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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Esure | LSE:ESUR | London | Ordinary Share | GB00B8KJH563 | ORD 1/12P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 279.60 | 279.40 | 279.80 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMESUR
RNS Number : 0872Z
esure Group plc
10 March 2017
10 March 2017
esure Group plc preliminary results for the year ended 31 December 2016
A strong year of growth in premiums, policies and profit
Highlights
-- Gross written premiums up 19.0% to GBP655.0m (2015: GBP550.3m) -- In-force policies up 8.6% to 2.174 million (2015: 2.001 million) -- Underlying profit after tax(1) up 18.0% to GBP80.5m (2015: GBP68.2m) -- Combined operating ratio 1.0ppt higher at 98.8% (2015: 97.8%)
-- Full year dividend of 13.5p (2015: 11.5p) reflects a payout ratio of 70% of underlying earnings per share, inclusive of a 20% special dividend
-- Strong capital position with Group coverage(2) at 149% (2015: 123%) -- Demerger of Gocompare.com completed on 3 November 2016
Sir Peter Wood, Chairman, said: "2016 has been a significant and positive year for the Group. Premiums are ahead of expectations; Gocompare.com has been demerged allowing both businesses to thrive and reach their full potential; capital is at the top of our risk appetite; and we have once again paid a special dividend demonstrating the Board's commitment to return excess capital to shareholders."
Stuart Vann, Chief Executive Officer, said: "We are now in full growth mode.
"In 2016 we have delivered strong growth in premiums and profitability, and have provided more quotes to a wider number of customers through our footprint expansion programme. This gives us great confidence to deliver our ambition of 3 million in-force policies by 2020.
"We continue to focus on and control carefully our approach to underwriting, underpinned by our enhanced customer contribution modelling.
"As a result, we are on track to deliver increased value to shareholders both in 2017 and beyond."
Notes
1. The Group's 2016 reported profit after tax is GBP269.2m (2015: GBP121.9m). Underlying profit after tax adjusts for the fair value gain on demerger of Gocompare.com of GBP213.6m (2015: nil); the Group's joint venture deemed disposal gain (2016: nil; 2015: GBP63.8m); the amortisation charge of acquired intangible assets, net of tax, of GBP10.4m (2015: GBP10.1m); and fees associated with the demerger of Gocompare.com of GBP14.5m (2015: GBPnil). The underlying profit after tax is management's measure of profitability of the Group and it is with reference to the Group's underlying profit after tax that the dividend has been set.
2. Group solvency coverage is estimated and unaudited as at 31 December 2016.
For further information:
Chris Wensley Chris Barrie/Grant Head of Investor Relations Ringshaw & Corporate Strategy Citigate Dewe Rogerson t: 01737 641324 t: 0207 638 9571 e: investor.relations@esuregroup.com e: esure@citigatedr.co.uk
About esure Group plc
esure Group plc is an efficient, customer-focused personal lines insurer, founded in 2000 by Chairman, Sir Peter Wood, Britain's foremost general insurance entrepreneur. The Group is one of the UK's leading providers of Motor and Home insurance products through the esure and Sheilas' Wheels brands.
Cautionary statement
Certain statements made in this announcement are forward-looking statements. Such statements are based on current expectations and assumptions and are subject to a number of known and unknown risks and uncertainties that may cause actual events or results to differ materially from any expected future events or results expressed or implied in these forward-looking statements. Persons receiving this announcement should not place undue reliance on forward-looking statements. Unless otherwise required by applicable law, regulation or accounting standard, the Group does not undertake to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.
Disclaimer
This announcement contains inside information which is disclosed in accordance with the Market Abuse Regulation which came into effect on 3 July 2016.
The esure Group plc LEI number is 213800KOI3F5LM54PT80.
Chairman's statement
Introduction
2016 has been a significant and positive year for the Group as we continue to deliver value to all our stakeholders.
We have exceeded our growth expectations for the year with gross written premiums up 19% to GBP655m through enhancements to our underwriting capabilities and by taking advantage of favourable market conditions in Motor; demerged Gocompare.com from the Group ("the Demerger") to allow both businesses to thrive and reach their full potential; and further strengthened our robust capital position providing us with the capital flexibility to continue our growth ambitions and deliver strong returns.
Insurance
We have always said that we will only grow when we believe it is profitable to do so and throughout 2016 the favourable rating environment in Motor allowed us to grow strongly, albeit the Home insurance market continued to be challenging. The management team remain focused in delivering the Group's growth strategy through initiatives, such as footprint expansion, in a controlled manner and I believe they continue to make the right decisions in dynamic market conditions. We are encouraged that the Government continue to explore options to lower whiplash claims costs which in turn could lead to lower premiums for customers, although we are mindful of the recent change in the Ogden discount rate to minus 0.75% and the impact this could have on customer premiums across the market.
Demerger of Gocompare.com
On 3 November 2016, Gocompare.com demerged from the Group and listed on the London Stock Exchange. Since acquiring full control of Gocompare.com in early 2015 the Group successfully repositioned the business and strengthened its management team with the introduction of Matthew Crummack as chief executive officer in June 2016. The return of Gio Compario reinvigorated Gocompare.com's marketing proposition; an expense review addressed the cost base; and focus was given to the many opportunities available to Gocompare.com to grow outside of its core markets. Both esure and Gocompare.com are now positioned to thrive and reach their full potential and we wish the new management team at Gocompare.com well for the future.
Capital & Dividends
The Group's capital coverage above its solvency capital requirement has always been appropriate for the business that we are, and continue to be, a low risk personal lines insurer. As part of the Demerger, the Group received a dividend from Gocompare.com that further strengthened its robust capital position. The Group's capital position is at the upper end of our risk appetite, after allowing for the final dividend that is inclusive of a special element, and gives us the capital flexibility to pursue further profitable growth opportunities.
The Board has recommended a final dividend of 10.5 pence per share, and in conjunction with the interim dividend of 3.0 pence per share, gives a full year dividend of 13.5 pence per share representing a payout ratio of 70% of underlying profit after tax. Since the Group became public in 2013, the Board have returned GBP240m to shareholders through dividends, underpinning the Board's commitment to return excess capital to shareholders.
Board
Once again the Board have demonstrated the value that their wealth of experience and knowledge bring to our Group and I would like to thank them for their input throughout the year. We have benefitted from a year of relatively little change after Anne Richards left us in February 2016 and I am delighted that Peter Shaw and Alan Rubenstein joined the Board in March 2017, giving us further strength and depth. Peter Ward will be stepping down from the Board at the Annual General Meeting in May 2017 after many years of great service and I would like to thank him for his support, challenge and wisdom across the years.
Summary
2016 has been a significant and positive year for the Group and this would not have been possible without the hard work and dedication of all our colleagues across the business. I believe the Group is well positioned to carry on with this positive momentum and I look forward to the future with great confidence.
Sir Peter Wood
Chairman
Chief Executive Officer's review
Introduction
What a year 2016 has been. We have exceeded our gross written premium expectations for the year with growth of 19%; increased underlying profit by 18% and profit from continuing operations by 19%; successfully demerged Gocompare.com; and returned excess capital to shareholders through special dividends while maintaining sufficient capital flexibility to carry on our growth ambitions in 2017 and beyond.
Focus
2016 has been a year of growth through focused underwriting. We added nearly 200,000 in-force policies to the business and momentum continues to build in our footprint expansion programmes with the launch of a further 12 segments in Motor towards the end of the year. Through enhancements to our underwriting capabilities we are now able to quote for 70-80% of the Motor market, without materially moving the dial on risk, giving us great opportunities to deliver our ambition of 3 million in-force policies by 2020.
In Motor, our customer contribution modelling continues to evolve. With regular and detailed monitoring we are able to make more informed value based decisions on a daily basis. Through a customer contribution approach we are able to offer competitive prices to customers allowing them to benefit from our great products and service throughout their time with the Group, while generating value for the business.
The Home market remains challenging, in particular the rating environment on price comparison websites, and we do not believe market conditions are conducive to growth at this time. Adverse weather events in the early part of the year, along with flash flooding in June, impacted the profitability of the market and our portfolio, and we have taken corrective action on the portfolio as we look to improve the underwriting performance of the account. Despite this, Home remained a key contributor to the Group in 2016.
Control
We remain committed to only growing when we believe it is profitable to do so, rather than for vanity, and our ambition is to reach three million in-force policies by 2020, underpinned by this philosophy.
There is an acquisition cost to growth, however through our enhanced contribution analysis, great service and strong customer retention, we are confident our growth will deliver value.
Effective claims management and expense efficiency provide the foundations to deliver increased value and our counter fraud capabilities continue to lead the way across the market. Over the past three years the Group has utilised device profiling to deter "ghost broking" with great success and this would not have been possible without our collaborative and innovative approaches across the business.
Our low risk approach to underwriting and conservative reinsurance programme mitigated much of our exposure to the change in the Ogden discount rate and leaves us well placed within the market compared to our peers.
Scale
Investment in our infrastructure is ongoing to ensure we have agile, flexible and scalable systems in place to meet ever changing customer preferences. Our digital market place remains focused on price comparison website distribution and improvements to our online customer journey have improved new business sale conversion and our customer experience. There is plenty more to come.
Colleagues
We strive to make esure a great place to work as it is our colleagues who are fundamental to our success. In 2016, we have implemented a new pay & reward framework; invested in our talent; and our first employee sharesave scheme vested allowing colleagues to share in the success of the business.
Summary & Outlook
2016 has been a year of strong growth and I am confident this will deliver value over the coming years. As we look out into 2017, assuming stable market conditions and normal weather, we continue to expect strong growth in both premiums and in-force policies at 15-20% and 5-10%, respectively; the combined operating ratio to be in the region of 96-98%; and our non-underwritten additional services revenues are forecast to grow ahead of in-force policies in line with the trend seen in the second half of 2016.
Our performance in 2017 and beyond will be driven by the hard work of all our colleagues across the business and I would like to thank them for their commitment and dedication in helping us to deliver our ambitions.
Stuart Vann
Chief Executive Officer
Finance review
Group financials
Hot Features
Premium
2016 2015
Gross written premiums (GBPm) 655.0 550.3
In-force policies (millions) 2.174 2.001
Trading profit from continuing
operations (GBPm) 84.6 72.1
Profit after tax (GBPm) 269.2 121.9
Earnings per share (pence) 64.6 29.3
Underlying profit after tax (GBPm) 80.5 68.2
Underlying earnings per share (pence) 19.3 16.4
Dividend per share (pence) 13.5 11.5
Combined operating ratio (%) 98.8 97.8
Loss ratio (%) 74.2 74.0
Expense ratio (%) 24.6 23.8
Investment return - gross (%) 2.2 0.8
Solvency coverage (%) 149 123
Premiums, policies and profit
2016 2015
Gross written premiums (GBPm) 655.0 550.3
Motor 563.7 461.0
Home 91.3 89.3
In-force policies (millions) 2.174 2.001
Motor 1.606 1.435
Home 0.568 0.566
Profit after tax (GBPm) 269.2 121.9
Underlying profit after tax (GBPm) 80.5 68.2
Gross written premiums increased 19.0% to GBP655.0m (2015: GBP550.3m) through growth in in-force policies and positive rate increases across the portfolio in Motor. In-force policies increased by 8.6% to 2.174 million (2015: 2.001 million) as the Group delivered strong growth in Motor in favourable market conditions.
Profit after tax of GBP269.2m includes a non-cash disposal gain of GBP213.6m on Demerger; amortisation of acquired intangible assets of GBP10.4m; and GBP14.5m of fees associated with the Demerger. Management's measure of the underlying profit after tax of GBP80.5m excludes these items as they do not impact the Group's dividend capacity.
Trading profit
2016 2015
GBPm GBPm
Trading profit from continuing
operations 84.6 72.1
Motor underwriting 8.9 6.7
Home underwriting (2.4) 4.2
Non-underwritten additional services
revenues 60.0 55.1
Investments 18.1 6.1
Trading profit from discontinued
operations 24.5 20.2
Gocompare.com 24.5 20.2
Trading profit from continuing operations, being earnings before interest, tax, non-trading expenses and amortisation of acquired intangible assets, is management's measure of the overall profitability of the Group's operating activities. The Group's segmental trading profit of GBP84.6m (2015: GBP72.1m) includes Motor underwriting, Home underwriting, Investments and Non-underwritten additional services.
