building on our global strengths to set the agenda for the ......royal & sunalliance annual...

ANNUAL REPORT & ACCOUNTS 2000

Building on ourglobal strengths to set

the agenda for theinsurance industry

Delivering outstanding customer serviceAt Royal & SunAlliance we are taking customer service to new levels with initiatives that greatly enhance our understanding of our customers and their needs.

Building on our global capabilities and knowledgeWe have a wealth of world class technical expertise and knowledge.Sharing this learning and experience is now an integral part of theGroup’s working practice.

Strengthening our business through enhanced core competenciesAt its heart insurance is about fundamental disciplines – underwriting, claims and risk management. Royal & SunAlliancecontinues to strengthen its expertise in these core competencies.

Building the business of the new centuryWe are creating a company that doesn’t just ‘manufacture’ insurance, but delivers complete customer solutions, embracing new perspectives and new technology.

Visit www.royalsunalliance.com for more informationThis Annual Report & Accounts contains forward looking statements as defined in the US Private Securities Reform Act. For a discussion of factors which could affect future results, reference should be made to ‘cautionarystatements’ on page 100.

REPOSITIONING THE COMPANY: STRATEGIES FOR SUCCESS

We are making fundamental changes –to set new standards and focus on theneeds of our customers worldwide

IFC Strategy Overview1 Financial Highlights2 Who We Are4 Where We Are6 Chairman’s & Chief Executive’s Review

14 Strategy in Action22 Board of Directors

Operating Reviews:24 United Kingdom26 Europe, Middle East & Africa28 Americas30 Asia Pacific32 Royal & SunAlliance Investments

Financial Review:34 Group Finance Director’s Report38 Risk Analysis40 Sensitivity Analysis41 Share and Shareholder Analysis

42 Corporate Citizenship

Accounts:46 Directors’ Report48 Corporate Governance51 Independent Auditors’ Report to the

Members of Royal & Sun AllianceInsurance Group plc

52 Remuneration Report54 Directors’ Emoluments56 Directors’ Shareholdings58 Accounting Policies62 Consolidated Profit and Loss Account

Technical Account – General Business63 Consolidated Profit and Loss Account

Technical Account – Long Term Business64 Consolidated Profit and Loss Account

Non-Technical Account65 Statement of Total Recognised

Gains and Losses65 Movements in Shareholders’ Funds66 Consolidated Balance Sheet68 Parent Company Balance Sheet69 Consolidated Shareholders’

Cash Flow Statement70 Notes on the Accounts92 Segmental Information94 Principal Subsidiary Companies96 Principal Associated Undertakings

and Other Significant Shareholdings97 Five Year Financial Review

100 Shareholder Information103 Financial Calendar104 Frequently Asked Questions

• Personal, a leading provider of personalinsurance through intermediaries

• Commercial, one of the largest commercialinsurers covering all classes of business

• Life, a specialist provider of life, pension and investment products distributed through intermediaries

• Retail, a new integrated direct business offering a range of products and service propositions

• Personal, mainly comprising motor andhousehold covers

• Commercial, covering a broad range of needs from the small and medium businesssegment to global and risk managed businessand specialist lines such as Professional andFinancial Risks

• Life, with an emphasis on unit linked business

UNITED KINGDOM EUROPE, MIDDLE EAST & AFRICA

Royal & SunAlliance

KEY AREAS OF BUSINESS

Four customer facing business divisions, Personal, Commercial, Retail and Life. Otherbrands include Royal & SunAlliance PropertyServices and Swinton Insurance

Operations in most European countries including leading brands such as Codan in Denmark and Trygg-Hansa in Sweden

KEY OPERATIONS

• To generate superior returns by focussing on core skills such as underwriting and claims management

• To lead the market in customer focus, using segmentation and new technologies to improve our competitive advantage

• To develop a portfolio of fewer but stronger operations underpinned bycustomer segmentation across borders

• To create a common e-infrastructure and agreater focus on our core skills of underwriting,claims management and customer service

KEY STRATEGIES

• Development of UK Retail, bringing together all of our direct businesses

• Claims management delivering savings andexcellent service

• Success of Enterprise and Energy commercialbroker initiatives

• Success of UK Life’s focus on IFA distribution

• Programme of disposals in line with our objective of focussing on fewer but stronger operations

• Rate increases and reduced policy numbers to ensure we achieve financial targets

• Development of Eurolife, our pan-European unit linked life operation

HIGHLIGHTS 2000

PREMIUM INCOME BY BUSINESS SEGMENT – £m

• USA, focus on specialty lines in both personal and commercial, 11th largestcommercial insurer and one of the top 10 non standard motor underwriters

• Canada, provides a broad range of general, life and investment products, fourth largestgeneral insurer by market share

• Latin America & Caribbean, developing personal lines particularly through corporatepartners and direct. Developing specialist lines.Third largest life company in Chile

• Personal, provides products such as motor,home and travel through intermediaries and direct

• Commercial, insurance cover to businesses as well as risk management services provided by dedicated units based in centres includingAustralia, Singapore and Japan

• Life, pensions, personal investment products and trustee services provided in Australia and New Zealand together with fundmanagement services

AMERICAS ASIA PACIFIC ROYAL & SUNALLIANCE INVESTMENTS

Royal & SunAlliance is one of the world’s leadinginsurance companies and for almost 300 years we have been underwriting risks for individuals and business clients

Today we have over 50,000 dedicated people worldwide taking care of the insurance requirements of customers in more than 130 countries

In addition to the Royal & SunAlliance brand;others include DPIC, EBI and OrionAuto in the USA, Agilon Financial in Canada and La Construcción in Latin America

In addition to the Royal & SunAlliance brand;others include Australian Alliance Insurance,AAMI, Connelly Temple, London Assurance,Tyndall and Guardian Trust

• To achieve profitable growth through e-business, operational excellence and becoming customer centric

• To develop customer relationship initiatives in a brokered environment

• To achieve superior financial performance through:

• Segmented approach to commercial

• Expansion of PFS operations in Australia, Japan and New Zealand

• Focus on core skills, supported by the use of technology

• USA, roll out of Zero Accident Culture®

and RoyalCare™ and introduction of AutoLink, a web based link to non standard motor agents

• Canada, brokers given real time interactive web capabilities

• Latin America & Caribbean, programme of rate increases, strong growth in personal lines

• Australia’s financial turnaround and strongperformance in New Zealand

• Segmental restructure of Australian andJapanese commercial business

• Integration of the 1999 Tyndall and GuardianTrust acquisitions

• Obtaining the first general licence in India and an operating licence in Korea

• Retail funds, building upon our existing client base of over 100,000 investors throughspecialist teams targeting the intermediated and direct markets

• Institutional funds, a focussed team, buildinginstitutional business with consulting actuariesand investment advisers

Trading as Royal & SunAlliance Investments and Royal & SunAlliance Property Investments

• To raise the profile of Royal & SunAlliance as a leading investment manager

• To achieve profitable growth of retail andinstitutional funds under management

• To provide innovative solutions, deliveringoutstanding investment performance

• Royal & SunAlliance Investments was named ‘Best UK Investment ManagementGroup’ by Standard & Poor’s for three years in succession

• Launch of innovative new funds

• Launch of informative new website at www.rsainvestments.com

• New investments into retail funds up 68%

Total Group fundsunder management

UK £41bn

EMEA £12bn

Americas £8bn

Asia Pacific £3bn

Royal & SunAlliance Annual Report & Accounts 2000 1

GUIDE TO TERMS FINANCIAL HIGHLIGHTS

General business premiums written up 16%, life premiums written up 5%, investment product sales up 9%

Group operating result (based on LTIR) £476m

Dividend for the year 26.0p

Net premiumThe amounts receivable frompolicyholders, less the amountspayable to our own reinsurers, in respect of policies that havecommenced in the year

2000 1999

Revenue

General business net premiums written £8,372m £7,159m

Life business net premiums written £3,439m £3,284m

Investment products £755m £701m

Results*

Group operating result (based on LTIR) £476m £566m

Group operating earnings per ordinary share 18.5p 25.2p

Balance Sheet at 31 December

Total capital £7,507m £7,500m

Shareholders’ funds £6,323m £6,484m

Net asset value per share (adding back equalisation provisions) 452p 463p

Dividend

Total dividend for the year per ordinary share 26.0p 24.7p

Special dividend paid June 1999 – 48.0p

* For a full explanation of ’results’, see the results section in the Group Finance Director’s Report on page 34

Group operating result (based onlonger term investment return)The Group’s general businessunderwriting result plus the longrun investment return arising onthe related capital and technicalprovisions, together with the lifeand other activities results whichare also calculated on long runinvestment returns

Group operating earnings per ordinary share That part of Group operatingresult (based on LTIR) attributableto holders of ordinary shares,adjusted for tax; stated as thevalue per weighted averageordinary share in issue

Total capital The assets invested in the business by (1) shareholders (2) minority shareholders in partowned subsidiaries (3) subscribersto dated loan capital issued

Shareholders’ funds The assets invested in the business by shareholders of ordinary andpreference shares

Net asset value per shareNet assets attributable to holders of ordinary shares, adjusted forstatutory provisions; stated as theassets per ordinary share in issue

* For a full explanation of ‘Results’, see the results section in the Group Finance Director’s report on page 34.

WHO WE ARE: A TRULY GLOBAL COMPANY

HistoryThe history of Royal & Sun Alliance Insurance

Group plc is really the story of how insurance

began and has prospered over a period of

290 years. It involves the histories of many

companies other than the three which you

can find in the current name – the Sun

(founded in 1710) which is now the oldest

insurance company transacting business in

its own name, the Alliance (founded in 1824)

and the Royal (founded in 1845).

We have a long history of operating

internationally: on the European mainland

since the late 1700’s; in the United States

and Canada since 1804; in Australia

since 1848; in South Africa since

1852; in Chile since 1856 and

in Argentina since 1874.

We also operated in India

and China from 1852 until

nationalisation and were the

first UK general insurance

company to return to both

markets, re-opening in China

in 1998 and in India in 2000.

The Group is therefore a product

of a continuous process of amalgamation

which has included Westminster Fire Office

(founded in 1717), London (founded in 1720),

Phoenix (founded in 1782), County, Sea,

Beacon, Liverpool Fire & Life, Globe, Law

Fire, Lancashire, Household & General and

more recently Tyndall, Trygg-Hansa and

Orion Capital.

Forward looking since 1710

Who are we?Royal & SunAlliance is one of the world’s

leading global insurers. We are also one of the

world’s oldest insurance companies tracing our

roots back to 1710.

Approximately 70% of our business is general

insurance with the rest in the life, savings and

investment business. We have operations in

around 50 countries and the ability to cover risks

in over 130 countries, giving us one of the few

truly global networks in the insurance industry.

Worldwide we have around 50,000 employees

providing services to over 20 million customers.

We operate local, focussed life

operations, primarily in the UK,

Australia, Denmark, Isle of Man,

Chile and Canada, but we are

placing our growth emphasis

on the general insurance

business, where we are

strongest and we believe that

the returns are going to be

greatest over the next few years.

Our aim is to use customerfocus and operational excellenceto deliver shareholder value.

Firemark from the Sun, founded in 1710

Jenkin Jones, secretary to thePhoenix Company formore than 30 years

Firemark from the Royal, founded in 1845

Firemark from the Alliance, founded in 1824

Sir Moses Montefiore,President 1824-1885

Robert Lewis 1866-1916, 50 years Chief

Officer of the Alliance

Policy document from the Sun


Business PerformanceOur focus on general insurance is driven by

our return on capital (ROC) targets, where we

believe that a well run general insurer can

achieve excellent returns. We allocate capital

to our operations based on a sophisticated risk

based capital (RBC) model. This model allows us

to compare risk based returns on each operation

and influences our investment and reinsurance

policies. It is also the driver behind our 103%

target operating ratio for 2001.

StrategyBecause our primary focus is on customers

rather than products, we provide insurance

solutions and services through multiple

distribution channels, reaching the consumer

the way the consumer chooses.

We are organised into four distinct regions

based on time zones – the UK, EMEA (Europe,

Middle East & Africa), the Americas and

Asia Pacific.

We organise our business this way because

we believe that our customers are best served

by empowering people on the ground who

understand local conditions and customer

needs. At the same time, our regional

managers have access to our underwriting

capacity and global knowledge base through

a network of technical and functional practice

groups and support teams, which function

across regional management boundaries.

With the internationalisation of business, our

commercial customers are increasingly seeking

seamless coverage in all of the markets where

they operate. Accordingly, we anticipate that

the ability of an insurer to provide global

coverage will be an ever more important

competitive advantage.

In contrast, global capabilities are much less

relevant to our personal customers who seek

coverage in local markets from insurers with

local knowledge and expertise. Our multi local

approach to personal customers means that

we evaluate our business for personal

customers on a market by market basis but

share technical expertise across the Group.

Our global

business model

brings benefit

to every location

in which we

work. We have

a tremendous

culture of knowledge sharing across the

world. If we develop a good product or

service in one part of the world, our people

get to know of it via our Intranets, can access

it immediately and duplicate it if it will work

in their part of the world.

Throughout our business, actions are being

taken, many centred on e-business initiatives,

to streamline our processes with the aim of

giving more efficient and cost effective

customer service.

We are looking to build market share in

a controlled fashion, focussing on areas where

this can be done profitably. Our overall aim

is to use customer focus and operational

excellence to deliver shareholder value.

We have a dual approach tocustomers which recognises that the needs of our personal customersare very different from those of ourcommercial customers.

Is to generate a return on capital that is 4 points higher than our cost of capital, whichis around 9.5%. This nominal ROC of 13.5%translates to a net real return of 10% i.e. theGroup’s long term ROC target. To achieve a10% net real (i.e. after tax and inflation) ROCwe need to achieve a 103% operating ratio(the ratio of claims and expenses to premiums)on our overall general insurance business.

OUR TARGET

Sun 1710

Royal & SunAlliance Worldwide Group Office, London

The evolution of Royal & SunAlliance

1700 1800 1900 1950 2000

Sphere of influence since 1710

Global businesses have an advantage because

of their spread of risk. No single event will hit

all of their operations. By contrast, single market

businesses have to hold enough capital reserves

to cover the worst loss that could happen in

their particular country of operation. Therefore,

we can run a global business with smaller

amounts of capital attributed to each operation

than is required by independent businesses

in exactly the same countries. As a result, we

have been able to return excess capital to

shareholders in the past. The advantages of

the diversification of risks have also led us to

increase the proportion of the Group’s

exposures outside the UK.

Alliance 1824

London 1720

Phoenix 1782

Royal 1845 Royal Insurance 1919

Liverpool & London & Globe 1836

Sun Alliance Insurance 1959

Sun Alliance and London Insurance 1965

Sun Alliance Group 1989

Royal & Sun Alliance Insurance Group 1996

Tyndall May 1999

Trygg-Hansa Aug 1999

Orion Capital Corporation Nov 1999

Reopened in China and IndiaSouth AmericaAustralia

South AfricaUS & Canada

Europe

WHERE WE ARE: A TRULY GLOBAL COMPANY

We have organised our business globally to bring benefit to every location in which we work, with knowledge sharing across the world. Our primary focus is on customers and meeting their individual local needs.

4 Royal & SunAlliance Annual Report & Accounts 2000

In North America we handle nearly3,000 claims everyworking day,that’s about 300claims an hour

We employ 11,600 staff

We operate in

all 50 statesin the USA

In EMEA we writepersonal insurances in

14 countries, commercialinsurances in 17 and life

insurances in 10

EUROPE, MIDDLE EAST & AFRICA

We have a presence in 19 countries

We are one of the top five general insurance companies in Ireland

Royal & SunAlliance Insurance Middle East consolidates our operations in Saudia Arabia, the United Arab Emirates and Oman

We own 49% of Mutual & Federal in South Africa


We are one of the

top 3 general insurance companies in Denmarkand Sweden

AMERICAS

We are the 21st largest general insurer in the USA

We are the fourth largest general insurer in Canada with 50 offices nationwide

Royal & SunAlliance Canada manages nearly 1.5 million general and life policies

We have a presence in eight countries in Latin America and five countries in the Caribbean


We are one of the world’s leading global insurers writing business in

providing service to over 20 million customers.

countriesover130

We insure over 3.5 million homes –equivalent to a cityfive times the sizeof Birmingham

UNITED KINGDOM

We provide insurance and risk management services to the majority of the FTSE 100 companies

UK Retail, our direct to consumer business, deals with 10 million calls a year

We are the only company to have won the Best UKInvestment Management Group at Standard & Poor’s Micropal awards for three years running – 1997, 1998, and 1999


We insure nearly

4 million cars– that’s more than 1 in 6 cars in the UK

Our Australiandirect motor

insurer, AAMI, has 1.6 millionpolicyholders

ASIA PACIFIC

We operate in 14 markets and are one of the top 10 general insurers in eight of them

We are the largest composite insurer in New Zealand

We answer over 5.5 million customer enquiries in our Australian call centres every year

We were the first UK general insurer to be granted aninsurance licence in China and India


We insure

1 in 6 housesin Australia


Chairman Sir Patrick Gillam (PJG) and

Group Chief Executive Bob Mendelsohn

(RVM) met to review results for the

year 2000 and to discuss the Group’s

strategy and outlook for the future.

Their conversation is presented as this

year’s report to shareholders.

RVM Patrick, we should start by explaining the operating result for 2000.

PJG Obviously the weather in the fourth

quarter was the major news item. Many

of our shareholders in the UK and in

Europe will have personally experienced

the extraordinary storms and flooding. Our

Group operating result based on longer term

investment return of £476m compared with

£566m last year, but was hit by £180m of

fourth quarter weather losses. The unfortunate

thing is that the weather overshadowed

what was otherwise a story of underwriting

improvement in 2000. In fact, many of our

operating businesses around the world

produced levels of profitability that were

better than 1999. Including our acquisitions,

we showed good levels of growth in

premium volume during the year, despite

continuing our programme of selling or

eliminating those businesses or classes of

business which are not capable of sustaining

the rather stretching profitability targets that

we have set. General insurance premiums

were up 16% to £8,372m for the year,

and life insurance premiums were up 5%

to £3,439m.

PJG Insurance companies are inbusiness to deal with catastrophes and other extreme events. Bob, do you think we should say more aboutthe weather and climate changes?

RVM We seek to price risks properly by

reviewing all aspects both of the primary risks

that we accept and the reinsurance covers

that we buy. To do this we form a judgment

of when an event like extreme weather, or

climate change, ceases to be unforeseeable or

exceptional and becomes instead symptomatic

of a long term trend. When this happens we

factor it into our underwriting and increase the

rate that we are charging for carrying the risk.

We also review our reinsurance arrangements

in the light of any of these changes to assess

whether we have the right level of cover and

the right amount of retained risk.

RVM I also think that our shareholderswill understand that even if we pricethe risk correctly in the long run, therecan be distortions in the short run.Shouldn’t we be talking about why itmakes sense for our investors toexpose themselves to that risk?

PJG The simple answer is that the return on

investment in any company should reflect the

relative level of risk inherent in that investment.

In our case, there are several elements to the

equation. We collect premiums, pay out losses

and the expenses of running the business, while

collecting investment income and capital gains

on the funds we are holding to pay future

CHAIRMAN’S & CHIEF EXECUTIVE’S REVIEW

Sir Patrick GillamChairman

Bob MendelsohnGroup Chief Executive

We showed good levels of growth in premiumvolume during the year.


claims and other obligations. When you add

all that together, we have an annual average

post tax return on invested capital of 14% over

the past 20 years. That is a good return but

individual years during that period showed a lot

of volatility caused by both underwriting results

and investment results. Our target is to maintain

similar high levels of return for the future while

growing the Company but with lower volatility.

PJG I think we should mention a major component of return to ourshareholders – our dividend.

RVM Because we look at the dividend on a

long term basis, the same way we look at the

business, an underperforming year like 2000

won’t cause us to change our policy. In fact,

we increased the dividend by 5.26% last year

to 26.0p per share, for a total payout of

£372m. On our share price at year end, this

represented a yield of 4.5%.

We are also committed to Active Capital

Management, which means making our

balance sheet as lean and efficient as possible

– consistent with maintaining good credit

ratings from the rating agencies, of course.

For example, in 1998, when we changed the

Group’s strategy to focus on return on risk

based capital as our primary measurement

tool, we saw that we had excess capital that

wasn’t being productively employed. So we

declared a £751m special dividend and paid it

back to shareholders in the following year.

Some shareholders were happy to get it,

others hated paying tax on it and wanted us

to find ways to keep the money in the

business and earn higher returns on it.

Active Capital Management means retaining

in the business those funds needed to finance

future growth. During 2001 we will continue

to evaluate our dividend level and its part in the

Active Capital Management programme.

RVM Dividend yield is a function ofshare price, and by the end of lastyear our shares had performed prettywell hadn’t they?

PJG Yes they had. A share price increase over

the year of 17% was encouraging, especially

when compared with the poor performance of

most major stock markets. In fact the share price

was up 90% from its low point for the year.

This reflects the improving sentiment towards

us as the market increasingly believes that the

substantial changes that we have made to the

Company will come through to the bottom line.

PJG Would you like to comment on our listing on the New York Stock Exchange?

RVM The listing was an important milestone

in the continued global development of the

Group for a number of reasons. Since some

19% of our current investors are based in North

America, this listing will make investing more

convenient for American institutions and

individuals – helping to globalise our shareholder

base in the same way that we have globalised

our business.

“We have made good underlying progress during 2000, with many classes of insurance and business operating at better levels of profit than during 1999.”

We are also committed to ActiveCapital Management, whichmeans making our balance sheetas lean and efficient as possible.

Net Premiums

Personal 36%

Commerical 35%

Life 29%


Also important are the opportunities that it

gives the 20% of our employees who are in

North America to invest in a more visible dollar

denominated stock and to participate in the

various plans which encourage our employees to

own the Group’s shares. Of course, it also gives

us access to the world’s largest capital market.

As well as shareholders in our UK base, the

Group will continue to try to attract new

shareholders from North America, Europe

and Asia, where insurance companies often

have a higher rating than they would have

on the UK market.

RVM Since I’ve mentioned theglobalisation of our business, Patrick,you may want to say something about our strategy.

PJG Our strategy is to produce maximum

shareholder value by growing our business

profitably while placing the customer at

the centre of everything that we do.

In our commercial business we offer

seamless cover worldwide wherever our

customers operate.

Our personal customers however are primarily

interested in their local markets and insurers

with local knowledge and expertise. Accordingly

we look after them market by market.

We offer a broad array of property, casualty,

health, life, accident and investment products

and services throughout the world, reaching

customers through a multi channel distribution

network that includes brokers, agents, independent

financial advisers, corporate partners and direct

media such as telephone and Internet. Our goal

is to be able to deal with customers whenever,

wherever and however they wish to deal with

us. And to deal with them fairly – and promptly.

We consider our five major markets to be the

UK, USA, Scandinavia, Canada and Australasia.

In these markets we have significant presence,

enhanced by our acquisitions over the last

two years. We will continue to build on our

strengths in these markets both organically

and by acquisition.

We also have a number of longer term

development areas including India and

China, which will become important markets

in the future.

We returned to the Indian market in 2000

when we were the first UK general insurance

company to be granted a licence to transact

insurance business.

We will officially open for business in March

2001 writing both commercial and personal

insurances. We will use our skill in working

with corporate partners to maximise the

potential for profitable growth.

We opened our first office in China in

October 1998 in Shanghai to write commercial

insurance and are seeking to extend the

scope of our business with China’s pending

accession to the WTO.

CHAIRMAN’S & CHIEF EXECUTIVE’S REVIEW continued

At the end of the day our strategy must deliveron the bottom line. Eachof the Regions continuesto demonstrate goodunderlying improvementand performance.

“We are entering 2001 with confidence that wecontinue to make progress towards our target of achieving a general business operating ratioof 103% for the year.”


PJG Bob, perhaps you shouldcomment on some of the competitiveadvantages we see in the way we now run the business.

RVM We have moved from being a Group

just trading internationally, to one operating

on a true global business model. This gives us

three major advantages.

First, we have a tremendous culture of knowledge

sharing across the world. If we develop a good

product or service in one operation, everyone gets

to know of it via our Intranets, can access it

immediately and duplicate it if it will work in their

part of the Group. We’ve spent a lot of money on

technology in the past few years. That’s what has

enabled us to start doing business differently. We

now can move underwriting and claims best

practice rapidly around the world.

Second, there is an advantage from economies

of scale as we leverage our operating efficiencies

across the world.

Third, there is an important financial element

as well. An individual operation requires much

less capital as part of a diversified group of

operations than it does as an independent entity.

A global spread of risk is a real advantage.

But we don’t just measure our success in terms

of our performance against financial targets.

I am also measuring success by other criteria. The

most important of these is setting the agenda

for the industry. I want our competitors to worry

about what Royal & SunAlliance is doing, about

what new products we are going to launch

or new business sectors we are entering. I also

want us to be the company where all of the

best people in the industry want to work.

PJG I agree, and at the end of the day our

strategy must deliver on the bottom line. Each

of the Regions continues to demonstrate good

underlying improvement and performance. The

targets that we have set are challenging but I am

very pleased with the way that our people have

responded so positively.

PJG Do you want to comment on the outlook for 2001?

RVM Our outlook for 2001 is underpinned

by a broad, worldwide trend toward higher

prices in our major classes of general

insurance. During the fourth quarter of 2000

that trend continued. In short, we are entering

2001 with confidence that we continue to

make progress towards our target of achieving

a general business operating ratio of 103%

for the year.

We are also now in a position where our

general business is better spread geographically.

This diversity will, over time, help to take some

of the volatility out of our results.

In formulating our outlook for 2001, we

considered the impact of a number of

initiatives. I am particularly pleased with the

progress of our UK PFS claims management

initiatives, which have greatly improved the

level of service that we offer to our customers

We have moved frombeing a Group justtrading internationally, toone operating on a trueglobal business model.


while, to date, producing ongoing savings

of £68m a year compared to 1998.

The real thing that gives me confidence at

the moment is the ability and willingness of

our employees to learn new skills and to start

focussing on the customer in a very different

way. Employee attitude toward customer service

is key to the improvements in our performance.

PJG The shareholders know we madethree major acquisitions in 1999 andintegrated them in 2000. We shouldcomment on how they’ve done.

RVM Three of the Regions were involved in

the integration of a major acquisition last year:

in the USA Orion, in Scandinavia Trygg-Hansa

and in Australia Tyndall. What is particularly

pleasing is how successful these integrations

are proving to be.

In the USA we have adopted Orion’s very

successful specialty model, ‘Zero Accident

Culture®’ as a core competence. The

acquisition has delivered annual cost savings

of $100m as we reduced the number of our

commercial offices from over 70 to 33. We

are continuing to decrease our exposure to

commodity lines, from 75% of our commercial

business in 1999 to an anticipated 25% in

2002, as we increase our specialty book. At the

same time we have been achieving strong rate

increases in commercial business throughout

2000. These price rises will be reflected in

future results. Industry developments reinforce

our belief that targeting higher margin

specialty business, which was the rationale

underlying the Orion acquisition, is correct.

In Australia, the acquisition of Tyndall gave

some scale to our life and pensions business,

which otherwise was too small to compete.

The integration of the two businesses was

completed as planned, and we are now seeing

the benefits coming through. We did have one

area of disappointment, however, in the funds

management part of the business. Tyndall is

well known as a ‘value’ manager. In Australia,

as in other markets, value investing was out of

favour and we lost clients as a result. With the

collapse of the ‘technology stock bubble’ last

year, however, the value approach to funds

management has made a comeback.

In Scandinavia, the combination of Codan and

Trygg-Hansa has given us a very strong platform

and the integration has gone well. As with Orion

in the USA, we acquired Trygg-Hansa knowing

full well that the level of premium rates in their

main market was inadequate. We were

confident, however, that rates were about to

increase substantially. In Sweden, as we expected,

the increases are now coming through strongly.

RVM We’ve talked about acquisitions.Should we talk about some of ourother long term investments?

PJG Across the Group we have been investing

in e-enabling our business and other ways of

improving the way in which we deal with our

customers. This investment is vital to the success

of the Group as we go forward. We have to


We are particularlypleased with the progressof our UK PFS claimsmanagement initiatives,which have greatlyimproved the level ofservice that we offer to our customers.

We have been investing in e-enablingour business and otherways of improving theway in which we dealwith our customers.

“Our outlook for 2001 is underpinned by a broad,worldwide trend toward higher prices in our majorclasses of general insurance.”


build on the strengths of the past while investing

for the future. That’s not always easy because we

are often judged by our performance quarter by

quarter while in many cases the investment that

we are making is for the longer term.

For example, our investment in China is unlikely

to yield major dividends for years, and our

investment in India will not benefit our earnings

for some time to come. The potential in both

of these markets is immense and ten years

from now we will be pleased that we made

those investments.

PJG It might also be useful if youtalked about how we see technologyimpacting our business.

RVM We’re approaching ‘e’ from two different

angles. One concentrates on e-enabling our

existing business – using the opportunities that

new technology and the Internet give us to

change our business processes internally, drive out

costs and increase efficiency. The second is about

addressing the market in new and different ways.

We could not run an effective global business

without the kind of technology which exists

today. The Internet dramatically increases both

the speed and the transparency of what we do

and is allowing us to really change the way we

operate. I recognise, however, that there is a

big question mark over how the e-world is

going to play out. No one can be certain how

many customers are going to be interested in

dealing on the Internet – clearly not all will, and

that is why we will continue to operate a multi

distribution strategy. We will be able to deal with

our customers however they wish to deal with us.

