TIDMELLA
RNS Number : 7483N
Ecclesiastical Insurance Office PLC
26 September 2023
2023 INTERIM RESULTS
Ecclesiastical Insurance Office plc 26 September 2023
Ecclesiastical Insurance Office plc ("Ecclesiastical"), the
specialist financial services group(1) , today announces its 2023
interim results. A copy of the results will be available on the
Company's website at www.ecclesiastical.com
Group overview
-- Excellent trading momentum with continued growth in premiums,
with GWP(2) rising to GBP288m from GBP262m at H1 2022. This was
driven by new business wins and supported by strong retention and
rate strengthening.
-- Underwriting profit(2) of GBP0.3m (H1 2022 restated:
GBP12.9m). Our underwriting result was impacted by larger than
expected prior year claims in the UK as well as a major fire at St
Mark's Church in London in January.
-- Overall profit before tax of GBP10.2m, (H1 2022 restated:
loss of GBP25.7m). This includes an investment result of GBP14.7m
profit, a significant improvement on last year (H1 2022 restated:
loss of GBP65.5m). Our strong capital position and long-term
investment approach allows us to withstand short-term volatility in
markets.
-- Capital position remains strong with AM Best and Moody's ratings remaining stable.
-- Ecclesiastical UK successfully launched into the Leisure
sector as part of its growth plans to move into new adjacent
sectors.
-- Ecclesiastical granted GBP6m to its charitable owner Benefact
Trust as part of its continued mission to contribute to the greater
good of society. This brings the total given to good causes since
2014 to GBP205m. Benefact Group, the UK's third largest corporate
giver, has set a target to give GBP250m by the end of 2025.
-- Ecclesiastical has continued to be recognised with
prestigious awards including: First Place Gold Ribbon for the
seventeenth consecutive time (Fairer Finance); 'Outstanding'
Service Quality Marque for the second consecutive year (Gracechurch
Claims Monitor); Specialist Insurance Company of the Year (British
Insurance Awards); Claims Product Solution of the Year - Insurer
(Insurance Times Claims Excellence Awards); and a Top Employer for
Greater Toronto for the fifth consecutive year.
-- Ecclesiastical UK has also been recognised by Best Companies
as Insurance's Number 1 Company to Work for in recent league
tables, supported by its inspiring purpose to give all available
profits to good causes, and ambition to provide a world-class
employee experience for all.
Mark Hews, Group Chief Executive Officer of Ecclesiastical,
said:
"Ecclesiastical achieved an improved result in the first half of
2023, delivering sustainable, profitable growth despite the
challenging economic environment. We have ambitious growth plans
and premiums grew by 10%, driven by new business wins, rate
strengthening and strong retention across our territories, and we
delivered an overall profit before tax of GBP10.2m, a step change
from the equivalent GBP25.7m loss last year. This strong
improvement has been supported by profits from our overseas
businesses in Ireland, Canada and Australia, offset by some large
losses impacting our UK underwriting result. The result is a
testament to our brilliant teams delivering against the plans and
structures we've put in place.
"Alongside this, our capital position remains robust with our AM
Best and Moody's ratings remaining stable and regulatory solvency
is near an all-time high.
"As a member of the Benefact Group, Ecclesiastical is driven by
a unique purpose to contribute to the greater good of society. I'm
delighted that we've been able to grant a further GBP6m to our
charitable owner Benefact Trust in respect of our performance in
the first half of 2023. This brings the total given to good causes
since 2014 to an extraordinary GBP205m. Thanks to Ecclesiastical,
the Benefact Group is now the UK's third largest corporate giver to
charity (3) , and is building a Movement for Good that transforms
lives and communities for the better. We are united in our ambition
to become the UK's biggest corporate donor, giving GBP250m to good
causes.
"At the start of the year, we simplified our legal structure
within the Ecclesiastical and Benefact Groups to better align our
businesses and support our strategic objectives and this is the
first time reporting our results in line with our new company
structures.
"Ecclesiastical UK is pushing hard for sustainable profitable
growth and reported excellent GWP growth of 16% thanks to a number
of new business wins. The UK business is investing significantly in
its high net worth and schemes capabilities and expanding into new
sectors as it pursues its strategy to 'grow to give'. In
particular, Ecclesiastical UK has successfully launched into the
Leisure market, including fine dining, gastropubs, high-quality
hotels, arts and visitor attractions and exhibition centres.
"I'm incredibly proud that we were recently recognised as a
world-class employer and named as Insurance's Number 1 Company to
Work for in recent league tables by Best Companies. We have a
brilliant culture at Ecclesiastical and it's thanks to our
colleagues' commitment to our ambition that we've been recognised
at this level. As we strive to become even better, we will seek to
attract new talent and build the capabilities of our teams.
"Our goal is to be the first-choice insurer in all of our
specialist markets, and we have the appetite and capacity to
achieve our goal. We have an exciting pipeline of propositions
being developed, and we will continue to invest in our systems and
people so that we can deliver the best possible service to our
customers and brokers. With a clear strategy and a purpose that
drives us ever onward, I'm confident that we can continue our
excellent progress and build a movement for good in society."
(1) The 'Group' refers to Ecclesiastical Insurance Office plc
together with its subsidiaries. The 'Benefact Group' and 'wider
group' refers to Benefact Group plc, the immediate parent company
of Ecclesiastical Insurance Office plc, together with its
subsidiaries. The 'Benefact Trust' and 'the Trust' refers to
Benefact Trust Limited, the ultimate parent undertaking of
Ecclesiastical Insurance Office plc.
(2) The Group uses Alternative Performance Measures (APMs) to
help explain performance. More information on APMs is included in
note 18.
(3) Directory of Social Change's The Guide to UK Company Giving
2023/24.
2022 comparatives, where referred to, have been restated
following the adoption by the Group of IFRS 17 Insurance Contracts
from 1 January 2023.
Results Summary
H1 2023 H1 2022
Insurance revenue GBP284.1m GBP257.9m
Insurance service result GBP23.0m GBP27.1m
Net investment result GBP14.7m (GBP65.5m)
Profit/(loss) before tax GBP10.2m (GBP25.7m)
Group combined operating ratio(3) 99.8% 91.3%
30 June 2023 31 December 2022
Net asset value GBP600m GBP612m
Solvency II capital cover (solo) 298% 297%
(3) The Group uses Alternative Performance Measures (APMs) to
help explain performance. More information on APMs is included in
note 18.
Financial Highlights
The Group reported a profit before tax for the period of
GBP10.2m, significantly higher than the GBP25.7m loss reported in
H1 2022 which was largely due to a GBP80.3m increase in the net
investment result to GBP14.7m. This result was partially offset by
a decrease in the insurance service result of GBP2.3m, driven by
larger than expected prior year claims as well as a major fire at
St Mark's Church in London. The net insurance financial result was
also lower than H1 2022 by GBP37.3m as a result of changes in
interest rates.
The Group adopted IFRS 17 Insurance Contracts on 1 January 2023.
Details of the impact of the adoption of IFRS 17 are included in
note 3.
The Group will continue to provide detail on a written basis and
report gross written premiums (GWP) as an alternative performance
measure (APM). The underwriting result and combined operating ratio
(COR) will also be reported as an APM. Refer to note 18 for a
reconciliation to the most directly reconcilable line item in the
financial statements.
On 3 January 2023 two wholly-owned subsidiaries, EdenTree
Investment Management Limited and Ecclesiastical Financial Advisory
Services Limited, were transferred in specie within the Benefact
Group. A gain on disposal of GBP0.7m was recognised.
General Insurance - UK and Ireland
UK and Ireland reported GWP growth of 15.3% to GBP190.9m in the
six months to 30 June 2023 (H1 2022: GBP165.5m). This has been
driven by rate strengthening, supported by strong retention and new
business. The business reported an underwriting loss of GBP6.5m and
a net combined ratio (COR) of 106.6% (H1 2022 restated: GBP4.8m
profit, COR 94.5%).
The underwriting result at half-year was driven by large losses
due to the significant cost of the St Mark's Church fire. A
deterioration in prior year liability claims of GBP4.2m also
contributed to the underwriting loss.
General Insurance - Canada
The Canadian business delivered premium growth of 3.2% in local
currency, reporting GWP of GBP40.3m (H1 2022: GBP39.5m), during the
first half of the year. This growth was primarily fuelled by
increased new business and a higher renewable base. The business
reported an underwriting profit of GBP5.0m (H1 2022 restated:
GBP5.1m) and a COR of 86.8% (H1 2022 restated: 85.9%).
Although the underwriting result has reduced marginally on the
prior year, performance has been strong. The current year includes
the impact of the 'Eastern Canada Cold Snap' weather event in
February. This is compared with a lower than average number of
weather events in the first half of 2022.
General Insurance - Australia
The Australian business reported a 1.9% increase in local
currency GWP to GBP54.2m (H1 2022: GBP54.2m), primarily driven by
growth in the property book. The business reported an underwriting
profit of GBP0.5m (H1 2022 restated: GBP2.3m). The property result
was strong due to the absence of material weather events, but the
liability result was impacted by adverse development of historical
liability claims.
Net Insurance Financial Result
The net insurance financial result has reduced by GBP37.3m to
GBP2.6m (H1 2022 restated: GBP39.9m) primarily driven by changes in
interest rates.
Investment Returns
There was a significant improvement in the net investment result
for the first half of the year to a profit of GBP14.7m (H1 2022
restated: GBP65.5m loss). Investment income increased to GBP21.1m
(H1 2022 restated: GBP14.2m). Fair value losses of GBP6.4m in the
first half of the year (H1 2022: GBP79.7m), were primarily due to
unrealised losses on unlisted equities and infrastructure
investments.
Markets have been impacted by macroeconomic disruptions leading
to central banks tightening monetary policy and raising interest
rates. Higher interest rates and favourable exchange rate movements
have contributed to the increase in investment income.
Life Business
The life business reopened to new business during 2021,
launching a new product providing guarantees for pre-paid funeral
planning products sold by the Funeral Planning business in Benefact
Group (Ecclesiastical Planning Services Limited). The legacy book
remains closed to new business and now reports on an IFRS 17 basis.
The life business reported a profit before tax of GBP2.4m at the
half year (H1 2022 restated: GBP7.6m loss). Assets and liabilities
within this business are well matched.
Taxation
The Group's taxation charge in the period is GBP2.8m (H1 2022
restated: GBP18.8m credit), with an effective tax rate of 27.4%,
driven by overseas tax liabilities arising at rates in excess of
those applying in the UK. A taxation credit arose in the prior
year, due to taxable losses. Changes to profits chargeable to
corporation tax arising from the adoption of IFRS 17 are applied
prospectively for general insurance and over 10 years for life
business.
Balance Sheet and Capital Position
In the first half of the year, total shareholders' equity
decreased by GBP11.7m to GBP600.2m. Underwriting profits and
investment returns were offset by a GBP6.0m charitable grant to
Benefact Trust Limited, the Group's ultimate parent company,
expected credit losses arising from the initial application of IFRS
9 Financial Instruments and a dividend in specie to distribute the
company's holding in EdenTree Investment Management limited and
Ecclesiastical Financial Advisory Services Limited to the Group's
immediate parent company, Benefact Group plc. Our capital position
remains robust with Solvency II capital cover increasing to
298%.
