TIDMELLA
RNS Number : 2127F
Ecclesiastical Insurance Office PLC
18 March 2022
Ecclesiastical Insurance Office plc announces results for the
year ended 31 December 2021
Ecclesiastical Insurance Office plc ("Ecclesiastical"), the
specialist financial services group, today announces its full year
2021 results. A copy of the results will be available on the
Company's website at www.ecclesiastical.com
Group overview
-- Driven by its purpose to contribute to the greater good of
society, the Group achieved its landmark target of giving more than
GBP100m to good causes. Alongside a grant of GBP21m awarded to its
owner Benefact Trust, the Group gave more than GBP2.5m directly
through its own giving programmes. A further GBP5m was awarded to
the Trust in 2022 in respect of 2021 performance.
-- The Group is now the fourth largest corporate donor to
charity in the UK(1) and has set an ambition to become the biggest
in the years ahead.
-- Profit before tax of GBP77.0m (2020: loss before tax
GBP15.7m), driven by investment returns because of improving market
conditions and a good current year underwriting performance.
-- Gross Written Premiums (GWP) grew 11% to GBP486m (2020:
GBP437m), supported by strong retention and rate increases as well
as new business wins.
-- Underwriting profit of GBP8.8m (2020: profit of GBP12.1m)
thanks to a robust underwriting performance in the UK and Canada.
This result includes a strengthening of reserves in our Australian
business and the impacts of some adverse weather events
-- We remained in a robust and strong capital position with AM
Best and S&P affirming our excellent and strong credit
ratings.
-- We continued to prioritise the wellbeing of our colleagues
and in June we were awarded Best Companies' 2 star accreditation
demonstrating 'outstanding' levels of employee engagement.
-- We achieved a record number of external awards, recognising
the Group as a trusted and specialist financial services
organisation. This included being named as the UK's most trusted
home insurer for the 13th and 14(th) time by independent ratings
agency Fairer Finance, and our Canadian team was named one of the
Top Employers for Young People for the ninth consecutive year.
Ecclesiastical UK won Digital Insurance Innovation of the Year
Award at the British Insurance Awards for Smart Properties, while
EdenTree was named Best Ethical Investment Provider at the 2021
Investment Life & Pensions Moneyfacts Awards for the 13th
time.
Mark Hews, Group Chief Executive Officer of Ecclesiastical,
said:
"2021 was an outstanding year for Ecclesiastical. We reported
strong financial performance, a record number of external awards,
excellent customer and employee survey feedback, and continued
progress on our strategy.
"Most importantly, thanks to the incredible support of our
customers, brokers, business partners, colleagues and all our
supporters, we achieved our goal of giving more than GBP100m to
good causes. This fantastic achievement has enabled our ultimate
parent, Benefact Trust, and ourselves, to give more than 10,000
charitable donations over the past five years.
"After a challenging year in 2020 due to the impact of the
Covid-19 pandemic, I'm delighted that the Group returned to profit
in 2021, reporting a profit before tax of GBP77.0m (2020: loss
before tax of GBP15.7m). Our positive financial performance was
driven by impressive investment returns, as markets bounced back,
and a solid underwriting result.
"We delivered Gross Written Premium (GWP) growth of 11% to
GBP486m (2020: GBP437m) supported by strong retention and new
business in the UK and Canada.
"Our award-winning investment management firm EdenTree had
another excellent year, achieving record inflows and exceeding fund
benchmarks. Our broking businesses also performed above expectation
with SEIB reporting a profit before tax of GBP3.2m (2020:
GBP2.8m).
"Alongside this, we made significant progress on our strategic
initiatives, despite the ongoing uncertainty in the external
environment. We successfully launched the new Ecclesiastical brand
to positive feedback, we opened our new head office in
Gloucestershire, and we continued to make investments in new
systems and technology to improve the broker and customer
experience.
"Our parent group also unveiled its new name - the Benefact
Group. The new name for the Group better reflects our diversity,
breadth and charitable purpose - it originates from Latin and means
"to do well" by supporting a person or good cause. All of the
trading brands in the Benefact family will continue to operate
under their own names, united in a belief that better business can
mean better lives.
"While 2021 was a truly transformational year for
Ecclesiastical, we are ambitious to do more. At the end of last
year, we unveiled an exciting new vision and strategy that will
take the business forward over the next five years. This will see
us invest significantly in our businesses, seeking out new
opportunities and paths to growth and continuing to innovate for
our customers. Our ambition is to be the first-choice insurer in
all of our specialist markets and we have the appetite and capacity
to achieve our goal.
"By growing our business and generating profits to donate to
charity, we are fulfilling our purpose as an organisation committed
to the greater good of society. We're already the fourth biggest
corporate donor in the UK and we have an ambition to be the
biggest. By the end of 2025 we aim to donate an incredible GBP250m
to good causes."
(1.) Directory of Social Change Guide to UK Company Giving
2021/22
ECCLESIASTICAL INSURANCE OFFICE PLC
ANNUAL FINANCIAL REPORT FOR THE YEARED 31 DECEMBER 2021
The Company has now approved its annual report and accounts for
2021.
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 2021.
The annual report and accounts will be available on or before 4
April 2022 on the Company's website at www.ecclesiastical.com.
Copies of the audited financial statements are also available from
the registered office at Benefact House, 2000 Pioneer Avenue,
Gloucester Business Park, Brockworth, Gloucester GL3 4AW.
A copy of the Company's statutory accounts for the year ended 31
December 2021 will be submitted to the National Storage Mechanism
and will shortly be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
Chair's statement
It is with great pleasure that I reflect on a hugely successful
year for Ecclesiastical in 2021.
The Group exceeded its ambitious target of donating GBP100m, an
extraordinary achievement that has helped thousands of good causes
and communities to transform lives for the better in the UK and
abroad.
This was made possible thanks to our direct giving and the
annual grants given to our charitable owner, Benefact Trust, over
the past five years. I would like to thank our customers, brokers,
partners, and colleagues for helping us achieve this milestone.
Alongside this, we made significant progress on a number of
strategic initiatives including the launch of the new
Ecclesiastical brand and the opening of our new headquarters in
Gloucestershire.
After a long period of restrictions, the latter half of 2021
started to feel like a return to normality. The official opening of
our head office in June was a welcome opportunity to meet many of
our talented colleagues, who have worked tirelessly through the
challenges of the past two years to deliver outstanding service to
our customers. Their resilience, positivity and commitment to doing
the right thing is what sets Ecclesiastical apart.
At the time of writing, the war in Ukraine casts a dark cloud
over the world. Many Ukrainians continue to be caught in conflict
and are suffering due to the unjust actions of the Russian
government. Our charitable purpose allows us to help those most in
need, and I'm pleased that our charitable owner Benefact Trust is
contributing GBP1m of grant funding to charities supporting those
affected by the war. Alongside this, the Group has also pledged to
triple-match employee giving to any Ukraine appeals. We send our
thoughts and prayers to those affected by the conflict.
A strong set of results
Thanks to our charitable ownership, we are able to take a
long-term, sustainable approach to growth. Our 2021 results
demonstrate our continuing financial strength as we recovered from
the challenges posed by Covid-19 the previous year. Strong
investment returns and a solid underwriting result helped us report
a profit before tax of GBP77.0m, which is a fantastic achievement.
This enabled us to contribute GBP26m to our owner Benefact Trust in
respect of 2021 performance, which includes GBP5m paid in 2022. We
also gave GBP2.5m to good causes through our direct giving.
Since 2014, the Group has given over GBP150m to good causes.
Already the fourth-biggest corporate donor in the UK, we now want
to become the biggest and to donate a cumulative GBP250m to good
causes by the end of 2025.
Achievements and reflections
During my three years as Chair, the Group has evolved into a
modern and confident business, driven by an ambition to create a
movement for good in society. The core insurance, broker and
advisory, and investment management businesses have all
demonstrated impressive growth. Alongside the launch of the new
Ecclesiastical insurance brand and the opening of our head office,
we continued to invest in systems and technology to improve the
broker and customer experience, with a new general insurance system
for the UK and Ireland launching soon.
Our commitment to innovation remains strong with the launch of
the Smart Properties proposition, which provides an early-warning
system for heritage properties to prevent fire and flood. This
clever technology won Digital Insurance Innovation of the Year
Award at the British Insurance Awards.
Underpinning all of these achievements is our commitment to
first-class customer service. Our customer satisfaction and Net
Promoter Scores remain high alongside a record number of external
awards, and the Group achieved Best Companies two-star status,
demonstrating outstanding employee engagement.
Looking ahead
While pleased with the progress made in 2021 in such challenging
circumstances, we undoubtedly have the potential to develop the
business even further following the launch of our next chapter
strategy.
This year will see us start to realise the benefits of our
long-term investments in systems and processes. Alongside this, we
will continue to invest in technology and our people to drive
innovation and growth to enable yet more giving to charities and
communities. I'm confident this roadmap will see us become an even
more successful organisation over the next five years.
We enter the next chapter with a new name for our wider group -
the Benefact Group. The new name better reflects our purpose to do
good in society - it derives from Latin and means to do well by
supporting a person or good cause. All of the trading brands in the
Benefact family will continue to operate under their own names,
united in a belief that better business can better lives.
As the Board looks towards the next chapter for the Group, it
must respond to broader issues of sustainability and climate
change. As a responsible business, we are committed to making a
positive environmental impact in the world. The Group recently
unveiled its plan to reach net zero carbon emissions by 2040. Over
the past year, much work has gone into understanding and measuring
our climate impact, in order to make meaningful commitments for the
future. Our ambition to wipe out our historic direct carbon impact
by 2030 is, I believe, unique in the insurance industry, and is the
right thing to do for a company with our purpose and values. The
good news is we're building on strong foundations - our
award-winning investment management company EdenTree is a pioneer
in the field of ethical investing, and the Group has introduced a
responsible and sustainable investment strategy that seeks to
invest in markets that have positive impacts. We're also a
long-term member of ClimateWise, a group of organisations ambitious
about climate action. Reducing our climate impact is a key priority
for the board and we look forward to making progress on our
commitments.