You have to remember that ours is a real world

business. Cars crash into each other, houses are

damaged by storms, employees are injured in

the workplace, people die and leave families

with financial needs. Although the electronic

world can make us a more efficient company,

our ultimate success or failure will depend on

how we respond to the real world needs of

our customers. From our customers’ viewpoint,

that’s what the insurance business is all about.

PJG We’ve also made a large number ofoperational and structural changes, Bob.Where does work remain to be done?

RVM I have spoken in previous years of our

‘fix or eliminate’ programme which identifies

those parts of the operation that are not

pulling their weight in terms of return on

capital. We put together a plan that should

get them to the point where they need to be.

If that plan isn’t successful then they go into

the elimination phase. We are also conscious

that even where a unit is performing well, it

may not fit with the new shape of our global

Group. During 2000 we have sold, or have

sale agreements for, a number of operations

in Italy and have also disposed of those in

Austria, Kenya, Malawi, Tanzania and Jamaica.

We withdrew from insuring middle market

commercial risks in a few specific sectors in

the USA and have continued to give up

market share in any class of business where

we could not achieve adequate returns.

Our ultimate success or failure will depend on how we respond tothe real world needs ofour customers.


I would expect to see this programme of

disposals and portfolio repositioning continue

throughout 2001.

We have also made some small acquisitions

during the year. These have been in areas

where we are already successful and have

had an opportunity to increase our market

share in a profitable area and at a price

which allows us to meet our target returns.

Again I would expect to see this continue

throughout 2001.

It is obvious that we still have a way to go on

getting some classes of business operating at

an acceptable return. But the rate hardening

around the world is continuing and we remain

positive about our targets.

RVM Of course all of the successes of the Group over the year – andgoing forward – are down to thehard work of the people we workwith. We probably should commenton that.

PJG Many people have contributed to

the success of the Group and in many

different capacities.

Once again our staff have demonstrated

great professionalism when dealing with our

customers. For example, many staff in the UK

put in considerable time and effort to ensure

that those customers affected by the storms

and floods received the best possible service

at that traumatic time.

The total focus and personal responsibility

demonstrated by all of our staff worldwide as

they went out of their way to deliver first rate

customer service, as well as their determination

to reach our financial targets, deserves the

thanks of all of the Board and our shareholders.

At the Board level, Henry Keswick retired

from the Board after twenty five years as

a non-executive director of the Group. On

behalf of the Board, I thank him for all his

valuable help over the years. We were also

pleased to welcome Stephen Hill, Chief

Executive Officer of the Financial Times

Group, as a non-executive director.

RVM On the other hand, from theshareholders perspective, Patrick, what they want to know is how we’re doing financially. But insuranceaccounting is pretty complicated.

PJG That’s true. That’s why we emphasise

Group operating result which is based on

longer term investment return (LTIR) which we

regard as the most appropriate measure for

evaluating performance.

The Group operating result takes the

underwriting result from our insurance

business and adds an amount of investment

return based on the long term rate we’ve

earned on our investments, rather than adding

the actual amount of income and capital gains

in that year. In fact, the actual investment

return that we have achieved over the last few

years is considerably greater than the longer


“We’ve spent the past three years fundamentallyreshaping our business to prepare for what will be a challenging 21st century.”

The total focus andpersonal responsibilitydemonstrated by all ofour staff worldwide ...deserves the thanks of all of the Board and ourshareholders.


term return, which is attributable to the high

level of investment markets over this period.

As indicated above, we believe that the

Group operating result based on LTIR is the

most appropriate measure of performance.

The overall profit on ordinary activities includes

short term investment fluctuations and certain

other items and is consequently volatile. This

volatility is also reflected in the overall earnings

per share and for this reason we also provide

operating earnings per share.

PJG The Board has widerresponsibilities than just the financialperformance of the Group. Bob, I knowthat you take a very strong interest in our environmental performance.

RVM Royal & SunAlliance has operations

in most of the world’s economies and so

has the ability to have a positive impact

on the world’s environment. We also have

the commitment to do so. We are not

content simply to rely on being part of

one of the low environmental impact global

industries, financial services. We take our

responsibilities seriously and are committed

to conducting our operations with a

view towards being responsible stewards

of the environment in which we live

and work.

Each of our operations has specific and

concrete environmental goals, ranging from

energy use and recycling, to supporting a global

mission to preserve and protect the Antarctic.

We also consider environmental and other

ethical issues in making our investments.

As part of our regular communication with

companies in which we invest we raise issues

which concern us about their business

undertakings. These issues are raised as

responsible shareholders concerned about

the return on our investment, as well as in

our role as corporate citizens. Our investment

management business has been very

successful, both in managing the Group’s

money and that of our clients, by balancing

all of the areas that must be considered in

making sound investment decisions.

PJG I agree. And I suppose ‘soundinvestment decision’ would be a good theme to end our review.We’re dedicated to making sure the decision our shareholders madewhen they invested in our shares will turn out to be a sound one.

RVM We’ve spent the past three years

fundamentally reshaping our business to

prepare for what I believe will be a challenging

21st century competitive environment. The

people of Royal & SunAlliance are ready for

those challenges.

Bob Mendelsohn

Group Chief Executive

Sir Patrick Gillam

Chairman

“ We are constantly developingand leveraging the technologyand the valuable informationwe have available to improvethe service we can deliver toour customers and add valueto their relationship with us.”

Royal & SunAlliance is implementing a dynamic Customer RelationshipManagement (CRM) business modelaround the world. This loyalty basedapproach emphasises the importance of understanding customers’ individualneeds and seeks to position customers as long term ‘assets’. By accuratelysegmenting our markets, CRM aims to better allocate resources to thosecustomers who represent the greatestvalue over time.

In Canada, a number of CRM initiatives are taking shape and one pilot is alreadyproducing encouraging results. Workingclosely with two firms of brokers, Royal & SunAlliance Canada is proactivelycontacting high value personal insurancecustomers and inviting them to call for aportfolio review ahead of their renewaldates. If the customer responds, thebroker then takes them through adetailed review, confirming and updatingcustomer information, ensuring theircoverage is adequate and identifying anypossible discounts. The scheme is alreadybenefiting both the customer – whoenjoys a better relationship with theirbroker and the comfort of up to datecover – and the brokers who gainupdated information and the ability to deliver an enhanced service.

A LOYALTY BASED APPROACH

Today’s customers demand innovative insurance solutions to their problems and superior service whenever and wherever they touch our business. At Royal & SunAlliance we are taking customer service to new levels with initiatives that greatly enhance our understanding of our customers and their needs and deliver to them through their preferred channel.

Delivering outstanding customer

“ The follow up by Royal & SunAlliance was great. We didn’t feel pressured but, at the same time, we feltsomeone was taking aninterest in our changinglife circumstances andmaking sure that we havethe appropriate cover.”

Cooke Family Ontario, Canada

Alison ShandTeam LeaderCustomer Relationship Management

Strategy One 15

A DIFFERENT KIND OF SERVICE

Royal & SunAlliance in South Bend, Indiana, has brought together two exciting initiatives to give Hoosier Racing Tire Corp. of Lakeville,Indiana, an exceptional and clearly differentiatedservice. With Zero Accident Culture® (ZAC) weare working closely with Hoosier to getemployees involved in accident prevention andreduce risk from the ground up. Our analysisshowed that accidents were most commonamong new employees and this knowledgebrought safety issues to the fore in newemployee orientation.

At the same time, Royal & SunAlliance workedwith Hoosier’s in house safety engineer to lessenrisk exposure by installing photo eyes and treadles to new and existing machinery and by introducing lifting equipment at keypoints. Royal & SunAlliance has provided thetools, ideas, energy and enthusiasm to engendera culture where safety is viewed as an essentialpart of effective and profitable operation. ZAC has made a real impact – back injuries are down by 90% and property damage fromforklifts has been virtually eliminated.

We have also introduced our RoyalCare™

post claim plan to ensure that, when accidentsdo occur, the employees receive the high qualitycare and support they need to help them makea speedy recovery.

“ Royal & SunAlliance has probably saved us hundreds of thousands ofdollars over the years. But it goesbeyond that, beyond safety. Royal & SunAlliance promotes a way of thinking, a way of life.”

Don NewtonVice President, Manufacturing, Hoosier Racing Tire

servicePictured

Bob NewtonFounder & PresidentHoosier Racing Tire

As a global player we have developed a wealth of world class technical expertise and knowledge. Sharing this learning and experience is now an integral part of the Group’s working practice enabling us to respond more rapidly and efficiently to local customers and markets with world beating insurance solutions.

Building on our global capabilities

“ The combination of the strong Trygg-Hansa trademarkand Royal & SunAlliance’sglobal network provides a solid offer to our clients.”

Håkan DanielssonManaging DirectorTrygg-Hansa

When Trygg-Hansa re-entered the marine hull insurance business in Scandinavia this year, after a two year break, it worked closely with parent company Codan, part of the Royal & SunAlliance Group, to develop an effective strategy for this competitive market.

Codan acted as the ‘god-mother’ to the embryonic Trygg-Hansa operation,sharing skills, IT and experience and leveraging the strength of the Royal & SunAlliance Group to open thedoor to new customer relationships.

Trygg-Hansa Marine has made highly effective use of the back-up and resources available through Royal & SunAlliance in Copenhagen.Positioning itself as a local operationsupported by a global network hasresulted in notable gains. Stena Line, one of Sweden’s largest shipowners, has listed Trygg-Hansa as a preferredsupplier for its entire fleet and hasinsured two new English Channel vessels with the new enterprise.

“ Stena policy is to useleading Scandinavianinsurers on Swedishconditions. We insist onthe insurance companyhaving strong securityratings, excellent service,and their price has to be competitive.

“ We like to work withpeople we know and can rely on, after theimpressive presentationby Codan and Trygg-Hansa, we knew wecould rely on them.”

Stena Rederi AB

Ken SmithCaptain of the

Britannica

LOCAL EXPERTISE, GLOBAL STRENGTHS

SHARING EXPERIENCE BEARS FRUIT

Strategy Two 17

and knowledge

“ By harnessing the benefits of virtual workingwith Intranet technology,our practice groups areensuring that we share ourknowledge and expertisearound the world effectivelyand that our individualbusinesses, as well as ourcustomers, benefit fully from our global reach.”

Rick HudsonGroup DirectorUnderwriting & Claims

Our direct marketing operation in Argentina, AnswerSeguro-On-Line, is founded on knowledge sharing. The Argentine insurance market had traditionally been a broker/agency market and when Answer launched in early 1998, direct sales of insurance was a very newconcept in the country. Royal & SunAlliance already had a number of highly successful direct marketingcompanies, particularly in Australia and Europe.

Answer used these models – importing knowledge andexpertise and seconding an experienced senior managerto develop the customer proposition – to become anestablished brand in just three years. Learning and sharingis now second nature to the Answer team with staffregularly visiting other Group direct operations to developtheir skills. And it has paid off. Answer recently won a‘First in Industry’ award for its telemarketing performancein the International Grand Prix Customer Service Awards,sponsored by Teleperformance International.

CONTROLLING RISKS GLOBALLY

Royal & SunAlliance Global Consulting brings togetherover 50 highly qualified consultants to provide riskassessment to underwriters and value added consultancyto customers around the world. One of the newbusiness’ first moves has been to develop and launch a state of the art Internet based Quantum Risk System(QRS) which enables consultants, underwriters andcustomers to see and work with the same shared riskdata for any of their accounts and locations worldwide.

The ground breaking new system was developed in less than a year using the combined expertise of our risk engineering, underwriting, IT and marketingfunctions from the UK and USA. It’s already deliveringsignificant time and cost efficiencies to GlobalConsulting – which is now free to focus on true riskimprovement – and to customers, who can use thesystem’s accurate, customised reporting facilities toinform their decision making around the world.

“ QRS provides a quick, efficient and paperlessmeans of communicating loss preventionreports to our operating management. Itreduces administration to the truly importanttask of measuring results and severelyminimises activities that do not add value.”

Bob Powell Risk Manager of Sonoco ProductsSouth Carolina, USA

Pictured left to right:Chris Hodges, President

of NSDI Teleperformance,R&SA’s Dolores Medus,

and Norberto Varas, CEO Teleperformance,

Argentina

Changing local market conditions have created a new opportunity for Royal & SunAlliance’s Australian AssociatedMotor Insurers Limited (AAMI). As a leadingprovider of motor insurance in Australia,AAMI has recognised strengths in logisticsand claims management. In addition tobuilding on these for the benefit of itscustomers through an internationallyrenowned Customer Charter, AAMI is alsoleveraging its core competencies in thegeneral insurance market.

As the industry becomes increasinglycommoditised, AAMI is developing claimsmanagement as a revenue stream in its ownright, packaging its expertise and systems as a service to a new wave of insuranceproviders entering the market. At the sametime, AAMI is underscoring its marketleadership in motor, home and compulsorythird party insurance.

AAMI’s customer focussed approach is leading to substantial growth in our share of the motor and home insurance market.

BUILDING ON CORE STRENGTHS TO BENEFIT CUSTOMERS

Strengthening our business throuAt its heart insurance is about fundamental disciplines – underwriting, claims and risk management. Royal & SunAlliance is using its global reach and depth of experience to further refine these core competencies to exceed our customers’ expectations while simultaneously creating and capitalising on cost efficiencies.

“ I received no less than four courtesy calls to keep me up to date with what was happening during and after the repairs and to assure me that theywere fully warranted for the life of the car. And the taxi service to and from the pick up centresaved me time, money and worry.”

AAMI customerSydney, Australia

“ Our new claims strategy is about delivering solutions to our customers throughproactive management of the supply chain. The recentfloods demonstrated thepower of this as a customerservice and cost controlproposition.”

David NeaveClaims Director

FLOOD, SWEAT AND TEARS

gh enhanced core competencies

“ Within eight weeks we were able to return to our house – just in time for Christmas –

which I didn’t think possible due to the extentof the damage. I hope I never have to make aclaim again but I will always in future choose

to insure with Royal & SunAlliance.”

Mr M PrattUK customer

When the river Ouse broke its banks in October 2000 it flooded the homes of over 1,000 people in the town of Lewes in South East England. Royal & SunAlliancereacted quickly, establishing a presence in the town, solving customers’ problemsand attracting extensive positive media coverage.

We implemented a well rehearsedemergency plan – bringing togetherprofessionals from our Claims AdvisorService (CAS), Building Repair Network, call centres, motor engineers and surveyors– to respond to an explosion of claims from distraught customers in Lewes. As the waters rose, Royal & SunAlliance’sportable emergency centre in the townbecame the focal point for anxioushomeowners seeking practical advice. Our specialist claims managers swung into action immediately, assessing thedamage, bringing in teams of contractors,working to agreed service standards andpricing structures and helping people to rebuild their homes. In the cases of motor claims our total loss unit was able to settle ‘write off’ claims in as little as four days.

Mrs Ruth GrahamUK customer andemployee from one ofthe flood affected areas

Strategy Three 19

Building the business of the newOur vision is to build on our skills, knowledge and track record to deliver new kinds of value to an ever more demanding and better informed market. That means embracing new perspectives and new technology to transform Royal & SunAlliance. We are creating a company that doesn’t just ‘manufacture’ insurance, but delivers complete customer solutions.

By bringing together our UK direct businesses into a single division, UK Retail, we have been able to begin transforming the way we deliver service to our general, life and investment customers.

E-technologies are being integrated with moretraditional channels, allowing customers tochoose how and when they communicate with us. Already we have launched householdand motor insurance, term assurance and ISAson the Internet. In recognition of our progress,we have been rated as one of the UK’s toponline insurers by Gomez Webstar™.

Our aim is to move beyond our traditionalinsurance and investment products. We areproviding our customers with a broader rangeof innovative solutions that enable them toprotect what they really value – family, health,wealth, lifestyle and assets. SimplyDrive istypical of this new approach. Customers cannow obtain a new car on a private contractbasis and with a single fixed monthly paymentthey have finance, tax, maintenance, servicing,insurance and breakdown cover in a singlestraightforward package.

TRANSFORMING OUR CURRENT BUSINESS

“ Royal & SunAlliancemakes it really simpleto get cover. I can just log on to theirwebsite from homeand apply – giving me peace of mind at all times.”

Nikki IngramUK Retail customer at home

“ The future is not just about doing what we do now, but better. It’s alsoabout identifying radicalnew ways to createcustomer value.”

Stuart DeggGroup DirectorGlobal Ventures

Strategy Four 21

century

“ We are building thebusinesses of tomorrow,integrating e-business intoour existing operations andleveraging our core assets of customers, people andsystems. We are building on our excellent customerservice whilst still retainingour traditional strengths in underwriting and claims management.”

Adrian BrownManaging Director UK Retail

CONNECTING CUSTOMERS WORLDWIDE

Royal & SunAlliance has stolen a march on the competition in Thailand by becoming thefirst insurer to launch a fully transactional website www.royalsun.co.th. Visitors to the site can obtain motor and travel insurance quotes,notify claims, order a policy and pay online, orchoose from a number of other payment options.

But what makes the site especially innovative is the way it enables customers to personalisetheir insurance packages and save money by deselecting elements of policies that they do not require. The site also allows policy data to be uploaded automatically to the company’s back office systems delivering further cost and time savings.

“ We are committed to deliveringinsurance solutions to our customersthrough the most accessible, costeffective and convenient channel, the Internet.”

Pattanapong SomboontakerngCEO, Royal & SunAlliance Insurance (Thailand) Co.

BUILDING RADICAL NEW BUSINESSES

NewMove is our new ‘home champion’business. It brings together the experience of the Group in insuring, repairing andfinancing properties with our market leadingestate agency, and is creating a whole new business strategy.

“ The new business will deepen and broadenour relationship with the customer – building a stronger and more enduring partnership.”

Charles TaylorCEO NewMove, Global Ventures


BOARD OF DIRECTORS

Sir Patrick Gillam ^ •

Chairman

Age 67. Director and Chairman of

the Group from 1997. Chairman

of the Nomination Committee.

Chairman of Standard Chartered

Plc (international banking). Former

Managing Director of The British

Petroleum Company. Former

Chairman of Asda Group Limited

(food retailer).

Anthony Forbes + ^ •

Deputy Chairman

Age 63. Deputy Chairman

from 1998. Director of the Group

from 1994. Chairman of the Audit

Committee to April 2001. Director

of The Merchants Trust Plc

(investment trust) and Carlton

Communications PLC (media

company). Former Joint Senior

Partner of Cazenove & Co

(investment bank).

Julian Hance *

Age 45. Group Finance Director

from October 1998. Former

Group Chief Accountant and

Finance Director of Life and

Investment Operations.

Arthur Hayes *

Age 57. Director of the Group

from 1992. Appointed Group

Director, Investment & Financial

Services in February 1998.

Director of Thistle Hotels Plc

(hotel and leisure).

Stephen HillAge 40. Director of the

Group from August 2000.

Chief Executive Officer of

the Financial Times Group

(newspapers & publishing) from

1998. Formerly Chief Executive

Officer of the Financial Times

Newspaper and Westminster

Press Ltd and Head of Strategy

for Pearson plc (media company).

Bob Ayling ^ •

Age 54. Director of the

Group from 1993. Former

Chief Executive of British Airways.

Former Chairman of New

Millennium Experience Company.

Former Under Secretary at the

Department of Trade.


Bob Mendelsohn * ^

Age 54. Group Chief Executive

from December 1997. Chief

Executive Officer of the Group’s

operation in the USA from 1994.

Former Chairman of the American

Insurance Association. Director

of the International Insurance

Society. Former President and

Chief Operating Officer of WR

Berkley Corporation (insurance).

Nicholas Barber + •


from 1991. Chairman of the

Remuneration Committee.

Director of Fidelity Japanese

Values plc (investment trust).

Chairman of bolero.net

(e-commerce). Governor of

the London Business School.

Former Chief Executive of

Ocean Group plc (now Exel plc –

international transport).

John Baker CBE + ^


from 1995. Chairman of the Audit

Committee from April 2001.

Deputy Chairman of Celltech

Group PLC (biopharmaceuticals).

Former Chairman of National

Power plc (energy) and Medeva

plc (pharmaceuticals).

Bob Gunn *


from June 1999. Appointed

Group Director of the Americas

Region in 1998. Chief Executive

Officer of the Group’s operation

in Canada from 1990. Director of

the Insurance Bureau of Canada

and the Insurance Information

Council of Canada.

Paul Spencer *


from 1996, Chief Executive UK

since October 1998. Previously

Group Finance Director. Director

Association of British Insurers

and Financial Services Authority

Practitioners Forum. Former

Associate Director-Treasurer of

Hanson PLC (building products).

Former President Association of

Corporate Treasurers.

Carole St. Mark ^ •


from September 1998. President

and Chief Executive Officer of

Growth Management LLC

(consulting). Director of Polaroid

Corp (digital imaging), SuperValu

Inc (food retailer) and Gerber

Scientific Inc (IT systems). Former

President and Chief Executive

Officer of Pitney Bowes Business

Services (business equipment).

* Executive Director

+ Member of Audit

& Compliance Committee

^ Member of Nomination

Committee

• Member of Remuneration

Committee

“Our aim is to be the best insurance company in the UK. That means being the most customer focussed,the most efficient and profitable, the company themarket looks to for leadership and the company inwhich people would most like to work.”


Overview of Major StrategiesWe are driving through key strategies across

the range of our business operations in the UK.

• Segmentation of our customer base to

deliver customer propositions that truly

differentiate us in the market.

• The use of e-technology to generate new

levels of customer service and cost savings.

• A continued emphasis on our core skills

of underwriting and claims management to

produce superior returns.

Business Progress Against StrategiesPersonalIn our intermediated personal general insurance

business, claims management initiatives have

generated significant cost savings at the same

time as improving our customer service. The

benefits of our investment in our Claims Advisor

Service and Building Repair Network became

very evident during the extreme weather in the

UK during the last quarter of 2000. Customers

and the media praised our rapid and proactive

approach. Firm underwriting action led to a

substantial improvement in the operating ratio

for the personal lines business by the third

quarter, but this has since been affected by

the UK storms and floods. Our health business

continues to develop successfully, giving us

a genuine third major business sector, alongside

home and motor insurance.

RetailIn September, Retail was formed as a new

business bringing together the direct arms of

our life, general and investment operations

which currently service the needs of around

two million customers. The business

combines e-enablement with highly developed

telephone call centres and builds on our

existing excellent service levels. Household,

motor, pet, term assurance and investment

products are now available to buy online and

quotes are available online for our broad car

proposition called ‘SimplyDrive’, private

medical insurance and travel insurance.

LifeSignificant progress has been made in

transforming the life business. This includes

the closure of the agency channel, exceptional

growth in Independent Financial Adviser

business to record levels, the acquisition of the

Zurich Life’s Group Risk portfolio, continued

product rationalisation and the achievement

of significant cost savings. Substantial

preparations have been made in advance of

the introduction of stakeholder pensions in

April 2001.

CommercialWe have successfully reinforced our market

leadership and are restoring the business to

Group target returns through a programme of

underwriting action. Our ‘Enterprise’ initiative,

offering new levels of service to brokers with

small and medium sized business clients, has

been well received and has been rolled out

nationally. Similarly, our ‘Energy’ programme,

designed to add value to our relationships

with key brokers, has received good feedback.

Industry research shows that we are achieving

significant improvements in our relationships

with commercial insurance brokers.

OPERATING REVIEW: UNITED KINGDOM

Paul SpencerUK Chief Executive


UK CentreWe are transforming our support areas to

create UK wide finance, human resources

and information services functions that create

improvements in the service delivered to our

customer facing businesses, at the same

time achieving greater efficiency. We have

implemented a new Governance process across

the UK to give strategic focus to all our internal

investment decisions. The framework allows

us to develop shared solutions that will

significantly improve the effectiveness of our

information systems infrastructure.

Market and Economic ConditionsThe rating environment in the commercial

market has improved across all sectors during

the year but further increases are required to

achieve the necessary rating levels. Law reform

has had some adverse effect on claims costs.

We and the industry will continue to monitor

developments in this area closely.

Motor insurance has achieved strong rate

increases over the last two years. Home

insurance rates are based on long term claims

trends. The recent extreme weather will be

taken into account in assessing these trends

and may contribute to rate rises.

The life sector continues to be subject to

consumer, media and regulatory scrutiny.

We have supported the Savings and Long

Term Risk industry initiative designed to

increase consumer confidence by raising

standards. The introduction of stakeholder

pensions in April 2001 will have far reaching

consequences for the pensions industry.

The work we have undertaken to reshape our

life business means that within the group

corporate sector we are well placed to take

advantage of this new environment.

Acquisitions and InvestmentsSubstantial investment has been made in

our new retail business, in technology, in

improving the efficiency and quality of

our claims service and in a UK wide

e-procurement system which is on track

to generate significant savings.

New InitiativesWe plan a high profile marketing launch for

our Retail business during 2001. We are rolling

out a new initiative to service the needs of

our direct commercial insurance customers in

the small business sector. We have announced

a range of products designed for the new

stakeholder pensions environment in our

chosen market segments. We fully support

the establishment of the General Insurance

Standards Council and will encourage brokers

to register with the new body.

OutlookWe have made good progress towards

achieving our goals. We are transforming

our businesses and support functions,

generating real service and efficiency

improvements. We have made considerable

progress in restoring acceptable returns,

and we believe that we are on track to

make our contribution to the achievement

of the Group’s stated financial objectives.

Highlights

• Claims management initiatives in PFS

produced savings of £28m in 1999 and

a further £40m in 2000

• The successful formation of our new

Retail arm, bringing together the direct

business of our life, general and

investment operations

• Our web capability was recognised

by Gomez Webstar™, as one of the

leading online insurance providers in

the UK and received a top award for

ease of use

• The excellence of our customer claims

service during the exceptional floods

in the fourth quarter

• The rollout of ‘Enterprise’, our award

winning commercial insurance broker

proposition for small and medium

businesses and the success of ‘Energy’,

our new added value service

proposition for selected brokers

• The success of Life’s new IFA focus,

delivering record new business results

• Being one of the first four companies

to be authorised to offer stakeholder

pensions by OPRA

• The acquisition of Zurich Life’s Group

Risks portfolio

£m 2000 1999

General business

Net premiums written 3,148 3,141

Underwriting result (357) (308)

General business result 78 151

Return on capital employed 5% 9%

Life business


Life business result 164 165

Shareholders’ interest 1,774 1,797

UKPremium Income

Personal 32%

Commercial 29%

Life 39%


“The rate hardening emerging across most of theEuropean markets gives us a significant opportunity to exploit new conditions and to drive throughperformance improvements.”

Overview of Major StrategiesThroughout the year we have concentrated

on improving the Region’s profitability, with a

specific focus on the performance plans in place

for each of our businesses. Our strategic focus

has, therefore, been on underwriting, managed

growth and rigorous expense control. Over the

year it has become apparent that to achieve

our target returns we will need to change our

emphasis to fewer but stronger operations.

This has led us to dispose of a number of

operations that we did not believe could deliver

the operating return that the Group required

of them, or that did not fit with our longer

term positioning of the Region. We have also

taken our first steps to cluster businesses, such

as those in Germany, Belgium and Holland,

to achieve economies across operations.

We have been able to drive business

efficiencies through the use of Business to

Business technologies and have been actively

investigating new cross border opportunities

for web based e-commerce. E-business

remains an integral part of the Region’s

strategy, both for transactions and for

delivering superior customer service.

Business Progress Against StrategiesThe integration of the Codan and Trygg-Hansa

books of business continues and has given us

a very strong platform from which to increase

rates across our Scandinavian operations. We

intend to use our leading position in the market

to continue to drive through rate increases

in 2001. In Spain too we have been driving

through strong rate increases as part of our

business recovery plan for the operation and

have made significant steps towards a return

to profitability.

The reorganisation of our German operation

during 1999 led to major underlying

improvements and these have continued

throughout 2000 helped by the re-underwriting

of unprofitable areas of the business.

We have been active in developing our

e-business initiatives across the Region, for

example in Scandinavia. During 2000 we

announced CareOnLine, an innovative health

portal, in partnership with NetDoctor. We are

also in cooperation with a major mortgage

institution and will be launching a

homeowners portal in 2001.

Our Italian direct motor operation is

now making over a quarter of its sales via

the Internet.

Our Eurolife proposition is being positioned

to reflect changing consumer habits in the

investment and savings business, particularly

a move to unit linked business and away from

the more traditional life business. We are

particularly pleased with the positive response

from the Italian market and are very optimistic

for our Spanish launch. In Italy we were

selected as one of three providers of investment

management expertise to Postavita, the life

subsidiary of the Italian Post Office. RSA

Investments’ Luxembourg based SICAV

investment vehicle was promoted nationwide

as part of a multi manager savings product.

OPERATING REVIEW: EUROPE, MIDDLE EAST & AFRICA

Jens-Erik ChristensenRegional Director


During 2000 we have also established a

new regional management board designed to

establish stronger management involvement in

local operations and to ensure that across the

Region we work closer together on cross border

clustering and portfolio management principles.

Market and Economic ConditionsThe Region has experienced a prolonged period

of reduced profitability due to a simultaneous

downturn in markets and in the insurance cycle

from which the commercial insurance world is

now slowly emerging. The introduction of the

Euro has also had a significant influence.

