RSA Insurance Group Plc

RSA Insurance Group plc

Company Profile

Publication Date: 10 Aug 2010

www.datamonitor.com

Europe, Middle East & Africa Americas Asia Pacific 119 Farringdon Road 245 5th Avenue Level 46 London 4th Floor 2 Park Street EC1R 3DA New York, NY 10016 Sydney, NSW 2000 United Kingdom USA Australia

t: +44 20 7551 9000 t: +1 212 686 7400 t: +61 2 8705 6900 f: +44 20 7551 9090 f: +1 212 686 2626 f: +61 2 8088 7405 e: [email protected] e: [email protected] e: [email protected] RSA Insurance Group plc

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RSA Insurance Group plc Page 2 © Datamonitor RSA Insurance Group plc TABLE OF CONTENTS

TABLE OF CONTENTS

Company Overview...... 4 Key Facts...... 4 Business Description...... 5 History...... 6 Key Employees...... 9 Key Employee Biographies...... 10 Major Products and Services...... 15 Revenue Analysis...... 16 SWOT Analysis...... 17 Top Competitors...... 22 Company View...... 23 Locations and Subsidiaries...... 25

RSA Insurance Group plc Page 3 © Datamonitor RSA Insurance Group plc Company Overview

COMPANY OVERVIEW

RSA insurance Group (RSA or ‘the group’), formerly known as Royal & Sun Alliance Insurance Group is a leading insurance group in the UK. The group also offers complementary businesses such as risk management services including claims management and loss control services, which support its insurance operations. The group operates in 28 countries and provides its services in over 130 countries. It is headquartered in London, the UK and employs 22,686 people.

The group recorded revenues of £7,458 million ($11,879.1 million) in the financial year (FY) ended December 2009, an increase of 4.4% over FY2008. The operating profit of the group was £554 million ($882.4 million) in FY2009, a decrease of 27% over FY2008. The net profit was £418 million ($665.8 million) in FY2009, a decrease of 27.2% over FY2008.

KEY FACTS

Head Office RSA Insurance Group plc Royal & Sun Alliance Insurance Group 9th Floor One Plantation Place 30 Fenchurch Street London EC3M 3BD GBR Phone 44 20 7111 7000 Fax 44 20 7569 6639 Web Address http://www.royalsunalliance.com Revenue / turnover 7,458.0 (GBP Mn) Financial Year End December Employees 22,686 London Ticker RSA

RSA Insurance Group plc Page 4 © Datamonitor RSA Insurance Group plc Business Description

BUSINESS DESCRIPTION

RSA Group is one of the largest property and casualty insurance providers in the UK. The group was formed as result of the merger between Royal Insurance Holdings and Sun Alliance Group in 1996. RSA offers a range of property and casualty insurance products to commercial and personal insurance customers. The group also offers complementary businesses which support its insurance operations, such as risk management services including claims management and loss control services. The group primarily operates in the UK, the Scandinavia region and Canada. It operates in over 28 countries and covering risks in over 130 countries. It markets its products through multiple channels, including brokers, other intermediaries, corporate partnerships and affinity groups, as well as directly to customers.

The group has organized its operations primarily on the basis of their geographical presence. It has three divisions: UK, International and Emerging markets.

The UK segment encompasses the group's commercial and personal insurance operations in the UK. The UK commercial business primarily writes property, motor, liability and selective specialty products in the UK region.The group's UK personal insurance provides household, motor and travel insurance.

The group's international business comprises operations in Scandinavia (Sweden, Denmark, Norway and Finland), Canada, Ireland and Italy. RSA provides a range of personal insurance including: motor, household, personal accident and travel and commercial insurance such as property, marine and liability insurance.

The group’s emerging markets segment includes its operations in Latin America, Asia and the Middle East, and Central and Eastern Europe.

RSA Insurance Group plc Page 5 © Datamonitor RSA Insurance Group plc History

HISTORY

Royal & SunAlliance was created in 1996 with the merger of two of the UK's largest insurance companies, Royal Insurance and Sun Alliance.

RSA made three large acquisitions in 1999, Orion Capital in the US, Trygg-Hansa of Sweden and Tyndall Asset Management in Australia.

RSA sold its Canadian life operations in the year 2000 to Maritime Life Assurance Company and its insurance intermediary, Swinton. In addition, the group sold its Spanish subsidiaries in 2001 to Liberty Mutual of Boston, based in the US.

The group established a partnership with AMP in the year 2001 for tapping the general insurance business in New Zealand, which involved RSA purchasing AMP's New Zealand general insurance businesses, including GIO New Zealand and its share in the Automobile Association joint venture AA Insurance.

In 2002, RSA sold its German subsidiary along with its subsidiaries Securitas Bremer Allgemeine Versicherungs and Securitas Gilde Lebensversicherung, to the Baoloise Group of Switzerland. The group also sold its risk business to Canada Life.