Board activity
It was a pleasure to be able to return to face-to-face board
meetings in 2021. While virtual meetings have provided increased
flexibility, our board members welcomed the opportunity to interact
and engage in person after a long period apart.
We said goodbye to Caroline Taylor, who retired from the Board
in September. I would like to thank Caroline for her contribution
over the past seven years.
In July, Rita Bajaj joined us as a non-executive director,
bringing with her over 30 years of financial markets experience.
She has held senior portfolio management positions at both UK and
US investment institutions as well as experience working in UK
regulation. A key priority for the board this year will be spending
more time in the business and continuing to develop relationships
with senior executives and managers.
The future
It is a privilege to be a part of a business with such a special
purpose of contributing to the greater good of society. With the
new strategy in place, I believe we are well positioned to take the
business forward, and in doing so give even more to charities and
communities to help transform lives for the better.
Chief executive's statement
Over 135 years ago, our founders created a different kind of
business committed to the greater good of society. Times may have
changed, but our drive and purpose remains the same. Today we are
one of the biggest corporate donors in the UK, helping to transform
thousands of lives for the better.
Like many businesses, we are ambitious. But our ambition is not
driven by the short-term pursuit of profits at any cost. Our
ambition is fuelled by a desire to support and care for our
customers, their communities and society as a whole.
As a specialist insurer, we not only protect much of the
nation's irreplaceable heritage, we are trusted to insure the
buildings and organisations that bind our communities together -
schools, charities, churches, community centres, and historic
buildings. As custodians of these special places, we take great
care to support our customers.
As a charity-owned business, we believe commercial success and
social good can sit side by side to generate incredible social
impact. By growing our business, we can give even more to charities
and communities, and help even more people. By doing business with
Ecclesiastical, every one of our customers, brokers, and partners
is helping to support good causes and create a powerful movement
for good in society.
It's impossible to write this report without mentioning the
harrowing situation in Ukraine. The conflict is having a
devastating effect on innocent civilians and, like the rest of the
world, I've been shocked by the stories and pictures emerging from
the war. As a business committed to the greater good of society,
both in the UK and abroad, I am pleased that our charitable owner
Benefact Trust has committed GBP1m of grant funding to support
charities helping those affected by the conflict. The Group has
also pledged to triple-match employee giving to any Ukraine appeals
up to GBP50,000.
Continuing to build a movement for good
Despite the ongoing challenges of the pandemic, 2021 was a year
of great achievement for our Group. We reported strong financial
performance, a record number of external awards, excellent customer
and employee survey feedback, and continued progress on our
strategy.
Most importantly, we were able to give a total of GBP28.5m to
charity in respect of 2021 performance. This meant we achieved our
goal of giving more than GBP100m to good causes - meeting and
exceeding the stretching goal that we set ourselves a few short
years ago. This is a remarkable feat and I want to say a heartfelt
thank you to all of our customers, brokers, business partners,
employees and supporters who have made this happen. Thanks to you,
we have made thousands of charitable donations over the past five
years, making a difference to countless lives.
As a result of our performance in 2021, we were able to further
the aims of our charitable owner, the Benefact Trust with a
donation of GBP26m. This was split between GBP21m in cash paid in
2021, with the remainder paid in 2022. The balance of our giving
was distributed via giving programmes in the UK, Australia, Canada
and Ireland such as the Movement for Good awards, which allows
customers, business partners and others to help steer funds to the
causes they wish.
Alongside the Benefact Trust, we are very proud to have
supported charities tackling so many different and important
issues. Their work includes lifting people out of poverty, making
society more inclusive, helping to support bereaved families and so
much more. When one hears stories of how our support is making a
difference, it is difficult not to feel humbled, moved and
inspired.
Indeed, seeing the inspiring work of charities around us makes
us determined to give even more and set our sights even higher.
Already the fourth biggest corporate donor, we now have an ambition
to be the largest corporate donor in the UK - not because of the
position in the league table, but because of the transformative
impact that such an ambition would have on lives and
communities.
We step into this challenge with a new identity for our wider
Group - the "Benefact Group". The new name for our immediate parent
better reflects our diversity, breadth and charitable purpose - it
originates from the verb "benefact" which means "to do well" which
is for us the basis for our commitment to give money or help to
good causes. All of the trading brands in the Benefact Group family
will continue to operate under their own names, united in a belief
that better business can mean better lives. All the available
profits from the Benefact Group will continue to benefit
charity.
Delivering for our customers
2021 was another difficult year for many of us, but our
colleagues rose to the challenge admirably. They embraced new ways
of working while continuing to serve our customers brilliantly,
whether that was from our offices or from home. I would like to
thank all of our colleagues for their dedication and
resilience.
I continue to be genuinely impressed at the level of service my
colleagues offer. The independent research consultancy,
Gracechurch, put Ecclesiastical ahead of all other insurers for
claims service. In addition, an incredible 98% of customers and
brokers are satisfied with the service they receive from
Ecclesiastical, whether that is making a claim or experiencing our
risk management service. The Net Promoter Scores, which measures
how likely a customer is to recommend a company's products and
services, for Ecclesiastical Insurance put us ahead of well-known
and respected brands such as John Lewis and Marks &
Spencer.
With such a brilliant team of people, it was heartening to
receive external recognition for our levels of engagement. In our
first year of participation in the Best Companies assessment, the
Group was awarded a two-star accreditation demonstrating
'outstanding' levels of employee engagement.
Alongside this, we won a record number of external awards. This
included being named as the UK's most trusted home insurer for the
14th consecutive time by independent ratings agency Fairer Finance,
and our Canadian team was named one of the Top Employers for Young
People for the ninth consecutive year. Ecclesiastical UK won
Digital Insurance Innovation of the Year Award at the British
Insurance Awards for Smart Properties, while EdenTree was named
Best Ethical Investment Provider at the 2021 Investment Life and
Pensions Moneyfacts Awards for the 13th time in a row.
I was particularly pleased our UK GI team received accolades for
our Smart Properties proposition, which uses cutting-edge
technology to protect some of the UK's most iconic properties. This
clever early warning system uses wireless sensors to learn what's
'normal' for a property. An alert is then sent by email, text or
phone to highlight a change in conditions, so early preventative
action can be taken. This is a wonderful example of how we're using
innovation to protect our customers and our nation's irreplaceable
heritage.
Despite these achievements, we are not complacent and we
recognise there is always more to do. Our culture means that we
continually strive to do better for our customers.
I have previously highlighted the importance of managing claims
for physical and sexual abuse (PSA) and we remain committed to
improving the claims handling experience in these sensitive cases.
The final report of the Independent Inquiry into Child Sexual Abuse
(IICSA) will be published later this year and we await its
recommendations on ways to better safeguard children and improve
the treatment of victims and survivors when disclosing abuse.
The experience of bringing an insurance claim can be traumatic
for victims and survivors within the adversarial civil justice
system in which we have to operate. We always aim to handle claims
with empathy and sensitivity, as embodied in our Guiding
Principles. We thank the Inquiry for its work, and we will continue
to review our processes as part of our commitment to continual
improvement.
Financial performance
After a challenging year in 2020 due to the impact of the
Covid-19 pandemic, I'm delighted that the Group reported a profit
before tax of GBP77.0m in 2021 (2020: loss before tax of GBP15.7m).
Our positive financial performance was driven by impressive
investment returns, as markets bounced back, alongside a strong
underlying underwriting result. I'm pleased our investment approach
saw us outperform the indices for most asset classes.
Our overall underwriting result included a strengthening of
reserves in our Australian business, due to an increase in PSA
cases, and the impacts of adverse weather events, including Storm
Arwen and the July floods in the UK, and severe flooding in Canada
and Australia.
We delivered Gross Written Premium (GWP) growth of 11% to
GBP486m (2020: GBP437m) supported by strong retention and new
business in the UK and Canada. Our broking businesses also
performed above expectation with SEIB reporting a profit before tax
of GBP3.2m (2020: GBP2.4m).
Our award-winning investment management firm EdenTree had
another excellent year, achieving record inflows and exceeding fund
benchmarks. It reported a loss before tax of GBP2.5m (2020: loss
before tax of GBP1.0m) as it continued to invest in growing the
business.'
Strategic progress
2021 was a truly transformational year for Ecclesiastical as we
made significant progress on our strategic initiatives, despite the
ongoing uncertainty in the external environment.
We successfully launched the new Ecclesiastical brand to
positive feedback. We opened our new head office in
Gloucestershire. We continued to make substantial investments in
new insurance systems and technology to improve the broker and
customer experience. We reinvigorated our EdenTree business,
strengthening the team and introducing new funds. We continued to
grow the broking and advisory division and transformed its
financial contribution.
Many of these initiatives will have a positive impact on our
carbon footprint. Our new head office was built to 'very good'
BREEAM standards, a leading sustainability assessment method, and
our new EdenTree funds are aimed at investors looking to contribute
to a more sustainable economy.
As a socially responsible business, we are committed to making a
positive environmental impact in the world and supporting customers
and communities to tackle their climate challenges too.
We pioneered ethical investment over 30 years ago and our
responsible and sustainable investment strategy remains amongst the
most stretching in the industry. As an example, unlike many others,
we do not invest in companies undertaking fossil fuel exploration
or production. More generally, we look to avoid investment in
businesses that cause social harm whilst proactively seeking to
invest in companies that have positive impact. We consider
environmental, social and governance factors in every investment
case using our specialists at our award-winning subsidiary
EdenTree.
We've been members of the voluntary initiative ClimateWise for a
number of years and continue to build our response to the climate
crisis using ClimateWise's framework, which is in line with the
recommendations of the Task Force on Climate-related Financial
Disclosures (TFCD). We are in the process of developing an
ambitious roadmap to net zero and are supporting our customers and
communities to do the same.
Looking ahead
As we look to the future, we expect the needs of our
beneficiaries and charities to grow substantially. And rather than
look the other way, we want to play our part in rising to help meet
those needs. To this end we have recently launched a new ambitious
Group strategy that will see us transform our Group over the next
five years. In short, we want to innovate and accelerate our growth
so that we can give even more money to good causes.
