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| Name | Symbol | Market | Type |
|---|---|---|---|
| Ecclesiastl.8fe | LSE:ELLA | London | Preference Share |
| Price Change | % Change | Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 131.00 | 129.00 | 133.00 | 133.00 | 131.00 | 131.00 | 24,688 | 08:00:13 |
From May 2019 to May 2024
TIDMELLA
RNS Number : 3670T
Ecclesiastical Insurance Office PLC
19 March 2019
Ecclesiastical Insurance Office plc announces results
for the year ended 31 December 2018
Performance driven by strong underwriting results
Ecclesiastical Insurance Office plc ("Ecclesiastical"), the specialist financial services group, today announces its full year 2018 results.
Highlights
-- Profit before tax of GBP15.4m (2017: GBP82.2m)
-- Strong underwriting profit of GBP29.2m (2017: GBP27.1m), with Group COR(1) of 86.4% (2017: 86.9%). This is the fifth consecutive year of growth in underwriting profit, which has benefited from favourable development of prior year claims on the Group's liability business and improvements in current year performance
-- Reduced investment returns of GBP4.0m (2017: GBP72.3m), reflecting the downturn in equity markets in 2018
-- Gross written premium (GWP) increased by 4% to GBP357.0m (2017: GBP342.9m), with high retention levels demonstrating the strength of our proposition in a very competitive market
-- GBP18.8m was donated to good causes during 2018 (2017: GBP25.5m). We have now reached GBP64m towards our target of GBP100m in charitable donations by the end of 2020
-- Continued external recognition of the Group as a trusted and specialist financial services organisation, including being named as the UK's best and most trusted insurer for the eighth time by independent ratings agency Fairer Finance, and EdenTree winning MoneyFacts Best Ethical Investment Provider for the 10th year in a row.
(1) Alternative performance measure, refer to the Reconciliation of Alternative Performance Measures note to this announcement for further explanation
Mark Hews, Group Chief Executive Officer of Ecclesiastical, said:
"In 2018 we delivered a fifth year of sound underwriting performance, underpinned by our focus on delivering sustainable, profitable long-term growth through our disciplined underwriting approach. Underwriting profits in recent years have benefited from both our focus on loss prevention and from a more benign environment. We saw GWP growth across all our territories, thanks to a number of new business wins and high retention rates across our businesses, thanks to high levels of customer satisfaction.
Pre-tax profits were lower than in recent years, reflecting the effect of short-term stock market fluctuations on our investment portfolio. We continue to take a long-term view of the market and have benefited from strong investment returns in recent years and have seen a more positive start to 2019 in investment markets.
"Our strong capital position enabled us to invest significantly in the future of our business. This included work on a new core operating system for the UK and Ireland insurance business, which will provide a faster and more responsive service for our customers and brokers. Alongside this, we continued to look for strategic opportunities for sustainable growth. Our insurance broker SEIB acquired new books of business and we continue to monitor the market for opportunities that complement our existing offer.
"We also announced plans to move to a purpose-built head office near our current offices in Gloucester. This demonstrates a significant investment in our people, providing a better working environment for our colleagues.
"Our strategic goal is to be the most trusted and ethical specialist financial services group and we continued to win external accolades for the way we do business. For the eighth consecutive time, we were named by Fairer Finance as the best and most trusted provider of UK home insurance while EdenTree, our investment management business, was named MoneyFacts Best Ethical Investment Provider for the 10th year in a row. Our Claims team collected three awards at the Insurance Post Claims Awards for excellence in customer care and SEIB won Personal Lines Broker of the Year at the British Claims Awards.
"We also have a purpose to contribute to the greater good of society and our financial performance enabled us to make donations of GBP18.8m during the year, to our charitable owner and to the causes we support directly. Together, we have now given GBP64m of the GBP100m charitable giving target we set ourselves in April 2016. I would like to thank all our colleagues, customers, brokers and business partners for their support in helping us to build a movement for good."
ECCLESIASTICAL INSURANCE OFFICE PLC
ANNUAL FINANCIAL REPORT FOR THE YEARED 31 DECEMBER 2018
The Company has now approved its annual report and accounts for 2018.
This Annual Financial Report announcement contains the information required to comply with the Disclosure and Transparency Rules, and extracts of the Strategic Report and Directors' Report forming part of the full financial statements.
The financial information set out below does not constitute the Company's statutory accounts for the year ended 31 December 2018. The annual report and accounts will be available on or before 3 April 2019 on the Company's website at www.ecclesiastical.com. Copies of the audited financial statements are also available from the registered office at Beaufort House, Brunswick Road, Gloucester GL1 1JZ.
A copy of the Company's statutory accounts for the year ended 31 December 2018 will be submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk.
Chairman's Statement
A strong underwriting performance
In 2018 the Group delivered another strong set of underwriting results(1) , underpinned by its pursuit of sustainable, profitable growth over the longer-term.
Performance remained robust, with underwriting profit of GBP29.2m (2017: GBP27.1m) and GWP growth across all our territories. Pre-tax profits of GBP15.4m (2017: GBP82.2m) were lower than in recent years, reflecting the effect of short-term stock market fluctuations on our investment portfolio. Nonetheless, these results and our underlying financial strength enabled us to make donations of GBP17.0m to our charitable owner and GBP1.8m to the causes we support directly.
1 Alternative performance measure, refer to the Reconciliation of Alternative Performance Measures note to this announcement for further explanation.
Putting customers first
I have been privileged to be a member of the Ecclesiastical Board since 2007. As I step down after two years as its chair, I have been reflecting on the differences that drew me to Ecclesiastical eleven years ago, and which remain intrinsic to the Group today.
We are a specialist financial services group with a portfolio of insurance, investment management, broking and advisory businesses that are quite different from each other. Yet all these businesses are united by a common purpose - they put the customer at the centre of everything they do.
I believe that our aim of being the most expert, trusted and ethical provider in our specialist markets has seen us take customer care to a very different level. In an increasingly commoditised world, we still take the time to understand their particular issues and needs, as befits a true specialist. Thanks to that understanding, we provide products, services and advice that are right for them. And when they are in difficulty, we respond with exceptional levels of service and care.
I mentioned last year how struck I have been by the positive and affectionate feedback we receive from those who know us. It speaks to the emphasis we place on understanding and looking after our communities, both through our work and our charitable support.
Energy and pace
The Ecclesiastical Group has been through a significant period of change during my tenure. In the last five years in particular, an ambitious change programme has been central to the Group's turnaround and consistent financial performance. In that time, we have seen a strengthening of our core insurance business and ongoing development of all the companies in our portfolio. As a result, we have delivered on one ambitious target of giving GBP50m to good causes and we are well on the way to reaching our current goal of giving GBP100m by the end of 2020.
I applaud the energy of leadership that has taken our Group forward with such pace, by harnessing its distinctive strengths - a deep understanding of customers' needs, true specialism in our chosen sectors and the unique charitable purpose that sets us apart.
Governance
In 2018 we reached a major milestone, securing approval from the Prudential Regulation Authority for our internal model to meet the Solvency II regulations for insurance firms. In doing so, we have provided our Board and management team with important tools to improve the Group's risk management framework, measure performance and ensure that its decisions contribute to our capital strength.
Board developments
During the year two non-executive directors, Denise Wilson and Anthony Latham, retired from the Board after eight and ten years' service respectively. I would like to express my particular thanks to them, for the valuable expertise they brought to the Group during a period of considerable change.
In January 2019 it was announced that with effect from 19 March 2019, I will step down as chairman and David Henderson, who has been on the Board since 2016, will take my place. Also during the year Ian Campbell left the Group after four years as our Group Chief Financial Officer. We thank Ian for his service to the Group and wish him well in his future career.
The Ecclesiastical Board is strong and diverse, with an unflagging commitment to the Group and its future. It says much about Ecclesiastical that it is able to attract Board members of their calibre, given the relatively small scale of the Group. The skills of my fellow directors are exceptional and I would like to thank them all for their insight and support over the past year.
Our people
This also holds true for our employees. Over the years I have been continually impressed by the exceptional ability of our people. Above all, I have been inspired by their propensity to go above and beyond the call of duty as a matter of course, whether caring for their customers, improving business performance or supporting good causes. This, I believe, speaks to the culture that is fostered by our charitable purpose.
I will miss many things when I leave Ecclesiastical, but it is these good and talented people whom I will miss most. On behalf of the Board, I would like to thank and congratulate them for the successes of 2018 and wish them well as they forge an exciting future for the Group.
In support of our established diversity policy, 2018 saw us publish our second gender pay gap report, which shows a falling pay gap due to a higher proportion of senior roles being filled by women. We also published our progress against the Women in Finance Charter; two years since signing up to its goals, we were pleased to report that women now make up 29.9% of our senior management roles compared with 23.3% in 2017.
Looking to the future
As you would expect, I wish the Group the most successful of futures. But what does that actually mean? For me, the Group's future success lies in continuing to do what we do well - creating competitive advantage from our deep understanding of customers' needs, our position as a trusted specialist and our responsible approach to doing business.
The Group's success also lies in taking what we do well to a bigger audience, so that a broader group of customers and partners can benefit from the unique products and services we offer. With motivated teams across the Group and a robust change programme that has already delivered so much, I know that this future is entirely possible.
Chief Executive's Report
Here for good
Ecclesiastical exists for just one purpose - to contribute to the greater good of society. That makes us a very different kind of financial services group. Because our profits go to good causes. Because we put customers' needs first. And because we stand up for what we believe in - even if that means doing things differently from everyone else.
Owned by a charity, our profits are channelled towards funding thousands of good charitable causes a year. Whether these are charities that transform the lives of homeless people, the unwell or those suffering from addiction, parish churches that have become community hubs in areas of great deprivation, or organisations that provide young people with the resources to stay safe and well in today's complex world, they share a common goal - to help and protect the most vulnerable in our society.
Our charitable purpose has also shaped the way we do business for over 130 years. Unlike others in our sector, we are driven by more than the need to satisfy short-term shareholder demands.
Our goal is to build a sustainable, values-driven business over the longer-term, while putting customers' needs first - especially in times of need or change. This has seen us develop extraordinary levels of customer understanding and care.
Trusted by our communities
This approach has built deep trust within the communities we serve, as evidenced by the roll-call of awards and accolades highlighted in the annual report and accounts. We are trusted to protect and preserve communities, cultures and heritage worldwide, by insuring palaces and castles, World Heritage sites and opera houses, schools and activity centres, churches, temples and other treasured properties. And our advisory, broking and investment businesses are trusted to provide award-winning services that have the customer's interests at heart.
Giving to our communities
Our results and our underlying financial strength enabled us to make donations of GBP18.8m during the year, to our charitable owner and to the causes we support directly. We have now given GBP64m of the GBP100m by the end of 2020 target we set ourselves in April 2016.
Based on the latest rankings, Ecclesiastical is the fourth largest corporate donor in the UK and the top-ranking insurance sector donor - indeed, the only insurer in the top ten. This is a considerable achievement of which we are very proud, particularly as by any measure of size or scale we are significantly smaller than any of the other top ten ranked businesses.
A resilient business
In 2018 we achieved a fifth year of sound financial performance, underpinned by our focus on delivering sustainable, profitable long-term growth. I am pleased to report that in 2018 we continued to deliver against our charitable purpose, with a pre-tax profit of GBP15.4m (2017: GBP82.2m) and GWP growth of 4.1% to GBP357.0m. This result includes excellent underwriting profits of GBP29.2m (2017: GBP27.1m), investment income of GBP35.3m (2017: GBP36.5m) and fair value losses of GBP31.3m (2017: gains of GBP35.8m).
Our strong solvency ratio and long-term perspective enable us to hold a relatively high proportion of higher risk investment assets, designed to deliver strong returns over the longer-term. Market downturns towards the end of the year, prompted by persistent concerns over Brexit, global trade and slowing economic growth, impacted our investment returns following two exceptionally positive years. However, our long-term stance is unmoved and the market downturn has presented some exceptional equity investment opportunities.
We reaped the benefit of holding a diverse portfolio of companies during the year, not least in the insurance business where the impact of adverse weather in Canada was offset by benign conditions elsewhere.
The UK and Ireland business achieved GWP growth of 4.8%, with particularly strong contributions from the Real Estate and Art & Private Client sectors in the UK and the Education sector in Ireland.
A strong underwriting profit of GBP29.4m (2017: GBP32.7m) benefited from significant prior year releases and a low level of weather claims.
We took the difficult decision to close our UK defined benefit pension scheme to future accrual from 30 June 2019, due to escalating scheme costs and the growing exposure to investment risk required to maintain the scheme. Having monitored and consulted on the scheme's shape and potential long-term risks over several years, we did not undertake this lightly, knowing how important pension benefits are to our colleagues. Following extensive consultation, new arrangements were agreed with our union and the scheme Trustees on members' behalf.
