents their market value at the reporting date.

Cash and cash equivalents, loans and receivables, other assets and other liabilities

For cash and cash equivalents, loans and receivables, commercial paper, other assets, liabilities and accruals, their carrying amounts are considered to be as approximate fair values.

Group occupied property and investment property

Group occupied properties are valued annually on a vacant possession basis using third party valuers. Investment properties are valued, at least annually, at their highest and best use.

The fair value of property has been determined by external, independent valuers, having appropriate recognised professional qualifications and recent experience in the location and category of the property being valued.

The valuations of Group occupied properties and investment properties are based on the comparative method of valuation with reference to sales of other comparable buildings. Fair value is then determined based on the locational qualities and physical building characteristics (principally condition, size, specification and layout) together with factoring in the occupational lease terms and tenant covenant strength as appropriate.

Derivative financial instruments

Derivative financial instruments are financial contracts whose fair value is determined on a market basis by reference to underlying interest rate, foreign exchange rate, equity or commodity instrument or indices.

Issued debt

The fair value measurement of the Group’s issued debt instruments, with the exception of the subordinated guaranteed US$ bonds, are based on pricing obtained from a range of financial intermediaries who base their valuations on recent transactions of the Group’s issued debt instruments and other observable market inputs such as applicable risk free rate and appropriate credit risk spreads.

The fair value measurement of the subordinated guaranteed US$ bonds is also obtained from an indicative valuation based on the applicable risk-free rate and appropriate credit risk spread.

Fair value hierarchy

Fair value for all assets and liabilities, which are either measured or disclosed, is determined based on available information and categorised according to a three-level fair value hierarchy as detailed below:

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 fair value measurements are those derived from data other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

Level 3 fair value measurements are those derived from valuation techniques that include significant inputs for the asset or liability valuation that are not based on observable market data (unobservable inputs).

A financial instrument is regarded as quoted in an active market (level 1) if quoted prices for that financial instrument are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis.

For level 1 and level 2 investments, the Group uses prices received from external providers who calculate these prices from quotes available at the reporting date for the particular investment being valued. For investments that are actively traded, the Group determines whether the prices meet the criteria for classification as a level 1 valuation. The price provided is classified as a level 1 valuation when it represents the price at which the investment traded at the reporting date, taking into account the frequency and volume of trading of the individual investment, together with the spread of prices that are quoted at the reporting date for such trades. Typically, investments in frequently traded government debt would meet the criteria for classification in the level 1 category. Where the prices provided do not meet the criteria for classification in the level 1 category, the prices are classified in the level 2 category.

In certain circumstances, the Group does not receive pricing information from an external provider for its financial investments. In such circumstances the Group calculates fair value, which may use input parameters that are not based on observable market data. Unobservable inputs are based on assumptions that are neither supported by prices from observable current market transactions for the same instrument nor based on available market data. In these cases, judgement is required to establish fair values. Changes in assumptions about these factors could affect the reported fair value of financial instruments.

The principal assets classified as Level 3, and the valuation techniques applied to them, are described below.

Investment property

Investment property valuations are carried out in accordance with the latest edition of the Valuation Standards published by the Royal Institution of Chartered Surveyors (RICS) and are undertaken by independent RICS registered valuers. Valuations are based on the comparative method with reference to sales of other comparable buildings and take into account the nature, location and condition of the specific property together with factoring in the occupational lease terms and tenant covenant strength as appropriate. The valuations also include an income approach using discounted future cash flows, which uses unobservable inputs, such as discount rates, rental values, rental growth rates, vacancy rates and void or rent free periods expected after the end of each lease. The valuations at 30 June 2021 reflects equivalent yield ranges between 4.05% and 11.35% (31 December 2020: 4.15% and 15.41%).

Private fund structures

Loan funds are principally valued at the proportion of the Group's holding of the Net Asset Value (NAV) reported by the investment vehicle. Several procedures are employed to assess the reasonableness of the NAV reported by the fund, including obtaining and reviewing periodic and audited financial statements and estimating fair value based on a discounted cash flow model that adds spreads for credit and illiquidity to a risk-free discount rate. Discount rates employed in the model at 30 June 2021 range from 0.2% to 4.6% (31 December 2020: 0.2% to 8.7%). If necessary, the Group will adjust the fund's reported NAV to the discounted cash flow valuation where this more appropriately represents the fair value of its interest in the investment.