All of these have contributed to a period of very

poor market conditions for general insurance,

however, the rate hardening emerging across

most of the European markets gives us a

significant opportunity to exploit new

conditions and to drive through performance

improvements, particularly in Scandinavia.

Acquisitions and InvestmentsDuring 2000 significant investments have

been made in e-business initiatives in the

Region. Rapid rollout of a Eurolife business

in target markets, and well developed cross

border initiatives to exploit Group strengths

and synergies in the cluster businesses are

being implemented.

New InitiativesWe will develop a robust small and medium

business commodity mid market customer

proposition to differentiate Royal & SunAlliance

in the European heartland.

The Professional and Financial risks market

as a whole and Directors & Officers in

particular is estimated to grow at an above

average rate in the coming years. The Region

is examining the potential for developing

alternative risk financing methods and

for accelerated developments in the area

of Profin.

The changing attitude to equity investment

in Europe provided the Group with the

opportunity to launch Eurolife, a Business

to Business linked life company in Dublin.

Innovative use of web technology will allow

distribution partners in Italy, Spain and

Germany to have access to systems and

administration capability not readily available

in the European market and, at the same

time, give them access to our award winning

investment team and the experience we have

built up in linked life product design over

many years both in the UK and through

our Isle of Man company.

OutlookApart from the operations in Scandinavia

and Ireland our general insurance operations

are all small, making it very challenging to

achieve our required returns if the markets

go against us. This highlights our need for

further consolidation – through acquisitions

and disposals, by clustering our businesses or

by becoming significant players in segments

where we have a particular strength or

expertise. All of this will lead to a stronger

emphasis on our basic strategy of having

fewer but stronger operations.

Highlights

• The majority of our general insurance

operations throughout the Region

have achieved rate increases and we

plan to continue to implement these

wherever necessary, despite any

resultant loss of market share

• We intend to focus on fewer but

stronger operations and, as a result,

have disposed of our operations in

Austria and Portugal and agreed the

sale of Lloyd Italico in Italy

• Spain has responded strongly to the

recovery plan which we implemented

during the year

• Eurolife, our Dublin based pan European

life operation, has made an encouraging

start and will continue to increase the

range of products that it offers in 2001

• Our strategy of focussing on unit

linked rather than traditional life

business has resulted in our agreement

to sell our life operations in Italy

£m 2000 1999

General business





Life business

Net premiums written 890 961


Shareholders’ interest 507 465

Europe, Middle East &Africa Premium Income

Personal 42%

Commercial 24%

Life 34%


“The Americas Region is pursuing a disciplined business development strategy, while planning for the future by continuing to invest significantly in key strategic areas.”

Overview of Major StrategiesAs a leader in key strategic areas, the

Americas Region is well positioned to

leverage the many opportunities emerging

from such diverse and dynamic markets.

Our plan for profitable growth in 2001

focuses on three interdependent thrusts –

customer centric approach, e-business and

operational excellence.

Business Progress Against StrategiesCustomer ServiceFinancial services companies can truly

differentiate themselves in customer service. In

the US, we are reframing the very definition of

service. An example is RoyalCare™, a network

of claims solutions that goes beyond delivering

a cheque by addressing a broad range of needs

from roadside assistance to early medical help

for an injured worker. With Zero Accident

Culture®, the US is helping businesses

understand that most accidents and injuries

are preventable, enabling them to reap the

insurance savings and broader benefits of a

safer, more productive workplace.

In Argentina, our direct operation Answer

Seguro-On-Line, was awarded the ‘First in

Industry’ award for its exceptional telemarketing

performance. Our subsidiary in Puerto Rico

received the Puerto Rico ‘Insurance Company

of the Year’ award and three others. In

addition to providing excellent service, we

continue to focus on better understanding

our customers’ needs. In Canada, a major

customer relationship management initiative

is underway to help us retain more profitable

customers, by better understanding their

changing needs and preferences throughout

their lifetime.

The Region also continued to respond

to customer demands for more choice by

developing new channels of distribution,

primarily through e-business and call

centre technology.

E-BusinessLeveraging technology effectively is key to

increasing efficiency and improving customer

service. We made significant progress in 2000

with each of our Americas operations focussing

on priority business segments. In Canada,

we empowered our general brokers and life

agents by providing them secure access through

the Internet for customer data, analysis and

transactional purposes. Our web based AutoLink

transaction system in the US gives our non

standard auto agents a broad range of online

capabilities, responding to their needs for built

in edits and validations, rapid rating processes,

print applications, receipts and other necessary

documentation. Our Argentinian direct

operation was the first insurer in the country

to introduce online sales of auto insurance.

Internally, we continue to develop our

Intranet capabilities. In Canada, we are

creating a site that will incorporate all lines

of business, plus communications and human

resources information, to be launched in the

second quarter of 2001. The US has launched

their corporate, personal, specialty and

commercial Intranet sites, giving employees

OPERATING REVIEW: AMERICAS

Bob GunnRegional Director


in every division access to business and

personal information. In Latin America &

Caribbean, we introduced a trilingual site, which

is a common, powerful information system across

the operation. We are enabling our people to

better manage their personal information and

serve our customers more efficiently.

Operational ExcellenceDiscipline of focus was a common theme

throughout the Americas in 2000. We

continue to focus on segmentation of profitable

business, with the goal of bolstering areas of

strength and withdrawing from segments with

less potential for success. In the US we ceased

writing coverage for mid sized construction,

hotel, restaurant and apartment business. In

the Caribbean we sold our operation in Jamaica

and have an in principle agreement to sell our

company in Antigua. In Canada we will be

taking a more disciplined approach to general

liability insurance in 2001. The Americas Region

continues to streamline processes and increase

efficiency to enhance service with business

partners and policyholders.

Market and Economic ConditionsWhile diverse in many respects, our operations in

the US, Canada and Latin America & Caribbean

faced similar challenges in 2000.

Inadequate pricing has been a problem for the

industry in general over recent years, with the

cost of risk outpacing premiums. A contributing

factor has been the increasingly competitive

nature of the industry, with the many new and

aggressive entrants exerting downward pressure

on profitability. This is a trend that cannot be

sustained, and Royal & SunAlliance has been at

the forefront in seeking more adequate pricing.

There were signs in 2000 that premiums were

starting to increase; and prospects for 2001

look better.

The pace of consolidation remained brisk, with

brokers and insurers pursuing mergers and

acquisitions as a means of growth. New channels

of distribution developed as participants such as

banks, car manufacturers, utility companies and

retail stores entered the business.

Acquisitions and InvestmentsWe focussed on acquisitions and investments

as a means of achieving scale, skills and

growth. In Latin America, La Construcción

became a subsidiary at the end of 1999 –

an excellent platform to develop life business

across the Region. In Canada, our subsidiary

Noraxis stepped up investment in brokerages.

We realised and capitalised on the opportunities

resulting from our 1999 acquisition of Orion

Capital Corporation. By the end of 2000 we

had achieved integration savings of £70m and

specialty lines growth of £270m.

OutlookThe Americas Region is pursuing a

disciplined business development strategy.

Although we are focussing on immediate

financial targets for 2001, we are also investing

significantly for the future in our three key

strategies of e-business, operational excellence

and becoming customer centric.

Highlights

• The integration of the Orion and

Royal & SunAlliance commercial business,

focussing on Orion’s Zero Accident

Culture® business model and Royal &

SunAlliance RoyalCare™ claims model,

to establish a unique market offering

• Integration savings of £70m in the USA.

10% above initial estimates

• Consistent with our specialty business

model we withdrew from selected

middle market commercial business

in the USA

• The development of a powerful new

customer relationship management

strategy in Canada. An example of an

initiative developed in one region and

now being rolled out around the Group

• Award winning operations in Argentina

and Puerto Rico

• La Construcción continues to be an

excellent platform to develop life and

annuity business across Latin America

£m 2000 1999

General business





Life business

Net premiums written 297 126



AmericasPremium Income

Personal 32%

Commercial 58%

Life 10%


“ There are substantial development opportunities for us in the Region, both in the mature markets such as Australia and New Zealand, and in developing markets such as China and India.”

Overview of Major StrategiesAsia Pacific’s major financial objective is to

significantly increase its contribution to Group

earnings. In 2000 we made significant progress

towards achieving this objective contributing

£82m to the Group operating result.

Our key strategies focus on: customer and

people obsession; creation of competitive

advantage; our approach to commercial

and PFS business development and the

opportunities available from e-business. All of

these are integral to the achievement of the

Region’s financial targets and profitable growth.

We are focussing on creating advantage by

being better than our competitors in core areas.

These include risk assessment, loss prevention,

claims management and pricing, as well as

expense management, productivity and

investment management. These customer,

people and competitive advantage strategies

are strongly interlinked.

In commercial insurance our strategy is to

adopt a segmented and focussed approach.

The main emphasis of our PFS strategy involves

continued expansion and development in our

major Australia and New Zealand markets and

the Japanese direct marketing operation.

Business Progress Against StrategiesCustomer and people obsession initiatives in

2000 included a major project in New Zealand

looking at customer relationship management

and, in Australia, the implementation of a new

performance management system. These

focus on high quality performance of individuals,

teams, business units and the organisation as a

whole. We have also undertaken a rationalisation

of our business structures in Singapore and Hong

Kong to streamline both management and

operational processes.

Illustrating our commercial strategy, in 2000 we

restructured the Australian commercial business

as well as putting in place stronger underwriting

and pricing disciplines. This business, which has

operated in a difficult market and profitability

environment during the past few years is now

showing encouraging signs of a turnaround.

We also carried out major underwriting reviews

in our Asian operations resulting in an emphasis

on the most profitable areas of commercial

business. Our intermediary business in Japan

was also reorganised to concentrate only on

commercial lines.

Another example of our commercial strategy

is in Korea, where we obtained an operating

licence in 2000 but at this point have chosen

to write only large risk managed, multinational

and speciality business.

In the PFS sector we developed the direct

businesses in Australia and New Zealand.

We completed the integration of the Tyndall

and Guardian Trust businesses with existing

operations, creating improved economies

of scale and a broader platform in financial

services covering life and general insurance,

retail superannuation, savings and wholesale

funds management.

OPERATING REVIEW: ASIA PACIFIC

Ewoud KulkRegional Director


In Australia we acquired, at the end of 1999,

the remaining minority interest in Australian

Associated Motor Insurers Ltd (AAMI), the

direct insurer. We have discontinued the

Royal & SunAlliance compulsory third party

book of business. We also established an

insurance joint venture with the Royal

Automobile Club of Western Australia.

We are pursuing staged development in other

selected markets. In this regard, a highlight

of the year was the award of the first general

licence in India, in conjunction with our joint

venture partner Sundaram Finance Limited,

following the liberalisation of the insurance

market. India represents a significant

opportunity for the Group’s future in the

region and we will commence business

there in early 2001 offering general insurance

personal and commercial lines.

Our plan is to develop more slowly in the

longer term strategic markets of Japan and

China. In Japan we took the decision to scale

back our separate direct motor business and

incorporate it into our other direct marketing

business, while continuing to web enable

the business and cross sell.

Market and Economic ConditionsThere are substantial development opportunities

for us in the Region, both in the mature

markets of Australia and New Zealand, where

we have large well established operations, and

in other strategically important markets such as

India, Japan, China and Korea. To fund these

development opportunities our goal is to exceed

Group targets on ongoing operations.

In 2000, the Region achieved a return on risk

based capital of 7%.

New InitiativesMany of our new initiatives in 2000 have

focussed on web enabling our business.

In Singapore we developed a Business to

Business portal, in partnership with a major

broker, to e-enable the insurance supply chain.

In Thailand we launched the first interactive

transactional insurance web site. In Australia,

we web enabled our direct businesses and

developed innovative partnerships in the

e-environment with organisations that

have substantial brands and distribution

leverage, such as Australia Post.

OutlookWe have significant opportunities to develop

both commercial and personal general

insurance business in Australia and New

Zealand. In addition the acquisitions of Tyndall

and the Guardian Trust in 1999 are now

making growing contributions.

The Australian commercial insurance

market shows clear signs of hardening with

rate increases evident and consolidation

continuing. The New Zealand market is

also showing encouraging signs of firming

rates. Market conditions in Asia are not as

favourable, but, as Australia and New Zealand

are the major markets for us in the Region,

this means a positive outlook in 2001 overall

and the opportunity for improved financial

results for the Region.

Highlights

• Strong turnaround in financial

performance during the year

• Web enablement of many of our

businesses including the launch of

the first interactive transactional

insurance website in Thailand

• Successfully gaining a licence to write

general insurance in India, the first

foreign insurer to do so

• Partnership with Australia Post to sell

insurance products online

• AAMI established an insurance joint

venture with the Royal Automobile Club

of Western Australia

• Success in obtaining an operating licence

in Korea

£m 2000 1999

General businessNet premiums written 677 761


General business result 39 (21)

Return on capital employed 7% (6)%

Life businessNet premiums written 247 247



Asia Pacific Premium Income

Personal 45%

Commercial 28%

Life 27%


“This year has seen significant investment as we continue to expand and build a sustainable and strategic investment business across both retail and institutional markets.”

Royal & SunAlliance Investments is the

UK based hub of the Group’s Worldwide

Asset Management (WAM) operations and

is responsible for £41bn of the £64bn total

funds under management. Through the WAM

umbrella our global expertise in investment

management is harnessed for the benefit of

all locally based asset management operations.

Overview of Major Strategies2000 started with Royal & SunAlliance

Investments being awarded the title of Best

UK Investment Management Group for the

third year in succession by Standard & Poor’s,

something no other investment manager has

achieved. We continue to deliver consistently

outstanding performance over the medium

to long term.

Business Progress Against StrategiesThe year has seen significant investment as

we continue to expand and build a sustainable

and strategic investment business across both

the retail and institutional markets. We have

developed a new distinct investment house

image for Royal & SunAlliance Investments.

Our move to new premises at Broadgate West

in the City of London, a result of the rapid

expansion taking place within our business,

was also a significant step. It clearly underlined

that investment management should be viewed

as a separately managed, stand alone business

within the Royal & SunAlliance Group.

We have increased both the strength and

depth of our teams through the recruitment

of high calibre individuals in the areas of fund

management, asset allocation, marketing,

sales and communications.

We have continued to deliver significant

growth in new investments both through

intermediaries and directly, with investments

into retail funds increasing by 68%.

As at 31 December 2000 funds under

management were £41bn of which £6bn was

managed on behalf of third parties.

Market and Economic Conditions2000 will go into the record books as a

year when many of the world’s major equity

markets produced negative returns. In the

UK the FTSE 100 Index fell in capital terms by

10% while in the USA the broad S&P 500

Index also fell by 10%.

These statistics mask the volatility seen in

equity markets, most of which centred on

the sharp turnaround in the fortunes of

technology-led ‘new economy’ style

companies. Nowhere was this volatility more

pronounced than in the NASDAQ composite

index in the USA, an index in which

technology and telecom companies represent

in excess of 60% by market weighting.

Investors’ sentiments towards equity markets

suffered as 2000 progressed. The sell-off

in the technology sectors was exacerbated by

downgradings in earnings’ expectations as

world economies slowed. Within our general

insurance investment portfolios we continued

to reduce our overall exposure to ordinary

OPERATING REVIEW: ROYAL & SUNALLIANCE INVESTMENTS

Arthur HayesGroup Director

Investment & Financial Services

Movement in the NASDAQ index during 2000


shares as part of our ongoing risk based

capital management programme.

New InitiativesDuring the year we significantly expanded

our investment fund range with the successful

launch of five new retail Open Ended

Investment Company (OEIC) funds – the

innovative EuroTech Fund, the market leading

Maximum Income Bond Fund, along with the

Extra Income Bond Fund, Pacific Growth Fund

and Japan Growth Fund. We also converted a

further seven of our unit trusts to OEIC funds.

On the institutional side of our business we

launched a low risk Credit Fixed Interest Fund

to meet the developing needs of pension

scheme trustees.

An extensive nationwide poster advertising

campaign was launched across the rail and

tube networks reinforcing the independent

recognition of our investment performance by

Standard & Poor’s, in addition to promoting

individual funds. We plan to continue and

develop this campaign in 2001.

Our range of OEIC funds has also been

launched into the New Zealand market, with

our investment expertise being promoted

through local investment intermediaries.

We are determined to remain at the

forefront of developments within the

investment industry and, to this end, we

have made our retail funds available to

investors through a selected number of

‘fund supermarkets’.

A further strategic development saw

the launch of a major new website at

www.rsainvestments.com in November.

Extensive research ensured the site provided

exactly what visitors wanted. It includes

dedicated areas to meet the specific needs

of pension fund advisers & trustees,

Independent Financial Advisers and private

investors. For Independent Financial Advisers,

‘documents direct’ enables literature to be

ordered directly and delivered in a variety

of ways from paper to e-mail, plus an area

researching technical issues facing advisers.

We have also made a facility available to

advisers, allowing them to link directly to

our site.

Of particular interest will be our plans

to establish a ‘Trustees Academy’ which

will provide a range of specialist services

for trustees and ‘Trustees Forum’ – enabling

trustees to debate the current issues.

We also plan to make available some of

our own inhouse macro and micro

economic research.

OutlookOur central economic view is that the

world’s major economies are unlikely to

head into recession in 2001 but that the

slowdown will be strong enough to

encourage further interest rate reductions

both in the USA and Europe as the year

progresses. This suggests that equity

markets should be able to recover into

2001, although periods of continued

volatility may be expected.

Highlights

• Royal & SunAlliance Investments is now

a stand alone business within the Group

• Awarded title of Best UK Investment

Management Group at the Standard

& Poor’s Awards 2000 for a record

three years in succession

• We continue to deliver consistently

outstanding investment performance

over the medium to long term

• We expanded our fund range with

six new and innovative funds

• We launched an authoritative new

website at www.rsainvestments.com

• Our extensive promotional campaign

• New investments into retail funds

up 68%

• UK funds under management £41bn

Total Group fundsunder management

UK £41bn

EMEA £12bn

Americas £8bn

Asia Pacific £3bn

Total Group funds undermanagement – £bn

“Considerable progress was made in underlyingbusiness performance during the year, giving usconfidence for a continued strong recovery in our general insurance business in 2001.”


Group Financial PositionThe extreme weather in the UK and other

parts of Europe during the fourth quarter

depressed the 2000 trading result. However,

considerable progress was made in underlying

business performance during the year, giving

us confidence for a continued strong recovery

in our general insurance business in 2001.

Shareholder Value AddedThe Group’s main financial objective is to

maximise the return to shareholders by ensuring

that the return on capital (ROC) is significantly

greater than its cost. Our continuing target is

for the Group’s return on equity to exceed its

cost of equity consistently by 4 percentage

points. An explanation of how this interacts

with our other stated financial targets is

included in the Group information on page 3.

ResultsThe Group operating result based on longer

term investment return (LTIR) of £476m,

compared with £566m in 1999, was affected

by the exceptional fourth quarter weather

conditions which cost the Group in the region

of £180m. We also accelerated our expenditure

on investing in the future through e-technology,

spending worldwide over £100m in the year.

We believe the Group operating result

(based on LTIR), is the most appropriate

measure to recognise performance of the

operations. For general insurance business,

this result comprises the underwriting result

(excluding changes in equalisation provisions)

together with the LTIR on the assets backing

both the general business liabilities and

the risk based capital required to support

these businesses.

The main items excluded from the Group

operating result (based on LTIR), but included

in the profit on ordinary activities before tax

are the short term investment fluctuations,

the change in equalisation provisions,

reorganisation costs (including losses on

terminated business), amortisation of

purchased goodwill (including goodwill in

acquired claims provisions and amortisation

of purchased value of long term business),

dated loan capital interest and profits and

losses arising on the disposal of businesses less

provisions for losses on subsidiaries to be sold.

The longer term investment return or LTIR is

calculated in accordance with the Statement

of Recommended Practice on Accounting for

Insurance Business issued by the Association

of British Insurers. The objective of calculating

this return is to recognise the total investment

return over time while avoiding the distortions

of short term investment market fluctuations.

The graph above shows the Group return

on capital over the last 20 years: an average

annual return on capital of 14%. A major

Group objective is to reduce the volatility of

this measure. In part the volatility results from

our investment policy particularly the level

of investment in equities. While current

investment policy is being maintained it is

subject to review and this could lead to a

reduction in the proportion of equities held.

FINANCIAL REVIEW: GROUP FINANCE DIRECTOR’S REPORT

Julian HanceGroup Finance Director

General Business Return on Risk Based Capital

% 2000 1999 1998 1997

UK 4.9 9.2 10.3 19.3

USA 9.0 16.4 20.0 18.6

Canada 4.9 8.5 14.0 18.5

Scandinavia 3.4 6.7 20.5 7.7

Australia 11.0 1.7 7.6 14.2

Other (0.9) (5.6) (13.4) 0.1

5.0 5.7 6.1 14.2


General Business ResultOur risk based capital approach allows us to

assess the returns being achieved by each part

of the Group. The returns are calculated using

the pre tax operating result on the longer term

investment return basis, a comprehensive

measure of performance not distorted by

short term investment fluctuations.

The geographical analysis shows returns

for the last four years for the general

business operations. The UK in particular

was affected by extreme weather conditions.

Whilst most operations showed considerable

improvement in their current trading,

in a number of operations the effect of

inadequate pricing in prior years continued

to have an influence.

Life Business ResultThe shareholders’ interest in life operations

increased to £2,797m from £2,776m in

1999. This represents the value of the

shareholders’ interest in the various life

operations, including the net present value

of the profit expected to emerge from existing

business. This increase is after payment

of dividends to the general shareholders’

funds of £128m.

Other ActivitiesThe result for other activities included in the

Group operating result (based on LTIR) is

made up of a number of elements. Firstly the

operating result from non insurance activities

such as Royal & SunAlliance Investments,

our asset gathering and management arm,

Swintons our UK insurance intermediary, our

UK estate agency chain Royal & SunAlliance

Property Services and the cost of investment

in a number of e-initiatives not directly related

to individual insurance operations. Secondly

it includes income from associates and a

number of Group charges; our central Group

expenses, the expenses of managing our

investment portfolio, any interest charges

on debt, other than dated loan capital, and

any surplus or deficit of longer term

investment return on risk based capital

after allocation to the general insurance

business result.

ReturnsThe return on equity can be calculated on

an accounting basis (including intangible

items such as goodwill) or on a tangible

net assets basis, in both cases making full

provision for tax on unrealised investment

gains and in 1999 adjusting for the timing

of the special dividend.

The returns in 2000 and 1999 were

below target, principally due to the

poor underwriting conditions and

exceptional claims events that prevailed

throughout the period together with

the impact of the investment market

movements in 2000.

The introduction, over the last two years, of

the subordinated debt, or dated loan capital,

as an element of the Group’s capital base,

has improved the return on equity.

Returns on Equity

% 2000 1999 1998

Accounting basis 3.0 8.7 6.9

Tangible

net assets basis 5.3 9.6 –

Group ROC for the past 20 years (%)


Portfolio ManagementWe have continued the process of disposing

of those operations, and discontinuing those

lines of business, where we cannot see

reasonable prospects of achieving Group

target returns on capital.

During 2000 we announced the disposal of our

operations in Austria, Jamaica and Portugal. In

Italy we announced agreements for the sale of

our life operations and of Lloyd Italico. In the

USA we stopped writing business in a number of

mid market commercial business sectors which

do not fit into our new US business model.

In the UK we are in the process of identifying

blocks of commercial operations, principally in

financial risks business, where activity will be

terminated and liabilities run off.

Risk HandlingTraditionally insurers have handled risk both by

financing solvency through shareholder capital

and with reinsurance. This is evolving through

the use of new capital instruments and by

new forms of finance orientated reinsurance.

There is much further to go, with new

techniques still to evolve across a broad

spectrum. Our target is to develop a range of

options for handling risk allowing for the most

efficient to be selected in each risk situation.

In time, we expect convergence of the capital

and reinsurance markets, with this new financial

market being the most efficient differentiator of

risk and thereby having the lowest cost of capital.

Once that position is reached, our role of

providing capital and solvency will diminish

as will our balance sheet constraints. Our

prime roles will become the understanding

of, advising on and packaging of risk along

with the servicing of those risks and with

efficient claims handling.

GoodwillThe fair value adjustments included in the

accounts at 31 December 1999 in respect of

the acquisitions of Orion Capital in the USA and

Trygg-Hansa in Sweden, were provisional due to

the recent ownership of the assets at that time.

These adjustments have since been reviewed

and finalised, resulting in a further goodwill

charge of £101m, principally in respect of

Orion, reflecting strengthening of claims

reserves arising from claims incurred prior

to the acquisition. The Group’s expectation

with respect to acquisitions is to make its

target return on capital on the whole purchase

price rather than just the attributable risk

based capital.

Group Balance SheetThe restructuring of the Group balance sheet

in 1999, including the payment of a special

dividend of £751m and the issuance of

£610m of dated loan capital, led to a small

surplus of capital over our risk based

requirements at the 1999 year end. During

2000, the increasing solvency requirement,

generated by the major acquisitions at the

end of 1999, led us to increase the dated

loan capital by £174m to £784m.

FINANCIAL REVIEW: GROUP FINANCE DIRECTOR’S REPORT continued

Capital

£m 2000 1999 1998

Shareholders’ equity 6,198 6,359 7,144

Non equity shareholders 125 125 125

Equity minority interests 400 406 291

Dated loan capital 784 610 –

7,507 7,500 7,560

Capital Requirements for Ongoing Business

£m

General business and investment 3,831

Life business 2,518

6,349

Development of Adjusted Capital in 2000

£m

Capital brought forward 6,275

Adjust for unprovided deferred tax (29)

Capital generated from operations 261

Share capital issued 19

Unamortised goodwill and goodwill

in acquired claims provisions (51)

Increase in equalisation provisions 24

Decrease in minority interests (6)

Increase in dated loan capital 174

Dividends

Ordinary (372)

Preference (9)

6,286

Capital carried forward 6,286

Risk based capital requirement 6,349

Deficit (63)


Summary Capital PositionThe Group’s risk based capital requirement

can be compared with actual capital to

determine any surplus. The objective over time

is to maintain a balance of risk based capital

requirement with actual available capital

although at any particular date there will be

a difference, primarily attributable to short

term investment fluctuations.

In making the comparison, the stated capital

is adjusted for a number of items to bring it

onto a consistent basis. These adjustments

include making full provision for deferred tax

on unrealised gains as well as adding back

the statutory claims equalisation provision.

In respect of the Group’s life insurance

activities, in previous years the capital

requirement has been set equal to the actual

capital invested in the life operations.

Preliminary analysis of the life position indicates

that the capital requirement is less than the

capital invested and accordingly an element of

the invested capital has been deemed available

to meet general insurance requirements.

At the end of 2000 the overall capital evaluation

showed a small shortfall. As indicated above,

small surpluses or deficiencies will usually arise

as a result of investment market volatility.

The prospective capital position is continuously

monitored, taking into account planned changes

in the level of business including acquisition,

disposal and discontinuance of business. This

enables changes to the Group’s capital to be

anticipated and managed effectively.

US ListingThe Group obtained a full listing on the

New York Stock Exchange in October 2000

with trading of its US$ American Depository

Shares (ADSs). The restatement of the results

using US Generally Accepted Accounting

Principles (US GAAP), particularly for UK life

business results, was a considerable

challenge and highlights the problems of

different accounting principles worldwide.

The Group is an active supporter of the

International Accounting Standards

Committee (IASC) and of the development

of an International Insurance Accounting

Standard. The benefits of comparability

between organisations is obvious and, in

addition, as a global organisation, the cost

and administration advantages of a single

standard would be significant. However,

to reconcile the many current differences

of policy and approach will require time

and pragmatism. It will be some years

before a standard can be expected.

Julian Hance

Group Finance Director


IntroductionAs an insurance organisation, the Group’s

fundamental concern is the management of

risk. We have well developed mechanisms to

balance, on the one hand, the prudent need

to maintain the appropriate financial resources

to meet any losses which might arise with, on

the other hand, the requirement to produce

satisfactory returns on the capital employed.

The Group has continued to develop its

risk based capital assessment techniques

introduced in 1998. These complement the

existing solvency assessments and provide

an effective basis of evaluating performance

at all levels in the Group. The approaches

are based on the concept of the solvency

of the insurance operation.

SolvencyThe solvency of an insurance company

represents its ability to meet liabilities as they

arise. Solvency is assessed in a number of

different ways and the financial management

of an insurance company is concerned with

balancing these assessments and maximising

the utilisation of the shareholders’ funds.

The principal solvency measures used by the

Group are statutory, rating agency and risk

based capital assessments.

Statutory SolvencyStatutory solvency is calculated for each

territory in accordance with local regulation.

The requirements of local regulation vary quite

considerably. Generally the regulatory solvency

requirements for general business tend to be

less onerous than those of either the rating

agency or risk based capital assessments.

The Group met all its statutory solvency

requirements throughout the year.

Rating Agency SolvencyRating agencies such as Standard & Poor’s,

Moody’s Investors Service and A M Best

provide claims paying ratings for the Group

and its principal subsidiaries. These ratings

are based on the detailed financial modelling

of the Group and regular review of Group

strategic direction. The current claims paying

ratings are ‘AA-’ from Standard & Poor’s, ‘Aa3’

from Moody’s Investors Service in the UK and

‘A’ from A M Best in the USA. In each case

these ratings position the Group as being in

a strong financial position.

