Tesco plc Annual Report and Financial Statements 2012

Notes to the Group financial statements
Note 22 Financial risk factors continued
Insurance risk
Tesco Bank is exposed to insurance risks through its ownership of 49.9% of Tesco Underwriting Limited (‘TU’), an authorised insurance company, and
through its historic distribution arrangement with RBS Insurance. Since late 2010 the majority of new business policies for Home and Motor Insurance
products sold by Tesco Bank have been underwritten by TU. The key insurance risks within TU relate to Underwriting Risk and specifically the potential
for a major weather event to generate significant claims on Home insurance or on Motor insurance the cost of settling bodily injury claims. Exposure
to this risk is actively managed within TU with close monitoring of performance metrics and the use of reinsurance to limit TU’s exposure above
predetermined limits.
The primary risk that the Group remains exposed to through its previous relationship with RBS Insurance is Reserving Risk – the risk that claims reserves
are insufficient to cover the ultimate cost of those insurance claims that have not yet settled. This is particularly relevant to Motor insurance claims where
the ultimate cost of large bodily injury claims is uncertain and the time taken to settle such claims can vary significantly depending on the severity of the
injury. This risk is, in part, mitigated by the use of reinsurance to limit Tesco Bank’s exposure to the cost of individual claims above certain predetermined
limits. However, the nature of this exposure results in the process of estimating the ultimate cost of these claims carrying a degree of uncertainty.
Note 23 Customer deposits and deposits by banks
Customer deposits 5,387 5,074
Deposits by banks 78 36
5,465 5,110
Included within customer deposits is £300m (2011: £177m) that is non-current.
Note 24 Provisions
Property
provisions
£m
2012
£m
Other
provisions
£m
At 27 February 2010 111 100 211
Foreign currency translation (3) – (3)
Amount released in the year (18) (50) (68)
Amount provided in the year 48 – 48
Amount utilised in the year – (11) (11)
At 26 February 2011 138 39 177
Foreign currency translation 2 – 2
Amount released in the year (45) – (45)
Amount provided in the year 28 61 89
Amount utilised in the year (4) (22) (26)
Others 2 – 2
At 25 February 2012 121 78 199
The balances are analysed as follows:
Current 99 64
Non-current 100 113
199 177
Property provisions comprise obligation for future rents payable net of rents receivable on onerous and vacant property leases, terminal dilapidations
and future rents above market value on unprofitable stores. The majority of these provisions are expected to be utilised over the period to 2020.
The other provisions balance relates to a provision for Tesco Bank customer redress in respect of potential customer complaints arising from historic sales
of PPI and a provision for customer insurance cancellations. The PPI provision is likely to be utilised over several years, although the timing of utilisation
is uncertain. The balance is classified as current at the year end.
The British Bankers Association initiated a judicial review on 24 January 2011 in relation to the regulation of PPI sales practices. The Group did not
participate in this action and continued to deal with customer complaints in line with the FSA requirements throughout the duration of the legal
proceedings undertaken by the other banks involved.
130 Tesco PLC Annual Report and Financial Statements 2012
2012
£m
2011
£m
Total
£m
2011
£m