A reconciliation of Level 3 fair value measurements of financial assets is shown in the table below. There are no Level 3 financial liabilities.

Available for sale investments

Debt securities at fair value through the income statement

Investment property

Group occupied property

Total

Equity securities

Debt securities

£m

Level 3 financial assets at 1 January 2020

279

375

300

988

Income statement

(3)

(8)

(4)

Other comprehensive income

(5)

(4)

Purchases

153

221

Disposals

(27)

(113)

(29)

(169)

Exchange adjustment

(1)

Transfer from right-of-use assets

Level 3 financial assets at 1 January 2021

309

422

285

1,047

Income statement

(2)

(6)

(12)

(1)

(21)

Other comprehensive income

(4)

Purchases

128

173

Disposals1

(192)

(256)

(5)

(1)

(454)

Exchange adjustment

(9)

(2)

(11)

Level 3 financial assets at 30 June 2021

125

282

305

730

1 AFS equity and AFS debt securities disposals includes £160m and £218m respectively in relation to the disposals of Codan A/S and Roins Holdings Limited.

Unrealised losses of £12m (12 months to 31 December 2020: £3m losses) attributable to FVTPL debt securities recognised in the condensed consolidated income statement relate to an asset that is still held at the end of the period but has been fully written down.

The following table shows the level 3 available for sale financial assets, investment properties and Group occupied property carried at fair value as at the balance sheet date, the main assumptions used in the valuation of these instruments and reasonably possible decreases in fair value based on reasonably possible alternative assumptions.

Reasonably possible alternative assumptions

Current fair value

Decrease in fair value

Current fair value

Decrease in fair value

Available for sale financial assets and property

Main assumptions

£m

Group occupied property - land and buildings1

Property valuation

(2)

Investment properties1

Cash flows; discount rate

305

(28)

285

(25)

Equity securities2

Cash flows; discount rate

125

(2)

309

(4)

Debt securities2

Cash flows; discount rate

282

(6)

422

(7)

Total

730

(38)

1,035

(38)

1 The Group’s property portfolio (including the Group occupied properties) is almost exclusively located in the UK. Reasonably possible alternative valuations have been determined using an increase of 50bps in the discount rate used in the valuation (31 December 2020: 50bps). This has been considered in light of the current level of uncertainty and a change of 50bps is considered a reasonably possible scenario.

2 The Group’s investments in financial assets classified at level 3 in the hierarchy are primarily investments in various private fund structures investing in debt instruments where the valuation includes estimates of the credit spreads on the underlying holdings. The estimates of the credit spread are based upon market observable credit spreads for what are considered to be assets with similar credit risk. Reasonably possible alternative valuations have been determined using an increase of 50bps in the credit spread used in the valuation (31 December 2020: 50bps). This has been considered in light of the current level of uncertainty and a change of 50bps is considered a reasonably possible scenario.

Asset

Liability

£m

Deferred tax position

149

199

105

The £105m reduction in deferred tax liabilities in the period is due to the disposal of the Canadian and Scandinavian sub-groups as part of the restructuring following the acquisition. The deferred tax liabilities were £79m at the date of disposal (note 5).

Of the £149m (31 December 2020: £199m) deferred tax asset recognised by the Group, £147m (31 December 2020: £181m) relates to the UK. The £50m decrease in deferred tax assets during the period is predominantly due to the de-recognition of deferred tax assets in the UK (£34m) (offset partly by the impact of the UK corporation tax rate increase) and the disposals of Canada and Scandinavia (£18m) (note 5) as part of the restructuring following the acquisition.

Deferred tax assets have been recognised on the basis that management consider it probable that future taxable profits will be available against which these deferred tax assets can be utilised. The evidence for the future taxable profits is a seven-year forecast based on the three-year operational plans prepared by the relevant businesses and a further four years of extrapolation.

Following the acquisition, the forecasts have been updated to reflect the latest view of taxable profits. The UK forecast taxable profits are lower due to the combined impact of the following changes in the forecasts related to:

Internal and external debt arrangements

Internal and external reinsurance arrangements

Investment portfolio rebalancing

Transitional costs associated with the acquisition

One-off transaction costs

In addition, the level of contingency included within the profit forecasts for the purposes of determining deferred tax asset recognition has been increased from £25m per annum (£175m in total across the 7-year forecast period) to £411m across the 7-year period. The increased contingency reflects the increased uncertainty in the forecast following the acquisition.