Strategic Highlights
Many businesses say they're different, but Ecclesiastical really
is. Ecclesiastical is proud to be part of the Benefact Group - an
international family of specialist financial services companies,
built on the idea that better business can better lives.
Ecclesiastical is galvanised by the Benefact Group's purpose to
contribute to the greater good of society and its charitable
ambition is at the heart of everything that Ecclesiastical does -
as such colleagues are united and motivated by a common purpose to
give profits to good causes. The Benefact Group has been recognised
as the UK's third largest charitable donor, out of 5.5m companies
in the UK and Ecclesiastical is delighted to have contributed to
this achievement, as a key business within the Benefact Group.
This strategic ambition to give profits to good causes shapes
and drives Ecclesiastical, our distinctive positioning, and our
support for its customers and communities. Thousands of
beneficiaries have been awarded local grants through the Movement
for Good awards in the UK and Ireland, the Community Impact Grants
in Canada, the Community Education Programme in Australia and the
Closer to You programme nominated by UK insurance brokers.
Ecclesiastical's resilience and financial strength, demonstrated
by the reaffirmation of its credit ratings, underpins its continued
investment in its businesses, operations, and people, driving
business benefit and enabling charitable giving to communities
across our geographies. Significant progress has been made,
including: the launch of our new Leisure market segment in the UK;
completion and evaluation of several pilots in Schemes;
implementation of a new divisional legal structure for the Benefact
Group which has streamlined Ecclesiastical; enhanced reporting for
Taskforce for Climate Related Disclosure requirements and
investment in a project to offset the Group's 2022 direct carbon
footprint (across all geographies) as part of the Group's climate
response strategy.
Principal Risks and Uncertainties
The principal risks and uncertainties faced by the Group and our
approach to managing them are outlined in our latest annual report
and in note 4 to these condensed financial statements. There has
been no change to the principal risks and uncertainties since the
year end.
The Group adopted IFRS 17 and IFRS 9 on 1 January 2023. IFRS 17
and IFRS 9 require management to use judgements, estimates and
assumptions.
Outlook
Our robust performance in recent years delivering profitable
growth within the insurance business has been underpinned by strong
underwriting discipline and a real focus on supporting customers to
manage their risks. In order to be able to give more, we are
ambitious in our plans to grow the business on the back of our many
years of success. We are focussing on ways in which we can deliver
even better customer value and reach additional customers and
customer groups while retaining our strong underwriting and risk
management disciplines.
Persistently high inflation, caused by a series of big shocks to
the economy, has pushed interest rates to their highest levels
since 2001. Despite these economic pressures, and the uncertainty
ahead, the underlying resilience of our businesses means we will
continue to grow sustainably and invest for the future.
Challenging times motivate us to continue to pursue our
long-term charitable objective and provide as much support as we
can for for our customers, stakeholders and beneficiaries.
Ecclesiastical, as part of the Benefact Group, has a clear
purpose, a clear intent to make a difference in the world, and a
clear and ambitious strategy to enhance and lever its strong
competitive position in its markets. The company is set to benefit
from the continued investment in technology, brand, offices,
people, and proposition development and remains optimistic for
strong and profitable business growth in the years ahead.
We invite others, who may be similarly minded, to help support
Ecclesiastical and the Benefact Group to build a Movement for Good
that transforms lives and communities in the UK and abroad.
By order of the Board
Mark Hews
Group Chief Executive
26 September 2023
CONSOLIDATED INTERIM FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS
For the 6 months to 30 June 2023
Restated Restated
* *
30.06.23 30.06.22 31.12.22
6 months 6 months 12 months
Notes GBP000 GBP000 GBP000
Insurance revenue 284,082 257,858 534,894
Insurance service expenses (225,820) (228,703) (444,472)
---------- ---------- ----------
Insurance service result before reinsurance
contracts held 58,262 29,155 90,422
---------- ---------- ----------
Net expense from reinsurance contracts (35,265) (2,093) (24,775)
---------- ---------- ----------
Insurance service result 22,997 27,062 65,647
---------- ---------- ----------
Net insurance financial result 2,606 39,892 47,862
Net investment result 7 14,737 (65,533) (63,439)
Other operating expenses (28,454) (26,293) (63,196)
Other finance costs (1,638) (803) (2,456)
---------- ---------- ----------
Profit/(loss) before tax 10,248 (25,675) (15,582)
---------- ---------- ----------
Tax (expense)/credit (2,806) 18,839 4,673
Profit/(loss) for the financial period
from continuing operations 7,442 (6,836) (10,909)
---------- ---------- ----------
Net profit attributable to discontinued
operations 718 499 13,696
---------- ---------- ----------
Profit/(loss) for the financial period 8,160 (6,337) 2,787
---------- ---------- ----------
* The comparative financial statements have been restated as
detailed in note 3.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the 6 months to 30 June 2023
Restated Restated
* *
30.06.23 30.06.22 31.12.22
6 months 6 months 12 months
GBP000 GBP000 GBP000
Profit/(loss) for the period 8,160 (6,337) 2,787
--------- --------- ----------
Other comprehensive expense
Items that will not be reclassified subsequently
to profit or loss:
Actuarial losses on retirement benefit plans (595) (9,352) (10,171)
Attributable tax 149 2,338 2,543
(446) (7,014) (7,628)
Items that may be reclassified subsequently
to profit or loss:
(Losses)/gains on currency translation differences (6,873) 8,061 5,642
Gains/(losses) on net investment hedges 5,827 (6,496) (4,514)
Attributable tax (1,112) 1,286 825
(2,158) 2,851 1,953
--------- --------- ----------
Net other comprehensive expense (2,604) (4,163) (5,675)
--------- --------- ----------
Total comprehensive income/(expense) 5,556 (10,500) (2,888)
--------- --------- ----------
* The comparative financial statements have been restated as
detailed in note 3.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the 6 months to 30 June 2023
Translation
Share Share Revaluation and hedging Retained
capital premium reserve reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
2023
As at December 2022 120,477 4,632 222 19,556 466,991 611,878
Adjustment on initial
application of IFRS 9 - - - - (1,395) (1,395)
--------- -------- ------------ ------------ --------- ---------
At 1 January 120,477 4,632 222 19,556 465,596 610,483
Profit for the period - - - - 8,160 8,160
Other net expense - - - (2,158) (446) (2,604)
--------- -------- ------------ ------------ --------- ---------
Total comprehensive (expense)/income - - - (2,158) 7,714 5,556
Dividends on ordinary shares - - - - (5,223) (5,223)
Dividends on preference
shares - - - - (4,591) (4,591)
Gross charitable grant - - - - (6,000) (6,000)
--------- -------- ------------ ------------ --------- ---------
At 30 June 120,477 4,632 222 17,398 457,496 600,225
--------- -------- ------------ ------------ --------- ---------
2022
At 31 December 2021 (as
reported) 120,477 4,632 268 17,603 491,981 634,961
Adjustment on initial
application of IFRS 17 - - - - 5,186 5,186
--------- -------- ------------ ------------ --------- ---------
At 1 January (as restated*) 120,477 4,632 268 17,603 497,167 640,147
Loss for the period - - - - (6,337) (6,337)
Other net income/(expense) - - - 2,851 (7,014) (4,163)
--------- -------- ------------ ------------ --------- ---------
Total comprehensive income/(expense) - - - 2,851 (13,351) (10,500)
Dividends on preference
shares - - - - (4,591) (4,591)
Gross charitable grant - - - - (5,000) (5,000)
Tax relief on charitable
grant - - - - 950 950
Reserve transfers - - (46) - 46 -
--------- -------- ------------ ------------ --------- ---------
At 30 June 120,477 4,632 222 20,454 475,221 621,006
--------- -------- ------------ ------------ --------- ---------
2022
At 31 December 2021 (as
reported) 120,477 4,632 268 17,603 491,981 634,961
Adjustment on initial
application of IFRS 17 - - - - 5,186 5,186
--------- -------- ------------ ------------ --------- ---------
At 1 January (as restated*) 120,477 4,632 268 17,603 497,167 640,147
Profit for the year - - - - 2,787 2,787
Other net income/(expense) - - - 1,953 (7,628) (5,675)
--------- -------- ------------ ------------ --------- ---------
Total comprehensive income/(expense) - - - 1,953 (4,841) (2,888)
Dividends on preference
shares - - - - (9,181) (9,181)
Gross charitable grant - - - - (20,000) (20,000)
Tax relief on charitable
grant - - - - 3,800 3,800
Reserve transfers - - (46) - 46 -
--------- -------- ------------ ------------ --------- ---------
At 31 December 120,477 4,632 222 19,556 466,991 611,878
--------- -------- ------------ ------------ --------- ---------
* The comparative financial statements have been restated as
detailed in note 3.
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 13.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 30 June 2023
Restated Restated Restated
* * *
30.06.23 30.06.22 31.12.22 31.12.21
Notes GBP000 GBP000 GBP000 GBP000
Assets
Cash and cash equivalents 100,736 91,888 104,664 94,736
Financial investments 10 867,122 823,901 870,749 883,770
Current tax recoverable 3,257 8,873 4,212 5
Reinsurance contract assets 14 250,302 242,181 240,124 202,767
Investment property 135,088 169,844 140,846 163,355
Pension assets 14,231 16,919 15,338 28,304
Property, plant and equipment 30,723 33,498 31,405 33,477
Goodwill and other intangible
assets 28,429 31,545 30,255 29,598
Deferred tax assets 7,923 11,382 9,938 8,857
Other assets 153,964 103,937 148,349 89,788
Assets classified as held for
distribution - 76,498 14,999 62,483
----------- ----------- ----------- -----------
Total assets 1,591,775 1,610,466 1,610,879 1,597,140
----------- ----------- ----------- -----------
Equity
Share capital 120,477 120,477 120,477 120,477
Share premium account 4,632 4,632 4,632 4,632
Retained earnings and other
reserves 475,116 495,897 486,769 515,038
Total shareholders' equity 600,225 621,006 611,878 640,147
----------- ----------- ----------- -----------
Liabilities
Insurance contract liabilities 14 778,083 784,452 789,546 769,727
Investment contract liabilities 74,992 38,649 58,479 15,519
Current tax liabilities 910 432 308 819
Lease obligations 17,487 20,455 19,062 21,440
Retirement benefit obligations 4,781 5,462 4,960 7,058
Subordinated liabilities 15 25,363 25,049 25,818 24,433
Provisions for other liabilities 8,932 8,697 5,961 6,143
Deferred tax liabilities 37,096 35,519 37,027 50,024
Other liabilities 43,906 35,181 47,345 39,750
Liabilities classified as held
for distribution - 35,564 10,495 22,080
Total liabilities 991,550 989,460 999,001 956,993
----------- ----------- ----------- -----------
Total shareholders' equity
and liabilities 1,591,775 1,610,466 1,610,879 1,597,140
----------- ----------- ----------- -----------
* The comparative financial statements have been restated as
detailed in note 3.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the 6 months to 30 June 2023
Restated Restated
* *
30.06.23 30.06.22 31.12.22
6 months 6 months 12 months
GBP000 GBP000 GBP000
Profit/(loss) before tax 10,248 (25,675) (15,582)
Profit before tax on discontinued operations 718 642 14,115
Adjustments for:
Depreciation of property, plant and equipment 2,863 3,016 6,261
Profit on disposal of property, plant and
equipment - (10) (9)
Amortisation of intangible assets 2,389 1,104 3,558
Movement in expected credit loss provision (1,272) - -
Profit before tax on disposal of subsidiary (718) - (14,293)
Net fair value losses on financial instruments
and investment property 6,406 79,765 94,121
Dividend and interest income (16,868) (10,244) (22,906)
Finance costs 1,638 839 2,528
Adjustment for pension funding 325 416 695
5,729 49,853 68,488
Changes in operating assets and liabilities:
Net increase in reinsurance contract assets (17,851) (32,228) (32,053)
Net increase in investment contract liabilities 16,513 23,131 42,961
Net increase/(decrease) in insurance contract
liabilities 6,096 (4,670) 4,879
Net increase in other assets (11,743) (29,507) (57,512)
Net increase in other liabilities 3,403 8,976 1,491
Cash generated by operations 2,147 15,555 28,254
Purchases of financial instruments and investment
property (74,523) (117,263) (208,588)
Sale of financial instruments and investment
property 66,247 98,910 156,110
Dividends received 5,156 3,889 7,177
Interest received 10,417 6,886 17,022
Tax paid (459) (2,817) (6,487)
Net cash from/(used by) operating activities 8,985 5,160 (6,512)
--------- ---------- ----------
Cash flows from investing activities
Purchases of property, plant and equipment (318) (2,336) (3,234)
Proceeds from the sale of property, plant
and equipment 18 27 28
Purchases of intangible assets (614) (2,772) (3,900)
Disposal of interest in subsidiary (5,177) - 36,355
Net cash (used by)/from investing activities (6,091) (5,081) 29,249
--------- ---------- ----------
Cash flows from financing activities
Interest paid (1,227) (839) (2,528)
Payment of lease liabilities (3,578) (1,583) (3,267)
Dividends paid to Company's shareholders (4,591) (4,591) (9,181)
Charitable grant paid to ultimate parent undertaking - - (15,000)
Net cash used by financing activities (9,396) (7,013) (29,976)
--------- ---------- ----------
Net decrease in cash and cash equivalents (6,502) (6,934) (7,239)
Cash and cash equivalents at the beginning
of the period 109,841 114,036 114,036
Cash classified as held for distribution - (18,249) (5,177)
Exchange (losses)/gains on cash and cash equivalents (2,603) 3,035 3,044
--------- ---------- ----------
Cash and cash equivalents at the end of the
period 100,736 91,888 104,664
--------- ---------- ----------
* The comparative financial statements have been restated as
detailed in note 3.