Risk Based CapitalThe third basis of solvency assessment

is the internal risk based capital review

undertaken by the Group as the basis of its

active capital management. The approach has

been developed to provide a comprehensive

identification of the Group’s capital

requirements. This in turn enables us to

set target financial returns on the risk

based capital for individual operations.

It also identifies surplus and deficiency of

capital that can be addressed by share

repurchase or new capital issues respectively.

The methodology adopted is to produce

a model of the Group’s insurance and

investment exposures to loss. Using both

actual experience of the Group and market

FINANCIAL REVIEW: RISK ANALYSIS

Risk based Capital

capital requirements

2000 1999 2000 1999

% NPW % NPW £m £m

UK 41 42 1,281 1,301

USA 51 53 1,041 580

Canada 39 40 210 201

Scandinavia 44 45 319 206

Australia 51 53 251 270

Other 58 57 833 807

47 47 3,935 3,365


experience, it is then possible to estimate

a probability distribution for the extent of

losses that may arise. Criteria are established

for the acceptable probability of loss that

the Group should take and this determines

the capital requirement.

The criterion adopted by the Group in

respect of general insurance is that there

should be a less than 1% chance of solvency

falling below 25% of net written premiums

over the next five years. Applying this

criterion to the Group’s general business

and associated investment exposures implies

a solvency requirement of 47% of net

written premiums. This excludes the capital

requirements in respect of life insurance and

other activities which are separately assessed.

A key aspect of the 47% solvency requirement

is the impact of certain policy decisions,

notably investment policy. Having met its

currency matching requirements so as to avoid

unnecessary exchange exposure, an insurance

company has reasonable discretion as to

how to invest its portfolio of shareholder and

technical provision funds. Investing in fixed

interest investments can be expected to

produce lower yields but with less volatility

in value than investing in equities. The higher

volatility of equities requires more capital to

maintain the Group’s solvency criteria.

Analysis of the expected returns and capital

requirements indicates that the overall

expected return on capital employed is

maximised with an investment policy of

investing all the shareholders’ funds and

5% of the technical provisions in equities,

with the balance invested in fixed interest

investments and cash. This policy maximises

the expected return on capital, although it

does require a higher level of solvency due to

the greater volatility of equity investments.

This is the policy that the Group has followed

and which drives the 47% capital requirement.

The policy is continually reviewed in the light

of changing market circumstances and

shareholder requirements.

Other ActivitiesThe capital requirements for other

activities are generally established at the

actual level of shareholders’ funds employed

in the business.

Risk AnalysisThe overall Group approach to the

identification, evaluation and management

of risk is dealt with in the Corporate

governance report.

An insurance company’s fundamental concern is the management of risk.

Geographic Spread of Shareholders’ Funds

£m 2000 1999

UK 1,850 2,495

EMEA 1,431 1,487

Americas 2,909 2,682

Asia Pacific 651 654

Other

(inc borrowings / minorities) (518) (834)

6,323 6,484


SensitivityThe Group’s financial position can be

analysed in terms of its sensitivity to change

in certain economic and operating parameters.

The following table summarises the

principal sensitivities.

FINANCIAL REVIEW: SENSITIVITY ANALYSIS

Movement by Change in by

Investments

Equities FTSE 100 PTS Net assets £75m

(or equivalent)

Gilts Interest rate 100 BPS Net assets £360m

Currencies – against sterling

US Dollar 10c change Net assets £180m

Danish Kroner 1 Kr change Net assets £35m

Euro 10c change Net assets £50m

Underwriting

Operating ratio Reduction by 1% General business

net of tax ROC 1.5%

Shareholders’ interest

in life funds

Discount rate Reduction by 1% Embedded value £125m

Investment returns

Equities Long term return Group

1% higher operating result £45m

Gilts Long term return Group

1% higher operating result £100m

Dividend per ordinary share

Dividend on

Annual dividend Special ordinary

Interim Final Total Growth dividend shares

p p p % p £m

1996 6.50 12.50 19.00 16.56 296

1997 7.15 13.85 21.00 10.53 325

1998 7.80 15.20 23.00 9.52 360

1999 8.40 16.30 24.70 7.39 48.00 1,104

2000 8.80 17.20 26.00 5.26 372


Royal & SunAlliance is listed on both the

London Stock Exchange and, from 24 October

2000, on the New York Stock Exchange; in

each case under the code RSA. On the New

York Stock Exchange the stock is traded in the

form of American Depository Shares (ADSs) each

of which represents, in dollar denomination,

five ordinary sterling issued shares.

The average total daily trading volume

through 2000 was approximately eight million

ordinary shares.

The opening middle market price at

1 January 2000 was 491p and the closing

price at 31 December 2000 was 573p.

The highest daily closing price was 577p

on 28 December 2000 and the lowest daily

closing price was 300p on 13 March 2000.

Further details of share capital are included in

note 28 on page 83.

FINANCIAL REVIEW: SHARE AND SHAREHOLDER ANALYSIS

Shareholdings by size

Grouping Shareholders % Shares (millions) %

1 – 25,000 69,096 98.53 128 8.92

25,001 – 100,000 744 1.06 41 2.86

100,001 – 500,000 95 0.14 36 2.51

500,001 – 1,000,000 50 0.07 57 3.97

1,000,001 – 2,000,000 50 0.07 86 5.99

more than 2,000,001 94 0.13 1,087 75.75

Total 70,129 100.00 1,435 100.00

Distribution of sharesby geography

UK 72%

Europe 8%

N America 19%

Other 1%

Analysis of UK investors

Pension funds 37%

Life insurance funds 18%

Unit trusts 11%

Investment trusts 3%

Other 10%

Retail/Private 21%


Environmental ResponsibilityWith operations in most of the world’s

economies, Royal & SunAlliance and its people

have the ability to make a positive impact on

the environment. Our operations are conducted

with the aim of being responsible stewards of

the environment in which we live and work.

Our aim is to embed, as far as practicable,

environmental management into routine

business processes rather than treat it as a

separate issue. This is reflected in the Group

Statement of Environmental Policy, first

published in 1998. Practice groups, who

champion environmental initiatives at local

level, underpin the policy.

We consider benchmarking performance,

establishing targets and transparency of

reporting as key considerations. Considerable

work has been done with the UK businesses to

develop recording and reporting mechanisms

for energy and resource consumption as well

as waste management. These are now being

rolled out across the Group. A steering group

formed in 1999 will come together again to

further develop performance measures and

improvement targets that will be introduced

during 2001.

In the 1999 report of the Environment

Engagement Survey, reporting on UK based

businesses, Royal & SunAlliance was ranked

third in the finance sector, having achieved year

on year improvement since the survey’s launch.

Additionally the independent rating agency

SERM (Safety & Environmental Risk

Management), was employed to review our

ability to manage the impact of safety and

environmental incidents. This review resulted

in our receiving their ‘aaa’ rating, the second

highest available.

For the first time we produced a Group

environmental performance report in 2000.

This considers environmental issues under

three headings; those of an operational nature,

which would apply to most companies, such

as energy use and waste production; those

related to our insurance business and those

specific to our investment activities. The report

gives an idea of the operational impact of

running our UK operations from data gathered

on carbon dioxide emissions and waste

management. We describe our environmental

impairment insurance products in the USA

and UK and also show the approach of

constructive engagement adopted by our

asset management arm. This approach makes

companies in whom we invest aware of our

concerns on specific issues. Copies of the

policy statement and also of our first detailed

environmental performance report

are available from our website

www.royalsunalliance.com.

Our aim is to expand this report to encompass

all the major operations in the worldwide Group,

establishing benchmarks for improvement.

We have also supported the development of

a portal providing environmental information,

free of charge, on the Internet at

www.eco-centre.co.uk.

CORPORATE CITIZENSHIP

Mission Antarctica –ensuring the preservation

of Antarctica for futuregenerations

We take our responsibility to conduct our

operations with proper regard for the

environment seriously. We have adopted a

Group Standard to cover our responsibility for

the environment in which we live and work.

Our sponsorship of the Mission Antarctica

project reflects our commitment in this area.

Mission AntarcticaWe are pleased to support Mission Antarctica.

The organisation aims to ensure the preservation

of Antarctica for future generations. They are

involved in helping the Russian government

remove and recycle 1,000 tonnes of waste from

the Bellingshausen Station on Antarctica.

Royal & SunAlliance consider Mission Antarctica

to be a natural fit for the Group’s strategic,

environmental and people development

goals. It is a practical demonstration of our

commitment to environmental policy and good

corporate citizenship and it also provides a lever

for community and education liaison, via

schools and the like.

Mission Antarctica provides an international

focus for linking the Group’s environmental

position to its global cultural change efforts

through the promotion of our key values and

development initiatives: truth, trust, teamwork,

leadership, diversity and personal responsibility.

Contribution to Red Cross and Red Crescent SocietiesOur global relationship with the International

Federation of Red Cross and Red Crescent

Societies was formally launched in 1999.

Our joint vision is to ensure that, through our

innovative relationship, we will work together

to deliver the true power of humanity for the

benefit of our communities worldwide. We

fully endorse the Red Cross and Red Crescent

Societies’ seven fundamental principles:

humanity, impartiality, neutrality, independence,

voluntary service, unity and universality.

The relationship is based on the ownership

and development of national and local

initiatives and provides a unique opportunity

for our people, at all levels, to widen their

involvement and demonstrate their personal

and professional commitment to their

communities around the world.

Already our teams are involved in local initiatives

in over 20 different countries throughout the

Americas, Asia Pacific, Europe and the UK.

Royal & SunAlliance and its people have the ability to make a positive impact on the environment.

With the Red Cross and RedCrescent Societies we areinvolved, on a worldwide basis, in risk prevention and disasterrelief, providing supportfollowing major catastrophes.

Our teams areinvolved in initiativesin over 20 differentcountries throughoutthe Americas, AsiaPacific, Europe andthe UK


CONTENTS

Directors’ Report 46

Corporate Governance 48

Independent Auditors’ Report to the Members 51of Royal & Sun Alliance Insurance Group plc

Remuneration Report 52

Directors’ Emoluments 54

Directors’ Shareholdings 56

Accounting Policies 58

Consolidated Profit and Loss Account 62Technical Account – General Business

Consolidated Profit and Loss Account 63Technical Account – Long Term Business

Consolidated Profit and Loss Account 64Non-Technical Account

Statement of Total Recognised 65Gains and Losses

Movements in Shareholders’ Funds 65

Consolidated Balance Sheet 66

Parent Company Balance Sheet 68

Consolidated Shareholders’ 69Cash Flow Statement

Notes on the Accounts 70

Segmental Information 92

Principal Subsidiary Companies 94

Principal Associated Undertakings 96and Other Significant Shareholdings

Five Year Financial Review 97

Shareholder Information 100

Financial Calendar 103

Frequently Asked Questions 104


The directors of Royal & Sun Alliance Insurance Group plcsubmit their report and the audited financial statements of the Group for the year ended 31 December 2000.

Principal activity

The Company is the holding company of the Royal & SunAlliance group of companies whose principalactivity is the transaction of insurance business and theprovision of related financial services. The Group operatesin around 50 countries worldwide.

Review of the year and future developments

These are outlined in the Chairman’s and Chief Executive’sreview beginning on page 6. The Group’s profit,appropriations and financial position are shown on pages 62 to 67.

Employment policy

The Group is committed to meeting all its statutoryobligations in offering equal opportunities in recruitment,training and career development, irrespective of religion,ethnic origin, sex or physical disability. It is the policy of the Group that applications for employment by disabledpersons are always fully considered and that training,career development and promotion of a disabled personshould as far as possible, be identical to that of a personwho does not suffer from a disability.

Significant investments are being made in the area ofpeople management to help the organisation to achieve its business goals.

The Group seeks to engage its employees’ commitmentthrough:

• Encouraging participation in the ownership of theCompany. In the course of 2000, the Group continuedthe policy of extending the international sharesave planto employees outside the UK; this plan is now in placein 12 countries. No less than 76% of the Group’semployees participate in at least one share plan.

• The establishment of communication and consultationprocesses. The formation of a European EmployeeConsultation Forum was reported on last year. Thisbody met for the first time in June 2000, attended by over 20 management, employee and trades unionrepresentatives from around Europe. The meeting wasaddressed by a number of the Executive and Regionaldirectors and the discussions, which were facilitated bysimultaneous translation in seven languages, covered a wide ranging review of the Group’s business goalsand plans. Following this successful first phase, plansare well under way for the next meeting inCopenhagen in May 2001.

• Regular briefings for all staff on Group performanceand plans.

Significant initiatives have also been under way in the area of training and development:

• The launch of RSALearning.com was a majorbreakthrough in the use of technology to increase thereturn on investment in training. This initiative brings a number of online learning solutions in key skill areasdirectly to employees at their place of work.

• Investment in management development and succession planning have focussed upon the growth ofa leadership talent pool on a worldwide basis, basedupon a series of development programmes run inconjunction with a number of leading internationalbusiness schools and professional institutes.

It is also the policy of the Group to encourage and supportour employees in taking an active interest in the community.Throughout 2000, the Group maintained a high level ofsupport for both the Red Cross and Red Crescent Societiesand Mission Antarctica activities, and this commitment willbe maintained.

Environmental policy

A statement on environmental responsibility, whichincludes details of the Group’s environmental policies,procedures and actions, appears on pages 42 and 43.

Corporate governance

A statement on corporate governance appears on pages 48 to 50.

Charitable and political contributions

The Company and its subsidiaries worldwide madecharitable donations of £3.5m during the year and made no political donations.

Supplier payment policy

It is the Group’s policy to agree appropriate terms and conditions in advance with its suppliers and of making payment in accordance with those terms andconditions, provided that the supplier has complied with them. In most cases a supplier of goods or servicesdoes so under standard terms of contract (which in theUnited Kingdom are available on request from UKPurchasing, 1 Leadenhall Street, London EC3V 1PP) that lay down terms of payment.

The Company’s outstanding indebtedness to tradecreditors on 31 December 2000 amounted to £1,901,607corresponding to ten days payment when averaged overthe year.

Directors’ report


Share capital

During the year 6,426,718 ordinary shares of 27.5p each were issued on the exercise of employee shareoptions for a total consideration of £19m. An authorityfrom the shareholders for the Company to purchase up to 5% in total of its own shares remained in force at 31 December 2000.

Substantial share interests

As at 28 February 2001, CGNU plc has declared an interest in 44,039,973 ordinary shares of 27.5p each in the Company representing 3.07% of the issuedshare capital in accordance with Part VI of the Companies Act 1985.

Dividends

The directors recommend a final dividend of 17.2p pershare which, if approved, will be due for payment onFriday 1 June 2001 to holders of ordinary shares on theregister at the close of business on Friday 16 March 2001.This together with the interim dividend of 8.8p per sharepaid on 1 December 2000 will make a total dividend forthe year of 26p per share.

The preferential dividend at the rate of 3.6875% for theperiod from 1 October 2000 to 31 March 2001 is to bepaid on Monday 2 April 2001 to holders of preferenceshares on the register at the close of business on Friday 16 February 2001.

Directors

Members of the Board of directors during the year are listed on pages 22 and 23, except for H N L Keswick who retired from the Board on 31 December 2000 and J A Rowson who retired from the Board at the conclusion of the Annual General Meeting on 17 May 2000.

At the Annual General Meeting N C F Barber, R V Mendelsohn and C F St. Mark are retiring by rotation.All three, being eligible, offer themselves for re-electionunder Article 121. S G Hill, who became a director on 2 August 2000, being eligible, will offer himself for re-appointment under Article 123.

Annual General Meeting

The Annual General Meeting will be held at the Hotel Inter-Continental, One Hamilton Place, Hyde ParkCorner, London W1V 0QY on Wednesday 16 May 2001 at 11.30am. Enclosed with this report is a letter from theChairman to shareholders. Attached to the letter is theNotice convening the meeting which will include six itemsof special business which are explained in the letter.

Auditors

The auditors, PricewaterhouseCoopers, have expressedtheir willingness to continue to act and a resolution fortheir re-appointment will be submitted to the AnnualGeneral Meeting.

By order of the directorsJ V Miller

Group Company SecretaryLondon, 28 February 2001


Combined Code

Royal & SunAlliance is committed to maintaining thehighest standards of corporate governance and seeks toreinforce these through establishment of strong ethicalvalues and applying integrity and professionalism in all ofits activities. A Statement of Business Principles is in placeacross the Group to provide practical guidance on thestandards expected. The directors consider that, throughoutthe year, with the exception of not having one year servicecontracts for all executive directors, Royal & SunAlliancehas complied with the provisions set out in Section 1 ofthe Combined Code on Corporate Governance appendedto the Listing Rules of the UK Listing Authority. Thisstatement sets out how the Group has applied thoseprovisions. The Remuneration report on pages 52 and 53sets out the different notice periods, which apply to theexecutive directors under their service contracts.

The Board and Committee structure

The Board of directors meets on a regular basis, at leastone meeting per year being held at an operating subsidiaryand one extended meeting to consider strategy andbusiness developments. The Board currently comprises five executive directors and seven non-executive directors,as identified on pages 22 and 23 of this document. Thenon-executive directors come from diversified backgroundsand have a wide range of outside business interests andare considered to be free from any business or otherrelationship, which could materially interfere with theexercise of their independent judgement. The Board has not separately appointed a senior independent non-executive director as it deemed that the position of Deputy Chairman meets this requirement.

Under the present Articles of Association one third of the directors are required to submit themselves for re-election each year. In practice, all directors have retiredby rotation at intervals of no more than three years,however, to ensure that the Group complies strictly withthe Combined Code provisions on re-election, a change to the wording of the Articles of Association is proposedfor the Annual General Meeting requiring that directorsseek re-election every three years. All proposals for re-election, which are not automatic, and all newappointments are considered by the NominationCommittee, chaired by Sir Patrick Gillam.

A schedule of matters reserved to the Board ensures that the directors maintain full and effective control over significant strategic, financial, organisational andcompliance matters. The Group operates a comprehensivefinancial monitoring process involving monthly and detailedquarterly reporting to the Board to ensure that performanceis continually assessed. There are also regular presentations

of, and reporting on, relevant non-financial matters.

There is an appropriate division of responsibilities on the Board. The Chairman is responsible for the running of the Board and the Group Chief Executive has executiveresponsibility for business matters. A number of separateCommittees of the Board operate, all of which have formal terms of reference. Membership of these is largelycomprised of non-executive directors, who deal with audit, compliance, remuneration and terms of service andnomination matters. The Chairmen and members of thevarious Committees are identified on pages 22 and 23 of this document.

All directors have access to the advice of the CompanySecretary. A procedure is in place for any director, infurtherance of his or her duties, to take independentprofessional advice, if necessary at the Company’s expense.New directors receive induction materials about the Groupand are provided with appropriate training and briefingson appointment and subsequently as necessary. Non-executive directors have full access to management and are encouraged to make site visits to stay current on Group affairs.

Operating structure

Reflecting the time zone based Regional operations, anappropriate organisational structure is in place for theGroup, with responsibilities and delegation of authorityclearly defined. Financial objectives are set for all businessesand these are regularly reviewed against agreed criteria.There are periodic meetings of the senior managementleadership team, comprising both Regional and Groupmanagement, to discuss business objectives andperformance and other relevant issues.

As part of its control and operating environment, theGroup has established a network of practice groups and specialist functional groups. These range from informal groupings of experts, linked via the Group’scommunications networks to exchange information on specific issues, to formal groups determining policy and best practice. Examples of the formal groups are the Group Investment Strategy Team and theCommercial Directors’ Forum. The former is charged with determining Group investment policy and the latterconsiders and establishes underwriting and claims bestpractice and reviews business opportunities before theseare presented for formal appraisal under the delegatedauthorities procedures.

Risk management and internal control

The Board has ultimate responsibility for the Group’ssystems of internal controls and risk management and for reviewing their effectiveness. The directors have

Corporate governance


delegated to executive management responsibility for the evaluation and identification of key risks and for theestablishment and implementation of systems of internalcontrol appropriate to the various business environments in which the Group operates. Operational managementare supported in the risk identification process by a Group Risk Review Committee. This Committee, withaccess to skills and representatives from across the Group,is charged with actively reviewing and evaluating emergingrisks, aggregation exposures and other threats and withmonitoring the Group’s approach to managing risks. There is a regular reporting of risk management andinternal control issues to both the Audit & ComplianceCommittee and the Board.

As required by the Combined Code, the Board hasreviewed the effectiveness of the systems of internalcontrol during the year and has taken account of any material developments since the end of the year. The directors are satisfied that the Group’s systems ofinternal control do not contain any material deficiency or weakness. Control systems are designed to manage but not necessarily eliminate the risk of failure to meetbusiness objectives. Any control environment can onlyprovide reasonable, but not absolute, assurance that assets are safeguarded, transactions are appropriatelyauthorised and recorded and that material errors andirregularities are either prevented or can be detected in a timely manner.

The review of the effectiveness of controls was carried out principally through a process of internal control self appraisal whereby each business unit systematicallyassessed its internal business control systems using a risk based evaluation. Where necessary programmes forcorrective action or improvement have been initiated.Remedial action programmes are periodically reviewed for progress. Each business unit prepares a full report oftheir appraisal, which is reviewed by internal audit andshared with the external auditors and is summarised andpresented to the Audit & Compliance Committee and the Board.

To further enhance the self appraisal process in 2000, and to reflect the guidance provided by the TurnbullCommittee, more regular reporting has been introduced by way of a quarterly self appraisal update to the Audit &Compliance Committee. In addition, to ensure thatstrategic risks are given sufficient emphasis in the process,all Regions and significant operations have performed a risk assessment at management board level in 2000, to supplement the detailed business unit appraisals.Continuing focus is also being placed on internal controltraining and education, particularly in respect of our

recently acquired operations, to ensure that a robust risk management and internal control culture is fullyembedded within the Group.

The chief executive and chief financial officer of eachbusiness are required quarterly to certify that the controlenvironment for that business operated satisfactorily andthat full compliance with Group policies and statutoryrequirements was achieved or report exceptions.

The internal control process is also monitored andsupported by internal audit functions that operate on a Group and Regional basis and carry out regular reviewsof operational and control procedures. The work ofinternal audit is focussed on areas of greatest risk to the Group as determined through the audit planningprocess. The formal reports resulting from such reviews are provided to the Audit & Compliance Committee. The Group Chief Auditor reports to the Group ChiefExecutive but has unrestricted access to the Audit &Compliance Committee.

The Audit & Compliance Committee has terms ofreference which enable it to take an independent view ofthe appropriateness of the Group’s accounting policies andpractices for presentation of the report and accounts andcompliance with Stock Exchange and other requirements.It also considers the appointment and remuneration of theexternal auditors and the effectiveness and work scheduleof the internal audit function.

There are in place procedures for the review andauthorisation of capital investments including formalisedpost investment and acquisition reviews and appraisals.Specific risk based techniques for managing Group capitalhave been developed and continue to be refined. Theseare explained more fully in the report of the Group FinanceDirector on pages 34 to 37 of this document.

External review and regulation

In common with other businesses Royal & SunAlliance is subject to review and regulation from a number ofexternal bodies, including the insurance regulators for thefinancial services businesses, the tax authorities and theexternal auditors.

The Group’s insurance businesses in all jurisdictions aresubject to stringent rules on the minimum level of surplusassets that have to be carried, the type of investments thatcan be held and what classes of insurance business can bewritten and how this must be conducted. Monitoring ofthe compliance with these regulations is carried out througha mixture of formal annual returns, regular liaison with andvisits from the regulator. The annual returns are usually alsosubject to external audit review. Regulatory requirementsfor all businesses were met throughout the year.


The Group is required to account to the tax authorities ona regular basis for the results of its trading. The Group seeksto observe fully requirements of tax legislation and maintainsound working relationships with the authorities. Compliancevisits by the tax authorities are regularly carried out.

The report of the external auditors on page 51 sets out the responsibilities of the external auditors with regard to reviewing the financial statements and the Group’scompliance with both statutory and accounting standardrequirements. The audit is not designed to review everypiece of information but it is structured to provide sufficientevidence to give reasonable assurance that the financialstatements are free from material misstatement, whethercaused by fraud or other irregularity. The audit review willalso consider the support for the directors’ statements ongoing concern and adequacy of the control environment.

Directors’ remuneration

Details of how the Board has exercised its obligationsunder the Combined Code in respect of directors’remuneration are reflected in the Remuneration reportshown on pages 52 and 53 of this document.

Shareholder communication

The Company considers continuing and opencommunication with shareholders to be a priority. Results are published quarterly and there is a regularprogramme of dialogue with institutional investors and their representative bodies. Private investors areencouraged to attend the Annual General Meeting as it provides an opportunity to receive a presentation of the Group’s financial position and plans, and allowsshareholders to question directors both formally andinformally. Shareholders are given at least six weeks notice of the Annual General Meeting and of the business with which it will deal. The Group’s Internet site(www.royalsunalliance.com) has extensive information onthe Group, its annual and interim reports and the price of its shares, and provides a regular update on businessdevelopments and other matters of interest.

Statement of directors’ responsibilities

The directors are required to present for each accountingperiod financial statements which comply with theprovisions of company law and which give a true and fairview of the state of affairs of the Company and the Groupas at the end of the accounting period and of the result of the Group for that period.

Consolidated financial statements have to be presented in accordance with the Companies Act 1985. In preparingthe financial statements suitable accounting policies, framedby reference to reasonable and prudent judgements andestimates, have to be used and applied consistently.

Applicable accounting standards also have to be followedsubject to any material departures being disclosed andexplained in the notes on the financial statements.

The directors are required to prepare the financialstatements on a going concern basis unless it isinappropriate to presume that the Company will continue in business.

The directors are also responsible for the operation ofappropriate systems of internal control and for maintainingadequate accounting records so as to prevent and detectfraud and other irregularities and disclose with reasonableaccuracy at any time the financial position of the Group.They are also required to take reasonable steps to ensurethe safeguarding of assets of the Group.

Basis of accounts

The Board of directors has satisfied itself that the Grouphas adequate resources to continue in operation for theforeseeable future. The Group financial statements thereforecontinue to be prepared on a going concern basis.

By order of the directorsJ V Miller

Group Company SecretaryLondon, 28 February 2001

Corporate governance continued


We have audited the financial statements which comprisethe Consolidated profit and loss account, the Statement of total recognised gains and losses, the Movements in shareholders’ funds, the Consolidated balance sheet, the Parent company balance sheet, the Consolidatedshareholders’ cash flow statement and the related notesincluding the Accounting policies, Segmental information,the statements of the Principal subsidiary companies andthe Principal associated undertakings and other significantshareholdings which have been prepared in accordance withthe accounting policies. The related notes include Directors’emoluments and Directors’ shareholdings disclosures.

Respective responsibilities of directors and auditors

The directors’ responsibilities for preparing the AnnualReport and the financial statements in accordance withapplicable United Kingdom law and accounting standardsare set out in the Statement of directors’ responsibilities.

Our responsibility is to audit the financial statements inaccordance with relevant legal and regulatory requirements,United Kingdom Auditing Standards issued by the AuditingPractices Board and the Listing Rules of the FinancialServices Authority.

We report to you our opinion as to whether the financialstatements give a true and fair view and are properlyprepared in accordance with the United KingdomCompanies Act. We also report to you if, in our opinion,the Directors’ report is not consistent with the financialstatements, if the Company has not kept proper accountingrecords, if we have not received all the information andexplanations we require for our audit, or if informationspecified by law or the Listing Rules regarding directors’remuneration and transactions is not disclosed.

We read the other information contained in the AnnualReport and consider the implications for our report if webecome aware of any apparent misstatements or materialinconsistencies with the financial statements. The otherinformation comprises only Financial highlights, theChairman’s & Chief Executive’s review, the Board ofdirectors, the Operating reviews for UK, Europe, theAmericas, Asia Pacific and Royal & SunAlliance Investments,the Financial review including the Group Finance Director’sreport, the Risk analysis, Sensitivity analysis and the Shareand shareholder analysis, the Directors’ report, theCorporate governance statement, the Remuneration report and the Five year financial review.

We review whether the Corporate governance statementreflects the Company’s compliance with the sevenprovisions of the Combined Code specified for our reviewby the Listing Rules, and we report if it does not. We arenot required to consider whether the Board’s statements

on internal control cover all risks and controls, or to forman opinion on the effectiveness of the Group’s corporategovernance procedures or its risk and control procedures.

Basis of audit opinion

We conducted our audit in accordance with auditingstandards issued by the Auditing Practices Board. An auditincludes examination, on a test basis, of evidence relevantto the amounts and disclosures in the financial statements.It also includes an assessment of the significant estimatesand judgements made by the directors in the preparationof the financial statements, and of whether the accountingpolicies are appropriate to the company’s circumstances,consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain allthe information and explanations which we considerednecessary in order to provide us with sufficient evidence togive reasonable assurance that the financial statements arefree from material misstatement, whether caused by fraudor other irregularity or error. In forming our opinion wealso evaluated the overall adequacy of the presentation ofinformation in the financial statements.

Equalisation provisions

Our evaluation of the presentation of information in thefinancial statements has had regard to the statutoryrequirement for insurance companies to maintainequalisation provisions. The nature of equalisation provisions,the amount set aside at 31 December 2000, and the effectof the movement in those provisions during the year onthe general business technical account and profit onordinary activities before tax, are disclosed in note 10.