The valuation of the deferred tax asset reflects the impact of the UK corporation tax rate rise from 19% to 25%, which was substantively enacted in May 2021.

£m

Deferred tax asset as at 31 December 2020

181

Impact of change in UK tax rate

Impact of lower profit forecast

(54)

Impact of increased DTA contingency

(29)

Deferred tax asset as at 30 June 2021

147

The value of the deferred tax asset is sensitive to assumptions in respect of forecast profits. The impact of downward movements in key assumptions on the value of the UK deferred tax asset is summarised below. The relationship between the UK deferred tax asset and the sensitivities below is not always linear. Therefore, the cumulative impact on the deferred tax asset of combined sensitivities or longer extrapolations based on the table below will be indicative only.

£m

1% increase in combined operating ratio1 across all 7 years

(23)

(16)

(20)

(18)

(9)

(6)

1% decrease in annual premium growth

(1)

1 Combined operating ratio is an Alternative Performance Measure. A ‘Jargon buster’ can be found on pages 181 to 183 of the RSA Insurance Group plc Annual Report and Accounts 2020.

£m

Cash and cash equivalents and bank overdrafts (as reported within the condensed consolidated statement of cash flows)

1,101

1,083

921

Add: Bank overdrafts reported in Borrowings

Total cash and cash equivalents (as reported within the condensed consolidated statement of financial position)

1,114

1,094

928

No cash and cash equivalents are restricted for operational RSA Group use at 30 June 2021 (31 December 2020: £27m restricted cash held in Canada).

The issued share capital of the Parent Company is fully paid and consists of two classes: Ordinary Shares with a nominal value of £1 each and Preference Shares with a nominal value of £1 each. The issued share capital at 30 June 2021 is:

£m

Issued and fully paid

1,269,414,568 Ordinary Shares of £1 each (31 December 2020: 1,035,267,610 Ordinary Shares of £1 each)

1,269

1,035

125,000,000 Preference Shares of £1 each (31 December 2020: 125,000,000 Preference Shares of £1 each)

125

1,394

1,160

The movement of Ordinary Shares in issue, their nominal value and the associated share premiums during 2021 are as follows:

Number of

Nominal

value

premium

£m

At 1 January 2020

1,031,645,294

1,032

1,090

Issued in respect of employee share options and employee share awards

3,622,316

At 1 January 2021

1,035,267,610

1,035

1,095

Issued in respect of employee share options and employee share awards1

13,146,958

Capital injection from Regent Bidco Limited1

1,021,000,000

1,021

Capital reduction

(800,000,000)

(800)

(1,095)

At 30 June 2021

1,269,414,568

1,269

1 The consolidated statement of changes in equity shows £1,023m shares issued for cash, which includes £1,021m capital injection from Regent Bidco Limited and £2m in respect of employee share options and employee share awards, and £11m share-based payments, which also relates to shares issued in respect of employee share options and employee share awards.

Shares issued in respect of employee share options and employee share awards includes 9,391,504 accelerated share awards under the long-term incentive plan (Performance Share Plan (PSP)) and 1,737,667 accelerated shares issued under the Group employee share option plan ahead of the acquisition of the Group.

2021

2020

£m

Subordinated guaranteed US$ bonds

Guaranteed subordinated notes due 2045

397

Total loan capital

403

Senior notes due 2024

348

Total issued debt

403

751

Loan capital

The subordinated guaranteed US$ bonds were issued in 1999 and have a nominal value of $9m and a redemption date of 15 October 2029. The rate of interest payable on the bonds is 8.95%.

The dated guaranteed subordinated notes were issued on 10 October 2014 at a fixed rate of 5.125%. The nominal £400m bonds have a redemption date of 10 October 2045. The Group has the right to repay the notes on specific dates from 10 October 2025. If the bonds are not repaid on that date, the applicable rate of interest would be reset at a rate of 3.852% plus the appropriate benchmark gilt for a further five year period.

The bonds and the notes are contractually subordinated to all other creditors of the Group such that in the event of a winding up or of bankruptcy, they are able to be repaid only after the claims of all other creditors have been met.