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS
1. General information and basis of preparation
Ecclesiastical Insurance Office plc (hereafter referred to as
the 'Company', or 'Parent'), a public limited company incorporated
and domiciled in England, together with its subsidiaries
(collectively, the 'Group') operates principally as a provider of
general insurance with offices in the UK & Ireland, Australia
and Canada. The principal accounting policies adopted in preparing
the International Financial Reporting Standards (IFRS) financial
statements of the Group and Parent are set out below.
The annual financial statements are prepared in accordance with
UK adopted International Financial Reporting Standards (IFRSs)
applicable at 31 December 2022 issued by the International
Accounting Standards Board (IASB) and the Disclosure Guidance and
Transparency Rules issued by the Financial Conduct Authority. The
condensed set of financial statements included in the 2023 interim
results has been prepared in accordance with UK adopted IAS 34
Interim Financial Reporting.
The information for the year ended 31 December 2022 does not
constitute statutory accounts as defined in section 434 of the
Companies Act 2006. The comparative results for the year ended 31
December 2022 have been taken from the Group's 2022 Annual Report
and Accounts except for certain balances which have been restated
but not audited following the implementation of IFRS 17 Insurance
Contracts and IFRS 9 Financial Instruments (see note 3). A copy of
the statutory accounts for that year has been delivered to the
Registrar of Companies. The auditor reported on those accounts: its
report was unqualified, did not draw attention to any matters by
way of emphasis without qualifying the report, and did not contain
a statement under section 498(2) or (3) of the Companies Act
2006.
These condensed consolidated interim financial statements were
approved by the Board on 26 September 2023 and were reviewed by the
Group's statutory auditor but not audited.
The Directors have assessed the going concern status of the
Group. The Directors have considered the Group's plans and
forecasts, financial resources, investment portfolio and solvency
position. The Group's forecasts and projections, taking into
account plausible scenarios, show that the group will have adequate
resources to continue operating over a period of at least 12 months
from the approval of the condensed consolidated interim financial
statements. Accordingly, the Directors continue to adopt the going
concern basis in preparing the consolidated interim financial
statements.
2. Accounting policies
The same accounting policies and methods of computation are
followed in the consolidated interim financial statements as
applied in the Group's latest audited annual financial statements
except for the new standards, IFRS 17 Insurance Contracts and IFRS
9 Financial Instruments, as described below.
There are a number of amendments to IFRS that have been issued
by the IASB that become mandatory in a subsequent accounting
period. The Group has evaluated these changes and none are expected
to have a significant impact on the interim condensed consolidated
financial statements.
2.1 Insurance and reinsurance contracts
The Group adopted IFRS 17 Insurance Contracts on 1 January 2023.
IFRS 17 provides a comprehensive and consistent approach to
accounting for insurance contracts. It replaces IFRS 4 Insurance
Contracts, which was issued in 2005 and was largely based on
grandfathering of previous local accounting policies. The
application of IFRS 17 impacts the measurement and presentation of
insurance contracts and reinsurance contracts.
Contracts under which the Group accepts significant insurance
risk are classified as insurance contracts. Insurance risk is
transferred when the Group agrees to compensate a policyholder
should an adverse specified uncertain future event occur. Contracts
held by the Group under which it transfers significant insurance
risk related to underlying insurance contracts are classified as
reinsurance contracts held. Insurance and reinsurance contracts
held also expose the Group to financial risk.
Insurance contracts issued and reinsurance contracts held may be
initiated by the Group, or they may be acquired in a business
combination or in a transfer of contracts that do not form a
business. All references in these accounting policies to 'insurance
contracts' and 'reinsurance contracts' held include contracts
issued, initiated, or acquired by the Group, unless otherwise
stated.
Under IFRS 17 the presentation of insurance revenue and
insurance service expenses in the consolidated statement of profit
or loss is based on the concept of insurance service provided
during the period.
Accounting policy changes resulting from the adoption of IFRS 17
for the General Insurance business have been applied using a full
retrospective approach. Under the full retrospective approach, on 1
January 2022 the Group has identified, recognised and measured each
group of insurance contracts as if IFRS 17 requirements had always
applied and derecognised previously reported balances that would
not have existed if IFRS 17 had always been applied. These
implicitly include some deferred acquisition costs for insurance
contracts, insurance receivables and payables, and provisions for
levies that are attributable to existing insurance contracts. Under
IFRS 17, they are included in the measurement of insurance
contracts issued and reinsurance contracts held.
The Group is required to use the full retrospective approach for
transition from IFRS 4 to IFRS 17 where it is practicable to do so.
Where it is impracticable to do so, IFRS 17 permits the use of a
modified retrospective approach or a fair value approach. For the
Group's life insurance business, it has been concluded that
applying the full retrospective approach is impracticable and that
the fair value approach is the most appropriate method to apply on
transition. The fair value approach uses the fair value of a group
of insurance contracts (determined by applying the requirements of
IFRS 13 Fair Value Measurement) and the fulfilment cash flows at
the date of transition to calculate the unearned profit or loss at
the transition date. The choice between applying the modified
retrospective approach and the fair value approach impacts the
amount of unearned profit or loss recognised at the transition date
and future profitability.
Comparative figures in the financial statements have been
restated to reflect the impact of adoption of IFRS 17.
Insurance contract liabilities are measured as the sum of the
liability for incurred claims (LIC) and liability for remaining
coverage (LFRC). The LIC represents the obligation to pay valid
claims for insured events that have occurred, which may also
include events that have already occurred but have not been
reported to the Group. The LFRC represents the Group's liability
for insured events that have not yet occurred under the insurance
contract. Under IFRS 17, insurance revenue in each reporting period
represents the change in the LFRC that relates to services for
which the Group expects to receive consideration.
2.1.1 General insurance and reinsurance contracts
(i) Classification
The Group issues general insurance products to both individuals
and businesses. The Group offers general insurance products in
faith, charity, heritage, education, art and private client and
real estate sectors.
The Group does not offer any product with direct participating
features.
(ii) Separating components
The Group assesses its insurance and reinsurance products to
determine whether they contain distinct components which must be
accounted for under another IFRS instead of under IFRS 17. After
separating any distinct components, the Group applies IFRS 17 to
all remaining components of the host insurance contract. The
Group's insurance and reinsurance contracts do not include any
components that require separation.
Once the consideration of distinct components has been
determined, the Group assesses whether the contract should be
separated into several insurance components that, in substance,
should be treated as separate contracts. To determine whether a
single legal contract does not reflect the substance of the
transaction and its insurance components should be recognised and
measured separately instead, the Group considers whether there is
an interdependency between the different risks covered, whether
components can lapse independently of each other and whether the
components can be priced and sold separately.
(iii) Level of aggregation
Insurance and reinsurance contracts are aggregated into
portfolios and split into annual cohorts and profitability groups
for measurement and presentational purposes. The portfolios are
comprised of contracts with similar risks which are managed
together. Judgement is applied when determining portfolios and
includes drivers such as geography, lines of business (where these
are separate components) and legal entities within the Group.
Each annual cohort of business recognised within the portfolio
is further divided into groups based on the expected profitability,
determined at initial recognition and assessed using actuarial
valuation models applied to lower level sets of contracts. As a
minimum the following groupings are separated:
-- Onerous contracts;
-- Contracts that have no significant possibility of becoming
onerous (based on the probability that changes to assumptions
result in contracts becoming onerous); and
-- Any remaining contracts.
Contracts are considered onerous if the fulfilment cashflows
allocated to that group of contracts in total are a net outflow.
Where the Premium Allocation Approach (see section (vi)) is
applied, the Group uses an IFRS 17 permitted simplification that
assumes that no contracts in a portfolio are onerous at initial
recognition unless facts and circumstances indicate otherwise. The
Group has developed methodology that identifies facts and
circumstances that indicate whether a set of contracts is onerous,
which is primarily based on internal management budgeting
information.
(iv) Recognition and derecognition
An insurance contract issued by the Group is recognised from the
earliest of:
-- The date the Group is exposed to risk which is ordinarily the
beginning of the coverage period (i.e. the period during which the
Group provides services in respect of any premiums within the
contract boundary of the contract);
-- The date the first premium payment from the policyholder
becomes due or, if there is no contractual due date, when it is
received from the policyholder; or
-- The date when facts and circumstances indicate the contract is onerous.
When a contract is recognised, it is added to an existing group
of contracts. However, if the contract does not qualify for
inclusion in an existing group, it forms a new group to which
future similar contracts are added. Groups of contracts are
established on initial recognition and their composition is not
revised once all contracts have been added to the group.
The Group derecognises insurance contracts when:
-- The rights and obligations relating to the contract are
extinguished (i.e. discharged, cancelled or expired); or
-- The contract is modified such that the modification results
in a change in the measurement model or the applicable standard for
measuring a component of the contract, substantially changes the
contract boundary, or requires the modified contract to be included
in a different group. In such cases, the Group derecognises the
initial contract and recognises a new contract based on the
modified terms.