The Group generated a trading profit of GBP24.5m (2015: GBP20.2m) on its discontinued operation (Gocompare.com) prior to the Demerger on 3 November 2016.
Motor underwriting
2016 2015
Gross written premiums (GBPm) 563.7 461.0
In-force policies (millions) 1.606 1.435
Trading profit (GBPm) 8.9 6.7
Combined operating ratio (%) 98.1 98.4
Loss ratio (%) 75.7 76.3
Expense ratio (%) 22.4 22.1
Gross written premiums increased 22.3% to GBP563.7m (2015: GBP461.0m) through growth in in-force policies and positive rate increases across the portfolio. In-force policies increased by 11.9% to 1.606 million (2015: 1.435 million) as the Group's footprint expansion programmes build momentum.
Trading profit of GBP8.9m (2015: GBP6.7m) has improved as the positive rating environments of 2015 and 2016 start to earn through ahead of claims inflation, albeit this has been largely offset by a lower level of favourable development of prior accident year reserves to GBP29.4m (2015: GBP46.4m) which equated to 6.2% of net earned premiums (2015: 11.2%).
2016 2015
Reported net loss ratio (%) 75.7 76.3
Prior year reserve releases (%) 6.2 11.2
Current year net loss ratio (%) 81.9 87.5
The Group continued to take a disciplined approach to cost management and delivered an expense ratio of 22.4% (2015: 22.1%) demonstrating the Group's efficient operations. As the Group delivers its growth strategy, an increase in the number of new business customers has and will continue to impact the expense ratio in the near term.
Home underwriting
2016 2015
Gross written premiums (GBPm) 91.3 89.3
In-force policies (thousands) 568 566
Trading (loss) / profit (GBPm) (2.4) 4.2
Combined operating ratio (%) 102.9 94.9
Loss ratio (%) 66.0 62.2
Expense ratio (%) 36.9 32.7
Gross written premiums increased 2.2% to GBP91.3m (2015: GBP89.3m) and in-force policies remained broadly flat at 568 thousand (2015: 566 thousand). In competitive market conditions the Group has remained disciplined in its rating actions against a backdrop of rate reductions on price comparison websites.
Adverse weather claims costs totalled GBP6.6m (2015: GBP4m), GBP3.2m higher than the Group expected to incur in the year, and costs associated with the Flood Re Levy of GBP2.9m (2015: GBPnil) caused the Home portfolio to deliver a loss of GBP2.4m (2015: profit of GBP4.2m). The current year loss ratio increased as outlined above and the Group continued to benefit from strong favourable development of prior accident year reserves of GBP9.3m (2015: GBP10.3m) which equated to 11.0% of net earned premiums (2015: 12.5%).
2016 2015
Reported net loss ratio (%) 66.0 62.2
Prior year reserve releases (%) 11.0 12.5
Current year net loss ratio (%) 77.0 74.7
The expense ratio of 36.9% (2015: 32.7%) has been impacted by costs associated with the Flood Re levy introduced in April 2016.
Additional services revenues
2016 2015
GBPm GBPm
Non-underwritten additional insurance
products 9.8 9.5
Policy administration fees and
other income 19.5 21.1
Claims income 7.6 7.5
Instalment income 37.6 30.2
Non-underwritten additional services 74.5 68.3
Underwritten additional insurance
products 32.0 34.6
Total income from additional services 106.5 102.9
Non-underwritten additional services
trading profit 60.0 55.1
Motor 50.7 45.9
Home 9.3 9.2
Total income from additional services increased 3.5% to GBP106.5m (2015: GBP102.9m) largely driven by a strong performance in instalment income.
Non-underwritten additional services trading profit increased 8.9% to GBP60.0m (2015: GBP55.1m) in line with the Group's in-force policy growth. The growth in instalment income is largely driven by an increase in Motor customers and higher average written premiums.
Investments
2016 2015
GBPm GBPm
Investment income 14.3 14.1
Net gains / (losses) on investments 3.8 (7.7)
Investment charges (3.5) (3.3)
Net investment return 14.6 3.1
Other income 3.5 3.0
Total investment return 18.1 6.1
Investment return - gross (%) 2.2 0.8
The Group achieved a gross investment return of 2.2% (2015: 0.8%) and a net investment return of 1.8% (2015: 0.5%).
The investment return benefitted from a strong performance in the equity portfolio and a fall in the UK Gilt curve which resulted in an increase in fixed income asset valuations.
Other income improved to GBP3.5m (2015: GBP3.0m) primarily as a result of income from the Group's investment in IMe Law Limited, operated by the Group's partner, Irwin Mitchell.
Reconciliation of trading profit from continuing operations to profit before tax from continuing operations
2016 2015
GBPm GBPm
Trading profit from continuing
operations 84.6 72.1
Non-trading costs (0.9) (0.2)
Finance costs (8.7) (8.7)
Amortisation of acquired intangible
assets (2.3) (2.3)
Profit before tax from continuing
operations 72.7 60.9
The Group incurred GBP8.7m in finance costs in 2016 relating to the GBP125.0m of 6.75% ten year tier two Subordinated Notes issued on 19 December 2014 ("the Notes").
Reconciliation of profit before tax from continuing operations to underlying profit before tax
2016 2015
GBPm GBPm
Profit before tax from continuing
operations 72.7 60.9
Profit generated by Gocompare.com 24.5 16.7
Share of joint venture (net of
tax) - 3.0
Amortisation of acquired intangible
assets 2.3 2.3
Underlying profit before tax 99.5 82.9
In order to reflect better the Group's performance for the period and its dividend paying capacity the Group has disclosed its underlying profit before tax of GBP99.5m (2015: GBP82.9m). The reported profit before tax from continuing operations for each period is adjusted for the Group's share of profit generated by Gocompare.com (2016: GBP24.5m; 2015: GBP19.7m) and amortisation of acquired intangible assets (2016: GBP2.3m; 2015: GBP2.3m).
The Group will not report underlying profit metrics in 2017 as the Group's reported profit will be more closely aligned with the underlying performance of the business and its dividend paying capacity post the Demerger.
Reconciliation of profit after tax to underlying profit after tax
The Group generated a profit after tax of GBP269.2m (2015: GBP121.9m) and an underlying profit after tax of GBP80.5m (2015: GBP68.2m).
Continuing Discontinued Group
2016 2015 2016 2015 2016 2015
GBPm GBPm GBPm GBPm GBPm GBPm
Reported profit
after tax 59.5 49.9 209.7 72.0 269.2 121.9
Fair value gain
on Demerger - - (213.6) - (213.6) -
Joint venture deemed
disposal gain - - - (63.8) - (63.8)
Amortisation of
acquired intangible
assets (net of tax) 1.8 1.9 8.6 8.2 10.4 10.1
Fees associated
with the Demerger - - 14.5 - 14.5 -
Underlying profit
after tax 61.3 51.8 19.2 16.4 80.5 68.2
Profit after tax from continuing operations
The Group's profit after tax from continuing operations increased 19.2% to GBP59.5m (2015: GBP49.9m) largely driven by an improvement in the investment return.
Profit after tax from discontinued operations
Income and expenses relating to Gocompare.com are disclosed in the Group's profit after tax from discontinued operations. The profit after tax of GBP209.7m (2015: GBP72.0m) is the profit generated by Gocompare.com up to Demerger, net of tax (2016: GBP19.2m; 2015: GBP16.4m); the fair value gain of the Group's holding in Gocompare.com at Demerger (2016: GBP213.6m; 2015: nil); the Group's joint venture deemed disposal gain (2016: nil; 2015: GBP63.8m); the amortisation of acquired intangible assets relating to Gocompare.com, net of tax (2016: GBP8.6m; 2015: GBP8.2m); and the fees associated with the Demerger of GBP14.5m (2015: nil).
In accordance with IFRIC 17, the Group calculated the fair value of Gocompare.com at Demerger. Prior to the Demerger, the Group held Gocompare.com at book value (GBP88.2m); however, on Demerger Gocompare.com plc's market capitalisation was GBP301.8m. This resulted in a fair value gain on Demerger of GBP213.6m.
Underlying profit after tax
The Group's 2016 reported profit after tax is GBP269.2m (2015: GBP121.9m). Underlying profit after tax adjusts for the fair value gain on demerger of Gocompare.com of GBP213.6m (2015: nil); the Group's joint venture deemed disposal gain (2016: nil; 2015: GBP63.8m); the amortisation charge of acquired intangible assets, net of tax, of GBP10.4m (2015: GBP10.1m); and fees associated with the demerger of Gocompare.com of GBP14.5m (2015: GBPnil). The underlying profit after tax is management's measure of profitability of the Group and it is with reference to the Group's underlying profit after tax that the dividend has been set.
Earnings per share
Reported earnings per share increased by 120.5% to 64.6 pence (2015: 29.3 pence) as a consequence of the fair value gain on Demerger of GBP213.6m in 2016 not occurring in 2015.
Underlying earnings per share increased 17.7% to 19.3 pence (2015: 16.4 pence) largely driven by an improvement in the investment return.
Dividend per share
The Board has proposed a final dividend of 10.5 pence per share, which together with the interim dividend of 3.0 pence per share, takes the full year dividend to 13.5 pence per share. The full year dividend of 13.5 pence per share represents an annualised payout ratio of 70% of the Group's underlying earnings per share. The payout ratio comprises a base dividend of 50% and a special dividend of 20%.
The ex-dividend date is 13 April 2017, the record date is 18 April 2017 and the payment date is 26 May 2017. These dates are in respect of both the base and special dividend.
Cash flow
2016 2015
GBPm GBPm
Profit after tax 269.2 121.9
Net cash generated from:
Operating activities (3.8) 154.8
Investing activities (25.7) (73.5)
Financing activities 23.1 (74.5)
Net (decrease) / increase in cash
and cash equivalents (6.4) 6.8
Cash and cash equivalents at the
end of the period 25.5 31.9
The Group's cash and cash equivalents at the end of the period are GBP25.5m (2015: GBP31.9m).
Profit after tax of GBP269.2m (2015: GBP121.9m) includes a non-cash disposal gain of GBP213.6m (2015 included a joint venture deemed disposal gain of GBP63.8m).
Operating activities were a net outflow of GBP3.8m (2015: net inflow of GBP154.8m) largely driven by cash flows generated from the Group's operating activities being invested into its investment portfolio. In 2015, the net cash generated benefitted from a drawdown in cash to fund the acquisition of Gocompare.com in March 2015.
Investing activities generated a net outflow of GBP25.7m (2015: GBP73.5m) reflecting the purchase of property, plant and equipment alongside fees relating to the Demerger. In 2015, the cash outflow reflects the acquisition of Gocompare.com in March 2015 and the cash dividends received from Gocompare.com prior to completion when held as a joint venture.
Financing activities includes the Group's dividend payments of GBP42.9m in 2016 (2015: GBP66.1m), the Gocompare.com debt raise of GBP73.1m prior to Demerger and the finance costs associated with the Notes of GBP8.4m (2015: GBP8.4m).
The Group's cash flow statement can be found on page 19.
Investments
The Group deploys a conservative investment strategy with the primary objectives of capital preservation and maintaining liquidity. Through better alignment of the investment and liability durations the Group is able to deliver appropriate returns while minimising earnings and capital volatility.
Strategic investment allocations
The Group's investment portfolio is in the process of transitioning towards the following strategic asset allocations and target returns. The Group expects the target allocations to be achieved in mid 2017.
Investment categories Target allocations Gross target
returns
Cash & Liquidity 5% 0.1%
Claims backed 65% 1.0%
Surplus 30% 3.0%
As at the 31 December 2016 the Group held the following investments:
2016
% GBPm
Total 100 862.9
Cash & Liquidity 5% 45.5
Liquidity funds 20.0
Cash 25.5
Claims backed 64% 551.8
Liquidity funds 46.2
Fixed income 505.6
Surplus 31% 265.6
Liquidity funds 143.0
Equity 42.5
Fixed income 80.1
Note: 2015 comparative information has not been provided as the investment portfolio was classified differently
The Group's total assets under management are 14.0% higher at GBP862.9m (2015 GBP757.0m including derivative financial liabilities) due to a combination of strong premium growth and dividend received prior to the Demerger.