During the year we prepared for Brexit, identifying potential risks and putting in place steps to mitigate them. In Ireland these preparations included working closely with the Central Bank of Ireland on our application for Third Country branch status, for which we have been granted authorisation in principle. The Canadian and Australian insurance businesses delivered GWP growth of 7.6% and 5.5% respectively in local currency. Canada's underwriting loss of GBP2.6m was driven by a range of adverse weather events and a modest increase in casualty reserves, and Australia's GBP1.4m underwriting profit benefited from lower claims and increased rate strength.
EdenTree, our pioneering investment management business, delivered strong growth in net inflows(1) , particularly to its Higher Income Fund. Funds under management remained at GBP2.7bn, with gross inflows totalling GBP392m broadly offset by market falls. There was continued investment in the year in technology and systems to deliver its future growth plans and, as a result, profits decreased to GBP0.9m (2017: GBP1.7m).
In the broking and advisory sector, SEIB's profits were marginally decreased from the previous year at GBP2.4m (2017: GBP2.5m). The business grew organically and also acquired books of business from Equicover and Equestrian World Services that complement its existing equine offer.
(1) Alternative performance measure, refer to the Reconciliation of Alternative Performance Measures note to this announcement for further explanation
Innovating for good
Today, we are a successful, ethically-run group of specialist businesses that have evolved in anticipation of our customers' changing needs, often to the extent that we revolutionise industry practice. Our investment management business EdenTree, for example, introduced pioneering ethical funds to the UK market, while our UK insurance business has taken the lead in creating greater transparency around the handling of abuse claims.
We are also renowned for efforts we make to help insurance customers manage their risks, so that ideally, they never have to make a claim. During 2018, we trialled a number of technologies across our jurisdictions, including infra-red cameras to help detect electrical hot spots and leak detection devices. We also trialled drones as risk management tools in the UK, following their successful use in our Australian subsidiary.
In collaboration with the Royal Institute of Chartered Surveyors, we provided customers and brokers with a unique Heritage Index that allows accurate reinstatement valuation of heritage properties. We also provided new advice on preventing accidental slips and trips (with the Health and Safety Laboratory) and started developing a new proposition to address cyber bullying in schools, ready for testing in 2019.
As with other activities that set us apart, understanding of our customers' worlds and the drive to put their needs first underpins this investment in loss prevention innovation.
An exciting future
While we expect continued uncertainty in investment markets and insurance markets to remain highly competitive, our consistently strong financial performance allows us to both withstand short-term uncertainties and invest in our future, laying the foundations for further sustainable and profitable growth.
The second phase of our ambitious change programme, which supports our latest target of giving GBP100m to good causes, is well underway. This will see us sustain and build on the distinctive position we occupy in our existing markets through organic and inorganic growth, and develop new, specialist market segments.
Investment in our technology infrastructure progresses, with the introduction of a new core operating system for the UK and Ireland insurance business underway. This will streamline processes for our staff and provide a more agile and responsive service for our customers and brokers.
Work commenced in 2018 on a new accounting system for EdenTree and during the year we installed a new platform on which to build Group websites, reinvigorating our digital presence.
During 2019, the UK's Independent Inquiry into Child Sexual Abuse will conclude its investigations into institutional abuse in England and Wales. We will provide the Inquiry with information and insight as it requires and will continue to champion transparency and fairness in the insurance sector, for the benefit of abuse survivors. We will also maintain a prudent reserving strategy for potential abuse claims for the benefit of survivors.
The pace of progress that I have described would not be possible without the excellence and dedication of our specialist teams worldwide. We remain committed to investing in the development of their expertise and knowledge, so that they are equipped to meet and surpass our customers' expectations in a changing world.
Building a movement for good
Global studies tell us that people want companies to do the right thing.
2018 saw a telling development in this trend, with members of the public looking increasingly to business to take an active role in addressing societal issues. We heard that 62% of global consumers wanted companies to stand up for the issues they are passionate about(1) , while in the UK nine out of ten people said businesses should take a stance on the issues that are important to them(2) .
Across the Ecclesiastical Group such behaviour is in our DNA. We are proud to have worked alongside the communities we serve for decades, helping to champion the issues that matter to them.
In 2018 alone we campaigned with the UK charity sector for the abolition of Insurance Premium Tax on struggling charities; we urged the UK government to reduce VAT on repairs and approved alterations to listed buildings; and our funeral planning business, in the wider Group, led calls for the introduction of regulation in the face of escalating poor practice in its sector.
More broadly, we continued to sponsor young craftspeople in a bid to reverse the decline of traditional skills in our heritage sectors and also supported research to address new issues facing our estates and farming communities.
As a values-driven business, we also believe it is important to champion good practice in the financial services sector.
In 2018, we felt we needed to challenge one of the world's biggest insurers as it considered cancelling its preference shares at par, to the potential detriment of many shareholders. That was not an easy decision for our Board to make, because speaking out when others remain silent is hard to do. But we knew it was the right thing to do.
We are always looking for ways to extend the reach of our giving. Increasingly, we are doing this by putting the giving directly into the hands of the communities we serve, so they can support the causes that mean the most to them.
As people look to business to take a stand on society's most important issues, we are extending the reach of our giving and campaigning to create a network of organisations that, together, become a Movement for Good. A group of people and organisations that, together, can help change the world. For, as Archbishop Desmond Tutu put it: "Do your little bit of good where you are. It's those little bits of good put together that overwhelm the world."
(1) Accenture Strategy: Global Consumer Pulse Research 2018
(2) CBI: Everyone's Business research Sept 2018
Thank you for transforming lives
It is just over five years since I became chief executive of the Ecclesiastical Group. In that time we have reached our first goal of giving GBP50m to charity - a goal that caused colleagues to gasp aloud when I revealed it. And we have given an extraordinary GBP64m since.
Since 2016, and together with our owner, we have given over 5,000 donations to charities worldwide.
Each of these charities has a moving story to tell of the impact our giving can have. That is why we have captured in the annual report and accounts details from just a few of them of how our support is helping to change people's lives. I hope their stories bring to life the breadth and significance of that support and remind us that for each one of them, there are at least 300 more.
On their behalf, I would like to thank you
Thank you to our customers, brokers and business partners for entrusting us with your business and allowing us to help you champion the causes you care about. Thank you to our exceptional employees for always going the extra mile for our customers and partners. And thank you all for your tireless fundraising, volunteering and nomination of good causes that provide a helping hand to those who need it most.
To those of you who are reading about Ecclesiastical for the first time, I invite you to join us, whether as a colleague, customer or business partner, and experience for yourself how it is possible to do business differently.
Because I believe that together, we are creating something very special - a Movement for Good that touches and transforms lives in our villages, in our towns, in our communities, in this country and abroad.
Together, we are capable of more than you can imagine.
Business Review
Financial Performance Report
We delivered a pre-tax profit of GBP15.4m in 2018 (2017: GBP82.2m). Our underwriting profit remained strong at GBP29.2m, (2017: GBP27.1m) although investment market conditions were challenging and resulted in fair value losses of GBP31.3m (2017: gain of GBP35.8m).
There has been continued growth in our underwriting results over the last five years as we have successfully delivered against our redefined strategy. We remain a trusted partner to our brokers and customers, and this is reflected in our high retention and satisfaction levels. Investment returns were impacted by unrealised investment losses due to external market turbulence, including the impact of the uncertainty around Brexit. We manage the business by taking a long term view of risk, and our approach to capital management means that we are able to withstand short term volatility. In particular, our investment approach carries a level of risk, but enables us to take advantage of the opportunities to deliver higher investment returns over the long term from investing in equities, than from investing in lower risk, lower returning fixed income investments. The Group remains well capitalised and received approval for our Internal Model in 2018, which was a significant milestone. The Internal Model enables us to continue to understand and quantify our risk profile and to optimise the use of capital in the future.
In order to ensure that the Group delivers sustainable profitable growth, we continue to make strategic investments in technology, property, people and processes. We took the difficult decision to close the UK defined benefit pension scheme to future accrual from 30 June 2019, which will enable the scheme to reduce the level of risk over time and secure the payment of future benefits to members.
We made charitable grants of GBP18.8m (2017: GBP27.5m) for the year as part of our commitment towards the GBP100m target by 2020 and have seen the positive impact that this charitable giving makes to people's lives.
General insurance
Our underwriting performance(1) for the year was a profit of GBP29.2m (2017: GBP27.1m profit), resulting in a Group COR(1) of 86.4% (2017: 86.9%). Our fifth consecutive year of improvement in underwriting profits has been aided by the favourable development of prior year claims on the Group's liability business. Additionally in the UK there has been good current year experience on the liability and property accounts which helped to offset the impact of a series of weather events in our Canadian business.
1 Alternative performance measure, refer to the Reconciliation of Alternative Performance Measures note to this announcement for further explanation.
United Kingdom and Ireland
In the UK and Ireland underwriting profits decreased to GBP29.4m (2017: GBP32.7m profit) giving a COR of 80.2% (2017: 77.1%). This represents another good performance with a favourable result on the liability account and a solid outturn on the property book. It is not a level of underwriting performance on the liability account we expect to persist in the future.
The underwriting result on the property account was behind last year, impacted by adverse weather in the first half of the year with the Beast from the East and Storm Emma combined with an increase in subsidence claims following the exceptionally dry summer. Despite these events the current year loss ratios are in line with expectations and the result benefited from a distribution from our pooled terrorism reinsurance arrangements of GBP1.0m (2017: GBP1.9m).
The underwriting result from the liability account continues to perform favourably. Current year claims performance was again better than expected, and we have also had the benefit of reserve releases as historical claims have been settled at amounts that were less than anticipated. The run-off of unprofitable business we exited in 2012 and 2013 combined with the prudent approach to reserving have improved the overall result in the last three years.
In 2018, GWP has grown by 5% to GBP242m, (2017: GBP231m). The trading conditions across the year were consistently very competitive with the market remaining sensitive to changes in price. Despite this we have seen high retention levels across our UK and Ireland business demonstrating the strength of our proposition and reputation for exceptional service. Our Real Estate and Art & Private Client business delivered growth of 14% and 22% respectively as we successfully build on our investment in innovation and product development. GWP in respect of our Faith business remained in line with prior year reflecting a good result in a highly competitive market.
We expect the market to continue to be fiercely competitive. The capacity in the market and moves by generalist insurers into our core specialist risks will maintain the pressure on our GWP growth ambition. Our strategy over the medium term looks to deliver moderate GWP growth, while maintaining our strong underwriting discipline and our philosophy to seek profit over growth. We will continue to deepen our specialist capabilities through investment in technology and innovation, and to provide appealing customer propositions and excellent service.
Ansvar Australia
Our Australian business reported an underwriting profit of AUD$2.5m giving a COR of 93.7% (2017: AUD$1.2m profit, COR of 96.9%). The liability account performed well and includes the benefit of favourable development of prior year claims reserves. The property account incurred losses but improved over the prior year, driven by the more benign natural catastrophe experience in 2018.
GWP grew by 5% in local currency to AUD$101.6m (2017: AUD$96.3m). The 2018 growth in GWP was driven by the property book while GWP for liability remained constant. Property GWP increased by 9% with good levels of renewal rate more than offsetting the run-off of a proportion of the property book at the end of 2017.
Canada
Our Canadian business continued its track record of delivering premium growth, reporting an 8% increase in the branch's contribution towards Group GWP at CAD$93.5m (2017: CAD$86.9m).
The territory reported an overall underwriting loss of CAD$4.5m giving a COR of 106.5% (2017: CAD$12.1m loss, COR of 118.5%). The severe winter weather at the beginning of 2018 and the occurrence of four weather related mini-catastrophes which were not significant enough to trigger the catastrophe reinsurance programme, severely impacted the result. Performance in the second half of the year was stronger, reflecting the benefit of rating action and a return to more normal weather experience.
Other insurance operations
General insurance profits benefited from favourable releases of prior year reserves from our businesses in run-off, resulting in an overall profit of GBP1.0m (2017: GBP0.9m profit).
Investments
Following the strong market returns of the previous two years, 2018 saw a return to volatility in UK and worldwide stock markets which over the course of the year pushed market prices down, notably in the fourth quarter of the year. Income from financial assets remained relatively stable at GBP27.0m (2017: GBP29.0m) with the low rate environment continuing to depress overall yields. As a result of the investment market downturn at the end of 2018 the fair value of financial instruments decreased GBP35.5m (2017: increase of GBP30.3m). There has been some recovery in the markets in early 2019 but uncertainty remains over the outcomes of key issues such as global trade and Brexit. Overall investment returns for the year were GBP4.0m (2017: GBP72.3m).
The small and mid-cap bias in our UK equity portfolio had a negative impact in 2018 as the FTSE small-cap and FTSE 250 mid-cap indices lagged the FTSE 100 large-cap index and FTSE AllShare overall by 4%.
Our allocation to lower volatility direct property investments was the largest positive contributor to total net investment returns over the period. On a relative basis our property investments delivered a return of 5.2% compared with the broader Investment Property Databank (IPD) All Properties Index return of 7.4%. A strong return on industrial properties was offset by the retail property sector where our allocation is greater than the benchmark.
