TIDMELLA
RNS Number : 5366G
Ecclesiastical Insurance Office PLC
17 March 2020
Ecclesiastical Insurance Office plc announces results
for the year ended 31 December 2019
Robust underwriting profits and a strong investment return
Ecclesiastical Insurance Office plc ("Ecclesiastical"), the
specialist financial services group, today announces its full year
2019 results.
Highlights
-- Profit before tax of GBP73.3m (2018: GBP15.4m)
-- Investment returns of GBP74.4m (2018: GBP4.0m), reflecting
recovery of markets following a downturn at the end of 2018
-- Underwriting profit of GBP20.0m (2018: GBP29.2m), giving a
Group COR(1) of 91.1% (2018: 86.4%). Underwriting profit reflects
strong current year performance, and lower reserve releases
compared with prior year
-- Gross written premium (GWP) increased by 10% to GBP394.0m
(2018: GBP357.0m), supported by strong retention levels in existing
markets and substantial growth in overseas territories
-- More than GBP32m was donated to charities during 2019 (2018:
GBP18.8m). Over GBP96m of charitable donations have been made since
2016 towards our target of GBP100m by the end of 2020
-- Continued external recognition of the Group as a trusted and
specialist financial services organisation. This included being
named as the UK's best and most trusted insurer for the tenth time
by independent ratings agency Fairer Finance, and EdenTree winning
MoneyFacts Best Ethical Investment Provider for the 11th year in a
row
(1) Alternative performance measure, refer to the Reconciliation
of Alternative Performance Measures note to this announcement for
further explanation
Mark Hews, Group Chief Executive Officer of Ecclesiastical,
said:
"2019 was another successful year for Ecclesiastical as we
continued to focus on delivering sustainable and profitable growth
for the long-term. I'm pleased to report an increase in pre-tax
profits of GBP73.3m (2018: GBP15.4m) driven by strong investment
returns. Underwriting results were again strong across the group at
GBP20.0m (2018: GBP29.4m) and reflected anticipated lower reserve
releases compared to prior year. This robust performance has
strengthened our capital position which provides us with security
today - including the ability to withstand any temporary economic
disruption - as well as flexibility for the future.
"Thanks to the incredible support of our customers, brokers,
business partners, employees and all our supporters, I am pleased
to report that in 2019 we donated over GBP32m to charities. This
takes our total donations since 2016 to over GBP96m and across the
group we have now supported over 7,000 charities worldwide. With
this wide ranging support, we are now within short reach of our
GBP100m target and hope to achieve it by the end of 2020.
"Our focus on sustainable growth over the past few years has
enabled us to invest significantly in the future of our business
and 2019 saw us push forward with our ambitious plans. Work on our
new head office is on schedule to be complete by the end of the
year and we have continued to invest in new systems and technology,
most notably the ongoing development of a new strategic UK General
Insurance system which, once live, will help us to provide our
customers and brokers with an enhanced experience and give us
better processes and capacity.
"In line with our strategic goal to be the most trusted and
ethical specialist financial services group, we have continued to
win external accolades for the way we do business. For the tenth
consecutive time, we were named by Fairer Finance as the best and
most trusted provider of UK home insurance while EdenTree, our
investment management business, was named MoneyFacts Best Ethical
Investment Provider for the 11th year in a row. Our UK General
Insurance business claimed two Insurance Post "Claims Awards",
recognising the exceptional service and lengths our teams go to in
order to ensure our customers are in safe hands."
ECCLESIASTICAL INSURANCE OFFICE PLC
ANNUAL FINANCIAL REPORT FOR THE YEARED 31 DECEMBER 2019
The Company has now approved its annual report and accounts for
2019.
This Annual Financial Report announcement contains the
information required to comply with the Disclosure and Transparency
Rules, and extracts of the Strategic Report and Directors' Report
forming part of the full financial statements.
The financial information set out below does not constitute the
Company's statutory accounts for the year ended 31 December 2019.
The annual report and accounts will be available on or before 1
April 2020 on the Company's website at www.ecclesiastical.com.
Copies of the audited financial statements are also available from
the registered office at Beaufort House, Brunswick Road, Gloucester
GL1 1JZ.
A copy of the Company's statutory accounts for the year ended 31
December 2019 will be submitted to the National Storage Mechanism
and will shortly be available for inspection at
www.morningstar.co.uk
Chairman's Statement
My first year
This is my first annual statement as Chairman and it's been a
pleasure and privilege to have led the Group following my
appointment in March 2019. Over the past year, I've enjoyed
visiting our businesses across the UK and also in Canada and
Ireland, and am looking forward to visiting our Australia business
this year. I've had the opportunity to meet some of our customers
and talented colleagues and I have been thoroughly impressed to
see, at first hand, just how much our customers value our
expertise. We put customers at the heart of everything we do and
because of that, I am delighted to say it's been another successful
year. My heart-felt thanks to everyone who has worked so hard to
deliver these significant financial results that enable us to
recycle our profits back into the communities in which we do our
business. The more we make, the more we can give away.
A strong set of results
It is our unique charitable purpose that makes us special. Our
charitable ownership continuously influences the way we do our
business and our approach to growth. We believe in taking the
long-term view and we believe growth must be sustainable. It is a
business model that works and I am delighted that the Group's
strong performance has allowed us to donate GBP30m to our
charitable owner and over GBP2m to the good causes we support
directly through our Corporate Social Responsibility programme. We
ended 2019 having given over GBP96m in total to good causes since
2016 and are now only a short way from reaching our GBP100m target
by the end of 2020.
Achievements and reflections
In the past few years, the Group has been through a period of
change. This change programme has continued to strengthen our core
insurance business as well as expand our other portfolios and
specialisms. In 2019 our immediate parent, Ecclesiastical Insurance
Group plc, expanded the broking business with investments in
Robertson-McIsaac and Lloyd & Whyte which both offer niche
specialist insurance services.
In late 2020, we will relocate our Gloucestershire head office
to a purpose-built unit which will house all of our people in the
area. I am pleased that sustainability, energy efficiency and
environmental impacts have been a significant consideration for
this development.
We have also invested in the development of a new system for the
UK General Insurance business to provide our customers and brokers
with an enhanced experience and give us better processes and
capacity.
Board developments and governance
In 2019 we were delighted to welcome Denise Cockrem, the Group's
Chief Financial Officer, as an Executive Director to the Board. We
were also delighted to welcome Angus Winther and Francois-Xaviar
Boisseau to the Board as Non-Executive Directors during the year
and Neil Maidment as a Non-Executive Director in January 2020.
Their diversity of skills and experience across the insurance and
financial services sector adds to the constructive challenge and
support the Board provides to the executive management team.
The Board and I were also delighted that Tim Carroll, who has
served on the Board since 2013, has now taken up the position of
Chairman of our charitable parent company, Allchurches Trust
Limited. We thank Tim for his service to the Ecclesiastical Group
and look forward to working with him in his new role.
We are also committed to supporting our people right across the
business, at every level and from every background so we can
develop a sustainable pool of talent and allow them to develop
their careers with us.
The future
As the Board looks towards the next chapter for Ecclesiastical,
it is especially critical that we respond to broader issues of
sustainability and climate change. Our people are often on the
front line of flooding and other natural catastrophes and it has
never been more important to focus on our risk management services
and try to prevent disaster before it happens. Given the depth of
our expertise we are well placed to play our part in making a
better, safer future for all. Added to that, we believe we are also
proving that a different way of doing business is possible.
A way that makes returns beyond conventional shareholders to a
broader, diverse group of stakeholders, including the most
vulnerable and needy in society. Nothing would please us more than
to encourage others to join us and create a movement for good.
Chief Executive's Report
A unique business with a clear and caring purpose
In the world of financial services, Ecclesiastical treads a very
different path. Over 130 years ago, our founders created a
commercial company with a charitable purpose. Today, we are one of
the largest corporate donors to charity in the UK, contributing to
thousands of good causes in this country and abroad.
Owned by a charity we are not driven by the need to grow at any
cost in order to satisfy short-term shareholder demands. Instead we
are driven to build a sustainable, ethical, values driven business
that supports and cares for its customers, their communities and
society as a whole. We do this by using our specialist expertise to
provide products, cover and service that customers value and
trust.
We seek to provide insurance that you can believe in rather than
cheap insurance that may not provide the cover you expected at your
time of need.
It is for this reason that we continue to be trusted to protect
and preserve so much of the country's irreplaceable heritage and
history, covering many of the nation's most iconic palaces,
castles, estates, World Heritage Sites, churches and cathedrals. In
fact we are a leading insurer of Grade I listed buildings in
England, including places like St Paul's Cathedral and Westminster
Abbey that are recognised by millions of people around the
world.
Building a Movement for Good, thanks to your support
In 2016, we announced a new strategic goal for the Group that
built on our ethical foundations. It was clear, stretching and
inspirational.
To work together to be the most trusted and ethical specialist
financial services group, giving GBP100m to charity.
Thanks to the incredible support of our customers, brokers,
business partners, employees and all our supporters, I am pleased
to report that in 2019, together, we donated over GBP32m to
charities. This takes our total donations to over GBP96m and we
have now supported over 7,000 charities worldwide. With this wide
ranging support, we are now within short reach of our GBP100m
target and hope to achieve it by the end of 2020.
Of course, whilst it is easy to focus on the impressive numbers
that headline this achievement, it is the positive impact these
donations have made to so many people's lives which is truly
inspiring. We are very proud to have supported charities tackling
so many different and important issues. Their work is lifting
people out of poverty, making society more inclusive and
strengthening communities. But their work also shares a common aim
- to change lives for the better and make a positive impact.
Looking at all the charities we've supported, and the many thank
you letters received, is a humbling and uplifting experience. It is
an experience that inspires us all to get behind our charitable
purpose and build and widen our movement for good so that more
people can benefit.
Always learning from our customers
As a business we strive to do the right thing; it is part of our
DNA. But we are only human and, given the breadth and depth of our
global Group, it is inevitable there will be times - hopefully few
and far between - when we fall short of our own high standards.
When this happens it is important that we learn from this and
recognise where we can do things better.
Over the years, this approach of continuous learning has led to
exceptionally high UK customer satisfaction levels, at 97%-99%
across all sectors.
Overall we successfully deal with thousands of claims every year
and I am pleased to report that 98% of surveyed customers were
satisfied with how we handled their claim last year, and 93% being
very and extremely satisfied, which is consistent with previous
years.
However, there have been a few claims relating to historical
sexual abuse over 30 years ago, which have been difficult to handle
to the satisfaction of all concerned. I am speaking here of claims
for physical and sexual abuse which represent a very small
percentage of our total claims (less than 0.4%), but are
particularly traumatic and challenging for victims and survivors
and must therefore be conducted with sensitivity, empathy and
compassion. Sadly for a very small number of survivors, the
experience of bringing a claim has been a difficult and painful
process, not helped by the adversarial nature of the civil justice
system within which we must all work.
To this end, we welcome the work of the Independent Inquiry into
Child Sexual Abuse, IICSA, and have contributed positively to the
Inquiry's consideration of how the civil justice system can better
deliver reparations to victims and survivors. Ecclesiastical works
hard to settle claims fairly on a full and final basis with the
agreement of its claimants and with the benefit of such claimants
normally having received independent legal advice. While we do not
always get everything right, EIO itself strives for the highest
standards in the industry and we were the first insurer to
introduce and publish clear guiding principles having obtained
survivors input. We have also taken a lead in working with a number
of claimant solicitors to improve the claims experience within the
current civil justice system and have introduced several positive
changes including offering the services of psychological
rehabilitation specialists Moving Minds to offer counselling
support for every claimant.
That said, it is clearly impossible to turn back time and undo
the damage of childhood abuse, and so we all continue to learn how
best to support and help those who have experienced it within the
Church or elsewhere. Moreover we encourage and support the Church
and many of our customers on the implementation of strong
safeguarding practices so that childhood abuse is prevented in the
first place.
Striving for continual improvement is essential for any
business, but is vital for one with a purpose like ours. I am
delighted that these efforts have led to external recognition on a
wide front.
Delivering for society and our customers
We recognise there remains a lack of trust in businesses, and
every year the leading global trust survey shows the financial
services sector as having the lowest level of trust(1) . Against
this background, I am especially pleased that some of our
businesses were positively recognised by independent bodies for
their exceptional contributions. Of note, in 2019:
-- Ecclesiastical was rated as the "Most Trusted" home insurer
in the UK by Fairer Finance. It also scored top for customer
happiness
-- Ecclesiastical won the "Public Safety Award" at the CIR Risk
Management Awards for their Cyber Ready toolkit
-- Our UK General Insurance business claimed two Insurance Post
"Claims Awards", recognising the exceptional service and lengths
our teams go to in order to ensure our customers are in safe
hands
-- Ecclesiastical Canada were recognised as a "Top Employer in
Greater Toronto" and for the eighth consecutive year as one of
Canada's "Top Employers for Young People"
-- EdenTree, our pioneering investment management business
picked up the Moneyfacts "Best Ethical Investment Provider" for the
11th year running
-- Ecclesiastical Financial Advisory Services were recognised as
the "Best Firm, South West" in the Local Hero Mortgage Awards
-- SEIB, our broking business, won "Personal Lines Broker of the
Year" at the British Claims Awards
And recognising our focus is on more than just providing
outstanding service to our customers:
-- Ecclesiastical won the "Best Corporate Communications
Campaign" and "Best Low Budget Campaign" for the Movement for Good
Awards PR campaign at the CIPR awards
-- Ecclesiastical Canada won "Excellence in Philanthropy and
Community Service" at the Insurance Business Awards
Of course awards such as these only transpire following years
and years of focus by dedicated individuals working hard to do the
right thing. A few deserve a special mention this year:
-- Our SEIB Deputy CEO was awarded "Insurance Broker of the
Year" at the Women in Insurance Awards
-- Our EdenTree Chief Investment Officer once again made it to
the "FE Alpha Manager Hall of Fame" for long term performance and
consistency
-- One of our talented claims team won the "New Professional of
the Year" award from the Chartered Insurance Institute
The trust placed in us is not something we take for granted and
we will continue to invest and work hard to ensure our customers
receive exceptional service and performance.