During 2003, the group focused on becoming a smaller and more focused general insurer. Subsequently RSA contracted operations in Australia, New Zealand, the UK and the US. RSA also made a deal during the year, with Travelers Indemnity, for the renewal rights on its standard personal lines and the majority of its commercial lines business in the US.

Due to these changes, the group decided to change its internal structure by grouping all of its businesses outside the UK, US and Scandinavia into a new international segment. The group expected the number of countries within the international segment to reduce as it refocused its portfolio.

Meanwhile in Chile, RSA disposed La Construccion, its Chilean life insurance operation.

In 2004, the group made a series of divestments principally within its international segment. The year also saw the group sell its general and life insurance interests in Peru to Rimac International Compania de Seguros y Reaseguros (Rimac). The group also sold its 14.6% stake in Rimac. The total consideration was around £12 million.

RSA also sold its 40% shareholding in Federal Phoenix Assurance Company of the Philippines.The shares were repurchased by Federal Phoenix. The group sold its UK life operations to Resolution Life Group, for a consideration of £850 million, comprising of £750 million in cash and £100 million in preference shares.

RSA Insurance Group plc Page 6 © Datamonitor RSA Insurance Group plc History

Following that the group sold the life and pension operations of Codan, its 71.7% subsidiary, to SEB Trygg Liv. RSA's share of the consideration was approximately £173 million payable in cash. The transaction is in line with the group's strategy of focusing on general insurance and releasing capital from its life businesses and is another step in its transformation program. Together with the disposal of its UK life operations, this completed the group's exit from the life industry. 2004 also saw RSA sell its Pakistan operations to International General Insurance Company of Pakistan. A month later, the group sold the business of its branch operations in Japan to American Home Assurance Company and AIU Insurance Company, both member companies of American International Group (AIG).

In 2005, RSA continued to wind down its loss making US operations. In Hong Kong, RSA sold its 20% interest in NM Rothschild to the Hong Kong-based trading house Jardine Matheson. In Canada, RSA through its subsidiary Johnson acquired the commercial rights to the business of Morgex Insurance Group, a leading insurance broker in Alberta, Canada.

The group also acquired Chile's leading general insurance business Compania de Seguros Generales Cruz del Sur and its Argentinean sister company La Republica Companía Argentina de Seguros Generalesin.The combination of Cruz del Sur and RSA created Chile's number one general insurance company with over 20% share in the regional market.

In 2006, it acquired Martello Underwriting Limited, a specialist provider of professional indemnity insurance which is expected to generate premiums of around £40 million in 2007.The group acquired White Label Holding and Duborgh Skadeforsikring in Norway. These gave the Group exposure to the SME market in Norway and access to new customer segments in Scandinavia. In Personal Intermediated, it signed 11 new distribution agreements, including Paymentshield, the UK's largest independent supplier of mortgage related insurance. This deal is expected to generate premiums of over £200 million in 2008. In line with its strategy of targeting specific segments, the group acquired EGI Holdings Ltd in Ireland during the year. This established business, with strong positions in selected liability and motor lines, extends its range of expertise and product offerings. In 2006 it disposed off its US operations to Arrowpoint Capital Corp.The disposal achieves the Group's objective of bringing certainty and finality to its exposure to the US operation. In 2007, Royal & Sun Alliance Insurance Group plc's subsidiary, RSA Overseas Holdings ("R&SA"), launched a voluntary conditional public tender offer for the acquisition of all the outstanding issued shares in Codan A/S. R&SA now holds 97% of the issued shares and of Codan excluding the 2,212,825 (4.89%) treasury shares already held by Codan.

RSA signed an agreement to acquire 50% of GD II - Global Direct Insurance Investments (GDI), a joint venture between RSA and Direct Insurance Financial Investments (DIFI) in 2007.The acquisition would give RSA access to the fast growing Eastern European and Russian insurance markets.

RSA, has obtained permission to transfer its Chinese business into a subsidiary. The subsidiary license and subsequent branch approval will enable R&SA to build its capabilities, develop a nationwide network and provide insurance solutions to local, joint venture and foreign clients in the same year. In 2007, RSA acquired Canadian Northern Shield Insurance Company (CNS) for approximately C$75m (£37m) to be paid in cash.

RSA Insurance Group plc Page 7 © Datamonitor RSA Insurance Group plc History

In the first quarter of 2008, RSA acquired Fyfe Group a UK retail and wholesale intermediary specializing in motor trade products for small businesses. Two months later, the group acquired Sertus Underwriting Limited in Ireland.

The group changed its name from Royal & Sun Alliance Insurance Group to RSA Insurance Group following shareholder approval at the annual general meeting in the second quarter of 2008.

