Annual Report
& Accounts
2013
Together we
will be the
most trusted
and ethical
specialist
financial
services
group, giving
£50m to
charity over
three years.
Table of Contents
2013 Highlights
Who We Are
What We Do
Chairman’s Statement
Group Chief Executive’s Review
Our Business Model
Our Strategy
Key Performance Indicators
Financial Performance
Risk Management
Corporate Responsibility Report
Section 1/Introduction
5
6
7
8
Section 2/Strategic Report
12
16
19
26
30
34
38
Section 3/Corporate Governance
Board of Directors
Directors’ Report
Corporate Governance
- Board Governance
- Group Finance and Investment Committee Report
- Group Nominations Committee Report
- Group Risk Committee Report
- Group Audit Committee Report
- Group Remuneration Report
Independent Auditor’s Report
50
52
56
56
60
62
66
68
74
90
Section 4/Financial Statements
Consolidated Statement of Profit or Loss
Consolidated and Parent Statement of Comprehensive Income
Consolidated and Parent Statement of Changes in Equity
Consolidated and Parent Statement of Financial Position
Consolidated and Parent Statement of Cash Flows
Notes to the Financial Statements
95
96
97
98
99
100
Section 5/Other Information
Directors and Executive Management
United Kingdom Regional Centres
United Kingdom Business Division and International Branches
Insurance Subsidiaries and Agencies
Notice of Meeting
154
155
156
157
158
Ecclesiastical Insurance Office plc
1
2
Ecclesiastical Insurance Office plc
Wellington Arch
N
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S
Section 1/Introduction
2013 Highlights
Who We Are
What We Do
Chairman’s Statement
5
6
7
8
3
Ecclesiastical Insurance Office plc Ecclesiastical is a specialist
insurance, risk advisory and
asset management group with
a distinctive ethical positioning
and a reputation for delivering
excellent service.
4
Ecclesiastical Insurance Office plc
Section 1/2013 Highlights
2013 Highlights
Finances
Industry recognition
Profit/(Loss) before Tax £m
2013
2012
2011
-8
38
Shareholders’ Funds £m
2013
2012
2011
456
436
Donations £m
2013
2012
2011
5.5
5.7
67
2013
2013
THE
CLAIMS
AWARDS
WINNER
Professionalism
Community
Top 10 UK Company Donor
494
11.7
Follow us on Twitter: @EcclesNews
Connect with us on LinkedIn, Facebook or YouTube
5
Ecclesiastical Insurance Office plc Section 1/Who We Are
Who We Are
We are a specialist financial services group with a distinctive
ethical positioning and a reputation for delivering excellent service.
We were established by Anglican churchmen in 1887 to provide protection to church properties.
Over the last 126 years we have developed into a specialist financial services provider, offering a
range of products and services to customers in selected markets.
Allchurches Trust Limited, a registered charity, owns us and the grants we pay to them ultimately
go to charitable causes.
We are the eighth largest corporate donor to charity in the UK.*
Financially secure
We maintain a strong capital base
at all times, with regulatory capital
cover at 2.6 times the required
level at the end of 2013.
Professional
In the UK we are one of the select few
CII Chartered Insurers whose entire
UK operations have been accredited
with chartered status.
Strong expertise in
specialist markets
We insure 97% of Anglican churches
within the UK. We also insure one in five
UK charities and some of the most iconic
and precious buildings, castles, rural
estates and treasure houses in the UK
and abroad, including more Grade I and II
listed buildings than any other insurer.
Ethics at the heart
We were one of the first providers to
establish a range of ethical investment
funds; today, our funds have been
regularly recognised by numerous
ethical fund awards.
* UK Guide to Company Giving 2013/2014, published by the Directory of Social Change
6
Ecclesiastical Insurance Office plc Section 1/What We Do
What We Do
We are a specialist insurance, risk management, investment management
and advisory group. We sell our products and services to businesses,
organisations and individuals directly and through intermediaries. Our
organisation is split into three divisions which primarily operate from the UK:
Group strategic divisions
Specialist Insurance
Investment Management
Broking and Advisory
Ecclesiastical UK
Ansvar UK
Ecclesiastical Ireland
Ecclesiastical Canada
Ansvar Australia
Our insurance businesses provide
a range of commercial insurance
products, and risk management
support for the education, faith,
charity, heritage, fine art and
property investors markets.
Our key areas of expertise lie in
valuing and protecting old and
unusual properties, particularly
those which are Grade I and II
listed.
We also provide household
insurance to members of the
clergy and fine art insurance to
the high net worth market.
Ecclesiastical Investment
Management (EIM)
South Essex Insurance Brokers
(SEIB)
Our multi-award winning
investment management team
provides ethically screened
and non-screened investment
products to retail and institutional
customers. Our institutional funds
are aimed at the charity and faith
markets.
EIM also manages the majority of
the Group’s financial investments.
Lycetts*
Ecclesiastical Financial Advisory
Services (EFAS)
SEIB and Lycetts provide tailored
insurance solutions to customers
in the heritage, equine, high
net worth, and specialist motor
insurance sectors among others.
Lycetts also provides financial
advice.
EFAS offers independent financial
advice to the clergy as part
of our service offering for the
Anglican community in the UK,
and also markets and administers
prepayment funeral plans under
the Perfect Choice brand.
* Part of Ecclesiastical Insurance Group (EIG)
Ecclesiastical Insurance Office plc
7
Section 1/Chairman’s Statement
Chairman’s
Statement
I am pleased to report that Ecclesiastical has had another profitable year, delivering
a profit before tax of £67m (2012: £38m). Ecclesiastical has delivered above
benchmark investment performance over many years, and 2013 was no exception.
Profitability in 2013 was again driven by a strong investment return of £74m.
Results
This profit was partially offset by an
underwriting loss of £8m (2012: £25m
loss). Whilst underwriting losses have
reduced to around a third of what they
were last year, results are not where I
would like them to be, and the Group
remains sharply focused on restoring
underwriting profitability.
Liability claims frequency and severity
continues to impact both our UK and
Irish operations. In the UK, losses from
liability were more than offset by profits
from our core property portfolio which
delivered an exceptional Combined
Operating Ratio (COR) of 78% in 2013,
despite the weather events in the
last weeks of the year. Ireland also
reported a good underwriting profit
from its property book, but they
could not offset the scale of losses
on liability, which included prior year
deterioration and, as in the UK, a further
strengthening of reserves for physical
and sexual abuse claims.