(1) 2019 Edelman Trust Barometer Global Report
A sustainable and resilient business
I am pleased to report that we concluded 2019 in a position of
financial strength, reporting a pre-tax profit of GBP73.3m, (2018:
GBP15.4m) and have benefited from the more favourable investment
markets in 2019. This robust performance has not only enabled us to
make a GBP30m charitable grant, it has further strengthened our
capital position which provides us with both security today and
flexibility for the future.
Taking a long-term perspective together with maintaining our
strong solvency ratio continues to enable us to hold a greater
proportion of higher risk investment assets which are designed to
deliver greater returns. Notwithstanding the uncertainty in the
external environment which affected the markets during the latter
parts of 2018 and the majority of 2019, our long-term investment
approach remained consistent resulting in investment income in the
year of GBP34.8m (2018: GBP35.3m) and fair value gains of GBP52.1m
(2018: fair value losses of GBP35.4m). Underwriting results in the
year were strong across the group at GBP20.0m (2018: GBP29.2m) and
reflected the anticipated reduction in reserves releases compared
with prior year.
Our diverse portfolio of companies, not least in the core
insurance businesses, have supported our objective for delivering
sustainable and profitable growth for the long-term.
Group Gross Written Premium (GWP) has grown 10.4% to GBP394m
(2018: GBP357m). During the year we continued to focus on
delivering profits that are sustainable for the long-term, so we
can continue to deliver our charitable purpose.
Our strategy for a sustainable future
Over the last few years we have made good progress on our
journey to become the most trusted and ethical specialist financial
services group and have given significantly to good causes. We
empowered and invested in our people who have transformed the Group
with an ambitious change programme, which continues to gain
momentum. As such we now enter 2020 from a position of strength. We
still have our sights firmly set on reaching GBP100m to charity in
2020 and believe we are well positioned to capture the
opportunities that lie ahead.
A year or so ago, at around the time of our 130th year as
"Ecclesiastical", we took the decision to take a fresh look at our
brand. At a time when businesses continue to come under scrutiny
for questionable behaviours, we concluded that it has never been so
important to celebrate our charitable ownership and the unique
business model that differentiates us from others. Over the coming
years, while keeping faithful to our origins, we will be
introducing some changes to our brand to reflect better the
diversity of financial businesses within the Ecclesiastical
Group.
In addition to investing in our people and brand, we have also
continued to invest in new systems and technology, helping our
businesses to innovate with purpose and increase our agility and
efficiency. Some of these projects will span over a number of
years, not least the development of a new strategic UK General
Insurance system which, once live, will help us to provide our
customers and brokers with an enhanced experience and give us
better processes and capacity.
The insurance market remains a highly competitive one, and we
see this continuing. However, we are confident we can continue to
confront such challenges as our depth of expertise, reputation and
focus on doing the right thing for our customers put us in a
position of strength. Coupled with our financial strength and an
ethical approach, this provides the foundation on which we will
continue to build our business and deliver our vision.
In early 2020, the existence of a new coronavirus, now known as
COVID-19, was confirmed and since this time it has spread across
the globe and is now characterised by the World Health Organisation
as a pandemic. We are managing the impact of COVID-19, utilising
business continuity and risk management processes where
appropriate. Our capital resources can withstand significant
short-term temporary market disruption. Whilst there is the
potential for the outbreak to impact on our day to day operations,
we have plans in place to ensure that we can continue to provide
critical services to our customers. Serving our customers and the
health, safety and well-being of our employees will be our priority
throughout the duration of the outbreak.
Working together for the greater good
With our GBP100m charitable target within our near term grasp,
we remain energised and inspired to work together for our customers
and society.
The progress we have made and the speed we have done it would
not be possible were it not for the dedication of our specialist
teams worldwide. As such, the Board and I say "Thank You" to our
exceptional colleagues who, no matter where they might be in the
business, will always put doing what is right for our customers and
our charitable purpose at the centre of everything they do. And
thank you all for helping those who need it most with your tireless
fundraising, volunteering and nomination of good causes.
Moreover, thank you to our customers, brokers and business
partners for trusting us with their business and allowing us to
champion the many worthwhile causes they care about.
To those who are reading about Ecclesiastical for the first
time, I invite you to join us, whether as a colleague, customer or
business partner, and experience for yourself how it is possible to
do business differently. Because I believe that together, we are
creating something very special - a movement for good that touches
and transforms lives in our homes, in our communities, in this
country and abroad.
Each day, we each make a small step forward - helping our
customers or beneficiaries. Each day, we're building a movement for
good. And together we are capable of more than you can imagine.
Financial Performance Report
Our 2019 results have delivered a pre-tax profit of GBP73.3m
(2018: GBP15.4m) and are a demonstration of our long-term objective
to deliver sustainable profitable growth. We continue to be a
trusted partner to our brokers and customers, and this is reflected
in our high retention and satisfaction levels, which supports our
growth in revenue. Our business is managed for a long-term view of
risk and as a result, we have a strong capital position that can
withstand short-term volatility.
The recovery of the market from Q4 2018 and subsequent
favourable investment market conditions resulted in fair value
gains on financial instruments of GBP56.0m (2018: losses of
GBP35.5m) and our underwriting profit remained strong at GBP20.0m,
(2018: GBP29.2m).
To support our growth and sustainability ambitions we have
continued to invest in our people, technology and our real estate.
The development of our new general insurance underwriting platform
is progressing well and has been designed to provide an outstanding
customer, broker and employee experience.
We made charitable grants of GBP32.5m (2018: GBP18.8m) for the
year as part of our commitment towards the GBP100m target by 2020
and have seen the positive and substantial impact this charitable
giving makes to people's lives.
General insurance
Our underwriting performance for the year was in line with
expectations and returned a profit of GBP20.0m (2018: GBP29.2m
profit), and a Group COR(1) of 91.1% (2018: 86.4%). We delivered
good growth and steady underwriting profits. We've seen the results
of strengthening reserves in the Australian and Canadian businesses
and began to see the impacts of anticipated lower prior year
releases.
1 Alternative performance measure, refer to the Reconciliation
of Alternative Performance Measures note to this announcement for
further explanation.
United Kingdom and Ireland
The UK and Ireland reported an underwriting profit of GBP20.4m
(2018: GBP29.4m profit) and a COR of 86.8% (2018: 80.2%). This
represents another good performance with a favourable result on the
liability account and a solid outturn on the property book. As
expected, the level of prior year releases in 2019 was
significantly lower than in 2018 and this has resulted in an
overall reduction in the underwriting result in 2019. We anticipate
this reduction to continue, with a greater contribution coming from
our current year underwriting performance. The underwriting result
on the property account was similar to 2018 due to an absence of
large weather events, although we experienced an increase in theft
and subsidence claims during 2019. The current year loss ratios are
better than expectations due to the absence of catastrophe events.
The underwriting result from the liability account continues to
perform favourably.
The claims releases that we have seen this year have come from
historical claims that have settled more favourably than expected.
The run-off of unprofitable business exited in 2012 and 2013,
combined with the prudent approach to reserving have positively
impacted the overall result over the last four years.
In 2019, GWP grew by 6.2% to GBP257m (2018: GBP242m).Trading
conditions across the year remained competitive and we expect they
will continue to be so. The education sector was particularly
competitive, although we observed some market hardening in
property, specifically for risks with large exposures such as
heritage buildings. We have continued to achieve high levels of
retention across our UK and Ireland business whilst also carrying
positive rate change, which demonstrates the strength of our
proposition and reputation for exceptional service. Our Real Estate
and Art & Private Client business delivered particularly strong
growth. GWP in respect of our Faith business remained in line with
prior year reflecting a good result in a competitive market.
We expect the market to continue to harden in property, and
casualty may follow. Education is likely to remain a key
competitive area as the Government's risk protection arrangement
(RPA) now attracts local authority maintained schools in addition
to academies. This has left the independent schools sector exposed
to competition from all education insurers.
This hardening of certain parts of the property market provides
us with the opportunity to improve overall rate strength and to
acquire good quality new business at profitable rates.
Our strategy over the medium term is to deliver moderate GWP
growth, while maintaining our strong underwriting discipline and
our philosophy to seek profit over growth. We will continue to
deepen our specialist capabilities through investment in technology
and innovation, and to provide propositions that our customers
value and excellent service.
Ansvar Australia
Our Australian business reported an underwriting loss of
AUD$6.0m resulting in a COR of 114.1% (2018: AUD$2.5m profit, COR
of 93.7%). The liability account was adversely impacted by the
strengthening of physical and sexual abuse (PSA) reserves. We saw a
higher than expected number of claims, a strengthening across
industry as the process for claimants evolves following the
conclusion of the Royal Commission, together with development in
some high profile cases. The property account was also adversely
impacted by higher claims handling expenses and risk margins
following the Townsville flood event. GWP grew by 24.6% in local
currency to AUD$126.5m (2018: AUD$101.6m) with strong retention and
rate increases.
Canada
Our Canadian business continued its track record of delivering
premium growth, reporting a 17% increase in the branch's
contribution towards Group GWP at CAD$109.5m (2018: CAD$93.5m)
supported by strong retention, growth in new business and rating
increases.
Canada reported underwriting profit of CAD$3.4m resulting in a
COR of 95.1% (2018: CAD$4.5m loss, COR of 106.5%). The property
book performed well with good current year experience driven by
fewer large losses and the favourable development of prior year
claims, helping to offset the impact of a series of weather events
during the first and third quarters. The underwriting result from
the liability account was adverse as reserves were strengthened in
older years for PSA claims
Other insurance operations
General insurance profits benefited from favourable releases of
prior year reserves from our businesses in run-off resulting in an
overall profit of GBP0.6m (2018: GBP1.0m profit). As expected, the
level of prior year reserve releases in 2019 was lower than
experienced in 2018.
Investments
We saw a far less volatile end to 2019 compared with 2018, with
strong returns in UK and worldwide stock markets resulting in a net
investment return of GBP74.4m (2018: GBP4.0m). Income from
financial assets remained stable at GBP26.2m (2018: GBP27.0m)
reflecting the continued low interest rate environment and
downwards pressure on yields. Fair value gains on financial
instruments of GBP56.0m contrasted with losses of GBP35.5m in 2018,
as both equities and bonds strengthened over the year, with the UK
market in particular benefiting latterly from renewed confidence.
In spite of this strong 2019 result, there remains as ever
political and economic uncertainty which could impact the
performance of our investments, and as for all businesses, we are
subject to the consequences of disruption that events such as the
current Coronavirus outbreak can have on financial markets.
Nevertheless we remain confident in our long-term value investment
philosophy, and are relatively defensively positioned and well
diversified across a broad range of asset classes.
Within our UK equity portfolio, the mid-cap bias proved
beneficial as the FTSE 250 index outperformed the FTSE AllShare
index by 10%, driven in large part by fourth quarter strength as
the election of a majority Government reduced Brexit
uncertainty.
Our directly-held sterling bond portfolio underperformed the
FTSE Gilts benchmark by 2.8% due to our greater exposure to short
dated bonds, which we hold for liability matching and liquidity
management purposes. In the final quarter, as yields improved, we
saw the benefit of our shorter dated portfolio in our portfolio's
performance. The fixed interest portfolio also benefited as a
result of allocation to corporate bonds where narrowing credit
spreads drove higher returns relative to gilts.
The downward movement in bond yields led to a decrease in the
discount rate applied to long-tail general insurance liabilities.
The change in discount rate on those liabilities resulted in a
GBP12.4m loss recognised within investment returns (2018: GBP4.1m
profit).
Investment management
The Group's investment management business, EdenTree, continued
to develop its presence in the charity and institutional markets.
Net inflows of GBP219m (2018: GBP181m) were the highest in
EdenTree's history.
Global equity markets delivered double digit returns over the
year and coupled with strong net fund inflows resulted in total
funds under management increasing by 14% to GBP3.1bn (2018:
GBP2.7bn).
Fee income was marginally ahead at GBP12.8m (2018: GBP12.6m).
Overheads have increased by 13% in the year primarily from our
continued investment in people and technology to support delivery
of future growth plans. As a result, our investment management
business reported a loss before tax of GBP0.3m (2018: profit before
tax GBP0.9m).
Long-term insurance
Our life insurance business, which is closed to new business,
reported a profit before tax of GBP0.3m for the year (2018:
GBP1.6m). Assets and liabilities are well matched, and the small
profit is in line with our expectations for this business as it
runs off.
Broking and advisory
Overall, broking and advisory had modest growth in income and
profit, reporting a profit before tax of GBP2.1m (2018: GBP2.0m).
This area of our business includes our insurance broker, South
Essex Insurance Brokers (SEIB), our financial advisory businesses,
Ecclesiastical Financial Advisory Services (EFAS) and Ansvar Risk
Management Services (ARMS). SEIB reported an increase in profit
before tax to GBP2.6m (2018: GBP2.4m). EFAS reported a loss of
GBP0.4m in the year (2018: GBP0.2m loss).