In the fourth quarter of 2008, RSA's global renewable energy division launched 'Centres of Excellence' in UK, Canada and Denmark. The group entered into a sale and purchase agreement with Direct Insurance Financial Investments to acquire DIFI's 50% holding in Intouch Insurance Group for E70 million in cash in March 2009.

RSA acquired Benchmark Underwriting Limited in Ireland, in April 2009. The group completed the acquisition of Intouch Insurance Group, in June 2009.

In January 2010, RSA acquired 80.8% of Sveland Sakförsäkring AB (Sveland P&C Ltd) in Sweden. In February 2010, the group announced the acquisition of Al Ahlia Insurance Company SAOC, the third largest insurer in Oman in 2008. RSA announced the acquisition of 123 Money Limited (123.ie) in July 2010. 123 Money Limited is one of the leading and fastest growing direct distributors of personal lines insurance products in Ireland.

RSA Insurance Group plc Page 8 © Datamonitor RSA Insurance Group plc Key Employees

KEY EMPLOYEES

Name Job Title Board Compensation

Andy Haste Chief Executive Officer Executive Board 2329000 GBP George Culmer Chief Financial Officer Executive Board 1261000 GBP Simon Lee Chief Executive, International Executive Board 1009000 GBP Businesses Adrian Brown UK Chief Executive Executive Board John Napier Chairman Non Executive Board 400000 GBP Edward Lea Director Non Executive Board 68000 GBP Noel Harwerth Director Non Executive Board 57000 GBP Malcolm Le May Director Non Executive Board 60000 GBP John Maxwell Director Non Executive Board 60000 GBP Johanna Waterous Director Non Executive Board 53000 GBP Paul Whittaker CEO of Emerging Markets Senior Management Mark Chambers General Counsel and Group Senior Management Company Secretary Orlagh Hunt Human Resources Director Senior Management Clare Sheikh Group Strategy, Marketing and Senior Management Customer Director David Weymouth Group Operations and IT Director Senior Management Timothy Mitchell Group Underwriting and Claims Senior Management Director Anne Jæger Group Chief Auditor Senior Management

RSA Insurance Group plc Page 9 © Datamonitor RSA Insurance Group plc Key Employee Biographies

KEY EMPLOYEE BIOGRAPHIES

Andy Haste

Board: Executive Board Job Title: Chief Executive Officer Since: 2003 Age: 48

Mr. Haste has been the Group Chief Executive at RSA since 2003. He was previously the Chief Executive of AXA Sun Life and director of AXA UK (life and pensions). He is the former President and Chief Executive Officer of Global Consumer Finance Europe at GE Capital UK, Western Europe and Eastern Europe (financial services), and is the former President of National Westminster Bank's US Consumer Credit Business.

George Culmer

Board: Executive Board Job Title: Chief Financial Officer Since: 2004 Age: 47

Mr. Culmer has been the Chief Financial Officer and Group Director at RSA since 2004. He was previously Head of Capital Management at Zurich Financial Services and Chief Financial Officer of its UK operation. Prior to that he was with Prudential for 10 years.

Simon Lee

Board: Executive Board Job Title: Chief Executive, International Businesses Since: 2003 Age: 48

Mr. Lee has been a Director at RSA since 2007. He has been the Chief Executive of RSA's International business since 2003. Previously he spent 17 years with the National Westminster Bank Group, in the UK and US including time as Chief Executive, NatWest Offshore and Head of US Retail Banking.

Adrian Brown

Board: Executive Board Job Title: UK Chief Executive

RSA Insurance Group plc Page 10 © Datamonitor RSA Insurance Group plc Key Employee Biographies

Since: 2008

Mr. Adrian Brown has been the UK Chief Executive of RSA since 2008. Between 2006 and 2008, he was the UK's Chief Operating Officer with responsibility for Claims, Sales and Service, IT and Change across both Personal and Commercial lines. Prior to this, he was UK Director of Personal Lines, led the launch of MORE TH>N and held a number of senior customer service and finance roles.

John Napier

Board: Non Executive Board Job Title: Chairman Since: 2003 Age: 67

Mr. Napier has been the Chairman at RSA since 2003. He is also the Non Executive Chairman of Kelda Group (water utility), having previously been Executive Chairman and Chief Executive. His previous executive roles include Chairman of Booker, Managing Director of Hays and Managing Director of AGB (market research and information services).

Edward Lea

Board: Non Executive Board Job Title: Director Since: 2003 Age: 68

Mr. Lea has been a Director at RSA since 2003, and is also Chairman of the Audit & Compliance Committee since 2003. His other executive roles include directorships for Redbourn Group (property management and investment), IDC Plugs Limited (electrical services), MacIntyre Care (charity). He was previously a Director of The British United Provident Association (BUPA).