Actions have been taken to address
liability performance, which has
included exiting from certain markets
including motor and care. These actions
are discussed in more detail in the
Strategic Report which starts on page
11. In Australia, results continued
to be impacted by the high cost of
reinsurance. We have changed our
business model for our operations
in Australia and have entered into a
100% quota share arrangement for
their property business, commencing
from 2014, which we expect to restore
underwriting profitability in this territory.
During the year, the Group paid an
interim grant of £4m to its charitable
owner, Allchurches Trust Limited. The
Board expects to make a further grant
in respect of what has been a very
profitable year for the Group and will
make its decision in March 2014.
January 2013
Former CEO Michael Tripp announces
his retirement.
February 2013
Ecclesiastical gives a record number of bursaries to
clergy as part of its Ministry Bursary Awards scheme
in the 25th anniversary year of the awards.
8
Ecclesiastical Insurance Office plc Annual Report and Accounts 2013
Board
Good governance plays a critical role
in ensuring that Ecclesiastical remains
a successful and sustainable company.
The Board remains committed to
applying the highest standards of
corporate governance throughout the
Group and voluntarily adopted the
Financial Reporting Council’s (FRC)
UK Corporate Governance Code (the
Code) in 2010. We have continued
this approach and are reporting in
accordance with the new edition of
the Code published by the FRC in
September 2012.
During the year I have particularly
focused on ensuring that the Code’s
principles on leadership and board
effectiveness have been applied. A key
element of this is ensuring that the
Board has the right mix of individual
Non-Executive Directors with the right
mix of experience and expertise who
are provided with the right information
to challenge constructively and support
the Executive team.
As the industry continues to evolve, I
recognise the importance of having
experienced insurance professionals on
the Board, and I am therefore pleased
to report that the Board’s balance of
skills and expertise has been enhanced
during the year with the appointment of
Tim Carroll in March 2013. Tim brings
with him a wealth of general insurance
industry knowledge and experience
having held roles as CEO of Swiss Re’s
UK holding company, CEO Europe of
GE Insurance Solutions, President and
CEO of GE Reinsurance Inc in the USA
and Active Underwriter of Canopius
Syndicate 4444 at Lloyd’s.
outstanding track record of building
effective insurance businesses and high
performing teams.
As previously announced, Michael Tripp
retired as Group Chief Executive in May
2013. After a comprehensive external
and internal search, Mark Hews was
appointed to succeed Michael from
1 May 2013. Mark joined the Group in
April 2009 as Group Chief Financial
Officer. He has more than 20 years
experience in the insurance industry,
previously being CEO of M&S Life and
on the Board of HSBC Life. Before that
he was Finance Director at Norwich
Union Healthcare and a consultant at
Deloitte (formerly Bacon and Woodrow).
Steve Wood, who was Managing
Director of our UK business and an
Executive Director, left the Group in
June 2013. The Board was pleased
to appoint S. Jacinta Whyte as Deputy
Group Chief Executive and an Executive
Director on 16 July 2013. Jacinta
joined the Group in 2003 to lead the
transformation of the Canadian branch,
and has assumed responsibility for the
Group’s general insurance operations.
She remains General Manager and
Chief Agent of the Canadian business,
but is also acting as Managing Director
of our UK business following Steve’s
departure. Jacinta commenced her
career as an underwriter for Sun
Alliance in Dublin and over her 30-year
career with RSA she held a number
of senior executive positions in both
Ireland and Canada. She brings a
wealth of experience along with an
During the year we carried out
performance evaluations of the Board
and assessed the outcomes of the
Committee evaluations which were
undertaken in 2012. On pages 56 to
59 of this year’s Corporate Governance
Report we describe the methodology
used and the outcome of the
evaluations.
Outlook
There has been a significant amount
of change across the Group during the
last two years, as the business has been
reshaped and underperforming areas
are being addressed.
I would like to thank every employee
for their continued commitment,
dedication and hard work during 2013.
The Board appreciates the challenges
and uncertainty that a period of change
can bring and is grateful for everyone’s
focused efforts to continue moving the
business forward.
Ecclesiastical’s vision is to become
the most trusted and ethical specialist
financial services group, giving £50m
to charity over three years. The Board
is satisfied that the strategic approach,
set out on pages 11 to 47 of this report,
should deliver steady and measurable
performance against this objective.
Will Samuel
Chairman
March 2013
We report a pre-tax profit of £38m
in our 2012 annual results.
April 2013
The list of the UK’s top company donors
published by the Directory of Social
Change ranks Ecclesiastical as the eighth
biggest company donor in the UK.
9
Ecclesiastical Insurance Office plc 10
Ecclesiastical Insurance Office plc
Ecclesiastical’s surveyors conduct thousands of surveys every year.
N
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Section 2/Strategic Report
Group Chief Executive’s Review
Our Business Model
Our Strategy
Key Performance Indicators
Financial Performance
Risk Management
Corporate Responsibility Report
12
16
19
26
30
34
38
11
Ecclesiastical Insurance Office plc Section 2/Group Chief Executive’s Review
Group Chief
Executive’s
Review
Ecclesiastical plays a unique role in the financial
services industry in the UK. We are one of the only
specialist financial services groups owned by a
charity, an ownership which drives the Group’s ethos
and values and ensures that meeting our customers’
needs is right at the heart of our business model. I feel
honoured to have been asked to work with a talented
Board and team to lead the Group forward.
My first seven months as Group Chief Executive have provided me with the
opportunity to visit all of our business units, and speak with employees, customers
and business partners. I was encouraged that we are already perceived by many
as a Group that is determined to do right by its customers. This has reinforced my
view that Ecclesiastical is ideally placed to build on its reputation and expertise as
a specialist to continue to generate profits for the benefit of our charitable owner,
Allchurches Trust Limited. This is the platform that I want to build on. However, two
other key themes have emerged during the year as critical opportunities which we
need to pursue.
May 2013
Mark Hews appointed as Group Chief
Executive Officer.
We win the Post Magazine Claims Awards
Customer Care Award.
June 2013
We announce new Group management
structure and team.
We receive the Business in the Community
CommunityMark Award.