The Group's bond investment portfolio has a higher weighting of shorter duration bonds and corporate bonds than the FTSE Conventional Glits Allstock Index. Overall, this has resulted in underperformance against the main index this year. An upward movement in yields led to an increase in the discount rate applied to long-tail general insurance liabilities. The change in discount rate on those liabilities resulted in a GBP4.4m profit being recognised within investment returns (2017: GBP1.4m loss).
The investment result includes a GBP1.6m return, net of discounting (2017: GBP2.8m) on assets held to support our long-term insurance liabilities. The net return more than offsets a GBP0.1m decrease (2017: GBP2.4m increase) in long-term insurance claims liabilities which benefited from a favourable development in future costs described below.
Investment management
The Group's investment management business, EdenTree, continued to develop its presence in the Charity and Institutional markets. Net inflows to funds of GBP181m (2017: GBP121m net inflow) were the best in EdenTree's history, with institutional business boosted by further mandate wins from a European global bank.
The weakness in global equity market returns in 2018 has broadly offset the net fund inflows in the period, therefore total funds under management remain at GBP2.7bn (2017: GBP2.7bn).
Fee income has grown 8% to GBP12.6m (2017: GBP11.7m). Overheads have increased by 15% in the year mainly due to continued investment in technology and systems to deliver the future growth plans of the business and support MiFID II reporting requirements. As a result pre-tax profits in the period decreased to GBP0.9m (2017: GBP1.7m).
Long-term insurance
The life business insurance result for 2018 was a profit of GBP1.5m (2017: GBP0.4m). Ecclesiastical Life Limited (ELL) is closed to new business and the main contributor to the increased profit in the year is due to the favourable development in reserves held for future costs, following the removal of the Solvency II audit requirement going forward.
Broking and advisory
The broking and advisory business comprises our insurance broker and financial advisory businesses, South Essex Insurance Brokers Limited (SEIB), Ecclesiastical Financial Advisory Services Limited (EFAS) and in 2018 Ansvar Risk Management Services (ARMS). SEIB reported a marginal decrease in profit before tax to GBP2.4m (2017: GBP2.5m). EFAS reported a small loss of GBP0.2m in the year (2017: GBP0.2m loss) and ARMS reported a loss of GBP0.2m.
Overall, our broking and advisory business had modest growth in income and maintained profit, reporting a pre-tax profit of GBP2.0m (2017: GBP2.3m profit).
The Group takes a long term view in its approach to managing and investing in the business and as such is focused on delivering sustainable profitability with steady, measured growth. As we look forward to 2020, we continue to focus on our vision to be the most trusted and ethical financial services group and remain optimistic about the opportunities to continue to evolve our business and contribute to the greater good of society.
Directors' Report
Principal activities
The Group operates principally as a provider of general insurance in addition to offering a range of financial services, with offices in the UK, Ireland, Canada, and Australia.
Ownership
At the date of this report, the entire issued Ordinary share capital of the Company and 3.16% of the issued 8.625% Non-Cumulative Irredeemable Preference Shares of GBP1 each ('Preference shares') were owned by Ecclesiastical Insurance Group plc. In turn, the entire issued Ordinary share capital of Ecclesiastical Insurance Group plc was owned by Allchurches Trust Limited, the ultimate parent of the Group.
Dividends
Dividends paid on the Preference shares were GBP9,181,000 (2017: GBP9,181,000).
The directors do not recommend a final dividend on the Ordinary shares (2017: GBPnil), and no interim dividends were paid in respect of either the current or prior year.
Charitable and political donations
Charitable donations paid, and provided for, by the Group in the year amounted to GBP18.8 million (2017: GBP27.5 million).
During the last 10 years, a total of GBP165.0 million (2017: GBP154.0 million) has been provided by Group companies for church and charitable purposes.
It is the Company's policy not to make political donations.
Principal risks and uncertainties
The directors have carried out a robust assessment of the principal risks facing the Group including those that threaten its business model, future performance, solvency and liquidity. The principal risks and uncertainties, together with the financial risk management objectives and policies of the Group, are included in the Risk Management section of this announcement.
Going concern
The Group has considerable financial resources: financial investments of GBP799.0 m, 92% of which are liquid (2017: financial investments of GBP859.7m, 93% liquid), cash and cash equivalents of GBP109.4m and no borrowings (2017: cash and cash equivalents of GBP93.8m and no borrowings). Liquid financial investments consist of listed equities and open-ended investment companies, government bonds and listed debt. The Group also has a strong risk management framework and solvency position, and has proved resilient to stress testing. As a consequence, the directors have a reasonable expectation that the Group is well placed to manage its business risks successfully and continue in operational existence for at least 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Accounts.
Risk Management
Introduction
Strong governance is fundamental to what we do and drives the ongoing embedding of our enterprise-wide risk management framework. This provides the tools, guidance, policies, standards and defined responsibilities to enable us to achieve our strategy and objectives. This also ensures that individual and aggregated risks to our objectives are identified and managed on a consistent basis.
The risk management framework is integrated into the culture of the Group and is owned by the Board. Responsibility for implementation and oversight is delegated via the Group Chief Executive to the Group Risk Function, led by the
Group Chief Risk Officer.
The risk management process demands accountability and is embedded in performance measurement and reward, thus promoting clear ownership for risk and operational efficiency at all levels. On an annual basis, the Group Risk Committee (on behalf of the Board) carries out a formal review of the key strategic risks for the Group with input from the GMB and the Strategic Business Units (SBUs). The Group Risk Committee (GRC) allocates responsibility for each of the risks to individual members of the Group's executive management. Formal monitoring of the key strategic risks is undertaken quarterly including progress of risk management actions and any gaps in risk mitigants are challenged by the Executive Risk Committees.
Clarity of responsibility and accountability for the management of risk is the cornerstone of any effective Risk Management Framework and successful business. Ecclesiastical has clearly defined the accountabilities, roles and responsibilities of all key stakeholders in implementing and maintaining its Risk Management Framework. These are defined, documented and implemented through the terms of reference (TORs) of board sub committees, management and executive forums, position descriptions and functional charters.
The Group's Risk Management Framework itself is part of a wider Internal Control Framework.
Systems of internal control are designed to manage rather than eliminate the risk of failure to achieve business objectives, and can provide reasonable, but not absolute assurance as to the prevention and detection of financial misstatements, errors, fraud or violation of law or regulations.
Key to the successful operation of the internal control framework is the deployment of a strong Three Lines of Defence Model whereby:
-- 1st Line (Business Management) is responsible for strategy execution, performance and identification and management of risks and application of appropriate controls;
-- 2nd Line (Reporting, Oversight and Guidance) is responsible for assisting the CRO and Board to formulate risk appetite, establish minimum standards, develop appropriate reporting, oversight and challenge of risk profiles and risk management activities within each of the business units. This includes Executive Risk Management Committees and is subject to oversight and challenge by the GRC.
-- 3rd Line (Assurance) provides independent and objective assurance of the effectiveness of the Group's systems of internal control. This activity principally comprises the Internal Audit function which is subject to oversight and challenge by the Group Audit Committee.
We seek to develop and improve our risk management framework and strategy on an ongoing basis to ensure it continues to enable us to achieve our strategy and objectives.
The Group risk appetite defines the level of risk-taking that the Board feels is appropriate for the Group as we pursue our business objectives. It is defined in line with the different categories of risk that the Group faces, and provides the backdrop against which the business plan is developed and validated. This ensures that the risk profile resulting from the business plan is in line with the risk-taking expectations of the Board. Compliance with the risk appetite is formally monitored every quarter and reported to the Group Risk Committee at each meeting.
The risk appetite is refreshed formally annually with approval and sign-off by the Board and there are ongoing assessments to ensure its continued appropriateness for the business.
The Own Risk and Solvency Assessment (ORSA) process is carried out at least once a year and is a key part of the business management and governance structure. This integrates the risk management, business planning and capital management activities and ensures that risk, capital and solvency considerations are built into the development and monitoring of the Group's business strategy and plans and all key decision making.
During 2018 the Group received regulatory approval for the use of our Internal Model as the basis for the calculation of our regulatory capital requirement.
Risk environment
The risk environment is monitored on an ongoing basis and key areas of concern escalated to the Group Risk Committee.
The uncertainty around the outcome of Brexit carries risks for all UK-based firms. The main risk facing the Group is the loss of its ability to carry out business in the Republic of Ireland using the freedom to provide services currently afforded by the United Kingdom's membership of the EU. This risk is being mitigated by the submission of an application for the Ireland branch to become regulated by the Central Bank of Ireland as a Third Country branch after Brexit. The Group has no other material business elsewhere in the EU. The uncertainty created by Brexit has the potential to result in adverse economic conditions and impact the Group's investments and our customers. We have not identified any further material risks to our business as a result of Brexit although we continue to monitor the situation closely.
During 2018 we have continued to take a high level of market risk to give the potential for investment growth. Our investment strategy has been refreshed, though there has not been a material change to our asset mix. A programme of de-risking interest rate and inflation risk in the defined benefit pension scheme was completed during the year and the company took the decision following consultation with members to cease accrual in the scheme for future service after June 2019 which will enable further decreases to the risk associated with the scheme.
Within the insurance market firms continue to enhance their analytical skills and deepen their portfolio knowledge. Therefore, high quality technical underwriting standards, pricing and portfolio management abilities are increasingly important to ensure business written and retained is profitable. Our strategy is to achieve controlled and profitable growth within our defined niches. The potential for adverse development of long-tail liability claims, particularly in respect of PSA claims, remains a risk that we continue to actively manage. The Independent Inquiry into Child Sexual Abuse in the UK is continuing and we continue to monitor this and developments in the other territories in which we operate to determine the potential impact on these claims.
Competitor activity is an ever present risk across all our business operations and chosen niches that could threaten our ability to grow or even lead to a decline in scale with resultant adverse financial impact.
There has been significant regulatory change during 2018; the most material being the implementation of GDPR, IDD, MiFID II and SMCR. Management of continued change in the regulatory environment will remain a focus for us in light of uncertainty in the direction of regulation following Brexit.
Worldwide, cyber risk remains a constantly evolving threat with potential for a significant event involving loss of customer data that could result in significant operational disruption and an impact on our service to customers as well as sizeable regulatory fines and reputational damage. Regulations such as GDPR and a greater societal focus on the importance of security and appropriate use of individuals' data also increase the prominence of data management risks for all companies.
Maintaining a positive reputation is critical to our vision of being the most trusted and ethical specialist financial services group. Our reputation could potentially be damaged as a result of a range of factors including poor business practices and behaviours. High standards of conduct are a core part of the Group's brand, values and culture and there is an ongoing focus on ensuring this is maintained.
Principal risks
There is an ongoing risk assessment process which has identified the current principal risks for the Group as follows:
Insurance risk
The risk that arises from the fluctuation in the timing, frequency and severity of insured events relative to the expectations of the firm at the time of underwriting.
Hot Features
Premium
Risk detail Key mitigants Change from last year
This risk has not
Underwriting risk * A documented underwriting strategy and risk appetite changed materially
The risk of failure is in place and monitored by SBUs during the year.
to price insurance
products adequately
and failure to * This is supported by formally documented authority
establish levels for all underwriters which must be adhered to
appropriate .
underwriting Local checking procedures ensure adherence
disciplines. The
premium charged
must reflect the * Monitoring of rate strength compared with technical
cover provided and rate is undertaken on a regular basis within SBUs
the risk
presented to the
Group. * There are ongoing targeted underwriting training
programmes in place
----------------------------------------------------------------------- ----------------------
Reserving risk This risk has not
Reserving risk is * Claims development and reserving levels are closely changed materially
the risk of actual monitored by the Group Reserving team during the year.
claims payments
exceeding the
amounts we are * For statutory and financial reporting purposes,
holding prudential margins are added to a best estimate
in reserves. This outcome to allow for uncertainties
arises primarily
from our long-tail
liability business. * Claims reserves are reviewed and signed-off by the
Failure to Board acting on the advice and recommendations of the
interpret Group Reserving Actuary, Actuarial Function Director,
emerging experience the Reserving Committee and the Group Audit Committee
or fully understand
the risks written
could result in the
Group holding
insufficient
reserves to meet
our obligations.
----------------------------------------------------------------------- ----------------------
Catastrophe risk * There is a comprehensive reinsurance programme in There have been no
The risk of large place to protect against extreme events. All material changes to
scale extreme placements are reviewed and approved by the Group this risk since last
events giving rise Reinsurance Board year but this risk
to significant has been specified
insured losses. separately on the
Through * Modelling is undertaken to understand the risk Group Risk Profile
our general profile and the impact of reinsurance protections for completeness. We
insurance business continue to monitor
we are exposed to our aggregations
significant natural * A Catastrophe Risk Management Group provides and exposures to
catastrophes in the oversight and sign off of reinsurance modelling such events and
territories purchase the
in which we do appropriate
business. * Local risk appetite limits have been established to protections.
manage concentrations of risk and these are monitored
by SBUs
----------------------------------------------------------------------- ----------------------
Reinsurance risk The level of this
The risk of failing * We take a long-term view of reinsurance relationships risk has remained
to access and to deliver sustainable capacity broadly similar
manage reinsurance since last year.
capacity at a
reasonable price. * A well-diversified panel of reinsurers is maintained
Reinsurance for each element of the programme
is a central
component of our
business model, * A Group Reinsurance Board is in place which approves
enabling us to all strategic reinsurance decisions
insure a portfolio
of large risks
in proportion to
our capital base.