Noel Harwerth

Board: Non Executive Board Job Title: Director Since: 2004 Age: 62

Ms. Harwerth has been a Director at RSA since 2004. She is also a Director of Tube Lines Limited, Metronet Rail BCV Limited and Metronet SSL Limited, and Deputy Chairman of Sumitomo Mitsui Banking Corporation Europe Limited. She was also the Chief Operating Officer at Citibank International.

RSA Insurance Group plc Page 11 © Datamonitor RSA Insurance Group plc Key Employee Biographies

Malcolm Le May

Board: Non Executive Board Job Title: Director Since: 2004 Age: 52

Mr. May has been a Director at RSA since 2004, and is also the European President of JER Partners Limited (property investment). Previous executive roles include Deputy Chief Executive of Morley Fund Management and Deputy Chief Executive Officer of ING-Barings.

John Maxwell

Board: Non Executive Board Job Title: Director Since: 2003 Age: 65

Mr. Maxwell has been a Director at RSA since 2003 and has been the Chairman of the Remuneration Committee since October 2003. Previous roles include chairman of DX Services (trucking), Director of Provident Financial and director of Homeserve (electric utilities). He is also governor of the Royal Ballet School and chairman of the Institute of Advanced Motorists. He was formerly executive director of Prudential Group and was also the Director General of the AA.

Johanna Waterous

Board: Non Executive Board Job Title: Director Since: 2008 Age: 52

Ms. Waterous has been a Director at RSA since 2008. Previously, she spent over 20 years with McKinsey & Company, with roles including Co-leader, Global Marketing and Sales Practice and Leader of their UK Consumer Practice and the European Retail Practice. Ms. Waterous is currently a specialist advisor to Candover Partners, Chairman of Britt Lintner , a luxury fashion brand, and an Operating Executive with Tri-Artisan Partners, a privately led merchant bank. She is also a non executive director of the Kew Foundation and trustee of the English National Opera. She was previously the Chairman of Tate Enterprises.

Paul Whittaker

Board: Senior Management Job Title: CEO of Emerging Markets

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Mr. Whittaker has been the CEO of Emerging Markets since 2006. Prior to this appointment, he was RSA's Group HR Director since 2003. He has over 15 years senior management experience in the financial services sector including three years at AXA and 10 years at GE Capital.

Mark Chambers

Board: Senior Management Job Title: General Counsel and Group Company Secretary Since: 2004

Mr. Chambers has been the General Counsel and Group Company Secretary at RSA since 2004. Prior to joining the Group, Mr. Chambers led the legal team at American Express for Europe, Middle East and Africa. Before that he worked for GE holding a number of senior positions with the consumer finance and insurance businesses. He was Company Secretary of GE Capital Bank and GE's UK regulated insurance companies. Before moving in-house, Mr. Chambers worked for Slaughter and May, a leading international law firm, in London and New York. Mr. Chambers is a non-executive director of the University of Westminster.

Orlagh Hunt

Board: Senior Management Job Title: Human Resources Director Since: 2006

Ms. Hunt has been the Group Human Resources Director at RSA since 2006. She joined the Group as HR Director for International in 2003. Ms. Hunt was previously Head of Human Resources for AXA Sun Life and has previously worked at Walkers and Tesco in a variety of HR management roles.

Clare Sheikh

Board: Senior Management Job Title: Group Strategy, Marketing and Customer Director Since: 2007

Ms. Sheikh has been the Group Strategy, Marketing and Customer Director of RSA since 2007. Previously she was Director of Marketing & Commercial Strategy at ITV Plc and a Member of the Executive Management Board. Ms. Sheikh is also the former Managing Director of AA Financial Services. She is also a Non-Executive Director of Alliance Trust plc.

David Weymouth

Board: Senior Management

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Job Title: Group Operations and IT Director

Mr. Weymouth is the Group Operations and IT Director of RSA. He worked with the Barclays Group for 27 years. At Barclays, he held several senior positions including Chief Operating Officer for Corporate Banking and Group Chief Information Officer.

Timothy Mitchell

Board: Senior Management Job Title: Group Underwriting and Claims Director Since: 2007

Mr. Mitchell has been the Group Underwriting and Claims Director at RSA since 2007. Mr. Mitchell has over thirty years experience in the insurance industry and joined RSA from Zurich Financial Services where he held senior underwriting roles including three years as Global Chief Underwriting Officer for General Insurance. Mr. Mitchell has also held senior management roles at AIG and Continental Insurance.

Anne Jæger

Board: Senior Management Job Title: Group Chief Auditor Since: 2008

Ms. Anne has been the Group Chief Auditor of RSA since 2007. Prior to that she was Regional Chief Auditor, International, based in Denmark. She was part of the Codan Group Executive leadership team and the International Central Leadership team.