12
Ecclesiastical Insurance Office plc Annual Report and Accounts 2013
Delivering our results
Overall it has been a successful year
for Ecclesiastical, with pre-tax profits
of £67m (2012: £38m), resulting from
strong investment returns and a mixed
underwriting performance, enabling
us to give an interim grant of £4m
to Allchurches Trust Limited in
respect of 2013 with a further grant
expected to be approved by the
Board in March 2014.
Our investment performance
outperformed benchmarks in most
asset classes, contributing to a strong
return of £74m (2012: £57m).
Our underwriting result was an £8m
loss (2012: £25m loss), representing
a Combined Operating Ratio (COR) of
102.9% (2012: 108.5%).
Royal Institution of Great Britain
In the UK we achieved an underwriting
profit of £10m (2012: £12m loss), as
actions taken to address profitability
within our liability account have started
to take effect. We also benefited from
strong profits from our property account,
despite the weather events at the end of
the year. We reserved a total of £5.6m
for flood claims in December, and still
achieved a COR of 95.3% overall in
the UK (2012: 105.5%). UK flood and
storm losses have continued into the
first quarter of 2014 and we expect to
reserve a further £6.5 million to cover
these losses.
We won a number of major accounts
during 2013, including Longleat House,
Castle Howard, the Military Museums
and The Royal Institution of Great
Britain, and now insure the majority of
Grade I listed buildings in the UK.
Firstly, there was a consistent theme
that we needed to refocus the Group
in order to deliver results. This has
involved going through every part of our
business, thoroughly and systematically,
and taking robust, decisive action to
ensure that every part of our Group
contributes a suitable return to support
our future charitable giving.
Secondly, there was a desire from all of
our stakeholders to make a fresh start,
to step up our energy and drive to take
the Group forward with a strategy which
gives each of our Specialist Insurance,
Investment Management and Broking
and Advisory divisions a clear and
compelling direction.
As a result we have refocused our
strategy on the areas where we
can differentiate ourselves from our
competitors, building on our ethos,
values and past success. My ambition
is captured in our new objective to be
the most trusted and ethical specialist
financial services group, with the aim
of giving £50m to charity over the next
three years.
Our business model and developed
strategy can be found on the pages
that follow in this Strategic Report.
July 2013
We win the British Insurance Awards Best Risk
Management Initiative of the Year category and are
shortlisted in the community investment category.
Jacinta Whyte appointed as Deputy Group Chief
Executive and UK Managing Director.
August 2013
We achieve CII Chartered Insurer Status.
We announce a pre-tax profit of £26.6m
in our 2013 half-year results.
13
Ecclesiastical Insurance Office plc Section 2/Group Chief Executive’s Review
Insurance Brokers (SEIB) reporting
profits in line with those reported in
2012 at £2.5m.
For a more detailed analysis, please see
the Financial Performance section later
on in this Strategic Report starting on
page 30.
Shaping our business for
the future
To support and grow these results, we
are tackling the unprofitable areas of
our business and shaping it for the
future. We have delivered on many
actions this year, and have seen our
underwriting loss reduce to a third of
that reported in 2012 (2013: £8m loss;
2012: £25m loss).
Following the announcement in 2012,
we withdrew from the UK motor
insurance market during 2013, as this
did not fit with our strategy of being
a specialist insurer. This has resulted
in a reduction of £26m Gross Written
Premiums (GWP) but has cut our
exposure to a market that is typically
price driven and has been loss making
for the vast majority of insurers over
many years.
Our businesses outside of the UK faced
a variety of challenges that impacted
on their underwriting results. Ireland
has been faced with escalating liability
claims and reports an underwriting loss
of £9m for the year (2012: £6m loss).
We believe action taken to address this
had started to take effect towards the
end of 2013. Our Australian business
continued to be impacted by the high
cost of reinsurance, but achieved a
smaller underwriting loss than 2012
of £4m (2012: £5m loss), with
underwriting profits expected to return
in 2014 as they will benefit significantly
from new reinsurance arrangements.
Our Canadian business reported an
underwriting loss of £1.1m in 2013
(2012: £0.3m loss) as it was impacted
by record breaking catastrophe events in
the year. Losses to the Group from these
events were minimised by our effective
management of concentration risk and
our prudent approach to reinsurance.
Our Investment Management division
performed strongly yet again, with
our asset management business,
Ecclesiastical Investment Management
(EIM) winning many awards during the
year for both its investment performance
and its ethical credentials. Net inflows
from external customers increased
to nearly £100m this year, with
funds under management increasing
to £2.2bn.
Our Broking and Advisory division
continued to provide a stable income
stream for the Group, with South Essex
In July I was delighted when S. Jacinta
Whyte accepted a new role as Deputy
Group Chief Executive, and also
assumed direct control over the UK
General Insurance business. We have
started the process of restructuring the
UK General Insurance divisions to make
it easier for customers and business
partners to do business with us.
We have reshaped our management
structure to create a greater focus and
drive behind each of our business areas
and we have strengthened our regional
operations for intermediated business
to enhance our service offering to
customers, taking our decision-making
closer to brokers. These changes will
help to support our objective of being
the most trusted and ethical specialist
financial services group.
During July, following underwriting
losses seen in 2012 and again this year,
as a result of continuing increases in the
frequency and severity of liability claims,
we concluded a detailed strategic
review of our insurance business in
Ireland. The outcome of this review has
resulted in exiting some liability-led
business mainly within the motor and
care markets, where we don’t believe
we can make a profit in the long-term.
We are pushing through appropriate
rate increases on the liability business
retained. We can see good opportunities
for profitable growth in Ireland but
within a much tightened risk appetite
focusing on property-led faith, charity
and heritage business.
September 2013
We begin the repositioning of our UK
General Insurance business.
October 2013
Our investment business wins Best Ethical
Investment Provider Award from MoneyFacts
for the fifth year running.
We are shortlisted for the CII Public Interest
Awards for our anti-metal theft campaigning
over the years.
14
Ecclesiastical Insurance Office plc Annual Report and Accounts 2013
In November we announced our exit
from the non-charitable care market in
the UK, a sector where liability claims
have escalated over recent years,
particularly in relation to abuse claims.
This allows us to focus our underwriting
on providing insurance to the customer
segments that closely align to our
ethical objectives.
In December we concluded the
negotiation of new reinsurance
arrangements for our business in
Australia to commence in 2014. It had
become clear that the existing business
model for Australia was unsustainable.