When a modification is not treated as a derecognition, the Group
recognises amounts paid or received for the modification with the
contract as an adjustment to the relevant LRC.
(v) Contract boundaries
The Group uses the concept of contract boundary to determine
what cash flows should be considered in the measurement of groups
of insurance contracts. The measurement of a group of contracts
includes all the future cash flows within the boundary of each
contract in the group, determined as:
Insurance contracts
Cash flows are within the boundary of an insurance contract if
they arise from substantive rights and obligations that exist
during the reporting period in which the Group can compel the
policyholder to pay the premiums, or in which the Group has a
substantive obligation to provide the policyholder with services. A
substantive obligation to provide services ends when:
-- The Group has the practical ability to reassess the risks of
the policyholder and, as a result, can set a price or level of
benefits that fully reflects those risks; or
-- The Group has the practical ability to reassess the risks of
the portfolio that contains the contract and can set a price or
level of benefits that fully reflects the risks of that portfolio,
and the pricing of the premiums up to the reassessment date does
not consider risks that relate to periods after the reassessment
date.
The contract boundary is reassessed at each reporting date to
include the effect of changes in circumstances on the Group's
substantive rights and obligations and, therefore, may change over
time.
Reinsurance contracts
Cash flows are within the contract boundary if they arise from
substantive rights and obligations that exist during the reporting
period in which the Group is compelled to pay amounts to the
reinsurer or has a substantive right to receive services from the
reinsurer.
A substantive right to receive services from the reinsurer ends
when the Group is no longer compelled to pay amounts to the
reinsurer and if the reinsurer:
-- has the practical ability to reassess the risks transferred
to it and can set a price or level of benefits that fully reflects
those reassessed risks; or
-- has a substantive right to terminate the coverage.
The contract boundary is reassessed at each reporting date to
include the effect of changes in circumstances on the Group's
substantive rights and obligations and, therefore, may change over
time.
(vi) Measurement model - Premium Allocation Approach (PAA)
The Group applies the PAA when measuring the liability for
remaining coverage of groups of insurance and reinsurance contracts
when the following criteria are met at inception:
Insurance contracts:
-- The coverage period of each contract in the group is one year or less; or
-- Where the coverage period of a group of contracts is longer
than one year, it is reasonably expected that the measurement of
the liability for remaining coverage for the group containing those
contracts under PAA does not differ materially from the measurement
that would be recognised by applying the General Measurement Model
(GMM) (see section (iv) of 2.1.2).
Reinsurance contracts held:
-- The coverage period of each contract in the group is one year or less; or
-- The Group reasonably expects that the resulting measurement
of the asset for remaining coverage under the PAA would not differ
materially from the result of applying the GMM.
The vast majority of the Group's non-life business has a
duration of one year or less and the PAA model is eligible
automatically. Where the PAA model is not automatically eligible,
financial modelling is performed comparing the financial effects
under the two models. Where the financials are not expected to be
materially different under the GMM and PAA, the relevant unit of
account is treated as PAA eligible.
Initial recognition
On initial recognition of each group of contracts, the carrying
amount of the LRC is measured as the premiums received less any
insurance acquisition cash flows allocated to the group at that
date. For reinsurance contracts held, the measurement of the
reinsurance contract held includes all expected cash flows within
the boundary of the reinsurance contract, including those cash
flows related to recoveries from future underlying insurance
contracts that have not yet been issued by the Group, but are
expected to be issued during the coverage period of the reinsurance
contract held.
Subsequent measurement
For insurance contracts issued, at each of the subsequent
reporting dates, the LRC is:
-- Increased by any premiums received and the amortisation of
insurance acquisition cash flows recognised as expenses; and
-- Decreased by the amount recognised as insurance revenue for
services provided and any additional insurance acquisition cash
flows allocated after initial recognition.
For reinsurance contracts held, at each of the subsequent
reporting dates, the Group applies the same accounting policies to
measure a group of reinsurance contracts held, adapted where
necessary to reflect features that differ from those of insurance
contracts.
To identify onerous contracts, the PAA facts and circumstances
test uses the latest signed-off Corporate Strategic Plan,
identifying sets of contracts with a gross COR > 100% (including
risk adjustment), when aligned to the relevant period being tested.
Where the Group recognises a loss on initial recognition of an
onerous group of underlying insurance contracts, or when further
onerous underlying insurance contracts are added to a group, the
Group establishes a loss-recovery component of the asset for
remaining coverage for a group of reinsurance contracts held
depicting the expected recovery of the losses.
A loss-recovery component is subsequently reduced to zero in
line with reductions in the onerous group of underlying insurance
contracts to reflect that the loss-recovery component shall not
exceed the portion of the carrying amount of the loss component of
the onerous group of underlying insurance contracts that the Group
expects to recover from the group of reinsurance contracts
held.
If at any time during the coverage period, facts and
circumstances indicate that a group of contracts is onerous, then
the Group recognises a loss within insurance service expenses in
the consolidated statement of profit or loss and increases the
liability for remaining coverage to the extent that the current
estimates of the fulfilment cash flows that relate to remaining
coverage exceed the carrying amount of the liability for remaining
coverage. Measurement of the loss component arising from the
identification of onerous contracts is based on the future expected
profitability calculation attributed to the annual cohort(s) which
are indicated to be loss making.
The Group recognises the LIC of a group of insurance contracts
at the discounted amount of the future cash flows relating to
claims incurred but not yet settled and attributable expenses.
Discount rates are applied to reflect the time value of money
and characteristics of the liability cash flows and contracts
(including liquidity).
The change in the LIC due to the effects of the time value of
money and financial risk is recognised within the net insurance
financial result in the consolidated statement of profit or
loss.
The Group recognises the loss arising from onerous contracts as
part of the insurance service expense in the statement of
comprehensive income. If there are no changes in expectations in
subsequent periods, the release of the loss component is recognised
as an adjustment to insurance service expenses in the consolidated
statement of profit or loss in line with the pattern of earned
premium.
(vii) Risk adjustment
The risk adjustment reflects the compensation required by the
Group for bearing uncertainty about the cash flows that arises from
non-financial risks. The Group uses a combination of techniques to
measure the risk adjustment, aligning the risk adjustment to risk
management and risk appetite.
The risk adjustment is calibrated separately for earned and
unearned business, given that the risk profiles are different and
change significantly in nature and diversification type at the
point at which business is earned.
The change in the risk adjustment for earned business is
recognised within insurance service expenses in the consolidated
statement of profit or loss.
(viii) Insurance acquisition cash flows
Insurance acquisition cash flows are costs considered directly
attributable to selling, underwriting or starting a portfolio of
insurance contracts and are presented within the liability for
remaining coverage. Insurance acquisition cash flows include direct
costs and indirect costs. The PAA provides an option to expense
insurance acquisition cash flows as incurred, however the Group has
chosen not to apply this option. Insurance acquisition cash flows
are amortised over the coverage period of the group of insurance
contracts which they relate to.
Under IFRS 17, insurance acquisition cash flows for insurance
contracts, insurance receivables and payables, and provisions for
levies that are attributable to existing insurance contracts are
included in the measurement of insurance contracts issued and
reinsurance contracts held, resulting in the derecognition of some
deferred acquisition costs.
(ix) Insurance revenue
The insurance revenue for the period is the amount of expected
premium receipts (excluding any investment component and net of
cancellations) allocated to the period. The Group allocates the
expected premium receipts to each period of insurance contract
services based on the passage of time, which is usually 12
months.
For the periods presented, all insurance revenue has been
recognised based on the passage of time.
(x) Insurance service expenses
Insurance service expenses include fulfilment and acquisition
cash flows which are costs directly attributable to insurance
contracts and comprise both direct costs and the allocation of
fixed and variable overheads. It is comprised of the following:
-- Incurred claims, excluding investment components;
-- Other incurred directly attributable expenses;
-- Insurance acquisition cash flows amortisation using the
pattern that is consistent with the insurance revenue;
-- Losses on onerous contracts and reversals of such losses; and
-- Adjustments to the LIC that do not arise from the effects of
the time value of money, financial risk and changes therein.
Other expenses not meeting the above categories are included in
other operating expenses in the consolidated statement of profit or
loss.
(xi) Net income or expense from reinsurance contracts
Net income or expense from reinsurance contracts represents the
insurance service result for groups of reinsurance contracts held
and comprises of the allocation of reinsurance premiums and other
incurred directly attributable claims and expenses.
Reinsurance premium and expenses are recognised using the
principles used to determine insurance revenue and expenses. The
amount of reinsurance expenses recognised in the reporting period
depicts the transfer of received insurance contract services at an
amount that reflects the portion of ceding premiums that the Group
expects to pay in exchange for those services.
The estimates of the present value of future cash flows of the
reinsurance contracts held will reflect the risk of non-performance
by the reinsurer and the risk adjustment for reinsurance contracts
held and is measured and recognised separately from insurance
contracts issued.
In addition, the allocation of reinsurance premiums includes
changes in the reinsurance assets arising from retroactive
reinsurance contracts held and voluntary reinstatement ceded
premiums.
Reinsurance expenses reflect the allocation of reinsurance
premiums paid or payable for receiving services in the period.
The Group treats reinsurance cash flows that are contingent on
claims on the underlying contracts as part of the claims that are
expected to be recovered under the reinsurance contract held.
(xii) Net insurance financial result
Net insurance financial result comprises the change in the
carrying amount of groups of insurance contracts issued and
reinsurance contracts held arising from the effect of the time
value of money and changes in the time value of money and the
effect of financial risk and changes in financial risk.
2.1.2 Life insurance
(i) Classification
The adoption of IFRS 17 did not change the classification of the
Group's life insurance business contracts. All of the Group's life
insurance business contracts written up to April 2013 are
classified as insurance contracts and measured in accordance with
IFRS 17. Contracts written from August 2021 are classified as
investment contracts and measured in accordance with IFRS 9
Financial Instruments.
(ii) Level of aggregation
The Group's life insurance business comprises whole of life
insurance contracts with similar risks which are managed together.
These are aggregated into a single portfolio of insurance
contracts.
The portfolio of contracts is divided into groups based on the
expected profitability, determined at initial recognition and
assessed using actuarial valuation models. As a minimum the
following groupings are separated:
-- Onerous contracts;
-- Contracts that have no significant possibility of becoming
onerous (based on the probability that changes to assumptions
result in contracts becoming onerous); and
-- Any remaining contracts.
As the fair value approach has been applied on transition, the
Group is not required to recognise separate cohorts for contracts
issued more than one year apart.
(iii) Contract boundary
The Group uses the concept of contract boundary to determine
what cash flows should be considered in the measurement of
insurance contracts. The measurement of the contracts includes all
the future cash flows within the boundary of each contract in the
group.
Cash flows are within the boundary of an insurance contract if
they arise from substantive rights and obligations that exist
during the reporting period in which the Group can compel the
policyholder to pay the premiums, or in which the Group has a
substantive obligation to provide the policyholder with services. A
substantive obligation to provide services ends when:
-- The Group has the practical ability to reassess the risks of
the policyholder and, as a result, can set a price or level of
benefits that fully reflects those risks; or
-- The Group has the practical ability to reassess the risks of
the portfolio that contains the contract and can set a price or
level of benefits that fully reflects the risks of that portfolio,
and the pricing of the premiums up to the reassessment date does
not consider risks that relate to periods after the reassessment
date.