The Cash & Liquidity portfolio reflects accessible cash for operational activities and is inclusive of a buffer for adverse events. The allocation of 5% is in line with the Board approved Liquidity Risk Appetite.
The Claims backed portfolio is constructed with reference to the expected future cost of the Group's technical liabilities, as defined under Solvency II. During the period, the Group has improved the alignment of the duration of these assets with the appropriate liabilities. This has increased the duration of claims backing assets to 3.6 years compared to 3.4 years on claims liabilities. The assets acquired during this period have been designated as available-for-sale ("AFS") to minimise the impact of interest rate changes on earnings. In total, the Group has designated GBP192.6m as AFS and GBP359.1m as fair value through profit and loss. Additionally, the Group has disposed of all residential mortgage back securities (2015: GBP38.0m).
The Surplus portfolio seeks to deliver returns while investing in a manner that reflects the Group's risk appetite, in particular with reference to its solvency capital. The Group currently holds GBP143m (17% of total assets) in a liquidity fund within its surplus portfolio pending the outcome of a review of the strategic asset allocation within the investment portfolio. This is expected to complete during the first half of 2017. The remaining assets are invested across a mixture of fixed income and equities.
The Group's total investment duration was 2.6 years (2015 <1.0 year) as the Group looks to match better its asset and liability durations under Solvency II.
Fixed income
2016 2015
GBPm GBPm
Total fixed income 585.7 494.6
Corporate bonds 280.4 211.5
Covered / residential mortgage
backed securities 14.9 75.5
Government bonds 206.1 84.2
Floating rate notes 84.3 123.4
Fixed income credit risk quality
2016 2015
AAA 18% 24%
AA 35% 27%
A 22% 28%
BBB or below 25% 21%
There has been no significant change in the credit risk quality of the fixed income portfolio with 75% held in assets rated 'A' or above.
Reserving
The Group holds claims reserves, to cover the future cost of settling claims that have been incurred but not settled at the balance sheet date, whether already known to the Group or not yet reported, net of associated reinsurance recoveries.
For known periodic payment orders ("PPOs") and potential PPO awards, indexed cash flow projections are carried out in order to estimate an ultimate cost on a gross and net of reinsurance basis. The Group currently has 11 PPOs. The cash flow projections were undertaken on a discounted basis. The total net claims provision recognised for PPOs and potential PPOs in the consolidated statement of financial position represents less than 5% of net claims outstanding at 31 December 2016.
Due to the inherent uncertainties in reserving the Group adopts a prudent approach to reserving through reserving in excess of the actuarial best estimate. Over time the inherent uncertainties in the actuarial best estimate reduce and the Group releases the margin above the best estimate. The Group's current reserve margin is comfortably in excess of its actuarial best estimate.
On 27 February 2017, the Lord Chancellor changed the Ogden discount rate from plus 2.5% to minus 0.75%, effective 20 March 2017. As at 31 December 2016, the Group's reserve margin included an allowance for a change in the discount rate to 0%. The impact on the Group's performance from a change in the discount rate is outlined below:
2016 2017
Discount Discount rate Impact from
rate (plus 2.5% 2016
(plus 2.5% to minus 0.75%)
to 0%) GBPm GBPm
GBPm
Gross reserves
(GBPm) 56 88 32
Reserves, net of
reinsurance (GBPm) 2 3 1
Profit after tax
(GBPm) N/A 1 1
The Group has not adjusted its 2016 financial position to take into account the discount rate moving to minus 0.75%, beyond the 0% allowed for within its reserve margin as at 31 December 2016. The effect is immaterial on profit after tax.
The Group benefited from strong favourable development of prior accident year reserves, with total prior year releases of GBP38.7m in 2016 (2015: GBP56.7m). The favourable development represents 7.0% of net earned premium (2015: 11.4%).
Reinsurance
The Group purchases reinsurance as a risk transfer mechanism to mitigate risks that are outside the Group's appetite for individual claim or event exposure and to reduce the volatility caused by large individual and accumulation losses. By doing so, the Group reduces the impact that an event can have on its capital position and its underwriting results in both Motor and Home. The Group's reinsurance programmes are due for renewal on 1 July 2017.
Currently, the Group has in place non-proportional excess of loss reinsurance programmes for its Motor and Home underwriting activities. The purpose of these programmes is to provide cover for both individual large losses, for Motor and Home, and accumulation losses arising from natural and other catastrophe events for Home. Motor reinsurance treaties are in place covering all years in which the Group has underwritten Motor policies.
The Group has no quota share reinsurance or co-insurance arrangements in place.
The Group's reinsurance programmes are reviewed on an annual basis and capital modelling is used to identify the most appropriate structure and risk retention profile, taking into account the Group's business objective of minimising volatility and the prevailing cost and the availability of reinsurance in the market.
Capital
The Group seeks to manage its capital in order to maintain an appropriate level of capitalisation and solvency to ensure that regulatory requirements are met with a prudent buffer and to ensure that there is sufficient capital available in order to fund profitable growth opportunities.
Solvency II is the new solvency framework implemented on 1 January 2016 as the capital adequacy regime for the European insurance industry. It establishes a set of EU-wide capital requirements and risk management standards with the aim of increasing protection for policyholders. The Group is regulated by the Prudential Regulation Authority ("PRA") on both a Group basis and, for the Group's sole underwriter, esure Insurance Limited, on a solo basis.
The Group intends to hold capital coverage of its solvency capital requirement ("SCR") in the region of 130-150%. The capital surplus above the SCR provides sufficient headroom to absorb adverse capital events and should enable the Group to continue to meet its regulatory capital requirements.
Solvency II
Note the figures quoted in this section are estimated, unaudited and subject to change
The Group's Solvency II capital position, after allowing for the final dividend, is outlined below:
2016 2015
GBPm GBPm
Own Funds 348 264
Tier 1 231 157
Tier 2 117 107
Solvency Capital Requirement 233 214
Coverage ratio 149% 123%
From 1 January 2016, the Group was required to calculate its solvency capital requirement ("SCR") and capital resources ("Own Funds") under the Solvency II Directive. The SCR is the level of capital the Group is required to hold to meet its obligations if a 1 in 200 year event were to occur in the next 12 months. The Group adopts the standard formula to calculate its capital requirements under Solvency II.
The Group intends to hold capital coverage of its SCR in the region of 130-150%. This provides sufficient headroom to absorb adverse capital events and capital flexibility to fund further profitable growth. As at 31 December 2016, the coverage ratio of the Group's SCR was 149% (2015: 123%).
The Group's Own Funds increased by GBP84m in 2016 largely driven by a Gocompare.com's debt raise prior to Demerger being paid to the Group as a dividend and an increase in the Group's qualifying Tier 2 capital instrument. Own Funds comprise Tier 1 and Tier 2 qualifying capital. The Notes meet the qualifying criteria of a Tier 2 capital instrument and qualify up to a maximum of 50% of the SCR. The quality of the Group's capital remains strong with 66% in Tier 1 and 34% in Tier 2.
Solvency Capital Requirement
The Group's SCR allocation by risk type, based upon the undiversified capital requirement, can be seen below:
2016
Underwriting risk 72%
Market risk 18%
Operational risk 8%
Credit risk 2%
The main risk driver is underwriting, consisting of premium, reserve and catastrophe risk, reflecting the capital requirements of the core business activities for the Group.
Sensitivities
The Group's capital structure is positioned to minimise the impact that adverse capital events have on its ability to meet its solvency capital requirements, were they to occur. The adverse capital events below are outlined to demonstrate the Group's capital resilience to such events.
Impact
on coverage*
Motor loss ratio 5ppts worse (7)ppts
Yield curve 50bps lower (1)ppts
Equities fall 25% (1)ppts
Credit spreads widen 50bps (1)ppts
1987 Hurricane (2)ppts
* Capital coverage movements are stated after earnings impact (net of tax and dividend with events assumed to occur on 31 December 2016).
Ogden discount rate
As at 31 December 2016, the Group's solvency coverage above its SCR included an allowance of GBP3m for a change in the Ogden discount rate to 0%. As a consequence of the discount rate moving to minus 0.75%, the Group's capital position in 2017 will be reduced by GBP2m.
Dividends
The Group's dividend policy is to target a base dividend of 50% of underlying profit after tax and enhance the base dividend with a further special dividend, if the Group has sufficient capital and distributable reserves, after allowing for an appropriate level of capital coverage of the Group's SCR and future growth opportunities. From 2017, the dividend will be set with reference to the Group's reported profit after tax. The Board remains committed to returning excess capital to shareholders where it does not believe it can utilise retained capital for further profitable growth.
The interim dividend will be paid in October of the relevant financial year and the final dividend in May of the following financial year, in the approximate proportions of one-third and two-thirds respectively.