RSA Insurance Group plc Page 14 © Datamonitor RSA Insurance Group plc Major Products and Services

MAJOR PRODUCTS AND SERVICES

Royal & Sun Alliance Insurance Group is one of the world's leading multinational insurance groups. Its focus is general (property and casualty) insurance.

The group offers the following products and services:

Personal Products:

Vehicle Household Travel Pet Health Liability Property Professional Financial

Commercial insurance:

Small Business Corporate Marine Engineering Motability Liability Property Professional Financial

Investment products:

Individual products Pooled products ISAS

Brands:

Trygg-Hansa MORE TH>N Johnsons

RSA Insurance Group plc Page 15 © Datamonitor RSA Insurance Group plc Revenue Analysis

REVENUE ANALYSIS

The group recorded revenues of £7,458 million ($11,879.1 million) in the financial year (FY) ended December 2009, an increase of 4.4% over FY2008. For FY2009, the UK, the group's largest geographic market, accounted for 39.1% of the total revenues.

RSA generates revenues through three business divisions: international (43.7% of the total revenues in FY2009), the UK (35.4%) and emerging markets (11.2%).

Revenue by Division

In FY2009, international division recorded revenues of £3,249 million ($5,175 million), an increase of 8.4% over FY2008.

The UK division recorded revenues of £2,632 million ($4,192.2 million) in FY2009, a decrease of 2.9% over FY2008.

The emerging markets division recorded revenues of £833 million ($1,326.8 million) in FY2009, an increase of 12.9% over FY2008.

Revenues by Geography

The UK, RSA's largest geographical market, accounted for 39.1% of the total revenues in FY2009. Revenues from the UK reached £2,632 million ($4,192.2 million) in FY2009, a decrease of 2.9% over FY2009.

Scandinavia accounted for 24.8% of the total revenues in FY2009. Revenues from Scandinavia reached £1,669 million ($2,658.4 million) in FY2009, an increase of 4.2% over FY2009.

Canada accounted for 15.2% of the total revenues in FY2009. Revenues from Canada reached £1,021 million ($1,626.2 million) in FY2009, an increase of 15.5% over FY2009.

Other accounted for 12.7% of the total revenues in FY2009. Revenues from Other reached £856 million ($1,363.4 million) in FY2009, an increase of 13.7% over FY2009.

Other Europe accounted for 8.3% of the total revenues in FY2009. Revenues from Other Europe reached £559 million ($890.4 million) in FY2009, an increase of 9.2% over FY2009.

SWOT ANALYSIS

RSA has a strong market position in its core market, the UK. RSA is the largest commercial insurer in the UK. The group writes property, motor, liability and marine insurance. The group’s property insurance business insures about 80% of FTSE 100 retailers and is one of the leading carriers of professional and financial and marine risks outside of Lloyd’s of London. RSA’s personal business is ranked third largest in the UK. The group’s strong market position in the UK gives it significant bargaining power. However, the group is threatened by weakening economic prospects, rising insurance frauds in the UK, and increasing competition which could increase RSA’s claim losses, and pull down its profit margins.

Strengths Weaknesses

Leading market positions across key Property-casualty cycle concerns markets Weakening combined ratio in some key Strong capital surplus and liquidity segments Investments in high rated securities ensuring lesser volatility in returns

Opportunities Threats

Global Renewable Energy business would Increasing incidence of natural disasters increase revenues may increase premiums paid to reinsurers Growth opportunities in Russia and Eastern Mounting insurance frauds would dent Europe profitability Growing commercial general insurance Solvency II adoption likely to increase market in UK competition for capital

Strengths

Leading market positions across key markets

RSA owns leading market positions across its key markets. It is the number 1 in Chile, and the largest private insurer in Uruguay.The group owns 100% of Intouch, the leading Direct Motor insurer in Poland, the Czech Republic and Russia. It is a leading provider of Household insurance, covering one in every five Irish homes. RSA is a leading Marine insurer in Brazil. The group is the number 1 general insurer across the Baltic. It is the 2nd largest Commercial and the 4th largest Personal insurer in the UK. RSA is the 3rd largest insurer in Denmark and Sweden through Codan and Trygg-Hansa respectively. In Canada, it is 5th largest overall, the largest Marine insurer and, through its Johnson operation, a leading direct insurer. The group's leading market positions across key markets sustain its business momentum.

Strong capital surplus and liquidity

RSA’s capital surplus and liquidity positions have improved over the years. The group’s capital surplus rose to 2.4 times the mandatory levels in 2009 from 1.3 times the mandatory levels in 2006. RSA holds significant regulatory and economic capital surpluses, as well as sufficient capital to sustain its growth momentum. At end 2009, the group’s shareholders’ funds were £3.5 billion, compared to £3.8 billion at end 2008. However, adjusted shareholders’ funds rose to nearly £3.8 billion at end 2009, compared to £3.5 billion at end 2008.The group’s financing and liquidity position also remains strong. The next call on any external financing is on the £450 million subordinated guaranteed perpetual bonds in December 2014 and its committed £455 million senior facility remains undrawn. New subordinated guaranteed Sterling dated notes were issued on 20 May 2009. RSA’s more than adequate capital surplus and liquidity should help it sustain its business at least in the near to medium term.