The Group has concluded that it has no practical ability to
reassess the risks of its portfolio and set a price to reflect them
after inception of the life insurance contract. Therefore no
contract boundary is assumed to exist before the expiry of the
insurance contract.
(iv) Measurement Model - General Measurement Model (GMM)
The GMM is the default method used to measure insurance
contracts under IFRS 17.
Initial recognition
On initial recognition, the carrying amount of the LRC is
measured as the sum of discounted probability-weighted fulfilment
cash flows within the contract boundary, an explicit risk
adjustment and a contractual service margin (CSM), representing the
unearned profit of the contract to be recognised as revenue over
the coverage period. If the portfolio of contracts is expected to
be onerous at inception, the loss is recognised immediately within
insurance service expenses in the statement of consolidated profit
or loss and the CSM is set to zero.
Subsequent measurement
The carrying amount of the LRC is updated at each reporting date
to reflect the re-measurement of the fulfilment cash flows to
reflect estimates based on current assumptions. The changes in
fulfilment cash flows are reflected either in the insurance service
result or by adjusting the CSM, depending upon their nature. If the
fulfilment cash flows exceed the CSM, the portfolio of contracts
becomes onerous, and the loss is recognised immediately within
insurance service expenses in the statement of consolidated profit
or loss.
The Group recognises the LIC of a group of insurance contracts
at the discounted amount of the fulfilment cash flows relating to
claims incurred but not yet settled and attributable expenses.
(v) Risk adjustment
The risk adjustment reflects the compensation required by the
Group for bearing uncertainty about the cash flows that arises from
non-financial risks. The Group uses the value at risk/confidence
level approach, choosing a confidence level and deriving the risk
adjustment directly from it. The risk adjustment is calculated at
entity level.
(vi) Insurance revenue
The amount of CSM recognised in profit or loss in each period to
reflect services provided is determined by considering, for each
group of contracts, coverage units that reflect the quantity of the
benefits provided in each period and the expected coverage period.
Coverage units are reviewed and updated at each reporting date. The
quantity of benefits provided is based on the level of maximum
benefit provided under the insurance contract and the coverage
period is set as the probability-weighted average expected duration
for the group of contracts.
(vii) Insurance service expenses
Insurance service expenses include fulfilment cash flows which
are costs directly attributable to insurance contracts and comprise
both direct costs and the allocation of fixed and variable
overheads. It is comprised of the following:
-- Incurred claims, excluding investment components;
-- Other incurred directly attributable expenses;
-- Losses on onerous contracts and reversals of such losses; and
-- Adjustments to the LIC that do not arise from the effects of
the time value of money, financial risk and changes therein.
Other expenses not meeting the above categories are included in
other operating expenses in the consolidated statement of profit or
loss.
(viii) Insurance acquisition cash flows
For life insurance contracts, acquisition costs comprise direct
costs such as initial commission and the indirect costs of
obtaining and processing new business. As with general insurance
business, those attributable are included in the measurement of
insurance contracts issued and reinsurance contracts held.
2.2 Financial instruments
The Group adopted IFRS 9 Financial Instruments from 1 January
2023 replacing IAS 39 Financial Instruments. IFRS 9 incorporates
new classification and measurement requirements for financial
assets and introduces a new impairment model based on expected
credit loss which replaces the IAS 39 incurred loss model. As
permitted by IFRS 4, the Group deferred the application of IFRS 9
to align with the adoption of IFRS 17 from 1 January 2023.
In accordance with the transition requirements of IFRS 9, the
comparative period is not restated and measurement differences
arising on transition are reported in opening retained earnings as
at 1 January 2023.
The Group's IFRS 9 accounting policies are described below:
(i) Classification and measurement
All financial assets under IFRS 9 are to be initially recognised
at fair value, plus or minus (in the case of a financial asset not
at FVTPL) transaction costs that are directly attributable to the
acquisition of the financial instrument. Classification and
subsequent measurement of financial assets depends on the Group's
business model for managing the financial assets and the
contractual terms of the cash flows.
Debt instruments
There are three measurement categories into which the Group
classifies its debt instruments:
-- Amortised cost: Assets that are held for collection of
contractual cash flows where those cash flows represent solely
payments of principal and interest (SPPI) are measured at amortised
cost. Interest income from these financial assets is included in
'net investment result' using the effective interest rate
method.
-- Fair value through other comprehensive income (FVOCI): Assets
that are held for collection of contractual cash flows and for
selling the financial assets, where the assets' cash flows
represent SPPI, are measured at FVOCI, except where an election is
made to classify as FVTPL. Movements in the carrying amount are
taken through OCI, except for the recognition of impairment gains
or losses, interest income and foreign exchange gains and losses
which are recognised in profit or loss. When the financial asset is
derecognised, the cumulative gain or loss previously recognised in
OCI is reclassified from equity to profit or loss and recognised in
'net investment result. Interest income from these financial assets
is included in 'net investment result' using the effective interest
rate method.
-- Fair value through profit or loss (FVTPL): Assets that do not
meet the criteria for amortised cost or FVOCI are measured at
FVTPL. In order to eliminate or significantly reduce an accounting
mismatch, an irrevocable election can be made (on an
instrument-by-instrument basis) to classify and measure debt
instruments at FVTPL instead of amortised cost or FVOCI. A gain or
loss on a debt investment that is measured at FVTPL is recognised
in profit or loss and presented net within 'net investment
result'.
Equity instruments
-- FVTPL: By default, t he group classifies and measures equity
investments at FVTPL. Changes in the fair value of equity
instruments at FVTPL are recognised in 'net investment result' in
the consolidated statement of profit or loss.
-- FVOCI: An irrevocable election can be made (on an
instrument-by-instrument basis) on the date of acquisition to
classify and measure equity instruments at FVOCI. Designation is
not permitted if the equity instrument is held for trading. Where
this election has been made, there is no subsequent
reclassification of fair value gains and losses to profit or loss
following the derecognition of the investment. Dividends from such
investments continue to be recognised in profit or loss within 'net
investment result' when the Group's right to receive payments is
established.
(ii) Impairment
The Group recognises a forward-looking loss allowance for
expected credit losses (ECL) on financial assets measured at
amortised cost or FVOCI. ECL is an unbiased, probability-weighted
estimate of credit losses and considers all reasonable and
supportable information. The impairment methodology applied depends
on whether there has been a significant increase in credit risk or
default.
The Group elects to apply the simplified approach permitted by
IFRS 9 and recognises lifetime ECL for trade receivables and lease
receivables. The ECL on these financial assets are estimated using
a provision matrix based on the Group's historical credit loss
experience, adjusted for current and forecast economic
conditions.
For all other financial instruments, the Group recognises
lifetime ECL when there has been a significant increase in credit
risk since initial recognition. If the credit risk on the financial
instrument has not increased significantly since initial
recognition, the Group measures the loss allowance for that
financial instrument at an amount equal to 12-month ECL. Lifetime
ECL represents the expected losses that will result from all
possible default events over the expected life of a financial
instrument. 12-month ECL represents the portion of lifetime ECL
that is expected to result from default events on a financial
instrument that are possible within 12 months after the reporting
date. A financial asset is written off to the extent there is no
reasonable expectation of recovery. Any subsequent recovery in
excess of the financial asset's written down value is credited to
profit or loss.
Impairment losses are presented within 'other operating
expenses' in the consolidated statement of profit or loss.
3. Adoption of new and revised accounting standards
3.1 IFRS 17 Insurance Contracts
IFRS 17 Insurance Contracts replaces IFRS 4 Insurance
Contracts.. The Group adopted IFRS 17 from 1 January 2023 and has
restated 2022 comparatives. The transitional provisions within IFRS
17 have been applied. The effect of changes to accounting policies
as a result of adopting IFRS 17 are set out below.
(i) Transition
For general insurance (non-life) business in scope of the PAA
the Group has used the fully retrospective approach (FRA). On 1
January 2022, the transition date to IFRS 17, the Group identified,
recognised and measured each group of non-life insurance contracts
as if IFRS 17 had always applied, derecognised any existing
balances that would not exist had IFRS 17 always applied and
recognised any resulting net difference in equity.
For the Group's life business, the Group has applied judgement
when determining whether the FRA is practicable and whether
reasonable and supportable information exists. The Group concluded
the FRA was impracticable primarily due to the lack of certain data
and certain assumptions and calculations would not be possible
without the use of hindsight. Therefore, the Group has applied the
fair value approach (FVA).
Where the Group has applied the FVA, fair value has been
determined in accordance with IFRS 13 Fair Value Measurement,
except for applying the provisions of paragraph 47 of IFRS 13
relating to demand features. The Group has leveraged existing
Solvency II (SII) technical provisions which are consistent with
Market Consistent Embedded Value principles. The fair value
represents the price a market participant would require to assume
the insurance contract liabilities in an orderly transaction.
On transition to IFRS 17 on 1 January 2022, the Group's equity
was positively impacted by GBP5.2m after tax, primarily due to
changes that apply IFRS 17 principles to reserving for general
insurance liabilities and the application of revised expense
allocation models, offset by the establishment of a contractual
service margin (CSM) in the life business. IFRS 17 also results in
presentation changes as described below.
The following table summarises the impact of IFRS 17 on the
Group's consolidated balance sheet on transition:
As reported Impact As restated As restated
31 December on adoption 31 December 1 January
2022 of IFRS 2022 2022
17
(IFRS (IFRS (IFRS
4) 17) 17)
GBPm GBPm GBPm GBPm
Total assets 1,891 (280) 1,611 1,597
Total liabilities (1,276) 277 (999) (957)
Total equity 616 (4) 612 640
(ii) Changes to classification and measurement
The adoption of IFRS 17 did not change the classification of the
Group's insurance contracts. However, IFRS 17 establishes specific
principles for the recognition and measurement of insurance and
reinsurance contracts. IFRS 17 introduces a general measurement
model (GMM) that bases the measurement of a group of contracts on
the present value of future cash flows with a risk adjustment for
non-financial risk and a CSM representing unearned profit
recognised in profit or loss over the period insurance service is
provided (the coverage period). Entities have the option to use a
simplified measurement model, the premium allocation approach
(PAA), for short-duration contracts; this model is applicable to
all the Group's general insurance and reinsurance contracts except
in limited circumstances where the GMM is required.
IFRS 17 accounting under the PAA is similar to IFRS 4, but
differs as follows:
-- The identification of groups of onerous contracts is done at
a more granular level than liability adequacy tests performed under
IFRS 4. Under IFRS 17, the loss component of onerous contracts
measured based on projected profitability is recognised immediately
in profit or loss, potentially resulting in earlier recognition
compared to IFRS 4.
-- The liability for incurred claims includes an explicit risk
adjustment. The Group's approach to IFRS 4 risk margins reflected
reserving risk appetite considering the inherent uncertainty in the
net discounted claim liabilities estimates, whereas the IFRS 17
risk adjustment more explicitly requires consideration of the
compensation required for bearing the uncertainty that arises from
non-financial risk. As with risk margins, the risk adjustment
includes any benefit of diversification considered by the
entity.