Segmental Reporting
In 2016, the Group's reportable segments were: Motor underwriting; Home underwriting; Non-underwritten additional services; and Investments. In 2017, the Group will change its reportable segments to Motor and Home to reflect its contribution approach.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended Year ended
31 Dec 2016 31 Dec 2015
Note GBPm GBPm
Gross written premiums 655.0 550.3
============= =============
Gross earned premiums 598.0 532.4
Earned premiums, ceded
to reinsurers (43.1) (36.8)
------------- -------------
Earned premiums, net
of reinsurance 554.9 495.6
Investment income and
instalment interest 55.7 36.3
Other income 5 36.9 38.1
------------- -------------
Total income 647.5 570.0
------------- -------------
Claims incurred and
claims handling expenses 14 (509.5) (409.9)
Claims incurred recoverable
from reinsurers 14 74.4 22.3
------------- -------------
Claims incurred, net
of reinsurance 14 (435.1) (387.6)
Insurance expenses 6 (113.3) (97.1)
Other operating expenses 6 (17.7) (15.7)
------------- -------------
Total expenses (566.1) (500.4)
Finance costs (8.7) (8.7)
------------- -------------
Profit before tax 72.7 60.9
Taxation expense (13.2) (11.0)
------------- -------------
Profit from continuing
operations, net of tax 59.5 49.9
Profit from discontinued
operations, net of tax 10 209.7 72.0
------------- -------------
Profit attributable
to the owners of the
parent 269.2 121.9
------------- -------------
Other comprehensive
income
Items that will not 0.3 -
be reclassified to profit
or loss: Revaluation
of land and buildings
Items that are or may
be reclassified to
profit or loss: Available-for-sale
financial
assets - change in fair
value 1.6 1.0
Total comprehensive
income for the year
attributable to owners
of the parent 271.1 122.9
------------- -------------
Earnings per share (pence
per share)
- ordinary shares, basic 64.6 29.3
- ordinary shares, diluted 64.3 29.3
- underlying earnings
per share 19.3 16.4
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at As at
31 Dec 2016 31 Dec 2015
Note GBPm GBPm
Assets
Goodwill and intangible
assets 11 12.7 181.5
Deferred acquisition
costs 37.8 25.3
Property, plant and
equipment 32.5 34.8
Financial investments 12 839.0 728.5
Reinsurance assets 14 291.7 225.2
Insurance and other
receivables 245.6 216.7
Cash and cash equivalents 12 25.5 31.9
------------- -------------
Total assets 1,484.8 1,443.9
------------- -------------
Equity and liabilities
Share capital 0.3 0.3
Share premium account 45.4 44.0
Capital redemption
reserve 44.9 44.9
Other reserves 2.9 1.0
Retained earnings 178.0 251.1
------------- -------------
Total equity 271.5 341.3
------------- -------------
Liabilities
Insurance contract
liabilities 14 1,002.3 886.6
Borrowings 12 122.8 122.6
Insurance and other
payables 77.3 72.2
Deferred tax liabilities 3.2 11.6
Derivative financial
liabilities 12 1.6 3.3
Current tax liabilities 6.1 6.3
------------- -------------
Total liabilities 1,213.3 1,102.6
------------- -------------
Total equity and liabilities 1,484.8 1,443.9
------------- -------------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to owners of the
parent
--------------- ----- ---------- -------------------------------------------------------------------
Share Share Capital Other Retained Total
capital premium redemption reserves earnings equity
reserve
---------------
Note GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ----- ---------- ---------- ------------ ------------------- ---------- --------
At 1 January
2016 0.3 44.0 44.9 1.0 251.1 341.3
Profit for
the year - - - - 269.2 269.2
Other
comprehensive
income - - - 1.9 - 1.9
----------
Total
comprehensive
income for
the year - - - 1.9 269.2 271.1
Transactions
with owners:
Issue of share
capital 0.0 1.4 - - - 1.4
Share-based
payments - - - - 2.4 2.4
Deferred tax
on
share-based
payments - - - - (0.0) (0.0)
Demerger of
Gocompare 10 - - - - (301.8) (301.8)
Dividends 5 - - - - (42.9) (42.9)
---------- ---------- ------------ ------------------- ---------- --------
Total
transactions
with owners 0.0 1.4 - - (342.3) (340.9)
---------- ---------- ------------ ------------------- ---------- --------
At 31 December
2016 0.3 45.4 44.9 2.9 178.0 271.5
========== ========== ============ =================== ========== ========
Attributable to owners of the
parent
--------------- ----- ---------- -------------------------------------------------------------------
Share Share Capital Available-for-sale Retained Total
capital premium redemption reserve earnings equity
account reserve
---------------
Note GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ----- ---------- ---------- ------------ ------------------- ---------- --------
At 1 January
2015 0.3 44.0 44.9 0.0 193.0 282.2
Profit for
the year - - - - 121.9 121.9
Other
comprehensive
income - - - 1.0 - 1.0
----------
Total
comprehensive
income for
the year - - - 1.0 121.9 122.9
Transactions
with owners:
Issue of share
capital 0.0 0.0 - - - 0.0
Share-based
payments - - - - 2.2 2.2
Deferred tax
on
share-based
payments - - - - 0.1 0.1
Dividends 5 - - - - (66.1) (66.1)
---------- ---------- ------------ ------------------- ---------- --------
Total
transactions
with owners 0.0 0.0 - - (63.8) (63.8)
---------- ---------- ------------ ------------------- ---------- --------
At 31 December
2015 0.3 44.0 44.9 1.0 251.1 341.3
---------- ---------- ------------ ------------------- ---------- --------
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Year
ended ended
31 Dec 31 Dec
2016 2015
Cash flows from operating activities Note GBPm GBPm
Profit after tax for the year 269.2 121.9
Adjustments to reconcile profit
after tax to net cash flows:
- Finance costs 8.7 8.7
- Depreciation and revaluation
of property, plant and equipment 3.8 (0.1)
- Amortisation of intangible
assets 15.2 13.6
- Share scheme charges 2.4 2.2
- Share of profit after tax of
joint venture - (2.6)
- Joint venture deemed disposal
gain - (63.8)
- Non-cash gain on demerger of (213.6) -
Gocompare.com
- Taxation expense 16.0 12.1
- Total investment return (20.7) (6.3)
- Instalment interest (37.7) (30.2)
- Loss on the sale of property,
plant and equipment 0.5 0.0
-------- --------
Operating cash flows before movements
in working capital, tax and interest
paid 43.7 55.5
Sales of financial investments 358.1 387.7
Purchases of financial investments (465.2) (308.9)
Interest, rent and dividends
received less investment management
expenses on financial investments 15.9 12.9
Instalment interest received 41.6 31.3
Changes in working capital:
- Increase in insurance liabilities
including reinsurance assets,
unearned premium reserves and
deferred acquisition costs 36.5 21.7
* Increase in insurance and other receivables (49.3) (22.9)
* Increase / (decrease) in trade and other payables
including insurance payables 31.8 (4.8)
Taxation paid (17.0) (17.7)
-------- --------
Net cash (used) / generated in
operating activities (3.8) 154.8
-------- --------
Cash flows from investing activities
Acquisition of subsidiary, net
of cash acquired - (75.1)
Dividends received from joint
venture - 10.0
Purchase of property, plant and
equipment and software (8.3) (8.4)
Net cash outflow from the demerger (17.4) -
of Gocompare.com
-------- --------
Net cash used in investing activities (25.7) (73.5)
-------- --------
Cash flows from financing activities
Proceeds on issue of Ordinary
Shares 1.3 0.0
Interest paid on loans (8.4) (8.4)
Gocompare.com debt raise 73.1 -
Dividends paid (42.9) (66.1)
-------- --------
Net cash generated from / (used
in) financing activities 23.1 (74.5)
-------- --------
Net (decrease) / increase in
cash and cash equivalents (6.4) 6.8
-------- --------
Cash and cash equivalents at
the beginning of the year 31.9 25.1
-------- --------
Cash and cash equivalents at
the end of the year 25.5 31.9
-------- --------
NOTES TO THE FINANCIAL STATEMENTS
1. General information
esure Group plc is a Company incorporated in England and Wales. Its registered office is The Observatory, Reigate, Surrey RH2 0SG.
The nature of the Group's operations is the writing of general insurance for private cars and homes. The Company's principal activity is that of a holding company.
All of the Company's subsidiaries are located in the United Kingdom, except for esure S.L.U, which is incorporated in Spain.
2. Accounting policies
Basis of preparation
These financial statements present the esure Group plc group financial statements for the year ended 31 December 2016, comprising the consolidated statement of comprehensive income, consolidated statement of financial position, consolidated statement of changes in equity, consolidated statement of cash flows and related notes, as well as the comparatives.
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.
At a General Meeting on 1 November 2016, the Company's shareholders approved the demerger of Gocompare.com plc and on 3 November 2016 the demerger was completed.
Under IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations ("IFRS 5") there is no impact on the prior year financial statements as a result of this demerger other than a change in the presentation of the results and the cash flows of the Gocompare business to discontinued operations. There is no impact on the prior year statement of financial position.
These consolidated financial statements have been prepared on a going concern basis. As detailed in the Strategic Report, the Directors' have assessed the Group's prospects and viability for the three year period to 31 December 2019. Based on this robust assessment, the Directors confirm that they have a reasonable expectation that the Group has adequate resources to continue in operational existence for at least the next 12 months.
These consolidated financial statements have been presented in Sterling and rounded to the nearest hundred thousand. Throughout these consolidated financial statements any amounts which are less than GBP0.05m are shown by 0.0, whereas a dash (-) represents that no balance exists.
The consolidated financial statements have been prepared on the historical cost basis except for certain financial assets and land and buildings that are measured at fair value at the reporting date. The principal accounting policies adopted are set out below.
New and amended accounting standards adopted with no significant impact on the Group
The Group has applied the following standards and amendments for the first time for its annual reporting period commencing 1 January 2016:
-- Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation Exception
-- Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations -- Amendments to IAS 1 Disclosure Initiative
-- Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation
-- Amendments to IAS 27 Equity Method in Separate Financial Statements -- Amendments to IFRSs Annual Improvements to IFRSs 2012-2014 Cycle
The adoption of these amendments did not have any impact on the current or prior periods.
New and amended accounting standards that have been issued but are not yet effective
The following standards have been issued and are effective for accounting periods ending on or after 31 December 2016 and are expected to have an impact on the Group financial statements.
IFRS 9 Financial Instruments
The new standard is effective for periods beginning on or after 1 January 2018. The Standard includes requirements for recognition and measurement, impairment, derecognition and general hedge accounting. The Group's current analysis is that this will not have a material impact on our results with the key changes for the Group being around terminology.
IFRS 15 Revenue from Contracts with Customers
The new standard is effective for periods beginning on or after 1 January 2018. The Standard specifies how and when an IFRS reporter will recognise revenue as well as requiring such entities to provide users of financial statements with more informative, relevant disclosures. The standard provides a single, principles based five-step model to be applied to all contracts with customers. The Group's current analysis is that this will not have a material impact on our results.
IFRS 16 Leases
The new standard is effective for periods beginning on or after 1 January 2019. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. This is in contrast to the current standard which differentiates between operating and finance leases. The Group is currently evaluating the impact of the different possible transitional approaches.
Basis of consolidation
Subsidiaries are entities over which the Group has control. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiary companies are consolidated using the acquisition method.
Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtained control, and continue to be consolidated until the date when such control ceases.
In preparing these consolidated financial statements, any intra-group balances, unrealised gains and losses or income and expenses arising from intra-group trading are eliminated. Where accounting policies used in individual financial statements of a subsidiary company differ from Group policies, adjustments are made to bring these policies in line with Group policies.
Joint ventures
Prior to the acquisition of the outstanding 50% of the ordinary shares of Gocompare on 31 March 2015, the Group's interest in Gocompare was classified under IFRS 11 - Joint Arrangements as a joint venture.
A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities. The Group's interests in jointly controlled entities are accounted for using the equity method of accounting. The Group recognises the cost of the investments which, together with the Group's share of the joint venture's post-acquisition changes to shareholders' funds, is included in the consolidated statement of financial position. The Group's share of post-acquisition profit or loss and other comprehensive income is stated after appropriate adjustments to align the accounting policies of the joint venture with those of the Group. In addition, adjustments are made for the amortisation of separately identifiable intangible assets recognised on acquisition and to eliminate unrealised profits relating to commission charged to esure Group plc by the joint venture. Carrying values are reviewed at each reporting date to determine whether there are any indications of impairment. If any such indications exist, the asset's recoverable amount is estimated and compared to the carrying value. Impairment losses are recognised through the income statement. Impairment may be reversed if conditions subsequently improve and credited through the income statement.
Business combinations
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of non-controlling interest in the acquiree, plus if the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquiree. Any gain arising from the difference between the fair value of the Group's pre-existing equity interest and its carrying value is recorded as a deemed disposal gain in the consolidated statement of comprehensive income.
Goodwill is recognised at the date of acquisition as the excess of the cost of the acquisition over the fair value of the identifiable assets acquired, liabilities assumed and any deferred tax asset or liability recognised as part of the business combination according to the requirements of IAS 12 - Income Taxes. Where the excess is negative a gain is recognised in the income statement at the date of acquisition.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions at the acquisition date. All acquisition-related costs are expensed in the income statement when incurred.
3. Critical accounting judgements and estimates
The preparation of these consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates; however the consolidated financial statements presented are based on conditions that existed at the balance sheet date.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Key sources of estimation uncertainty and critical judgements in applying the Group's accounting policies
Insurance contract liabilities
Estimates have to be made both for the expected ultimate cost of claims reported at the reporting date and for the expected ultimate cost of claims incurred but not reported ("IBNR") at the reporting date. It can take a significant period of time before ultimate claims cost can be established with certainty for some types of claims.
The ultimate cost of outstanding claims is estimated by carrying out standard actuarial projections in line with the Institute and Faculty of Actuaries Technical Actuarial Standards. These techniques use past claims information and development patterns of these claims to project the expected future claims cost both for notified and non-notified claims.
Similar judgements, estimates and assumptions are employed in the assessment of adequacy of provisions for unearned premium and hence whether there is a requirement for an unexpired risk provision.
4. Segmental information
esure makes value based decisions on customer acquisition and retention based on contribution. In addition to the underwriting contribution from Motor and Home, a diversified suite of additional insurance products and services provide further opportunities to deliver enhanced customer contribution.
Operating segments
The Group has four operating segments as described below. These segments are also the Group's reportable segments and represent the manner in which the business is regularly reported to the Group's executive and Board of Directors.
Motor underwriting
This segment incorporates the revenues and expenses directly attributable to the Group's Motor insurance underwriting activities inclusive of additional insurance products underwritten by the Group.
Home underwriting
This segment incorporates the revenues and expenses directly attributable to the Group's Home insurance underwriting activities.
Non-underwritten additional services
This segment represents the revenue and expenses relating to sales of third party additional insurance products to Motor and Home insurance customers; policy administration fees; instalment interest income; fees generated from the appointment of firms used during the claims process and car hire suppliers.