Investments in high rated securities ensuring lesser volatility in returns

RSA’s investment portfolio is conservative. At the end of 2009, 80% of its investments were in bonds, 7% each were in cash and equities, 3% each in property and other assets. Credit quality of the group’s bond portfolio is also strong. 64% of the group’s bond portfolio is AAA rated, while another 16% each were rated AA and A. Below investment grade accounted for just 1%. Consequently, the group’s insurer financial strength is rated A by S&P, and AM Best. Due to its conservative investment portfolio, volatility in RSA’s investment returns has been lower than most of its peers. Conservative investment portfolio is thus contributing to its financial strength and performance.

Weaknesses

Property-casualty cycle concerns

RSA began to focus purely on property-casualty after the sale of its life business in the early 2000s. However, it appears that this structural change might prove a costly miss in the short to medium term for the group. In the UK, the old age population is rapidly growing and has more than trebled as a percentage of the total population over the last century. Long-term healthcare spending in the UK is likely to rise by around 315% in real terms between 2000 and 2051, to meet demographic pressures. This would result in higher spending by the older population in the UK. Since the group has no presence in the life and pensions segment, it might lose out completely on this opportunity, whereas its competitors such as Aviva and Allianz which are much more diversified can take advantage of the situation.

Weakening combined ratio in some key segments

RSA’s combined ratio has been deteriorating at some of its markets for the last few years. Combined ratio is the sum of two ratios, expense ratio and loss ratio. Loss ratio is calculated by dividing incurred losses plus loss adjustment expenses by earned premiums, and expense ratio is calculated by

dividing all other expenses by written premiums. A combined ratio below 100% is indicative of an underwriting profit. On the other hand a COR above 100% indicates an underwriting loss. In UK, the group’s combined ratio deteriorated from 92.3% in 2006 to 98% in 2009. In Emerging markets, the group’s combined ratio deteriorated from 93.3% in 2006 to 94.6% in 2009. Combined ratio of international markets segment also developed unfavorably in 2009. Continued weakening in combined ratio metric is an indication of weak underwriting profit management.

Opportunities

Global Renewable Energy business would increase revenues

RSA has launched a global renewable energy division to provide global insurance solutions for the renewable energy market in May 2007. RSA has been one of the leaders in the renewables sector for over 25 years providing solutions for wind energy, solar, hydro, biomass and waste to energy businesses and projects.The renewable energy sector has become an attractive investment avenue as many Governments are focusing on setting big targets to combat greenhouse gas emissions. This has reinstated the importance of renewable energy as a viable source of the world's power. Wind energy was the first product being launched through the new unit. RSA has over 25 years specific wind energy experience and provides cover for a broad range of clients including manufacturers, developers, contractors, operators and finance companies.The company offers both on-shore and off-shore cover and is the largest insurer of wind turbines in Scandinavia as well as having the fastest growing wind energy insurance offering in the Canadian market. The group enhanced the global renewable energy division by launching 'Centres of Excellence' in the UK, Canada and Denmark, which will support 20 renewable energy teams around the world. Acting as global hubs to regional development teams, the centres provide underwriting, claims and risk management support and provide a one-stop insurance solution for clients. The European Union has set targets for 20% of the EU's total energy supply to come from renewables by 2020, up from 6.5% in 2006. RSA can leverage this opportunity as the insurance market for wind energy expected to be worth over £1billion by 2015.

Growth opportunities in Russia and Eastern Europe

There exist opportunities for growth across emerging markets. RSA signed an agreement, in June 2007, to acquire 50% of GD II - Global Direct Insurance Investments (GDI), to access the fast growing Eastern European and Russian insurance markets.The joint venture will accelerate delivery of direct personal lines products in the emerging markets of Russia and Eastern Europe. RSA intends to leverage GDI's experience in Poland. GDI's main operation Link4, Poland's leading direct motor insurer, has grown rapidly writing motor and household business by phone and internet since its establishment in 2003. In 2007, Link4 recorded a 38% growth in its premiums reaching £47m, well ahead of the market. The joint venture intends to replicate this successful Polish direct model in other attractive markets in Russia and Eastern Europe. GDI recently launched DIRECT Pojistovna, a direct insurance operation in the Czech Republic and expects to start writing direct business in Russia in 2008. This joint venture provided RSA a strong platform to lead the development of the Eastern European direct market. In consistent with RSA's emerging markets' strategy RSA is planning

to replicate Link4's successful model in Russia and the Czech Republic. The GDI acquisition gives RSA a strong platform to tap opportunities in the Eastern European direct market.