(iii) Changes to presentation and disclosure
IFRS 17 provides specific guidance for the presentation and
disclosures of insurance and reinsurance contracts. Groups of
insurance contracts issued that are either asset or liabilities,
and groups of reinsurance contracts held that are either assets or
liabilities are presented separately in the statement of financial
position. The presentation of insurance revenue and expenses within
the consolidated statement of profit of loss is based on the
concepts of insurance services being provided during the
period.
Consolidated statements of profit or loss
Changes introduced by IFRS 17 require separate presentation of
insurance revenue, insurance service expenses and net insurance
financial result. Gross written premiums, outward reinsurance
premiums, net change in provision for unearned premium, net earned
premiums, claims and change in insurance liabilities and
reinsurance recoveries are no longer disclosed.
Consolidated statement of financial position
IFRS 17 introduces changes to the statement of financial
position. Previous line items insurance contract liabilities,
deferred acquisition costs and insurance debtors and creditors
included within other assets and liabilities are now presented
together within insurance contract liabilities. Previously reported
reinsurers' share of contract liabilities and reinsurance debtors
and creditors within other assets and liabilities are presented
together within reinsurance contract assets.
3.2 IFRS 9 Financial instruments
The Group adopted IFRS 9 Financial instruments on 1 January
2023. The comparative information was not restated and continues to
be reported under IAS 39 Financial instruments. The
reclassifications and adjustments arising from the new expected
credit loss provisions are therefore not reflected in the restated
balance sheet as at 31 December 2022, but are recognised in the
opening balance sheet on 1 January 2023. The net impact to retained
earnings as a result of the adoption of IFRS 9 at 1 January 2023
was a reduction of GBP1.4m on amortised cost loans and receivables
resulting from the replacement of credit loss provisions measured
under IAS 39 to expected credit loss provisions in accordance with
the IFRS 9 credit loss model.
The following table summarises the classification and
measurement impacts of IFRS 9 on transition:
Measurement category Carrying amount
------------------------------------ ------------------------------------
As previously Impact
Original (IAS New (IFRS reported (IAS of IFRS IFRS
Financial assets 39) 9) 39) 9 (2) 9
GBP000 GBP000 GBP000
Equity securities FVTPL FVTPL 354,023 - 354,023
Debt securities FVTPL FVTPL 459,719 - 459,719
Structured notes FVTPL FVTPL 56,138 - 56,138
Hedge accounted
Derivatives(1) derivatives FVOCI 655 - 655
FVTPL FVTPL 100 - 100
Amortised
Other loans Loans and receivables cost 114 - 114
Amortised
Other assets Loans and receivables cost 140,246 (1,395) 138,851
Cash and cash Amortised
equivalents Loans and receivables cost 104,664 - 104,664
(1) Derivatives accounted for as a hedge of a net investment in
a foreign operation (net investment hedge) were, and continue to be
measured at FVOCI. Derivatives not accounted for as a net
investment hedge or acquired principally for the purpose of selling
in the near term are measured at FVTPL.
(2) The impact on adoption of IFRS 9 is from the application of
the Group's IFRS 9 expected credit loss model accounting policy.
The reclassifications of the financial instruments on adoption of
IFRS 9 did not result in any changes to measurements.
No changes have arisen from the more principles-based hedge
accounting requirements.
4. Critical accounting estimates and judgements
In preparing these interim financial statements and applying the
Group's accounting policies, the Directors have made judgements and
estimates based on their best knowledge of current circumstances
and expectation of future events. The judgements made in applying
the Group's accounting policies and the key sources of estimation
uncertainty were the same as those that applied to the 31 December
2022 consolidated financial statements. Estimates and their
underlying assumptions continue to be reviewed on an ongoing basis
with revisions to estimates being recognised prospectively. There
have been no significant changes since 31 December 2022 except for
those resulting from the adoption of IFRS 17 Insurance contracts
and IFRS 9 Financial instruments. Management have considered the
current economic environment including the impact of high inflation
in their estimates and judgements.
IFRS 17: Insurance and reinsurance contracts
Level of aggregation accounting judgement
The Group separates insurance contracts into portfolios of
similar risks that are managed together. For the non-life business
the majority of the Group's insurance contracts represent a
combination of component risks which are sold as an overall product
and this unit has not been unbundled because the combination is not
solely for administrative or customer convenience. For contracts
eligible for the PAA (materially all of the non-life business), the
primary indicator of the portfolios for gross business has been
judged to be the geographic territory of the risk. The life
business represents a separate portfolio, as a single product line.
Portfolios of insurance contacts are divided into profitability
groups for measurement purposes. Under the PAA model the default
assumption is made that no groups are onerous unless facts and
circumstances indicate otherwise, which is determined through
review for go-forward expected losses for groupings identified in
the Group Corporate Strategic Plan.
Risk adjustment accounting judgement
A risk adjustment for non-financial risk is determined to
reflect the compensation that the Group would require for bearing
non-financial risk and its degree of risk aversion. The risk
adjustment for non-financial risk has been determined using a
combination of confidence level techniques, and scenarios, with the
judgement made that the techniques previously used for quantifying
reserve risk appetite and setting reserves explicitly above the
best estimate represent the most appropriate mechanism for
quantifying compensation required.
Discount rates accounting estimate
IFRS 17 requires entities to determine discount rates that
reflect the characteristics of the liabilities using either the
'bottom up' or 'top down' approach. The 'top down' approach
involves using discount rate curves derived from a portfolio of
reference assets adjusted to remove all characteristics of the
assets that are not present in insurance contracts, but not
requiring to eliminate the illiquidity premium. The Group selected
to continue to apply its previous practice for non-life business of
using the 'bottom up' approach which requires the use of risk-free
rate curves and adding the illiquidity premium, and moving the life
business discounting to a similar method. The Group derives
illiquidity by reference to the illiquidity estimated to apply to a
suitable reference portfolio of assets with similar liquidity
characteristics.
Transition accounting judgement
For the Group's life business, the choice of transition approach
has created a judgement when determining whether the FRA is
practicable and whether reasonable and supportable information
exists. The Group concluded the FRA was impracticable primarily due
to the lack of certain data and certain assumptions and
calculations would not be possible without the use of
hindsight.
The IFRS 17 Standard does not specify how the fair value of a
group of contracts at the transition date should be calculated.
IFRS 13 defines the fair value as, "the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date." An approach based on Solvency II technical provisions has
been used to leverage existing data and processes to calculate the
fair value. The fair value was calculated as a best estimate
liability plus a cost of the capital that a market participant
would be required to hold.
IFRS 9: Financial instruments
Classification of financial instruments accounting judgement
The Group exercises judgement in assessing the business model
within which the assets are held and whether the contractual terms
of the assets are solely payments of principal and interest on the
principal amount outstanding. The Group assesses its business
models at a portfolio level based on its objectives for the
relevant portfolio, how the performance of the portfolio is managed
and reported, and the frequency of asset sales and has concluded on
the classification category of each portfolio of financial
instrument in accordance with IFRS 9. Other than in relation to the
implementation of IFRS 17 and IFRS 9, there have been no
significant changes in the basis upon which judgement and estimates
have been determined, compared to that applied at 31 December
2022.
Other key areas of critical accounting judgement and estimation
uncertainty that have the most significant effect on the interim
financial statements are further disclosed in note 2 of the Annual
Report and Accounts for the year ended 31 December 2022.
5. Risk management
The principal risks and uncertainties, together with details of
the financial risk management objectives and policies of the Group,
have not changed significantly during the first half of the year.
These risks are disclosed in the latest annual report.
6. Segment information
The Group's primary operating segments are based on geography
and are engaged in providing general insurance and life insurance
services. The Group also considers investments a separate reporting
segment, also based on geography. Expenses relating to Group
management activities are included within 'Corporate costs'. The
Group's life insurance business is carried out within the United
Kingdom.
The Group's chief operating decision maker is considered to be
the Group Management Board whose members include the company's
executive directors.
The activities of each operating segment are described
below.
- General insurance 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 separately reportable due to their immateriality.
- Life insurance business
Ecclesiastical Life Limited provides long-term policies to support funeral planning products.
The business reopened to new investment business in 2021 but it is closed to new insurance
business.
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.
Segment performance
The Group uses the following key measures to assess the
performance of its operating segments:
-- Gross written premium
-- Underwriting result
-- Investment return
Gross written premium is the measure used in internal reporting
for turnover of the general and life insurance business segments.
The underwriting result is used as a measure of profitability of
the insurance business segments. The investment return is used as a
profitability measure of the Group's investments. Gross written
premium and underwriting result are attributed to the geographical
region in which the customer is based.
The Group also 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 gross written premiums, underwriting profit
or loss and COR, which are alternative performance measures, are
detailed in note 18.
The life business segment result comprises the profit or loss on
insurance contracts (including return on assets backing liabilities
in the long-term fund), investment return comprising profit or loss
on funeral plan investment business and shareholder investment
return, and other expenses.
All other segment results consist of the profit or loss before
tax measured in accordance with IFRS.
Segment gross written premiums
6 months 6 months 12 months
ended ended ended
Gross written premiums 30.06.23 30.06.22 31.12.22
GBP000 GBP000 GBP000
General business
United Kingdom and Ireland 190,949 165,501 344,788
Australia 54,238 54,201 99,698
Canada 40,329 39,547 108,761
Other insurance operations 2,681 2,644 5,297
Total 288,197 261,893 558,544
Life business (23) (8) 7
--------- --------- ----------
Group revenue 288,174 261,885 558,551
--------- --------- ----------
Segment results
6 months ended Combined
30 June 2023 operating Underwriting Investments Other Total
ratio GBP000 GBP000 GBP000 GBP000
General business
United Kingdom and Ireland 106.6% (6,465) 13,692 (1,334) 5,893
Australia 97.8% 462 3,512 (454) 3,520
Canada 86.8% 4,993 2,063 (65) 6,991
Other insurance operations 1,357 - - 1,357
------------- ------------ --------- ---------
99.8% 347 19,267 (1,853) 17,761
Life business 457 1,950 - 2,407
Corporate costs - - (10,639) (10,639)
Other activities - - 719 719
------------- ------------ --------- ---------
Profit/(loss) before
tax 804 21,217 (11,773) 10,248
------------- ------------ --------- ---------
6 months ended Combined
30 June 2022 operating Underwriting Investments Other Total
ratio GBP000 GBP000 GBP000 GBP000
General business
United Kingdom and Ireland 94.5% 4,843 (21,521) (646) (17,324)
Australia 88.8% 2,266 3,109 (69) 5,306
Canada 85.9% 5,056 (1,270) (74) 3,712
Other insurance operations 747 787 - 1,534
------------- ------------ --------- ---------
91.3% 12,912 (18,895) (789) (6,772)
Life business (293) (7,280) - (7,573)
Corporate costs - - (11,330) (11,330)
------------- ------------ --------- ---------
Profit/(loss) before
tax 12,619 (26,175) (12,119) (25,675)
------------- ------------ --------- ---------
12 months ended Combined
31 December 2022 operating Underwriting Investments Other Total
ratio GBP000 GBP000 GBP000 GBP000
General business
United Kingdom and Ireland 87.1% 23,618 (13,301) (1,962) 8,355
Australia 99.0% 409 1,441 (131) 1,719
Canada 88.1% 8,886 (764) (146) 7,976
Other insurance operations (1,395) 648 - (747)
------------- ------------ --------- ---------
89.6% 31,518 (11,976) (2,239) 17,303
Life business 49 (7,191) - (7,142)
Corporate costs - - (25,743) (25,743)
------------- ------------ --------- ---------
Profit/(loss) before
tax 31,567 (19,167) (27,982) (15,582)
------------- ------------ --------- ---------
7. Net investment return
Restated Restated
* *
30.06.23 30.06.22 31.12.22
GBP000 GBP000 GBP000
Investment income 21,143 14,232 30,682
Fair value movements on financial instruments
at fair value through profit or loss (3,544) (87,554) (72,912)
Fair value movements on investment property (2,862) 7,789 (21,209)
Net investment return/(loss) 14,737 (65,533) (63,439)
--------- --------- ---------
* The comparative financial statements have been restated as
detailed in note 3.