Our "next chapter" will see us invest even more in new systems
and technology, helping our businesses to innovate with purpose.
Over the next few months, we'll start to rollout a new strategic
General Insurance system for the UK and Ireland which, once live,
will help us to provide our customers and brokers with an enhanced
experience and more efficient processes and capacity.
We will invest in our dedicated and brilliant people to maximise
their potential, creating a world-class and energised team.
We will seek out new opportunities and new paths to growth, with
an ambition to double the size / contribution of our
businesses.
...And we will give even more. Since 2014, the Group has given
over GBP150million to good causes. Our parent, Benefact Group, is
now aiming to donate a cumulative GBP250million(1) to good causes
by the end of 2025.
Join our movement for good
After a successful 2021, we step into 2022 with more ambition
and confidence than ever to build a movement for good. None of this
would be possible, of course, without the energy and endeavour of
our specialist teams worldwide. Our dedicated and talented people
are at the heart of our business, driven by a desire to support our
customers and united by a common purpose to contribute to the
greater good of society. The Board and I would like to thank all of
our colleagues for their exceptional efforts. I very much hope that
they are inspired when they look back at what they have achieved. I
certainly am.
As we build momentum for our movement for good, I invite anyone
reading this, whether as a potential colleague, customer or
business partner, to come and join us and experience a different
way of doing business. Together, with your support, we can grow our
giving and transform lives for the better.
(1. Cumulative giving since 2014)
Financial Performance Report
Profit before tax of GBP77.0m (2020: loss before tax GBP15.7m)
has been driven in particular by strong investment returns, as
markets rebounded strongly from 2020.
The Group's general insurance businesses reported profit before
tax of GBP8.8m (2020: GBP12.1m) representing another robust
performance. This result includes areas where we have strengthened
reserves and the impacts of some adverse weather events. Our
underwriting result is also reflective of our continued strategic
investment across our insurance technology platforms to ensure that
our businesses are well positioned to deliver sustainable and
profitable growth. We continue to be a trusted partner to our
customers and brokers, and this is reflected in our strong
retention and satisfaction levels, which have supported the 11%
growth in gross written premiums (GWP).
Our business is managed with a long-term view of risk and as a
result, we have a strong capital position that can withstand
short-term volatility and our strong credit ratings with S&P
and AM Best were both reaffirmed during the year. Our Solvency II
regulatory capital position remains above regulatory requirements
and risk appetite and was supported with the issuance of EUR30m
subordinated debt in February 2021, as the Group seeks to take
advantage of profitable growth opportunities.
General insurance
The Group's underwriting businesses have performed in line with
expectations in most territories, resulting in a Group Combined
Operating Ratio(1) (COR) of 96.8% (2020: 95.1%). We have delivered
steady underwriting profits despite liability reserves
strengthening in Australia and adverse weather events in the UK.
Our strategy to focus on profitable growth opportunities has
continued to deliver, with new business of GBP42.2m contributing to
our overall GWP growth of 11% to GBP486m (2020: GBP437m) which also
reflects targeted rate increases as well as strong retention.
Our programme of investment has continued, particularly across
our technology platforms. The customisation and development of the
software that underpins these platforms made up 2.8 points of our
Group COR for the year. Our investment in these platforms are an
important part in supporting the growth of our business and our
customers' needs for the long term.
United Kingdom and Ireland
In the UK and Ireland, underwriting profits increased to
GBP25.0m (2020: GBP12.3m) giving a COR of 85.3% (2020: 92.5%). GWP
grew by 7.5% to GBP297.2m (2020: GBP276.6m). The current year
underwriting performance was strong with prior year claim releases
contributing to a more modest proportion of the result compared
with previous financial years. Despite a series of weather events
and large claims, current year loss ratios were slightly ahead of
expectations as a result of rate changes and portfolio management.
Both property and casualty accounts generated underwriting
profits.
Heritage, Education and Real Estate were particularly strong
growth areas in 2021 despite the competitive trading conditions. We
expect trading conditions to remain competitive but the outlook is
becoming increasingly unpredictable. Inflationary pressures in the
economy, Covid-19 uncertainty, and the potential for more frequent
and intense weather events due to climate change all contribute to
this uncertainty. However, our net promoter scores across brokers
and customers are robust, have improved and provide resilience,
enabling us to carry positive rate change where needed and
contribute to the high levels of retention experienced. Market
hardening in certain areas of our property and casualty portfolios
enabled us to write new business at profitable levels. GWP in
respect of our Faith business remained in line with prior year
reflecting a good result in challenging conditions.
Our strategy over the medium term is to deliver GWP growth,
while maintaining our strong underwriting discipline, as our
philosophy is to seek only profitable growth. We will continue to
deepen our specialist capabilities through investment in technology
and innovation together with the propositions, specialism, and
excellent service that our customers value.
Ansvar Australia
Our Australian business reported an underwriting loss of
AUD$24.4m resulting in a COR of 156.9% (2020: AUD$1.2m loss, COR of
102.2%). GWP grew by 14.2% in local currency to AUD$171.2m (2020:
AUD$149.9m) with strong new business growth, retention and rate
increases. The performance of the business written in the current
year has been good and continues to improve in light of positive
underwriting actions. However, the overall underwriting result
includes the adverse impact of reserves strengthening in the
liability account for historic physical and sexual abuse (PSA)
claims. The underwriting loss also reflects our significant
investment in a new underwriting system which will benefit the
business over the longer term.
The Group made a further underwriting loss of GBP10.0m (2020:
GBP4.7m) within its internal reinsurance portfolio as a result of
reserves strengthening in respect of historic PSA claims in Ansvar
Australia.
Canada
Our Canadian business continued its track record of delivering
premium growth, reporting GWP of CAD$158.0m (2020: CAD$131.5m), a
20.1% increase, which was been supported by strong retention and
rate increases as well as new business.
Canada reported an underwriting profit of CAD$12.2m resulting in
a COR of 88.6% (2020: CAD$7.8m profit, COR of 91.2%). Despite an
increase in the number of large losses, the property book performed
well due to benign weather, lighter than expected attritional
losses, and favourable development on prior year net losses. The
performance of the liability book was impacted by some adverse
development on prior year claims and the strengthening of the
reserves provision.
Investments
2021 saw optimism return as Covid-19 vaccines allowed economies
to reopen, with unprecedented stimulus packages from governments
and central banks bolstering growth, but also stoking inflation.
The Group's net investment return of GBP101.2m (2020: loss of
GBP4.2m) can be largely attributed to the continued recovery in
equities, both within our directly-held portfolio, and via holdings
in EdenTree's Responsible and Sustainable OEIC funds, whilst our
investment property portfolio also experienced strong gains.
Investment income of GBP30.9m reflects a more optimistic market
as the world learns to live with Covid-19 (2020: GBP30.2m). A
recovery from the initial impact from the pandemic was also
reflected in fair value gains on financial instruments of GBP38.1m,
reversing the impact of fair value losses of GBP13.6m seen in 2020.
The past two years highlights the impact economic and political
uncertainty can have on the performance of our investments, with
the recent conflict in Ukraine leading to an increased level of
market volatility. Notwithstanding this, we remain confident in our
long-term investment philosophy, and are well-diversified and
relatively defensively positioned.
Within our UK equity portfolio, small-cap exposure proved
beneficial as the FTSE Small-Cap outperformed the FTSE All-Share by
a significant margin over the course of the year.
Our directly-held sterling bond portfolio outperformed the FTSE
Gilts benchmark by 5.3% in 2021, as the longer duration index was
impacted by rising yields to a greater extent than our
shorter-dated bond portfolio.
Our investment properties delivered fair value gains of GBP20.2m
(2020: loss of GBP5.0m) driven by increased market demand for
commercial property where the portfolio is well-represented.
The upward movement in bond yields led to an increase in the
discount rate applied to long-tail insurance liabilities. The
change in discount rate on those liabilities resulted in a profit
of GBP11.9m recognised within net investment return (2020: GBP15.9m
loss).
Investment Management
The Group's investment management business, EdenTree, was
pleased to report record net inflows of GBP415m, excluding group
flows. The previous high was GBP204m in 2019 (2020: GBP44m).
EdenTree incurred a loss before tax for the year of GBP2.5m (2020:
loss before tax GBP1.0m) as it invested in growing the business
through its distribution capacity and with a widening of its
product range.
Assets under management (AUM) increased by 25% in the year, half
of this asset growth was attributable to new money into the
business, and half to markets as funds performed well across the
fund range. AUM were GBP3.7bn (2020: GBP3.1bn) and GBP2.8bn (2020:
GBP2.3bn) excluding assets managed for the Group.
Net income at GBP14.9m was up by 20% year on year (2020:
GBP12.4m). This is due to both client inflows in the year and
increasing market value of assets, however maintaining margins on
fees earned continues to be challenging, a trend which is seen
across the industry.
Long-term business
Our life business, Ecclesiastical Life Limited, reopened to
business during the year, launching a new product providing
guaranteed returns for funeral planning products sold by
Ecclesiastical Planning Services, a business within the wider
Benefact group. The legacy book within our life insurance business
remains closed to new business. Profit before tax grew to GBP1.1m
for the year (2020: GBP0.5m). Assets and liabilities in relation to
the life insurance business remain well matched.
Broking and advisory
Overall, broking and advisory performance has been strong,
reporting a profit before tax of GBP3.0m (2020: GBP2.4m). This area
of our business includes our insurance broker, SEIB Insurance
Brokers (SEIB) and our financial advisory business, Ecclesiastical
Financial Advisory Services (EFAS). SEIB reported an increase in
profit before tax to GBP3.2m (2020: GBP2.8m), whilst EFAS reported
a small loss of GBP0.2m in the year (2020: GBP0.3m loss).
In addition to these broking and advisory businesses our
immediate parent company, Benefact Group plc holds interests in the
specialist broker groups Lycetts and Lloyd & Whyte and a
prepaid funeral plan business, Ecclesiastical Planning Services.