Outlook
The Group takes a long-term view to managing and investing in
the business and our 2019 financial results, including our strong
capital position, is reflective of this approach. The decisions we
take are also made with a focus on delivering sustainable
profitability and our vision to be the most trusted and ethical
financial services group. As we look forward to 2020 and beyond, we
will exercise caution where our businesses may need to operate
around uncertainty and market disruption. We will continue to focus
on delivering sustainable profit growth and remain optimistic about
the opportunities to continue to evolve our business for the
greater good of society and to make a positive impact on people's
lives.
Directors' Report
Principal activities
The Group operates principally as a provider of general
insurance in addition to offering a range of financial services,
with offices in the UK, Ireland, Canada, and Australia.
Ownership
At the date of this report, the entire issued Ordinary share
capital of the Company and 3.16% of the issued 8.625%
Non-Cumulative Irredeemable Preference Shares of GBP1 each
('Preference shares') were owned by Ecclesiastical Insurance Group
plc. In turn, the entire issued Ordinary share capital of
Ecclesiastical Insurance Group plc was owned by Allchurches Trust
Limited, the ultimate parent of the Group.
Dividends
Dividends paid on the Preference shares were GBP9,181,000 (2018:
GBP9,181,000).
The directors do not recommend a final dividend on the Ordinary
shares (2018: GBPnil), and no interim dividends were paid in
respect of either the current or prior year.
Charitable and political donations
Charitable donations paid, and provided for, by the Group in the
year amounted to GBP32.5 million (2018: GBP18.8 million).
During the last 10 years, a total of GBP188.2 million (2018:
GBP165.0 million) has been provided by Group companies for church
and charitable purposes.
It is the Company's policy not to make political donations. No
political donations were made in the year (2018: GBPnil).
Principal risks and uncertainties
The directors have carried out a robust assessment of the
principal risks facing the Group including those that threaten its
business model, future performance, solvency and liquidity. The
principal risks and uncertainties, together with the financial risk
management objectives and policies of the Group, are included in
the Risk Management section of this announcement.
Going concern
The Group has considerable financial resources: financial
investments of GBP857.9m, 91% of which are liquid (2018: financial
investments of GBP799.0m, 92% liquid), cash and cash equivalents of
GBP74.8m and no borrowings (2018: cash and cash equivalents of
GBP109.4m and no borrowings). Liquid financial investments consist
of listed equities and open-ended investment companies, government
bonds and listed debt. The Group also has a strong risk management
framework and solvency position, is well placed to withstand
significant short-term market disruption and has proved resilient
to stress testing. As a consequence, the directors have a
reasonable expectation that the Group is well placed to manage its
business risks successfully and continue in operational existence
for at least 12 months from the date of this report. Accordingly,
they continue to adopt the going concern basis in preparing the
Annual Report and Accounts.
Risk Management
Introduction
Strong governance is fundamental to what we do and drives the
ongoing embedding of our enterprise-wide risk management framework.
This provides the tools, guidance, policies, standards and defined
responsibilities to enable us to achieve our strategy and
objectives and ensure that individual and aggregated risks to our
objectives are identified and managed on a consistent basis.
The risk management framework is integrated into the culture of
the Group and is owned by the Board. Responsibility for
implementation and oversight is delegated via the Group Chief
Executive to the Group Risk Function, led by the Group Chief Risk
Officer (CRO).
The risk management process demands accountability and is
embedded in performance measurement and reward, thus promoting
clear ownership for risk and operational efficiency at all levels.
On an annual basis, the Group Risk Committee (on behalf of the
Board) carries out a formal review of the key strategic risks for
the Group with input from the Group Management Board (GMB) and the
Strategic Business Units (SBUs). The Group Risk Committee (GRC)
allocates responsibility for each of the risks to individual
members of the Group's executive management team. Formal monitoring
of the key strategic risks is undertaken quarterly including
progress of risk management actions and is overseen by the
Executive Risk Committees.
Ecclesiastical has clearly defined the accountabilities, roles
and responsibilities of all key stakeholders in implementing and
maintaining its Risk Management Framework. These are defined,
documented and implemented through the terms of reference (TORs) of
board sub committees, management and executive forums, position
descriptions and functional charters.
The Group's Risk Management Framework itself is part of a wider
Internal Control Framework. Systems of internal control are
designed to manage rather than eliminate the risk of failure to
achieve business objectives, and provide reasonable, but not
absolute assurance as to the prevention and detection of financial
misstatements, errors, fraud or violation of law or
regulations.
Key to the successful operation of the internal control
framework is the deployment of a strong Three Lines of Defence
Model whereby:
-- 1st Line (Business Management) is responsible for strategy
execution, performance and identification and management of risks
and application of appropriate controls;
-- 2nd Line (Reporting, Oversight and Guidance) is responsible
for assisting the Board in formulating risk appetite, establishing
minimum standards, developing appropriate reporting, oversight and
challenge of risk profiles and risk management activities within
each of the business units. This includes Executive Risk Management
Committees (Insurance, Market and Investment and Operational,
Regulatory and Conduct Risk and is subject to oversight and
challenge by the GRC
-- 3rd Line (Assurance) provides independent and objective
assurance of the effectiveness of the Group's systems of internal
control. This activity principally comprises the Internal Audit
function which is subject to oversight and challenge by the Group
Audit Committee.
We seek to develop and improve our risk management framework and
strategy on an ongoing basis to ensure it continues to support the
delivery of our strategy and objectives.
The Group risk appetite defines the level of risk-taking that
the Board feels is appropriate for the Group as we pursue our
business objectives. It is defined in line with the different
categories of risk that the Group faces, and provides the backdrop
against which the business plan is developed and validated. This
ensures that the risk profile resulting from the business plan is
in line with the risk-taking expectations of the Board. Compliance
with the risk appetite is formally monitored every quarter and
reported to the GRC at each meeting.
The risk appetite is formally reviewed annually with approval
and sign-off by the Board and there are ongoing assessments to
ensure its continued appropriateness for the business.
The Own Risk and Solvency Assessment (ORSA) process is carried
out at least once a year and is a key part of the business
management and governance structure. This integrates the risk
management, business planning and capital management activities and
ensures that risk, capital and solvency considerations are built
into the development and monitoring of the Group's business
strategy and plans and all key decision making.
The Company has regulatory approval for the use of an Internal
Model to determine our regulatory capital requirement. In addition,
the Internal Model's capability to quantify material risks and
assess the impacts on capital requirements across a range of
scenarios allows us to gain a deeper insight into the relationship
between risk and capital management.
The Internal Model is used extensively to inform key business
decisions across the Group, including setting business strategies
and objectives, producing risk profiles and capital requirements
for different scenarios, informing risk taking guidelines,
informing and defining the Group risk appetite and Investment
Strategy, determining risk mitigation mechanisms and responses to
regulatory capital requirements.
Risk environment
The risk environment is monitored on an ongoing basis and key
areas of concern are escalated to the GRC.
The uncertainty around Brexit continued during 2019 although
reduced by year end. The main risk identified for the Group as a
result of Brexit was the loss of its ability to carry out business
in the Republic of Ireland using the freedom to provide services
currently afforded by the United Kingdom's membership of the EU.
This risk has been mitigated as during 2019 approval in principle
was obtained for the Ireland branch to become regulated by the
Central Bank of Ireland as a Third Country branch after Brexit. The
Group has no other material business elsewhere in the EU. The
remaining uncertainty of the outcome of Brexit has the potential to
result in adverse economic conditions and affect the value of our
investments and our customers. We have not identified any further
material risks to our business as a result of Brexit and we
continue to monitor this position as well as the potential impact
of other risks such as global trade disputes.
During 2019 we maintained our existing investment approach and
made no material changes to our asset mix. We continue to hold a
diversified portfolio of assets including equities which we believe
remain a good prospect for long-term returns. Consequently, we take
a relatively high level of market risk which is well understood and
closely managed. The defined benefit pension scheme was closed to
future accrual from June 2019 which will enable further reductions
in the risk associated with the scheme.
Within the insurance businesses of the Group and in the wider
markets firms continue to enhance their analytical skills and
deepen their portfolio knowledge. Therefore, high quality technical
underwriting standards, pricing and portfolio management abilities
are increasingly important to ensure business written and retained
is profitable. Our strategy is to achieve controlled and profitable
growth within our defined niches.
The potential for adverse development of long-tail liability
claims, particularly in respect of PSA claims, remains a key risk
that we continue to actively manage. The Independent Inquiry into
Child Sexual Abuse in the UK is progressing and we have
participated in one of the investigations during 2019. We are
monitoring this inquiry, and also developments in the other
territories in which we operate to determine the potential impacts
on these claims.
Competitor activity is an ever present risk across all our
business operations and chosen niches. This could have an adverse
impact on our ability to charge the appropriate price for a risk,
threaten our growth plans or even lead to a decline in scale with
resultant adverse financial impact.
Regulatory change continued during 2019 including the extension
of the Senior Managers and Certification Regime to additional
companies within the Group. Management of change in the regulatory
environment continues to be a focus to ensure that we operate
within relevant legal, regulatory and consumer protection
requirements and guidelines and that our people maintain the
highest standards of conduct.
Cyber risk continues to evolve at a pace. We hold customer data
and therefore any event involving a significant loss of such data
could result in harm to the data subjects, significant operational
disruption and an impact on our service to customers as well as
sizeable regulatory fines and reputational damage. The increased
societal focus on data security and appropriateness of use, through
regulations such as GDPR, results in increased scrutiny and
prominence.
The Group aims to be the most trusted, specialist insurer and
therefore maintaining a positive reputation is critical. Our
reputation could potentially be damaged as a result of a range of
factors including poor business practices and behaviours. High
standards of conduct are a core part of the Group's brand, values
and culture and there is an ongoing focus on ensuring this is
maintained.
Climate change presents increasing levels of risk to our
businesses and our customers. Whilst the greatest impacts of these
risks are expected to materialise in the medium to long-term, we
are considering the actions that we should be taking to mitigate
and manage these risks now. Our potential exposures include
transition risk, primarily related to our investment portfolio, and
physical risk affecting the insurance risks that we cover.
The Group considers COVID-19 a new emerging risk. The Group has
business continuity plans in place and a crisis management team has
been active in preparing for responses to this event. The Group
will continue to monitor the situation and the advice from
Governments and relevant health authorities in the countries we
operate in as the outbreak evolves and will take appropriate
action.
Principal risks
There is an ongoing risk assessment process which has identified
the current principal risks for the Group as follows:
Insurance risk
The risk that arises from the fluctuation in the timing,
frequency and severity of insured events relative to the
expectations of the firm at the time of underwriting.
Risk detail Key mitigants Change from last
year
There have not been
Underwriting risk * A robust pricing process is in place material changes to
The risk of failure this risk during
to price insurance the year. We
products adequately * The Underwriting Licencing process has been refreshed continue to focus
and failure to on
establish managing our
appropriate * A documented underwriting strategy and risk appetite portfolios through
underwriting is in place together with standards and guidance and various initiatives
disciplines. The monitored by SBUs in order to
premium charged mitigate this risk
must be appropriate as our
for the nature of * This is supported by formally documented authority insurance business
the cover levels for all underwriters which must be adhered to. develops.
provided and the Local checking procedures ensure adherence
risk presented to
the Group.
Disciplined * Monitoring of rate strength compared with technical
underwriting is rate is undertaken on a regular basis within SBUs
vital to ensure
that only business
within risk * There are ongoing targeted underwriting training
appetite and programmes in place
desired niches is
written.
------------------------------------------------------------------------ ---------------------
Reserving risk This risk is not
Reserving risk is * Claims development and reserving levels are closely considered to have
the risk of actual monitored by the Group Reserving team changed materially
claims payments during the year. No
exceeding the significant
amounts we are * For statutory and financial reporting purposes, developments
holding prudential margins are added to a best estimate have impacted this
in reserves. This outcome to allow for uncertainties risk.
arises primarily
from our long-tail
liability business. * Claims reserves are reviewed and signed-off by the
Failure to Board acting on the advice and recommendations of the
interpret Group Chief Actuary, following review by the
emerging experience Reserving Committee. An independent review is also
or fully understand conducted by the Actuarial Function Director.
the risks written
could result in the
Group holding
insufficient
reserves to meet
our obligations.
------------------------------------------------------------------------ ---------------------
Catastrophe risk * Modelling is undertaken to understand the risk There have been no
The risk of large profile and inform the purchase of reinsurance material changes to
scale extreme this risk. We
events giving rise continue to monitor
to significant * There is a comprehensive reinsurance programme in our aggregations
insured losses. place to protect against extreme events. All and exposures to
Through placements are reviewed and approved by the Group such events and
our general Reinsurance Board ensure careful
insurance business management
we are exposed to utilising
significant natural * A Catastrophe Risk Management Group provides appropriate
catastrophes in the oversight and sign off of reinsurance modelling protections.
territories
in which we do
business. * The Group Risk Appetite specifies the reinsurance
purchase levels and retention levels for such events
* Local risk appetite limits have been established to
manage concentrations of risk and these are monitored
by SBUs
* Exposure monitoring is undertaken on a regular basis
------------------------------------------------------------------------ ---------------------
Reinsurance risk * We take a long-term view of reinsurance relationships The level of this
The risk of failing to deliver sustainable capacity risk has remained
to access and broadly similar
manage reinsurance since last year.
capacity at a * A well-diversified panel of reinsurers is maintained
reasonable price. for each element of the programme
Reinsurance
is a central
component of our * A Group Reinsurance Board is in place which approves
business model, all strategic reinsurance decisions
enabling us to
insure a portfolio
of large risks
in proportion to
our capital base.