Growing commercial general insurance market in UK

The commercial insurance market in the UK is expected to grow in the short to medium term. The total commercial market will grow at a steady pace driven largely by the commercial liability sector, while group accident and health and commercial pecuniary loss are set to see steadier growth. The commercial liability market and the commercial pecuniary loss market are forecast to see the fastest growth between 2006 and 2011.The total commercial general insurance market is expected to grow from £15.1 billion in 2006 to £20.4 billion in 2011, representing a compound annual growth of 6.2%. Leading this growth will be the general liability sector that is forecast to grow by 9.1% year on a compound basis.The commercial pecuniary loss sector is also forecast to experience strong growth. The group accident and health market is expected to achieve a compound annual growth rate of 4.8% between 2006 and 2011. Growth is expected to be slower in 2008, but will gradually increase to around 5% by 2010. In liability market conditions are expected to improve in 2008, with premium increases of between 10% and 15% forecast. A similar positive rating environment is forecast for 2009 and 2010, in line with historical trends for the length of the recovery period following a period of decreases. In compound annual growth rate terms, general liability GWP is forecast to increase by 9.1% between 2006 and 2011. The commercial property market is seeing price competition, however it is expected to turn in 2008 and reach a value of £5.5 billion by 2011. The commercial pecuniary loss market is expected to grow by 10% between 2006 and 2011 on a compound annual basis. Given this growth rate, the market would be worth £1.7 billion in 2011. RSA can capitalize on this trend and record a robust top-line growth in the UK.

Threats

Increasing incidence of natural disasters may increase premiums paid to reinsurers

The first half of 2010 was marked by an exceptionally large number of natural catastrophes and the scale of the losses they caused. From January until the end of June, 440 events were registered, the second highest figure for this period since 2000, and overall losses of $70 billion were recorded. This figure already exceeds the total for 2009 as a whole and is well above the first-half average for the past ten years. Insured losses were $22 billion, more than double the first-half average since 2000 and even higher than the figure for 2008, when the previous record for first-half losses was set.There is general consensus that major climate changes are likely to occur in the coming decades and insurance companies face a trend towards higher losses as population densities continue to grow in catastrophe-prone areas. Increasing incidence of natural disasters may lead to an increase in premiums paid to reinsurers, and thus affect underwriting profitability.

Mounting insurance frauds would dent profitability

Insurance frauds are on a rise in the UK.The insurance fraud, on an average costs the UK economy an estimated £14 billion - £20 billion each year, and the numbers have been showing a rising trend. These costs are further recouped from customers. The companies across the world have not been able to combat the problem of exaggerated claims and other kinds of insurance frauds, which in turn are adding inflating costs for the ordinary policyholders. Frauds cost the industry £1.5 billion in 2005 as per Association of British Insurers (ABI) estimates. The Insurance Fraud Bureau (IFB) has noted that 'bogus and inflated claims' cost the industry over £1.5 billion each year. This translates into a 5% increase on the premiums paid by all policyholders. Considering RSA's scale of operations in property and casualty insurance, the mounting trends of insurance fraud could increase its claim losses and pull down its profit margins.

Solvency II adoption likely to increase competition for capital

In May 2009, the European Parliament adopted the Solvency II framework Directive. The Directive will improve risk management in the insurance industry, since it is based on economic principles that more accurately reflect the risks borne by insurers and reinsurers than did the old, statutory framework. Solvency II is expected to become fully operational by October 2012. Solvency II may impact the competitive landscape, because of its capital level requirements. In the wake of the financial crisis, required capital levels for Solvency II are much higher than previous versions, which may place additional strain on affected insurers. If Solvency II’s currently high level of capital requirements does remain intact, then European insurers may find it costly to comply with Solvency II.

TOP COMPETITORS

The following companies are the major competitors of RSA Insurance Group plc

Berkshire Hathaway, Inc. Aviva Plc ING Groep N.V. Prudential plc Millea Holdings, Inc Allstate Corporation Allianz AG CIGNA Corporation Sun Life Financial Inc. AEGON N.V. Zurich Financial Services

COMPANY VIEW

A statement by, John Napier, the Chairman of RSA Insurance Group is given below. The statement has been taken from the group’s 2009 annual report.

A challenging year

In 2009, we have experienced an unprecedented market environment where the impact of failures in the finance and banking markets have fuelled recession. In 2010, we will be celebrating 300 years of existence providing sustainable insurance services that, by pooling individual and business risks, benefit the economy and society as a whole. A key skill throughout has been our ability to measure and price risk. Some of the failures in banks have been caused by neglect of that capacity and a pattern over a period of years where a significant number of individuals have been able to take unsustainable personal benefits from short term business practices, producing consequences detrimental to society as a whole.The trading environment in 2009 was very challenging. Our strategy continued to have two major themes, firstly focusing on: Excellence in our core technical competencies of underwriting and pricing Improving the effectiveness of our operations and standards of service, and Ensuring that we run a sustainable business through the economic cycle.