Whilst the results of these are not included within the
Ecclesiastical Insurance Office Group, they are managed together as
part of the Group's wider broking and advisory group of businesses.
The broker businesses were profitable in 2021 but the prepaid
funeral plan business made a small loss in the year.
Outlook
Although the easing of most pandemic-related restrictions means
we entered 2022 in a very different place to the start of last
year, we are still living with Covid-19, and some remaining level
of uncertainty from the pandemic will likely persist. The recent
devastating events in Ukraine, and the consequences of previously
unthinkable international economic sanctions has led to heightened
market volatility, an increased risk of inflation and risks to the
supply chain. We will continue to manage these risks and remain
alert to changes in them across all of our businesses. Despite the
increased level of uncertainty, we remain optimistic about the
future and are fully committed to our ethical and long-term
investment strategy. The Group continues to take a long-term view
of risk, remains well capitalised and is capable of withstanding
potential future volatility.
As part of the Benefact Group, we have many exciting
opportunities ahead. We'll continue to grow, innovate and build a
sustainable business and that can continue to generate profitable
growth and help achieve our ambition of giving GBP250m to
charitable causes by the end of 2025.
(1) The Group uses APMs to help explain performance. More
information on APMs is included in note 8 to this announcement.
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 4.35% of the issued 8.625%
Non-Cumulative Irredeemable Preference Shares of GBP1 each
('Preference shares') were owned by Benefact Group plc (formerly
Ecclesiastical Insurance plc). In turn, the entire issued Ordinary
share capital of Benefact Group plc was owned by Benefact Trust
Limited (formerly Allchurches Trust Limited), the ultimate parent
of the Group.
Dividends
Dividends paid on the Preference shares were GBP9,181,000 (2020:
GBP9,181,000).
The directors do not recommend a final dividend on the Ordinary
shares (2020: GBPnil), and no interim dividends were paid in
respect of either the current or prior year.
Charitable and political donations
Charitable donations made in the year amounted to GBP23.5
million (2020: GBP2.7million).
It is the Company's policy not to make political donations. No
political donations were made in the year (2020: 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 GBP883.8m, 90% of which are liquid (2020: financial
investments of GBP820.8m, 92% liquid) and cash and cash equivalents
of GBP114.0m (2020: GBP104.4m). Liquid financial investments
consist of listed equities and open-ended investment companies,
government bonds and listed debt. In February 2021, the Company
raised Euro 30 million of Tier 2 capital with the issue of 20-year
subordinated bonds, callable after year 10.
The Group also has a strong risk management framework and
solvency position, is well placed to withstand significant market
disruption and has proved resilient to stress testing. The Group
has considered its capital position, liquidity and expected
performance. The Group and its businesses have strong levels of
cash and other liquid resources and has no concerns over the
ability to meet its cash commitments over the three year planning
horizon. The Group and its businesses expect to continue to meet
regulatory requirements.
Primarily during 2020, Covid-19 impacted how the businesses
operate, with a significant proportion of employees working
effectively in a remote environment. Whilst there was still some
disruption caused by the pandemic during 2021, our businesses and
people continued to work effectively and support our customers,
work with key suppliers and perform other functions of the
Group.
Given the Group's operations, robust capital strength, liquidity
and in conjunction with forecast projections and stress testing,
the Directors have a reasonable expectation that the Group has
adequate resources and is well placed to manage its 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 Report
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 that enable us to achieve our strategy and
objectives, whilst ensuring 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
facilitation of the implementation and oversight is delegated via
the Group Chief Executive to the Group Risk Function, led by the
Group Chief Risk and Compliance Officer.
The Risk Management process demands accountability and is
embedded in performance measurement and reward, thus promoting
clear ownership for risk and operational efficiency at all levels.
On an annual basis, the Group Risk Committee (GRC), 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 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, which includes progress of
Risk Management actions and is overseen by 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 of Board
Sub Committees, Management and Executive Forums, Statement of
Responsibilities and Functional Charters.
The Group's Risk Management Framework 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 risk management tools,
providing oversight and challenge of risk profiles and risk
management activities within each of the business units and
providing risk reporting to Executive Management and the Board.
-- 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 considers to be 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 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 Group 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 GRC.
The impacts of the conflict in Ukraine are being closely
monitored as the range of measures being taken in response by the
UK government and other countries grow. We remain alert to the
changing external environment and the impact it could have on our
business and risk profile.
The Covid-19 pandemic continues to have a wide-ranging impact on
the Group and the environment in which we operate. The management
of various risks arising from the evolving position has been
co-ordinated by the GMB. As well as continuing operational
implications, there were impacts on the insurance policies written
by Group companies and on the Group's investment assets.
A Crisis Management Team (CMT) continued to operate for the
first part of 2021, using the Group's Business Continuity Plans,
and to oversee the ongoing management of operational elements. The
primary focus of the CMT was oversight of the continued
effectiveness of remote working, with particular emphasis on people
and technology.
Responses to other specific risk-types were delegated to
existing bodies within the risk framework, with focused management
groups set up where considered appropriate.
Investment markets recovered well during 2021, as economies
recovered from the effects of the global pandemic leading to growth
in the value of our investment assets throughout the year. We
maintained our existing investment approach and made no material
changes to our asset mix, holding a diversified portfolio of assets
including equities and property held for prospects of long-term
returns. Consequently, we continue to choose to take a relatively
high level of market risk, which is well understood and closely
monitored and managed. We have seen market volatility in 2022 that
has persisted with the unfolding conflict in Ukraine and this
continues to be monitored.
The profitable management of our insurance businesses on a
portfolio basis in hardening markets continues to be a key area of
focus for the Group; ensuring that the business written and
retained is profitable and sustainable. Competitor activity is an
ever-present risk across all our business operations and chosen
niches and 2021 was no exception. Our strategy remains to achieve
controlled and profitable growth within our defined specialist
markets. During 2021 we obtained improvements in rate strength
across all territories in which we operate and we have maintained
our strong underwriting discipline and risk appetite.
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 participated in
one of the investigations that delivered its report in 2020.
Further investigations as part of the Inquiry are underway. New
claims volumes emerging during 2021 in Australia and Canada had led
to increases in levels of reserves held. We continue to monitor the
experience and claims environment in all of the territories in
which we operate.
The Covid-19 pandemic was the trigger for a high volume of
regulatory guidance issued in all territories during the prior
year. Consequently, some other elements of regulatory change have
been delayed, though we expect the pace of change to increase again
as we move forward into 2022. 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 with continued commitment to placing
customers at the centre of everything we do.
Cyber risk remains a constantly evolving threat due to the
threat of zero day attack and with the unfolding conflict in
Ukraine. 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, together with regulations such as GDPR,
results in increased scrutiny and prominence. External attackers
view the disruption arising from a more hybrid working environment
as an exploitable opportunity, and there continues to be a general
increase in social engineering and phishing attacks across the
financial sector. Employee awareness and vigilance is therefore
highly important at this time, and the Group operates an ongoing
programme of training and awareness exercises for its staff.
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, it is
important that we take actions to mitigate and manage these risks
now. Our exposures to climate change risk include transition risk,
primarily related to our investment portfolio, and physical risk
that additionally affects the insurance risks that we cover.
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
Underwriting risk There have not been
The risk of failure to * A robust pricing process is in place material changes to
price insurance this risk during the
products adequately year and minimal
and failure to * The Underwriting Licencing process has been refreshed impacts as a
establish appropriate result of the conflict
underwriting in Ukraine.
disciplines. The * A documented underwriting strategy and risk appetite
premium charged must is in place together with standards and guidance and
be appropriate for the monitored by SBUs
nature of the cover
provided and the risk
presented to the * This is supported by formally documented authority
Group. Disciplined levels for all underwriters which must be adhered to.
underwriting is vital Local checking procedures ensure compliance
to ensure
that only business
within the Company's * Monitoring of rate strength compared with technical
risk appetite and rate is undertaken on a regular basis within SBUs
desired niches is
written.
* There are ongoing targeted underwriting training
programmes in place
* A portfolio management framework is in place to
ensure clear understanding and allow targeted actions
to be taken
------------------------------------------------------------------ ------------------------
Reserving risk
Reserving risk is the * Claims development and reserving levels are closely This risk is not
risk of actual claims monitored by the Group Reserving team considered to have
payments exceeding the changed materially
amounts we are holding during the year. A
in reserves. This * For statutory and financial reporting purposes, rise in numbers
arises primarily from prudential margins are added to a best estimate of Physical and Sexual
our long-tail outcome to allow for uncertainties Abuse claims in the
liability business. Australian and
Failure to interpret Canadian businesses
emerging experience or * Claims reserves are reviewed and signed-off by the over the past
fully understand the Board acting on the advice and recommendations of the year has led to an
risks written could Group Chief Actuary following review by the Reserving increase in reserves.
result in the Group Committee
holding
insufficient reserves
to meet our * An independent review is also conducted by the
obligations. Actuarial Function Director with reporting to the
Board
------------------------------------------------------------------ ------------------------
Catastrophe risk
The risk of large * Modelling is undertaken to understand the risk There have been no
scale extreme events profile and inform the purchase of reinsurance material changes to
giving rise to this risk. We continue
significant insured to monitor our
losses. Through * There is a comprehensive reinsurance programme in aggregations
our general insurance place to protect against extreme events. All and exposures to such
business we are placements are reviewed and approved by the Group events and ensure
exposed to significant Reinsurance Board careful management
natural catastrophes utilising appropriate
in the territories protections.
in which we do * Exposure monitoring is undertaken on a regular basis
business.
* A Catastrophe Risk Management Group provides
oversight and sign off of reinsurance modelling
* 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
------------------------------------------------------------------ ------------------------
The level of this risk
Reinsurance risk has remained broadly
The risk of failing to * We take a long-term view of reinsurance relationships similar since last
access and manage to deliver sustainable capacity year. Reinsurance
reinsurance capacity markets have
at a reasonable price. experienced challenges
Reinsurance * A well-diversified panel of reinsurers is maintained in recent years due to
is a central component for each element of the programme the impact of Covid-19
of our business model, claims and global
enabling us to insure catastrophe
a portfolio of large * A Group Reinsurance Board approves all strategic events. This has
risks reinsurance decisions resulted in tightening
in proportion to our of criteria and
capital base. capacity in certain
areas. We continue
to take a long term
approach to our
reinsurance
relationships.