Opinion

In our opinion the financial statements give a true and fairview of the state of affairs of the Company and the Groupat 31 December 2000 and of the results and cash flows ofthe Group for the year then ended and have been properlyprepared in accordance with the Companies Act 1985.

PricewaterhouseCoopers

Chartered Accountants and Registered AuditorsLondon, 28 February 2001

Independent auditors’ report to the members of Royal & Sun Alliance Insurance Group plc


Remuneration policyThe salary and other benefits of executive directors andcertain senior executives are determined by a RemunerationCommittee comprising non-executive directors, who arelisted on pages 22 and 23. The Committee’s objectives are to ensure that the Company has policies to:

• ensure the attraction, retention and motivation of high calibre individuals;

• reward executive directors and certain senior executivesby reference to the overall performance of the Group and,where appropriate, their individual business unit; and

• align the interests of the executive directors as closelyas possible with those of shareholders.

Over half of the Group’s revenues are earned outside the UK. The majority of the senior management team are not UK citizens. The Committee therefore takes careful account of international, as well as UK, trends in remuneration. The Committee’s current policy is to relate basic salaries to the mid-market pay levels ofcompanies of comparable size and complexity, includingboth international financial services and other listedcompanies. The Group aims to encourage top quartileperformance by means of short term and long termincentive schemes. The Committee draws upon advice and survey data from specialist remuneration consultantswhere necessary. In framing its policy, the Committee has taken account of the relevant provisions of theCombined Code appended to the Listing Rules of the UK Listing Authority.

The individual salary, incentive and benefit levels ofexecutive directors and certain senior executives, arereviewed annually by the Remuneration Committee,having regard to individual responsibilities andperformance, and taking account of pay and conditionsthroughout the Group.

Remuneration for executives consists of four principalelements:

• a basic salary;• an annual bonus scheme, based on the performance

of the Group as a whole, the individual and, whereappropriate, their business unit;

• participation in an executive share option scheme; and• pension provision.

Details of individual directors’ emoluments are set out onpages 54 and 55 and directors’ share interests and shareoptions on pages 56 and 57 of this document.

Where appropriate, the Group encourages seniormanagers to accept, subject to the approval of theChairman and Group Chief Executive, an invitation to join the board of another company in a non-executivecapacity. The Group recognises the value this widerexperience brings. In these circumstances, such managersare permitted to retain the remuneration from non-executive appointments.

Annual bonus planThe annual bonus plans for 2000 and 2001 are based on the Group’s risk based return on capital. The maximumpayment in respect of 2001 for the executive directors andother senior executives will be 80% (100% for R J Gunn)of basic salary. This level will only be paid in the event ofexceptional individual and corporate performance, 30%(50% for R J Gunn) will be payable if target performance is achieved.

Annual bonuses for executive directors with regionalresponsibility are based 70% on the performance of theirregion and 30% on Group results.

No bonuses are due to the executive directors in respect of the business year 2000.

Executive share option schemesIn 1999 the Annual General Meeting approved theintroduction of a new executive share option scheme. This followed a detailed review by the RemunerationCommittee into the effectiveness of the executive shareoption scheme.

Awards of executive share options are targeted toencourage and reward high performance. The executivedirectors and other senior executives are eligible to receiveannual grants of options in shares equal in current marketvalue to their basic salary. When that level of optionsexceeds four times emoluments, these grants are fundedby way of shares purchased in the market and retained ina trust. All participants in the scheme are encouraged toretain their options for as long as possible. Share retentionguidelines apply to all participants. The executive directorsand certain other senior executives are required to buildand retain a minimum shareholding of Royal & SunAllianceshares, equivalent to at least one times their current salary.Normally, share options are exercisable between three andten years after grant.

Grants of executive share options made since 1998 weremade subject to a performance condition that they couldnot be exercised unless the Group delivered a net returnon capital which exceeded inflation by an annual averageof at least 6% over a three year period. The performancecondition is subject to an annual review by theRemuneration Committee. Executive share options grantedbetween 1996 and 1997 were subject to the performancecondition that average total shareholder return (TSR) mustat least equal the median of the FTSE 100 companies for a period of three years prior to exercise. TSR is based uponshare price and cumulative dividends.

Approval will be sought at the 2001 Annual GeneralMeeting for the introduction of a stock option scheme forUS employed managers based upon US market practice. It is intended that grants of options, which will be grantedover ADSs, will be made bi-annually. Grant levels will be in line with US market practice. The USA’s most seniormanager will be eligible to receive options of 3.6 timesbasic salary per annum. All options will vest after seven

Remuneration report


years, although vesting can be accelerated by the USsubsidiary’s outperformance as measured by risk basedreturn on capital. All participants will be covered by shareholding guidelines requiring participants to hold Royal &SunAlliance shares of up to three times basic salary.

With the exception of R V Mendelsohn, the Group ChiefExecutive, no directors received nor were entitled to receiveany benefits under any other long term incentive schemes,apart from participation in the Group’s executive shareoption schemes, and savings related share option schemes,which are also open to all staff in the UK and a number ofother countries in which we operate.

Performance share plan – R V MendelsohnIn order to recruit R V Mendelsohn a long term incentiveplan was put in place. With effect from 1 January 1998,and annually thereafter, R V Mendelsohn receives a non-pensionable grant of shares equal (at market price) to hisannual basic salary multiplied by 1.6. This grant isconditional upon challenging performance criteria over aconsecutive three year period, such that for 75% to 100%of the shares to vest all of the following conditions mustbe met in any given three year period:

• growth in the Group’s TSR must be in the top quartileof a defined group of twelve leading UK, US andContinental European insurers;

• growth in the Group’s TSR must exceed the UK retailprices index (RPI) plus 2% per annum compound; and

• the Group’s share price must grow by between 5%and 20%, with 20% growth required if 100% of theshares are to be vested.

If TSR growth is below the comparator group median, orRPI plus 2% per annum is not achieved, no shares will vest.Between 30% and 60% of the shares will vest for TSRgrowth which falls outside the top quartile but which is ator above the comparator group median, subject toachieving the required 2% growth above RPI. TSR is basedon share price and cumulative cash dividends. Each threeyear performance period will be self contained. R VMendelsohn is required to accumulate and retain aminimum shareholding resulting from the operation of thisplan which equals his annual basic salary.

For the first plan incepting on 1 January 1998, whichterminated on 31 December 2000, the Group’s TSRgrowth was below the median in the comparator group,therefore no shares vested.

Pensionable remunerationWith the exception of R J Gunn, the basic salary ofexecutive directors is the only element of remunerationwhich is pensionable. Pensionable remuneration for R JGunn is basic salary plus the average of bonuses receivedin the five years before retirement. With the exception of R V Mendelsohn and R J Gunn, all executive directors aremembers of one of the main Royal Insurance or SunAlliance UK pension schemes, both of which are non-contributory and which are open to UK staff in general.

Further details are given on page 55 of this document.

The UK schemes provide members with a pension of up to 2/3 of pensionable salary, which excludes any incentivepayments, at age 62. Executives who joined either schemeafter May 1989 are subject to the statutory earnings cap,(£91,800 for 2000/2001) on Inland Revenue approvedpension schemes. Benefits are secured for some executivesin respect of that part of their salary exceeding the earningscap under the Royal Insurance Supplementary PensionScheme, which is an unapproved and unfunded plan.

R V Mendelsohn continues to accrue benefits under US State and company non-contributory pensionarrangements based on the US dollar equivalent of his UKsalary or, if higher, a deemed final salary of $1,300,000.

R J Gunn is a member of the approved non-contributoryRoyal & SunAlliance Canada staff pension scheme. This,together with the supplementary pension scheme, providesa pension of approximately 2/3 of salary at age 62. Thesupplementary pension scheme is an unapproved andunfunded plan.

Directors’ service contractsDirectors holding executive office have service contracts,the terms of which are considered by the RemunerationCommittee to provide a proper balance of duties andsecurity between the respective parties.

T A Hayes and P Spencer, together with R V Mendelsohn,have contracts that are terminable by the employer on two years’ notice; J C Hance’s contract is terminable onone year’s notice. R J Gunn is employed under a Canadianemployment agreement which does not provide for notice.Termination provisions would be a matter for mutualagreement in the context of Canadian employment lawand practice.

In the case of all executive directors, dismissal by theemployer without notice and in the absence of specificgrounds may require pay in lieu of the correspondingnotice periods. If not so terminated, the contract continuesuntil the director attains age 62, (65 for R V Mendelsohnand R J Gunn).

R V Mendelsohn is the only executive director who will be proposed for re-election at the forthcoming AnnualGeneral Meeting.

Non-executive directorsThose directors appointed to a non-executive role do nothave service contracts and are not entitled to bonuspayments or pension arrangements. They do not participatein the Group’s long term incentive arrangements. The feespayable to non-executive directors were reviewed in 1999and will be considered again in 2002. Remuneration of thenon-executive directors is set by the Board as a whole.

Nicholas BarberChairman of Remuneration Committee, on behalf of the BoardLondon, 28 February 2001


1. REMUNERATION

Remuneration for the year ended 31 December, was as follows:

Total

Allowances,Salary benefits and

and fees other awards 2000 1999£000 £000 £000 £000

Executive directors

R J Gunn 290 23 313 291

J C Hance 338 27 365 285

T A Hayes 328 8 336 328

R V Mendelsohn (note 1) 632 413 1,045 976

P Spencer 368 9 377 372

Non-executive directors

R J Ayling 35 – 35 31

J W Baker 35 – 35 31

N C F Barber 45 – 45 39

A D A W Forbes 60 – 60 60

Sir Patrick Gillam 175 – 175 152

S G Hill (note 2) 15 – 15 –

H N L Keswick (note 3) 45 – 45 39

J A Rowson (note 4) 13 – 13 31

C F St. Mark 35 – 35 31

Notes:

1. As an expatriate director, R V Mendelsohn received remuneration which is intended to put him in a position, after taking into

account taxation and living cost differentials, where he is no worse off than were he to perform the same duties for the Group

in his home country (the United States). This includes expatriate benefits, such as the provision of accommodation and

relocation allowances. These benefits totalled £383,000 in 2000 (1999 £294,000) and are included within allowances, benefits

and other awards. The increase is attributable to the change in fair market value of the property provided.

2. S G Hill was appointed on 2 August 2000.

3. H N L Keswick retired on 31 December 2000.

4. J A Rowson retired on 17 May 2000.

2. PENSION BENEFITS

Non-executive directors are not entitled to any pension benefits. The pension benefits earned by the executive directors, as

members of Group defined benefit schemes, were as follows:

Actual Increase/(decrease) Accumulated totalservice to in accrued pension accrued pension at

Date of birth year end during the year 31 December 2000£ £

R J Gunn (note 2) 23.04.45 27 yrs 7m (11,026) 236,317

J C Hance (note 3) 06.10.55 13 yrs 9m 21,409 93,117

T A Hayes (note 3) 31.03.43 38 yrs 11m 5,147 214,044

R V Mendelsohn (note 4) 18.07.46 6 yrs 11m 5,188 389,004

P Spencer (note 3) 03.01.50 5 yrs 0m 11,511 54,269

Directors’ emoluments


2. PENSION BENEFITS continued

Notes:

1. The accumulated total accrued pension shown is the annual payment from normal retirement age based on service at

31 December 2000.

2. R J Gunn is a member of the Canadian defined benefit pension schemes which provide level pensions from retirement during

his lifetime and 60% of the pension to a surviving spouse. Increases to pensions when in payment are applied on a discretionary

basis with the aim of providing increases of 2/3 of the increase in the Canadian Consumer Price Index. No allowance is made

for these discretionary increases in transfer values. The normal retirement age is 65.

The earnings on which his pension is based contain an element of incentive compensation. His pensionable earnings for 2000

were lower than for 1999, which has resulted in a decrease in his total accrued pension notwithstanding an extra year’s accrual

of benefits.

Early retirement rights vested on 23 April 2000 when he attained age 55. If these rights had been exercised at 31 December

2000 in respect of the total accrued pension the immediate annual pension payable would have been £189,053.

3. J C Hance, T A Hayes and P Spencer are members of UK schemes which provide members’ pensions from the normal retirement

age of 62. In addition a spouse’s pension of 2/3 of member’s pension is payable to a surviving spouse. If not payable to a

spouse it is payable to adult dependants, on a discretionary basis, or eligible children. In addition, children’s pensions are 1/3

of member’s pension except in the case of P Spencer where any eligible children’s pensions are £669 p.a. per child below age

10 and £1,002 p.a. per child aged 10 and above. On the death of a pensioner within 5 years of retirement, a lump sum is

payable equal to the balance of 5 years’ pension payments except for P Spencer, where the sum is less any dependants’ pensions

payable during this period. Increases to pensions in payment are guaranteed at 5% p.a. or the increase in price inflation, if lower.

However, an allowance for discretionary increases to pensions in payment is included in transfer value calculations (although not

in the statutory minimum cash equivalent calculation). The allowance is in respect of the difference between increases in line

with price inflation and the guaranteed level of increases. Early retirement rights at age 60 apply in respect of the component

of pension for service from 17 May 1990 except for P Spencer where the rights are for service from 1 October 1995.

4. R V Mendelsohn is a member of US defined benefit pension schemes which provide level pensions from normal retirement age

during his lifetime. The benefits are to be taken in the form of a level pension during his lifetime and 2/3 of the pension to a

surviving spouse, the value being actuarially equivalent to the single life pension to which he is entitled. The pension figures

shown are in respect of the single life pension entitlement. The normal retirement age is 65.

Early retirement rights apply in respect of £377,699 of the total accrued pension at 31 December 2000 (and in respect of

£3,692 of the increase in the accrued pension in the year). If these rights had been exercised at 31 December 2000, the

immediate annual pension entitlement would have been £291,772.

R V Mendelsohn is also a member of defined contribution schemes to which the Group contributed £9,615 during the year.

5. The increase in accrued pension during the year excludes any increase for inflation. No contribution by members of the schemes

is required but with the exception of R J Gunn, they all have the option of paying AVCs. Neither the contribution nor the

resulting benefits are included in the table.

3. OTHER INFORMATION

During the first half of 2000, there were outstanding to J C Hance loans under the standard terms of the Group’s UK Car Ownership

Scheme which is open to all UK managers within a qualifying salary band. The loans were entered into during 1998 prior to his

appointment to the Board. At 1 January 2000, the loans totalled £18,032. J C Hance repaid the loans in full in June 2000. Whilst

the loans remained outstanding, interest was charged at a variable rate (8% p.a.) except on £5,000 which was interest free.


1. SHAREHOLDINGS

The interests of directors in ordinary shares of the Company, as declared and recorded in accordance with the Companies Act 1985,

are as follows:

Shares held at1 January 2000 Shares held at

or on appointment 31 December 2000(note 1) (note 1)

R J Ayling 545 545

J W Baker 1,718 4,218

N C F Barber 6,667 6,667

A D A W Forbes 4,850 4,850

Sir Patrick Gillam 9,575 10,113

R J Gunn (note 2) 15,327 15,327

J C Hance (note 2) 8,467 8,467

T A Hayes (note 2) 54,543 57,325

S G Hill (appointed 2 August 2000) – –

H N L Keswick (retired 31 December 2000) 29,536 31,198

R V Mendelsohn (note 2) 46,340 71,340

J A Rowson (retired 17 May 2000) 2,178 –

C F St. Mark 5,676 5,995

P Spencer (note 2) 484 484

Notes:

1. Ordinary shares of 27.5p each.

2. In addition to the interests shown above, the directors indicated, in common with the employees, had a beneficial interest

as at 31 December 2000 in 697,200 ordinary shares of 27.5p held in the Royal & Sun Alliance ESOP Trust No. 2.

3. On 28 February 2001 the directors’ interests remained unchanged.

Directors’ shareholdings


2. OPTIONS

Movements in option holdings during 2000 were as follows:

Options Weightedheld at Options Weighted average

1 January Options exercised/ average market price Options2000 granted lapsed exercise at date of Gains on held ator on during during price exercise exercise 31 December

appointment the year the year (pence) (pence) £ 2000

R J Gunn ESOS 323,494 77,076 22,793 – – – 377,777

SAYE 4,269 – – – – – 4,269

J C Hance ESOS 189,188 88,933 – – – – 278,121

SAYE 4,568 – – – – – 4,568

T A Hayes ESOS 225,961 82,403 – – – – 308,364

SAYE 4,018 – 2,782 248 454 5,731 1,236

R V Mendelsohn ESOS 847,196 159,352 – – – – 1,006,548

SAYE – – – – – – –

P Spencer ESOS 368,579 92,711 – – – – 461,290

SAYE 5,407 – – – – – 5,407

Options held at 31 December 2000 in respect of the ordinary shares of the Company as a result of executive and savings related

share option schemes were as follows:

Dates exercisable

Weighted averageexercise price

Number (pence) From To

R J Gunn 382,046 352.8 17.05.1994 11.09.2010

J C Hance 282,689 453.4 14.04.1997 11.09.2010

T A Hayes 309,600 397.9 14.04.1997 11.09.2010

R V Mendelsohn 1,006,548 339.6 01.06.1999 11.09.2010

P Spencer 466,697 420.7 17.10.1999 11.09.2010

Notes:

1. Options granted to directors during the year (March and September) under the executive share option schemes (ESOS) were

granted at option prices of 345p and 458p respectively, which were the average of middle market quotations for the shares of

the Company on the 5 business days prior to the date of grant.

2. Options granted under the executive share option schemes are potentially exercisable between 3 and 10 years after grant.

Current policy is that the exercise of options under the Royal & Sun Alliance Insurance Group plc 1999 Executive Share Option

Scheme is conditional upon the Group delivering a net return on capital which exceeded inflation by an annual average of at

least 6% over a three year period. The exercise of previously issued executive share options under the Scheme between 1996

and 1997 is conditional upon the Group achieving an average total shareholder return exceeding the median of the FTSE 100

companies for a period of three years prior to exercise. No performance conditions apply to options granted prior to 1996 on

other schemes.

3. Full details of all directors’ shareholdings and options to subscribe for shares are recorded in the Company’s Register of Directors’

Interests which is open to inspection in accordance with the provisions of the Companies Act 1985.

4. The official closing middle market price at its highest during the year was 577p and at its lowest was 300p per share; on the last

dealing day of the year it was 573p per share.


Financial statementsThe financial statements are prepared in accordance withapplicable UK accounting standards and the Statement of Recommended Practice (SORP) issued by the Associationof British Insurers in December 1998. As noted in theinvestment accounting policy the true and fair override hasbeen adopted in respect of the valuation of the Group’sinvestment properties and no depreciation is provided.

Changes in accounting policyA minor accounting policy change has been made duringthe year in respect of the treatment of group risk businesswithin UK Life new business sales which is now treated as single premium rather than annual premium business.The financial impact of this change is considered in note 1 and comparatives have been restated.

Group accountsThe consolidated accounts of the Group include the results of all subsidiaries drawn up to 31 December.

The Group consolidated profit and loss account andConsolidated balance sheet are drawn up in accordancewith the provisions of Section 255A of, and Schedule 9Ato, the Companies Act 1985. The Parent Company balancesheet is drawn up in compliance with the provisions ofSection 226 of, and Schedule 4 to, the Companies Act1985. As permitted by Section 230 of the Companies Act1985, the Parent Company profit and loss account has notbeen included in these financial statements.

Subsidiaries acquired during the year are consolidated fromthe effective date of acquisition.

The Consolidated shareholders’ cash flow statement has beendrawn up in accordance with Financial Reporting Standard1 (Revised) which requires the cash flow statement to excludethe cash flows of the long term policyholders’ funds.

Principal associated undertakings are accounted for by the equity method in the consolidated financial statements.The figures included for interests in principal associatedundertakings are for the accounting periods indicated inthe list of principal associated undertakings and othersignificant shareholdings.

Translation of foreign currenciesAssets and liabilities including dated loan capital and resultsof both businesses and associates denominated in foreigncurrencies are translated into sterling at rates ruling at theyear end and the resulting differences are taken to reservesor in the case of long term business are included withinthe long term business technical account. Transactionsdenominated in foreign currencies are translated at theprevailing rate at the date of the transaction and theresulting exchange differences are included within theprofit and loss account.

Derivatives

Interest rate swaps in relation to the Group’s dated loancapital are treated as hedges. The underlying hedgeddated loan capital is carried at cost and accordingly theswaps have not been marked to market. The interestpayable or receivable on interest rate swaps is included ininterest paid. Future contracts and purchased options areincluded within the category to which the contract relatesand are valued at market value.

General business technical account

General business is accounted for on an annual basis.Premiums written are accounted for in the year in whichthe contract is entered into and include estimates wherethe amounts are not determined at the balance sheet date. Premiums written exclude taxes and duties levied onpremiums. An allocation of the investment return has beenmade to the general business technical account from thenon-technical account on the longer term rate of returnbasis. The commission and other acquisition costs incurredin writing the business are deferred and amortised over the period in which the related premiums are earned.

Claims paid represent all payments made during the periodwhether arising from events during that or earlier periods.

The balance on the general business technical account is arrived at after taking account of changes in theequalisation provisions.

Long term business technical account

Premiums and annuity considerations are accounted forwhen due except premiums in respect of linked businesswhich are accounted for when the policy liabilities arecreated. Single premiums are those relating to productsissued by the Group where there is a contractual obligationfor the payment of only one premium. Annual premiumsare those where there is a contractual obligation for thepayment of premium on a regular basis. Claims arising onmaturity are recognised when the claim becomes due forpayment. Death claims are accounted for on notification.Surrenders are accounted for at the earlier of the paymentdate or the date at which the policy ceases to be includedin the long term business provision or the technicalprovisions for linked liabilities.

Acquisition costs comprise direct and indirect costs ofobtaining and processing new business. These costs aredeferred as an explicit deferred acquisition cost asset, grossof tax relief and amortised over the period in which theyare expected to be recovered out of margins in matchingrevenues from related policies. At the end of eachaccounting period, deferred acquisition costs are reviewedfor recoverability by category, against future margins fromthe related policies in force at the balance sheet date.

Accounting policies


The profits on long term insurance business represent the transfer from the long term funds to shareholdersfollowing the actuarial valuation of liabilities, investmentincome arising on shareholders’ funds attributable to thelong term business based on the longer term investmentreturn and the movements in certain reserves attributableto shareholders held within the long term funds. Profits are shown in the non-technical account grossed up for tax at the effective rate of corporation tax applicable in the period. For business transacted overseas, results have been included in accordance with local generallyaccepted accounting principles where they are consistentwith UK practice.

New business premiums are recognised when the policyliability is established. New single premiums include recurrentsingle premium contracts including DSS rebates andincrements under group pension schemes. Where productsare substituted by the policyholder or pension contracts arevested, these transactions are reflected as new business onlyto the extent that they give rise to incremental premiums.

Reversionary bonuses are recognised when declared;terminal bonuses are recognised when payable.

Shareholders’ accrued interest for long term businessrepresents the excess of accumulated profit recognisedunder the modified statutory basis of reporting over the statutory transfers made from the long term funds to shareholders. The amount of profit recognised asshareholders’ accrued interest is credited to the profit and loss account within capital and reserves.

Investment return

Income from investments is included in the profit and lossaccount on an accruals basis. Dividend income on ordinaryshares is recognised when the related investment goes “ex-dividend”. Realised and unrealised gains and losses oninvestments attributable to long term business are dealtwith in the long term business technical account. Realisedand unrealised gains and losses on other investments,including the Group’s share of realised and unrealised gainsand losses of associated undertakings, are dealt with in the non-technical account. Realised gains and losses oninvestment disposals represent the difference between netsale proceeds and cost of acquisition. Unrealised gains andlosses on investments represent the difference between thecarrying value at the year end and the carrying value at theprevious year end or, in the case of investments purchasedin the year, the cost of acquisition.

Group operating result and profit (based on longer terminvestment return) are presented including investmentreturn on the longer term rate of return basis. The longerterm rate of return basis reflects both historical experience

and the directors’ current expectations for investmentreturns. The rates of longer term return are set with theobjective of ensuring that, in aggregate over time, thereturn recognised in operating profit does not exceed or fall below the actual returns achieved. Short terminvestment fluctuations represent the difference betweenthe actual investment return in the year and thatdetermined on the longer term rate of return basis.

Group operating result and profit (based on longer term

investment return)

Group operating result (based on longer term investmentreturn) is analysed between general business, long termbusiness and other activities as an additional disclosure.Group operating result (based on longer term investmentreturn) excludes interest on dated loan capital, short terminvestment fluctuations, the change in the equalisationprovisions, amortisation of goodwill and of goodwill inacquired claims provisions and other items includingreorganisation costs. Group operating profit (based onlonger term investment return) excludes short terminvestment fluctuations.

Taxation

Taxation in the non-technical account and long termbusiness technical account is based on profits and incomefor the year as determined in accordance with the relevanttax legislation, together with adjustments to provisions forprior years. UK tax in respect of overseas subsidiaries andprincipal associated undertakings is based on dividendsreceived. Taxation in the non-technical account includes the tax by which the balance on the long term businesstechnical account has been grossed up.

Deferred taxation is calculated on the liability method andconsists of the estimated taxation, or relief from taxation,which is expected to arise in the foreseeable future frommaterial timing differences using expected future rates oftax where applicable. Under this policy, no provision ismade for taxation which might arise on the distribution of profits retained by overseas subsidiaries or associatedundertakings. Credit is taken for relief for trading lossesonly to the extent that the directors anticipate that profitswill absorb such losses in the foreseeable future.

Allowance is made in the long term business provision andwithin assets held for linked liabilities for deferred taxationat appropriate discounted rates in respect of relatedunrealised gains. A provision for deferred taxation on otherunrealised gains is made where realisations giving rise to ataxation liability are anticipated in the foreseeable future.

Goodwill

Goodwill, being the difference between the cost of anacquisition and the fair value of the net tangible assets


acquired, arising on the acquisition of subsidiary companiesand associated undertakings, is capitalised in the balancesheet and amortised to the profit and loss account on astraight line basis. The cost of acquisition is the amount of cash paid and the fair value of other purchaseconsideration given together with associated expenses. The period of amortisation, which does not exceed 20years, is determined by an assessment of the usefuleconomic life of the goodwill, this being the period overwhich the value of the businesses acquired are expected to exceed the value of their underlying assets. Goodwillarising prior to 31 December 1997 has been eliminatedagainst reserves in accordance with the Group accountingpolicy at the date of acquisition. In the event of thedisposal of a business acquired prior to this date, therelated goodwill is charged to the profit and loss accountin the year of sale.

The present value of the shareholders’ interest in the acquiredvalue of in-force long term business is included as part ofthe fair value of the acquired net tangible assets in thegoodwill calculation and is dealt with as described below.

The fair value of general business claims provisions relating to businesses acquired is established after makingallowance for future investment income. The discount,being the difference between the fair value and theundiscounted value at which they are accounted for onconsolidation, is capitalised as goodwill in acquired claimsprovisions and amortised to the profit and loss accountover the expected run-off period of the related claims.

Investments

Investments and assets held to cover linked liabilities, are shown at market value, for which purpose unlistedinvestments, mortgages and loans are included atdirectors’ valuation and properties at professionalvaluation. For listed securities the stock exchange valuesare used except that fixed income securities held for long term business in certain overseas operations areincluded on an amortised cost basis. Properties are valued annually at open market value.

The Companies Act requires properties to be depreciatedover their expected useful economic lives. The directorsconsider that depreciation of investment properties wouldnot give a true and fair view. In accordance with Statementof Standard Accounting Practice 19 “Accounting forInvestment Properties”, no depreciation is provided onthese properties on the basis that depreciation is alreadyreflected in the annual valuations. The amounts attributedto this factor by the valuers cannot reasonably beseparately identified or quantified.

It is the Group’s practice to maintain properties occupiedby the Group in a continual state of sound repair.Accordingly the directors consider that the economic livesof these properties and their residual values, based onprices prevailing at the time of acquisition or subsequentvaluation, are such that any depreciation is insignificantand is thus not provided.

Investments in subsidiaries are included in the ParentCompany balance sheet at net asset value and unrealisedgains and losses are dealt with in the revaluation reserve.

Value of long term business

This represents the directors’ assessment of the value ofthe shareholders’ investment in the long term businessfunds, not already recognised under the modified statutoryprinciples of profit recognition. It comprises the shareholders’share of both the net of tax future cash flows arising fromthe in-force long term business policies and the surplusheld within the funds to meet solvency and future businessdevelopment requirements. Movements in this asset,except those arising on acquisition, are recognised in theStatement of total recognised gains and losses.

The present value of in-force long term business existing atacquisition, is amortised in the long term technical accounton a systematic basis over the anticipated periods of therelated contracts in the portfolios as the profit on theseacquired contracts is recognised.

Tangible assets and depreciation

Tangible assets, other than land and buildings in the ParentCompany balance sheet, comprise fixtures, fittings andequipment (including computers and motor vehicles) whichare stated at cost and depreciated over periods notexceeding their estimated useful lives (between three andten years) after taking into account residual value.

Own shares

The shares held by the Royal & Sun Alliance ESOP Trustsare recognised as assets under the heading “Own Shares”at original cost in the consolidated balance sheet until suchtime as the shares vest unconditionally with the relevantexecutive director or employee. Any profit that may arise inthe Trusts upon exercise of the options will be recognisedat the exercise date.