Investments
This segment represents income from investments (to manage liabilities under insurance contracts and generate return for shareholders).
Segmental revenues, expenses and other information
An analysis of the Group's results by reportable segment is shown below:
Year ended Non-underwritten
31 December Motor Home additional
2016 underwriting underwriting services Investments Total
GBPm GBPm GBPm GBPm GBPm
Gross written
premiums 563.7 91.3 - - 655.0
--------------------- -------------- -------------- ----------------- ------------ --------
Earned premiums,
net of reinsurance 470.6 84.3 - - 554.9
Investment income - - - 18.1 18.1
Instalment interest
income - - 37.6 - 37.6
Other income - - 36.9 - 36.9
--------------------- -------------- -------------- ----------------- ------------ --------
Total income 470.6 84.3 74.5 18.1 647.5
Net incurred
claims (356.4) (55.6) - - (412.0)
Claims handling
costs (19.5) (3.6) - - (23.1)
Insurance expenses (85.8) (27.5) - - (113.3)
Other operating
expenses - - (14.5) - (14.5)
--------------------- -------------- -------------- ----------------- ------------ --------
Total expenses (461.7) (86.7) (14.5) - (562.9)
--------------------- -------------- -------------- ----------------- ------------ --------
Trading profit 8.9 (2.4) 60.0 18.1 84.6
--------------------- -------------- -------------- ----------------- ------------ --------
Non-trading
costs (0.9)
Amortisation
of acquired
intangibles (2.3)
Finance costs (8.7)
--------
Profit before taxation from
continuing operations 72.7
Tax expense (13.2)
--------
Profit after taxation from
continuing operations 59.5
========
Net expense
ratio 22.4% 36.9% 24.6%
Net loss ratio 75.7% 66.0% 74.2%
-------------- -------------- --------
Combined operating
ratio 98.1% 102.9% 98.8%
The average number of in-force policies during the year ended 31 December 2016 was 2.08m.
The Group generated a trading profit of GBP24.5m (2015: GBP20.2m) on its discontinued operation (Gocompare.com) prior to the Demerger on 3 November 2016. An analysis of the discontinued operation is presented in Note 10.
Year ended Non-underwritten
31 December Motor Home additional
2015 underwriting underwriting services Investments Total
GBPm GBPm GBPm GBPm GBPm
Gross written
premiums 461.0 89.3 - - 550.3
--------------------- -------------- -------------- ----------------- ------------ --------
Earned premiums,
net of reinsurance 413.0 82.6 - - 495.6
Investment income - - - 6.1 6.1
Instalment interest
income - - 30.2 - 30.2
Other income - - 38.1 - 38.1
--------------------- -------------- -------------- ----------------- ------------ --------
Total income 413.0 82.6 68.3 6.1 570.0
Net incurred
claims (315.1) (51.4) - - (366.5)
Claims handling
costs (18.0) (3.1) - - (21.1)
Insurance expenses (73.2) (23.9) - - (97.1)
Other operating
expenses - - (13.2) - (13.2)
--------------------- -------------- -------------- ----------------- ------------ --------
Total expenses (406.3) (78.4) (13.2) - (497.9)
--------------------- -------------- -------------- ----------------- ------------ --------
Trading profit 6.7 4.2 55.1 6.1 72.1
--------------------- -------------- -------------- ----------------- ------------ --------
Non-trading
costs (0.2)
Amortisation
of acquired
intangibles (2.3)
Finance costs (8.7)
--------
Profit before taxation from
continuing operations 60.9
Tax expense (11.0)
--------
Profit after taxation from
continuing operations 49.9
========
Net expense
ratio 22.1% 32.7% 23.8%
Net loss ratio 76.3% 62.2% 74.0%
-------------- -------------- --------
Combined operating
ratio 98.4% 94.9% 97.8%
The average number of in-force policies during the year ended 31 December 2015 was 1.99m.
There are no other material components of income and expense or non-cash items.
Trading profit from continuing operations, being earnings before interest, tax, non-trading expenses and amortisation of acquired intangible assets, is management's measure of the overall profitability of the Group's operating activities. The Group's segmental trading profit, comprising of Motor underwriting, Home underwriting, Investments and Non-underwritten additional services GBP84.6m (2015: GBP72.1m).
The Group's profit in respect of continuing operations after tax is GBP59.5m (2015: GBP49.9m).
The Group incurred non-trading costs of GBP0.9m in 2016 of which GBP0.4m related to share-based payments in respect of the long service and one-off awards and GBP0.2m related to stamp duty and legal fees in respect of the new Manchester lease. The Group incurred non-trading costs of GBP0.2m in 2015 however this comprised of a charge in relation to share-based payments in respect of the long service and one-off awards of GBP1.5m, which was offset by a GBP1.3m upwards revaluation of the Group's land and buildings.
Segmental profit drivers
Motor and Home underwriting
The performance of the Motor and Home underwriting segments is measured by reference to a number of performance metrics, including in-force policies and the combined operating ratio.
Profitability of segmental underwriting activities is measured by reference to the net loss ratio, being net incurred claims as a percentage of earned premiums, net of reinsurance. For the year ended 31 December 2016, the Motor underwriting net loss ratio was 75.7% (2015: 76.3%) and the Home underwriting net loss ratio was 66.0% (2015: 62.2%). The total net loss ratio was 74.2% (2015: 74.0%).
The overall profitability of the Group's underwriting activities is measured by reference to the combined operating ratio, being the net expense ratio (net insurance expenses plus claims handling costs as a percentage of earned premiums, net of reinsurance) plus the net loss ratio. For the year ended 31 December 2015, the net expense ratio was 24.6% (2015: 23.8%) giving a combined operating ratio of 98.8% (2015: 97.8%).
In order to get a holistic view of the contribution from Motor and Home underwriting it is also necessary to consider the impact of additional service revenue.
All Motor and Home underwriting income is generated in the UK.
Additional services
The performance of additional services (inclusive of underwritten additional insurance products that are reported within the Motor underwriting segment), is measured by reference to revenue per in-force policy ("IFP") on a rolling 12 month basis; at 31 December 2016, revenue per IFP was GBP51.07 (2015: GBP51.70).
Investments
The performance of investments is measured by reference to gross investment return on invested assets. For the year ended 31 December 2016, this was 2.2% (2015: 0.8%). In addition, the Group received income from its investment in IMe Law Limited.
Statement of financial position
The assets and liabilities of the Group are reported on an aggregated consolidated basis. They are not allocated to reportable segments and are reported on the same basis as disclosed in the consolidated statement of financial position on page 3.
5. Other income
Year Year
ended ended
31 Dec 31 Dec
2016 2015
------------------------------ -------- --------
GBPm GBPm
------------------------------ -------- --------
Continuing operations
------------------------------ -------- --------
Fees for additional services 36.9 38.1
------------------------------ -------- --------
Total other income 36.9 38.1
------------------------------ -------- --------
6. Insurance and other operating expenses
Year Year
ended ended
31 Dec 31 Dec
2016 2015
-------------------------------------- -------- --------
GBPm GBPm
-------------------------------------- -------- --------
Acquisition of insurance contracts 75.4 52.2
-------------------------------------- -------- --------
Change in deferred acquisition costs (12.5) 2.7
-------------------------------------- -------- --------
Administration 50.4 42.2
-------------------------------------- -------- --------
Insurance expenses 113.3 97.1
-------------------------------------- -------- --------
Other operating expenses 17.7 15.7
-------------------------------------- -------- --------
During the year ended 31 December 2016, a reclassification of GBP0.1m is included within other operating expenses in relation to a revaluation of the Group's land and buildings (2015: GBP1.3m credit).
7. Dividends
A 2016 interim dividend per share of 3.0p (GBP12.5m) was declared by the Board of Directors in August 2016 (2015: interim dividend per share of 4.2p, GBP17.5m). Subsequent to the year end, a 2016 final dividend per share of 10.5p (GBP43.9m) was declared by the Board of Directors (2015: final dividend per share of 7.3p, GBP30.3m).
8. Earnings per share
Basic
Basic earnings per share is calculated by dividing the earnings attributable to the owners of the Group and the weighted average of Ordinary Shares in issue during the period, excluding Ordinary Shares held as employee trust shares. A calculation is also shown based on the earnings from continuing operations attributable to the owners of the Group.
Diluted
Diluted earnings per share is calculated by dividing the earnings attributable to the owners of the Group by the weighted average of Ordinary Shares in issue during the period adjusted for any dilutive potential Ordinary Shares. A calculation is also shown based on the earnings from continuing operations attributable to the owners of the Group.
The difference between the basic and diluted weighted average number of shares outstanding during the year, being 2,009,742 (2015: 1,202,953), relates to the dilutive potential of the share-based payment arrangements.
Basic and diluted earnings per Ordinary Share
Year ended Year ended
31 Dec 31 Dec
2016 2015
Profit after taxation (GBPm) 269.2 121.9
Weighted average number of Ordinary
shares (million) - basic 416.6 415.5
Earnings per share - basic (pence
per share) 64.6 29.3
Weighted average number of Ordinary
shares (million) - diluted 418.6 416.7
Earnings per share - diluted (pence
per share) 64.3 29.3
=========== ===========
Continuing operations earnings per share
Year ended Year ended
31 Dec 31 Dec
2016 2015
Profit from continuing operations,
net of tax (GBPm) 59.5 49.9
Weighted average number of Ordinary
shares (million) - basic 416.6 415.5
Earnings per share - basic (pence
per share) 14.3 12.0
Weighted average number of Ordinary
shares (million) - diluted 418.6 416.7
Earnings per share - diluted (pence
per share) 14.2 12.0
=========== ===========
Discontinued operations earnings per share
Year ended Year ended
31 Dec 31 Dec
2016 2015
Profit from discontinued operations,
net of tax (GBPm) 209.7 72.0
Weighted average number of Ordinary
shares (million) - basic 416.6 415.5
Earnings per share - basic (pence
per share) 50.3 17.3
Weighted average number of Ordinary
shares (million) - diluted 418.6 416.7
Earnings per share - diluted (pence
per share) 50.1 17.3
=========== ===========
Underlying earnings per share
In 2016, as a result of the demerger of Gocompare.com plc the Group recognised costs relating to the transaction and a non-cash gain on demerger and, in 2015, as a result of the acquisition of the outstanding 50% of the share capital of Gocompare on 31 March 2015, the Group recognised a joint venture deemed disposal gain and amortisation relating to the intangible assets arising on the application of IFRS 3. In order to reflect better the Group's performance for the period and its dividend paying capacity, an additional underlying earnings per share calculation is presented below. The reported profit after tax for each period is adjusted for the Group's non-cash gain on demerger under IFRIC 17 (31 December 2016: GBP213.6m; 31 December 2015: GBPnil), the joint venture deemed disposal gain (31 December 2016: GBPnil; 31 December 2015: GBP63.8m), the costs relating to the demerger (31 December 2016: GBP14.5m; 31 December 2015: GBPnil) and amortisation of acquired intangibles, from continuing and discontinued operations, net of the deferred tax credit associated with the amortisation (31 December 2016: GBP10.4m; 31 December 2015: GBP10.1m). The number of shares is set at the number of Ordinary Shares in issue at the reporting date.
Year ended Year ended
31 Dec 31 Dec
2016 2015
Profit after taxation (GBPm) 269.2 121.9
Adjustments net of taxation (GBPm) (188.7) (53.7)
Underlying profit after tax (GBPm) 80.5 68.2
Number of shares (million) - basic 417.9 416.9
Underlying earnings per share
(pence per share) 19.3 16.4
=========== ===========
9. Taxation
The tax rate used for the calculations is the Corporation Tax rate of 20.00% (2015: 20.25%) payable by the corporate entities in the UK on taxable profits under tax law in that jurisdiction.
10. Demerger of Gocompare.com
The demerger was effected by the Group making an interim in-specie distribution of Gocompare.com shares to shareholders. Following approval of the demerger by shareholders but, before the approval of the demerger dividend by the Board, Gocompare.com plc drew down debt of GBP75m under a term loan facility and paid a cash dividend to the Group of GBP73.3m.