------------------------------------------------------------------ ------------------------
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 at least annually and signed off by the Finance and
The risk of Investment Committee (F&I). This includes
adverse consideration of the Group's liabilities and capital
movements in requirements
net asset
values arising
from a change * A Market and Investment Risk Committee is in place
in interest and provides oversight and challenge of these risks
rates, and the agreed actions. There is a formalised
equity and escalation process to GMB and F&I in place
property
prices, credit
spreads and * There are risk appetite metrics in place which are
foreign agreed by the Board and include limits on Asset /
exchange Liability Matching and the management of investment
rates. This assets
principally
arises
from * Derivative instruments are used to hedge elements of
investments market risk, notably equity and currency. Their use
held by the is monitored to ensure effective management of risk
Group. We
actively take
such risks to * There is tracking of risk metrics to provide early
seek enhanced warning indicators of changes in the market
returns on environment
these
investments.
-----------------------------------------------------------
The Group's The Pension Scheme Trustee Board has an Investment Committee that Overall the market risk profile has not materially changed
balance sheet oversees the market risks and we remain invested for the
is also exposed in the pension fund. The company, as employer sponsor of the fund long term. We continue to monitor market conditions and
to market risk maintains regular communication the socio-political environment. We
within the with this committee. have seen increased stock market volatility in 2022 and in
defined benefit Further information on this risk is given in the Financial Risk response to the conflict in Ukraine
pension and Capital Management note and continue to monitoring this. However the impact has
fund. to this announcement. been minimal to date given the assets
we hold and our investment strategy.
------------------------------------------------------------------ -----------------------------------------------------------
Credit risk
The risk that * Strict ratings criteria are in place for the
a reinsurers that we contract with and a Reinsurance The level of this risk has remained broadly similar to
counterparty, Security Committee approves all of our reinsurance the previous year.
for example a partners
reinsurer,
fails to
perform its * Group Reinsurance monitors the market to identify
financial changes in the credit standing of reinsurers
obligations
to the company
or does not * There are risk appetite limits in place in respect of
perform them reinsurance counterparties which are agreed by the
in a timely Board
manner
resulting in a
loss for the * Strong credit control processes are in place to
Group. manage broker and policyholder exposures
The principal
exposure to
credit risk Further information on this risk is given in the Financial
arises from Risk and Capital Management note
reinsurance, to this announcement.
which is
central to our
business
model. Other
elements are
our investment
in debt
securities,
cash deposits
and amounts
owed
to us by
intermediaries
and
policyholders.
------------------------------------------------------------------ -----------------------------------------------------------
Liquidity risk
The risk that * We hold a high proportion of our assets in readily
the Group, realisable investments to ensure we could respond to There have been no material changes to this risk since
although such a scenario last year.
solvent,
either does
not have * We maintain cash balances that are spread over
sufficient several banks
financial
resources
available to * We have arrangements within our reinsurance contracts
enable it to for reinsurers to pay recoverables on claims in
meet its advance of the claim settlement
obligations as
they fall due,
or can secure
them only at
excessive
cost. We may
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 * Catastrophe risk is managed through reinsurance The Group has effected changes to its investment policy
risks arising models to:
through * exclude investment in companies that are wholly or
climate mainly involved in fossil fuel exploration and
change. The * We consider flood risk and other weather-related risk production and thermal coal.
key impacts factors in insurance risk selection
for the
Company are * Monitor the overall carbon profile and intensity of
physical * There is an ESG overlay on the Investment Strategy companies and, through its Fund Manager, engage wit
risks (event h
driven or the highest emitters, and urge the setting of
longer term science-based targets aligned with the Paris
shifts), the Agreement.
transition
risks of
moving towards * Seek opportunities to invest in areas that are
a lower leading the transition to a low carbon economy, whe
carbon economy re
and liability these also meet robust investment criteria.
risks
associated
with the
potential for
litigation
arising from
an inadequate
response.
------------------------------------------------------------------ -----------------------------------------------------------
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 * A defined IT Strategy is in place This level of risk
The risk of remains stable, as
inadequate, ageing the Group continues
or unsupported * Systems monitoring is in place together with regular to invest in IT
systems and systems and data backups infrastructure to
infrastructure and maintain and
system failure improve future
preventing * A strategic systems programme is underway to deliver stability.
processing improved systems, processes and data
efficiency. Systems
are critical to
enable us to * Business recovery plans are in place for all critical
provide excellent systems and are tested according to risk appetite
service
to our customers.
------------------------------------------------------------------------ ---------------------
Cyber risk Cyber risk remains
The risk of * A number of security measures are deployed to ensure a constantly
criminal or protected system access evolving threat,
unauthorised use of with malicious
electronic threat attackers
information, either * Security reviews and assessments are performed on an continuing
belonging to the ongoing basis to seek to exploit
Group or its Covid-19 related
stakeholders e.g. business disruption
customers, * There is ongoing maintenance and monitoring of our including a more
employees etc. systems and infrastructure in order to prevent and hybrid approach to
Cyber security detect cyber security attacks working. Employee
threats from awareness and
malicious vigilance is
parties continue to * There is an ongoing Information Security training and therefore highly
increase in both awareness programme important at this
number and time, especially
sophistication with the unfolding
across all conflict in
industries. Ukraine, which is
continuing to be
proactively
managed.
------------------------------------------------------------------------ ---------------------
Change risk The level of this
The risk of failing * We have a clearly articulated Group Strategic risk has not
to manage the Programme, identifying areas of priority across the materially changed.
change needed to Group There continues to
transform the be a significant
business. volume
A number of * We ensure that there is adequate resourcing for of change within
strategic change projects using internal and external skills the business which
initiatives are where appropriate is monitored
underway under closely, relating
three themes, to both IT systems
Support and * A Change Board and change governance processes are in and
protect, Innovate place and operate on an ongoing basis to meet the ever
and grow and changing regulatory
Transform and landscape.
thrive. These * The GMB undertakes close monitoring and oversight of Appropriate
include a the delivery of the strategic initiatives and key strengthening of
transformation of Group change programmes expertise has
our core system and continued in the
key year to reflect and
processes, which meet this
will deliver volume of change.
significant change
for the company
over the next few
years.
There are a number
of material risks
associated with
major
transformation, not
only on the
risks to project
delivery itself,
but the potential
disruption to
business as usual,
or delays
to planned
benefits.
------------------------------------------------------------------------ ---------------------
Operational Operational
resilience * A recovery and resilience framework is in place Resilience
The risk that the aligned to the delivery of customer services continues to have
Group does not been successfully
prevent, respond tested during the
to, recover and * Recovery exercises including IT systems are regularly year, with the
learn from performed across the company with actions identified continued need to
operational addressed within an agreed timescale meet the needs of
disruptions. our customers,
The Group provides alongside working
a wide range of * All suppliers are subject to ongoing due diligence in a new hybrid
services to a environment.
diverse customer Focus in 2021, and
base and has a * There is ongoing maintenance and monitoring of our into 2022, remains
reputation systems and infrastructure in order to prevent and on meeting the
for delivering detect issues enhanced Regulatory
excellent service. requirements around
Therefore, we seek Resilience.
to minimise the
potential for any
such
disruption that
would impact on the
service provided to
our customers.
------------------------------------------------------------------------ ---------------------
Data management and Enhancements
governance * A Group Data Governance and Management Committee is continue to be made
The risk that the in place to the governance,
confidentiality, management, use and
integrity and/or control of data, in
availability of * Group Data Governance and Group Data Management and order to meet the
data held across Information Security Policies are in place evolving
the Group requirements. It
is compromised, or continues to be
data is misused. * A Group Data Optimisation Programme is in place which monitored and
The Group holds is responsible for ensuring the delivery of the data managed within the
significant amounts strategy and all aspects relating to the governance, context of major
of customer and management, use and control of the Group's data in change programmes.
financial line with regulatory requirements
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
Regulatory risk There continues to
The risk of * We undertake close monitoring of regulatory be a significant
regulatory sanction, developments and use dedicated project teams volume of regulatory
operational supported by in-house and external legal experts to change. We remain
disruption or ensure appropriate actions to achieve compliance focused on the
reputational damage management of
from non-compliance regulatory change
with legal and * An ongoing compliance monitoring programme is in and therefore the
regulatory place across all our SBUs overall risk level
requirements. We is unchanged. We
operate in a highly also
regulated * Regular reporting to the Board of regulatory remain vigilant with
environment which compliance issues and key developments is undertaken our financial
is experiencing a crime/sanction
period of controls in response
significant change. to the unfolding
conflict
in Ukraine.
---------------------------------------------------------------------- ----------------------
Conduct risk The probability of
The risk of unfair * There is ongoing staff training to that customer such risks
outcomes arising outcomes are fully considered in all business crystallising have
from the Group's decisions increased due to the
conduct in the on-going Covid-19
relationship with pandemic.
customers, * Customer charters have been implemented in all SBUs However, we remain
or in performing our committed to placing
duties and customers at the
obligations to our * Conduct Risk Reporting to relevant governing bodies centre of our
customers. We place is undertaken on a regular basis practices and
customers at the decision
centre making, demonstrated
of the business, * Customer and conduct measures are used to assess by our wide-ranging
aiming to treat them remuneration industry awards and
fairly and customer
ethically, while satisfaction scores.
safeguarding the Overall the level of
interests this risk is
of all other key unchanged from last
stakeholders. year.