8. Tax
Income tax for the six month period is calculated at rates
representing the best estimate of the average annual effective
income tax rate expected for the full year, applied to the pre-tax
result of the six month period.
Deferred tax is provided in full on temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for tax purposes.
Deferred tax is measured using tax rates expected to apply when the
related deferred tax asset is realised, or the deferred tax
liability is settled, based on tax rates and laws which have been
enacted or substantively enacted at the period-end date.
9. Preference shares
Interim dividends paid on the 8.625% Non-Cumulative Irredeemable
Preference shares amounted to GBP4.6m (H1 2022: GBP4.6m). At the
point these dividends were paid, consideration was given to the
distributable reserves and capital position.
10. Financial investments
Financial investments summarised by measurement category are as
follows:
30.06.23 30.06.22 31.12.22
GBP000 GBP000 GBP000
Financial investments at fair value through
profit or loss
Equity securities
- listed 266,198 244,973 268,623
- unlisted 79,140 61,612 85,400
Debt securities
- government bonds 217,761 199,092 206,394
- listed 227,247 284,022 253,325
- unlisted - 34 -
Structured notes 73,952 33,232 56,138
Derivative financial instruments
- options 100 365 100
- forwards 1,650 - -
866,048 823,330 869,980
Financial investments at fair value through
other comprehensive income
Derivative financial instruments
- forwards 1,000 - 655
Total financial investments at fair value 867,048 823,330 870,635
Measured at amortised cost
Other loans 74 571 114
Total financial investments 867,122 823,901 870,749
--------- --------- ---------
11. Financial instruments held at fair value disclosures
IAS 34 requires that interim financial statements include
certain disclosures about the fair value of financial instruments
set out in IFRS 13 Fair Value Measurement and IFRS 7 Financial
Instruments Disclosures.
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 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 (as prices) or indirectly (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 period or prior period.
Fair value measurement
at the
end of the reporting
period based on
-----------------------------
Level Level Level Total
1 2 3
30 June 2023 GBP000 GBP000 GBP000 GBP000
Financial assets at fair value through
profit or loss
Financial investments
Equity securities 266,199 - 79,139 345,338
Debt securities 444,196 812 - 445,008
Structured notes - 73,952 - 73,952
Derivative financial instruments - 1,750 - 1,750
--------- -------- -------- ---------
710,395 76,514 79,139 866,048
Financial assets at fair value through
other comprehensive income
Financial investments
Hedged accounted derivatives - 1,000 - 1,000
--------- -------- -------- ---------
Total financial assets at fair value 710,395 77,514 79,139 867,048
--------- -------- -------- ---------
Financial liabilities at fair value
through profit or loss
Investment contract liabilities - 74,992 - 74,992
--------- -------- -------- ---------
- 74,992 - 74,992
Financial liabilities at fair value
through other comprehensive income
Other liabilities
Hedged accounted derivatives - 37 - 37
--------- -------- -------- ---------
Total financial liabilities at fair
value - 75,029 - 75,029
--------- -------- -------- ---------
30 June 2022
Financial assets at fair value through
profit or loss
Financial investments
Equity securities 244,441 206 61,939 306,586
Debt securities 481,776 1,337 34 483,147
Structured notes - 33,232 - 33,232
Derivative financial instruments - 365 - 365
--------- -------- -------- ---------
726,217 35,140 61,973 823,330
Financial assets at fair value through
other comprehensive income
Financial investments
Derivative financial instruments - - - -
--------- -------- -------- ---------
Total financial assets at fair value 726,217 35,140 61,973 823,330
--------- -------- -------- ---------
Financial liabilities at fair value
through profit or loss
Other liabilities
Derivative financial instruments - 1,493 - 1,493
Investment contract liabilities - 38,649 - 38,649
--------- -------- -------- ---------
- 40,142 - 40,142
Financial liabilities at fair value
through other comprehensive income
Other liabilities
Hedged accounted derivatives - 835 - 835
--------- -------- -------- ---------
Total financial liabilities at fair
value - 40,977 - 40,977
--------- -------- -------- ---------
31 December 2022
Financial assets at fair value through
profit or loss
Financial investments
Equity securities 268,297 - 85,726 354,023
Debt securities 458,420 1,299 - 459,719
Structured notes - 56,138 - 56,138
Derivative financial instruments - 100 - 100
726,717 57,537 85,726 869,980
Financial assets at fair value through
other comprehensive income
Financial investments
Hedged accounted derivatives - 655 - 655
--------- -------- -------- ---------
Total financial assets at fair value 726,717 58,192 85,726 870,635
--------- -------- -------- ---------
Financial liabilities at fair value
through profit or loss
Other liabilities
Derivative financial instruments - 2,475 - 2,475
Investment contract liabilities - 58,479 - 58,479
--------- -------- -------- ---------
- 60,954 - 60,954
Financial liabilities at fair value
through other comprehensive income
Other liabilities
Hedged accounted derivatives - 759 - 759
--------- -------- -------- ---------
Total financial liabilities at fair
value - 61,713 - 61,713
--------- -------- -------- ---------
Fair value measurements in level 3 consist of financial assets,
analysed as follows:
Financial assets at fair
value
through profit or loss
----------------------------------
Equity Debt
securities securities Total
GBP000 GBP000 GBP000
2023
At 1 January 85,726 - 85,726
Total losses recognised in profit or loss (6,587) - (6,587)
----------- ----------- --------
At 30 June 79,139 - 79,139
----------- ----------- --------
Total losses for the period included in profit
or loss for assets held at the end of the
reporting period (6,587) - (6,587)
----------- ----------- --------
2022
At 1 January 68,947 34 68,981
Total losses recognised in profit or loss (7,009) - (7,009)
----------- ----------- --------
At 30 June 61,938 34 61,972
----------- ----------- --------
Total losses for the period included in profit
or loss for assets held at the end of the
reporting period (7,009) - (7,009)
----------- ----------- --------
2022
At 1 January 68,947 34 68,981
Total gains/(losses) recognised in profit
or loss 16,779 (34) 16,745
----------- ----------- --------
At 31 December 85,726 - 85,726
----------- ----------- --------
Total gains/(losses) for the period included
in profit or loss for assets held at the end
of the reporting period 16,780 (34) 16,746
----------- ----------- --------
All the above gains or losses included in profit or loss for the
period are presented in net investment return within the
consolidated 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.
Investment contract liabilities (Level 2)
These financial liabilities are not traded on active markets.
Their fair value is obtained directly from the value of structured
notes which are linked to an index that reflects the performance of
an underlying basket of observable securities, including
derivatives, provided by an independent calculation agent. The fair
value is also subject to a minimum guarantee.
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-tangible 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 +/-GBP9m (H1 2022: +/-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.
12. Changes in estimates
The estimation of the ultimate liability arising from claims
made under general insurance business contracts is a critical
accounting estimate. There are various sources of uncertainty as to
how much the Group will ultimately pay with respect to such
contracts. There is uncertainty as to the total number of claims
made on each class of business, the amounts that such claims will
be settled for and the timing of any payments.
During the six month period, changes to claims reserve estimates
made in prior years as a result of reserve development resulted in
a net increase in reserves of GBP0.8m (H1 2022: GBP1.0m
decrease).
The estimation of the ultimate liability arising from claims
made under life insurance business contracts is also a critical
accounting estimate. Estimates are made as to the expected number
of deaths in each future year until claims have been paid on all
policies, as well as expected future real investment returns from
assets backing life insurance contracts. During the six month
period there was a GBP0.8m decrease (H1 2022 restated: GBP5.9m
decrease) in reserves due to discount rate movements.
13. Translation and hedging reserve
Translation Hedging
reserve reserve Total
GBP000 GBP000 GBP000
2023
At 1 January 18,838 718 19,556
Losses on currency translation differences (6,873) - (6,873)
Gains on net investment hedges - 5,827 5,827
Attributable tax - (1,112) (1,112)
------------ -------- --------
At 30 June 11,965 5,433 17,398
------------ -------- --------
2022
At 1 January 13,196 4,407 17,603
Gains on currency translation differences 8,061 - 8,061
Losses on net investment hedges - (6,496) (6,496)
Attributable tax - 1,286 1,286
------------ -------- --------
At 30 June (as restated*) 21,257 (803) 20,454
------------ -------- --------
2022
At 1 January 13,196 4,407 17,603
Gains on currency translation differences 5,642 - 5,642
Losses on net investment hedges - (4,514) (4,514)
Attributable tax - 825 825
------------ -------- --------
At 31 December (as restated*) 18,838 718 19,556
------------ -------- --------
* The comparative financial statements have been restated as
detailed in note 3.
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.
14. Insurance contract liabilities and reinsurers' share of
contract liabilities
Restated Restated
* *
30.06.23 30.06.22 31.12.22
6 months 6 months 12 months
GBP000 GBP000 GBP000
Gross
Insurance contract liabilities for incurred
claims 636,123 632,334 636,638
Insurance contract liabilities for remaining
coverage 86,587 88,706 93,645
Life business provision 55,373 63,412 59,263
Total gross insurance contract liabilities 778,083 784,452 789,546
--------- --------- ----------
Recoverable from reinsurers
Reinsurance contract assets for incurred claims 196,572 195,149 202,474
Reinsurance contract assets for remaining
coverage 53,730 47,032 37,650
Total reinsurance contract assets 250,302 242,181 240,124
--------- --------- ----------
Net
Insurance contract liabilities for incurred
claims 439,551 437,185 434,164
Insurance contract assets for remaining coverage 32,857 41,674 55,995
Life business provision 55,373 63,412 59,263
Total net insurance contract liabilities 527,781 542,271 549,422
--------- --------- ----------
* The comparative financial statements have been restated as
detailed in note 3.
Risk adjustment of GBP63.0m net of reinsurance has been included
in the measurement of closing net insurance contract liabilities,
representing an increase over the half year of GBP0.8m (H1 2022
restated: increase of GBP0.3m).
