QBE European Operations plc

QBE European Operations plc Annual report 2011
56
Notes to the financial statements
continued
For the year ended 31 December 2011
7 Pension schemes
a) Defined benefit schemes
The company’s subsidiaries operate four defined benefit pension schemes. The Iron Trades scheme relates to former employees of QBE Insurance
(Europe) Limited and the Janson Green scheme relates to former employees of QBE Underwriting Limited. In addition, the QBE (Europe) Reinsurance
Ltd Pension & Life Assurance Plan (“QBE Re scheme”, relating to employees in Ireland) became part of the Group during 2009 and the Secura NV
scheme became part of the Group in 2010 on the acquisition of Secura NV. All four schemes were part of the Group for the whole year.
The pension contributions relating to each scheme are assessed in accordance with the advice of independent qualified actuaries so as to spread
the cost over the service lives of employees.
Three schemes have been closed to future benefit accruals, the two UK schemes on 31 May 2006 and the Irish scheme on 31 December 2006.
The Group retains the risk on employee service in these defined benefit schemes up until those dates. During 2011, full actuarial reviews were performed
by independent qualified actuaries of both UK schemes. The reviews found that the Iron Trades scheme was in deficit and the Janson Green scheme
in surplus. As a result, the company agreed to make annual payments of £560,000 to the Iron Trades scheme for the next two years. The actuarial
assumptions are stricter than those required to be used for these accounts. In late 2009 an actuarial review on the Irish scheme was performed by
independent qualified actuaries and identified the scheme to be in deficit. At the balance sheet date the Group has not agreed to make contributions
to the Irish scheme.
At the time of the acquisition of Secura NV their pension scheme was valued as part of the fair value exercise by independent external actuary.
The actuarial valuations were reviewed and updated by independent external actuaries as at 31 December 2011 for the purposes of inclusion in
these accounts.
The principal actuarial assumptions used at the year end were:
2011 2010
% %
Rate of increase to pensions in payment accrued before 1 September 2002 in Janson Green scheme 5.0 5.00
Rate of increase in other pensions in payment 2.95–3.05 1.85–3.45
Expected return on plan assets 4.14–5.50 4.15–6.45
Rate of increase in deferred pensions 1.75–2.05 1.85–3.45
Discount rate 4.00–4.70 1.50–5.40
Inflation 2.00–3.05 2.00–3.55
The assumption as to the rate of increase in salaries is no longer applicable, as benefits are no longer based on the final salary.
The valuation of the schemes’ liabilities has been determined using the Projected Unit Method.
In addition, an assumption is made as to the life expectancy of members of the schemes. In conjunction with the scheme actuaries, the mortality tables
used to calculate the liabilities are the PXA92 Long Cohort tables, projected forward based on the year of birth.
The scheme assets do not include any of the Group’s own financial instruments or any property occupied by, or other assets used by, the Group.
The following disclosures relate to the four schemes combined.
Market value Market value
2011 2010
£000 £000
Equities 67,607 64,603
Bonds 226,350 197,700
Others 10,120 10,453
Total market value of assets 304,077 272,756
The overall expected long-term rate of return on fund assets is based on historical and future expectations of returns for each of the major asset classes
as well as the expected and actual allocation of scheme assets to these major classes.
2011 2010
£000 £000
Analysis of the amount credited to other finance income:
Expected return on scheme assets 14,407 13,804
Interest on scheme liabilities (15,085) (14,316)
Restriction on expected return under FRS 17 (464) –
Net charge (1,142) (512)