---------------------------------------------------------------------- ----------------------
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
Brand and reputation Maintaining a positive
risk * There is ongoing training of core customer facing reputation is critical
The Group aims to be staff to ensure high skill levels in handling to the Group's vision
the most trusted sensitive claims of being the most
specialist insurer and trusted
as a consequence this and ethical specialist
brings * We adopt a values led approach to ensure financial services
with it high customer-centric outcomes group.
expectations from all Risks to our brand and
of our stakeholders, be reputation are
they consumers, * There is a dedicated Marketing and PR function inherently high in an
regulators or the responsible for the implementation of the marketing increasingly
wider industry. and communication strategy interconnected
Whilst we aim to environment,
consistently meet and with the risks of
where possible exceed * Ongoing monitoring of various media is in place to external threats such
these expectations, ensure appropriate responses as cyber security
increasing attacks, and viral
consumer awareness and campaigns through
increased regulatory social media always
scrutiny across the present.
sector exposes the The external
Group to environment continues
an increased risk of to drive a high
reputational damage inherent probability of
should we fail to meet reputational issues
them, for example as a across all financial
consequence services companies. We
of poor business continued to focus on
practices and serving our customers
behaviours. and
ensuring fair treatment
and clear
communication, and are
proud of the volume of
Industry Awards
we continue to win.
---------------------------------------------------------------- -------------------------
Statement of directors' responsibilities in respect of the
financial statements
The following statement is extracted from page the Directors'
report of the 2021 Annual Report & Accounts, and is repeated
here for the purposes of the Disclosure and Transparency Rules. The
statement relates solely to the Company's 2021 Annual Report &
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 in the Governance
section of the full Annual Report & Accounts.
The directors confirm to the best of their knowledge:
-- the group and company financial statements, which have been
prepared in accordance with UK-adopted international accounting
standards, give a true and fair view of the assets, liabilities and
financial position of the group and company, and of the profit of
the group; and
-- the Strategic Report includes a fair review of the
development and performance of the business and the position of the
group and company, together with a description of the principal
risks and uncertainties that it faces.
-- the Annual Report and financial statements, taken as a whole,
is fair, balanced and understandable and provides the information
necessary for shareholders to assess the group's and company's
position and performance, business model and strategy.
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
For the year ended 31 December 2021
2021 2020
GBP000 GBP000
Revenue
Gross written premiums 486,211 437,299
Outward reinsurance premiums (198,601) (173,074)
Net change in provision for unearned premiums (14,620) (16,562)
Net earned premiums 272,990 247,663
---------- ----------
Fee and commission income 81,547 69,582
Other operating income 1,136 2,126
Net investment return 101,067 (4,298)
Total revenue 456,740 315,073
---------- ----------
Expenses
Claims and change in insurance liabilities (269,633) (222,794)
Reinsurance recoveries 123,822 94,581
Fees, commissions and other acquisition costs (95,896) (85,444)
Other operating and administrative expenses (135,632) (116,393)
Total operating expenses (377,339) (330,050)
---------- ----------
Operating profit/(loss) 79,401 (14,977)
Finance costs (2,364) (769)
---------- ----------
Profit/(loss) before tax 77,037 (15,746)
Tax (expense)/credit (17,648) 526
---------- ----------
Profit/(loss) for the year (attributable to equity holders of the Parent) 59,389 (15,220)
---------- ----------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2021
2021 2020
GBP000 GBP000
Profit/(loss) for the year 59,389 (15,220)
-------- ---------
Other comprehensive income
Items that will not be reclassified to profit or loss:
Fair value losses on property - (15)
Actuarial gains/(losses) on retirement benefit plans 38,660 (17,318)
Attributable tax (8,098) 3,521
-------- ---------
30,562 (13,812)
Items that may be reclassified subsequently to profit or loss:
(Losses)/gains on currency translation differences (2,356) 1,980
Gains/(losses) on net investment hedges 1,912 (2,339)
Attributable tax (183) 265
-------- ---------
(627) (94)
Net other comprehensive income/(expense) 29,935 (13,906)
-------- ---------
Total comprehensive income/(loss) attributable to equity holders of the Parent 89,324 (29,126)
-------- ---------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2021
Translation
and hedging
Share Share Revaluation Retained
capital premium reserve reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 1 January 2021 120,477 4,632 599 18,230 425,290 569,228
Profit for the year - - - - 59,389 59,389
Other net (expense)/income - - (18) (627) 30,580 29,935
--------- -------- -------------- ------------ ----------- ----------
Total comprehensive
(expense)/income - - (18) (627) 89,969 89,324
Dividends - - - - (9,181) (9,181)
Gross charitable grant - - - - (21,000) (21,000)
Tax relief on charitable
grant - - - - 3,990 3,990
Reserve transfers - - (313) - 313 -
At 31 December 2021 120,477 4,632 268 17,603 489,381 632,361
--------- -------- -------------- ------------ ----------- ----------
At 1 January 2020 120,477 4,632 565 18,324 463,537 607,535
Loss for the year - - - - (15,220) (15,220)
Other net income/(expense) - - 34 (94) (13,846) (13,906)
--------- -------- -------------- ------------ ----------- ----------
Total comprehensive
income/(expense) - - 34 (94) (29,066) (29,126)
Dividends - - - - (9,181) (9,181)
At 31 December 2020 120,477 4,632 599 18,230 425,290 569,228
--------- -------- -------------- ------------ ----------- ----------
The revaluation reserve represents cumulative net fair value
gains on owner-occupied property. Further details of the
translation and hedging reserve are included in note 6 to this
announcement.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 31 December 2021
2021 2020
GBP000 GBP000
Assets
Goodwill and other intangible assets 52,512 54,353
Deferred acquisition costs 46,027 41,989
Deferred tax assets 8,480 1,078
Pension surplus 28,304 1,053
Property, plant and equipment 35,245 38,316
Investment property 163,355 142,142
Financial investments 883,770 820,777
Reinsurers' share of contract liabilities 254,449 208,677
Current tax recoverable 5 7,986
Other assets 240,910 216,570
Cash and cash equivalents 114,036 104,429
Total assets 1,827,093 1,637,370
----------- -----------
Equity
Share capital 120,477 120,477
Share premium account 4,632 4,632
Retained earnings and other reserves 507,252 444,119
Total shareholders' equity 632,361 569,228
----------- -----------
Liabilities
Insurance contract liabilities 943,292 868,649
Investment contract liabilities 15,519 -
Lease obligations 22,738 25,450
Provisions for other liabilities 6,373 6,499
Pension deficit - 10,406
Retirement benefit obligations 7,058 6,530
Deferred tax liabilities 48,355 29,846
Current tax liabilities 1,232 1,293
Deferred income 28,385 25,908
Subordinated liabilities 24,433 -
Other liabilities 97,347 93,561
Total liabilities 1,194,732 1,068,142
----------- -----------
Total shareholders' equity and liabilities 1,827,093 1,637,370
----------- -----------
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2021
2021 2020
GBP000 GBP000
Profit/(loss) before tax 77,037 (15,746)
Adjustments for:
Depreciation of property, plant and equipment 6,155 5,486
Revaluation of property, plant and equipment - (10)
Loss on disposal of property, plant and equipment 24 172
Amortisation and impairment of intangible assets 856 1,468
Loss on disposal of intangible assets 4,765 -
Net fair value (gains)/losses on financial instruments and investment
property (58,340) 18,602
Dividend and interest income (21,802) (21,814)
Finance costs 2,364 769
Adjustment for pension funding 1,646 1,003
Changes in operating assets and liabilities:
Net increase in insurance contract liabilities 83,952 94,180
Net increase in investment contract liabilities 15,519 -
Net increase in reinsurers' share of contract liabilities (49,513) (45,101)
Net increase in deferred acquisition costs (4,376) (3,352)
Net increase in other assets (25,891) (35,369)
Net increase in operating liabilities 8,472 16,642
Net (decrease)/increase in other liabilities (234) 1,298
---------- ----------
Cash generated by operations 40,634 18,228
Purchases of financial instruments and investment property (186,514) (121,754)
Sale of financial instruments and investment property 157,614 151,531
Dividends received 7,427 6,255
Interest received 14,068 14,519
Tax paid (3,142) (2,756)
Net cash from operating activities 30,087 66,023
---------- ----------
Cash flows from investing activities
Purchases of property, plant and equipment (3,634) (6,028)
Proceeds from the sale of property, plant and equipment 48 1
Purchases of intangible assets (3,914) (15,602)
Acquisition of business, net of cash acquired - (822)
Net cash used by investing activities (7,500) (22,451)
---------- ----------
Cash flows from financing activities
Interest paid (2,364) (769)
Payment of lease liabilities (3,209) (5,090)
Proceeds from issue of subordinate debt, net of expenses 25,014 -
Dividends paid to Company's shareholders (9,181) (9,181)
Charitable grant paid to ultimate parent undertaking (21,000) -
Net cash used by financing activities (10,740) (15,040)
---------- ----------
Net increase/(decrease) in cash and cash equivalents 11,847 28,532
Cash and cash equivalents at beginning of year 104,429 74,775
Exchange (losses)/gains on cash and cash equivalents (2,240) 1,122
Cash and cash equivalents at end of year 114,036 104,429
---------- ----------
NOTES TO THIS ANNUAL FINANCIAL REPORT ANNOUNCEMENT OF
RESULTS
for the year ended 31 December 2021
1. Accounting policies
The Company has prepared this announcement of its consolidated
results using the same accounting policies and methods of
computation as the full financial statements for the year ended 31
December 2021 as prepared in accordance with UK-adopted IFRS
applicable at 31 December 2021 issued by the International
Accounting Standards Board (IASB).
A number of amendments and improvements to accounting standards
have been issued by the International Accounting Standards Board
(IASB), and endorsed by the UK, with an effective date of on or
after 1 January 2021, and are therefore applicable for the 31
December 2021 financial statements. None had a significant impact
on 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 2023, 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.
2. General Information
Whilst the financial information included in this announcement
has been prepared in accordance with the recognition and
measurement criteria of IFRS, this announcement does not itself
contain sufficient information to comply with IFRS. Full financial
statements that comply with IFRS were approved by the Board of
Directors on 17 March 2022.
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 December 2021
or 2020, but is derived from those accounts. Statutory accounts for
2020 have been delivered to the Registrar of Companies and those
for 2021 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 2022.