Gocompare has been presented as a discontinued operation with all income and expenses shown as a single line in the statement of comprehensive income. The demerger is considered a distribution of non-cash assets to owners and, as such, falls under IFRIC 17 which requires a revaluation to fair value. A non-cash gain of GBP213.6m, based on the fair value of the assets at demerger (based on the share price on the date of demerger), is therefore recorded in the statement of comprehensive income. There is no impact on the prior year financial statements as a result of this demerger other than a change in the presentation of the results in the statement of comprehensive income and the cash flows of the Gocompare business to discontinued operations - the notes reflect the transfer of individual line items to discontinued operations.
The following tables summarise the performance of Gocompare.com from 1 January 2016 to the demerger on 3rd November 2016 and for the year ended 31 December 2015.
Period Year ended
ended
3 Nov 2016 31 Dec
2015
GBPm GBPm
Investment return 0.0 0.2
Fees for additional
services 113.1 84.1
Total income 113.1 84.3
Other operating expenses (88.6) (67.6)
Share of joint venture
profit - 3.5
----------- ------------------
Trading profit 24.5 20.2
Amortisation of acquired
intangibles (11.1) (10.4)
Fees associated with the demerger (14.5) -
of Gocompare.com
Deemed disposal/demerger
gain 213.6 63.8
Share of joint venture
tax - (0.5)
Profit before tax 212.5 73.1
Taxation expense (2.8) (1.1)
Profit after tax from discontinued
operations 209.7 72.0
----------- ------------------
The following table analyses the cash flows relating to the discontinued operation included in the consolidated cash flow statement from 1 January to the demerger on 3 November 2016 and for the year ended 31 December 2015.
Period ended Year ended
3 Nov 2016 31 Dec 2015
GBPm GBPm
Net cash generated from operating
activities 26.8 18.6
Net cash used by investing
activities (1.1) (1.1)
Net increase in cash and cash
equivalents 25.7 17.5
All statement of financial position items are, post demerger, derecognised from the statement of financial position with the net assets at demerger being shown as a single movement in the statement of changes in equity of GBP301.8m being the valuation of the distribution to shareholders. The non-cash gain of GBP213.6m is recorded as an increase in goodwill and intangible assets immediately prior to demerger. There is no impact on the prior year statement of financial position.
The following schedule details the assets and liabilities of the demerged group:
3 Nov 2016
GBPm
Assets
Goodwill and intangible assets 372.0
Property, plant and equipment 1.4
Other receivables 21.2
Cash and cash equivalents 17.4
Total assets 412.0
Liabilities
Other payables 29.2
Current tax liabilities 2.2
Deferred tax liabilities 5.7
Borrowings 73.1
Total liabilities 110.2
Net assets 301.8
-----------
11. Goodwill and intangible assets
Acquired Customer
Goodwill Software brands relationships Total
GBPm GBPm GBPm GBPm GBPm
Cost
As at 1 January
2015 - 7.5 24.2 11.3 43.0
Acquisition of
Gocompare 127.7 1.2 40.9 10.2 180.0
Additions in
the year - 1.8 - - 1.8
As at 31 December
2015 127.7 10.5 65.1 21.5 224.8
--------- --------- --------- --------------- --------
Additions in
the year - 4.8 - - 4.8
Disposals in
the year - 0.2 - - 0.2
Demerger of Gocompare (127.7) (1.7) (40.9) (10.2) (180.5)
As at 31 December
2016 - 13.8 24.2 11.3 49.3
--------- --------- --------- --------------- --------
Accumulated amortisation
and impairment
As at 1 January
2015 - 3.5 15.1 11.1 29.7
Amortisation
for the year - 1.2 8.4 4.0 13.6
As at 31 December
2015 - 4.7 23.5 15.1 43.3
--------- --------- --------- --------------- --------
Amortisation
for the year - 2.3 9.0 4.3 15.6
Disposals in
the year - (0.2) - - (0.2)
Demerger of Gocompare - (1.1) (12.9) (8.1) (22.1)
--------- --------- --------- --------------- --------
As at 31 December
2016 - 5.7 19.6 11.3 36.6
--------- --------- --------- --------------- --------
Net book value
--------- --------- --------- --------------- --------
As at 31 December
2015 127.7 5.8 41.6 6.4 181.5
--------- --------- --------- --------------- --------
As at 31 December
2016 - 8.1 4.6 - 12.7
--------- --------- --------- --------------- --------
Goodwill of GBP127.7m as at 31 December 2015 relates to goodwill arising on the acquisition of Gocompare by the Group.
Included in acquired brands and customer relationships are the Gocompare brand and the Gocompare customer relationships recognised on application of IFRS 3 to the acquisition of Gocompare. The Gocompare brand had an estimated fair value at the date of acquisition of GBP40.9m and was being amortised on a straight-line basis over its estimated useful economic life of five years. The Gocompare customer relationships had an estimated fair value at the date of acquisition of GBP10.2m and was being amortised on a straight-line basis over its estimated useful economic life of two years.
12. Financial assets and liabilities
12.1 Financial assets
As at As at
31 Dec 31 Dec
2016 2015
GBPm GBPm
Financial investments designated as
fair value through profit or loss:
Shares and other variable-yield securities
and units in unit trusts 39.3 39.3
Debt securities and other fixed income
securities 394.5 497.9
Deposits with credit institutions 209.3 188.8
Financial investments held for trading:
Derivative financial instruments 0.1 0.1
------- -------
Financial investments at fair value
through profit or loss 643.2 726.1
AFS financial assets:
Debt securities and other fixed income
securities 192.6 -
Shares in unquoted equity investments 3.2 2.4
Loans and receivables:
Insurance and other receivables 198.2 174.1
Cash and cash equivalents 25.5 31.9
Total financial assets 1,062.7 934.5
======= =======
Of the financial investments and cash above, GBP300.9m have a credit rating of AAA as at 31 December 2016 (2015: GBP297.0m), GBP204.8m have a credit rating of AA (2015: GBP132.1m), GBP155.5m have a credit rating of A (2015: GBP173.9m) and GBP160.8m have a credit rating of BBB or below, or are not rated (2015: GBP115.7m). The shares and other variable yield securities, units in unit trusts and derivative financial instruments as shown above are not subject to credit rating.
Available for sale financial assets
In 2016, in order to refine and enhance asset and liability matching for capital management purposes, the Group has designated some financial investments as available for sale. Any movements in the fair value of these assets is accounted for in Other Comprehensive Income, reducing the volatility in the Statement of Comprehensive Income. These assets have a longer average duration of 2.6 years (2015: less than one year) and therefore show an increased sensitivity to interest rates.
12.2 Financial liabilities
As at As at
31 Dec 31 Dec
2016 2015
GBPm GBPm
Financial liabilities held for trading:
Derivative financial instruments 1.6 3.3
Other financial liabilities:
Borrowings: 10 year Subordinated
Notes 122.8 122.6
Insurance and other payables 17.1 15.2
Total financial liabilities 141.5 141.1
The GBP125m 10 year Subordinated Notes were issued by esure Group plc on 19 December 2015 at the rate of 6.75% per annum, with payments made biannually. Directly attributable fees were GBP2.9m. A payment of GBP8.4m was made in the year ended 31 December 2015.
The nominal GBP125m Subordinated Notes have a maturity date of 19 December 2024. The Notes are direct, unsecured and subordinated obligations of the Group, ranking pari passu and without preference amongst themselves, and will, in the event of the winding-up of the Group or in the event of an administrator of the Group being appointed and giving notice that it intends to declare and distribute a dividend, be subordinated to the claims of all Senior Creditors and policy holders of the Group.
12.3 Capital management and regulation
The Group maintains a capital structure consistent with the Group's risk profile and the regulatory market requirements of its business. The Group's objectives in managing its capital are:
- to match the profile of its assets and liabilities, taking account of the risk inherent in the business;
- to satisfy the requirements of its policyholders and regulators; - to maintain financial and capital strength to support growth; and
- to retain financial flexibility by maintaining strong liquidity and access to a range of capital markets.
Solvency II is the new solvency framework implemented on 1 January 2016 as the capital adequacy regime for the European insurance industry. It establishes a set of EU-wide capital requirements and risk management standards with the aim of increasing protection for policyholders. The Group is regulated by the Prudential Regulation Authority ("PRA") on both a Group basis and, for the Group's principal underwriter, esure Insurance Limited, on a solo basis.
The esure Board has considered the risk appetite of the Group as part of the Own Risk and Solvency Assessment process under Solvency II. The esure Board believe an appropriate level of capital coverage of its Solvency Capital Requirement ("SCR") to be in the region of 130-150%. The capital surplus above the SCR provides sufficient headroom to absorb adverse capital events and should enable the Group to continue to meet its regulatory capital requirements. It is expected that the Group will initially operate in the middle to upper end of the range, providing flexibility to fund further profitable growth.
The Group's dividend policy is to target a base dividend of 50% of underlying profit after tax and enhance the base dividend with a further special dividend, if the Group has sufficient capital and distributable reserves, after allowing for an appropriate level of capital coverage of the Group's SCR and future growth opportunities. The Board remains committed to returning excess capital to shareholders where it does not believe it can utilise retained capital for further profitable growth.
Refer to page 13 for further information about the Group's draft and unaudited 31 December 2016 Solvency II capital position.
12.4 Fair value estimation
Inputs to Level 1 fair values are quoted prices (unadjusted) in active markets for identical assets. An active market is a market in which transactions for the asset occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Quoted prices (unadjusted) in active markets for identical assets or liabilities - (Level 1)
Inputs to Level 1 fair values are quoted prices (unadjusted) in active markets for identical assets. An active market is a market in which transactions for the asset occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) - (Level 2)
Fair value measurements that are derived from inputs other than quoted prices included in Level 1, if all significant inputs required to fair value an instrument are observable, would result in the instrument being included in Level 2. The majority of assets classified as Level 2 are over-the-counter corporate bonds, where trades are less frequent owing to the nature of the assets. Inputs used in pricing the Group's level 2 assets include:
-- quoted prices for similar (i.e. not identical) assets in active markets;
-- quoted prices for identical or similar assets in markets that are not active, the prices are not current, or price quotations vary among market makers, or in which little information is released publicly;
-- inputs that are derived principally from, or corroborated by, observable market data by correlation; and
-- for forward exchange contracts, the use of observable forward exchange rates at the balance sheet date, with the resulting value discounted back to present value.
The Group's policy, should there be a change to the valuation techniques or level of activity in the market in which that asset is traded, is to transfer the asset between levels effective from the beginning of the reporting period. In line with the requirements of IFRS 13 Fair Value Measurement, the Group classifies all debt securities as Level 2 assets with the exception of Government backed securities which are classified as Level 1 unless they are illiquid.
There have been no changes in respect of the categorisation of debt securities between Levels 1 and 2 during the period (2015: GBPnil).
Inputs for the asset or liability that are not based on observable market data (unobservable inputs) - (Level 3)
Unobservable inputs have been used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset at the measurement date (or market information for the inputs to any valuation models). As such, unobservable inputs reflect assumptions about the inputs that market participants would use in pricing the asset.
If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3. The Group held Level 3 AFS financial assets of GBP3.2m as at 31 December 2016 (2015: GBP2.4m), representing an investment in an unquoted equity investment which has been valued using a discounted cash flow valuation model.
Under IFRS 13, land and buildings with a carrying value of GBP12.9m (2015: GBP12.9m) are classified as Level 3 assets. Owner-occupied properties are stated at their revalued amounts, as assessed by qualified external valuers annually, all with recent relevant experience. These values are assessed in accordance with the relevant parts of the current RICS Valuation Standards in the UK ("Red Book"). The valuer's opinion of fair value was primarily derived using comparable recent market transactions on arm's length terms. No sensitivity analysis has been performed due to the nature of the valuation.