Reinsurance costs rose substantially
following the catastrophe events in
Australia during 2011, which made it
difficult for smaller operations to be
profitable. By moving to a 100% quota
share arrangement in 2014 for the
property business we expect to return
underwriting back to profitability.
In the same month, Andrew Moon, Chief
Executive of Ansvar Australia, announced
his retirement. Andrew has led our
business in Australia through one of the
most challenging periods in its history,
and I would like to thank him for leaving
it well on track to achieve its vision to
be the leading insurer in its specialist
segments. We recently announced the
appointment of Warren Hutcheon as the
new Chief Executive of Ansvar Australia.
Warren is currently Chief Executive
of the Victorian Managed Insurance
Authority, and will take up his new
position with us in early May 2014.
Summary and outlook
We have achieved a lot in 2013 through
the hard work and commitment of
our employees, working together in
what have often been very challenging
circumstances. Whilst there is much
to do in the years ahead, I believe we
have made strong initial progress and I
have been impressed at how so many
colleagues have risen to the challenge.
I would like to thank everyone for the
contribution they have made this year.
Our capital strength has been
maintained throughout the challenges
of the last few years, and our net assets
have ended the year at a record high
of £494m (2012: £456m). I believe
that we have much to look forward to in
2014 and beyond, but there is no doubt
that we will continue to face challenges
from the competitive environment in
which we operate.
Equity markets have performed strongly
over the last two years, but that level
of return cannot be guaranteed in the
future. Our underwriting results have
started to reflect the decisive actions
that we have taken to return the Group
to stable underwriting profits, but the
frequency and severity of liability claims,
including those relating to physical and
sexual abuse could remain a challenge
for us. We also need to ensure that we
continue to communicate effectively
with our broker partners and customers
as we make the changes necessary to
reshape our business for the future.
We make a real difference to the lives of
people in the markets and communities
in which we operate, and I believe that
our financial strength and committed
ethical approach give our business
strong foundations upon which we can
build our charitable giving. We have high
aspirations, to give £50m to charity over
the next three years, and there is so
much goodwill and energy drawing us
together to achieve this.
I thank all existing supporters of the
Group for their contribution in helping
us achieve our objectives. It is only
with this support that we can give so
much to good causes. I would also like
to take the opportunity to welcome
others, whether prospective customers,
business partners or employees, to
consider joining us.
I feel confident that with everyone’s
ongoing support and commitment to
deliver the changes required we will
continue to build a Group that always
seeks to stand by its customers, a
Group that gives so much to charitable
causes and a Group of which we can all
be proud.
Mark Hews
Group Chief Executive
November 2013
We win the Financial Services Forum Award for
Marketing Effectiveness with our Hands Off Our
Church Roofs campaign.
December 2013
Our annual Christmas Carol Service at
Gloucester Cathedral raises more than
£3,000 for Gloucestershire charities.
15
October 2013
Ecclesiastical Insurance Office plc Section 2/Our Business Model
Our Business
Model
Ecclesiastical is a unique business in the UK financial services sector
due to our charitable ownership. This ownership structure drives the
ethics and culture of our business, enhancing the Group’s reputation
in the market as a brand that customers and business partners can
trust. When combined with our excellent customer service, this trust
results in high levels of customer loyalty, which in turn is a key driver
of the profit we generate for our owner, Allchurches Trust Limited.
As a Group, we aim to create value by making the most of the characteristics which set us apart from
our competitors:
Profits to
Charity
Strong
Customer
Loyalty
Unique
Ownership
Trusted
Brand
Strong
Ethics and
Culture
Good
Reputation
Our ambition is to be the most trusted and ethical specialist financial services group, giving £50m to charity
over three years. In order to support this ambition, our business model is designed to enable us to deliver
exceptional service to our customers and business partners and also ensure our business remains stable
and sustainable over the very long term.
16
Ecclesiastical Insurance Office plc Annual Report and Accounts 2013
Our business model supports our aim of delivering
long-term value.
FOCUS ON
SPECIALIST
MARKETS
We focus on those
markets where
we can bring our
experience and
expertise to bear.
ACTIVELY
MANAGE RISK
EXPOSURE
We maintain
a disciplined
approach to risk
selection, portfolio
management and
pricing. We provide
risk management
advice to help our
customers reduce
their likelihood of
losses.
MANAGE
CAPITAL
AND INVEST
PRUDENTLY
We hold sufficient
capital and
structure our
reinsurance
programme and
investment strategy
to ensure we can
meet customers’
needs at all times.
We only invest in
businesses that are
meeting, or have
the potential to
meet, the Group’s
return on capital
target.
DELIVER
EXCEPTIONAL
CUSTOMER
SERVICE
We act in a way
that builds trust
with our customers
and seek to be
recognised for
fairness and
providing a
consistently high
level of service,
that anticipates
and meets
customer and
business partner
expectations.
PEOPLE AND CULTURE
We seek to attract and retain high performing staff and invest in their development to ensure Group
businesses maintain their competitive edge. We aim to be seen as a ‘go to’ employer for professionals
looking to pursue careers in the core technical disciplines of financial services businesses.
Deliver
sustainable
profit to
support
charitable
giving
Harrow School
17
Ecclesiastical Insurance Office plc “Together
we will be the
most
trusted
and
ethical
specialist
financial services
group, giving
£50m
to charity over the
next three years.”
18
Ecclesiastical Insurance Office plc
Section 2/Our Strategy
Our
Strategy
Our ambition is to be:
The Most Trusted Specialist Insurer
The Most Trusted Specialist Adviser
The Best Ethical Investment Provider
We will achieve this by delivering a range of
initiatives that build on and strengthen our sources
of competitive advantage:
The expertise and experience that the Group has in
each of its business divisions
The strength of relationship the business has with
the Church of England
Our charitable ownership, which acts as a
differentiator in certain areas of the market
A trusted brand and reputation, which enables the
Group to build a strong relationship and position with
customers where ethics and trust are a significant
part of their culture
19
Ecclesiastical Insurance Office plc Section 2/Our Strategy
Most Trusted
Specialist Insurer
We aim to be the most trusted specialist insurer,
offering unrivalled expertise and knowledge in
our core sectors, excellent claims service and
the best products in the market meeting all our
customers’ needs.
How we are planning to achieve this:
Continue to ensure that our customers’ interests are at
the heart of how we do business.
Increase our knowledge and understanding of our
customers’ needs through a comprehensive research
programme, and ensure that this knowledge is translated
into market-leading products and propositions.