----------------------------------------------------------------------- ----------------------
Other financial risks
The risk that proceeds from financial assets are not sufficient to fund the obligations arising from insurance contracts.
Risk detail Key mitigants Change from last year
Market and investment * An investment strategy is in place which is reviewed
risk annually and signed off by the Finance and Investment There has been
The risk of adverse Committee (F&I). This includes consideration of the significant volatility
movements in net asset Group's liabilities and capital requirements in the investment
values arising from a markets in the last
change in interest year and the outlook
rates, * A Market and Investment Risk Committee is in place remains uncertain with
equity and property and provides oversight and challenge of these risks global trade and
prices, credit spreads and the agreed actions. There is a formalised Brexit concerns. We
and foreign exchange escalation process to Group Management Board (GMB) have de-risked
rates. This and F&I in place elements of the
principally arises defined benefit
from investments held pension scheme.
by the Group. We * There are risk appetite metrics in place which are Overall the market
actively take such agreed by the Board and include limits on exposures risk profile is not
risks to seek enhanced and counterparties materially changed
returns on and we remain invested
these investments. for the long term.
The Group's balance * Derivative instruments are used to hedge elements of
sheet is also exposed market risk, notably equity and currency. Their use
to market risk within is monitored to ensure effective management of risk
the defined benefit
pension
fund. * There is tracking of risk metrics to provide early
warning indicators of changes in the market
environment
Further information on this risk is given in the Financial
Risk and Capital Management note
to this announcement.
------------------------------------------------------------------ ------------------------
Credit risk
The risk that a * Strict ratings criteria are in place for the
counterparty, for reinsurers that we contract with and a Reinsurance The level of this risk
example a reinsurer, Security Committee approves all of our reinsurance is unchanged from last
fails to perform its partners year.
financial obligations
to the company or does
not perform them in a * Group Reinsurance monitors the market to identify
timely manner changes in the credit standing of reinsurers
resulting in a loss
for the Group.
The principal exposure * Strong credit control processes are in place to
to credit risk arises manage broker and policyholder exposures
from reinsurance,
which is central to
our business Further information on this risk is given in the Financial
model. Other elements Risk and Capital Management note
are our investment in to this announcement.
debt securities, cash
deposits and amounts
owed
to us by
intermediaries and
policyholders.
------------------------------------------------------------------ ------------------------
Liquidity risk * We hold a high proportion of our assets in readily
The risk that the realisable investments to ensure we could respond to
Group, although such a scenario There have been no
solvent, either does material changes to
not have sufficient this risk since last
financial resources * We maintain cash balances that are spread over year.
available to enable it several banks
to meet its
obligations as they
fall due, or can * We have arrangements within our reinsurance contracts
secure them only at for reinsurers to pay recoverables on claims in
excessive cost. We may advance of the claim settlement
need to pay
significant amounts of
claims at short notice
if there
is a natural
catastrophe or other
large event in order
to deliver on our
promise to our
customers.
------------------------------------------------------------------ ------------------------
Operational risk
The risk of loss arising from inadequate or failed internal processes, people and systems, or from external events.
Risk detail Key mitigants Change from last year
Systems risk * Systems monitoring is in place together with regular The strategic systems
The risk of systems and data backups programmes have made
inadequate, ageing or significant progress
unsupported systems during 2018. The scale
and infrastructure and * A strategic systems programme is underway to deliver and
system failure improved systems, processes and data complexity of these
preventing processing programmes bring a
efficiency. Systems degree of change risk
are critical to enable * Business Recovery plans are in place for all critical which we need to
us to provide systems and are regularly tested according to risk manage appropriately.
excellent service appetite Although reduced, we
to our customers. continue to carry a
number of risks which
have been mitigated
through
effective tactical
approaches during
2018.
------------------------------------------------------------------ ------------------------
The threats to our
Cyber risk business continue to
The risk of criminal * A number of security measures are deployed to ensure evolve. The controls
or unauthorised use of protected system access in place to protect
electronic the business
information, either are subject to ongoing
belonging to the * Security reviews and assessments are performed on an review and update.
Group or its ongoing basis Overall the level of
stakeholders e.g. risk is unchanged but
customers, employees we acknowledge
etc. Cyber security * There is ongoing maintenance and monitoring of our the need for vigilance
threats from malicious systems and infrastructure in order to prevent and and strong security
parties are increasing detect cyber security attacks measures.
in both number and
sophistication across
all industries.
------------------------------------------------------------------ ------------------------
The level of this risk
Change risk * We ensure that there is adequate resourcing for has not materially
The risk of failing to change projects using internal and external skills changed. There is a
manage the change where appropriate significant volume of
needed to transform change
the business. A number within the business
of strategic * A Group Development Director is in place with which will continue to
initiatives are responsibility for overseeing the delivery of all be monitored closely.
underway under six strategic initiatives
themes, including a
transformation of our
core system and * A Change Board and change governance processes have
key processes, which been established and are operated on an ongoing basis
will deliver
significant change for
the company over the * The GMB undertake close monitoring and oversight of
next few years. the delivery of the strategic initiatives and key
There are a number of Group change programmes
material risks
associated with major
transformation, not
only on the
risks to project
delivery itself, but
the potential impacts
on business as usual.
------------------------------------------------------------------ ------------------------
Regulatory and conduct risk
The risk of regulatory sanction, operational disruption or reputational damage from non-compliance with legal and regulatory requirements or the risk that Ecclesiastical's behaviour may result in poor outcomes for the customer.
Risk detail Key mitigants Change from last year
There has been
Regulatory risk significant regulatory
The risk of regulatory * We undertake close monitoring of regulatory change during 2018. We
sanction, operational developments and use dedicated project teams remain focussed on the
disruption or supported by in-house and external legal experts to management
reputational damage ensure appropriate actions to achieve compliance of regulatory change
from non-compliance and therefore the
with legal and overall risk level is
regulatory * An ongoing compliance monitoring programme is in unchanged.
requirements. We place across all our SBUs
operate in a highly
regulated environment
which * Regular reporting to the Board of regulatory
is experiencing a compliance issues and key developments is undertaken
period of significant
change.
----------------------------------------------------------------- -------------------------
The level of this risk
Conduct risk * Ongoing staff training to ensure that customer is unchanged from last
The risk of unfair outcomes are fully considered in all business year.
outcomes arising from decisions
the Company's conduct
in the relationship
with customers, * Customer charters have been implemented in all SBUs
or in performing our
duties and obligations
to our customers. We * Conduct Risk Reporting to relevant governing bodies
place the customer at is undertaken on a regular basis
the
centre of the
business, aiming to * Customer and conduct measures are used to assess
treat them fairly and remuneration
ethically, whilst
safeguarding the
interests of all other * A Customer First Steering Group is in place
key stakeholders. comprising representatives from across the Group
----------------------------------------------------------------- -------------------------
Directors' Responsibility Statement
The following statement is extracted from page 100 of the 2018 annual report and accounts, and is repeated here for the purposes of the Disclosure and Transparency Rules. The statement relates solely to the Company's 2018 annual report and accounts and is not connected to the extracted information set out in this announcement. The names and functions of the directors making the responsibility statement are set out on pages 92 to 94 of the full annual report and accounts.
The directors confirm to the best of their knowledge:
-- The financial statements, prepared in accordance with IFRS, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole.
-- The Strategic Report within the 2018 annual report and accounts includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
-- The Annual Report and financial statements, taken as a whole, are fair, balanced and understandable, and provide the information necessary for shareholders to assess the Company's position and performance, Business Model and Strategy.
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
For the year ended 31 December 2018
2018 2017
GBP000 GBP000
Revenue
Gross written premiums 356,971 342,917
Outward reinsurance premiums (137,640) (129,387)
Net change in provision for unearned premiums (5,241) (6,318)
Net earned premiums 214,090 207,212
---------- ----------
Fee and commission income 62,996 60,864
Other operating income 1,039 1,935
Net investment return 3,994 72,294
Total revenue 282,119 342,305
---------- ----------
Expenses
Claims and change in insurance liabilities (111,873) (119,913)
Reinsurance recoveries 26,188 32,196
Fees, commissions and other acquisition costs (66,346) (65,153)
Other operating and administrative expenses (114,388) (107,143)
Total operating expenses (266,419) (260,013)
---------- ----------
Operating profit 15,700 82,292
Finance costs (329) (96)
---------- ----------
Profit before tax 15,371 82,196
Tax expense (958) (14,054)
---------- ----------
Profit for the year (attributable to equity holders of the Parent) 14,413 68,142
---------- ----------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2018
2018 2017
GBP000 GBP000
Profit for the year 14,413 68,142
-------- ---------
Other comprehensive income
Items that will not be reclassified to profit or loss:
Fair value gains on property 105 -
Actuarial gains on retirement benefit plans 4,288 44,608
Attributable tax (747) (7,553)
-------- ---------
3,646 37,055
Items that may be reclassified subsequently to profit or loss:
Losses on currency translation differences (3,082) (1,642)
Gains on net investment hedges 1,692 855
Attributable tax (187) (73)
-------- ---------
(1,577) (860)
Net other comprehensive income 2,069 36,195
-------- ---------
Total comprehensive income attributable to equity holders of the Parent 16,482 104,337
-------- ---------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2018
Translation
and hedging
Share Share Revaluation Retained
capital premium reserve reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 1 January 2018 120,477 4,632 478 20,648 446,238 592,473
Profit for the year - - - - 14,413 14,413
Other net income/(expense) - - 87 (1,577) 3,559 2,069
--------- -------- -------------- ------------ ----------- ---------
Total comprehensive income - - 87 (1,577) 17,972 16,482
Dividends - - - - (9,181) (9,181)
Gross charitable grant - - - - (17,000) (17,000)
Tax relief on charitable
grant - - - - 3,230 3,230
At 31 December 2018 120,477 4,632 565 19,071 441,259 586,004
--------- -------- -------------- ------------ ----------- ---------
At 1 January 2017 120,477 4,632 501 21,508 371,194 518,312
Profit for the year - - - - 68,142 68,142
Other net income/(expense) - - 6 (860) 37,049 36,195
--------- -------- -------------- ------------ ----------- ---------
Total comprehensive income - - 6 (860) 105,191 104,337
Dividends - - - - (9,181) (9,181)
Gross charitable grant - - - - (26,000) (26,000)
Tax relief on charitable
grant - - - - 5,005 5,005
Reserve transfers - - (29) - 29 -
At 31 December 2017 120,477 4,632 478 20,648 446,238 592,473
--------- -------- -------------- ------------ ----------- ---------
The revaluation reserve represents cumulative net fair value gains on owner-occupied property. Further details of the translation and hedging reserve are included in the notes to this announcement.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 31 December 2018
2018 2017
GBP000 GBP000
Assets
Goodwill and other intangible assets 30,064 28,430
Deferred acquisition costs 33,907 31,267
Deferred tax assets 1,749 1,721
Pension assets 16,131 20,036
Property, plant and equipment 8,391 8,772
Investment property 152,182 152,238
Financial investments 798,974 859,686
Reinsurers' share of contract liabilities 140,346 159,208
Current tax recoverable 59 89
Other assets 153,630 150,082
Cash and cash equivalents 109,417 93,767
Total assets 1,444,850 1,505,296
----------- -----------
Equity
Share capital 120,477 120,477
Share premium account 4,632 4,632
Retained earnings and other reserves 460,895 467,364
Total shareholders' equity 586,004 592,473
----------- -----------
Liabilities
Insurance contract liabilities 720,049 769,248
Finance lease obligations 1,379 1,611
Provisions for other liabilities 5,216 5,599
Retirement benefit obligations 5,813 10,932
Deferred tax liabilities 31,665 38,375
Current tax liabilities 2,905 2,491
Deferred income 19,900 17,704
Other liabilities 71,919 66,863
Total liabilities 858,846 912,823
----------- -----------
Total shareholders' equity and liabilities 1,444,850 1,505,296
----------- -----------
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2018
2018 2017
GBP000 GBP000
Profit before tax 15,371 82,196
Adjustments for:
Depreciation of property, plant and equipment 2,437 2,177
Revaluation of property, plant and equipment (85) -
Profit on disposal of property, plant and equipment (3) (18)
Amortisation and impairment of intangible assets 949 1,159
Net fair value losses/(gains) on financial instruments and investment
property 35,506 (37,664)
Dividend and interest income (27,107) (28,230)
Finance costs 329 96
Adjustment for pension funding 2,931 3,069
Changes in operating assets and liabilities:
Net decrease in insurance contract liabilities (42,161) (21,363)
Net decrease in reinsurers' share of contract liabilities 16,431 5,776
Net increase in deferred acquisition costs (3,078) (762)
Net increase in other assets (5,388) (11,992)
Net increase in operating liabilities 5,838 8,834
Net (decrease)/increase in other liabilities (286) 438
---------- ----------
Cash generated by operations 1,684 3,716
Purchases of financial instruments and investment property (125,739) (153,522)
Sale of financial instruments and investment property 149,562 169,426
Dividends received 9,790 11,754
Interest received 17,347 18,809
Tax paid (4,998) (6,832)
Net cash from operating activities 47,646 43,351
---------- ----------
Cash flows from investing activities
Purchases of property, plant and equipment (1,822) (2,095)
Proceeds from the sale of property, plant and equipment 55 376
Purchases of intangible assets (2,371) (1,002)
Acquisition of business, net of cash acquired (225) -
Net cash used by investing activities (4,363) (2,721)
---------- ----------
Cash flows from financing activities
Interest paid (329) (96)
Payment of finance lease liabilities (346) (314)
Dividends paid to Company's shareholders (9,181) (9,181)
Charitable grant paid to ultimate parent undertaking (17,000) (26,000)
Net cash used by financing activities (26,856) (35,591)
---------- ----------
Net increase in cash and cash equivalents 16,427 5,039
Cash and cash equivalents at beginning of year 93,767 89,494
Exchange losses on cash and cash equivalents (777) (766)
Cash and cash equivalents at end of year 109,417 93,767
---------- ----------
NOTES TO THIS ANNUAL FINANCIAL REPORT ANNOUNCEMENT OF RESULTS
for the year ended 31 December 2018
1 Accounting policies
The Company has prepared this announcement of its consolidated results using the same accounting policies and methods of computation as the full financial statements for the year ended 31 December 2018 as prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the EU. The Group has adopted the following new standards or amendments to published standards however, these do not have a significant impact on the Group's consolidated financial statements.