The table below provides an analysis of the insurance
result:
Restated Restated
* *
30.06.23 30.06.22 31.12.22
6 months 6 months 12 months
GBP000 GBP000 GBP000
Insurance revenue 284,082 257,858 534,894
Incurred claims and other insurance service
expenses (183,878) (188,069) (363,268)
Losses on onerous contracts and reversal of
those losses (348) 268 (781)
Insurance acquisition cash flows amortisation (41,594) (40,902) (80,423)
---------- ---------- ----------
Insurance service expenses (225,820) (228,703) (444,472)
---------- ---------- ----------
Insurance service result before reinsurance
contracts held 58,262 29,155 90,422
---------- ---------- ----------
Allocation of reinsurance premiums (76,104) (64,067) (130,675)
Recoveries of incurred claims and other insurance
service expenses 40,707 62,187 105,086
Recoveries of losses on onerous contracts
and reversal of those losses 132 (213) 814
Net expense from reinsurance contracts (35,265) (2,093) (24,775)
---------- ---------- ----------
Insurance service result 22,997 27,062 65,647
---------- ---------- ----------
Finance income from insurance contracts issued 1,787 47,310 54,566
Finance income/(expense) from reinsurance
contracts held 819 (7,418) (6,704)
---------- ---------- ----------
Net insurance financial result 2,606 39,892 47,862
---------- ---------- ----------
Total amount recognised in the condensed
consolidated statement of profit or loss 25,603 66,954 113,509
---------- ---------- ----------
* The comparative financial statements have been restated as
detailed in note 3.
15. Subordinated debt
30.06.23 30.06.22 31.12.22
6 months 6 months 12 months
GBP000 GBP000 GBP000
6.3144% EUR 30m subordinated debt 25,363 25,049 25,818
Subordinated debt consists of a privately-placed issue of
20-year subordinated bonds, maturing in February 2041 and callable
after February 2031. The Group's subordinated debt ranks below its
senior debt and ahead of its preference shares and ordinary share
capital.
Subordinated debt is stated at amortised cost.
16. Related party transactions
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation.
Charitable grants to the ultimate parent company are disclosed
in the condensed consolidated statement of changes in equity.
There have been no material related party transactions in the
period or changes thereto since the latest annual report which
require disclosure.
17. Ultimate parent company and controlling party
The Company is a wholly-owned subsidiary of Benefact Group plc.
Its ultimate parent and controlling company is Benefact Trust
Limited. Both companies are incorporated in England and Wales and
copies of their financial statements are available from the
registered office. The parent companies of the smallest and largest
groups for which group financial statements are drawn up are
Ecclesiastical Insurance Office plc and Benefact Trust Limited,
respectively.
18. Reconciliation of Alternative Performance Measures
The Group uses alternative performance measures (APMs) in
addition to the figures which are prepared in accordance with IFRS.
The financial measures in our key financial performance data
include gross written premiums and the combined operating ratio
(COR). These measures are commonly used in the industries we
operate in and we believe they provide useful information and
enhance the understanding of our results.
Users of the accounts should be aware that similarly titled APM
reported by other companies may be calculated differently. For that
reason, the comparability of APM across companies might be
limited.
The tables below provide a reconciliation of the gross written
premiums and the combined operating ratio to their most directly
reconcilable line items in the financial statements.
30.06.23
6 months
GBP000
Gross written premiums 288,197
Change in the gross unearned premium
provision (7,671)
---------
Insurance revenue [1] 280,526
---------
30.06.23
-------------------------------------------------------------------
Other
Investment Corporate income
and
Underwriting return costs charges Total
--------------------
General Life
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Insurance revenue [1] 280,526 3,206 353 - (3) 284,082
Insurance service expenses (228,380) (3,169) 5,941 - (212) (225,820)
---------- -------- ----------- ---------- -------- ----------
Insurance service result
before reinsurance contracts
held 52,146 37 6,294 - (215) 58,262
---------- -------- ----------- ---------- -------- ----------
Net expense from reinsurance
contracts (35,265) - - - - (35,265)
---------- -------- ----------- ---------- -------- ----------
Insurance service result 16,881 37 6,294 - (215) 22,997
---------- -------- ----------- ---------- -------- ----------
Net insurance financial
result - 837 1,769 - - 2,606
Net investment result - 119 14,618 - - 14,737
Other operating expenses (16,534) (536) (1,464) (10,639) 719 (28,454)
Other finance costs - - - - (1,638) (1,638)
Profit/(loss) before tax [2] 347 457 21,217 (10,639) (1,134) 10,248
---------- -------- ----------- ---------- -------- ----------
Reconciliation to net earned premiums
Insurance revenue [1] 280,526
Outward reinsurance premiums
earned (119,423)
Net earned premiums [3] 161,103
----------
Combined operating ratio
= ( [3] - [2] ) / [3] 99.8%
The underwriting profit of the Group is defined as the
profit/(loss) before tax of the general insurance business.
The Group uses the industry standard net combined operating
ratio 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
( [3] - [2] ) / [3].
30.06.22
6 months
GBP000
Gross written premiums 261,893
Change in the gross unearned
premium provision (7,568)
---------
Insurance revenue [1] 254,325
---------
30.06.22
-------------------------------------------------------------------
Other
Investment Corporate income
and
Underwriting return costs charges Total
--------------------
General Life
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Insurance revenue [1] 254,325 3,246 289 - (2) 257,858
Insurance service expenses (226,064) (2,737) 82 - 16 (228,703)
---------- -------- ----------- ---------- -------- ----------
Insurance service result
before reinsurance contracts
held 28,261 509 371 - 14 29,155
---------- -------- ----------- ---------- -------- ----------
Net expense from reinsurance
contracts (2,093) - - - - (2,093)
---------- -------- ----------- ---------- -------- ----------
Insurance service result 26,168 509 371 - 14 27,062
---------- -------- ----------- ---------- -------- ----------
Net insurance financial
result - 5,873 34,019 - - 39,892
Net investment result - (6,604) (58,929) - - (65,533)
Other operating expenses (13,256) (71) (1,636) (11,330) - (26,293)
Other finance costs - - - - (803) (803)
Profit/(loss) before tax [2] 12,912 (293) (26,175) (11,330) (789) (25,675)
---------- -------- ----------- ---------- -------- ----------
Reconciliation to net earned premiums
Insurance revenue [1] 254,325
Outward reinsurance premiums
earned (105,853)
Net earned premiums [3] 148,472
----------
Combined operating ratio
= ( [3] - [2] ) / [3] 91.3%
31.12.23
6 months
GBP000
Gross written premiums 558,544
Change in the gross unearned
premium provision (30,619)
General Measurement Model
insurance revenue 25
---------
Insurance revenue [1] 527,950
---------
31.12.22
--------------------------------------------------------------------
Other
Investment Corporate income
and
Underwriting return costs charges Total
---------------------
General Life
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Insurance revenue [1] 527,950 6,311 642 - (9) 534,894
Insurance service expenses (437,738) (5,267) (1,693) - 226 (444,472)
---------- --------- ----------- ---------- -------- ----------
Insurance service result
before reinsurance contracts
held 90,212 1,044 (1,051) - 217 90,422
---------- --------- ----------- ---------- -------- ----------
Net expense from reinsurance
contracts (24,775) - - - - (24,775)
---------- --------- ----------- ---------- -------- ----------
Insurance service result 65,437 1,044 (1,051) - 217 65,647
---------- --------- ----------- ---------- -------- ----------
Net insurance financial
result - 10,196 37,666 - - 47,862
Net investment result - (10,737) (52,702) - - (63,439)
Other operating expenses (33,919) (454) (3,080) (25,743) - (63,196)
Other finance costs - - - - (2,456) (2,456)
Profit/(loss) before tax [2] 31,518 49 (19,167) (25,743) (2,239) (15,582)
---------- --------- ----------- ---------- -------- ----------
Reconciliation to net earned premiums
Insurance revenue [1] 527,950
Outward reinsurance premiums
earned (223,955)
General Measurement Model
revenue (25)
Net earned premiums [3] 303,970
----------
Combined operating ratio
= ( [3] - [2] ) / [3] 89.6%
RESPONSIBILITY STATEMENT
Each of the directors, whose names and functions are listed in
the Board of Directors section of the Company's latest Annual
Report and Accounts, confirm that, to the best of their
knowledge:
(a) the consolidated interim financial statements have been
prepared in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and gives a true and
fair view of the assets, liabilities, financial position and
performance of the Company;
(b) the interim management report includes a fair review of the
information required by:
- DTR 4.2.7R being an indication of important events that have
occurred during the first six months of the financial year and
their impact on the condensed set of financial statements, and a
description of the principal risks and uncertainties for the
remaining six months of the financial year; and
- DTR 4.2.8R being material related party transactions in the
first six months of the financial year and any material changes in
the related party transactions described in the last Annual Report
and Accounts.
By order of the Board
Mark Hews
Group Chief Executive
26 September 2023
DISCLAIMER
Certain statements in this document are forward-looking with
respect to plans, goals and expectations relating to the future
financial position, business performance and results of the Group
and wider group. The statements are based on the current
expectations of management of the Group. Management believe that
the expectations reflected in these forward-looking statements are
reasonable, however, can give no assurance that these expectations
will prove to be an accurate reflection of actual results. By their
nature, all forward-looking statements involve risk and uncertainty
because they relate to future events and circumstances that are
beyond the Group's ability to control or estimate precisely
including, amongst other things, UK domestic and global economic
and business conditions, market-related risks, inflation, the
impact of competition, changes in customer preferences, risks
relating to sustainability and climate change, the policies and
actions of regulatory authorities, the impact of tax or other
legislation and other regulations in the jurisdictions in which the
Group operates.
Independent review report to Ecclesiastical Insurance Office
plc
Report on the condensed consolidated interim financial
statements
Our conclusion
We have reviewed Ecclesiastical Insurance Office plc's condensed
consolidated interim financial statements (the "interim financial
statements") in the 2023 interim results of Ecclesiastical
Insurance Office plc for the 6 month period ended 30 June 2023 (the
"period").
Based on our review, nothing has come to our attention that
causes us to believe that the interim financial statements are not
prepared, in all material respects, in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority.
The interim financial statements comprise:
-- the Condensed Consolidated Statement of Financial Position as at 30 June 2023;
-- the Condensed Consolidated Statement of Profit or Loss and
Condensed Consolidated Statement of Comprehensive Income for the
period then ended;
-- the Condensed Consolidated Statement of Cash Flows for the period then ended;
-- the Condensed Consolidated Statement of Changes in Equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the 2023 interim
results of Ecclesiastical Insurance Office plc have been prepared
in accordance with UK adopted International Accounting Standard 34,
'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410, 'Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity' issued by the Financial Reporting Council for use in the
United Kingdom ("ISRE (UK) 2410"). A review of interim financial
information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying
analytical and other review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the 2023 interim
results and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting or that the directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on
the review procedures performed in accordance with ISRE (UK) 2410.
However, future events or conditions may cause the group to cease
to continue as a going concern.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The 2023 interim results, including the interim financial
statements, is the responsibility of, and has been approved by the
directors. The directors are responsible for preparing the 2023
interim results in accordance with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority. In preparing the 2023 interim results, including
the interim financial statements, the directors are responsible for
assessing the group's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the directors
either intend to liquidate the group or to cease operations, or
have no realistic alternative but to do so.
Our responsibility is to express a conclusion on the interim
financial statements in the 2023 interim results based on our
review. Our conclusion, including our Conclusions relating to going
concern, is based on procedures that are less extensive than audit
procedures, as described in the Basis for conclusion paragraph of
this report. This report, including the conclusion, has been
prepared for and only for the company for the purpose of complying
with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority and for no other
purpose. We do not, in giving this conclusion, accept or assume
responsibility for any other purpose or to any other person to whom
this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
Bristol
26 September 2023
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