The following table presents the Group's financial assets and liabilities measured at fair value:
At 31 December 2016 Total fair
Level 1 Level 2 Level 3 value
GBPm GBPm GBPm GBPm
Financial assets
Assets at FVTPL:
Derivative financial
instruments - 0.1 - 0.1
Equity securities 39.3 - - 39.3
Debt securities 106.8 287.6 - 394.5
Deposits with credit
institutions - 209.3 - 209.3
Total financial assets
at FVTPL 146.1 497.0 - 643.2
========= ========= ========= ==========
AFS financial assets:
Debt securities 107.2 85.5 - 192.6
Unquoted equity securities - - 3.2 3.2
--------- --------- --------- ----------
Total AFS financial
assets 107.2 85.5 3.2 195.8
========= ========= ========= ==========
Land and buildings - - 12.9 12.9
--------- --------- --------- ----------
Financial liabilities
Derivative financial
instruments - 1.6 - 1.6
--------- --------- --------- ----------
Total financial liabilities
at FVTPL - 1.6 - 1.6
========= ========= ========= ==========
At 31 December 2015 Total fair
Level 1 Level 2 Level 3 value
GBPm GBPm GBPm GBPm
Financial assets
Assets at FVTPL:
Derivative financial
instruments - 0.1 - 0.1
Equity securities 39.3 - - 39.3
Debt securities 87.4 410.5 - 497.9
Deposits with credit
institutions - 188.8 - 188.8
--------- --------- --------- ----------
Total financial assets
at fair value 126.7 599.4 - 726.1
========= ========= ========= ==========
AFS financial assets:
--------- --------- --------- ----------
Unquoted equity securities - - 2.4 2.4
========= ========= ========= ==========
Land and buildings - - 12.9 12.9
========= ========= ========= ==========
Financial liabilities
Derivative financial
instruments - 3.3 - 3.3
--------- --------- --------- ----------
Total financial liabilities
at fair value - 3.3 - 3.3
========= ========= ========= ==========
14. Reinsurance assets and insurance contract liabilities
14.1 Analysis of recognised amounts
As at As at
31 Dec 2016 31 Dec 2015
GBPm GBPm
Gross
Claims outstanding (before deduction
of salvage
and subrogation recoveries) and
claims handling expenses 672.9 614.2
Unearned premiums 329.4 272.4
Total insurance liabilities,
gross 1,002.3 886.6
------------- -------------
Recoverable from reinsurers
Claims outstanding 271.1 209.3
Unearned premiums 20.6 15.9
------------- -------------
Total reinsurers' share of insurance
liabilities 291.7 225.2
------------- -------------
Net
Claims outstanding (before deduction
of salvage and subrogation recoveries)
and claims handling expenses 401.8 404.9
Unearned premiums 308.8 256.5
Total insurance liabilities,
net 710.6 661.4
============= =============
Due within one year (gross) 546.4 503.3
Due in more than one year (gross) 455.9 383.3
Reinsurance Assets As at As at
31 Dec 2016 31 Dec 2015
GBPm GBPm
Reinsurers' share of insurance
liabilities 291.7 225.2
Total assets arising from reinsurance
contracts 291.7 225.2
------------- -------------
Expected to be recovered within
one year 39.0 28.4
Expected to be recovered in more
than one year 252.7 196.8
Amounts due from reinsurers in respect of claims already paid by the Group on the contracts that are reinsured are included in insurance and other receivables (note 21). No reinsurance assets have been impaired.
(a) Insurance claims - gross ultimate claims
Accident 2007 2008 2009 20010 2011 2012 2013 2014 2015 2016 Total
year
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Ultimate
gross
earned
premium 335.9 447.1 544.3 479.1 488.7 511.7 526.1 528.7 532.4 598.0 4,992.0
Estimate of ultimate
gross claims costs:
- At end of
reporting
year 289.2 399.1 540.2 475.3 392.7 442.0 439.5 456.1 457.2 534.6
- One year
later 268.8 398.2 535.3 416.8 355.7 399.8 386.9 442.4 446.1
- Two years
later 242.0 407.5 536.6 399.0 331.5 369.2 374.6 440.2
- Three
years
later 233.0 399.9 549.8 380.6 309.7 355.9 368.9
- Four
years
later 232.9 382.9 534.0 371.8 304.9 347.6
- Five
years
later 229.4 381.3 534.1 369.9 294.4
- Six years
later 228.0 379.7 523.8 369.3
- Seven
years
later 227.8 372.4 523.4
- Eight
years
later 226.6 370.8
- Nine
years
later 224.3
Current
estimate
of
cumulative
claims 224.3 370.8 523.4 369.3 294.4 347.6 368.9 440.2 446.1 534.6 3,919.6
Cumulative
payments
to date (220.8) (364.9) (510.8) (367.8) (285.9) (325.8) (319.8) (343.4) (321.6) (262.4) (3,323.2)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- ----------
Liability recognised
in the consolidated
statement of
financial position 596.4
Reserve in respect of
prior periods 23.5
Provision for claims
handling costs 12.5
Salvage and
subrogation 40.5
----------
Total reserve
included in the
consolidated
statement of
financial position 672.9
----------
(b) Insurance claims - net ultimate claims
Accident 2007 2008 2009 20010 2011 2012 2013 2014 2015 2016 Total
year
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Ultimate
gross
earned
premium 321.4 424.1 514.9 452.1 459.7 480.2 489.2 490.8 495.6 554.9 4,682.9
Estimate of ultimate
gross claims costs:
- At end of
reporting
year 270.9 374.5 510.3 446.8 360.1 401.0 404.7 423.8 423.1 450.8
- One year
later 254.9 373.8 495.0 392.5 317.3 356.7 357.9 394.8 396.3
- Two years
later 227.0 372.0 495.0 374.6 296.4 331.9 345.9 391.4
- Three
years
later 220.0 371.7 495.1 363.9 285.0 326.3 340.4
- Four
years
later 223.5 367.6 494.5 360.9 284.5 325.6
- Five
years
later 219.8 366.3 492.7 358.6 281.8
- Six years
later 218.3 364.7 489.5 358.6
- Seven
years
later 217.5 362.1 489.4
- Eight
years
later 216.6 361.0
- Nine
years
later 216.4
Current
estimate
of
cumulative
claims 216.4 361.0 489.4 358.6 281.8 325.6 340.4 391.4 396.3 450.8 3,611.7
Cumulative
payments
to date (214.4) (360.5) (489.3) (356.9) (279.6) (317.9) (319.2) (342.8) (321.5) (262.4) (3,264.57)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -----------
Liability recognised
in the consolidated
statement of
financial position 347.2
Reserve in respect of
prior periods 1.6
Provision for claims
handling costs 12.5
Salvage and
subrogation 40.5
-----------
Total net reserve
included in the
consolidated
statement of
financial position 401.8
-----------
(c) Insurance claims - net loss ratio development
Accident year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 ---------------------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Estimate of ultimate loss ratio: ---------------------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- - At end of reporting year 84% 88% 99% 99% 78% 84% 83% 86% 85% 81% ---------------------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- - One year later 79% 88% 96% 87% 69% 74% 73% 80% 80% ---------------------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- - Two years later 71% 88% 96% 83% 64% 69% 71% 80% ---------------------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- - Three years later 68% 88% 96% 80% 62% 68% 70% ---------------------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- - Four years later 70% 87% 96% 80% 62% 68% ---------------------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- - Five years later 68% 86% 96% 79% 61% ---------------------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- - Six years later 68% 86% 95% 79% ---------------------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- - Seven years later 68% 85% 95% ---------------------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- - Eight years later 67% 85% ---------------------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- - Nine years later 67% ---------------------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
14.3 Movement in insurance liabilities and reinsurance assets
(a) Claims reported in the financial statements and claims handling expenses
The movements in claims reported, including claims handling expenses, both gross and net of reinsurance, are shown below:
2016 2015
------------------------------- -------------------------------
Gross Reinsurers Net Gross Reinsurers Net
share share
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January 567.6 (209.3) 358.3 562.7 (194.4) 386.3
Cash paid
for claims
settled
in year (434.3) 12.6 (421.7) (383.8) 7.4 (376.4)
Change arising
from:
Current
year claims 534.6 (83.7) 450.9 457.2 (34.1) 423.1
Prior year
claims (48.0) 9.3 (38.7) (68.5) 11.8 (56.7)
Total at
end of year 619.9 (271.1) 348.8 567.6 (209.3) 358.3
Provision
for claims
handling
costs 12.5 - 12.5 12.6 - 12.6
Salvage
and subrogation 40.5 - 40.5 34.0 - 34.0
Total reserve
per statement
of financial
position 672.9 (271.1) 401.8 614.2 (209.3) 404.9
-------- ----------- -------- -------- ----------- --------
Claims incurred and claims handling expenses as disclosed in the consolidated statement of comprehensive income comprise:
Year ended 31 Dec Year ended 31 Dec
2016 2015
Gross Reinsurers Net Gross Reinsurers Net
share share
GBPm GBPm GBPm GBPm GBPm GBPm
Claims incurred 486.6 (74.4) 412.2 388.8 (22.3) 366.5
Claims handling
expenses 22.9 - 22.9 21.1 - 21.1
Claims incurred
and claims handling
expenses 509.5 (74.4) 435.1 409.9 (22.3) 387.6
------ ----------- ------ ------ ----------- ------
During 2016, the Group continued to experience favourable development of prior accident year reserves (GBP38.7m reduction in prior year claims reserves in the year ended 31 December 2016), but to a lesser extent than during the year ended 31 December 2015 (GBP56.7m reduction in prior year claims reserves in the year ended 31 December 2015).
(b) Provisions for unearned premiums
The movements for the year, both gross and net of reinsurance, are summarised below:
2016 2015
Gross Reinsurers Net Gross Reinsurers Net
share share
GBPm GBPm GBPm GBPm GBPm GBPm
Unearned premium provision
At beginning
of the year 272.4 (15.9) 256.5 254.4 (14.9) 239.5
Premiums written
in the year 655.0 (47.8) 607.2 550.3 (37.8) 512.5
Premiums earned
in the year (598.0) 43.1 (554.9) (532.3) 36.8 (495.5)
At end of year 329.4 (20.6) 308.8 272.4 (15.9) 256.5
-------- ----------- -------- -------- ----------- --------
15. Related party transactions
The following transactions took place with related parties during the year:
a) Commissions and fees receivable for introducing insurance business:
Prior to the acquisition of Gocompare on 31 March 2015 (after which Gocompare was part of the Group), the Group received commissions and fees for customer introduction services provided to Gocompare for introducing insurance business. The value of transactions during the period to 31 March 2015 was GBP0.0m. The amount receivable as at 31 March 2015 was GBP0.0m.
These transactions arose in the normal course of business through fixed fees, and were based on arm's length arrangements. Post demerger these transactions are included as transactions with shareholders and are disclosed below.
b) Commissions and fees payable for introducing insurance business:
Prior to the acquisition of Gocompare on 31 March 2015 (after which Gocompare was part of the Group), the Group paid commissions and fees for customer introduction services provided by Gocompare for introducing insurance business. The value of transactions during the period to 31 March 2015 was GBP1.6m. The amount payable as at 31 March 2015 was GBP0.5m.
These transactions arose in the normal course of obtaining insurance business through brokerages, and were based on arm's length arrangements. Post demerger these transactions are included as transactions with shareholders and are disclosed below.
c) Transactions with shareholders
The following transactions took place with shareholders and entities under common control:
-- One of the Directors has a beneficial part ownership interest in two companies which leased office space from the Group. The company also charged the Group for travel expenses incurred by employees of the Group.
-- Eight of the Directors hold shares in Gocompare post demerger which pays commissions and charges fees for introducing insurance business.
-- One of the Directors has a beneficial part ownership interest in a restaurant which has been used by the Group for corporate events and entertaining purposes.
Year ended Year ended
31 Dec 31 Dec
2016 2015
GBPm GBPm
Value of income / (expense) for
the year:
Lease of office space net of
travel expenses charged 0.2 0.2
Net fees charged by Gompare.com
Ltd (1.6) See 15.a
Restaurants (0.1) (0.1)
Total (expense)/income for
the year (1.5) 0.1
----------- -----------
Amount receivable / (payable) at
the year end:
Lease of office space net of
travel expenses charged 0.1 0.1
Net fees payable to Gompare.com
Ltd (0.7) See 15.b
Restaurants (0.0) -
Total amount (payable)/receivable
at the year end (0.6) 0.1
----------- -----------
d) Compensation of key management personnel
The key management personnel are considered to be the Directors. Please refer to the Directors remuneration report for more details.