Ecclesiastical Insurance Office plc is a subsidiary of Benefact
Group plc (formerly 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 Benefact House, 2000 Pioneer Avenue,
Gloucester Business Park, Brockworth, Gloucester, GL3 4AW.
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 2021.
3. Insurance Risk
Through its general and life insurance operations, the Group is
exposed to a number of risks, as summarised in the Risk Management
section of the Strategic Report. The risk under any one insurance
contract is the possibility that the insured event occurs and the
uncertainty of the amount and timing of the resulting claim.
Factors such as the business and product mix, the external
environment including market competition and reinsurance capacity
all may vary from year to year, along with the actual frequency,
severity and ultimate cost of claims and benefits. This subjects
the Group to underwriting and pricing risk (the risk of failing to
ensure disciplined risk selection and to obtain the appropriate
premium), claims reserving risk (the risk of actual claims payments
exceeding the amount we are holding in reserves) and reinsurance
risk (the risk of failing to access and manage reinsurance capacity
at a reasonable price).
(a) Risk mitigation
Statistics demonstrate that the larger and more diversified the
portfolio of insurance contracts, the smaller the relative
variability in the expected outcome will be. The Group's
underwriting strategy is designed to ensure that the underwritten
risks are well diversified in terms of type and amount of risk and
geographical spread. In all operations pricing controls are in
place, underpinned by sound statistical analysis, market expertise
and appropriate external consultant advice. Gross and net
underwriting exposure is protected through the use of a
comprehensive programme of reinsurance using both proportional and
non-proportional reinsurance, supported by proactive claims
handling. The overall reinsurance structure is regularly reviewed
and modelled to ensure that it remains optimum to the Group's
needs. The optimal 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:
2021 General insurance Life insurance
---------------------------------------------- ---------------
Miscellaneous
financial
Property Liability loss Other Whole of Total
life
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Territory
United Kingdom Gross 217,961 62,949 16,941 3,394 (9) 301,236
and Ireland Net 109,242 60,060 8,883 376 (9) 178,552
Australia Gross 54,229 37,106 1,290 740 - 93,365
Net 5,891 31,733 1,238 140 - 39,002
Canada Gross 64,086 27,524 - - - 91,610
Net 44,750 25,306 - - - 70,056
Total Gross 336,276 127,579 18,231 4,134 (9) 486,211
--------- ---------- -------------- ------- --------------- ---------
Net 159,883 117,099 10,121 516 (9) 287,610
--------- ---------- -------------- ------- --------------- ---------
2020 General insurance Life insurance
---------------------------------------------- ---------------
Miscellaneous
financial
Property Liability loss Other Whole of Total
life
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Territory
United Kingdom Gross 203,921 57,634 16,273 3,328 12 281,168
and Ireland Net 107,458 55,095 9,080 716 12 172,361
Australia Gross 48,665 29,279 1,332 902 - 80,178
Net 7,299 24,840 1,283 171 - 33,593
Canada Gross 51,920 24,033 - - - 75,953
Net 35,846 22,425 - - - 58,271
Total Gross 304,506 110,946 17,605 4,230 12 437,299
--------- ---------- -------------- ------- --------------- ---------
Net 150,603 102,360 10,363 887 12 264,225
--------- ---------- -------------- ------- --------------- ---------
(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, theft and
earthquake. 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 27 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. None of
the risks arising from this business are amongst the Group's
principal risks and no new policies with insurance risk have been
written in the life fund since 2013.
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 is insufficient to meet future claims
payments, particularly if the timing of claims is different from
that assumed. 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.
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.
This small mortality risk is retained by the Group. The Group holds
a reserve to meet the costs of future expenses in running the life
business and administration of the policies. There is a risk that
this is insufficient to meet the expenses incurred in future
periods.
4. 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 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. Despite the
rollout of the Covid-19 vaccine programmes in 2021, the subsequent
conflict in Ukraine and recent international economic sanctions
means there is continued uncertainty in relation to the economic
risks to which the Group is exposed. This includes 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
Designated Held Hedge Designated Held Hedge assets
at fair for Loans accounted at fair for Financial accounted and
and
value trading receivables derivatives value trading liabilities* derivatives liabilities Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 31
December
2021
Financial
investments 882,350 336 670 414 - - - - - 883,770
Other
assets - - 232,553 - - - - - 8,357 240,910
Cash and
cash
equivalents - - 114,036 - - - - - - 114,036
Lease
obligations - - - - - - (22,738) - - (22,738)
Subordinated
liabilities - - - - - - (24,433) - - (24,433)
Other
liabilities - - - - - (331) (68,103) - (13,394) (81,828)
Inv't
contract
liabilities - - - - (15,519) - - - - (15,519)
Net other - - - - - - - - (461,837) (461,837)
Total 882,350 336 347,259 414 (15,519) (331) (115,274) - (466,874) 632,361
----------- -------- ------------ ------------ ----------- -------- ------------- ------------ ------------ ----------
At 31
December
2020
Financial
investments 817,551 2,079 746 401 - - - - 820,777
Other
assets - - 211,475 - - - - 5,095 216,570
Cash and
cash
equivalents - - 104,429 - - - - - 104,429
Lease
obligations - - - - - (25,450) - - (25,450)
Other
liabilities - - - - - (80,224) (1,244) (12,093) (93,561)
Net other - - - - - - - (453,537) (453,537)
------------ ----------- --------
Total 817,551 2,079 316,650 401 - (105,674) (1,244) (460,535) 569,228
----------- -------- ------------ ------------ ----------- -------- ------------- ------------ ------------ ----------
(*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 note 1, 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.
2021 2020
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 670 883,100 883,770 746 820,031 820,777
Cash and cash
equivalents 114,036 - 114,036 104,429 - 104,429
Other financial
assets 232,553 - 232,553 211,475 - 211,475
Total fair value 347,259 883,100 1,230,359 316,650 820,031 1,136,681
--------------- ----------- ---------------- --------------- ----------- ----------------
There has been a GBP30,609,000 increase (2020: GBP62,109,000
increase) in the fair value of SPPI financial assets of the Group,
and a GBP63,069,000 increase (2020: GBP32,112,000 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 2021
Financial assets at fair value through
profit or loss
Financial investments
Equity securities 281,169 186 68,947 350,302
Debt securities 515,953 1,412 34 517,399
Structured notes - 14,649 - 14,649
Derivatives - 336 - 336
Hedged accounted derivatives - 414 - 414
Total financial assets at fair value 797,122 16,997 68,981 883,100
At 31 December 2020
Financial assets at fair value through
profit or loss
Financial investments
Equity securities 262,014 185 59,687 321,886
Debt securities 493,601 1,512 552 495,665
Derivatives - 2,079 - 2,079
Hedged accounted derivatives - 401 - 401
--------- -------- --------- ---------
Total financial assets at fair value 755,615 4,177 60,239 820,031
--------- -------- --------- ---------
In the current and prior year the derivative liabilities of the
Group were measured at fair value through profit or loss.
Derivative liabilities are categorised as level 2 (see note 22 to
the full financial statements).
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 2021
Opening balance 59,688 551 60,239
Total gains/(losses) recognised in profit or
loss 9,259 (517) 8,742
Closing balance 68,947 34 68,981
----------- ----------- --------
Total gains/(losses) for the period included
in profit or loss for assets
held at the end of the reporting period 9,259 (517) 8,742
----------- ----------- --------
At 31 December 2020
Opening balance 66,703 404 67,107
Total (losses)/gains recognised in profit or
loss (7,015) 147 (6,868)
Closing balance 59,688 551 60,239
----------- ----------- --------
Total (losses)/gains for the period included
in profit or loss for assets
held at the end of the reporting period (7,015) 147 (6,868)
----------- ----------- --------
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.
Structured notes (level 2)
These financial assets are not traded on active markets. Their
fair value is linked to an index that reflects the performance of
an underlying basket of observable securities, including
derivatives, provided by an independent calculation agent.
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 sensitive to the level of underlying net
assets, the Euro exchange rate, the price-to-book ratio, 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 +/-GBP8m (2020: +/-GBP7m).
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, subordinated debt which has a
fixed interest rate until 2030, 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
(2020: three 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
27(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 2021
Assets
Debt securities 6,120 26,768 63,819 96,707
Cash and cash equivalents 5,269 - - 5,269
11,389 26,768 63,819 101,976
-------- -------- -------- ---------
Liabilities (discounted)
Life business provision 4,787 16,686 52,436 73,909
At 31 December 2020
Assets
Debt securities 6,083 30,161 61,665 97,909
Cash and cash equivalents 4,692 - - 4,692
10,775 30,161 61,665 102,601
-------- -------- -------- ---------
Liabilities (discounted)
Life business provision 5,103 18,045 53,709 76,857
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 & Poor's 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
2021
AAA - - - - 171,502
AA 42,719 2,651 - 45,370 122,895
A 19,946 9,424 - 29,370 129,795
BBB 51,365 3 - 51,368 72,653
Below BBB - - - - 7,895
Not rated 6 505 220,640 221,151 12,659
----------- ----------------
114,036 12,583 220,640 347,259 517,399
-------------------- ------------ ---------------- ----------- ----------------
At 31 December
2020
AAA - - - - 128,037
AA 36,319 1,986 - 38,305 130,285
A 16,753 8,564 - 25,317 125,745
BBB 51,351 3 - 51,354 94,101
Below BBB - - - - 8,997
Not rated 6 452 201,216 201,674 8,500
--------- ---------
104,429 11,005 201,216 316,650 495,665
--------- -------- --------- --------- ---------
(*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:
2021 2020
GBP000 GBP000
UK 265,506 276,914
Australia 104,530 108,792
Canada 119,622 89,661
Europe 27,741 20,298
Total 517,399 495,665
--------- ---------
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:
2021 2020
GBP000 GBP000
-
UK 281,497 UK 262,414
Europe 68,619 Europe 59,287
Hong Kong 186 Hong Kong 185
Total 350,302 Total 321,886
--------- ---------
(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.