(a) IFRS 15, Revenue from Contracts with Customers
The Group has adopted IFRS 15 Revenue from Contracts with Customers with effect from 1 January 2018. IFRS 15 introduced a five-step approach to revenue recognition and established principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers.
IFRS 15 has been applied using the modified approach, applied retrospectively only to contracts that were not completed contracts at 1 January 2018. Under the modified approach, the cumulative effect of initially applying IFRS 15 is recognised as an adjustment to opening reserves. The adoption of IFRS 15 did not have a material impact on the Group's financial statements and consequently no adjustment has been made to opening reserves. Minor amendments have been made to the Group's accounting policies as shown below, which had no impact on the amounts recognised in the financial statements at 1 January 2018 or 31 December 2018:
-- Income generated from insurance placements through the Group's insurance broking activities was previously recognised at the inception date of the cover. Under IFRS 15 it is recognised at the point at which the performance obligation is satisfied, being the inception date of the cover, or, where this income is variable, the point at which it is reasonably certain that no significant reversal of the amount recognised would occur.
-- Fees charged for investment management services were previously recognised when the services were provided. Under IFRS 15, as the fees are variable, they are recognised over time as the services are provided, and once it is reasonably certain that no significant reversal of the amount recognised would occur.
(b) IFRS 4 (Revised), Insurance Contracts
The amendment to IFRS 4 which permits an insurer to take a temporary exemption from applying the requirements of IFRS 9, Financial Instruments, became applicable to the Group in the year. The Group qualifies for the temporary exemption, which is available until annual periods beginning on or after 1 January 2021, since at 31 December 2015 greater than 90% of its liabilities were within the scope of IFRS 4. There has been no significant change to the Group's operations since 31 December 2015 and as a result, the Group continues to apply IAS 39, Financial Instruments.
Certain entities within the Group do not qualify for the temporary exemption from the requirements of IFRS 9. Further information detailing the adoption of IFRS 9 is disclosed in the statutory financial statements of these entities.
2 General Information
Whilst the financial information included in this announcement has been prepared in accordance with the recognition and measurement criteria of IFRS, this announcement does not itself contain sufficient information to comply with IFRS. Full financial statements that comply with IFRS were approved by the Board of Directors on 19 March 2019.
The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2018 or 2017, but is derived from those accounts. Statutory accounts for 2017 have been delivered to the Registrar of Companies and those for 2018 will be delivered following the Company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under sections 498(2) and 498(3) of the Companies Act 2006.
This announcement was approved at a meeting of the Board of Directors held on 19 March 2019.
Ecclesiastical Insurance Office plc is a subsidiary of Ecclesiastical Insurance Group plc which is an investment holding company whose ordinary shares are not listed.
The ordinary shares of Ecclesiastical Insurance Office plc are not listed.
Copies of the audited financial statements are available from the registered office at Beaufort House, Brunswick Road, Gloucester GL1 1JZ.
The following information is included in this announcement in compliance with the Disclosure and Transparency Rules and has been extracted from the full financial statements for 2018.
Insurance Risk
Through its general and life insurance operations, the Group is exposed to a number of risks, as summarised in the Risk Management section of the Strategic Report. The risk under any one insurance contract is the possibility that the insured event occurs and the uncertainty of the amount and timing of the resulting claim. Factors such as the business and product mix, the external environment including market competition and reinsurance capacity all may vary from year to year, along with the actual frequency, severity and ultimate cost of claims and benefits. This subjects the Group to underwriting and pricing risk (the risk of failing to ensure disciplined risk selection and to obtain the appropriate premium), claims reserving risk (the risk of actual claims payments exceeding the amount we are holding in reserves) and reinsurance risk (the risk of failing to access and manage reinsurance capacity at a reasonable price).
(a) Risk mitigation
Statistics demonstrate that the larger and more diversified the portfolio of insurance contracts, the smaller the relative variability in the expected outcome will be. The Group's underwriting strategy is designed to ensure that the underwritten risks are well diversified in terms of type and amount of risk and geographical spread. In all operations pricing controls are in place, underpinned by sound statistical analysis, market expertise and appropriate external consultant advice. Gross and net underwriting exposure is protected through the use of a comprehensive programme of reinsurance using both proportional and non-proportional reinsurance, supported by proactive claims handling. The overall reinsurance structure is regularly reviewed and modelled to ensure that it remains optimum to the Group's needs. The optimum reinsurance structure provides the Group with sustainable, long-term capacity to support its specialist business strategy, with effective balance sheet and profit and loss protection at a reasonable cost.
Catastrophe protection is purchased following an extensive annual modelling exercise of gross and net (of proportional reinsurance) exposures. In conjunction with reinsurance brokers the Group utilises the full range of proprietary catastrophe models and continues to develop bespoke modelling options that better reflect the specialist nature of the portfolio. Reinsurance is purchased in line with the Group's risk appetite.
(b) Concentrations of risk
The core business of the Group is general insurance, with the principal classes of business written being property and liability. The miscellaneous financial loss class of business covers personal accident, fidelity guarantee and loss of money, income and licence. The other class of business includes cover of legal expenses and also a small portfolio of motor policies, but this has been in run off in the United Kingdom since November 2012. The Group's whole-of-life insurance policies support funeral planning products.
Below is a table summarising written premiums for the financial year, before and after reinsurance, by territory and by class of business:
2018
Miscellaneous
financial
Property Liability loss Other Funeral Total
plans
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Territory
United Kingdom Gross 172,191 53,949 16,922 2,784 21 245,867
and Ireland Net 92,337 51,490 10,657 645 21 155,150
Australia Gross 34,681 20,141 1,115 1,009 - 56,946
Net 3,550 17,289 1,073 169 - 22,081
Canada Gross 36,560 17,598 - - - 54,158
Net 25,854 16,246 - - - 42,100
Total Gross 243,432 91,688 18,037 3,793 21 356,971
--------- ---------- -------------- ------- -------- ---------
Net 121,741 85,025 11,730 814 21 219,331
--------- ---------- -------------- ------- -------- ---------
2017
Miscellaneous
financial
Property Liability loss Other Funeral Total
plans
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Territory
United Kingdom Gross 163,907 52,352 15,691 2,494 28 234,472
and Ireland Net 88,269 50,111 9,826 473 28 148,707
Australia Gross 33,225 21,411 1,286 943 - 56,865
Net 4,356 18,429 1,240 934 - 24,959
Canada Gross 35,399 16,181 - - - 51,580
Net 24,801 15,063 - - - 39,864
Total Gross 232,531 89,944 16,977 3,437 28 342,917
--------- ---------- -------------- ------- -------- ---------
Net 117,426 83,603 11,066 1,407 28 213,530
--------- ---------- -------------- ------- -------- ---------
(c) General insurance risks
Property classes
Property cover mainly compensates the policyholder for damage suffered to their property or for the value of property lost. Property insurance may also include cover for pecuniary loss through the inability to use damaged insured commercial properties.
For property insurance contracts, there can be variability in the nature, number and size of claims made in each period.
The nature of claims may include fire, business interruption, weather damage, escape of water, explosion (after fire), riot and malicious damage, subsidence, accidental damage and theft. Subsidence claims are particularly difficult to predict because the damage is often not apparent for some time. The ultimate settlements can be small or large with a risk of a settled claim being reopened at a later date.
The number of claims made can be affected in particular by weather events, changes in climate, economic environment, and crime rates. Climate change may give rise to more frequent and extreme weather events, such as river flooding, hurricanes and drought, and their consequences, for example, subsidence claims. If a weather event happens near the end of the financial year, the uncertainty about ultimate claims cost in the financial statements is much higher because there is insufficient time for adequate data to be received to assess the final cost of claims.
Individual claims can vary in amount since the risks insured are diverse in both size and nature. The cost of repairing property varies according to the extent of damage, cost of materials and labour charges.
Contracts are underwritten on a reinstatement basis or repair and restoration basis as appropriate. Costs of rebuilding properties, of replacement or indemnity for contents and time taken to bring business operations back to pre-loss levels for business interruption are the key factors that influence the cost of claims. Individual large claims are more likely to arise from fire, storm or flood damage. The greatest likelihood of an aggregation of claims arises from earthquake, weather or major spreading fire events.
Claims payment, on average, occurs within a year of the event that gives rise to the claim. However, there is variability around this average with larger claims typically taking longer to settle and business interruption claims taking much longer depending on the length of the indemnity period involved.
Liability classes
The main exposures are in respect of liability insurance contracts which protect policyholders from the liability to compensate injured employees (employers' liability) and third parties (public liability).
Claims that may arise from the liability portfolios include damage to property, physical injury, disease and psychological trauma. The Group has a different exposure profile to most other commercial lines insurance companies as it has lower exposure to industrial risks. Therefore, claims for industrial diseases are less common for the Group than injury claims such as slips, trips and back injuries.
The frequency and severity of claims arising on liability insurance contracts, including the liability element of motor contracts, can be affected by several factors. Most significant are the increasing level of awards for damages suffered, legal costs and the potential for periodic payment awards.
The severity of bodily injury claims can be influenced particularly by the value of loss of earnings and the future cost of care. The settlement value of claims arising under public and employers' liability is particularly difficult to predict. There is often uncertainty as to the extent and type of injury, whether any payments will be made and, if they are, the amount and timing of the payments, including the discount rate applied for assessing lump sums. Key factors driving the high levels of uncertainty include the late notification of possible claim events and the legal process.
Late notification of possible claims necessitates the holding of provisions for incurred claims that may only emerge some years into the future. In particular, the effect of inflation over such a long period can be considerable and is uncertain. A lack of comparable past experience may make it difficult to quantify the number of claims and, for certain types of claims, the amounts for which they will ultimately settle. The legal and legislative framework continues to evolve, which has a consequent impact on the uncertainty as to the length of the claims settlement process and the ultimate settlement amounts.
Claims payment, on average, occurs about three to four years after the event that gives rise to the claim. However, there is significant variability around this average.
Provisions for latent claims
The public and employers' liability classes can give rise to very late reported claims, which are often referred to as latent claims. These can vary in nature and are difficult to predict. They typically emerge slowly over many years, during which time there can be particular uncertainty as to the number of future potential claims and their cost. The Group has reflected this uncertainty and believes that it holds adequate reserves for latent claims that may result from exposure periods up to the reporting date.
Note 28 to the full financial statements presents the development of the estimate of ultimate claim cost for public and employers' liability claims occurring in a given year. This gives an indication of the accuracy of the estimation technique for incurred claims.
(d) Life insurance risks
The Group provides whole-of-life insurance policies to support funeral planning products, for most of which the future benefits are linked to inflation and backed by index-linked assets. Although assets are well matched to liabilities, there is a risk that returns on assets held to back liabilities are insufficient to meet future claims payments, particularly if the timing of claims is different from that assumed. This is not one of the Group's principal risks and new policies are no longer being written in the life fund, with only minimal premiums now being received each year.