16. Subsequent events
On 27 February 2017, the Lord Chancellor changed the Ogden discount rate from plus 2.5% to minus 0.75%, effective 20 March 2017. As at 31 December 2016, the Group's reserve margin included an allowance for a change in the discount rate to 0%. The impact on the Group's performance from a change in the discount rate is outlined below:
2016 2017
Discount Discount rate Impact from
rate (plus 2.5% 2016
(plus 2.5% to minus 0.75%)
to 0%) GBPm GBPm
GBPm
Gross reserves
(GBPm) 56.3 88.3 32.0
Reserves, net of
reinsurance (GBPm) 1.8 2.5 0.7
Profit after tax
(GBPm) nil 0.6 0.6
The Group has not adjusted its 2016 financial position to take into account the discount rate moving to minus 0.75%, beyond the 0% allowed for within its reserve margin as at 31 December 2016. The effect is immaterial on profit after tax.
17. Risk management
The Board is responsible for prudent oversight of esure Group, ensuring that it is conducted in accordance with sound business principles and with applicable law and regulation. This encompasses responsibility to articulate and monitor adherence to quantifiable and measurable statements of the Board's risk appetite. The Board also ensures that measures are in place to provide effective and objective assurance on the identification, management control and acceptance.
Principal risks and uncertainties
The Directors consider that the following are the principal risks facing esure group, focusing on those that would threaten the business model, future performance or solvency of the Group.
Insurance Risk
------------------------------------------------------------------------------------------------------------------
Key elements Definition Mitigation
---------------------------------------------------- ---------------------------- ------------------------------
Insurance Risk There is strong
* Pricing and underwriting is the most material and regular monitoring
risk for the Group. in place of the
It represents the external environment
* Reserve uncertainty in to understand and
the profitability react to the changing
of the business market, ensuring
* Catastrophe written due to that we are well
variability in placed to benefit
the value and timing from any developments.
* Reinsurance of claims and premium
rates - this can There is a strong
impact historic claims management
(reserve risk) process that ensures
as well as future that there is strong
exposures (underwriting customer service,
and catastrophe). management of claims
There is some uncertainty costs and management
within the market information to
in terms of the understand claims
rating environment trends.
and potential legal
changes through There is a robust
the government monitoring process
consultation on in place that tests
Ogden discount the key variables
rate and whiplash affecting loss
reforms. performance, including
loss ratios, risk
mix, pricing, quote
conversion, renewal
retention ratios,
claims costs, claims
frequency and the
adequacy of reserves.
There is use of
external data to
support our analysis
of risk exposure
for underwriting
and catastrophe
risk.
There is a prudent
approach to reserving
risk with a risk
appetite to hold
a margin above
the actuarial best
estimate. The Group's
actuarial function
analyses and projects
historical claims
development data
and uses a number
of actuarial techniques
to both test and
forecast claims
provisions. In
addition, independent
external actuaries
assess the adequacy
of the Group's
reserves.
There is reinsurance
in place to protect
the business from
large losses and
Catastrophe events;
there are risk
appetite metrics
set against the
level of coverage
as well as the
creditworthiness
of reinsurers and
concentration risk
- these are monitored
prior to finalisation
of any contract
and on an ongoing
basis to ensure
that it remains
in line with our
risk appetite.
---------------------------------------------------- ---------------------------- ------------------------------
Market Risk
------------------------------------------------------------------------------------------------------------------
Key elements Definition Mitigation
---------------------------------------------------- ---------------------------- ------------------------------
There are moderate Market risk is
* Interest rate levels of Market managed through
risk taken by the regular monitoring,
Group. It represents including the drivers
* Spread the uncertainty of investment return
in the financial and value at risk
position due to measures, counterparty
* Equity fluctuations in exposures and interest
the level and in rate sensitivities
the volatility of our assets and
* Default of market prices liabilities. As
of assets and liabilities. part of this, the
Group considers
* Liquidity There is some increased the matching of
uncertainty within the investment
the market following portfolio with
Brexit and other its insurance liabilities
macro economic to mitigate and
uncertainties. manage this risk.
Oversight of the
Group's investment
strategy and the
associated liquidity
risk is undertaken
by the Investment
Committee.
Our investment
strategy does not
expose the Group
to material currency
risk or the risks
arising from active
trading of derivatives.
The Group manages
the level of investment
counterparty credit
risk it accepts
by placing limits
on its exposure
to a single counterparty
or groups of counterparties,
and on geographical
counterparties
and geographical
segments. Such
risks are subject
to regular review
within the Investment
Committee.
The Group continues
to monitor its
liquidity risk
by considering
the Group's operating
cash flows, stressed
for catastrophe
scenarios, dividend
payouts, liquidity
strains and investment
strategy to mitigate
this risk.
---------------------------------------------------- ---------------------------- ------------------------------
Financial and Solvency Risk
------------------------------------------------------------------------------------------------------------------
Key elements Definition Mitigation
---------------------------------------------------- ---------------------------- ------------------------------
The risk that inaccurate The Group reviews
* Financial reporting financial estimates financial estimates
or judgements could and underlying
misrepresent our assumptions on
* Solvency position financial or solvency an ongoing basis,
position and change taking into account
key strategic decisions. changes in underwriting
The preparation conditions, changes
of financial information in legislation
requires management or regulation,
to make judgements, and market movements.
estimates and assumptions
where the actual The Group has strong
outcome may differ governance in place
from these estimates. to provide oversight
of the financial
estimates and judgements
as well as the
solvency position
being monitored
on a regular basis.
In addition, independent
external actuaries
assess the adequacy
of the Group's
technical provisions.
The oversight of
the Group's material
financial estimates
and judgements
resides with the
Audit Committee.
As part of the
ORSA process the
Group considers
the longer term
solvency position
and the risks that
its faces.
---------------------------------------------------- ---------------------------- ------------------------------
Operational Risk
------------------------------------------------------------------------------------------------------------------
Key elements Definition Mitigation
---------------------------------------------------- ---------------------------- ------------------------------
The risk that there Ownership and management
* Business processes is a financial of the operational
loss or reputational risks sits with
damage due to inadequate the first line
* IT systems and disaster recovery or failures with business functions.
processes, people There are also
or systems - either specialist teams
* Data security and cyber risk within the Group that reside within
or within material the business functions
partners. that provide expertise
* Infrastructure risk and business continuity and support, including
for business continuity,
IT disaster recovery,
* Financial Crime and Fraud fraud and financial
crime and cyber
risk.
* Outsourcing
Oversight, support
and challenge are
* Distribution provided by the
second line Risk
function which
works closely with
the first line
business and specialist
functions.
Operational risk
identification,
assessment and
management are
embedded within
management processes.
These processes
are supported by
the second line
Risk team, including
the annual risk
and control self
assessment.
The Group has a
robust Governance
and Risk Framework
in place which
provides an effective
structure within
which operational
risks are identified,
measured and managed.
It ensures that
there is clear
ownership for risks
with effective
reporting and escalation
mechanisms, supporting
management oversight
and decision making.
---------------------------------------------------- ---------------------------- ------------------------------
Legal, Regulatory and Conduct Risk
------------------------------------------------------------------------------------------------------------------
Key elements Definition Mitigation
---------------------------------------------------- ---------------------------- ------------------------------
The Group operates There is a low
* Legal and Political Risk in a regulated appetite for this
environment therefore risk and this is
there is a risk reflected
* Conduct and Compliance Risk of reputational in management decision
or financial damage making, with close
driven by regulatory monitoring
* Regulatory Risk or legal intervention. of key risk indicators.
Board oversight
is ensured by upward
reporting of a
suite of customer
and conduct risk
appetite statements
and measures.
The Group continues
to monitor legal
and regulatory
developments in
the UK and Europe,
through our close
relationship with
our regulators
(the FCA and PRA)
and other official
bodies and the
use of proactive
risk management
tools and processes
to mitigate our
exposure to regulatory
risk.
Our culture and
tone from the top
ensures the interests
of our customers
and their fair
treatment is paramount.
We have a strong
governance framework
and our Conduct
Risk and Customer
Committee reviews
all aspects of
our customer service.
---------------------------------------------------- ---------------------------- ------------------------------
18. Statutory information
The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2016 or 2015 but is derived from those accounts. Statutory accounts for 2015 have been delivered to the registrar of companies, and those for 2016 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
Glossary of terms
The definitions set out below apply throughout this document, unless the context requires otherwise.
"Board" means the board of Directors of the Company from time to time.
"Business" means the business of the Group.
"Company" means esure Group plc, a company incorporated in England and Wales with registered number 7064312 whose registered office is The Observatory, Castlefield Road, Reigate, Surrey RH2
0SG.
"Defaqto" is a leading independent financial research company in the UK.
"Flood Re" is a not-for-profit flood reinsurance fund, owned and managed by the insurance industry.
"Footprint expansion" means the Group's underwriting initiative to quote competitively for more customers
"Gocompare.com" is a company incorporated in England and Wales with registered number 6062003 whose registered office is Unit 6, Imperial Courtyard, Newport, Gwent NP10 8UL.
"Group" or "esure Group" means the Company and its subsidiaries.
"IFRS" means International Financial Reporting Standards.
"Ordinary Shares" means the ordinary shares with a nominal value of 1 12 pence each in the capital of the Company.
"ORSA" means Own Risk and Solvency Assessment and aims to assess the overall solvency needs of an insurance company.
"SFCR" means Solvency and Financial Condition Report
"the Notes" means the GBP125 million 6.75% ten year tier two Subordinated Notes issued on 19 December 2014.
Alternative performance metrics
Throughout this report, the Group uses a number of Alternative Performance Measures ("APMs"). The Group prepares its financial statements under IFRS and by definition these measures are not IFRS metrics.
These APMs are used by the Group, alongside IFRS measures, for both internal performance analysis and to help shareholders and other users of the Annual Report and financial statements to understand the Group's performance better.
Additional Services Revenue ("ASR")
(1) "Non-underwritten additional insurance products" is the commission margins for the Group generated from sales of such products.
(2) "Policy administration fees and other income" is the income received as a result of administration charges, e.g. as a result of mid-term alterations to policy details by the policy holder and cancellation charges. Other income includes introduction fees where the Group does not have a continuing relationship with the customer.
(3) "Claims income" is the income generated by the Group from the appointment of firms used during the claims process, including car hire and medical suppliers. This also includes legal panel membership fees from Scotland.
(4) "Non-underwritten additional services" is the total income from the Group's non-underwritten additional services reporting segment.
(5) "Underwritten additional insurance products" is the revenue calculated by deducting the Group's claims costs associated with is underwritten additional insurance products from the gross written premiums relating to these products in a particular period.
(6) "Non-underwritten additional services trading profit" is the total non-underwritten additional services income less the total associated expenses.
"Combined operating ratio" is a metric for assessing the performance of a general insurance firm, calculated as the loss ratio plus the expense ratio.
"Contribution" means the trading profit/(loss) generated from underwriting, non-underwritten additional services revenues and investments
"Expense ratio" means net insurance expenses plus claims handling costs as a percentage of earned premiums, net of reinsurance.
"Loss ratio" means claims incurred net of reinsurance as a percentage of earned premiums, net of reinsurance.
"In-force policies" means the number of live policies as at 31 December.
"Net Promoter Score(TM) " is an index that measures the willingness of customers to recommend a company's products or services to others.
"Trading profit" is earnings before interest, tax, non-trading expenses and amortisation of acquired intangible assets.
"Underlying profit" means management's measure of profitability adjusted for items that do not impact the Group's dividend capacity. In 2016, adjustments were made for: the non-cash disposal gain on Demerger; the amortisation of acquired intangible assets; and the fees associated with the Demerger. In 2015, adjustments were made for: the joint venture deemed disposal gain; and the amortisation of acquired intangible assets.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EADDNEEAXEAF
(END) Dow Jones Newswires
March 10, 2017 02:00 ET (07:00 GMT)
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