------------------------------------------------------------------------ ---------------------
Other financial risks
The risk that proceeds from financial assets are not sufficient
to fund the obligations arising from insurance contracts.
Risk detail Key mitigants Change from last year
Market and investment * An investment strategy is in place which is reviewed
risk annually and signed off by the Finance and Investment Overall the market
The risk of adverse Committee (F&I). This includes consideration of the risk profile has not
movements in net asset Group's liabilities and capital requirements materially changed and
values arising from a we remain invested for
change in interest the
rates, * A Market and Investment Risk Committee is in place long term. We continue
equity and property and provides oversight and challenge of these risks to monitor the
prices, credit spreads and the agreed actions. There is a formalised remaining uncertainty
and foreign exchange escalation process to Group Management Board (GMB) from the outcome of
rates. This and F&I in place Brexit as
principally arises well as the potential
from investments held impact of other risks
by the Group. We * There are risk appetite metrics in place which are such as global trade
actively take such agreed by the Board and include limits on exposures disputes. Since the
risks to seek enhanced and counterparties end of
returns on 2019 markets have
these investments. shown increased
The Group's balance * Derivative instruments are used to hedge elements of uncertainty due to the
sheet is also exposed market risk, notably equity and currency. Their use COVID-19 outbreak and
to market risk within is monitored to ensure effective management of risk we are continuing
the defined benefit to monitor the
pension situation.
fund. * There is tracking of risk metrics to provide early
warning indicators of changes in the market
environment
Further information on this risk is given in the Financial
Risk and Capital Management note
to this announcement.
------------------------------------------------------------------ ------------------------
Credit risk
The risk that a * Strict ratings criteria are in place for the
counterparty, for reinsurers that we contract with and a Reinsurance The level of this risk
example a reinsurer, Security Committee approves all of our reinsurance is materially
fails to perform its partners unchanged from last
financial obligations year.
to the Group or does
not perform them in a * Group Reinsurance monitors the market to identify
timely manner changes in the credit standing of reinsurers
resulting in a loss
for the Group.
The principal exposure * There are risk appetite limits in place in respect of
to credit risk arises reinsurance counterparties which are agreed by the
from reinsurance, Board
which is central to
our business
model. Other elements * Strong credit control and risk management processes
are our investment in are in place to manage broker exposures, policyholder
debt securities, cash exposures and other elements of credit risk
deposits and amounts
owed
to us by Further information on this risk is given in the Financial
intermediaries and Risk and Capital Management note
policyholders. to this announcement.
------------------------------------------------------------------ ------------------------
Liquidity risk * We hold a high proportion of our assets in readily
The risk that the realisable investments to ensure we could respond to
Group, although such a scenario There have been no
solvent, either does material changes to
not have sufficient this risk since last
financial resources * We maintain cash balances that are spread over year.
available to enable it several banks
to meet its
obligations as they
fall due, or can * We have arrangements within our reinsurance contracts
secure them only at for reinsurers to pay recoverables on claims in
excessive cost. We may advance of the claim settlement
need to pay
significant amounts of
claims at short notice
if there
is a natural
catastrophe or other
large event in order
to deliver on our
promise to our
customers.
------------------------------------------------------------------ ------------------------
Climate change
The financial risks * There is an established ethical and responsible
arising through investment policy in place for our funds and property This risk has been
climate change. The investments added to the Group
key impacts for the Risk Register during
Group are the 2019. A programme of
long term impact on * We are developing catastrophe modelling with work is underway
the risks insured, reinsurers to support better understanding of climate to fully analyse the
particularly through risk risks and develop an
changes to the nature, appropriate risk
scale and management response.
frequency of future
catastrophe events;
and the impacts on the
investment portfolio
due to
developments in how
the firms invested in
respond to movements
towards a lower carbon
economy.
------------------------------------------------------------------ ------------------------
Operational risk
The risk of loss arising from inadequate or failed internal
processes, people and systems, or from external events.
Risk detail Key mitigants Change from last year
Systems risk * Systems monitoring is in place together with regular During 2019 a new
The risk of systems and data backups claims system was
inadequate, ageing or implemented and
unsupported systems strategic systems
and infrastructure and * A strategic systems programme is underway to deliver programme continued
system failure improved systems, processes and data to make progress. The
preventing processing scale and complexity
efficiency. Systems of this programme
are critical to enable * Business recovery plans are in place for all critical results in heightened
us to provide systems and are regularly tested according to risk change
excellent service appetite risk during the
to our customers. development and
implementation period.
------------------------------------------------------------------ ------------------------
Although the threats
Cyber risk continue to evolve we
The risk of criminal * A number of security measures are deployed to ensure proactively review and
or unauthorised use of protected system access update our controls
electronic and
information, either therefore the overall
belonging to the * Security reviews and assessments are performed on an residual level of risk
Group or its ongoing basis is unchanged but we
stakeholders e.g. acknowledge the need
customers, employees for
etc. Cyber security * There is ongoing maintenance and monitoring of our vigilance and strong
threats from malicious systems and infrastructure in order to prevent and security measures.
parties continue to detect cyber security attacks
increase in both
number and
sophistication across
all industries.
------------------------------------------------------------------ ------------------------
The level of this risk
Change risk * We ensure that there is adequate resourcing for has not materially
The risk of failing to change projects using internal and external skills changed. There
manage the change where appropriate continues to be a
needed to transform significant volume
the business. A number of change within the
of strategic * A Group Development Director is in place with business which is
initiatives are responsibility for overseeing the delivery of all monitored closely.
underway under six strategic initiatives
themes, including a
transformation of our
core system and * A Change Board and change governance processes have
key processes, which been established and are operated on an ongoing basis
will deliver
significant change for
the company over the * The GMB undertakes close monitoring and oversight of
next few years. the delivery of the strategic initiatives and key
There are a number of Group change programmes
material risks
associated with major
transformation, not
only on the
risks to project
delivery itself, but
the potential impacts
on business as usual.
------------------------------------------------------------------ ------------------------
Operational resilience * A recovery and resilience framework is in place This risk has changed
The risk that the aligned to the delivery of customer services materially since 2019
Group does not year end. The
anticipate, prepare COVID-19 outbreak has
for, respond and adapt * Recovery exercises including IT systems are regularly the potential to
to incremental performed across the Group with actions identified result in significant
change and sudden addresses within an agreed timescale operational impact.
disruptions resulting This is being
in an inability to managed closely and
continue to deliver * All suppliers are subject to ongoing due diligence developments
customer critical monitored. A
services. Crisis Management Team
The Group provides a * There is ongoing maintenance and monitoring of our has been active in
wide range of services systems and infrastructure in order to prevent and preparing for required
to a diverse customer detect issues responses in line with
base and has a advice
reputation from Governments and
for delivering relevant health
excellent service. authorities for the
Therefore, we seek to countries we operate
minimise the potential within.
for any such
disruption that would
impact on the service
provided to our
customers.
------------------------------------------------------------------ ------------------------
The level of this risk
Data management and * Group Data Governance and Group Data Management and is materially
governance Information Security Policies are in place unchanged from last
The risk that the year. It is being
confidentiality, monitored and managed
integrity and/or * A Group Data Optimisation Programme is in place which in the context of
availability of data is responsible for ensuring the delivery of the data major change
held across the Group strategy and all aspects relating to the governance, programmes.
is compromised, or management, use and control of the Group's data in
data is misused. The line with regulatory requirements
Group holds
significant amounts of
customer and financial
data and there could
be significant
implications if this
is compromised or is
found to be
inaccurate.
------------------------------------------------------------------ ------------------------
Regulatory and conduct risk
The risk of regulatory sanction, operational disruption or
reputational damage from non-compliance with legal and regulatory
requirements or the risk that Ecclesiastical's behaviour may result
in poor outcomes for the customer.
Risk detail Key mitigants Change from last year
There continues to
Regulatory risk be a significant
The risk of * We undertake close monitoring of regulatory volume of regulatory
regulatory sanction, developments and use dedicated project teams change. We remain
operational supported by in-house and external legal experts to focused on the
disruption or ensure appropriate actions to achieve compliance management of
reputational damage regulatory change
from non-compliance and therefore the
with legal and * An ongoing compliance monitoring programme is in overall risk level
regulatory place across all our SBUs is unchanged.
requirements. We
operate in a highly
regulated * Regular reporting to the Board of regulatory
environment which compliance issues and key developments is undertaken
is experiencing a
period of
significant change.
---------------------------------------------------------------------- ----------------------
The level of this
Conduct risk * Ongoing staff training to ensure that customer risk is unchanged
The risk of unfair outcomes are fully considered in all business from last year.
outcomes arising decisions
from the Group's
conduct in the
relationship with * Customer charters have been implemented in all SBUs
customers,
or in performing our
duties and * Conduct Risk Reporting to relevant governing bodies
obligations to our is undertaken on a regular basis
customers. We place
customers at the
centre * Customer and conduct measures are used to assess
of the business, remuneration
aiming to treat them
fairly and
ethically, whilst
safeguarding the
interests
of all other key
stakeholders.
---------------------------------------------------------------------- ----------------------
Reputation risk
The risk that our actions lead to reputational damage in the
eyes of customers, brokers, or other key stakeholders.
Risk detail Key mitigants Change from last year
Maintaining a positive
Brand and reputation * There is ongoing training of core customer facing reputation is critical
risk staff to ensure high skill levels in handling to the Group's vision
The Group aims to be sensitive claims of being the most
the most trusted trusted
specialist insurer and and ethical specialist
as a consequence this * We adopt a values led approach to ensure financial services
brings customer-centric outcomes group.
with it high Risks to our brand and
expectations from all reputation are
of our stakeholders, * Dedicated Marketing and PR function responsible for inherently high in an
be they consumers, the implementation of the marketing and communication increasingly
regulators or the strategy interconnected
wider industry. environment,
Whilst we aim to with the risks of
consistently meet and * Ongoing monitoring of various media to ensure external threats such
where possible exceed appropriate responses as cyber security
these expectations, attacks, and viral
increasing campaigns through
consumer awareness and social media always
increased regulatory present.
scrutiny across the The ongoing IICSA
sector exposes the inquiry and related
Group to PSA issues continue to
an increased risk of be a key area of
reputational damage executive management
should we fail to meet focus.
them, for example as a
consequence
of poor business
practices and
behaviours
------------------------------------------------------------------ ------------------------
Directors' Responsibility Statement
The following statement is extracted from page 104 of the 2019
annual report and accounts, and is repeated here for the purposes
of the Disclosure and Transparency Rules. The statement relates
solely to the Company's 2019 annual report and accounts and is not
connected to the extracted information set out in this
announcement. The names and functions of the directors making the
responsibility statement are set out on pages 96 to 98 of the full
annual report and accounts.
The directors confirm to the best of their knowledge:
-- The financial statements, prepared in accordance with IFRS,
give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole.
-- The Strategic Report within the 2019 Annual Report and
Accounts includes a fair review of the development and performance
of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and
uncertainties that they face.
-- The Annual Report and financial statements, taken as a whole,
are fair, balanced and understandable, and provide the information
necessary for shareholders to assess the Company's position and
performance, business model and strategy.