Fund for future appropriations

Certain long term funds comprise either participating, orboth participating and non-participating long term businesscontracts, where policyholders have a contingent interest inthe excess of assets over liabilities in the fund. Accordinglythe excess of assets over liabilities within these funds is notallocated between policyholders and shareholders and istaken to the fund for future appropriations.

Accounting policies continued


Dated loan capital

Dated loan capital comprises subordinated bonds andloans. Subordinated bonds and loans are stated at the fair value of consideration received after deduction ofunamortised issue costs and discount. Issue costs togetherwith discount allowed on issue of bonds and loans areamortised to investment expenses and charges within thenon-technical account on an annual basis over the term of the bonds and loans.

Dated loan capital is presented as a component of theGroup’s capital base as it is in the nature of long termcapital financing. As such, the cost of such capital istreated as a financing item and is not deducted in arriving at Group operating result (based on longer terminvestment return).

Technical provisions

The provision for unearned premiums in respect of generalbusiness represents the proportion of premiums writtenrelating to periods of insurance subsequent to the balancesheet date, calculated principally on a daily pro-rata basis.

The provision for claims outstanding, whether reported ornot, comprises the estimated cost of claims incurred but notsettled at the balance sheet date. It includes related expensesand a deduction for the expected value of salvage and otherrecoveries. The provision is determined using the bestinformation available of claims settlement patterns, forecastinflation and settlement of claims. Claims provisions relatingto long term permanent disability claims in the United States,Canada, Scandinavia and Australia paid on an annuitybasis are determined using recognised actuarial methods.

Differences between the estimated cost and subsequentsettlement of claims are dealt with in the appropriatetechnical account for the year in which they are settled or re-estimated.

Provision is made, based on information available at thebalance sheet date, for any estimated future underwritinglosses relating to unexpired risks after taking into accountfuture investment income on relevant technical provisions.The unexpired risk provision is assessed in aggregate forbusiness classes which, in the opinion of the directors, aremanaged together.

The long term business provision is derived from actuarialvaluation. For with profits business, the calculation includesexplicit allowance for vested bonuses (including thosevesting following valuation at the balance sheet date).Implicit allowance is made for future reversionary bonusesthrough the use of a net premium valuation methodemploying a reduced valuation rate of interest. Noprovision is made for terminal bonuses.

Equalisation provisions are established in accordance withthe requirements of legislation in certain countries and are in addition to the provisions required to meet theanticipated ultimate cost of settlement of outstandingclaims at the balance sheet date.

The technical provisions for linked liabilities are therepurchase value of units allocated to in-force policies at the balance sheet date, where the policy benefits arewholly or partly related to investments of any descriptionor to indices of the value of investments.

Operating leases

Payments made under operating leases are charged on a straight line basis over the term of the lease.

Pension costs

The cost of providing pensions for the Group’s employeesis accounted for over the employees’ working lives on asystematic basis as advised by qualified actuaries.


Restated2000 1999

Notes £m £m

Gross premiums written 10,096 8,260

Outward reinsurance premiums (1,724) (1,101)

Premiums written, net of reinsurance 8,372 7,159

Change in the gross provision for unearned premiums (134) (147)

Change in the provision for unearned premiums, reinsurers’ share 16 5

Earned premiums, net of reinsurance 8,254 7,017

Allocated investment return transferred from the non-technical account 12 1,119 1,007

Claims paid

Gross amount (8,179) (6,637)

Reinsurers’ share 1,377 1,043

(6,802) (5,594)

Change in the provision for claims

Gross amount (153) (25)

Reinsurers’ share 392 179

239 154

Unwind of discount in respect of claims outstanding (19) (10)

Claims incurred, net of reinsurance (6,582) (5,450)

Acquisition costs (2,149) (1,853)

Change in deferred acquisition costs 37 24

Administrative expenses (772) (645)

Reinsurance commissions and profit participation 291 166

Net operating expenses 3 (2,593) (2,308)

Amortisation of goodwill in acquired claims provisions 17 (59) (12)


Longer term investment return allocated to the general business technical account 1,119 1,007

Unwind of discount in respect of claims outstanding ` (19) (10)

Balance on the technical account before change in the equalisation provisions 139 254

Change in the equalisation provisions 10 (24) (12)

Balance on the technical account for general business 115 242

Current year discontinued and acquired operations do not form a material part of the figures above.

The Accounting policies and the notes form part of these financial statements.

Consolidated profit and loss accounttechnical account – general businessFor the year ended 31 December 2000


2000 1999Notes £m £m

Gross premiums written 3,557 3,404

Outward reinsurance premiums (118) (120)

Earned premiums, net of reinsurance 3,439 3,284

Investment income 11 3,488 3,845

Unrealised (losses)/gains on investments (2,149) 417

Total technical income 4,778 7,546

Claims paid

Gross amount (3,309) (2,837)


(3,236) (2,750)

Change in the provision for claims

Gross amount (117) (24)

Reinsurers’ share 57 –

(60) (24)

Claims incurred, net of reinsurance (3,296) (2,774)

Change in long term business provision

Gross amount (1,785) (932)


(1,399) (885)

Change in technical provisions for linked liabilities, net of reinsurance (209) (1,640)

Change in other technical provisions, net of reinsurance (1,608) (2,525)

Acquisition costs (296) (350)

Change in deferred acquisition costs (166) 16

Administrative expenses (222) (242)

Net operating expenses 3 (684) (576)

Investment expenses and charges 11 (83) (60)

Tax attributable to the long term business 14 (222) (240)

Other technical charges – amortisation of acquired present value of long term business 19 (9) (4)

Total technical charges (5,902) (6,179)

Technical income less charges (1,124) 1,367

Allocated investment return transferred to the non-technical account – –

Transfers from/(to) the fund for future appropriations 1,302 (1,191)

Balance on the technical account for long term business 178 176



Consolidated profit and loss accounttechnical account – long term businessFor the year ended 31 December 2000


Restated2000 1999

Notes £m £m

Balance on the general business technical account 115 242

Balance on the long term business technical account 178 176

Tax credit attributable to balance on the long term business technical account 61 59

Balance on the long term business technical account gross of tax 239 235

Investment income 11 1,367 1,661

Allocated investment return transferred from the long term business technical account – –

Investment expenses and charges 11 (155) (79)

Unrealised losses on investments (161) (645)

Allocated investment return transferred to the general business technical account (1,119) (1,007)

Income from other activities 315 282

Charges from other activities 2, 3 (325) (261)

Central expenses 3 (37) (36)

Amortisation of goodwill 17 (56) (14)

Total Group operating profit 167 290

Share of results of associated undertakings 16 88

183 378

Analysis of profit on ordinary activities before exceptional items and tax


Long term business result 252 243

Other activities (including associated undertakings) (80) 11

Group operating result (based on longer term investment return) 476 566

Interest on dated loan capital (55) (10)

Change in the equalisation provisions 10 (24) (12)

Amortisation of goodwill 17 (56) (14)

Amortisation of goodwill in acquired claims provisions 17 (59) (12)

Reorganisation costs and other items 2 (119) (60)

Group operating profit (based on longer term investment return) 163 458

Short term investment fluctuations 20 (80)

Profit on ordinary activities before exceptional items and tax 183 378

Profit on disposal of subsidiaries less provisions for losses on subsidiaries to be sold 24 (128) –

Profit on ordinary activities before tax 55 378

Tax on profit on ordinary activities 14 (71) (270)

(Loss)/profit on ordinary activities after tax (16) 108

Attributable to equity minority interests 2 (21)

(Loss)/profit for the financial year attributable to shareholders (14) 87

Dividends 15 (381) (1,113)

Transfer from retained profits (395) (1,026)

Earnings per ordinary share 16 (1.6)p 5.3p

Diluted earnings per ordinary share 16 (1.6)p 5.2p

Group operating earnings after tax per ordinary share

(based on longer term investment return) 16 18.5p 25.2p



Consolidated profit and loss accountnon-technical accountFor the year ended 31 December 2000


ProfitOther and loss

reserves account 2000 1999£m £m £m £m

(Loss)/profit for the financial year – (14) (14) 87

Movement in value of long term business (other than on acquisition) (37) – (37) 169

Exchange:

Group (9) 178 169 34

Share of associates – (19) (19) (3)

Shareholders’ consolidated recognised gains/(losses)

arising in the year (46) 145 99 287

Exchange includes a loss of £6m (1999 £1m) on exchange relating to foreign currency borrowings.

Movements in shareholders’ fundsFor the year ended 31 December 2000

Share Capital Profitcapital/ redemption Other and loss

premium reserve reserves account 2000 1999Notes £m £m £m £m £m £m

Shareholders’ funds at 1 January 27 688 8 1,626 4,162 6,484 7,269

Shareholders’ recognised gains/(losses) – – (46) 145 99 287

Issue of share capital 28 2 – – – 2 2

Increase in share premium 22 – – (5) 17 13

Goodwill written back 24 – – – 102 102 26

Dividends 15 – – – (381) (381) (1,113)

Shareholders’ funds at 31 December 712 8 1,580 4,023 6,323 6,484


Statement of total recognised gains and lossesFor the year ended 31 December 2000


Shareholder Combinedconsolidated consolidated

2000 1999 2000 1999ASSETS Notes £m £m £m £m

Intangible assets 17 1,086 1,035 1,086 1,035

Investments

Land and buildings 18 557 519 2,699 2,386

Interests in associated undertakings 22 241 221 242 222

Other financial investments

Shares and other variable yield securities

and units in unit trusts 18 4,647 4,866 17,780 18,742

Debt securities and other fixed income securities 9,902 9,912 25,673 24,646

Loans and deposits with credit institutions 852 787 1,422 1,396

15,401 15,565 44,875 44,784

Value of long term business 19, 44 1,729 1,784 1,729 1,784

Deposits with ceding undertakings 111 96 131 115

Total investments 18,039 18,185 49,676 49,291

Assets held to cover linked liabilities 18 – – 8,713 8,304

Reinsurers’ share of technical provisions

Provision for unearned premiums 499 507 499 507

Long term business provision – – 785 394

Claims outstanding 3,476 3,183 3,540 3,189

Technical provisions for linked liabilities – – 13 14

3,975 3,690 4,837 4,104

Debtors

Debtors arising out of direct insurance operations 20 2,691 2,620 2,798 2,710

Debtors arising out of reinsurance operations 979 874 987 886

Other debtors 20 1,695 1,441 820 740

5,365 4,935 4,605 4,336

Other assets

Tangible assets 21 216 228 253 268

Cash at bank and in hand 434 497 754 822

Own shares 28 51 29 51 29

701 754 1,058 1,119

Prepayments and accrued income

Accrued interest and rent 196 193 452 443

Deferred acquisition costs – long term – – 465 628

Deferred acquisition costs – general 881 825 881 825

Other prepayments and accrued income 141 104 188 121

1,218 1,122 1,986 2,017

Total assets 30,384 29,721 71,961 70,206

The shareholder consolidated balance sheet represents the shareholder and general insurance business assets and liabilities. The

combined balance sheet includes long term business assets and liabilities relating to long term business policyholders.


Consolidated balance sheetAs at 31 December 2000



2000 1999 2000 1999LIABILITIES Notes £m £m £m £m

Capital and reserves

Ordinary share capital 395 393 395 393

Preference share capital 125 125 125 125

Called up share capital 28 520 518 520 518

Share premium account 192 170 192 170

Other reserves 1,580 1,626 1,580 1,626

Capital redemption reserve 8 8 8 8

Profit and loss account 4,023 4,162 4,023 4,162

Equity shareholders 6,198 6,359 6,198 6,359

Non-equity shareholders 125 125 125 125

Shareholders’ funds 6,323 6,484 6,323 6,484

Equity minority interests in subsidiary undertakings 400 406 400 406

Subordinated liabilities

Dated loan capital 29 784 610 784 610

Total capital, reserves and dated loan capital 7,507 7,500 7,507 7,500

Fund for future appropriations – – 3,540 4,840

Technical provisions

Provision for unearned premiums 4,685 4,476 4,685 4,476

Long term business provision 30 – – 28,268 26,433

Claims outstanding 14,468 14,017 14,731 14,162

Equalisation provisions 10 283 259 283 259

19,436 18,752 47,967 45,330

Technical provisions for linked liabilities – – 8,726 8,318

Provisions for other risks and charges 31 330 306 367 363

Deposits received from reinsurers 50 50 222 203

Creditors

Creditors arising out of direct insurance operations 460 437 505 504

Creditors arising out of reinsurance operations 757 607 770 619

Debenture loans 32 324 535 325 540

Amounts owed to credit institutions 32 57 136 57 136

Other creditors including taxation and social security 33 784 807 1,244 1,238

Proposed dividend 15 247 233 247 233

2,629 2,755 3,148 3,270

Accruals and deferred income 432 358 484 382

Total liabilities 30,384 29,721 71,961 70,206

Except for certain debenture loans and amounts owed to credit institutions shown in note 32, all creditors are payable within

a period of five years.



2000 1999Notes £m £m

Fixed assets

Tangible assets 21 37 39

Investments 25 6,735 6,506

6,772 6,545

Current assets

Amounts owed by Group undertakings 578 1,099

Other debtors 96 131

Cash at bank and in hand 8 10

682 1,240

Creditors – amounts falling due within one year

Amounts owed to Group undertakings (60) (422)

Other creditors including taxation and social security (40) (36)

Proposed dividend 15 (247) (233)

(347) (691)

Net current assets 335 549

Total assets less current liabilities 7,107 7,094

Creditors – amounts falling due after more than one year

Dated loan capital 29 784 610

Capital and reserves

Ordinary share capital 395 393

Preference share capital 125 125

Called up share capital 27, 28 520 518

Share premium account 27 192 170

Revaluation reserve 27 5,078 5,281

Capital redemption reserve 27 8 8

Profit and loss account 27 525 507

Equity shareholders 6,198 6,359

Non-equity shareholders 125 125

Shareholders’ funds 6,323 6,484

Total capital, reserves and dated loan capital 7,107 7,094


The financial statements were approved on 28 February 2001 by the Board of directors and are signed on its behalf by:

JULIAN HANCE

Group Finance Director

Parent company balance sheetAs at 31 December 2000


2000 1999Notes £m £m

Operating activities

Net cash (outflow)/inflow from general business (268) 168

Shareholders’ net cash inflow from long term business 151 150

Other operating cash flows attributable to shareholders (25) 2

Net cash (outflow)/inflow from operating activities 37 (142) 320

Dividends from associates 29 56

Servicing of finance

Premium on redemption of dated loan capital – (14)

Dividends paid on non-equity shares (9) (9)

Issue costs on dated loan capital (1) (5)

Dividends paid to minorities (9) (8)

Interest paid on dated loan capital (53) –

(72) (36)

Taxation paid (131) (145)

Capital expenditure

Purchases less sales of tangible assets (76) (83)

Acquisitions and disposals

Acquisition of interests in associated undertakings (56) (49)

Acquisition of subsidiary undertakings and redemption of dated loan capital 23, 41 (16) (1,736)

Acquisition of minority interests in subsidiary undertakings 23 (8) (21)

Disposal of subsidiary undertakings 42 56 319

Disposal of minority interests in subsidiary undertakings 24 10 5

(14) (1,482)

Dividends paid on equity shares (358) (1,109)

Financing

Issue of ordinary share capital 28, 40 19 15

Issue by subsidiary of ordinary share capital to minorities – 30

Proceeds from issue of dated loan capital 40 146 615

Purchase of own shares 28 (22) (29)

Net cash inflow from financing 143 631

Cash available for investment (621) (1,848)

Cash flows were invested as follows:

Movement in cash holdings 40 (54) 215

Net portfolio investments 38, 39, 40

Land and buildings (7) (489)

Shares and other variable yield securities (395) (1,459)

Loans, debt securities and other fixed income securities (483) 153

Deposits with credit institutions 34 (46)

Borrowings 284 (222)

(567) (2,063)

Net investment of cash flows (621) (1,848)

The cash flow statement does not include any amounts relating to the long term business except cash transactions between the

long term business and shareholders.


Consolidated shareholders’ cash flow statementFor the year ended 31 December 2000


1. IMPACT OF CHANGES ARISING FROM ACCOUNTING POLICY CHANGES

A minor accounting policy change has been made during the year in respect of the treatment of group risk business within UK life

new business sales which is now treated as single premium rather than annual premium business, reflecting the fact that there is no

contractual obligation on policyholders to renew. This change has not impacted the Group’s profit and loss account, however it has

resulted in a restatement of prior year new business premiums written as set out in note 5 below. The effect of the change is that new

business annual premiums reduced by £38m (1999 £34m) and new business single premiums increased by £166m (1999 £153m).

2. REORGANISATION COSTS AND OTHER ITEMS

Other items within the non-technical account include: £39m (1999 £46m) of reorganisation costs in relation to general insurance

businesses in the UK, Scandinavia, USA and Asia Pacific, £4m (1999 £4m) of reorganisation costs in relation to long term businesses

in Asia Pacific and £nil (1999 £2m) of reorganisation costs in relation to non insurance activities. Additionally within other items are

£67m of losses in relation to terminated business in the USA. The remaining other items include £9m (1999 £4m) amortisation

of the present value of acquired in-force business, £nil (1999 £14m) premium on the redemption of dated loan capital and £nil

(1999 £10m profit) on disposal of subsidiaries and branches. In 2000 profit/losses on disposal of interests in subsidiaries are stated

in the Group’s non-technical account after ‘Profit on ordinary activities before exceptional items and tax’.

3. NET OPERATING EXPENSES AND OTHER CHARGES Technical accountGeneral business long term business

2000 1999 2000 1999£m £m £m £m

a. Net operating expenses in the technical accounts include:

Depreciation 63 56 15 15

Operating lease rentals – premises 81 75 8 10

Operating lease rentals – other assets 25 17 1 2

b. Charges from other activities in the non-technical account include depreciation of £6m (1999 £5m), operating lease rentals –

premises of £12m (1999 £13m) and operating lease rentals – other assets of £1m (1999 £1m).

c. Central expenses in the non-technical account include depreciation of £1m (1999 £1m), operating lease rentals – premises of

£4m (1999 £5m).

d. In common with other motor insurers in the Italian market our Italian businesses were fined a total of £3m by the Italian anti trust

commission for alleged restrictive practices. The fine has been appealed, nevertheless this sum has been provided for in the 2000 results.

4. EXCHANGE RATES

In respect of the major overseas currencies the rates of exchange used in these financial statements are US Dollar 1.49 (1999 1.61),

Canadian Dollar 2.24 (1999 2.34), Danish Kroner 11.88 (1999 11.96) and Australian Dollar 2.69 (1999 2.46).

5. LONG TERM INSURANCE BUSINESS Restated2000 1999

£m £m

Net new business premiums written during the year were as follows:

Annual premiums 189 213

Single premiums 1,898 1,814

2,087 2,027

Refer to note 1 for explanation of restatement.

Gross new business premiums are not materially different to the above.

Total reversionary and terminal bonuses included within the long term business technical account are £793m (1999 £690m).

Notes on the accounts


6. EMPLOYEE INFORMATION 2000 1999£m £m

Staff costs for all employees comprise:

Wages and salaries 1,156 995

Social security costs 88 77

Pension costs 46 49

1,290 1,121

Average for year

2000 1999Number Number

The average number of employees of the Group during the year was as follows:

UK 24,333 24,891

Europe 9,905 8,186

Americas 12,248 8,549

Asia Pacific 5,248 4,868

51,734 46,494

7. PENSION COSTS

The Group mainly operates funded defined benefit pension schemes. There is a funded defined contribution scheme in Denmark

and a number of unfunded overseas schemes. Overseas schemes are administered in accordance with local law and practice. The

major pension schemes in the UK, USA and Denmark together cover the majority of scheme members throughout the Group and

the assets of these schemes are mainly held in separate trustee administered funds. Each of the major defined benefit schemes are

subject to regular valuation using the projected unit or other appropriate method which is the basis of the pension cost in the

consolidated profit and loss account, the cost being spread over employees’ working lives.

The total pension cost for the Group in 2000 was £46m (1999 £49m) of which £11m (1999 £20m) related to schemes in the UK

and £4m (1999 £4m) related to schemes in the USA. Contributions of £14m (1999 £10m) were made to the defined contribution

scheme in Denmark.

Independent qualified actuaries carry out valuations of the major schemes except for one of the UK schemes, for which the actuary

is an employee of the Group. At the most recent formal actuarial valuations of the major defined benefit schemes for the purpose

of assessing pension costs (the two main UK schemes 30 June 1999 and 31 March 2000, and USA 1 January 2000), the market

value of the assets of these schemes was £4,749m (1999 £3,882m). Of this amount, £4,350m related to the two UK schemes and

their actuarial values were sufficient to cover 122% and 125% respectively of the benefits accrued to members of each of those

schemes, after allowing for projected increases in earnings and pensions. The valuations for the two major UK schemes were based

respectively on assumptions that salaries increase by 4.5% plus allowances for promotional salary increases, pensions increase by

3%, investment returns are 7.8% and dividend growth is 4.5%.

Actuarial surpluses from the valuations are being applied to reduce pension costs by a level percentage of payroll over the estimated

working lives of members of the respective schemes. For the two main UK schemes, the level of contributions was 0.5% and 0%

and the amounts charged to the profit and loss account were the equivalent of 1.7% of relevant UK earnings. This charge reflected

a regular cost of £61m (1999 £57m) and a credit of £55m (1999 £41m). The credit arises from the amortisation of the actuarial

surpluses in the funds (after taking account of interest on balances between the Group and the funds).

There are no significant contributions outstanding or prepaid as at 31 December 2000 except that included in provisions are

amounts of £68m (1999 £60m) resulting from the difference between the amounts charged to revenue and the amounts

contributed to schemes in the UK and £32m (1999 £33m) in respect of provisions for overseas schemes.


8. POST-RETIREMENT BENEFITS

The Group provides post-retirement healthcare benefits to certain current and retired United States and Canadian employees.

The estimated discounted present values of the unprovided accumulated obligations are calculated in accordance with the advice

of independent qualified actuaries. At 31 December 2000 the unprovided accumulated obligation in the United States is estimated

at £5m (1999 £7m) assuming a premium inflation initially of 6.8% reducing over 4 years to 5.4%, (1999 7% reducing over five

years to 5.5%) and a discount rate of 8% (1999 8%). The unprovided accumulated obligation in Canada is estimated at £7m

(1999 £3m) assuming a premium inflation for medical care of 8% reducing over five years to 4% and 10% decreasing by 1% per

year to 5% per year for the respective schemes (1999 5.8% for all years). For dental care 4% and 5% is assumed for the respective

schemes (1999 4% for all years) and a discount rate of 7% and 7.5% for the respective schemes (1999 6.8%). The benefits

are accounted for on a systematic basis over the remaining service lives of current employees, the cost in the year being £6m

(1999 £5m). The costs of meeting the liability for these benefits are expected to attract taxation relief when paid. The total

provision included in the consolidated balance sheet is £38m (1999 £35m).

9. DIRECTORS’ EMOLUMENTS 2000 1999£000 £000

The aggregate emoluments of the directors, including amounts received

from subsidiaries, were as follows:

Executive directors

Emoluments 2,436 2,135

Gains on the exercise of share options 6 28

Fees and other payments to non-executive directors 458 432

2,900 2,595

The above figures include the amounts paid to the newly appointed directors from the date of appointment to the Board. Details

of directors’ remuneration and pension benefits, including that of the highest paid director (R V Mendelsohn), are included in the

Directors’ emoluments. Details of directors’ interests in the Parent Company, including gains made on the exercise of share options,

are shown in the Directors’ shareholdings.

A pension payment of £20,833 (1999 £20,112) was paid by a subsidiary to a former director in respect of services other than

as a director.

10. EQUALISATION PROVISIONS

Equalisation provisions are established in accordance with the Insurance Companies (Reserves) Act 1995 in the UK and with similar

legislation in overseas countries. These provisions, notwithstanding that they do not represent liabilities at the balance sheet date as

they are over and above the anticipated ultimate cost of outstanding claims, are required by Schedule 9A to the Companies Act

1985 to be included within technical provisions in the balance sheet and any change in the provisions during the year is required to

be shown in the general business technical account.

The effect of including the provisions is as follows:

2000 1999£m £m

Provisions at 1 January 259 250

Charged to the general business technical account and in the profit on

ordinary activities before tax 24 12

Exchange movement on non-UK provisions 1 (3)

Disposal of subsidiary (1) –

Provisions at 31 December 283 259

The cumulative impact of equalisation provisions on shareholders’ funds at 31 December 2000 is £277m (1999 £253m).



11. INVESTMENT INCOME, EXPENSES AND CHARGES Technical account Non-technicallong term business account

Restated2000 1999 2000 1999

£m £m £m £m

Investment income

Income from associated undertakings

Profit before gains on the realisation of investments – – 17 24

Gains on the realisation of investments – – 14 53

– – 31 77

Other investment income

Income from land and buildings 143 131 26 32

Income from other investments (note 1) 1,506 1,448 868 800

Gains on the realisation of investments (note 2) 1,839 2,266 442 752

3,488 3,845 1,336 1,584

3,488 3,845 1,367 1,661

Investment expenses and charges

Interest on bank loans and overdrafts – (1) (24) (20)

Interest on dated loan capital – – (55) (10)

Interest on other loans (6) (3) (24) (11)

Investment management expenses (77) (56) (27) (24)

Premium on redemption of dated loan capital – – – (14)

Vacant lease costs – – (25) –

(83) (60) (155) (79)

Net investment income 3,405 3,785 1,212 1,582

Notes:

1. In 1999 the unwind of discount in respect of claims outstanding, previously netted against investment income, has been

reclassified to the general business technical account to provide additional disclosure.

2. Gains on the realisation of investments include a gain of £nil (1999 £10m) relating to the Group’s disposal of interests in

subsidiaries and branches. In 2000 profit/losses on disposal of interests in subsidiaries are separately stated in the Group’s

non-technical account after ‘Profit on ordinary activities before exceptional items and tax’.

12. METHODOLOGY FOR CALCULATIONS OF LONGER TERM RATE OF RETURN AND COMPARISON OVER A LONGER TERM

The rates of investment return used for the longer term rate of return basis are reviewed annually and are set out below:

2000 1999% %

Pre tax returns assumed

Fixed interest returns (nominal) 6.00 6.00

Equity returns (nominal) 9.00 9.00

Inflation 3.00 3.00

These returns are applied to the average, over the year, of the investments directly attributable to shareholders and the general

insurance technical provisions. In each case, the element of shareholders’ funds has been determined by reference to the risk based

capital that the directors judge is necessary to support the business. The values of the investments are adjusted to reduce the effect

of short term fluctuations, while recognising such changes over the longer term.

The aggregate amount of investment return recognised under the longer term basis since 1 January 1994 amounts to £7.7bn. The

total investment return that arose in this period was £9.5bn.


13. AUDITORS’ REMUNERATION 2000 1999£000 £000

Audit of Group accounts

PricewaterhouseCoopers 2,621 2,437

Other 176 217

2,797 2,654

Other statutory audit

PricewaterhouseCoopers 1,579 1,852

Other 33 607

1,612 2,459

4,409 5,113

Remuneration for audit includes £16,000 (1999 £16,000) in respect of the Parent Company.

Non-audit fees of £10,989,000 (1999 £3,904,000) in the UK during the year were payable to PricewaterhouseCoopers.

14. TAXATION

The taxation on profit on ordinary activities charged in the profit and loss account is as follows:

Technical account Non-technicallong term business account

2000 1999 2000 1999£m £m £m £m

UK taxation

Corporation tax 182 110 88 68

Trading losses utilised – – (1) –

Deferred tax (56) 40 (92) 1

Prior year items – Corporation tax 3 8 (6) (14)

Deferred tax – – – (19)

Double taxation relief (2) (2) (63) (19)

127 156 (74) 17

Tax attributable to balance on the long term business

technical account – – 61 59

Overseas taxation 95 84 84 194

222 240 71 270

Analysed

Parent and subsidiaries 222 240 68 261

Associated undertakings – – 3 9

UK corporation tax for the current year in the non-technical account is based on a rate of 30% (1999 30.25%). Further details

of current and deferred tax are given in notes 31, 33 and 34. The tax charge is high in relation to the profit on ordinary activities

before tax mainly due to the amortisation of goodwill, the amortisation of goodwill in acquired claims provisions and the goodwill

on subsidiaries to be sold previously written off directly to profit and loss reserves, none of which are deductible for tax.

The tax charge for UK corporation tax in the long term technical account is provided at rates between 20% and 30%

(1999 between 20% and 30.25%) computed in accordance with the rules applicable to life insurance companies.



15. DIVIDENDS 2000 1999 2000 1999p p £m £m

Ordinary

Special dividend paid – 48.0 – 751

Interim paid 8.8 8.4 125 120

Final proposed 17.2 16.3 247 233

372 1,104

Preference 9 9

381 1,113

The special dividend in 1999 was declared to holders of shares prior to the share consolidation in that year. The interim and final

dividends in 1999 and 2000 are in respect of holders of shares after the share consolidation. Full provision has been made for the

proposed final dividend.

16. EARNINGS PER ORDINARY SHARE

The earnings per ordinary share shown in the consolidated profit and loss account is calculated by reference to the loss attributable

to the equity shareholders of £23m (1999 profit £78m) and the weighted average of 1,420,283,141 (1999 1,482,855,246) shares

in issue during the year.