Uncertainty in the estimation of the timing of future claims arises from the unpredictability of long-term changes in overall levels of mortality. The Group bases these estimates on standard industry and national mortality tables and its own experience. The most significant factors that could alter the expected mortality rates profile are epidemics, widespread changes in lifestyle and continued improvement in medical science and social conditions. The primary risk on these contracts is the level of future investment returns on the assets backing the liabilities over the life of the policyholders. The interest rate and inflation risk within this has been largely mitigated by holding index-linked assets of a similar term to the expected liabilities profile. The main residual risk is the spread risk attached to corporate bonds held to match the liabilities. The small mortality risk is retained by the Group.
Financial risk and capital management
The Group is exposed to financial risk through its financial assets, financial liabilities, reinsurance assets and insurance liabilities. In particular, the key financial risk is that the proceeds from its financial assets are not sufficient to fund the obligations arising from its insurance contracts. The most important components of financial risk are interest rate risk, credit risk, currency risk and equity price risk.
There has been no change from the prior period in the nature of the financial risks to which the Group is exposed. Brexit has continued to result in greater uncertainty in relation to the economic risks to which the Group is exposed, including equity price volatility, movements in exchange rates and long-term UK growth prospects. The Group's management and measurement of financial risks is informed by either stochastic modelling or stress testing techniques.
(a) Categories of financial instruments
(i) Classification applying IAS 39
Financial assets Financial liabilities
------------------------------------------------- ----------------------
Other
Held Hedge Held Financial assets
Designated for Loans and accounted for liabilities and
at fair trading receivables derivatives trading * liabilities Total
value
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 31
December
2018
Financial
investments 782,976 5,331 9,930 737 - - - 798,974
Other assets - - 149,119 - - - 4,511 153,630
Cash and
cash
equivalents - - 109,417 - - - - 109,417
Other
liabilities - - - - (2,306) (60,969) (8,644) (71,919)
Net other - - - - - - (404,098) (404,098)
Total 782,976 5,331 268,466 737 (2,306) (60,969) (408,231) 586,004
----------- -------- ------------ ------------ -------- ------------ ------------ ----------
At 31
December
2017
Financial
investments 845,811 2,611 9,862 1,388 - - 14 859,686
Other assets - - 145,568 - - - 4,514 150,082
Cash and
cash
equivalents - - 93,767 - - - - 93,767
Other
liabilities - - - - - (58,633) (8,230) (66,863)
Net other - - - - - - (444,199) (444,199)
Total 845,811 2,611 249,197 1,388 - (58,633) (447,901) 592,473
----------- -------- ------------ ------------ -------- ------------ ------------ ----------
*Financial liabilities are held at amortised cost.
The directors consider that the carrying value of those financial assets and liabilities not carried at fair value in the financial statements approximates to their fair value.
(ii) Categories of financial assets applying IFRS 9
The Group classifies and measures financial instruments using IAS 39 as disclosed in the accounting policies. The table below sets out the fair value of financial assets as at the balance sheet date and the change in fair value during the year, based on the classification and measurement requirements that would result from adopting IFRS 9.
Financial assets which have contractual cash flows that are solely payments of principal and interest on the principal outstanding (SPPI) would be measured at amortised cost, other than those which are held for trading or whose performance is evaluated on a fair value basis. All other financial assets would be measured at fair value.
SPPI financial Other financial Total financial
assets measured assets measured assets
at amortised cost at fair value
Fair value as at 1 January
2018 249,197 849,810 1,099,007
Change in fair value during
the year 19,269 (60,766) (41,497)
Fair value as at 31 December
2018 268,466 789,044 1,057,510
------------------- ----------------- ----------------
The directors consider that the carrying value of those financial assets and liabilities not carried at fair value in the financial statements approximates to their fair value.
(b) Fair value hierarchy
The fair value measurement basis used to value those financial assets and financial liabilities held at fair value is categorised into a fair value hierarchy as follows:
Level 1: fair values measured using quoted bid prices (unadjusted) in active markets for identical assets or liabilities. This category includes listed equities in active markets, listed debt securities in active markets and exchange-traded derivatives.
Level 2: fair values measured using inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes listed debt or equity securities in a market that is not active and derivatives that are not exchange-traded.
Level 3: fair values measured using inputs for the asset or liability that are not based on observable market data (unobservable inputs). This category includes unlisted debt and equities, including investments in venture capital, and suspended securities. Where a look-through valuation approach is applied, underlying net asset values are sourced from the investee, translated into the Group's functional currency and adjusted to reflect illiquidity where appropriate, with the fair values disclosed being directly sensitive to this input.
There have been no transfers between investment categories in the current year.
Analysis of fair value measurement bases Fair value measurement
at the
end of the reporting
period based on
----------------------------
Level Level Level Total
1 2 3
GBP000 GBP000 GBP000 GBP000
At 31 December 2018
Financial assets at fair value through
profit or loss
Financial investments
Equity securities 241,115 246 44,773 286,134
Debt securities 495,348 1,233 261 496,842
Derivatives - 5,331 - 5,331
736,463 6,810 45,034 788,307
Financial assets at fair value through
other comprehensive income
Financial investments
Derivatives - 737 - 737
Total financial assets at fair value 736,463 7,547 45,034 789,044
--------- ------- -------- ---------
At 31 December 2017
Financial assets at fair value through
profit or loss
Financial investments
Equity securities 286,552 238 42,279 329,069
Debt securities 515,277 1,340 125 516,742
Derivatives - 2,611 - 2,611
801,829 4,189 42,404 848,422
Financial assets at fair value through
other comprehensive income
Financial investments
Derivatives - 1,388 - 1,388
Total financial assets at fair value 801,829 5,577 42,404 849,810
--------- ------- -------- ---------
The derivative liabilities of the Group in the prior year were measured
at fair value through profit or loss and categorised as level 2.
Fair value measurements based on level 3
Fair value measurements in level 3 consist of financial assets, analysed as follows:
Financial assets at fair
value
through profit and loss
----------------------------------
Equity Debt
securities securities Total
GBP000 GBP000 GBP000
At 31 December 2018
Opening balance 42,279 125 42,404
Total gains recognised in profit or loss 2,628 5 2,633
Transfers (134) 134 -
Disposal proceeds - (3) (3)
Closing balance 44,773 261 45,034
----------- ----------- --------
Total gains for the period included in profit
or loss for assets
held at the end of the reporting period 2,656 5 2,661
----------- ----------- --------
At 31 December 2017
Opening balance 35,376 139 35,515
Total gains recognised in profit or loss 8,003 1 8,004
Disposal proceeds (1,100) (15) (1,115)
Closing balance 42,279 125 42,404
----------- ----------- --------
Total gains for the period included in profit
or loss for assets
held at the end of the reporting period 6,897 1 6,898
----------- ----------- --------
All the above gains or losses included in profit or loss for the period are presented in net investment return within the statement of profit or loss.
The valuation techniques used for instruments categorised in levels 2 and 3 are described below.
Listed debt and equity securities not in active market (level 2)
These financial assets are valued using third-party pricing information that is regularly reviewed and internally calibrated based on management's knowledge of the markets. Where material, these valuations are reviewed by the Group Audit Committee.
Non exchange-traded derivative contracts (level 2)
The Group's derivative contracts are not traded in active markets. Foreign currency forward contracts are valued using observable forward exchange rates corresponding to the maturity of the contract and the contract forward rate. Over-the-counter equity or index options and futures are valued by reference to observable index prices.
Unlisted equity securities (level 3)
These financial assets are valued using observable net asset data, adjusted for unobservable inputs including comparable price-to-book ratios based on similar listed companies, and management's consideration of constituents as to what exit price might be obtainable. Where material, these valuations are reviewed by the Group Audit Committee.
The valuation is most sensitive to the level of underlying net assets, the Euro exchange rate, the price-to-book ratio chosen, an illiquidity discount and a credit rating discount applied to the valuation to account for the risks associated with holding the asset. If the price-to-book ratio, illiquidity discount and credit rating discount applied changes by +/-10%, the value of unlisted equity securities could move by +/-GBP5m (2017: +/-GBP5m).
The increase in value during the year is primarily the result of an increase in the price-to-book ratio.
Unlisted debt (level 3)
Unlisted debt is valued using an adjusted net asset method whereby management uses a look-through approach to the underlying assets supporting the loan, discounted using observable market interest rates of similar loans with similar risk, and allowing for unobservable future transaction costs. Where material, these valuations are reviewed by the Group Audit Committee.
The valuation is most sensitive to the level of underlying net assets, but it is also sensitive to the interest rate used for discounting and the projected date of disposal of the asset, with the exit costs sensitive to an expected return on capital of any purchaser and estimated transaction costs. Reasonably likely changes in unobservable inputs used in the valuation would not have a significant impact on shareholders' equity or the net result.
The increase in value during the year is primarily the result of a liability management exercise which restructured an investment from an equity holding to a debt holding.
(c) Interest rate risk
The Group's exposure to interest rate risk arises primarily from movements on financial investments that are measured at fair value and have fixed interest rates, which represent a significant proportion of the Group's assets, and from those insurance liabilities for which discounting is applied at a market interest rate. The Group's investment strategy is set in order to control the impact of interest rate risk on anticipated cash flows and asset and liability values. The fair value of the Group's investment portfolio of fixed income securities reduces as market interest rates rise as does the present value of discounted insurance liabilities, and vice versa.
Interest rate risk concentration is reduced by adopting asset-liability duration matching principles where appropriate. Excluding assets held to back the life business, the average duration of the Group's fixed income portfolio is two years (2017: two years), reflecting the relatively short-term average duration of its general insurance liabilities. The mean term of discounted general insurance liabilities is disclosed in note 28(a)(iv) to the full financial statements.
For the Group's life business, consisting of policies to support funeral planning products, benefits payable to policyholders are independent of the returns generated by interest-bearing assets. Therefore, the interest rate risk on the invested assets supporting these liabilities is borne by the Group. This risk is mitigated by purchasing fixed interest investments with durations that match the profile of the liabilities. For funeral plan policies, benefits are linked to the Retail Prices Index (RPI). Assets backing these liabilities are also linked to the RPI, and include index-linked gilts and corporate bonds. For practical purposes it is not possible to exactly match the durations due to the uncertain profile of liabilities (e.g. mortality risk) and the availability of suitable assets, therefore some interest rate risk will persist. The Group monitors its exposure by comparing projected cash flows for these assets and liabilities and making appropriate adjustments to its investment portfolio.
The table below summarises the maturities of life business assets and liabilities that are exposed to interest rate risk.
Maturity
----------------------------
Within Between After
1 year 1 & 5 5 years Total
Group life business years
GBP000 GBP000 GBP000 GBP000
At 31 December 2018
Assets
Debt securities 4,380 26,428 67,630 98,438
Cash and cash equivalents 4,527 - - 4,527
8,907 26,428 67,630 102,965
-------- -------- -------- ---------
Liabilities (discounted)
Life business provision 5,728 19,988 56,248 81,964
At 31 December 2017
Assets
Debt securities 5,266 21,638 73,231 100,135
Cash and cash equivalents 5,192 - - 5,192
10,458 21,638 73,231 105,327
-------- -------- -------- ---------
Liabilities (discounted)
Life business provision 6,031 21,147 60,963 88,141
-------- -------- -------- ---------
Group financial investments with variable interest rates, including cash and cash equivalents, and insurance instalment receivables are subject to cash flow interest rate risk. This risk is not significant to the Group.
(d) Credit risk
The Group has exposure to credit risk, which is the risk of non-payment of their obligations by counterparties and financial markets borrowers. Areas where the Group is exposed to credit risk are:
-- counterparty default on loans and debt securities;
-- reinsurers' share of insurance liabilities (excluding provision for unearned premiums) and amounts due from reinsurers in respect of claims already paid;
-- deposits held with banks; and
-- amounts due from insurance intermediaries and policyholders.
The Group is exposed to minimal credit risk in relation to all other financial assets.
The carrying amount of financial and reinsurance assets represents the Group's maximum exposure to credit risk. The Group structures the levels of credit risk it accepts by placing limits on its exposure to a single counterparty. Limits on the level of credit risk are regularly reviewed. Where available the Group also manages its exposure to credit risk in relation to credit risk ratings. Investment grade financial assets are classified within the range of AAA to BBB ratings, where AAA is the highest possible rating. Financial assets which fall outside this range are classified as sub-investment grade. 'Not rated' assets capture assets not rated by external ratings agencies.
The debt securities portfolio consists of a range of mainly fixed interest instruments including government securities, local authority issues, corporate loans and bonds, overseas bonds, preference shares and other interest-bearing securities. Limits are imposed on the credit ratings of the corporate bond portfolio and exposures regularly monitored. Group investments in unlisted securities represent less than 1% of this category in the current and prior year.