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
For the year ended 31 December 2019
2019 2018
GBP000 GBP000
Revenue
Gross written premiums 393,952 356,971
Outward reinsurance premiums (152,886) (137,640)
Net change in provision for unearned premiums (15,080) (5,241)
Net earned premiums 225,986 214,090
---------- ----------
Fee and commission income 71,240 62,996
Other operating income 544 1,039
Net investment return 74,438 3,994
Total revenue 372,208 282,119
---------- ----------
Expenses
Claims and change in insurance liabilities (157,808) (111,873)
Reinsurance recoveries 52,800 26,188
Fees, commissions and other acquisition costs (72,740) (66,346)
Other operating and administrative expenses (120,577) (114,388)
Total operating expenses (298,325) (266,419)
---------- ----------
Operating profit 73,883 15,700
Finance costs (620) (329)
---------- ----------
Profit before tax 73,263 15,371
Tax expense (11,450) (958)
---------- ----------
Profit for the year (attributable to equity holders of the Parent) 61,813 14,413
---------- ----------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2019
2019 2018
GBP000 GBP000
Profit for the year 61,813 14,413
-------- --------
Other comprehensive income
Items that will not be reclassified to profit or loss:
Fair value gains on property - 105
Actuarial (losses)/gains on retirement benefit plans (7,049) 4,288
Attributable tax 1,198 (747)
-------- --------
(5,851) 3,646
Items that may be reclassified subsequently to profit or loss:
Losses on currency translation differences (1,368) (3,082)
Gains on net investment hedges 640 1,692
Attributable tax (19) (187)
-------- --------
(747) (1,577)
Net other comprehensive (expense)/income (6,598) 2,069
-------- --------
Total comprehensive income attributable to equity holders of the Parent 55,215 16,482
-------- --------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2019
Translation
and hedging
Share Share Revaluation Retained
capital premium reserve reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 1 January 2019 120,477 4,632 565 19,071 441,259 586,004
Profit for the year - - - - 61,813 61,813
Other net expense - - - (747) (5,851) (6,598)
--------- -------- -------------- ------------ ----------- ---------
Total comprehensive
(expense)/income - - - (747) 55,962 55,215
Dividends - - - - (9,181) (9,181)
Gross charitable grant - - - - (30,000) (30,000)
Tax relief on charitable
grant - - - - 5,497 5,497
At 31 December 2019 120,477 4,632 565 18,324 463,537 607,535
--------- -------- -------------- ------------ ----------- ---------
At 1 January 2018 120,477 4,632 478 20,648 446,238 592,473
Profit for the year - - - - 14,413 14,413
Other net income/(expense) - - 87 (1,577) 3,559 2,069
--------- -------- -------------- ------------ ----------- ---------
Total comprehensive
income/(expense) - - 87 (1,577) 17,972 16,482
Dividends - - - - (9,181) (9,181)
Gross charitable grant - - - - (17,000) (17,000)
Tax relief on charitable
grant - - - - 3,230 3,230
At 31 December 2018 120,477 4,632 565 19,071 441,259 586,004
--------- -------- -------------- ------------ ----------- ---------
The revaluation reserve represents cumulative net fair value
gains on owner-occupied property. Further details of the
translation and hedging reserve are included in the notes to this
announcement.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 31 December 2019
2019 2018
GBP000 GBP000
Assets
Goodwill and other intangible assets 38,651 30,064
Deferred acquisition costs 38,199 33,907
Deferred tax assets 2,203 1,749
Pension assets 8,505 16,131
Property, plant and equipment 20,322 8,391
Investment property 148,146 152,182
Financial investments 857,913 798,974
Reinsurers' share of contract liabilities 159,556 140,346
Current tax recoverable 4,211 59
Other assets 178,358 153,630
Cash and cash equivalents 74,775 109,417
Total assets 1,530,839 1,444,850
----------- -----------
Equity
Share capital 120,477 120,477
Share premium account 4,632 4,632
Retained earnings and other reserves 482,426 460,895
Total shareholders' equity 607,535 586,004
----------- -----------
Liabilities
Insurance contract liabilities 763,977 720,049
Lease obligations 12,923 1,379
Provisions for other liabilities 4,867 5,216
Retirement benefit obligations 5,998 5,813
Deferred tax liabilities 35,649 31,665
Current tax liabilities 123 2,905
Deferred income 22,815 19,900
Other liabilities 76,952 71,919
Total liabilities 923,304 858,846
----------- -----------
Total shareholders' equity and liabilities 1,530,839 1,444,850
----------- -----------
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2019
2019 2018
GBP000 GBP000
Profit before tax 73,263 15,371
Adjustments for:
Depreciation of property, plant and equipment 5,081 2,437
Revaluation of property, plant and equipment - (85)
Loss/(profit) on disposal of property, plant and equipment 171 (3)
Amortisation and impairment of intangible assets 1,016 949
Net fair value (gains)/losses on financial instruments and investment
property (52,091) 35,506
Dividend and interest income (26,218) (27,107)
Finance costs 620 329
Adjustment for pension funding 815 2,931
Changes in operating assets and liabilities:
Net increase/(decrease) in insurance contract liabilities 49,537 (42,161)
Net (increase)/decrease in reinsurers' share of contract liabilities (21,265) 16,431
Net increase in deferred acquisition costs (4,553) (3,078)
Net increase in other assets (25,272) (5,388)
Net increase in operating liabilities 11,153 5,838
Net increase/(decrease) in other liabilities 784 (286)
---------- ----------
Cash generated by operations 13,041 1,684
Purchases of financial instruments and investment property (156,760) (125,739)
Sale of financial instruments and investment property 148,308 149,562
Dividends received 9,605 9,790
Interest received 16,293 17,347
Tax paid (8,296) (4,998)
Net cash from operating activities 22,191 47,646
---------- ----------
Cash flows from investing activities
Purchases of property, plant and equipment (4,394) (1,822)
Proceeds from the sale of property, plant and equipment - 55
Purchases of intangible assets (9,613) (2,371)
Acquisition of business, net of cash acquired (40) (225)
Net cash used by investing activities (14,047) (4,363)
---------- ----------
Cash flows from financing activities
Interest paid (620) (329)
Payment of lease liabilities (2,787) (346)
Dividends paid to Company's shareholders (9,181) (9,181)
Charitable grant paid to ultimate parent undertaking (30,000) (17,000)
Net cash used by financing activities (42,588) (26,856)
---------- ----------
Net (decrease)/increase in cash and cash equivalents (34,444) 16,427
Cash and cash equivalents at beginning of year 109,417 93,767
Exchange losses on cash and cash equivalents (198) (777)
Cash and cash equivalents at end of year 74,775 109,417
---------- ----------
NOTES TO THIS ANNUAL FINANCIAL REPORT ANNOUNCEMENT OF
RESULTS
for the year ended 31 December 2019
Accounting policies
The Company has prepared this announcement of its consolidated
results using the same accounting policies and methods of
computation as the full financial statements for the year ended 31
December 2019 as prepared in accordance with International
Financial Reporting Standards (IFRS) as adopted for use in the EU.
The Group has adopted the following new standards and amendments
with effect from 1 January 2019.
IFRS 16, Leases
The Group has adopted IFRS 16 using the modified retrospective
approach, as permitted by the standard. The reclassifications and
the adjustments arising from the new leasing rules are therefore
recognised in the opening balance sheet on 1 January 2019.
Comparative figures for the 2018 reporting period have not been
restated, as permitted under the specific transitional provisions
in the standard. There was no impact on the Group's opening equity.
For further details see notes 1 and 32 to the full financial
statements.
The other standards adopted in the year do not significantly
impact the Group.
IFRS 9, Financial Instruments, is effective for periods
beginning on or after 1 January 2018. However the Group has taken
the option available to insurers to defer the application of IFRS 9
as permitted by IFRS 4, Insurance Contracts. The Group qualifies
for the temporary exemption, which is available until annual
periods beginning on or after 1 January 2021, since at 31 December
2015 greater than 90% of its liabilities were within the scope of
IFRS 4. There has been no significant change to the Group's
operations since 31 December 2015 and as a result, the Group
continues to apply IAS 39, Financial Instruments.
General Information
Whilst the financial information included in this announcement
has been prepared in accordance with the recognition and
measurement criteria of IFRS, this announcement does not itself
contain sufficient information to comply with IFRS. Full financial
statements that comply with IFRS were approved by the Board of
Directors on 17 March 2020.
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 December 2019
or 2018, but is derived from those accounts. Statutory accounts for
2018 have been delivered to the Registrar of Companies and those
for 2019 will be delivered following the Company's annual general
meeting. The auditors have reported on those accounts; their
reports were unqualified, did not draw attention to any matters by
way of emphasis without qualifying their report and did not contain
statements under sections 498(2) and 498(3) of the Companies Act
2006.
This announcement was approved at a meeting of the Board of
Directors held on 17 March 2020.
Ecclesiastical Insurance Office plc is a subsidiary of
Ecclesiastical Insurance Group plc which is an investment holding
company whose ordinary shares are not listed.
The ordinary shares of Ecclesiastical Insurance Office plc are
not listed.
Copies of the audited financial statements are available from
the registered office at Beaufort House, Brunswick Road, Gloucester
GL1 1JZ.
The following information is included in this announcement in
compliance with the Disclosure and Transparency Rules and has been
extracted from the full financial statements for 2019.
Insurance Risk
Through its general and life insurance operations, the Group is
exposed to a number of risks, as summarised in the Risk Management
section of this announcement. The risk under any one insurance
contract is the possibility that the insured event occurs and the
uncertainty of the amount and timing of the resulting claim.
Factors such as the business and product mix, the external
environment including market competition and reinsurance capacity
all may vary from year to year, along with the actual frequency,
severity and ultimate cost of claims and benefits. This subjects
the Group to underwriting and pricing risk (the risk of failing to
ensure disciplined risk selection and to obtain the appropriate
premium), claims reserving risk (the risk of actual claims payments
exceeding the amount we are holding in reserves) and reinsurance
risk (the risk of failing to access and manage reinsurance capacity
at a reasonable price).
(a) Risk mitigation
Statistics demonstrate that the larger and more diversified the
portfolio of insurance contracts, the smaller the relative
variability in the expected outcome will be. The Group's
underwriting strategy is designed to ensure that the underwritten
risks are well diversified in terms of type and amount of risk and
geographical spread. In all operations pricing controls are in
place, underpinned by sound statistical analysis, market expertise
and appropriate external consultant advice. Gross and net
underwriting exposure is protected through the use of a
comprehensive programme of reinsurance using both proportional and
non-proportional reinsurance, supported by proactive claims
handling. The overall reinsurance structure is regularly reviewed
and modelled to ensure that it remains optimum to the Group's
needs. The optimum reinsurance structure provides the Group with
sustainable, long-term capacity to support its specialist business
strategy, with effective balance sheet and profit and loss
protection at a reasonable cost.
Catastrophe protection is purchased following an extensive
annual modelling exercise of gross and net (of proportional
reinsurance) exposures. In conjunction with reinsurance brokers the
Group utilises the full range of proprietary catastrophe models and
continues to develop bespoke modelling options that better reflect
the specialist nature of the portfolio. Reinsurance is purchased in
line with the Group's risk appetite.
(b) Concentrations of risk
The core business of the Group is general insurance, with the
principal classes of business written being property and liability.
The miscellaneous financial loss class of business covers personal
accident, fidelity guarantee and loss of money, income and licence.
The other class of business includes cover of legal expenses and
also a small portfolio of motor policies, but this has been in
run-off in the United Kingdom since November 2012. The Group's
whole-of-life insurance policies support funeral planning
products.
The table below summarises written premiums for the financial
year, before and after reinsurance, by territory and by class of
business:
2019 General insurance Life insurance
---------------------------------------------- ---------------
Miscellaneous
financial
Property Liability loss Other Funeral Total
plans
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Territory
United Kingdom Gross 185,567 56,323 15,534 3,227 (13) 260,638
and Ireland Net 100,233 53,773 9,147 622 (13) 163,762
Australia Gross 42,331 24,412 1,245 869 - 68,857
Net 5,083 21,053 1,198 170 - 27,504
Canada Gross 44,079 20,378 - - - 64,457
Net 30,902 18,898 - - - 49,800
Total Gross 271,977 101,113 16,779 4,096 (13) 393,952
--------- ---------- -------------- ------- --------------- ---------
Net 136,218 93,724 10,345 792 (13) 241,066
--------- ---------- -------------- ------- --------------- ---------
2018 General insurance Life insurance
---------------------------------------------- ---------------
Miscellaneous
financial
Property Liability loss Other Funeral Total
plans
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Territory
United Kingdom Gross 172,191 53,949 16,922 2,784 21 245,867
and Ireland Net 92,337 51,490 10,657 645 21 155,150
Australia Gross 34,681 20,141 1,115 1,009 - 56,946
Net 3,550 17,289 1,073 169 - 22,081
Canada Gross 36,560 17,598 - - - 54,158
Net 25,854 16,246 - - - 42,100
Total Gross 243,432 91,688 18,037 3,793 21 356,971
--------- ---------- -------------- ------- --------------- ---------
Net 121,741 85,025 11,730 814 21 219,331
--------- ---------- -------------- ------- --------------- ---------
(c) General insurance risks
Property classes
Property cover mainly compensates the policyholder for damage
suffered to their property or for the value of property lost.
Property insurance may also include cover for pecuniary loss
through the inability to use damaged insured commercial
properties.
For property insurance contracts, there can be variability in
the nature, number and size of claims made in each period.
The nature of claims may include fire, business interruption,
weather damage, escape of water, explosion (after fire), riot and
malicious damage, subsidence, accidental damage and theft.
Subsidence claims are particularly difficult to predict because the
damage is often not apparent for some time. The ultimate
settlements can be small or large with a risk of a settled claim
being reopened at a later date.
The number of claims made can be affected in particular by
weather events, changes in climate, economic environment, and crime
rates. Climate change may give rise to more frequent and extreme
weather events, such as river flooding, hurricanes and drought, and
their consequences, for example, subsidence claims. If a weather
event happens near the end of the financial year, the uncertainty
about ultimate claims cost in the financial statements is much
higher because there is insufficient time for adequate data to be
received to assess the final cost of claims.
Individual claims can vary in amount since the risks insured are
diverse in both size and nature. The cost of repairing property
varies according to the extent of damage, cost of materials and
labour charges.
Contracts are underwritten on a reinstatement basis or repair
and restoration basis as appropriate. Costs of rebuilding
properties, of replacement or indemnity for contents and time taken
to bring business operations back to pre-loss levels for business
interruption are the key factors that influence the cost of claims.
Individual large claims are more likely to arise from fire, storm
or flood damage. The greatest likelihood of an aggregation of
claims arises from earthquake, weather or major spreading fire
events.
Claims payment, on average, occurs within a year of the event
that gives rise to the claim. However, there is variability around
this average with larger claims typically taking longer to settle
and business interruption claims taking much longer depending on
the length of the indemnity period involved.
Liability classes
The main exposures are in respect of liability insurance
contracts which protect policyholders from the liability to
compensate injured employees (employers' liability) and third
parties (public liability).
Claims that may arise from the liability portfolios include
damage to property, physical injury, disease and psychological
trauma. The Group has a different exposure profile to most other
commercial lines insurance companies as it has lower exposure to
industrial risks. Therefore, claims for industrial diseases are
less common for the Group than injury claims such as slips, trips
and back injuries.
The frequency and severity of claims arising on liability
insurance contracts can be affected by several factors. Most
significant are the increasing level of awards for damages
suffered, legal costs and the potential for periodic payment
awards.
The severity of bodily injury claims can be influenced
particularly by the value of loss of earnings and the future cost
of care. The settlement value of claims arising under public and
employers' liability is particularly difficult to predict. There is
often uncertainty as to the extent and type of injury, whether any
payments will be made and, if they are, the amount and timing of
the payments, including the discount rate applied for assessing
lump sums. Key factors driving the high levels of uncertainty
include the late notification of possible claim events and the
legal process.