Enhance our approach to broker management, building
stronger relationships with key strategic partners.
Continue to invest in strengthening our risk
management, underwriting and claims management
skills and capabilities.
Complete the transformation of our Australian, Irish
and UK operations, exiting non-core and unprofitable
business lines and reshaping the business model so it
meets the needs of today’s competitive environment.
20
Photograph by Oskar Proctor
Ecclesiastical Insurance Office plc ▶▶ STRATEGY IN ACTION:
In 2013 we won a number of important and prestigious new
accounts including The Royal Institution of Great Britain, Castle
Howard and Longleat House. These demonstrate that the Group’s
expertise in its core sectors is valued by both customers and
brokers.
In the UK we commenced the transformation of our UK General
Insurance business. In 2014 we will continue to simplify our
processes to make it easier for brokers to deal with us and
strengthen our regional presence in order to enhance our service
to customers and brokers.
We took corrective actions to address profitability issues in
the UK and Irish care markets, including exiting segments and
reviewing pricing.
In Australia, we negotiated a new reinsurance arrangement which
became effective from 2014 onwards, which we believe will
transform the profitability of our property business in that market.
Annual Report and Accounts 2013
Case study
Strengthening our
position in heritage
In January 2013 the Group
secured both the property and fine
art insurance of Castle Howard
in Yorkshire. The castle is one of
England’s grandest stately homes
and is part of the Treasure Houses
of England heritage group.
Bringing Castle Howard onto the
company’s books was a result
of our expert teams of surveyors
and underwriters working closely
with the broker and the customer,
demonstrating the value our long-
standing heritage and fine art expertise
would bring to everyone involved.
The Castle was the first of many
prestigious heritage properties
signed onto our books in 2013, thus
successfully helping us grow our
heritage property portfolio.
of Anglican Churches insured with Ecclesiastical.
MORE
GRADE I
A N D
GRADE II
listed properties are
insured by Ecclesiastical
than any other insurer.
We insure one in five of the UK’s top 3,000
charities in some way.
We were voted the Best Provider of insurance for charity, education and
heritage by brokers due to our experience in the market and comprehensive
cover (Broker tracking survey 2013).
21
Ecclesiastical Insurance Office plc Section 2/Our Strategy
Most Trusted
Specialist Adviser
SEIB has been arranging
horse related insurance for
nearly 50 years.
We aim to be the most trusted specialist adviser
in the markets we operate in by providing our
customers with the best independent and impartial
financial advice meeting their needs.
How we are planning to achieve this:
Continue to enhance the service proposition so that it
meets and exceeds the expectations of our customers.
Grow and strengthen the teams in our Broking
businesses to ensure they continue to be seen as market
leaders in their target segments.
Identify new market segments in which to grow either
organically or through acquisition.
Pursue CII Chartered Status for the Broking businesses.
22
Ecclesiastical Insurance Office plc ▶▶ STRATEGY IN ACTION:
A number of new products and existing product enhancements
were developed by SEIB in 2013, which are now ready to be rolled
out in 2014.
In 2013 SEIB introduced a new system of monitoring customer
satisfaction for all transactions to ensure customers are treated
fairly and efficiently.
Ecclesiastical Financial Advisory Services (EFAS) has many years
experience of working with the clergy and church community.
Our advisory team is fully independent and qualified to meet the
Retail Distribution Review requirements.
Annual Report and Accounts 2013
Case study
Customer care at
the heart
SEIB’s customer care has attracted
industry attention and recognition
for a number of years already and
that’s not a surprise with their latest
customer feedback showing that
97% of SEIB’s customers are very
satisfied with their service and over
99% would recommend the broker.
In 2013 SEIB was shortlisted for
the annual UK Broker Awards in the
customer care category based on
their excellent customer feedback.
In 2013 SEIB was listed
among the UK’s Top 100
brokers in the Insurance
Age annual Top 100 UK
Brokers survey and also
recognised as one of the
eight ‘high climbers’ in
the listing.
3
1
0
2
The EFAS customer satisfaction
survey* showed that all the
customers questioned were
extremely or very satisfied with
the service received from
their Ecclesiastical Financial
Adviser and agree they were
treated fairly.
100%
The EFAS customer satisfaction survey* showed that
100% of the customers questioned were extremely or
very satisfied with the arrangement of their financial
review, their adviser’s knowledge, the advice and
information provided to them, ensuring the product met
their needs and circumstances, and with the accuracy
and clarity of documentation they received.
* EFAS Customer Satisfaction Survey 2014 (qualitative research, Ecclesiastical electronic survey)
23
Ecclesiastical Insurance Office plc Section 2/Our Strategy
Best Ethical
Investment Provider
We aim to be the best ethical investment provider
and thought leader in socially responsible investment
by further enhancing our own ethical credentials and
proposition and by leading the debate on ethical
investment issues that matter to our customers.
How we are planning to achieve this:
Strengthen the ethical position of our funds and continue
to build the industry-leading reputation of our socially
responsible investment funds.
Maintain our strong and above average long-term
investment performance on all our funds.
Develop and strengthen our institutional fund offering
and grow our presence in the charity funds market.
Further develop the IT systems put in place during 2013
to help improve our customer service and enable the
business to meet the changing needs of the regulator.
24
Ecclesiastical Insurance Office plc ▶▶ STRATEGY IN ACTION:
In 2013 we grew our pooled funds assets under management to
almost £900m, the highest ever level, which is treble the amount
we had in 2008.
Growth of our pooled funds was achieved through long-
term outperformance across the majority of our funds and
an increasing profile as the leader in the socially responsible
investment market.
As our assets under management have grown, so has our client
base, with our geographical reach of independent financial
advisers and wealth managers extending throughout the UK.
Equally, our charity funds saw further investment and growth from
both the charity and church communities.
We invested £2m into our special charity investment vehicle
during 2013.
Annual Report and Accounts 2013
Case study
Performance, longevity,
stability
The Amity UK Fund was the Group’s
first retail fund and one of the UK’s
first socially responsible retail funds.
It seeks to invest in a portfolio of
companies which make a positive
contribution to society and the
environment through sustainable
and socially responsible practices.
The fund aims to achieve long-term
capital appreciation and a reasonable
level of income by investing
principally in UK companies. It has
been managed by Sue Round since
it was launched in 1988, so in 2013
she celebrated her 25th anniversary
managing the fund. For 2014 we
believe the fund is well positioned
for the continuing recovery in the
economy, focusing on companies
offering robust balance sheets, solid
cash flows, growing dividends and
strong market positioning.