The second theme is to focus on growth opportunities, particularly where we have leading market positions and in emerging markets. We also continue to benefit from a combination of rigorous standards of management and specialisation in our core product sectors and our geographic footprint across the world. One of the consequences of the monetary effects of the bank rescue has been to reduce the returns available from long term secure investments, particularly Government bonds, which we require to match and balance our long term liabilities. Our overriding policy is to keep that balance but it has had the predicted impact on our year-on-year results. The management of our funds continues to have significant Board oversight.

Despite the challenges of the 2009 markets your Company has performed strongly. In summary we have achieved: A 4% increase in net written premiums A combined operating ratio (COR) of 94.6% An operating result of £777m, and Maintained a strong balance sheet and robust capital position. We continue to invest in processes and technologies to improve service standards and reduce costs. We have also maintained our focus on management development and over recent years, the number of top 100 appointments made from within has increased significantly. The Board and shareholders are particularly well served by a dedicated team of management and staff, led by our Chief Executive Andy Haste. I thank them all on our shareholders' behalf.

The regulatory environment 2009 has also seen a number of Government policy and regulatory changes and a significant number of advisory reports and initiatives related to board processes and effectiveness. There have been tensions between the more specific needs of problem sectors like banks and those of the insurance sector. Attempts to deliver a ‘one size fits all' approach are inappropriate.

As a policy, your Board actively and positively engages with regulators, currently adopting a chosen approach of an intensive and detailed regulation of risk activities. We keep reminding those who will listen that we are not a bank, that risk is our business and regulatory measures should be proportionate and not incur onerous costs or unnecessary increases in capital requirements because of over-negativity and fear. While we welcome impending European regulatory changes, particularly relating to solvency, when linked with an over-cautious regulatory response, in-country “gold plating” and variations in interpretation these may create distortions in regulatory capital needs and create competitive disadvantages by country. The relocation pressure caused by variations in tax regimes may be superseded by unwelcome new pressures caused by changes in regulatory environments.

There has also been a lot of comment and discussion and draft recommendations on changes to plc boards, the current combined code of governance and related matters. Many recommendations seem not to analyse what the real differences between effective and non-effective boards are. The greater underlying issue was that too much faith was placed in global competition as an effective regulator in itself. In these circumstances the average citizen has a right to feel that he has been let down and is now paying the consequences.

On the question of the annual election of the Chairman and/or boards, it could have the result that a Chairman appointed before an AGM could face two votes in 15 months or even less. If we compare what takes place within government, the combined Chair and Chief Executive of UK plc face elections at his or her choosing. For reasons of continuity and an opportunity to address difficult problems which take time to resolve, there would be opposition to even three-year re-elections. In public companies, we face lesser but similar issues. Maybe leaving company Chairmen to be re-elected every two years and Non-Executives every three would be a reasonable compromise, unless those advocating such change within, or at least at the behest of Government, feel the benefits are so great they would be prepared to apply the same principles to their own areas of responsibility, be it in UK plc or the great Ministries of State whose annual reporting standards are well below those of public companies. If certain public companies “cannot be allowed to fail” their board processes will need different controls than the great majority who don't enjoy that protection. Heavyweight banking-related regulatory competence should be more targeted and not thinly spread.

LOCATIONS AND SUBSIDIARIES Head Office RSA Insurance Group plc Royal & Sun Alliance Insurance Group 9th Floor One Plantation Place 30 Fenchurch Street London EC3M 3BD GBR P:44 20 7111 7000 F:44 20 7569 6639 http://www.royalsunalliance.com

Other Locations and Subsidiaries

RSA RSA Brazil St Mark's Court Avenida das Nacoes Unidas 12995 Chart Way 4 andar Horsham Brooklin Novo West Sussex Sao Paulo RH12 1XL 04578 000 GBR BRA

Sun Alliance Insurance (China) Limited Royal & Sun Alliance Global 10th Floor 17 square Edouard VII China Fortune Tower 75009 Paris 1568 Century Avenue FRA Pudong New Area Shanghai 200122 CHN

Royal Sundaram Alliance Insurance RSA Insurance Company Limited Dundrum Town Centre Sundaram Towers Sandyford Road 45 46 Whites Road Dundrum 600 014 Chennai Dublin 16 IND IRL

Al Alamiya Insurance Royal & SunAlliance Dubai 1st Floor Obekan Building Suite 204 Prince Sultan Street Office Court Jeddah Oud Metha Road Al Zahra District 28648 SAU Dubai ARE