Late notification of possible claims necessitates the holding of
provisions for incurred claims that may only emerge some years into
the future. In particular, the effect of inflation over such a long
period can be considerable and is uncertain. A lack of comparable
past experience may make it difficult to quantify the number of
claims and, for certain types of claims, the amounts for which they
will ultimately settle. The legal and legislative framework
continues to evolve, which has a consequent impact on the
uncertainty as to the length of the claims settlement process and
the ultimate settlement amounts.
Claims payment, on average, occurs about three to four years
after the event that gives rise to the claim. However, there is
significant variability around this average.
Provisions for latent claims
The public and employers' liability classes can give rise to
very late reported claims, which are often referred to as latent
claims. These can vary in nature and are difficult to predict. They
typically emerge slowly over many years, during which time there
can be particular uncertainty as to the number of future potential
claims and their cost. The Group has reflected this uncertainty and
believes that it holds adequate reserves for latent claims that may
result from exposure periods up to the reporting date.
Note 28 to the full financial statements presents the
development of the estimate of ultimate claim cost for public and
employers' liability claims occurring in a given year. This gives
an indication of the accuracy of the estimation technique for
incurred claims.
(d) Life insurance risks
The Group provides whole-of-life insurance policies to support
funeral planning products, for most of which the future benefits
are linked to inflation and backed by index-linked assets. Although
assets are well matched to liabilities, there is a risk that
returns on assets held to back liabilities are insufficient to meet
future claims payments, particularly if the timing of claims is
different from that assumed. This is not one of the Group's
principal risks and new policies are no longer being written in the
life fund, with only minimal premiums now being received each
year.
Uncertainty in the estimation of the timing of future claims
arises from the unpredictability of long-term changes in overall
levels of mortality. The Group bases these estimates on standard
industry and national mortality tables and its own experience. The
most significant factors that could alter the expected mortality
rates profile are epidemics, widespread changes in lifestyle and
continued improvement in medical science and social conditions. The
primary risk on these contracts is the level of future investment
returns on the assets backing the liabilities over the life of the
policyholders. The interest rate and inflation risk within this has
been largely mitigated by holding index-linked assets of a similar
term to the expected liabilities profile. The main residual risk is
the spread risk attached to corporate bonds held to match the
liabilities. The small mortality risk is retained by the Group.
Financial risk and capital management
The Group is exposed to financial risk through its financial
assets, financial liabilities, reinsurance assets and insurance
liabilities. In particular, the key financial risk is that the
proceeds from its financial assets are not sufficient to fund the
obligations arising from its insurance contracts. The most
important components of financial risk are interest rate risk,
credit risk, equity price risk and currency risk.
There has been no change from the prior period in the nature of
the financial risks to which the Group is exposed. Brexit has
continued to result in greater uncertainty in relation to the
economic risks to which the Group is exposed, including equity
price volatility, movements in exchange rates and long-term UK
growth prospects. The Group's management and measurement of
financial risks is informed by either stochastic modelling or
stress testing techniques.
(a) Categories of financial instruments
(i) Categories applying IAS 39
Financial assets Financial liabilities
------------------------------------------------- -----------------------
Other
Held Hedge Held assets
Designated for Loans and accounted for Financial and
at fair trading receivables derivatives trading Liabilities* liabilities Total
value
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 31
December
2019
Financial
investments 848,573 3,061 5,770 509 - - - 857,913
Other assets - - 173,996 - - - 4,362 178,358
Cash and
cash
equivalents - - 74,775 - - - - 74,775
Finance lease
obligations - - - - - (12,923) - (12,923)
Other
liabilities - - - - - (65,634) (11,318) (76,952)
Net other - - - - - - (413,636) (413,636)
------------ --------
Total 848,573 3,061 254,541 509 - (78,557) (420,592) 607,535
----------- -------- ------------ ------------ -------- ------------- ------------ -------------
At 31
December
2018
Financial
investments 782,976 5,331 9,930 737 - - - 798,974
Other assets - - 149,119 - - - 4,511 153,630
Cash and
cash
equivalents - - 109,417 - - - - 109,417
Finance lease
obligations - - - - - (1,379) - (1,379)
Other
liabilities - - - - (2,306) (60,969) (8,644) (71,919)
Net other - - - - - - (402,719) (402,719)
------------ --------
Total 782,976 5,331 268,466 737 (2,306) (62,348) (406,852) 586,004
----------- -------- ------------ ------------ -------- ------------- ------------ -------------
*Financial liabilities are held at amortised cost.
The carrying value of those financial assets and liabilities not
carried at fair value in the financial statements is considered to
approximate to their fair value.
(ii) Categories of financial assets applying IFRS 9
As disclosed in the accounting policies, the Group has chosen to
defer application of IFRS 9 and classifies and measures financial
instruments using IAS 39. To facilitate comparison with entities
applying IFRS 9, the table below sets out the Group's financial
assets at the balance sheet date, split between those which have
contractual cash flows that are solely payments of principal and
interest on the principal outstanding (SPPI), other than those
which are held for trading or whose performance is evaluated on a
fair value basis, and all other financial assets.
2019 2018
SPPI financial Other Total financial SPPI financial Other Total financial
assets financial assets assets financial assets
assets assets
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Financial
investments 5,770 852,143 857,913 9,930 789,044 798,974
Cash and cash
equivalents 74,775 - 74,775 109,417 - 109,417
Other financial
assets 173,996 - 173,996 149,119 - 149,119
Total fair value 254,541 852,143 1,106,684 268,466 789,044 1,057,510
--------------- ----------- ---------------- --------------- ----------- ----------------
There has been a GBP13,925,000 decrease (2018: GBP19,269,000
increase) in the fair value of SPPI financial assets of the Group,
and a GBP63,099,000 increase (2018: GBP60,766,000 decrease) in the
fair value of other financial assets of the Group during the
reporting period.
(b) Fair value hierarchy
The fair value measurement basis used to value those financial
assets and financial liabilities held at fair value is categorised
into a fair value hierarchy as follows:
Level 1: fair values measured using quoted bid prices
(unadjusted) in active markets for identical assets or liabilities.
This category includes listed equities in active markets, listed
debt securities in active markets and exchange-traded
derivatives.
Level 2: fair values measured using inputs other than quoted
prices included within level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e.
derived from prices). This category includes listed debt or equity
securities in a market that is not active and derivatives that are
not exchange-traded.
Level 3: fair values measured using inputs for the asset or
liability that are not based on observable market data
(unobservable inputs). This category includes unlisted debt and
equities, including investments in venture capital, and suspended
securities. Where a look-through valuation approach is applied,
underlying net asset values are sourced from the investee,
translated into the Group's functional currency and adjusted to
reflect illiquidity where appropriate, with the fair values
disclosed being directly sensitive to this input.
There have been no transfers between investment categories in
the current year.
Analysis of fair value measurement bases Fair value measurement
at the
end of the reporting
period based on
----------------------------
Level Level Level Total
1 2 3
GBP000 GBP000 GBP000 GBP000
At 31 December 2019
Financial assets at fair value through
profit or loss
Financial investments
Equity securities 289,165 190 66,703 356,058
Debt securities 490,911 1,200 404 492,515
Derivatives - 3,061 - 3,061
780,076 4,451 67,107 851,634
Financial assets at fair value through
other comprehensive income
Financial investments
Derivatives - 509 - 509
Total financial assets at fair value 780,076 4,960 67,107 852,143
--------- ------- -------- ---------
At 31 December 2018
Financial assets at fair value through
profit or loss
Financial investments
Equity securities 241,115 246 44,773 286,134
Debt securities 495,348 1,233 261 496,842
Derivatives - 5,331 - 5,331
736,463 6,810 45,034 788,307
Financial assets at fair value through
other comprehensive income
Financial investments
Derivatives - 737 - 737
Total financial assets at fair value 736,463 7,547 45,034 789,044
--------- ------- -------- ---------
The derivative liabilities of the Group in the prior year were
measured at fair value through profit or loss and categorised as
level 2.
Fair value measurements based on level 3
Fair value measurements in level 3 consist of financial assets,
analysed as follows:
Financial assets at fair
value
through profit and loss
----------------------------------
Equity Debt
securities securities Total
GBP000 GBP000 GBP000
At 31 December 2019
Opening balance 44,773 261 45,034
Total gains recognised in profit or loss 7,538 143 7,681
Purchases 14,392 - 14,392
Closing balance 66,703 404 67,107
----------- ----------- --------
Total gains for the period included in profit
or loss for assets
held at the end of the reporting period 7,539 143 7,682
----------- ----------- --------
At 31 December 2018
Opening balance 42,279 125 42,404
Total gains recognised in profit or loss 2,628 5 2,633
Transfers (134) 134 -
Disposal proceeds - (3) (3)
Closing balance 44,773 261 45,034
----------- ----------- --------
Total gains for the period included in profit
or loss for assets
held at the end of the reporting period 2,656 5 2,661
----------- ----------- --------
All the above gains or losses included in profit or loss for the
period are presented in net investment return within the statement
of profit or loss.
The valuation techniques used for instruments categorised in
levels 2 and 3 are described below.
Listed debt and equity securities not in active market (level
2)
These financial assets are valued using third-party pricing
information that is regularly reviewed and internally calibrated
based on management's knowledge of the markets.
Non exchange-traded derivative contracts (level 2)
The Group's derivative contracts are not traded in active
markets. Foreign currency forward contracts are valued using
observable forward exchange rates corresponding to the maturity of
the contract and the contract forward rate. Over-the-counter equity
or index options and futures are valued by reference to observable
index prices.
Unlisted equity securities (level 3)
These financial assets are valued using observable net asset
data, adjusted for unobservable inputs including comparable
price-to-book ratios based on similar listed companies, and
management's consideration of constituents as to what exit price
might be obtainable.
The valuation is most sensitive to the level of underlying net
assets, the Euro exchange rate, the price-to-book ratio chosen, an
illiquidity discount and a credit rating discount applied to the
valuation to account for the risks associated with holding the
asset. If the illiquidity discount or credit rating discount
applied changes by +/-10%, the value of unlisted equity securities
could move by +/-GBP7m (2018: +/-GBP5m).
Unlisted debt (level 3)
Unlisted debt is valued using an adjusted net asset method
whereby management uses a look-through approach to the underlying
assets supporting the loan, discounted using observable market
interest rates of similar loans with similar risk, and allowing for
unobservable future transaction costs.
The valuation is most sensitive to the level of underlying net
assets, but it is also sensitive to the interest rate used for
discounting and the projected date of disposal of the asset, with
the exit costs sensitive to an expected return on capital of any
purchaser and estimated transaction costs. Reasonably likely
changes in unobservable inputs used in the valuation would not have
a significant impact on shareholders' equity or the net result.
(c) Interest rate risk
The Group's exposure to interest rate risk arises primarily from
movements on financial investments that are measured at fair value
and have fixed interest rates, which represent a significant
proportion of the Group's assets, and from those insurance
liabilities for which discounting is applied at a market interest
rate. The Group's investment strategy is set in order to control
the impact of interest rate risk on anticipated cash flows and
asset and liability values. The fair value of the Group's
investment portfolio of fixed income securities reduces as market
interest rates rise as does the present value of discounted
insurance liabilities, and vice versa.
Interest rate risk concentration is reduced by adopting
asset-liability duration matching principles where appropriate.
Excluding assets held to back the life business, the average
duration of the Group's fixed income portfolio is three years
(2018: two years), reflecting the relatively short-term average
duration of its general insurance liabilities. The mean term of
discounted general insurance liabilities is disclosed in note
28(a)(iv) to the full financial statements.
For the Group's life business, consisting of policies to support
funeral planning products, benefits payable to policyholders are
independent of the returns generated by interest-bearing assets.
Therefore, the interest rate risk on the invested assets supporting
these liabilities is borne by the Group. This risk is mitigated by
purchasing fixed interest investments with durations that match the
profile of the liabilities. For funeral plan policies, benefits are
linked to the Retail Prices Index (RPI). Assets backing these
liabilities are also linked to the RPI, and include index-linked
gilts and corporate bonds. For practical purposes it is not
possible to exactly match the durations due to the uncertain
profile of liabilities (e.g. mortality risk) and the availability
of suitable assets, therefore some interest rate risk will persist.
The Group monitors its exposure by comparing projected cash flows
for these assets and liabilities and making appropriate adjustments
to its investment portfolio.
The table below summarises the maturities of life business
assets and liabilities that are exposed to interest rate risk.
Maturity
---------------------------
Within Between After
1 year 1 & 5 5 years Total
Group life business years
GBP000 GBP000 GBP000 GBP000
At 31 December 2019
Assets
Debt securities 6,066 28,732 65,093 99,891
Cash and cash equivalents 2,584 - - 2,584
8,650 28,732 65,093 102,475
------- -------- -------- ---------
Liabilities (discounted)
Life business provision 5,517 19,223 54,472 79,212
At 31 December 2018
Assets
Debt securities 4,380 26,428 67,630 98,438
Cash and cash equivalents 4,527 - - 4,527
8,907 26,428 67,630 102,965
------- -------- -------- ---------
Liabilities (discounted)
Life business provision 5,728 19,988 56,248 81,964
Group financial investments with variable interest rates,
including cash and cash equivalents, and insurance instalment
receivables are subject to cash flow interest rate risk. This risk
is not significant to the Group.