Our investment team has
over 25 years’ experience
in the socially responsible
investment market.
In addition to our strength in socially
responsible investing, our funds and
fund managers received more than
10 industry awards and accolades
during 2013, most notably the Best
Ethical Investment Provider of the
Year award from MoneyFacts for
the fifth year running.
25
Ecclesiastical Insurance Office plc Section 2/Key Performance Indicators
Key
Performance
Indicators
Financial
MEASURE
DONATIONS
The amount donated by Ecclesiastical to
charities and our charitable owner each
year. This is the main measure of our
ambition, which is to give £50m to charity
over three years.
PERFORMANCE
The ordinary grant to Allchurches Trust
Limited was reduced in 2012 to reflect
challenging underwriting performance.
An interim grant of £4m was paid to
Allchurches Trust Limited during 2013, with
the remaining £1.5m of donations going to
other charitable causes. The Board expects
to approve a further grant in respect of 2013,
which will be paid during 2014.
Donations
m
£
25
20
15
10
5
0
10.0
Special Grant
9.8
10.6
11.7
5.7
5.5
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
PRA CAPITAL AND ECR COVER*
The capital resources available to meet the
Prudential Regulation Authority’s (PRA)
regulatory requirements.
PRA capital has increased during the year
due to an increase in retained earnings
following the profit achieved during the year.
The Enhanced Capital Requirement (ECR)
is a risk-based statistical calculation based
on the business written and assets held.
ECR coverage is the ratio of PRA capital
available to meet this requirement.
Our target is to exceed regulatory capital
requirements at all times.
Our ECR coverage reduced due to an
increase in our capital requirement. This was
mainly due to our net PRA equity exposure
increasing as a result of reducing the amount
of hedging we had in place at the end of
the year.
Ecclesiastical remains financially very strong,
despite the last few years of economic
uncertainty and volatility for the insurance
industry.
PRA capital and ECR cover
PRA Capital ECR
400
300
332
387
353
362
371
m
£
200
3.3x 3.0x
3.1x
2.7x 2.6x
100
0
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
PROFIT/(LOSS) BEFORE TAX*
The Group’s profit or loss (excluding
discontinued operations) before deduction
of tax.
Our target is to generate sufficient profit
to enable us to give £50m to charity over
three years.
The Group returned to profit in 2012
despite worsening underwriting performance.
This was due to strong investment returns
for the year.
We achieved a further increase in profit for
2013, which was supported by reduced
underwriting losses when compared to
2012 and also another good year of strong
investment returns.
More information on underwriting
performance is given below.
See the Financial Performance report on
page 30 for more details.
Profit/(Loss) before tax
m
£
100
50
0
-50
79
9
0
0
2
50
0
1
0
2
-8
1
1
0
2
38
2
1
0
2
67
3
1
0
2
26
Ecclesiastical Insurance Office plc Annual Report and Accounts 2013
MEASURE
PERFORMANCE
COMBINED OPERATING RATIO*
The sum of Ecclesiastical’s general
insurance incurred losses and expenses
divided by earned premiums for each
financial year.
The Group target for the COR has been
set at 95%.
Combined Operating Ratio
Our COR improved compared to 2012 as the
actions we have taken to restore underwriting
profitability started to take effect. The ratio
remains below our longer term target,
primarily driven by liability claims experience
in the UK and Ireland.
See the Financial Performance report on
page 30 for more details.
%
85
95
105
115
90
102
105
109
103
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
GROSS WRITTEN PREMIUM*
The total value of general insurance and life
insurance policies that have been written
during the year.
We do not have a specific growth target, but
our aim is to achieve moderate growth of
around 5% in our selected markets over the
long term, with our focus on the quality of
the business we write.
Gross Written Premium
As expected, GWP fell in 2013 following our
withdrawal from motor and selected other
markets as we look to focus on business
where we can leverage our underwriting
expertise.
We expect a further modest fall in GWP for
2014 following our decision to exit the
non-charitable care sector in the UK.
See the Financial Performance report on
page 30 for more details.
m
£
550
450
350
250
495
484
481
448
399
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
NET EXPENSE RATIO*
Total expenses as a proportion of the
net premium earned in the year. These
expenses include acquisition costs,
administration costs, the movement in
deferred acquisition costs and commission
paid less commission received.
Our aim is to make year-on-year
improvements in the Net Expense Ratio.
Net Expense Ratio
Our Net Expense Ratio decreased in 2013 to
36%, with the fall in earned premiums offset
by net expenses decreasing as the benefits
of efficiency programmes and improved
commission agreements took effect.
The restructuring of the UK General
Insurance and Australian businesses led to
one-off expenses but should, together with
further efficiency programmes, help mitigate
the impact of lower premiums in the near
future.
%
45
40
35
30
25
37
9
0
0
2
35
0
1
0
2
40
39
36
1
1
0
2
2
1
0
2
3
1
0
2
* These figures have not been restated, they are as reported in the appropriate year’s report and accounts
27
Ecclesiastical Insurance Office plc Section 2/Key Performance Indicators
Non-Financial
MEASURE
PERFORMANCE
BROKER SATISFACTION
Results from broker opinion surveys carried
out each year by our Internal Insight team.
Brokers are asked to rate their experience,
on a six-point scale: 1 – extremely
dissatisfied to 6 – extremely satisfied.
We measure the level of positive
satisfaction, particularly extremely and
very satisfied.
Our aim is to achieve over 90% satisfaction.
DIRECT CUSTOMER SATISFACTION
Results from internal customer satisfaction
surveys carried out each year, relating to
how well customers felt their claims were
handled. The results of this survey include
settled and partially settled property claims.
Customers are asked to rate their
experience on a six-point scale: 1 –
extremely dissatisfied to 6 – extremely
satisfied.
We measure the level of positive
satisfaction, particularly extremely and very
satisfied.
Our target is to achieve at least 90%
satisfaction.
Ecclesiastical’s broker service results have
been good over the last three years, with
particularly good ratings being received in
2012. For 2013, 79% of our brokers were
satisfied with the service we provided, 43%
of these were very or extremely satisfied.