2000 1999£m £m

(Loss)/profit for the financial year attributable to shareholders (14) 87

Preference dividends (9) (9)

(Loss)/profit for the financial year attributable to equity shareholders (23) 78

The diluted earnings per share is calculated by reference to the profit attributable to equity shareholders adjusted for such items

that on conversion to shares give rise to dilution. This is calculated using the adjusted loss of £23m (1999 profit £78m) and the

adjusted weighted average of 1,420,283,141 (1999 1,497,260,487) shares in issue during the year.

Details of the items giving rise to dilution are shown below:

Profit attributable Weighted average to equity shareholders number of shares

2000 1999 2000 1999£m £m

Attributable to the equity shareholders (23) 78 1,420,283,141 1,482,855,246

Dilutive potential ordinary shares -

options granted to employees – – – 14,405,241

(23) 78 1,420,283,141 1,497,260,487


16. EARNINGS PER ORDINARY SHARE continued

Group operating earnings after tax per ordinary share (based on longer term investment return) attributable to shareholders includes

tax on the allocated longer term investment return at a notional rate of 32% (1999 32%). It is the opinion of the Directors that this

measure provides a better indication of the underlying performance of the business of the Group.

The reconciliation of Group operating earnings after tax (based on longer term investment return) per ordinary share to earnings per

ordinary share is as follows:

Restated2000 1999

p p

Group operating earnings (based on longer term investment return) after tax per ordinary share

Attributable to shareholders per ordinary share 18.5 25.2

Short term investment fluctuations 1.4 (5.4)

Change in the equalisation provisions (1.7) (0.8)

Amortisation of goodwill (3.9) (0.9)

Amortisation of goodwill in acquired claims provisions (4.2) (0.8)

Premium on redemption of dated loan capital – (0.9)

Profit on disposal of subsidiaries less provisions for losses on subsidiaries to be sold (9.0) 0.7

Other items (5.5) (5.2)

Tax 2.8 (6.6)

Earnings per ordinary share (1.6) 5.3

Group operating earnings (based on longer term investment return) after tax per ordinary share for 1999 has been restated

incorporating interest on dated loan capital and tax thereon.

17. INTANGIBLE ASSETS Goodwill Goodwill in acquired arising on

claims provisions acquisition Total£m £m £m

Cost

At 1 January 2000 204 858 1,062

Exchange 9 28 37

Additions 13 119 132

Disposals – (4) (4)

At 31 December 2000 226 1,001 1,227

Amortisation

At 1 January 2000 12 15 27

Exchange (1) – (1)

Charge for the year 59 56 115

At 31 December 2000 70 71 141

Net book value

At 31 December 2000 156 930 1,086

At 31 December 1999 192 843 1,035

Additions to goodwill arising on acquisition include adjustments made to provisional goodwill established in 1999 on the acquisition

of Orion Capital Corporation, USA and Trygg-Hansa Försäkrings AB, Publikt, Sweden. Further details of these changes are given in

note 23.



18. INVESTMENTS Shareholder Combined consolidated consolidated

2000 1999 2000 1999£m £m £m £m

Land and buildings

Freehold 521 478 2,487 2,067

Long leasehold 9 26 185 304

Short leasehold 27 15 27 15

Total land and buildings 557 519 2,699 2,386

Of which Group occupied 308 252 405 359

Other financial investments

Shares and other variable yield securities and units in unit trusts 4,647 4,866 17,780 18,742

Debt securities and other fixed income securities:

British government securities 1,032 1,242 5,366 6,494

Other government securities 3,107 3,186 5,660 5,411

Local authority securities 811 880 1,052 1,180

Corporate bonds 4,594 4,275 13,142 11,131

Preference shares 358 329 453 430

Loans secured by mortgages 125 115 475 467

Other loans (see below) 76 53 117 96

Deposits with credit institutions 651 619 830 833

Total other financial investments 15,401 15,565 44,875 44,784

Listed investments

Included in total investments are the following:

Interests in associated undertakings 114 146 115 146

Shares and other variable yield securities and units in unit trusts 4,408 4,584 17,397 18,248

Debt securities and other fixed income securities 4,705 6,094 19,882 20,467

9,227 10,824 37,394 38,861

In addition, within the combined consolidated balance sheet, debt securities held in North America amounting to £4,548m

(1999 £3,302m) at market value are freely traded in an approved securities market but are not listed within the meaning of the

Companies Act.

Other financial investments in the combined consolidated balance sheet include securities valued on an amortised cost basis of

£3,495m (1999 £3,141m) with a historical cost of £3,483m (1999 £3,135m), a market value of £3,580m (1999 £3,127m) and

a redemption value of £3,529m (1999 £3,178m).

Other loans shown above for the combined consolidated balance sheet include amounts of £41m (1999 £43m) relating to

policyholder loans.

The historical cost of total investments (excluding value of long term business) included in the combined consolidated balance

sheet is £39,449m (1999 £37,665m). The historical cost of assets held to cover linked liabilities is £7,382m (1999 £6,297m).

The property valuations have been prepared on the basis of open market value at the balance sheet date in accordance with

The Royal Institute of Chartered Surveyors’ Appraisal and Valuation Manual by the Group’s qualified valuation surveyor.


19. VALUE OF LONG TERM BUSINESS

This represents the amount considered by the directors, based on internal actuarial advice, to be a prudent value of the

shareholders’ interest in the long term business funds, not already recognised under the modified statutory valuation principles of

profit recognition.

The principal assumptions used to calculate the value of the UK long term business are:

2000 1999% %

Investment return:

Fixed interest 4.73 5.15

UK equities 7.23 7.65

Overseas equities 7.23 7.65

Expense inflation 3.20 3.60

Discount rate (including risk margins) 7.30 7.50

Risk margin included within discount rate 4.00 3.90

The investment returns represent the underlying long term assumptions implicit in the calculation of the value of long term business.

During the year the Group acquired value of long term business amounting to £nil (1999 £118m). Amortisation charged to the

long term business technical account amounted to £9m (1999 £4m). The cumulative unamortised acquired value of long term

business at 31 December 2000 amounted to £125m (1999 £140m).

20. DEBTORS

Debtors arising out of direct insurance operations are analysed as follows:


2000 1999 2000 1999£m £m £m £m

Due from policyholders 1,087 967 1,169 1,041

Due from intermediaries 1,604 1,653 1,629 1,669

2,691 2,620 2,798 2,710

Other debtors in the shareholder consolidated balance sheet includes £814m (1999 £798m) representing shareholders’ accrued

interest and shareholders’ net assets of certain overseas long term business operations.



21. TANGIBLE ASSETS CombinedParent Company consolidated

Land andbuildings Other Total

£m £m £m £m

Cost

At 1 January 2000 27 14 41 702

Exchange – – – 8

Additions – 2 2 94

Acquisitions – – – 5

Disposals – – – (69)

Revaluations (3) – (3) –

At 31 December 2000 24 16 40 740

Depreciation

At 1 January 2000 – 2 2 434

Exchange – – – 5

Charge for the year – 1 1 85

Disposals – – – (37)

At 31 December 2000 – 3 3 487

Net book value

At 31 December 2000 24 13 37 253

At 31 December 1999 27 12 39 268

The land and buildings included in the Parent Company balance sheet are reclassified as investments in the combined consolidated

balance sheet. The remaining other assets principally comprise short leasehold improvements, fixtures, fittings and equipment.

The land and buildings in the Parent Company balance sheet comprises freehold £16m (1999 £18m) and long leasehold £8m (1999 £9m).

22. INTERESTS IN ASSOCIATED UNDERTAKINGS

The companies shown in the list of principal associated undertakings and other significant shareholdings are those, not being

subsidiaries, in which Royal & Sun Alliance Insurance Group plc and its subsidiaries held at 31 December 2000 a participating

interest and which are associated undertakings as defined in the Companies Act 1985. All holdings are of equity shares.

Interests in associated undertakings comprise:

2000 1999£m £m

Shares at cost

At 1 January 74 95

Acquisitions 56 51

Transfer to subsidiary undertakings/disposals – (72)

At 31 December 130 74

Adjustment to valuation 112 148

Net book value 242 222

Balances due from associated undertakings at 31 December 2000 amounted to £7m (1999 £7m).


23. ACQUISITIONS OF SUBSIDIARY UNDERTAKINGS

During the year, acquisitions of subsidiary undertakings were made for a total consideration of £17m. Goodwill of £13m arising on

those acquisitions has been capitalised and is being amortised together with £101m of additional goodwill arising on acquisitions

made in 1999 for which provisional fair values were established in that year.

The aggregate value of Group acquisitions made during the year was:

Book value on Fair value Fair valueacquisition adjustments to Group

2000 2000 2000£m £m £m

Investments 3 – 3

Other assets 2 – 2

Other liabilities (1) – (1)

Net assets 4 – 4

Consideration including acquisition costs 17

Goodwill 13

The cash consideration paid was £16m and the Group has used the acquisition method to account for all acquisitions.

In addition to the goodwill arising on the acquisition of subsidiary undertakings, the Group acquired for £8m further minority

interests in existing subsidiaries which gave rise to additional goodwill of £5m. There were no significant fair value adjustments.

The amortisation periods for Group acquisitions and the minority purchases made during the year range from 10 to 20 years, being

the periods over which the value of the businesses acquired are expected to exceed the value of their underlying assets.

During the year the Group made the following adjustments to provisional fair values established in 1999:

a. Orion Capital Corporation, USA, acquired on 16 November 1999.

Provisional Finalfair value to Fair value fair value

Group adjustments to Group1999 2000 2000

£m £m £m

Investments 1,336 – 1,336

Other assets 1,180 – 1,180


Technical provisions for general business (1,682) (99) (1,781)

Net assets (excluding dated loan capital) 619 (99) 520

Consideration including acquisition costs and redemption

of dated loan capital 1,168

Total goodwill 648

Provisional goodwill recorded in 1999 549

Increase in goodwill recorded in 2000 99

The principal fair value adjustments relate to additional acquired claims provisions for accident years 1997 – 1999 and additional

provisions for payment of policyholder dividends on policies written prior to acquisition.



b. Trygg-Hansa Försäkrings AB, Publikt, Sweden, acquired with effect from 31 August 1999.

Provisional Finalfair value to Fair value fair value

Group adjustments to Group1999 2000 2000

£m £m £m

Investments 923 – 923

Other assets 207 – 207


Technical provisions for general business (676) (2) (678)

Net assets 229 (2) 227

Consideration including acquisition costs 287

Total goodwill 60

Provisional goodwill recorded in 1999 58

Increase in goodwill recorded in 2000 2

The principal fair value adjustments relate to the establishment of an unexpired risk reserve in respect of a contract entered into

prior to acquisition and changes in the discount rate used to calculate the technical provisions.

24. PROFIT ON DISPOSAL OF SUBSIDIARIES LESS PROVISIONS FOR LOSSES ON SUBSIDIARIES TO BE SOLD

During the year, disposals of subsidiary undertakings were made for a total consideration of £81m. The disposals of subsidiaries

gave rise to an exceptional pre tax profit of £36m (post tax profit £27m). There was no goodwill required to be written off on these

disposals. Disposals of subsidiaries during the year comprised Sun Alliance Versicherungs – Aktiengesellschaft, Royal & Sun Alliance

SIM SpA, Royal & Sun Alliance SGR SpA, Royal & Sun Alliance Insurance (Jamaica) Limited, Royal Insurance Company of East Africa

Limited, Royal Special Risks Insurance Company, The London Assurance of America Inc. and Alliance Assurance Company of America.

At the year end Lloyd Italico Vita SpA, Lloyd Italico Assicurazioni SpA, Royal & Sun Alliance Vita SpA and Sun Alliance Vita SpA were

in the course of disposal. Contracts of sale were signed before the year end, however, completion is subject to regulatory approval.

Provision of £63m has been made for estimated losses at completion on these entities. In addition £102m of goodwill, previously

written off directly to profit and loss reserves, has been written off in the non-technical account.

The Group also disposed of part of an interest in a subsidiary to minority shareholders for consideration of £10m giving rise to an

exceptional pre-tax profit of £1m.

25. INVESTMENTS (PARENT COMPANY BALANCE SHEET)

Shares in subsidiary Loan to Unlisted

undertakings subsidiaries shares Other loans Total£m £m £m £m £m

At 1 January 2000 5,989 450 6 61 6,506

Additions/(disposals) 530 (89) – (9) 432

Revaluations (203) – – – (203)

At 31 December 2000 6,316 361 6 52 6,735

The historical cost of the shares in subsidiary undertakings is £1,238m (1999 £708m).

The Group’s principal subsidiaries at 31 December 2000 are set out in the list of principal subsidiaries. The companies are all

engaged in the transaction of insurance or related business. The countries shown are those of incorporation and principal operation.


26. CAPITAL COMMITMENTS

The estimated amounts of capital commitments contracted but not provided for in these financial statements is £54m (1999 £4m).

The Parent Company has no unprovided capital commitments.

27. SHAREHOLDERS’ FUNDS

GROUP

The movements in the Group’s capital and reserves are detailed in the statement of movements in shareholders’ funds.

The amount of goodwill written off directly to the profit and loss account prior to 1 January 1998 and remaining written off is

£676m (1999 £778m).

Included in the balance on the Consolidated profit and loss account is a reserve of an overseas subsidiary attributable to the Group

of £200m (1999 £198m) which was established on a discretionary basis as a contingency fund.

PARENT

Movements in the Parent Company capital and reserves were as follows:

Share Capital Profitcapital/ Revaluation redemption and loss

premium reserve reserve account 2000 1999£m £m £m £m £m £m

Shareholders’ funds at 1 January 688 5,281 8 507 6,484 7,269

Shareholders’ recognised gains – (203) – 404 201 313

Issue of share capital 2 – – – 2 2

Increase in share premium 22 – – (5) 17 13

Dividends – – – (381) (381) (1,113)

Shareholders’ funds at 31 December 712 5,078 8 525 6,323 6,484

Share premium of £5m arises from the capitalisation of reserves consequent upon the exercise of employee share options.



28. SHARE CAPITAL 2000 1999£m £m

Authorised

2,000,000,000 ordinary shares of 27.5p each (1999 2,000,000,000 ordinary shares of 27.5p each) 550 550

300,000,000 (1999 300,000,000) preference shares of £1 each 300 300

Issued and fully paid

1,434,838,999 ordinary shares of 27.5p each (1999 1,428,412,281 ordinary shares of 27.5p each) 395 393

125,000,000 (1999 125,000,000) preference shares of £1 each 125 125

520 518

During the year 6,426,718 ordinary shares of 27.5p were issued on the exercise of employee share options for a total cash

consideration of £19m. The total nominal value of ordinary shares issued during the year was £2m.

The preference shares carry a right to a fixed cumulative preferential dividend of 7.375% per annum, payable in half yearly

instalments, and are irredeemable. On a return of capital on a winding up, the holders are entitled, in priority to holders of all other

shares of the Company, to receive out of the surplus assets of the Company any arrears and accruals of the dividend together with

the greater of the price at which the gross yield on each preference share is equal to the mean gross yield on 3.5% War Loan or

such Government Stock as may be agreed (but not exceeding twice the nominal amount of the preference share) and the nominal

amount of the share together with any premium paid on issue. The holders of preference shares have the right to vote at a general

meeting of the Company only if at the date of the notice of the meeting the dividend payable on the shares is in arrears or

otherwise on a resolution to vary the rights attaching to the preference shares.

The Royal & SunAlliance ESOP Trust No 1 holds ordinary shares in the Company which may subsequently be transferred to

employees (other than the executive directors). At 31 December 2000 the trust held 11,609,879 ordinary shares (1999 6,500,000)

in the Company with a nominal value of £3,192,717 (1999 £1,787,500) and a market value, based on the mid market value of the

Company’s shares at the close of business on 29 December 2000 as shown in the Official List of the London Stock Exchange, of

£67m (1999 £31m).

The Royal & SunAlliance ESOP Trust No 2 holds ordinary shares in the Company which may subsequently be transferred to

employees including executive directors. At 31 December 2000 the trust held 697,200 ordinary shares (1999 200,000) in the

Company with a nominal value of £191,730 (1999 £55,000) and a market value, based on the mid market value of the Company’s

shares at the close of business on 29 December 2000 as shown in the Official List of the London Stock Exchange, of £4m

(1999 £1m).

The Trustee of each Trust has waived its rights to dividends in excess of 0.01p on shares held by the Trusts. When computing the

earnings per share, the shares held by the Trusts have been ignored in the calculation as, under FRS 14 ‘Earnings per Share’, they

are treated as if they were cancelled.


28. SHARE CAPITAL continued

At 31 December 2000, under employee savings related share option schemes, employees held options over 28,219,006 ordinary

shares at option prices ranging from 206.2p – 483.0p per share. The options are normally exercisable within six months of the

respective exercise dates which are between 1 August 2000 and 1 February 2006 as follows:

Number of shares Option price per share Year of exercise

362,339 232.5p – 473.0p 2000

3,889,320 206.2p – 483.0p 2001

4,444,251 248.0p – 435.0p 2002

5,409,043 294.0p – 439.0p 2003

6,388,318 395.0p – 447.0p 2004

7,163,413 362.0p – 439.0p 2005

562,322 407.0p – 407.0p 2006

At 31 December 2000, under executive share option schemes, options over 35,629,707 ordinary shares were held at option prices

ranging from 141.6p – 550.8p. The options are potentially exercisable between 3 and 10 years after grant, with the exception

of the US scheme in which the exercise of options can be accelerated by the performance of the US subsidiary. These options are

potentially exercisable between 1 and 3 years. Options outstanding are as follows:

Number of shares Option price per share Year of exercise

353,921 384.0p – 387.1p 1994

239,123 141.6p – 232.0p 1995

424,951 262.9p – 369.0p 1996

394,058 225.9p – 344.0p 1997

602,772 311.6p – 343.0p 1998

1,893,652 225.9p – 424.0p 1999

5,818,033 258.2p – 525.7p 2000

7,725,823 336.9p – 544.0p 2001

8,676,570 370.0p – 550.8p 2002

9,500,804 345.0p – 544.0p 2003

29. DATED LOAN CAPITAL Parent CombinedCompany consolidated

2000 1999 2000 1999£m £m £m £m

Subordinated guaranteed US$ bonds 327 302 327 302

Subordinated guaranteed Euro bonds 312 308 312 308

Subordinated guaranteed loan 145 – 145 –

784 610 784 610

The subordinated US$ ($500m) bonds have a redemption date of 15 October 2029. The rate of interest payable on the US$ bonds

is 8.95% although the Company manages the overall interest cost through use of derivative contracts. At 31 December 2000

derivative contracts were in place which have the effect of converting the interest payable to a floating rate on US$150m of the

bonds. The subordinated Euro bonds ( 500m) have a redemption date of 15 October 2019. 200m of the Euro bonds bear

interest at a fixed rate of 6.875% until 15 October 2009 and a floating rate thereafter. 300m of the Euro bonds bear interest at a

floating rate from the date of issue. The Company has the option to repay the Euro bonds on specific dates from 15 October 2009.

The subordinated loan agreement has a redemption date of 18 February 2030. The loan (JPY25bn) is denominated in yen but

interest is payable at 5.14% in US dollars. Derivative contracts are in place which convert the loan and interest payments to sterling

at a fixed rate of 6.99%. The bonds and the loan are contractually subordinated to all other creditors of the Company such that in

the event of a winding up or of bankruptcy, they are to be repaid only after the claims of all other creditors have been met.



30. LONG TERM BUSINESS PROVISION

The principal assumptions used to calculate the UK long term business provision for the main classes of business are:

2000 1999

Interest rates

Life – with profit 2.30% to 2.90% 2.60% to 3.00%

Pensions – with profit 2.70% to 4.00% 3.00% to 4.50%

Annuities – in payment 4.80% 5.54%

Mortality rates

Life – with profit AM80, AF80 with adjustments AM80, AF80 with adjustments

Pensions – with profit AM80, AF80 with adjustments AM80, AF80 with adjustments

Annuities – in payment PMA80/PFA80 (c=2010) with adjustments PMA80/PFA80 (c=2010) with adjustments

The valuation has been carried out principally using a net premium method.

Generally accepted actuarial tables are used as appropriate in overseas long term business operations. No details are given as the list

would be too long and complex given the number of countries and variety of products involved.

31. PROVISIONS FOR OTHER RISKS AND CHARGES Pensionsand post

Reorganisation Deferred retirement Otherprovisions taxation benefits provisions Total

£m £m £m £m £m

At 1 January 2000 67 119 127 50 363

Exchange adjustments 1 – 3 1 5

Charged 43 (17) 21 105 152

Utilised (61) – (13) (17) (91)

Acquisition of subsidiaries – (62) – – (62)

At 31 December 2000 50 40 138 139 367

Reorganisation provisions comprise costs relating to reorganisations mainly within the USA general business and UK life business.

The bulk of the provision relates to commitments on vacant property which has been leased by the Group and the costs will be

borne across the period to expiry of the leases concerned which is up to 20 years. The remaining reorganisation provisions are

expected to be incurred within one year.

Other provisions include various litigation provisions of £25m, the payment of which are dependent upon legal processes, and

provisions in respect of estimated losses on disposal of operations of £63m, the transactions relating to which had been entered,

but not completed at the balance sheet date. These transactions are expected to complete within the first quarter of 2001. In

addition there is a provision within the UK for £30m relating to vacant property leases the costs relating to which will be borne

across the period over which the leases expire which is up to 20 years.


32. BORROWINGS Shareholder Combinedconsolidated consolidated

2000 1999 2000 1999£m £m £m £m

Debenture loansSecured (note 3)

5% – 10.47% mortgage loans 17 16 18 215.1% – 5.45% gilt repurchase agreements – 278 – 278

Unsecured9.625% subordinated bonds 2003 100 100 100 1006.02% – 6.76% commercial paper 207 141 207 141

Total debenture loans 324 535 325 540Amounts owed to credit institutions – unsecured 57 136 57 136

Total borrowings 381 671 382 676

Repayable as follows:1 year or less 250 448 250 453Between 2 and 5 years 111 198 111 198After 5 years 20 25 21 25

381 671 382 676

Notes:1. Interest payable on amounts repayable within 5 years was £48m (1999 £30m) and after 5 years £1m (1999 £1m).

2. Loans from credit institutions of £nil (1999 £103m) under revolving credit facilities have been classified by reference to theearliest date on which repayment may be demanded by the lender. At 31 December 2000 total revolving credit facilities availableto the Group were £1,483m (1999 £2,262m), of which £nil (1999 £nil) expire within 1 year, £1,483m (1999 £2,254m) expirewithin 2 to 5 years and £nil (1999 £8m) expire after 5 years.

3. The secured debenture loans are secured on certain properties of the Group.

4. There are no Parent Company borrowings.

33. OTHER CREDITORS

Other creditors including taxation and social security in the combined consolidated balance sheet includes a liability of £207m(1999 £201m) in respect of corporation tax payable.

34. DEFERRED TAXATION Provided Unprovided

2000 1999 2000 1999£m £m £m £m

Unrealised gains/(losses) arising from investments other than long term 102 172 709 658Other timing differences other than on long term business (62) (53) (231) (209)

40 119 478 449

Unprovided deferred taxation reflects amounts not expected to crystallise in the foreseeable future.

In addition to the amounts stated above, deferred taxation in respect of unrealised investment gains is allowed for:

1. In the long term business provision amounting to £335m (1999 £482m) on a discounted basis with movements during the yearbeing included in that provision: the unprovided amount is £123m (1999 £208m).

2. Within assets held for linked liabilities amounting to £155m (1999 £202m) with movements during the year being included inthe tax attributable to long term business: the unprovided amount is £40m (1999 £12m).



35. OPERATING LEASES Land and buildings Other

2000 1999 2000 1999£m £m £m £m

Annual commitments under non-cancellable operating leases which expire:

1 year or less 10 10 7 6

Between 2 and 5 years 33 32 17 20

After 5 years 84 68 – –

127 110 24 26

All material leases of land and buildings are subject to rent review periods of between three and five years.

36. MANAGED FUNDS

The Group administers the funds of a number of group pension funds in its own name but on behalf of others. The assets, as

shown below, and corresponding liabilities of these funds have been included within the consolidated combined balance sheet.

2000 1999£m £m

Land and buildings 37 31

Shares and other variable yield securities and units in unit trusts 783 758

Debt securities and other fixed income securities 261 237

Cash at bank and in hand 27 38

1,108 1,064

Debtors 7 8

Creditors (6) (42)

Net assets 1,109 1,030


37. RECONCILIATION OF TOTAL GROUP OPERATING PROFIT BEFORE TAX TO NET CASH OUTFLOW 2000 1999

£m £m

Total Group operating profit 167 290

Unrealised and realised gains (296) (86)

Change in technical provisions and equalisation provisions (78) –

Profits relating to long term business (239) (235)

Cash received from long term business 151 150

Depreciation 70 62

Amortisation of goodwill and goodwill in acquired claims provisions 115 26

Interest on dated loan capital 55 10

Change in debtors less creditors (87) 103

Net cash (outflow)/inflow from operating activities (142) 320

38. MOVEMENTS IN OPENING AND CLOSING PORTFOLIO INVESTMENTS NET OF FINANCING 2000£m

Net cash outflow for the period (54)

Decrease in net portfolio investments (851)

Decrease in borrowings 284

Increase in dated loan capital (146)

Issue of share capital (19)

Movement arising from cash flows (786)

Movement in long term business 529

Acquisitions and disposals of subsidiary undertakings (46)

Changes in market values and exchange rates 711

Other 24

Total movement in portfolio investments net of financing 432

Portfolio investments net of financing

At 1 January 2000 46,018

At 31 December 2000 46,450



39. PORTFOLIO INVESTMENTS 2000 1999£m £m

Purchase of portfolio investments

Land and buildings 23 14

Shares and other variable yield securities 1,480 1,327

Loans, debt securities and fixed income securities 13,459 21,569

14,962 22,910

Sale of portfolio investments

Land and buildings (30) (503)

Shares and other variable yield securities (1,875) (2,786)

Loans, debt securities and fixed income securities (13,942) (21,416)

(15,847) (24,705)

Net increase/(decrease) in deposits with credit institutions 34 (46)

Net portfolio investments (851) (1,841)

40. MOVEMENTS IN CASH, PORTFOLIO AcquisitionsINVESTMENTS AND FINANCING and

disposals ofAt subsidiary Market At

1 January Long term undertakings value and 31 December2000 Cash flow business (excl cash) currency Other 2000

£m £m £m £m £m £m £m

Land and buildings 2,386 (7) 275 2 43 – 2,699

Shares and other variable yield

securities 18,742 (395) (743) – 170 6 17,780

Loans, debt securities and fixed

income securities 25,209 (483) 1,033 (40) 523 23 26,265

Deposits with credit institutions 833 34 (35) (8) 6 – 830

Net cash at bank and in hand 822 (54) (5) – (9) – 754

Share capital/premium (688) (19) – – – (5) (712)

Borrowings (676) 284 4 – 6 – (382)

Dated loan capital (610) (146) – – (28) – (784)

Total 46,018 (786) 529 (46) 711 24 46,450


41. ANALYSIS OF THE NET OUTFLOW OF CASH IN RESPECT OF ACQUISITIONS OF SUBSIDIARY UNDERTAKINGS 2000 1999

£m £m

Cash consideration (16) (1,786)

Cash at bank and in hand acquired – 50

Net outflow of cash in respect of acquisitions of subsidiary undertakings (16) (1,736)

42. DISPOSAL OF SUBSIDIARIES Total£m

Net assets disposed of:

Investments 49

Other assets 30

Other liabilities (9)

Technical provisions for general business (22)

Minority interests (3)

Profit on disposal 36

Total disposal consideration 81

Satisfied by cash consideration 56

Deferred consideration 25

43. TRANSACTIONS WITH RELATED PARTIES

A number of the directors, other key managers, their close families and entities under their control have general and/or long term

insurance policies with subsidiary companies of the Group. Such policies are on normal commercial terms except that executive directors

and key managers are entitled to special rates which are also available to other members of staff. The Board has considered the

financial effect of such insurance policies and other transactions with Group companies and has concluded that they are not material

to the Group or the individuals concerned and, if disclosed, would not influence decisions made by users of these financial statements.

The Board has also concluded that there are no transactions with other directors or key managers that are material to their own

financial affairs.

During the year, Royal & Sun Alliance Linked Insurances Ltd (RSALI) and Phoenix Assurance plc, two wholly owned subsidiaries of

the Group, entered into a further financial reassurance arrangement to maintain the regulatory solvency of RSALI. In 1999 a similar

arrangement was entered into. Due to the legally segregated nature of the long term business fund of Phoenix Assurance plc and

the profit recognition methods prescribed by the modified statutory basis of accounting for with profit life companies, the balance

on the consolidated long term business technical account of the Group, which is stated after tax, includes £6.8m (1999 £22.0m)

of net profit arising in the year from these two arrangements.



44. SHAREHOLDERS’ INTEREST IN LONG TERM BUSINESS

The total shareholders’ interest in long term business contained within the Consolidated balance sheet comprises:

UK Europe Americas Asia Pacific 2000 1999£m £m £m £m £m £m

Shareholders’ accrued interest 141 46 – 129 316 321

Value of long term business 1,458 108 52 111 1,729 1,784

Shareholders’ funds and

subordinated liabilities attributable 175 353 201 23 752 671

1,774 507 253 263 2,797 2,776

Less notionally attributed

to general business (200) –

2,597 2,776

Value of long term business is described in the Accounting policies and in note 19. The movement in value of long term business,

other than the amortisation of acquired value of in-force business, is credited to other reserves within capital and reserves.