(d) Credit risk
The Group has exposure to credit risk, which is the risk of
non-payment of their obligations by counterparties and financial
markets borrowers. Areas where the Group is exposed to credit risk
are:
-- counterparty default on loans and debt securities;
-- deposits held with banks;
-- reinsurers' share of insurance liabilities (excluding
provision for unearned premiums) and amounts due from reinsurers in
respect of claims already paid; and
-- amounts due from insurance intermediaries and
policyholders.
The Group is exposed to minimal credit risk in relation to all
other financial assets.
The carrying amount of financial and reinsurance assets
represents the Group's maximum exposure to credit risk. The Group
structures the levels of credit risk it accepts by placing limits
on its exposure to a single counterparty. Limits on the level of
credit risk are regularly reviewed. Where available the Group also
manages its exposure to credit risk in relation to credit risk
ratings. Investment grade financial assets are classified within
the range of AAA to BBB ratings, where AAA is the highest possible
rating. Financial assets which fall outside this range are
classified as sub-investment grade. 'Not rated' assets capture
assets not rated by external ratings agencies.
The following table provides information regarding the credit
risk exposure of financial assets with external credit ratings from
Standard & Poors or an equivalent rating from a similar agency.
This includes financial assets that meet the definition of 'solely
payments of principal and interest' (SPPI).
SPPI Non-SPPI
----------------------------------------------------------------- ----------------
Cash and Reinsurance Other financial
cash equivalents* debtors assets Total SPPI Debt securities
GBP000 GBP000 GBP000 GBP000 GBP000
At 31 December
2019
AAA - - - - 113,359
AA 19,760 1,286 - 21,046 138,341
A 17,269 8,856 - 26,125 132,419
BBB 42,713 3 - 42,716 89,563
Below BBB - - - - 9,537
Not rated 7 1,032 163,615 164,654 9,296
----------- ----------------
79,749 11,177 163,615 254,541 492,515
-------------------- ------------ ---------------- ----------- ----------------
At 31 December
2018
AAA - - - - 126,227
AA 23,316 2,788 - 26,104 142,426
A 55,090 8,058 - 63,148 115,026
BBB 40,826 3 - 40,829 91,471
Below BBB 91 - - 91 12,197
Not rated 7 763 137,524 138,294 9,495
--------- ---------
119,330 11,612 137,524 268,466 496,842
--------- -------- --------- --------- ---------
*Cash includes amounts held on deposit classified within
financial investments and disclosed in note 22 to the full
financial statements. Cash balances which are not rated relate to
cash amounts in hand.
For financial assets meeting the SPPI test that do not have low
credit risk, the carrying amount disclosed above is an
approximation of their fair value.
Group cash balances are regularly reviewed to identify the
quality of the counterparty bank and to monitor and limit
concentrations of risk.
The debt securities portfolio consists of a range of mainly
fixed interest instruments including government securities, local
authority issues, corporate loans and bonds, overseas bonds,
preference shares and other interest-bearing securities. Limits are
imposed on the credit ratings of the corporate bond portfolio and
exposures regularly monitored. Group investments in unlisted
securities represent less than 1% of this category in the current
and prior year.
The Group's exposure to counterparty default on debt securities
is spread across a variety of geographical and economic
territories, as follows:
2019 2018
GBP000 GBP000
UK 301,225 317,137
Australia 84,726 82,901
Canada 86,293 72,301
Europe 20,271 24,503
Total 492,515 496,842
--------- ---------
Reinsurance is used to manage insurance risk. This does not,
however, discharge the Group's liability as primary insurer. If a
reinsurer fails to pay a claim for any reason, the Group remains
liable for the payment to the policyholder. The creditworthiness of
reinsurers is considered on a regular basis through the year by
reviewing their financial strength. The Group Reinsurance Security
Committee assesses, monitors and approves the creditworthiness of
all reinsurers, reviewing relevant credit ratings provided by the
recognised credit rating agencies, as well as other publicly
available data and market information. The Group Reinsurance
Security Committee also monitors the balances outstanding from
reinsurers and maintains an approved list of reinsurers.
The Group's credit risk policy details prescriptive methods for
the collection of premiums and control of intermediary and
policyholder debtor balances. The level and age of debtor balances
are regularly assessed via monthly credit management reports. These
reports are scrutinised to assess exposure by geographical region
and counterparty of aged or outstanding balances. Any such balances
are likely to be major international brokers that are in turn
monitored via credit reference agencies and considered to pose
minimal risk of default. The Group has no material concentration of
credit risk in respect of amounts due from insurance intermediaries
and policyholders.
(e) Equity price risk
The Group is exposed to equity price risk because of financial
investments held by the Group which are stated at fair value
through profit or loss. The Group mitigates this risk by holding a
diversified portfolio across geographical regions and market
sectors, and through the use of derivative contracts from time to
time which would limit losses in the event of a fall in equity
markets.
The concentration of equity price risk by geographical listing,
before the mitigating effect of derivatives, to which the Group is
exposed is as follows:
2019 2018
GBP000 GBP000
-
UK 289,566 UK 241,116
Europe 66,302 Europe 44,821
Hong Kong 190 Hong Kong 197
Total 356,058 Total 286,134
--------- ---------
(f) Currency risk
The Group operates internationally and its main exposures to
foreign exchange risk are noted below. The Group's foreign
operations generally invest in assets and purchase reinsurance
denominated in the same currencies as their insurance liabilities,
which mitigates the foreign currency exchange rate risk for these
operations. As a result, foreign exchange risk arises from
recognised assets and liabilities denominated in other currencies
and net investments in foreign operations. The Group mitigates this
risk through the use of derivatives when considered necessary.
The Group exposure to foreign currency risk within the
investment portfolios arises from purchased investments that are
denominated in currencies other than sterling.
The Group's foreign operations create two sources of foreign
currency risk:
-- the operating results of the Group's foreign branches and
subsidiaries in the Group financial statements are translated at
the average exchange rates prevailing during the period; and
-- the equity investment in foreign branches and subsidiaries is
translated into sterling using the exchange rate at the year-end
date.
The forward foreign currency risk arising on translation of
these foreign operations is hedged by the derivatives which are
detailed in the derivative financial instruments note to this
announcement. The Group has designated certain derivatives as a
hedge of its net investments in Canada and Australia, which have
Canadian and Australian dollars respectively as their functional
currency.
The largest currency exposures, before the mitigating effect of
derivatives, with reference to net assets/liabilities are shown
below, representing effective diversification of resources.
2019 2018
GBP000 GBP000
Euro 65,305 Aus $ 47,838
Aus $ 41,912 Euro 42,538
Can $ 33,722 Can $ 31,024
USD $ 2,028 NZ $ 1,043
HKD $ 176 USD $ 1,004
The figures in the table above, for the current and prior years,
do not include currency risk that the Group is exposed to on a
'look through' basis in respect of collective investment schemes
denominated in sterling. The Group enters into derivatives to hedge
currency exposure, including exposures on a 'look through' basis.
The open derivatives held by the Group at the year end to hedge
currency exposure are detailed in the derivative financial
instruments note to this announcement.
(g) Liquidity risk
Liquidity risk is the risk that funds may not be available to
pay obligations when due. The Group is exposed to daily calls on
its available cash resources mainly from claims arising from
insurance contracts. An estimate of the timing of the net cash
outflows resulting from insurance contracts is provided in note 28
to the full financial statements. The Group has robust processes in
place to manage liquidity risk and has available cash balances,
other readily marketable assets and access to funding in case of
exceptional need. This is not considered to be a significant risk
to the Group.
Non-derivative financial liabilities consist of lease
liabilities, for which a maturity analysis is included in note 32
to the full financial statements, and other liabilities for which a
maturity analysis is included in note 31 to the full financial
statements.
(h) Market risk sensitivity analysis
The sensitivity of profit and other equity reserves to movements
on market risk variables (comprising interest rate, currency and
equity price risk), each considered in isolation and before the
mitigating effect of derivatives, is shown in the table below. This
table does not include the impact of variables on retirement
benefit schemes. Financial risk sensitivities for retirement
benefit schemes are disclosed separately in note 19 to the full
financial statements.
Group Potential increase / (decrease) in Potential increase / (decrease) in
profit other equity reserves
Change in
Variable variable 2019 2018 2019 2018
GBP000 GBP000 GBP000 GBP000
Interest rate risk -100 basis points (6,724) (4,730) (25) -
+100 basis points 4,133 2,799 37 (3)
Currency risk -10% 6,330 4,772 7,628 7,613
+10% (5,179) (3,904) (6,241) (6,229)
Equity price risk +/-10% 28,841 23,177 - -
The following assumptions have been made in preparing the above
sensitivity analysis:
-- the value of fixed income investments will vary inversely
with changes in interest rates, and all territories experience the
same interest rate movement;
-- currency gains and losses will arise from a change in the
value of sterling against all other currencies moving in
parallel;
-- equity prices will move by the same percentage across all
territories; and
-- change in profit is stated net of tax at the standard rate
applicable in each of the Group's territories.
(i) Capital management
The Group's primary objectives when managing capital are to:
-- comply with the regulators' capital requirements of the
markets in which the Group operates; and
-- safeguard the Group's ability to continue to meet
stakeholders' expectations in accordance with its corporate
mission, vision and values.
The Group is subject to insurance solvency regulations in all
the territories in which it issues insurance and investment
contracts, and capital is managed and evaluated on the basis of
both regulatory and economic capital.
In the UK, the Group and its UK regulated entities are required
to comply with rules issued by the Financial Conduct Authority
(FCA) and the Prudential Regulation Authority (PRA).
Capital is assessed at both individual regulated entity and
group level. The PRA expects a firm, at all times, to hold Solvency
II Own Funds in excess of its calculated Solvency Capital
Requirement (SCR). Group solvency is assessed at the level of
Ecclesiastical Insurance Office plc (EIO)'s parent, Ecclesiastical
lnsurance Group plc (EIG). Consequently, there is no directly
comparable solvency measure for EIO group. Both quarterly and
annual quantitative returns are submitted to the PRA, in addition
to an annual narrative report, the Solvency and Financial Condition
Report (SFCR) which is also published on the company's website. A
further report, the Regular Supervisory Report (RSR) is
periodically submitted to the PRA.
The current year figures in the table below are unaudited and
based on the latest information provided to management. The prior
year figures in the table below are as disclosed in the Company's
SFCRs, available on the Group's website. These differ from the
figures reported last year as they were estimated based on
information available to management at the time the accounts were
signed.
EIO's Solvency II Own Funds will be subject to a separate
independent audit, as part of the Group's process for Solvency II
reporting to the PRA. EIO's SCR is not subject to audit as it is
calculated using an internal model which has been approved for use
by the PRA. ELL's figures are not subject to an independent audit
due to the company falling below the threshold calculation detailed
in the PRA policy statement PS25/18 (Solvency II: External audit of
the public disclosure requirement). The Group's regulated entities,
EIO and ELL, expect to meet the deadline for submission to the PRA
of 7 April 2020 and their respective SFCRs will be made available
on the Group's website shortly thereafter. EIG is also expected to
meet its deadline for submission to the PRA of 19 May 2020, with
its SFCR also being made available on the Group's website shortly
after.
2019 2018
(unaudited) (unaudited)*
Ecclesiastical Ecclesiastical
Insurance Insurance
Office plc Ecclesiastical Office plc Ecclesiastical
Parent Life Limited Parent Life Limited
GBP000 GBP000 GBP000 GBP000
Solvency II Own Funds 570,083 49,120 551,857 52,583
Solvency Capital Requirement (264,251) (15,976) (256,898) (15,879)
Own Funds in excess of Solvency Capital
Requirement 305,832 33,144 294,959 36,704
--------------- --------------- --------------- ---------------
Solvency II Capital Cover 216% 307% 215% 331%
*Unaudited with the exception of EIO Parent's Solvency II Own
Funds.
Economic capital is the Group's own internal view of the level
of capital required, and this measure is an integral part of the
Own Risk and Solvency Assessment Report (ORSA) which is a private,
internal forward-looking assessment of own risk, as required as
part of the Solvency II regime. Risk appetite is set such that the
target level of economic capital is always higher than the
regulatory SCR.
Derivative financial instruments
The Group utilises derivatives to mitigate equity price risk
arising from investments held at fair value, foreign exchange risk
arising from investments denominated in foreign currencies, and
foreign exchange risk arising from investments denominated in
Sterling that contain underlying foreign currency exposure. These
'non-hedge' derivatives either do not qualify for hedge accounting
or the option to hedge account has not been taken.
The Group has also formally designated certain derivatives as a
hedge of its net investments in Australia and Canada. A gain of
GBP640,000 (2018: gain of GBP1,692,000) in respect of these 'hedge'
derivatives has been recognised in the hedging reserve within
shareholders' equity, as disclosed in the Translation and Hedging
Reserve note to this announcement. The Group has formally assessed
and documented the effectiveness of derivatives that qualify for
hedge accounting in accordance with IAS 39, Financial Instruments:
Recognition and Measurement.
2019 2018
Contract/ Contract/
notional Fair value notional Fair value Fair value
amount asset amount asset liability
GBP000 GBP000 GBP000 GBP000 GBP000
Non-hedge derivatives
Equity/Index contracts
Options 58,588 1,562 63,077 5,331 -
Foreign exchange contracts
Forwards (Euro) 116,603 1,499 87,514 - 2,306
Hedge derivatives
Foreign exchange contracts
Forwards (Australian dollar) 45,411 250 57,264 492 -
Forwards (Canadian dollar) 30,456 259 27,157 245 -
251,058 3,570 235,012 6,068 2,306
---------- ----------- ---------- ----------- -----------
Included with Equity/Index contracts are options with a
contract/notional value of GBP17,997,000 (2018: GBP22,493,000), and
fair value asset of GBP734,000 (2018: GBP2,348,000), which expire
in greater than one year. All other derivatives in the current and
prior period expire within one year.