As explained earlier in this report, during
the year we have exited areas of business
where we do not believe we can make a
sustainable profit, for example motor, and an
announcement has been made to say that
we are also exiting the non-charitable care
market in the UK. Brokers most affected
have expressed dissatisfaction with these
decisions, and this, we believe, has led to
the reduced level of overall satisfaction
recorded in 2013.
Ecclesiastical prides itself on maintaining
very high levels of satisfaction, particularly
in relation to claims when customers need
us most. In 2013, 92% of customers were
either extremely or very satisfied with the
way their claim was handled and a further
5% were fairly satisfied. This is well above
our target for 90% satisfaction.
Similar results were also seen for surveys
on general satisfaction levels, in particular,
100% of our home and commercial
customers were satisfied with their new
business experience with us.
Broker Satisfaction Survey
100
93%
94%
%
80
60
40
20
0
79%
1
1
0
2
2
1
0
2
3
1
0
2
■ Extremely Satisfied ■ Very Satisfied ■ Fairly Satisfied
Claims Satisfaction Survey – Direct
100
97%
96%
97%
%
80
60
40
20
0
1
1
0
2
2
1
0
2
3
1
0
2
■ Extremely Satisfied ■ Very Satisfied ■ Fairly Satisfied
28
Ecclesiastical Insurance Office plc
In 2013, 92% of customers
were either extremely or
very satisfied with the way
their claim was handled.
© Chatsworth House Trust
Reproduced by permission of Chatsworth Settlement Trustees.
Ecclesiastical Insurance Office plc
29
Section 2/Financial Performance
Financial
Performance
In 2013 we achieved a pre-tax profit of £66.9m (2012: £37.8m). Our
investment performance remained strong and our broker business, SEIB
continued to report stable profits. This was partially offset by a loss from
our general insurance business.
General Insurance
2013 saw a number of changes for
our general insurance operations as
we began to refocus the business. Our
underwriting performance for the year
was a loss of £8.2m (2012: £24.6m
loss), resulting in a Group COR of
102.9% (2012: 108.5%).
United Kingdom
Our insurance businesses in the UK
reported an underwriting profit of £9.8m
(2012: £12.3m loss).
The UK business has been repositioned
as a specialist insurer. We have
withdrawn from the motor insurance
market and from the non-charitable care
sector to focus on our core business
where we can leverage our underwriting
expertise. The new regional structure
will enable us to be an underwriting-led
specialist insurer operating closer to the
communities in which we serve.
Towards the end of 2013, the St Jude
storm coupled with the December
storms and floods impacted our property
account. Prior to these storms and floods
2013 was a relatively benign year for
weather events, enabling us to deliver
a profit on our property account ahead
of expectations.
We continued to focus on our liability
business, ensuring that our preferred
risks were priced appropriately.
However, claims experience has led to a
strengthening of our liability abuse and
asbestos reserves. Despite the remedial
action taken in 2012 to mitigate the
losses, particularly in the care sector, we
have taken the decision to exit the non-
charitable care sector during the year.
The repositioning and refocusing of
the business has resulted in GWP
decreasing by 13% in the year to
£291.3m (2012: £336.6m).
Ireland
An underwriting loss of £9.1m (2012:
£6.2m loss) was reported by our
general insurance operation in Ireland,
driven by losses across the liability
portfolio. Remedial underwriting actions
undertaken during 2012 and 2013 will
take time to fully impact the underwriting
result, although the second half of
2013 saw a marked improvement in the
underlying performance of the liability
account. The property account returned a
healthy profit.
Australia
Australia reported an underwriting
loss of £4.2m (2012: £5.2m loss). We
have continued the transformation of
our Australian business, and in 2013
the underwriting performance of the
underlying portfolio has been strong
with a gross COR of 71%. However,
despite all the actions taken, the
cost of reinsurance has remained
uneconomically high following the
catastrophe events in Australia that took
place in 2011, which has significantly
impacted the net results with a net COR
of 114.8%.
We recognised that the cost of the
existing business model for Australia
was unsustainable in the longer term and
have therefore moved to a 100% quota
share arrangement for property business
which became effective from 1 January
2014. As a result of the new quota share
arrangement, the £6.5m unexpired risk
reserve that we were holding at the end
of 2012 was released, which has more
than halved the reported underwriting
loss. The liability business has continued
to perform well during 2013.
Despite achieving rate increases, the
refocusing of the business has led to a
higher than expected lapse rate. A 3%
fall in GWP to £13.6m (2012: £14.0m)
is reported.
The 30% fall in GWP to £45.7m (2012:
£65.1m) is a result of the transformation
work carried out in Australia to reduce
our exposure to catastrophe risk. This
has included exiting personal lines
30
Ecclesiastical Insurance Office plc Financial
Performance
Canada Floods 2013
Ecclesiastical Insurance Office plc
31
Section 2/Financial Performance
business during 2011 and 2012 and
reducing our exposure to property risks
in high catastrophe risk areas.
Canada
Our Canadian branch reported an
underwriting loss of £1.1m (2012:
£0.3m loss), having been impacted by
catastrophe weather events during the
year. Canada experienced its largest
insured natural catastrophe event in
history when flooding hit Calgary on 21
June 2013. The careful management of
our exposure and effective reinsurance
programme contained both the gross
cost (£6.7m) and net cost (£1.2m) for
the branch. This was closely followed
by the Toronto rainstorm on 8 July
2013, which was the third worst natural
catastrophe in Canadian history; again
this was contained at a £0.9m net loss
for the branch. The resulting losses on
the property account, however, offset
the strong profits generated by the
liability account.
Canada continued its track record of
strong year-on-year growth in GWP,
which increased by 11% to £41.2m
(2012: £37.0m) with good retention
rates of 94%.
Central operations
Profits from internal reinsurance
arrangements and positive movements
on claims expenses for run-off
operations in this segment were offset
by corporate underwriting costs and a
strengthening of reserves in respect
of adverse development reinsurance
cover sold to ACS (NZ) Limited in 2012,
resulting in an overall loss of £3.7m
(2012: £0.6m loss). We entered into a
contract with ACS to provide additional
reinsurance cover in respect of the
February 2011 Christchurch earthquake.
Under the terms of this contract, the
Group must meet the cost of any claims
from this event that are in excess of the
value of other reinsurance contracts
already in place up to an agreed
maximum of approximately NZ$24m
(£12m). At the end of 2013 we held a
reserve of NZ$18.7m (£9.3m) in respect
of this contract..
in base rates as the domestic economy
improved. Our preference for corporate
bonds over gilts, together with our
weighting towards shorter-dated bonds
enabled us to outperform the index.