The Group's exposure to counterparty default on debt securities is spread across a variety of geographical and economic territories, as follows:
2018 2017
GBP000 GBP000
UK 317,137 331,787
Australia 82,901 86,440
Canada 72,301 74,143
Europe 24,503 24,372
Total 496,842 516,742
--------- ---------
Reinsurance is used to manage insurance risk. This does not, however, discharge the Group's liability as primary insurer. If a reinsurer fails to pay a claim for any reason, the Group remains liable for the payment to the policyholder. The creditworthiness of reinsurers is considered on a regular basis through the year by reviewing their financial strength. The Group Reinsurance Security Committee assesses, monitors and approves the creditworthiness of all reinsurers, reviewing relevant credit ratings provided by the recognised credit rating agencies, as well as other publicly available data and market information. The Committee also monitors the balances outstanding from reinsurers and maintains an approved list of reinsurers.
Group cash balances are regularly reviewed to identify the quality of the counterparty bank and to monitor and limit concentrations of risk.
The table below summaries the principal ways in which the Group assesses its exposure to credit risk by category of financial asset.
Current external credit
Debt securities ratings
Current external credit
Reinsurance debtors ratings
Current external credit
Cash ratings
Internal credit risk
Amounts due from insurance intermediaries rating
Amounts due from policy holders Past due status
Other debtors Past due status
A detailed breakdown of the Group's current debt securities, reinsurance debtors and cash credit exposure based on S&P or equivalent rating is presented below.
2018 2017
Reinsurance Debt Reinsurance
Debt securities debtors Cash* securities debtors Cash*
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
AAA 126,227 - - 122,829 - -
AA 142,426 2,788 23,316 144,613 6,144 26,926
A 115,026 8,058 55,090 141,312 6,953 36,551
BBB 91,471 3 40,826 88,483 - 40,053
Below BBB 12,197 - 91 10,354 7 90
Not rated 9,495 763 7 9,151 1,378 7
496,842 11,612 119,330 516,742 14,482 103,627
---------------- ------------ --------- ------------ ------------ ---------
*Cash includes amounts held on deposit classified within financial investments and disclosed in note 22 to the full financial statements. Cash balances which are not rated relate to cash amounts in hand.
The Group's credit risk policy details prescriptive methods for the collection of premiums and control of intermediary and policyholder debtor balances. The level and age of debtor balances are regularly assessed via monthly credit management reports. These reports are scrutinised to assess exposure by geographical region and counterparty of aged or outstanding balances. Any such balances are likely to be major international brokers that are in turn monitored via credit reference agencies and considered to pose minimal risk of default. The Group has no material concentration of credit risk in respect of amounts due from insurance intermediaries and policyholders due to the well-diversified spread of such debtors.
An external agency is used to rate agents, brokers and intermediaries on a scale of 0 to 100. A database of their ratings is maintained and updated daily. These ratings are adapted to internal credit ratings based on the Group's credit rating matrix, which rates the agency from very high risk to very low risk.
A breakdown of the Group's current amounts due from insurance intermediaries split by credit quality is shown below. All balances are shown gross of impairment losses.
2018 2017
GBP000 GBP000
Very low risk 21,094 18,414
Low risk 1,724 1,297
Moderate risk 223 169
High risk 46 25
Very high risk 132 144
Not rated 23,959 24,362
47,178 44,411
-------- --------
The Group manages its credit risk at business unit level. All business units are required to implement credit risk management processes and ensure detailed reporting and monitoring of their exposures. Credit management processes differ across business units and as result the Group is unable to rate all intermediary balances in the same categories. Those which cannot be categorised are included as not rated.
The level and age of policyholder debtor balances are regularly assessed via monthly credit management reports. Credit risk ascribed to amounts due from contract holders and other debtors is based on the age of outstanding balances. The following table provides the past due status of outstanding contract holder balances. All balances are shown gross of impairment losses.
2018 2017
Contract Other Contract Other
holders debtors* holders debtors
GBP000 GBP000 GBP000 GBP000
Current 36,342 21,135 33,400 23,286
Past due 1-30 days 347 3 411 8
Past due 31-90 days 18 3 37 -
Past due 91-120 days 1 9 - 15
Past due 120+ days - - 3 -
36,708 21,150 33,851 23,309
--------- ---------- --------- ---------
*Other debtors includes accrued income but excludes non-financial assets and amounts due to related parties.
No amounts due to related parties are past due.
For financial assets meeting the SPPI test that do not have a low credit rating, the carrying amount disclosed above is an approximation of their fair value.
(e) Equity price risk
The Group is exposed to equity price risk because of financial investments held by the Group which are stated at fair value through profit or loss. The Group mitigates this risk by holding a diversified portfolio across geographical regions and market sectors, and through the use of derivative contracts from time to time which would limit losses in the event of a fall in equity markets.
The concentration of equity price risk by geographical listing, before the mitigating effect of derivatives, to which the Group is exposed is as follows:
2018 2017
GBP000 GBP000
-
UK 241,116 UK 286,715
Europe 44,821 Europe 42,168
Hong Kong 197 Hong Kong 186
Total 286,134 Total 329,069
--------- ---------
(f) Currency risk
The Group operates internationally and its main exposures to foreign exchange risk are noted below. The Group's foreign operations generally invest in assets and purchase reinsurance denominated in the same currencies as their insurance liabilities, which mitigates the foreign currency exchange rate risk for these operations. As a result, foreign exchange risk arises from recognised assets and liabilities denominated in other currencies and net investments in foreign operations. The Group mitigates this risk through the use of derivatives when considered necessary.
The Group exposure to foreign currency risk within the investment portfolios arises from purchased investments that are denominated in currencies other than sterling.
The Group's foreign operations create two sources of foreign currency risk:
-- the operating results of the Group's foreign branches and subsidiaries in the Group financial statements are translated at the average exchange rates prevailing during the period; and
-- the equity investment in foreign branches and subsidiaries is translated into sterling using the exchange rate at the year-end date.
The Group has designated certain derivatives as a hedge of its net investments in Canada and Australia, which have Canadian and Australian dollars respectively as their functional currency. The forward foreign currency risk arising on translation of these foreign operations is hedged by the derivatives which are detailed in the derivative financial instruments note to this announcement.
The largest currency exposures, before the mitigating effect of derivatives, with reference to net assets/liabilities are shown below, representing effective diversification of resources.
2018 2017
GBP000 GBP000
Aus $ 47,838 Aus $ 48,745
Euro 42,538 Euro 38,100
Can $ 31,024 Can $ 31,584
NZ $ 1,043 NZ $ 285
USD $ 1,004 USD $ 1,247
The figures in the table above, for the current and prior years, do not include currency risk that the Group is exposed to on a 'look through' basis in respect of collective investment schemes denominated in Sterling. The Group enters into derivatives to hedge currency exposure, including exposures on a 'look through' basis. The open derivatives held by the Group at the year end to hedge currency exposure are detailed in the derivative financial instruments note to this announcement.
(g) Liquidity risk
Liquidity risk is the risk that funds may not be available to pay obligations when due. The Group is exposed to daily calls on its available cash resources mainly from claims arising from insurance contracts. An estimate of the timing of the net cash outflows resulting from insurance contracts is provided in note 28 to the full financial statements. The Group has robust processes in place to manage liquidity risk and has available cash balances, other readily marketable assets and access to funding in case of exceptional need. This is not considered to be a significant risk to the Group.
Non-derivative financial liabilities consist of finance leases, which are not material to the Group, and other liabilities for which a maturity analysis is included in note 31 to the full financial statements.
(h) Market risk sensitivity analysis
The sensitivity of profit and other equity reserves to movements on market risk variables (comprising interest rate, currency and equity price risk), each considered in isolation and before the mitigating effect of derivatives, is shown in the table below. This table does not include the impact of variables on retirement benefit schemes. Financial risk sensitivities for retirement benefit schemes are disclosed separately in note 19 to the full financial statements.
Group Potential increase / (decrease) in Potential increase / (decrease) in
profit other equity reserves
Change in
Variable variable 2018 2017 2018 2017
GBP000 GBP000 GBP000 GBP000
Interest rate risk -100 basis points (4,730) (6,391) - (6)
+100 basis points 2,799 3,202 (3) 2
Currency risk -10% 4,772 4,021 7,613 8,017
+10% (3,904) (3,290) (6,229) (6,559)
Equity price risk +/-10% 23,177 26,572 - -
The following assumptions have been made in preparing the above sensitivity analysis:
-- the value of fixed income investments will vary inversely with changes in interest rates, and all territories experience the same interest rate movement;
-- currency gains and losses will arise from a change in the value of sterling against all other currencies moving in parallel;
-- equity prices will move by the same percentage across all territories; and
-- change in profit is stated net of tax at the standard rate applicable in each of the Group's territories.
(i) Capital management
The Group's primary objectives when managing capital are to:
-- comply with the regulators' capital requirements of the markets in which the Group operates; and
-- safeguard the Group's ability to continue to meet stakeholders' expectations in accordance with its corporate mission, vision and values.
The Group is subject to insurance solvency regulations in all the territories in which it issues insurance and investment contracts, and capital is managed and evaluated on the basis of both regulatory and economic capital.
In the UK, the Group and its UK regulated entities are required to comply with rules issued by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).
Capital is assessed at both individual regulated entity and Group level. The PRA expects a firm, at all times, to hold Solvency II Own Funds in excess of its calculated Solvency Capital Requirement (SCR). Group solvency is assessed at the level of Ecclesiastical Insurance Office Plc (EIO)'s parent, Ecclesiastical lnsurance Group (EIG). Consequently, there is no directly comparable solvency measure for EIO Group. Both quarterly and annual quantitative returns are submitted to the PRA, in addition to an annual narrative report, the Solvency and Financial Condition Report (SFCR) which is also published on the company website. A further report, the Regular Supervisory Report (RSR), is periodically submitted to the PRA.
Previously, both EIO and EIG used the standard formula to calculate the SCR. During the year, approval from the PRA was received to use its internal capital model to determine the SCR for EIO and EIG. Subsequently, EIO's SCR is now calculated using a full internal model and EIG's SCR calculated using a partial internal model. Ecclesiastical Life Limited (ELL) continues to adopt the standard formula approach in determining its SCR.
The current year figures in the table below are unaudited and based on the latest information provided to management. The prior year figures in the table below are the final audited figures as disclosed in the Company's SFCRs, available on the Group's website. These differ from the figures reported last year as they were estimated based on information available to management at the time the accounts were signed.
EIO's Solvency II Own Funds will be subject to a separate independent audit, as part of the Group's process for Solvency II reporting to the PRA. EIO's SCR is not subject to audit as it is calculated using an internal model which has been approved for use by the PRA. ELL's figures are not subject to an independent audit due to the Company falling below the threshold calculation detailed in the PRA policy statement PS25/18 (Solvency II: External audit of the public disclosure requirement). The Group's regulated entities, EIO and ELL, expect to meet the deadline for submission to the PRA of 18 April 2019 and their respective SFCRs will be made available on the Group's website shortly thereafter. EIG is also expected to meet its deadline for submission to the PRA of 3 June 2019, with its SFCR also being made available on the Group's website shortly after.
2018 2017
(unaudited) (audited)
Ecclesiastical Ecclesiastical
Insurance Insurance
Office plc Ecclesiastical Office plc Ecclesiastical
Parent Life Limited Parent Life Limited
GBP000 GBP000 GBP000 GBP000
Solvency II Own Funds 543,970 52,583 561,478 51,944
Solvency Capital Requirement (256,095) (15,776) (292,351) (18,260)
Own Funds in excess of Solvency Capital
Requirement 287,875 36,807 269,127 33,684
--------------- --------------- --------------- ---------------
Solvency II Capital Cover 212% 333% 192% 284%
Economic capital is the Group's own internal view of the level of capital required, and this measure is an integral part of the Own Risk and Solvency Assessment Report (ORSA) which is a private, internal forward-looking assessment of own risk, as required as part of the Solvency II regime. Risk appetite is set such that the target level of economic capital is always higher than the regulatory SCR.
Derivative financial instruments
The Group utilises derivatives to mitigate equity price risk arising from investments held at fair value, foreign exchange risk arising from investments denominated in foreign currencies, and foreign exchange risk arising from investments denominated in Sterling that contain underlying foreign currency exposure. These 'non-hedge' derivatives either do not qualify for hedge accounting or the option to hedge account has not been taken.
The Group has also formally designated certain derivatives as a hedge of its net investments in Australia and Canada. A gain of GBP1,692,000 (2017: gain of GBP855,000) in respect of these 'hedge' derivatives has been recognised in the hedging reserve within shareholders' equity, as disclosed in the Translation and Hedging Reserve note to this announcement. The Group has formally assessed and documented the effectiveness of derivatives that qualify for hedge accounting in accordance with IAS 39, Financial Instruments: Recognition and Measurement.