All contracts designated as hedging instruments were fully
effective in the current and prior year.
The notional amounts above reflect the aggregate of individual
derivative positions on a gross basis and so give an indication of
the overall scale of the derivative transactions. They do not
reflect current market values of the open positions.
Derivative fair value assets are recognised within financial
investments and derivative fair value liabilities are recognised
within other liabilities.
Translation and hedging reserve
Translation Hedging
reserve reserve Total
GBP000 GBP000 GBP000
At 1 January 2019 14,940 4,131 19,071
Losses on currency translation differences (1,368) - (1,368)
Gains on net investment hedges - 640 640
Attributable tax - (19) (19)
At 31 December 2019 13,572 4,752 18,324
------------ -------- --------
18,022 2,626 20,648
At 1 January 2018 (3,082) - (3,082)
Losses on currency translation differences - 1,692 1,692
Gains on net investment hedges - (187) (187)
Attributable tax 14,940 4,131 19,071
------------ -------- --------
The translation reserve arises on consolidation of the Group's
foreign operations. The hedging reserve represents the cumulative
amount of gains and losses on hedging instruments in respect of net
investments in foreign operations.
Segment information
(a) Operating segments
The Group segments its business activities on the basis of differences in the products and
services offered and, for general insurance, the underwriting territory. Expenses relating
to Group management activities are included within 'Corporate costs'. This reflects the management
and internal Group reporting structure.
The activities of each operating segment are described below.
- General business
United Kingdom and Ireland
The Group's principal general insurance business operation is in the UK, where it operates
under the Ecclesiastical and Ansvar brands. The Group also operates an Ecclesiastical branch
in the Republic of Ireland underwriting general business across the whole of Ireland.
Australia
The Group has a wholly-owned subsidiary in Australia underwriting general insurance business
under the Ansvar brand.
Canada
The Group operates a general insurance Ecclesiastical branch in Canada.
Other insurance operations
This includes the Group's internal reinsurance function, adverse development cover and operations
that are in run-off or not reportable due to their immateriality.
- Investment management
The Group provides investment management services both internally and to third parties through
EdenTree Investment Management Limited.
- Broking and Advisory
The Group provides insurance broking through South Essex Insurance Brokers Limited, financial
advisory services through Ecclesiastical Financial Advisory Services Limited and risk advisory
services through Ansvar Risk Management Services Pty Limited which operates in Australia.
- Life business
Ecclesiastical Life Limited provides long-term insurance policies to support funeral planning
products. It is closed to new business.
- Corporate costs
This includes costs associated with Group management activities.
Inter-segment and inter-territory transfers or transactions are
entered into under normal commercial terms and conditions that
would also be available to unrelated third parties.
The accounting policies of the operating segments are the same
as the Group's accounting policies described in note 1 to the full
financial statements, with the exception of the investment
management and broking and advisory segments. These segments do not
qualify for the temporary exemption from IFRS 9 available to
insurers and as a result have adopted IFRS 9. Consequently, their
accounting policies for financial instruments may differ, but all
other accounting policies are the same as the Group.
Segment revenue
The Group uses gross written premiums as the measure for
turnover of the general and life insurance business segments.
Turnover of the non-insurance segments comprises fees and
commissions earned in relation to services provided by the Group to
third parties. Segment revenues do not include net investment
return or general business fee and commission income, which are
reported within revenue in the consolidated statement of profit or
loss.
Revenue is attributed to the geographical region in which the
customer is based.
2019 2018
Gross Non- Gross Non-
written insurance written insurance
premiums services Total premiums services Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
General business
United Kingdom and Ireland 257,135 - 257,135 242,339 - 242,339
Australia 68,857 - 68,857 56,946 - 56,946
Canada 64,457 - 64,457 54,158 - 54,158
Other insurance operations 3,516 - 3,516 3,507 - 3,507
Total 393,965 - 393,965 356,950 - 356,950
Life business (13) - (13) 21 - 21
Investment management - 12,795 12,795 - 12,601 12,601
Broking and Advisory - 9,078 9,078 - 9,049 9,049
Group revenue 393,952 21,873 415,825 356,971 21,650 378,621
--------- ---------- --------- --------- ---------- ---------
Group revenues are not materially concentrated on any single external customer.
Segment result
General business segment results comprise the insurance
underwriting profit or loss, investment activities and other
expenses of each underwriting territory. The Group uses the
industry standard net combined operating ratio (COR) as a measure
of underwriting efficiency. The COR expresses the total of net
claims costs, commission and underwriting expenses as a percentage
of net earned premiums. Further details on the underwriting profit
or loss and COR, which are alternative performance measures that
are not defined under IFRS, are detailed in the reconciliation of
Alternative Performance Measures note to this announcement.
The life business segment result comprises the profit or loss on
insurance contracts (including return on assets backing liabilities
in the long-term fund), shareholder investment return and other
expenses.
All other segment results consist of the profit or loss before
tax measured in accordance with IFRS.
2019 Combined
operating Insurance Investments Other Total
ratio GBP000 GBP000 GBP000 GBP000
General business
United Kingdom and Ireland 86.8% 20,412 59,433 (292) 79,553
Australia 114.1% (3,246) 1,815 (65) (1,496)
Canada 95.1% 2,218 1,805 (174) 3,849
Other insurance operations 634 - - 634
91.1% 20,018 63,053 (531) 82,540
Life business 335 6,486 - 6,821
Investment management - - (310) (310)
Broking and Advisory - - 2,062 2,062
Corporate costs - - (17,850) (17,850)
Profit/(loss) before tax 20,353 69,539 (16,629) 73,263
---------- ------------ --------- ---------
2018 Combined
operating Insurance Investments Other Total
ratio GBP000 GBP000 GBP000 GBP000
General business
United Kingdom and Ireland 80.2% 29,426 (1,836) (252) 27,338
Australia 93.7% 1,400 2,073 (77) 3,396
Canada 106.5% (2,599) 1,655 - (944)
Other insurance operations 963 - - 963
86.4% 29,190 1,892 (329) 30,753
Life business 1,642 (3,181) - (1,539)
Investment management - - 941 941
Broking and Advisory - - 2,045 2,045
Corporate costs - - (16,829) (16,829)
Profit/(loss) before tax 30,832 (1,289) (14,172) 15,371
---------- ------------ --------- ---------
(b) Geographical information
Gross written premiums from external customers and non-current
assets, as attributed to individual countries in which the Group
operates, are as follows:
2019 2018
Gross Gross
written Non-current written Non-current
premiums assets premiums assets
GBP000 GBP000 GBP000 GBP000
United Kingdom and Ireland 260,638 235,859 245,867 218,119
Australia 68,857 4,348 56,946 1,279
Canada 64,457 8,272 54,158 4,018
393,952 248,479 356,971 223,416
--------- ------------ --------- ------------
Gross written premiums are allocated based on the country in
which the insurance contracts are issued. Non-current assets
exclude rights arising under insurance contracts, deferred tax
assets, pension assets and financial instruments and are allocated
based on where the assets are located.
Reconciliation of Alternative Performance Measures
The Group uses alternative performance measures (APM) in
addition to the figures which are prepared in accordance with IFRS.
The financial measures included in our key performance indicators:
regulatory capital, combined operating ratio (COR), net expense
ratio (NER) and net inflows are APM. These measures are commonly
used in the industries the Group operates in and are considered to
provide useful information and enhance the understanding of the
results.
Users of the accounts should be aware that similarly titled APM
reported by other companies may be calculated differently. For that
reason, the comparability of APM across companies might be
limited.
In line with the European Securities and Markets Authority
guidelines, we provide a reconciliation of the COR and NER to its
most directly reconcilable line item in the financial statements.
Regulatory capital and net inflows to funds managed by
Ecclesiastical Insurance Office plc's subsidiary, EdenTree
Investment Management Limited, do not have an IFRS equivalent. Net
inflows are the difference between the funds invested (gross
inflows) less funds withdrawn (redemptions) during the year by
third parties in a range of funds EdenTree Investment Management
Limited offers. Regulatory capital is covered in more detail in
section (i) of the Financial Risk and Capital Management note to
this announcement.
2019
Broking
Inv'mnt Inv'mnt and Corporate
Insurance return mngt Advisory costs Total
-------------------
General Life
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Revenue
Gross written
premiums 393,965 (13) - - - - 393,952
Outward reinsurance
premiums (152,886) - - - - - (152,886)
Net change in
provision for
unearned premiums (15,080) - - - - - (15,080)
Net earned premiums [1] 225,999 (13) - - - - 225,986
---------- ------- -------- --------- --------- ------------- ----------
Fee and commission
income [2] 49,368 - - 12,795 9,077 - 71,240
Other operating
income 544 - - - - - 544
Net investment
return - 989 72,596 19 834 - 74,438
Total revenue 275,911 976 72,596 12,814 9,911 - 372,208
---------- ------- -------- --------- --------- ------------- ----------
Expenses
Claims and change in
insurance
liabilities (157,481) (327) - - - - (157,808)
Reinsurance
recoveries 52,800 - - - - - 52,800
Fees, commissions
and other
acquisition costs [3] (72,383) (14) - (819) 476 - (72,740)
Other operating and
administrative
expenses [4] (78,829) (300) (3,057) (12,305) (8,236) [5] (17,850) (120,577)
Total operating
expenses (255,893) (641) (3,057) (13,124) (7,760) (17,850) (298,325)
---------- ------- -------- --------- --------- ------------- ----------
Operating profit [6] 20,018 335 69,539 (310) 2,151 (17,850) 73,883
Finance costs (531) - - - (89) - (620)
Profit before tax 19,487 335 69,539 (310) 2,062 (17,850) 73,263
---------- ------- -------- --------- --------- ------------- ----------
Underwriting profit [6] 20,018
Combined operating
ratio 91.1%
Net expenses ( = [2]
+ [3] + [4] + [5] ) [7] (119,694)
Net expense ratio 53%
The underwriting profit of the Group is defined as the operating
profit of the general insurance business.
The Group uses the industry standard net COR as a measure of
underwriting efficiency. The COR expresses the total of net claims
costs, commission and underwriting expenses as a percentage of net
earned premiums. It is calculated as ( [1] - [6] ) / [1] ).
The NER expresses total underwriting and corporate expenses as a
proportion of net earned premiums. It is calculated as - [7] /
[1].
2018
Broking
Inv'mnt Inv'mnt and Corporate
Insurance return mngt Advisory costs Total
-------------------
General Life
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Revenue
Gross written
premiums 356,950 21 - - - - 356,971
Outward reinsurance
premiums (137,640) - - - - - (137,640)
Net change in
provision for
unearned premiums (5,241) - - - - - (5,241)
-------------
Net earned premiums [1] 214,069 21 - - - - 214,090
---------- ------- --------- --------- --------- ------------- ----------
- - - - -
Fee and commission
income [2] 41,346 - - 12,601 9,049 - 62,996
Other operating
income 1,039 - - - - - 1,039
Net investment
return - 1,573 1,600 13 808 - 3,994
---------- ------- --------- --------- --------- ------------- ----------
Total revenue 256,454 1,594 1,600 12,614 9,857 - 282,119
---------- ------- --------- --------- --------- ------------- ----------
- - -
Expenses
Claims and change
in insurance
liabilities (112,222) 349 - - - - (111,873)
Reinsurance
recoveries 26,188 - - - - - 26,188
Fees, commissions
and other
acquisition costs [3] (65,687) (15) - (943) 299 - (66,346)
Other operating and
administrative
expenses [4] (75,543) (286) (2,889) (10,730) (8,111) [5] (16,829) (114,388)
-------------
Total operating
expenses (227,264) 48 (2,889) (11,673) (7,812) (16,829) (266,419)
---------- ------- --------- --------- --------- ------------- ----------
Operating profit [6] 29,190 1,642 (1,289) 941 2,045 (16,829) 15,700
Finance costs (329) - - - - - (329)
Profit before tax 28,861 1,642 (1,289) 941 2,045 (16,829) 15,371
---------- ------- --------- --------- --------- ------------- ----------
Underwriting profit [6] 29,190
Combined operating
ratio 86.4%
Net expenses ( =
[2] + [3] + [4] +
[5] ) [7] (116,713)
Net expense ratio 55%
Related party transactions
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation.
Charitable grants paid to the ultimate parent undertaking are
disclosed in the consolidated statement of changes in equity and
note 15 to the full financial statements.
Full disclosure of related party transactions is included in
note 35 to the full financial statements.
Events after the balance sheet date
In early 2020, the existence of a new coronavirus, COVID-19, was
confirmed. This virus has since spread across the globe and is now
characterised by the World Health Organization as a pandemic.
COVID-19 has caused disruption to businesses and economic activity
which has been reflected in recent fluctuations in UK and global
stock markets. The Group considers the emergence and spread of
COVID-19 to be a non-adjusting post balance sheet event. The Group
has plans in place to support continued operation of business
activity and has capital resources that can withstand significant
temporary market disruption. The Group does not consider there to
be any significant exposure from insurance policies underwritten by
the Group. Given the inherent uncertainties, it is not practicable
at this time to determine the impact of COVID-19 on the Group or to
provide a quantitative estimate of the impact.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SFLESWESSEDD
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Ecclesiastl.8fe (LSE:ELLA)
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