The Group has the option to defer interest payments on the bonds and notes, but has to date not exercised this right.

Senior notes

The nominal £350m senior notes, issued on 28 August 2019, were repaid in full on 16 June 2021. Make-whole and amortisation costs of c.£16m were incurred, and are presented in finance costs in the consolidated income statement.

All issued debt

There have been no defaults on any bonds or notes during the period.

Estimation techniques and uncertainties

Details of the Group accounting policies in respect of insurance contract liabilities can be found in note 39 on page 150 of the 2020 Annual Report and Accounts.

The 2020 year-end Annual Report and Accounts included details on all the significant accounting judgements made in the valuation of insurance contract liabilities, with particular focus on the increased level of estimation uncertainty due to the impact of the COVID-19 pandemic. The notes explained how various items such as direct COVID-19 claims, reinsurance, the legal and claims environments, changing frequency and severity, and distorted claims development patterns all contributed to the heightened uncertainty at that time.

The heightened uncertainty arising from COVID-19 persists and is not expected to subside in the short-term. The Group increased the COVID-19 net actuarial indication by approximately £30m during the six months to 30 June 2021 to true-up the estimate to reflect the latest experience and judgements.

Whilst claims experiences and development trends have continued to mature during 2021, the Group continues to monitor all key assumptions and sources of estimation uncertainty. Evolving experience, key assumptions and estimation techniques are reviewed regularly. As a result of management’s review and in aligning practices with IFC, then given the current uncertain economic environment which contributes to the heightened level of estimation uncertainty, an additional strengthening of circa £70m was recognised in June 2021 in best estimate provisions on top of that noted above for COVID-19, against some of the key uncertainties identified in the reserve review process. The method for the reserve margin calculation has also been changed in June 2021 to align with the method of calculation of RSA’s ultimate parent company Intact Financial Corporation. Applying this method and the continued heightened uncertainty has resulted in an increased level of reserve margin.

The relevant information provided in note 39 in the 2020 Annual Report and Accounts still applies as at 30 June 2021.

Sensitivities

Sensitivities in the table below show the impact on the net claims reserves of changes to key assumptions in relation to reserving risk and underwriting and claims risk.

Impact on net claims reserves

£m

Current year attritional loss ratios frequency or severity assumptions +5%

25-35

75-80

Current year large loss ratios frequency or severity assumptions +5%

5-15

15-20

Inflation being 1% higher than expected for the next 2 years (excluding annuities)

50-60

100-120

The decrease in the sensitivities compared to the prior year is mainly due to the disposals of the Group's operations in Scandinavia and Canada.

Gross insurance contract liabilities and the reinsurers' share of insurance contract liabilities

The gross insurance contract liabilities and the reinsurers' (RI) share of insurance contract liabilities presented in the condensed consolidated statement of financial position comprise the following:

As at 30 June 2021

Gross

Net

£m

Provision for unearned premiums

1,985

(812)

1,173

Provision for losses and loss adjustment expenses

5,215

(1,634)

3,581

Total insurance contract liabilities

7,200

(2,446)

4,754

As at 31 December 2020

Gross

Net

£m

Provision for unearned premiums

3,235

(716)

2,519

Provision for losses and loss adjustment expenses

9,379

(1,624)

7,755

Total insurance contract liabilities

12,614

(2,340)

10,274

The disposal of the Group's operations in Scandinavia and Canada has reduced gross insurance contract liabilities by £6,659m and reinsurers' (RI) share of insurance contract liabilities by £(1,073)m. Refer to note 5 for further detail.

Defined benefit pension schemes and other post-retirement benefits

The amounts recognised in the condensed consolidated statement of financial position are as follows:

Other

Total

Other

Total

£m

Present value of funded obligations

(8,377)

(73)

(8,450)

(8,844)

(452)

(9,296)

Present value of unfunded obligations

(7)

(8)

(15)

(6)

(99)

(105)

Fair value of plan assets

9,017

9,107

9,355

500

9,855

Other net surplus remeasurements

(224)

(179)

Net IAS 19 surplus/(deficits) in the schemes

409

418

326

(51)

275

Defined benefit pension schemes

409

426

326

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RSA INSURANCE GROUP LIMITED Interim / Quarterly Report 2021