2018 2017
Contract/ Contract/
notional Fair value Fair value notional Fair value
amount asset liability amount asset
GBP000 GBP000 GBP000 GBP000 GBP000
Non-hedge derivatives
Equity/Index contracts
Options 63,077 5,331 - 114,578 2,029
Foreign exchange contracts
Forwards (Euro) 87,514 - 2,306 93,991 582
Hedge derivatives
Foreign exchange contracts
Forwards (Australian dollar) 57,264 492 - 46,934 814
Forwards (Canadian dollar) 27,157 245 - 34,123 574
235,012 6,068 2,306 289,626 3,999
---------- ----------- ----------- ---------- -----------
Included with Equity/Index contracts are options with a contract/notional value of GBP22,493,000 (2017: GBP17,991,000), and fair value asset of GBP2,348,000 (2017: GBP854,000), which expire in greater than one year. All other derivatives in the current and prior period expire within one year.
All contracts designated as hedging instruments were fully effective in the current and prior year.
The notional amounts above reflect the aggregate of individual derivative positions on a gross basis and so give an indication of the overall scale of the derivative transactions. They do not reflect current market values of the open positions.
Derivative fair value assets are recognised within financial investments and derivative fair value liabilities are recognised within other liabilities.
Translation and hedging reserve
Translation Hedging
reserve reserve Total
GBP000 GBP000 GBP000
At 1 January 2018 18,022 2,626 20,648
Losses on currency translation differences (3,082) - (3,082)
Gains on net investment hedges - 1,692 1,692
Attributable tax - (187) (187)
At 31 December 2018 14,940 4,131 19,071
------------ -------- --------
At 1 January 2017 19,664 1,844 21,508
Losses on currency translation differences (1,642) - (1,642)
Gains on net investment hedges - 855 855
Attributable tax - (73) (73)
At 31 December 2017 18,022 2,626 20,648
------------ -------- --------
The translation reserve arises on consolidation of the Group's foreign operations. The hedging reserve represents the cumulative amount of gains and losses on hedging instruments in respect of net investments in foreign operations.
Segment information
(a) Operating segments
The Group segments its business activities on the basis of differences in the products and
services offered and, for general insurance, the underwriting territory. Expenses relating
to Group management activities are included within 'Corporate costs'. This reflects the management
and internal Group reporting structure.
The activities of each operating segment are described below.
- General business
United Kingdom and Ireland
The Group's principal general insurance business operation is in the UK, where it operates
under the Ecclesiastical and Ansvar brands. The Group also operates an Ecclesiastical branch
in the Republic of Ireland underwriting general business across the whole of Ireland.
Australia
The Group has a wholly-owned subsidiary in Australia underwriting general insurance business
under the Ansvar brand.
Canada
The Group operates a general insurance Ecclesiastical branch in Canada.
Other insurance operations
This includes the Group's internal reinsurance function, adverse development cover sold to
ACS (NZ) Limited and operations that are in run-off or not reportable due to their immateriality.
- Investment management
The Group provides investment management services both internally and to third parties through
EdenTree Investment Management Limited.
- Broking and Advisory
The Group provides insurance broking through South Essex Insurance Brokers Limited, financial
advisory services through Ecclesiastical Financial Advisory Services Limited and risk advisory
services through Ansvar Risk Management Services Pty Limited which operates in Australia.
- Life business
Ecclesiastical Life Limited provides long-term insurance policies to support funeral planning
products. It is closed to new business.
- Corporate costs
This includes costs associated with Group management activities.
Inter-segment and inter-territory transfers or transactions are entered into under normal
commercial terms and conditions that would also be available to unrelated third parties.
The accounting policies of the operating segments are the same as the Group's accounting policies
described in note 1 to the full financial statements, with the exception of the investment
management and broking and advisory segments. These segments do not qualify for the temporary
exemption from IFRS 9 available to insurers and as a result have adopted IFRS 9 in the current year. Consequently, their accounting policies for financial instruments may differ, but all other accounting policies are the same as the Group.
Segment revenue
The Group uses gross written premiums as the measure for turnover of the general and life insurance business segments. Turnover of the non-insurance segments comprises fees and commissions earned in relation to services provided by the Group to third parties. Segment revenues do not include net investment return or general business fee and commission income, which are reported within revenue in the consolidated statement of profit or loss.
Revenue is attributed to the geographical region in which the customer is based.
2018 2017
Gross Non- Gross Non-
written insurance written insurance
premiums services Total premiums services Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
General business
United Kingdom and Ireland 242,339 - 242,339 231,257 - 231,257
Australia 56,946 - 56,946 56,865 - 56,865
Canada 54,158 - 54,158 51,580 - 51,580
Other insurance operations 3,507 - 3,507 3,187 - 3,187
Total 356,950 - 356,950 342,889 - 342,889
Life business 21 - 21 28 - 28
Investment management - 12,601 12,601 - 11,685 11,685
Broking and Advisory - 9,049 9,049 - 8,628 8,628
Group revenue 356,971 21,650 378,621 342,917 20,313 363,230
--------- ---------- --------- --------- ---------- ---------
Group revenues are not materially concentrated on any single external customer.
Segment result
General business segment results comprise the insurance underwriting profit or loss, investment activities and other expenses of each underwriting territory. The Group uses the industry standard net combined operating ratio (COR) as a measure of underwriting efficiency. The COR expresses the total of net claims costs, commission and underwriting expenses as a percentage of net earned premiums. Further details on the underwriting profit or loss and COR, which are alternative performance measures that are not defined under IFRS, are detailed in the reconciliation of Alternative Performance Measures note to this announcement.
The life business segment result comprises the profit or loss on insurance contracts (including return on assets backing liabilities in the long-term fund), shareholder investment return and other expenses.
All other segment results consist of the profit or loss before tax measured in accordance with IFRS.
2018 Combined
operating Insurance Investments Other Total
ratio GBP000 GBP000 GBP000 GBP000
General business
United Kingdom and Ireland 80.2% 29,426 (1,836) (252) 27,338
Australia 93.7% 1,400 2,073 (77) 3,396
Canada 106.5% (2,599) 1,655 - (944)
Other insurance operations 963 - - 963
86.4% 29,190 1,892 (329) 30,753
Life business 1,642 (3,181) - (1,539)
Investment management - - 941 941
Broking and Advisory - - 2,045 2,045
Corporate costs - - (16,829) (16,829)
Profit/(loss) before tax 30,832 (1,289) (14,172) 15,371
---------- ------------ --------- ---------
2017 Combined
operating Insurance Investments Other Total
ratio GBP000 GBP000 GBP000 GBP000
General business
United Kingdom and Ireland 77.1% 32,692 55,454 (23) 88,123
Australia 96.9% 685 3,932 (77) 4,540
Canada 118.5% (7,165) 1,122 4 (6,039)
Other insurance operations 854 - - 854
86.9% 27,066 60,508 (96) 87,478
Life business 374 5,127 - 5,501
Investment management - - 1,717 1,717
Broking and Advisory - - 2,283 2,283
Corporate costs - - (14,783) (14,783)
Profit/(loss) before tax 27,440 65,635 (10,879) 82,196
---------- ------------ --------- ---------
(b) Geographical information
Gross written premiums from external customers and non-current assets, as attributed to individual countries in which the Group operates, are as follows:
2018 2017
Gross Gross
written Non-current written Non-current
premiums assets premiums assets
GBP000 GBP000 GBP000 GBP000
United Kingdom and Ireland 245,867 218,119 234,472 217,143
Australia 56,946 1,279 56,865 1,351
Canada 54,158 4,018 51,580 3,650
356,971 223,416 342,917 222,144
------------ ---------------- ------------ ---------------
Gross written premiums are allocated based on the country in which the insurance contracts
are issued. Non-current assets exclude rights arising under insurance contracts, deferred
tax assets, pension assets and financial instruments and are allocated based on where the
assets are located.
Reconciliation of Alternative Performance Measures
The Group uses alternative performance measures (APM) in addition to the figures which are prepared in accordance with IFRS. The financial measures included in our key performance indicators: regulatory capital, combined operating ratio (COR), net expense ratio (NER) and net inflows are APM. These measures are commonly used in the industries we operate in and we believe provide useful information and enhance the understanding of our results.
Users of the accounts should be aware that similarly titled APM reported by other companies may be calculated differently. For that reason, the comparability of APM across companies might be limited.
In line with the European Securities and Markets Authority guidelines, we provide a reconciliation of the COR and NER to its most directly reconcilable line item in the financial statements. Regulatory capital and net inflows to funds managed by Ecclesiastical Insurance Office plc's subsidiary, EdenTree Investment Management Limited, do not have an IFRS equivalent. Net inflows are the difference between the funds invested (gross inflows) less funds withdrawn (redemptions) made during the year by third parties in a range of funds EdenTree Investment Management Limited offers. Regulatory capital is covered in more detail in section (i) of the Financial Risk and Capital Management note to this announcement.
2018
Broking
Inv'mnt Inv'mnt and Corporate
Insurance return mngt Advisory costs Total
-------------------
General Life
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Revenue
Gross written
premiums 356,950 21 - - - - 356,971
Outward reinsurance
premiums (137,640) - - - - - (137,640)
Net change in
provision for
unearned premiums (5,241) - - - - - (5,241)
-------------
Net earned premiums [1] 214,069 21 - - - - 214,090
---------- ------- --------- --------- --------- ------------- ----------
- - - - -
Fee and commission
income [2] 41,346 - - 12,601 9,049 - 62,996
Other operating
income 1,039 - - - - - 1,039
Net investment
return - 1,573 1,600 13 808 - 3,994
---------- ------- --------- --------- --------- ------------- ----------
Total revenue 256,454 1,594 1,600 12,614 9,857 - 282,119
---------- ------- --------- --------- --------- ------------- ----------
- - -
Expenses
Claims and change
in insurance
liabilities (112,222) 349 - - - - (111,873)
Reinsurance
recoveries 26,188 - - - - - 26,188
Fees, commissions
and other
acquisition costs [3] (65,687) (15) - (943) 299 - (66,346)
Other operating and
administrative
expenses [4] (75,543) (286) (2,889) (10,730) (8,111) [5] (16,829) (114,388)
-------------
Total operating
expenses (227,264) 48 (2,889) (11,673) (7,812) (16,829) (266,419)
---------- ------- --------- --------- --------- ------------- ----------
Operating profit [6] 29,190 1,642 (1,289) 941 2,045 (16,829) 15,700
Finance costs (329) - - - - - (329)
Profit before tax 28,861 1,642 (1,289) 941 2,045 (16,829) 15,371
---------- ------- --------- --------- --------- ------------- ----------
Underwriting profit [6] 29,190
Combined operating
ratio 86.4%
Net expenses ( =
[2] + [3] + [4] +
[5] ) [7] (116,713)
Net expense ratio 55%
The underwriting profit of the Group is defined as the operating profit of the general insurance business.
The Group uses the industry standard net COR as a measure of underwriting efficiency. The COR expresses the total of net claims costs, commission and underwriting expenses as a percentage of net earned premiums. It is calculated as ( [1] - [6] ) / [1] ).
The NER expresses total underwriting and corporate expenses as a proportion of net earned premiums. It is calculated as - [7] / [1].
2017
Broking
Inv'mnt Inv'mnt and Corporate
Insurance return mngt Advisory costs Total
--------------------
General Life
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Revenue
Gross written
premiums 342,889 28 - - - - 342,917
Outward reinsurance
premiums (129,387) - - - - - (129,387)
Net change in
provision for
unearned premiums (6,318) - - - - - (6,318)
-------------
Net earned premiums [1] 207,184 28 - - - - 207,212
---------- -------- -------- -------- --------- ------------- ----------
- - - - -
Fee and commission
income [2] 40,551 - - 11,686 8,627 - 60,864
Other operating
income 1,935 - - - - - 1,935
Net investment
return - 2,739 68,839 (41) 757 - 72,294
---------- -------- -------- -------- --------- ------------- ----------
Total revenue 249,670 2,767 68,839 11,645 9,384 - 342,305
---------- -------- -------- -------- --------- ------------- ----------
- - -
Expenses
Claims and change
in insurance
liabilities (117,910) (2,003) - - - - (119,913)
Reinsurance
recoveries 32,196 - - - - - 32,196
Fees, commissions
and other
acquisition costs [3] (64,619) (16) - (982) 464 - (65,153)
Other operating and
administrative
expenses [4] (72,271) (374) (3,204) (8,946) (7,565) [5] (14,783) (107,143)
-------------
Total operating
expenses (222,604) (2,393) (3,204) (9,928) (7,101) (14,783) (260,013)
---------- -------- -------- -------- --------- ------------- ----------
Operating profit [6] 27,066 374 65,635 1,717 2,283 (14,783) 82,292
Finance costs (96) - - - - - (96)
Profit before tax 26,970 374 65,635 1,717 2,283 (14,783) 82,196
---------- -------- -------- -------- --------- ------------- ----------
Underwriting profit [6] 27,066
Combined operating
ratio 86.9%
Net expenses ( =
[2] + [3] + [4] +
[5] ) [7] (111,122)
Net expense ratio 54%
Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation.
Charitable grants paid to the ultimate parent undertaking are disclosed in the consolidated statement of changes in equity and note 15 to the full financial statements.
Full disclosure of related party transactions is included in note 34 to the full financial statements.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR SFWFUUFUSESD
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March 20, 2019 03:00 ET (07:00 GMT)
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