Shareholders’ funds attributable represent those assets held outside the long term funds but which are assessed by the directors to

be the amount maintained in support of the long term business.

The solvency of the UK Life Funds is sensitive to changes in investment conditions. One of the funds has a low regulatory solvency

and if future long term interest rates fell or if future investment returns deteriorated it could require additional funding. Its parent

company has agreed, in certain circumstances, to make loans to this life fund in order to meet such a funding need should it arise,

which is expected to be recoverable from future surpluses.



Long termTotal General business Personal Commercial business

2000 1999 2000 1999 2000 1999 2000 1999 2000 1999£m £m £m £m £m £m £m £m £m £m

Net premiums written (note 1)UK 5,153 5,091 3,148 3,141 1,673 1,734 1,475 1,407 2,005 1,950Europe 2,639 2,401 1,749 1,440 1,099 908 650 532 890 961Americas (note 3) 3,095 1,943 2,798 1,817 1,007 646 1,791 1,171 297 126Asia Pacific 924 1,008 677 761 420 446 257 315 247 247

11,811 10,443 8,372 7,159 4,199 3,734 4,173 3,425 3,439 3,284

Underwriting result/Balance on the technical account for long term business (note 2)

UK (193) (143) (357) (308) (150) (118) (207) (190) 164 165Europe (192) (150) (218) (169) (134) (106) (84) (63) 26 19Americas (note 4) (324) (127) (343) (162) (32) – (311) (162) 19 35Asia Pacific (13) (88) (43) (104) 16 (24) (59) (80) 30 16

(722) (508) (961) (743) (300) (248) (661) (495) 239 235

Group operating result (based on longer term investment return) (note 6)

UK 242 316 78 151 12 49 66 102 164 165Europe 43 45 16 26 14 15 2 11 27 19Americas (note 5) 195 191 171 156 51 65 120 91 24 35Asia Pacific 76 3 39 (21) 67 23 (28) (44) 37 24

556 555 304 312 144 152 160 160 252 243

Other activities (80) 11

Group operating result (based on longer term investment return) 476 566

Interest on dated loan capital (55) (10)Change in the equalisation provisions (24) (12)Amortisation of goodwill (56) (14)Amortisation of goodwill in

acquired claims provisions (59) (12)Reorganisation costs and other items (119) (60)

Group operating profit(based on longer term investment return) 163 458

Notes:1. Net premiums written by destination do not differ materially from net premiums written by source.

2. The balance on the long term business technical account is gross of tax.

3. Included in long term business within Americas is £nil (1999 £76m) relating to the discontinued business Royal Maccabees LifeInsurance Company.



6. Group operating result (based on longer term investment return) is a measure used for internal purposes in the management ofour business segments.

Segmental information


Total General business Long term business

2000 1999 2000 1999 2000 1999£m £m £m £m £m £m

Total capital, reserves and

dated loan capital

UK (note 3) 1,995 2,495 221 698 1,774 1,797

Europe (note 3) 1,743 1,795 1,236 1,330 507 465

Americas (note 3) 3,236 2,984 2,983 2,747 253 237

Asia Pacific 651 654 388 377 263 277

7,625 7,928 4,828 5,152 2,797 2,776

Associated undertakings 241 221

Other businesses (note 1) (359) (649)

Total capital, reserves and

dated loan capital 7,507 7,500

Notes:

1. The capital, reserves and dated loan capital attributed to other businesses include those of non insurance businesses and Group

borrowings.

2. The directors consider that in relation to reporting of profit and loss account information the reportable segments of the general

business are personal and commercial. Such a segmentation is not considered appropriate in relation to the Group’s total capital

where risk based capital modelling is used to allocate capital to regions and operations. There are differences between actual

regional total capital and those considered to be required on a risk based capital basis due to regulatory requirements at the

individual operation level.

3. Included in general business within Americas is £327m (1999 £302m), within Europe is £312m (1999 £308m) and within the

UK is £145m (1999 £nil) of dated loan capital.


Principal activity

United Kingdom Royal Insurance Holdings plc* Holding company

Royal & Sun Alliance Insurance plc General insurance

British Aviation Insurance Company Ltd (57.1%) General insurance

FirstAssist Group Ltd Insurance services

The Globe Insurance Company Ltd** General insurance

Legal Protection Group Holdings Ltd Holding company

The London Assurance General insurance

The Marine Insurance Company Ltd General insurance

Phoenix Assurance plc Composite insurance

Royal International Insurance Holdings Ltd General insurance

Royal & Sun Alliance Reinsurance Limited General insurance

Royal & Sun Alliance Property Services Ltd Estate agencies

Royal & Sun Alliance Life & Pensions Ltd Life insurance

Royal & Sun Alliance Linked Insurances Limited Life insurance

RSA E-Holdings Ltd Holding company

Sun Alliance and London Insurance plc General insurance

Sun Alliance and London Assurance Company Ltd Life insurance

Royal & Sun Alliance Life Holdings Ltd Holding company

Royal & Sun Alliance Trust Company Ltd* Trust company

Sun Insurance Office Ltd General insurance

Swinton (Holdings) Ltd Holding company

Argentina Royal & Sun Alliance Seguros (Argentina) SA General insurance

RSA Marketing (Latin America) SA General insurance

Australia Royal & Sun Alliance Australia Holdings Ltd Holding company

Royal & Sun Alliance Insurance Australia Ltd General insurance

Royal & Sun Alliance Financial Services Limited Life insurance

Bahamas Royal & Sun Alliance Insurance (Bahamas) Ltd (80.0%) General insurance

Brazil Royal & Sun Alliance Seguros (Brasil) SA General insurance

Canada Roins Financial Services Ltd Holding company

Compagnie d’Assurance du Quebec (99.8%) General insurance

The Johnson Corporation General insurance

Royal & Sun Alliance Insurance Company of Canada General insurance

Royal & Sun Alliance Life Insurance Company of Canada Life insurance

Western Assurance Company General insurance

Chile Royal & SunAlliance Seguros (Chile) SA (64.0%) General insurance

Compañia de Seguros de Vida La Construcción (51.0%) Life insurance

Colombia Royal & Sun Alliance Seguros (Colombia) SA (86.3%) General insurance

Royal & Sun Alliance Seguros de Vida (Colombia) SA (86.3%) Life insurance

Denmark Codan A/S (71.7%) Holding company

Codan Forsikring A/S (71.7%) General insurance

A/S Forsikringsselskabet Codan Liv (71.7%) Life insurance

France Royal & Sun Alliance SA General insurance

Germany Securitas Bremer Allgemeine Versicherungs AG (99.9%) General insurance

Securitas-Gilde Lebensversicherung AG (99.8%) Life insurance

Principal subsidiary companies As at 31 December 2000


Principal activity

Guernsey Insurance Corporation of Channel Islands Ltd General insurance

Hong Kong Royal & Sun Alliance Insurance (Hong Kong) Ltd General insurance

Ireland Royal & Sun Alliance Eurolife Ltd Life insurance

Isle of Man Royal & Sun Alliance International Financial Services Ltd Life insurance

Tower Insurance Company Ltd General insurance

Netherlands Royal & SunAlliance Schadeverzekering NV General insurance

Royal & SunAlliance Levensverzekering NV Life insurance

Netherlands Antilles Royal & Sun Alliance Insurance (Antilles) NV (51.0%) General insurance

New Zealand Royal & Sun Alliance Insurance (New Zealand) Ltd General insurance

Royal & Sun Alliance Life & Disability (New Zealand) Ltd Life insurance

Peru Compañia de Seguros La Fenix Peruana (64.9%) General insurance

Puerto Rico Royal & Sun Alliance Insurance (Puerto Rico) Inc (94.3%) General insurance

Saudi Arabia Royal & Sun Alliance Insurance (Middle East) Limited E.C. (50.01%) General insurance

Singapore Royal & Sun Alliance Insurance (Singapore) Ltd General insurance

Spain Regal Insurance Club Compañia Española de Seguros SA General insurance

Royal & Sun Alliance SA (99.9%) General insurance

Royal & Sun Alliance Vida y Pensiones SA (99.9%) Life insurance

Sweden Holmia Försäkring AB (71.7%) General insurance

Trygg-Hansa Försäkrings AB, Publikt (71.7%) General insurance

United States of America Royal & Sun Alliance USA, Inc Holding company

Royal Indemnity Company General insurance

Royal Insurance Company of America General insurance

Orion Capital Corporation Holding company

Security Insurance Company of Hartford General insurance

Guaranty National Insurance Company General insurance

Uruguay Royal & Sun Alliance Seguros (Uruguay) SA General insurance

Venezuela Royal & Sun Alliance Seguros (Venezuela) SA (99.4%) General insurance

Notes:

1. All UK companies are incorporated in Great Britain and are registered in England.

2. *100% direct subsidiaries of Royal & Sun Alliance Insurance Group plc.

**100% of the issued ordinary share capital is owned by a Group company and 100% of the issued preference share capital is

owned by Royal & Sun Alliance Insurance Group plc.

3. Except where indicated all holdings are of equity shares and represent 100% of the nominal issued capital.

4. Lloyd Italico Vita SpA (Italy), Lloyd Italico Assicurazioni SpA (Italy), Royal & Sun Alliance Vita SpA (Italy) and Sun Alliance Vita SpA (Italy)

whilst being subsidiaries at the year end are omitted from the above list owing to the fact that they are in the course of disposal.

5. Some subsidiaries have been omitted from this statement to avoid providing particulars of excessive length but none materially

affects the results or assets of the Group.


Country Holding

Principal associated undertakings (see notes below)

Federal Phoenix Assurance Co Inc (30.11.00) Philippines 40.0%

Global Aerospace Underwriting Managers Limited Great Britain 50.0%

Intrepid Re Holdings Limited Bermuda 38.5%

Mutual & Federal Investments Ltd South Africa 49.0%

Nissan Insurance Company (Europe) Ltd Great Britain 24.8%

PT Royal & Sun Alliance Indrapura Insurance Indonesia 46.3%

Royal & Sun Alliance Insurance (Malaysia) Bhd Malaysia 45.0%

Royal Sundaram Alliance Insurance Limited India 26.0%

Syn Mun Kong Insurance Public Company Limited (30.9.00) Thailand 20.0%

Other significant shareholdings (see notes below)

Rimac-Internacional Compañia de Seguros y Reaseguros Peru 14.5%

Rothschilds Continuation Holdings AG (merchant banking group) Switzerland 21.5%

Notes:

1. Associated undertakings: where the figures included in the accounts are not for the year ended 31 December 2000, the relevant

accounting date is shown in brackets.

2. The countries shown are those of incorporation and principal operation. The companies shown as incorporated in Great Britain

are registered in England.

3. Unless otherwise stated, all companies are engaged in the transaction of insurance or related business. All are owned by

subsidiaries of the Group.

4. The Group’s participating interest in Rothschilds Continuation Holdings AG, is accounted for as an investment in view of the

disposition of the other shareholdings. The aggregate amount of the capital and reserves at 31 March 2000, the company’s

year end, was £6,208m. The profit for the year ended 31 March 2000 was £44m.

Principal associated undertakings and other significant shareholdings As at 31 December 2000


Conveniencetranslation

(note 1) Restated Restated Restated RestatedCONSOLIDATED PROFIT 2000 2000 1999 1998 1997 1996AND LOSS ACCOUNT $m £m £m £m £m £m

Net premiums written

General business 12,474 8,372 7,159 6,867 6,634 6,814

Long term business 5,124 3,439 3,284 2,856 2,591 2,546

Total 17,598 11,811 10,443 9,723 9,225 9,360

Balance on the technical accounts

General business (note 2) 171 115 242 279 525 293

Long term business gross of taxation 356 239 235 230 231 223

Investment income net of investment

expenses and charges (note 2) 1,806 1,212 1,582 1,509 1,094 1,142

Unrealised (losses)/gains on investments (240) (161) (645) (139) 965 136

Allocated investment return transferred to

the general business technical account (1,667) (1,119) (1,007) (999) (983) (991)

Income/(charges) from other

activities/central expenses (70) (47) (15) (15) (22) (56)

Amortisation of goodwill (83) (56) (14) (1) – –

General business result 453 304 312 352 683 582

Long term business result 375 252 243 230 231 233

Other activities (including

associated undertakings) (119) (80) 11 20 74 (22)

Group operating result (based on

longer term investment return) 709 476 566 602 988 793

Change in the equalisation provisions (36) (24) (12) (51) (84) (90)

Reorganisation costs and other items (430) (289) (96) (150) (61) (213)

Group operating profit (based on

longer term investment return) 243 163 458 401 843 490

Short term investment fluctuations 30 20 (80) 463 967 257

Profit on ordinary activities before

exceptional items and tax 273 183 378 864 1,810 747

Profit on disposal of subsidiaries less provisions

for losses on subsidiaries to be sold (191) (128) – – – –

Profit on ordinary activities before tax 82 55 378 864 1,810 747

Tax on profit on ordinary activities (106) (71) (270) (374) (354) (245)

(Loss)/profit on ordinary activities after tax (24) (16) 108 490 1,456 502

Attributable to equity minority interests 3 2 (21) (33) (40) (44)

(Loss)/profit for the financial year

attributable to shareholders (21) (14) 87 457 1,416 458

Earnings per ordinary share (2.4)c (1.6)p 5.3p 28.7p 91.0p 29.3p

Operating earnings after tax per

ordinary share 27.6c 18.5p 25.2p 24.7p 42.4p 36.0p

Note:

1. We have included a translation of the data for the year ended 31 December 2000, from sterling into US dollars, for the

convenience of our US shareholders. The translation rate is US$1.49, the closing rate at 31 December 2000.

2. Prior years have been restated. The unwind of discount in respect of claims outstanding, previously netted against investment

income, has been reclassified to the general business technical account to provide additional disclosure.

Five year financial review



(note 1)2000 2000 1999 1998 1997 1996

$m £m £m £m £m £m

STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES

(Loss)/profit for the financial year attributable

to shareholders (21) (14) 87 457 1,416 458

Movement in value of long term business (55) (37) 169 (115) 179 113

Exchange 224 150 31 (69) (68) (181)

Shareholders’ consolidated recognised gains 148 99 287 273 1,527 390

MOVEMENTS IN SHAREHOLDERS’ FUNDS

Shareholders’ funds at 1 January 9,661 6,484 7,269 7,333 6,341 6,160

Shareholders’ consolidated recognised gains 148 99 287 273 1,527 390

Issue of share capital/increase in share premium 28 19 15 32 36 19

Purchase of own shares – – – – (153) –

Dividends (568) (381) (1,113) (369) (334) (305)

Other reserve movements (including write off

of goodwill not capitalised up to 1997) 152 102 26 – (84) 77

Shareholders’ funds at 31 December 9,421 6,323 6,484 7,269 7,333 6,341

Total return to shareholders 8.9c 6.0p 19.0p 17.0p 98.0p 25.0p

Dividend per ordinary share 38.7c 26.0p 72.7p 23.0p 21.0p 19.0p

Note:

1. We have included a translation of the data for the year ended 31 December 2000, from sterling into US dollars, for the

convenience of our US shareholders. The translation rate is US$1.49, the closing rate at 31 December 2000.

2. Net assets per share is calculated on equity shareholders’ funds and the number of ordinary shares in issue at the end of the year.

Five year financial review continued



(note 1)COMBINED CONSOLIDATED 2000 2000 1999 1998 1997 1996BALANCE SHEET $m £m £m £m £m £m

ASSETSIntangible assets 1,618 1,086 1,035 13 – –InvestmentsLand and buildings 4,022 2,699 2,386 2,664 2,839 2,831Interests in associated undertakings 361 242 222 218 314 235Other financial investmentsShares and other variable yield securities and

units in unit trusts 26,492 17,780 18,742 18,107 18,624 15,250Debt securities and other fixed income securities 38,253 25,673 24,646 23,864 19,494 19,625Loans and deposits with credit institutions 2,119 1,422 1,396 1,644 1,688 2,453

66,864 44,875 44,784 43,615 39,806 37,328Value of long term business 2,576 1,729 1,784 1,506 1,596 1,399Deposits with ceding undertakings 195 131 115 110 100 100

Total investments 74,018 49,676 49,291 48,113 44,655 41,893Assets held to cover linked liabilities 12,982 8,713 8,304 6,675 5,645 4,980Reinsurers’ share of technical provisions 7,207 4,837 4,104 3,010 3,088 2,971Debtors 6,861 4,605 4,336 4,229 4,106 3,312Other assets 1,576 1,058 1,119 844 1,162 654Prepayments and accrued income 2,959 1,986 2,017 1,895 1,840 1,863

Total assets 107,221 71,961 70,206 64,779 60,496 55,673

LIABILITIESCapital and reservesCalled up share capital and share premium 1,061 712 688 658 615 561Other reserves 2,354 1,580 1,626 1,462 1,578 1,399Capital redemption reserve 12 8 8 8 8 –Profit and loss account 5,994 4,023 4,162 5,141 5,132 4,381

Shareholders’ funds 9,421 6,323 6,484 7,269 7,333 6,341Equity minority interests in subsidiary undertakings 596 400 406 291 254 245Dated loan capital 1,168 784 610 – – –

Total capital, reserves and dated loan capital 11,185 7,507 7,500 7,560 7,587 6,586Fund for future appropriations 5,274 3,540 4,840 3,785 3,737 3,553Technical provisionsProvision for unearned premiums 6,981 4,685 4,476 3,755 3,652 3,698Long term business provision 42,119 28,268 26,433 26,618 23,511 20,997Claims outstanding 21,949 14,731 14,162 11,850 11,911 11,815Equalisation provisions 422 283 259 250 194 112

71,471 47,967 45,330 42,473 39,268 36,622Technical provisions for linked liabilities 13,002 8,726 8,318 6,687 5,656 4,980Provisions for other risks and charges 547 367 363 421 353 355Borrowings 569 382 676 449 551 761Other creditors 4,452 2,988 2,797 3,039 3,066 2,510Accruals and deferred income 721 484 382 365 278 306

Total liabilities 107,221 71,961 70,206 64,779 60,496 55,673

Net assets per ordinary share (note 2) 644c 432p 445p 457p 464p 399p


CAUTIONARY STATEMENTS

This document contains forward looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. It contains

forward looking statements and information relating to the Company’s financial condition, results of operations, business, strategy

and plans, based on currently available information. These statements are often, but not always, made through the use of words or

phrases such as “expects,” “should continue,” “believes,” “anticipates,” “estimated” and “intends”. The specific forward looking

statements cover, among other matters, the target Group operating ratio, the improved rating environment and the prospect of

improving results. Actual future results and trends could differ materially from those set forth in such statements due to various

factors. Such factors include general economic conditions, including in particular economic conditions in the United Kingdom; the

frequency, severity and development of insured loss events, including claims arising out of Year 2000 compatibility problems, as

well as catastrophes; mortality and morbidity experience and trends; policy renewal and lapse rates; fluctuations in interest rates;

fluctuations in the value of fixed income investments, equity investments and properties; fluctuations in foreign currency exchange

rates; changes in laws and regulations and general competitive factors, and other risks and uncertainties, including those detailed in

the Company’s filings with the U.S. Securities and Exchange Commission. The Company does not assume any obligation to update

any forward looking statements, whether as a result of new information, future events or otherwise.

REGISTRAR

Lloyds TSB Registrars, The Causeway, Worthing, West Sussex, BN99 6DA

Shareholder Helpline Telephone: +44(0) 870 600 3988

Shareholders with a text phone facility should use +44(0) 8670 600 3950

There is now a range of shareholder information online at www.shareview.co.uk. Shareholders can check holdings and find practical

help on transferring shares or updating details and register their e-mail address to receive shareholder information and Annual

Report & Accounts electronically.

Royal & SunAlliance has appointed Lloyds TSB Registrars as its registrar to manage the shareholder register, ensuring that all

information held about the Group’s shareholders is kept up to date, and to pay dividends.

As a shareholder of the Group, you will be sent information about Royal & SunAlliance. It is important to ensure that Lloyds TSB

Registrars are kept up to date about any changes to your personal details, such as your name and home address. Any such changes

should be notified to Lloyds TSB Registrars in writing to the address shown above. If you have changed your name, you will also need

to enclose a copy of the marriage certificate or change of name deed with your letter. Please do not send the original document.

If you are receiving duplicate copies of the information sent to shareholders, it is likely that two or more accounts have been set

up in your name when you have acquired shares on different occasions. If you would like to amalgamate those accounts, please

contact Lloyds TSB Registrars.

You should also contact Lloyds TSB Registrars if your share certificate has been lost or stolen, if you want to transfer your shares to

someone else, if you have not received a dividend payment or have lost a dividend tax voucher or have other general queries about

your shareholding.

Many shareholders find it more convenient to have their dividends paid directly into their bank or building society. If you would like

to arrange this for your dividends, you will find a form, which can be used to instruct Lloyds TSB Registrars to pay all future dividends

to an account of your choice, on the reverse of any previous dividend payment advice sent to you. Alternatively you can request a form

to be sent to you by contacting the Lloyds TSB Registrars Shareholder Helpline.

Shareholder information


DIVIDEND REINVESTMENT PLAN (DRIP)

We operate a dividend reinvestment plan which enables shareholders, if they wish, to use the whole of their cash dividends to buy

additional shares in the Company.

The DRIP is operated on a mandate basis. If a DRIP mandate has been completed, future dividends will be invested automatically

in the Company’s shares purchased in the market.

Shareholders who do not currently participate in the DRIP but wish to do so can obtain further details and a mandate form from

Lloyds TSB Registrars.

Shareholders need take no action if they have not completed a DRIP mandate and wish to continue to receive their dividends in cash

in the normal way.

PERSONAL EQUITY PLANS

New investments in Personal Equity Plans (PEPs) have not been permitted since 5 April 1999 when the Government replaced PEPs with

Individual Savings Accounts (ISAs). Investors who hold shares in an existing Royal & SunAlliance Corporate PEP or Royal & SunAlliance

Single Company PEP managed by Halifax Investment Services Limited (Halifax) can obtain full details of their investment from:

Halifax Investment Services Limited, Mellon House, Ingrave Road, Brentwood, Essex CM15 8TG

Telephone: +44(0) 870 606 6418

SHARE DEALING SERVICE

We have established an execution only share dealing service, through Cazenove & Co, for private investors who wish to buy or sell

Royal & Sun Alliance Insurance Group plc shares. Further details can be obtained from:

Royal & SunAlliance Share Dealing Service, Cazenove & Co, 12 Tokenhouse Yard, London EC2R 7AN

Telephone: +44(0) 20 7606 1768

CAPITAL GAINS TAX

The market value at 31 March 1982 of each post consolidation ordinary share of 27.5p in the Company, for capital gains tax

purposes after relevant adjustments, was 146.41p (25p shares 133.1p) for former Royal Insurance shareholders and 57.97p (25p

shares 52.7p) for former Sun Alliance shareholders. For former Royal Insurance shareholders, an adjustment to tax cost is required

to take account of the 1993 rights issue according to whether the rights were taken up or sold.

COMMUNICATIONS

Royal & SunAlliance is committed to full and open communication with its shareholders. We aim to ensure that all shareholders are

kept well informed of the Group’s activities, performance and strategy and your directors hope that you have found this document

to be informative.

INTERNET

The Annual Report & Accounts, interim statements and other useful information on the Company is available through the Internet

at www.royalsunalliance.com.

ANNUAL GENERAL MEETING

We welcome the views of shareholders and hope that you will be able to attend the Company’s Annual General Meeting, which

this year will be held in the Grand Ballroom, Hotel Inter-Continental London, One Hamilton Place, Hyde Park Corner, London W1V

0QY at 11.30am on 16 May 2001. The Notice of the Meeting and the Proxy Card accompany this document. If you are unable to

attend the Company’s Annual General Meeting to ask a question in person, you may write to us at 30 Berkeley Square, London

W1J 6EW or contact us through our Group website at www.royalsunalliance.com/questions.


DISABLED SHAREHOLDERS

Royal & SunAlliance is committed to providing a quality service to all its shareholders. Please inform Lloyds TSB Registrars if you would

like documentation to be provided to you in a special format and we will do our best to meet your request.

AMERICAN DEPOSITARY SHARES (ADSs)

Each ADS represents five ordinary shares.

The Group is subject to the informational requirements of the US securities laws applicable to foreign companies and files an annual

report on Form 20-F and other information with the US Securities and Exchange Commission.

Any enquiry relating to ADS holdings should be addressed to:

Citibank N.A., Shareholder Services, PO Box 2502, Jersey City, NJ 07303

Telephone: +1 877 248 4237

www.citibank.com/adr

ADS holders receive the annual and interim reports issued by the Group.

ADS DIVIDENDS

ADS holders are eligible for all stock dividends or other entitlements accruing on the underlying Royal & Sun Alliance Insurance

Group plc shares and receive all cash dividends in US dollars. These are usually paid twice a year. Dividend cheques are mailed

directly to the ADS holder on the US payment date if ADSs are registered with the Company’s US depositary, Citibank N.A..

Dividends on ADSs that are registered with brokers are sent to the brokers, who forward them on to ADS holders.

ADS VOTING

Holders of ADSs as at 30 March 2001 will receive a voting instruction form from Citibank N.A. (the ADR Depositary) and details of

the business of the Company to be raised at the forthcoming Annual General Meeting. ADS holders who wish to instruct the ADR

Depositary to vote their ADSs at the Annual General Meeting should return their completed voting instruction form to Citibank N.A.

by no later than 10.00am (New York City time) on 8 May 2001.

If you have any questions about the way in which voting instructions may be delivered to Citibank N.A., please contact them at the

above address, telephone number or website.

SHAREHOLDER INFORMATION

For further information about Royal & SunAlliance, please contact our Group Communications team at:

Royal & Sun Alliance Insurance Group plc, 30 Berkeley Square, London W1J 6EW

Telephone: +44(0) 20 7569 6136

www.royalsunalliance.com

The Company’s share price is shown on Ceefax BBC2 Page 223

REGISTERED OFFICE AND WORLDWIDE GROUP OFFICE

30 Berkeley Square, London W1J 6EW

Telephone: +44(0) 20 7636 3450

Registered in England No. 2339826

Shareholder information continued


1 February 2001

Announcement of first 2001 preference dividend

14 February 2001

Ex-dividend date for first 2001 preference dividend

16 February 2001

Record date for first 2001 preference dividend

1 March 2001

Announcement of results for 2000 and of recommended final ordinary dividend

14 March 2001

Ex-dividend date for final ordinary dividend for 2000

16 March 2001

Record date for final ordinary dividend for 2000

2 April 2001

Payment of first 2001 preference dividend

10 May 2001

Announcement of results for three months ending 31 March 2001

16 May 2001

Annual General Meeting

1 June 2001

Payment of final ordinary dividend for 2000

2 August 2001

Announcement of results for six months ending 30 June 2001 and of interim ordinary dividend and second preference dividend for 2001

15 August 2001

Ex-dividend date for second 2001 preference dividend

17 August 2001

Record date for second 2001 preference dividend

5 September 2001

Ex-dividend date for interim ordinary dividend for 2001

7 September 2001

Record date for interim ordinary dividend for 2001

1 October 2001

Payment of second 2001 preference dividend

8 November 2001

Announcement of results for nine months ending 30 September 2001

30 November 2001

Payment of interim ordinary dividend for 2001

7 March 2002*

Announcement of results for 2001 and of recommended final ordinary dividend

*Provisional date

Financial calendar


Q I have recently moved house. Who should I tell?

A You need to notify Lloyds TSB Registrars in writing at the address on page 100 remembering to clearly state your old address.

If you hold shares in joint names, the shares will be registered in the name of the person who appears first on your share

certificate and the letter must be signed by them.

Q What do I do if I change my name?

A To ensure the shares are registered in your new name, you will need to notify Lloyds TSB Registrars in writing. You will also

need to enclose evidence of the change, for example, a marriage certificate or change of name deed (please do not send the

original), together with your share certificates and any uncashed dividend cheques. New documents can then be issued in the

correct name.

Q My share certificate has been lost / stolen. What should I do to obtain a replacement?

A You should inform Lloyds TSB Registrars immediately. They will require you to pay an administration charge, and they will send

you a form of indemnity. The indemnity is required to protect Royal & SunAlliance from the potential misuse of the missing

share certificate and must be returned before a new certificate can be issued.

Q I would like to transfer shares to someone I know. How do I arrange this?

A As these transactions do not involve a stockbroker you can use a stock transfer form. You can obtain a form from Lloyds TSB Registrars.

Q My partner / relative has died. What should I do about their shareholding?

A Contact Lloyds TSB Registrars and they will guide you through what you need to do.

Q I have lost my dividend tax voucher. What do I do?

A If you require a replacement dividend tax voucher you need to contact Lloyds TSB Registrars. A fee may be payable for this service.

Q I would like to receive future communications electronically. How can I arrange this?

A To receive shareholder information electronically you will need to register at www.shareview.co.uk and create your own

portfolio. You will need your shareholder account number in order to access this service.

Frequently asked questions

PUBLISHED BY BLACK SUN PLC +44(0) 207 736 0011, COVER ILLUSTRATION BY PETER CROWTHER, PHOTOGRAPHY BARRY LEWIS/NETWORK, PRINTED BY EMPRESS LITHO LTD

BOB MENDELSOHN PHOTOGRAPH ON PAGE 3 BY CHRIS PARKER

www.royalsunalliance.com

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