2021 2020
GBP000 GBP000
Aus $ 64,005 Aus $ 57,291
Can $ 46,087 Can $ 39,621
Euro 11,054 Euro 23,932
USD $ 2,345 USD $ 2,045
HKD $ 172 HKD $ 171
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 27
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 33
to the full financial statements, and other liabilities for which a
maturity analysis is included in note 30 to the full financial
statements, and subordinated debt 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 18 to the full
financial statements.
Group Potential increase / (decrease) in Potential increase / (decrease) in
profit other equity reserves
Change in
Variable variable 2021 2020 2021 2020
GBP000 GBP000 GBP000 GBP000
Interest rate risk -100 basis points (6,797) (11,896) 54 (70)
+100 basis points 5,088 6,153 (48) 44
Currency risk -10% 4,118 2,833 10,845 9,715
+10% (3,369) (2,318) (8,873) (7,948)
Equity price risk +/-10% 28,375 26,073 - -
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, Benefact Group
plc. Consequently, there is no directly comparable solvency measure
for EIO group. 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.
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. The Group's regulated entities, EIO and ELL,
expect to meet the deadline for submission to the PRA of 8 April
2022 and their respective SFCRs will be made available on the
Group's website shortly thereafter. Benefact Group is also expected
to meet its deadline for submission to the PRA of 20 May 2022, with
its SFCR also being made available on the Group's website shortly
after.
2021 2020
(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 616,456 55,235 518,562 49,259
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.
5. Derivative financial instruments
The Group utilises derivatives to mitigate equity price risk
arising from investments held at fair value, foreign exchange risk
arising from investments denominated in foreign currencies, and
foreign exchange risk arising from investments denominated in
Sterling that contain underlying foreign currency exposure. These
'non-hedge' derivatives either do not qualify for hedge accounting
or the option to hedge account has not been taken.
The Group has also formally designated certain derivatives as a
hedge of its net investments in Australia and Canada. A gain of
GBP1,912,000 (2020: loss of GBP2,339,000) in respect of these
'hedge' derivatives has been recognised in the hedging reserve
within shareholders' equity, as disclosed in note 26 to the full
financial statements. 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.
2021 2020
Contract/ Contract/
notional Fair value Fair value notional Fair value Fair value
amount asset liability Amount* asset liability
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Non-hedge derivatives
Equity/Index contracts
Options 34,695 334 296 40,597 1,407 -
Foreign exchange contracts
Forwards (Euro) 99,369 2 35 86,980 672 -
Hedge derivatives
Foreign exchange contracts
Forwards (Australian dollar) 40,512 145 - 41,231 - 1,244
Forwards (Canadian dollar) 37,609 269 - 30,269 401 -
212,185 750 331 199,077 2,480 1,244
---------- ----------- ----------- ---------- ----------- -----------
(*The contract/notional amount in the prior year has been
restated to reflect sterling values)
All 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 (note 21 of the full financial statements) and
derivative fair value liabilities are recognised within other
liabilities (note 30 of the full financial statements).
6. Translation and hedging reserve
Translation Hedging
reserve reserve Total
GBP000 GBP000 GBP000
At 1 January 2021 15,552 2,678 18,230
Losses on currency translation differences (2,356) - (2,356)
Gains on net investment hedges - 1,912 1,912
Attributable tax - (183) (183)
At 31 December 2021 13,196 4,407 17,603
------------ -------- --------
At 1 January 2020 13,572 4,752 18,324
Gains on currency translation differences 1,980 - 1,980
Losses on net investment hedges - (2,339) (2,339)
Attributable tax - 265 265
At 31 December 2020 15,552 2,678 18,230
------------ -------- --------
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.
7. 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 SEIB Insurance Brokers Limited and financial
advisory services through Ecclesiastical Financial Advisory Services Limited.
- Life business
Ecclesiastical Life Limited provides long-term policies to support funeral planning products.
The business reopened in the year but remains closed to new insurance 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.
2021 2020
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 297,235 - 297,235 276,618 - 276,618
Australia 93,365 - 93,365 80,178 - 80,178
Canada 91,610 - 91,610 75,953 - 75,953
Other insurance operations 4,010 - 4,010 4,538 - 4,538
Total 486,220 - 486,220 437,287 - 437,287
Life business (9) - (9) 12 - 12
Investment management - 14,908 14,908 - 12,382 12,382
Broking and Advisory - 11,346 11,346 - 9,458 9,458
Group revenue 486,211 26,254 512,465 437,299 21,840 459,139
--------- ---------- --------- --------- ---------- ---------
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.
2021 Combined
operating Insurance Investments Other Total
ratio GBP000 GBP000 GBP000 GBP000
General business
United Kingdom and Ireland 85.3% 24,952 87,106 (2,098) 109,960
Australia 156.9% (13,306) 1,924 (34) (11,416)
Canada 88.6% 7,065 246 (156) 7,155
Other insurance operations (9,952) (133) - (10,085)
96.8% 8,759 89,143 (2,288) 95,614
Life business 1,117 3,981 - 5,098
Investment management - - (2,525) (2,525)
Broking and Advisory - - 2,984 2,984
Corporate costs - - (24,134) (24,134)
Profit/(loss) before tax 9,876 93,124 (25,963) 77,037
---------- ------------ --------- ---------
2020 Combined
operating Insurance Investments Other Total
ratio GBP000 GBP000 GBP000 GBP000
General business
United Kingdom and Ireland 92.5% 12,254 (12,123) (479) (348)
Australia 102.2% (620) 1,678 (31) 1,027
Canada 91.2% 4,521 3,003 (176) 7,348
Other insurance operations (4,103) - - (4,103)
95.1% 12,052 (7,442) (686) 3,924
Life business 468 29 - 497
Investment management - - (1,031) (1,031)
Broking and Advisory - - 2,397 2,397
Corporate costs - - (21,533) (21,533)
Profit/(loss) before tax 12,520 (7,413) (20,853) (15,746)
---------- ------------ --------- ---------
(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:
2021 2020
Gross Gross
written Non-current written Non-current
premiums assets premiums assets
GBP000 GBP000 GBP000 GBP000
United Kingdom and Ireland 301,236 301,523 281,168 276,236
Australia 93,365 2,925 80,178 6,114
Canada 91,610 6,227 75,953 6,946
486,211 310,675 437,299 289,296
--------- ------------ --------- ------------
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.
8. 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.
The table below provodes 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 the
Financial Risk and Capital Management note to this
announcement.
2021
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 486,220 (9) - - - - 486,211
Outward reinsurance
premiums (198,601) - - - - - (198,601)
Net change in provision
for unearned premiums (14,620) - - - - - (14,620)
Net earned premiums [1] 272,999 (9) - - - - 272,990
---------- -------- -------- --------- --------- ------------- ----------
Fee and commission
income [2] 55,417 - - 14,908 11,222 - 81,547
Other operating income 1,136 - - - - - 1,136
Net investment return - 3,939 96,358 6 764 - 101,067
Total revenue 329,552 3,930 96,358 14,914 11,986 - 456,740
---------- -------- -------- --------- --------- ------------- ----------
Expenses
Claims and change in
insurance liabilities (267,291) (2,342) - - - - (269,633)
Reinsurance recoveries 123,822 - - - - - 123,822
Fees, commissions and
other acquisition costs [3] (95,628) (21) - (979) 732 - (95,896)
Other operating and
administrative expenses [4] (81,696) (450) (3,234) (16,460) (9,658) [5] (24,134) (135,632)
Total operating expenses (320,793) (2,813) (3,234) (17,439) (8,926) (24,134) (377,339)
---------- -------- -------- --------- --------- ------------- ----------
Operating profit [6] 8,759 1,117 93,124 (2,525) 3,060 (24,134) 79,401
Finance costs (2,288) - - - (76) - (2,364)
Profit before tax 6,471 1,117 93,124 (2,525) 2,984 (24,134) 77,037
---------- -------- -------- --------- --------- ------------- ----------
Underwriting profit [6] 8,759
Combined operating ratio 96.8%
Net expenses ( =
[2]+[3]+[4]+[5] ) [7] (146,041)
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].
2020
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 437,287 12 - - - - 437,299
Outward reinsurance premiums (173,074) - - - - - (173,074)
Net change in provision for
unearned premiums (16,562) - - - - - (16,562)
Net earned premiums [1] 247,651 12 - - - - 247,663
---------- ------- -------- --------- --------- ---------- ----------
Fee and commission income [2] 47,742 - - 12,382 9,458 - 69,582
Other operating income 2,126 - - - - - 2,126
Net investment return - (484) (4,600) (25) 811 - (4,298)
Total revenue 297,519 (472) (4,600) 12,357 10,269 - 315,073
---------- ------- -------- --------- --------- ---------- ----------
Expenses
Claims and change in insurance
liabilities (224,127) 1,333 - - - - (222,794)
Reinsurance recoveries 94,581 - - - - - 94,581
Fees, commissions and other
acquisition costs [3] (84,852) (13) - (939) 360 - (85,444)
Other operating and [5]
administrative expenses [4] (71,069) (380) (2,813) (12,449) (8,149) (21,533) (116,393)
Total operating expenses (285,467) 940 (2,813) (13,388) (7,789) (21,533) (330,050)
---------- ------- -------- --------- --------- ---------- ----------
Operating profit/(loss) [6] 12,052 468 (7,413) (1,031) 2,480 (21,533) (14,977)
Finance costs (686) - - - (83) - (769)
Profit/(loss) before tax 11,366 468 (7,413) (1,031) 2,397 (21,533) (15,746)
---------- ------- -------- --------- --------- ---------- ----------
Underwriting profit [6] 12,052
Combined operating ratio 95.1%
Net expenses ( = [2]+[3]+[4]
[5]) [7] (129,712)
Net expense ratio 52%
9. 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 note 15 to the full financial statements.
Full disclosure of related party transactions is included in
note 36 to the full financial statements.
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END
FR SFWEDWEESEID
(END) Dow Jones Newswires
March 18, 2022 03:00 ET (07:00 GMT)
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