Investments
Global economic expansion was
restrained by three main forces in 2013;
a recession in the Eurozone, fiscal
consolidation in the United States and a
structural slowdown in many emerging
markets. Despite this, equity markets
across developed economies delivered
strong returns, outperforming emerging
market assets and global bond indices.
The UK economy outperformed the
majority of its European counterparts in
2013. Whilst the decline in real wages
continued, domestic consumer spending
grew, which was supported by improving
credit conditions, low interest rates, solid
employment growth and a resurgent
housing market. The Bank of England,
however emphasised that interest
rates would not be increased until the
UK economy demonstrated a more
established recovery.
Over the course of 2013, the FTSE All
Share Index produced a total return of
20.8% compared with 18.7% posted by
the FTSE 100. Our UK equity portfolio
increased by 24.4%, outperforming both
indices, reflecting its higher weighting to
medium-sized companies. The improved
market confidence experienced over the
course of the year supported the closure
of our equity futures contracts that were
put in place to limit potential losses in
equity markets.
Our UK bond portfolio produced a total
return of 1.6% in 2013, while the FTSE
Government All Stocks Index recorded
a -4.0% total return over the course of
the year as investors began to price in
the possibility of a near-term increase
Investment management
EIM saw continued growth in funds
under management, which have
increased to £2.2bn reflecting new
business inflows and positive market
movements.
EIM attracted nearly £100m net new
flows from third parties into Ecclesiastical
Investment Funds, which resulted in us
climbing further up the rankings of top-
selling asset managers on the platforms.
A further £2m was invested into our
special charity investment vehicle. Overall
fee income for EIM increased by 21%
to £12.8m, and this mainly reflects the
growth of pooled funds to over £890m.
Pre-tax profits increased by nearly 45%
to £1.7m.
EIM further consolidated its position as
a leader in sustainable and responsible
investment, with the company winning
the Moneyfacts Best Ethical Investment
Provider Award for the fifth consecutive
year and Blue & Green Tomorrow’s
Sustainable Fund Manager of the Year.
EIM and its funds continued to win
awards: the Amity Sterling Bond Fund
won Money Observers Best Ethical/SRI
bond Fund; and the Higher Income Fund
was named Best Fund (Mixed Asset
Class) over five years by Lipper. Our
Fund Managers continue to be highly
rated, with Robin Hepworth rated by
Trustnet as an Alpha Trustnet Manager,
placing him in the top 10% of all Fund
Managers. Andrew Jackson and Sue
Round currently hold Citywire ratings of
AAA for their three-year risk-adjusted
performance.
32
Ecclesiastical Insurance Office plc Long-term insurance
Ecclesiastical Life Limited ceased writing
new funeral plan business from the end
of April 2013. Since then, the insurance
policies backing the funeral plans
have been written by an alternative life
insurance company.
Our life business recorded a profit
of £0.4m, which was in line with our
expectations of modest profits emerging
from the existing book of business.
Broking and Advisory
SEIB continued to provide a steady and
consistent income stream to the Group.
The equine and pets insurance market
is very competitive, and although SEIB
benefits from its operations in niche
markets, commission and fee income
only grew by 1% to £7.3m (2012:
£7.2m). Net profit before tax was in line
with 2012 at £2.5m.
EFAS, our small financial advisory
business, has reported a loss before
tax of £0.8m. During the year EFAS
rationalised its Independent Financial
Advisers business in order to provide
a more focused approach to our core
church market. Fee and commission
income, however, increased by 91%
in the year as EFAS began providing
administration services for the NAFD
funeral plan offering.
Ian Campbell
Director Group Finance
Longleat Safari & Adventure Park.
Ecclesiastical Insurance Office plc
33
Section 2/Risk Management
Risk
Management
The core business of Ecclesiastical Insurance
Office plc is general insurance. Thus, risk
selection, pricing, reinsurance strategy, portfolio
management and regulatory compliance play an
important part in our business model.
We have established an Enterprise Risk
Management framework to ensure that risks
are managed well on a consistent basis. This
is overseen by the Group Risk Committee.
Enterprise Risk Management
Enterprise Risk Management is a proactive group-wide strategic process
designed to identify and manage all the individual and aggregated risks that
could have a significant impact on our ability to deliver our objectives.
This process is integrated into the culture of the Group and is led by the
Group Management Board, which is supported by four Executive Risk
Management Committees:
The (Non-Life) Insurance Risk Committee which has oversight of the non-
life insurance risks of the Group including counterparty risk;
The Investment and Market Risks Committee which has oversight of the
investment and market risks of the Group;
The (Non-Broker) Operational Risk Committee which has oversight for the
operational risks of the non-broker elements of the Group and also EIM;
and
The (Broker) Operational Risk Committee which has oversight for the
operational risks of the broker businesses within the Group, including EFAS.
It supports accountability, performance measurement and reward, thus
promoting operational efficiency at all levels.
34
Ecclesiastical Insurance Office plc Annual Report and Accounts 2013
On an annual basis the Group
Management Board identifies
key strategic risks and allocates
responsibility for each of them. Any
risk management actions that arise are
regularly monitored.
We have a continuous and evolving
approach to Enterprise Risk
Management and use emerging
experience to refine our approach.
During 2013 this specifically included
improvements in:
The key to the success of this process
is the deployment of a strong Three
Lines of Defence Model whereby:
Qualitative and quantitative risk
profiling;
Underwriting standards and risk
1st Line (Business Management) is
pricing capabilities;
responsible for strategy, performance
and managing risks arising;
2nd Line (Reporting, Oversight
and Guidance) is responsible for
establishing minimum standards,
appropriate reporting, oversight
and challenge of our risk profiles
and risk management activities
within each of our businesses. This
includes Executive Risk Management
Committees and is subject to
oversight and challenge by the
Group Risk Committee; and the
3rd Line (Assurance) provides
independent and objective assurance
of the effectiveness of the Group’s
systems of internal control. This
activity principally comprises the
Internal Audit function which is
subject to oversight and challenge
by the Group Audit Committee.
Our reinsurance strategy; and
Our group-wide risk appetite.
Risk appetite
On at least an annual basis, the
Board establishes a formal appetite
for risk. This sets out the principles,
guidance, limits and tolerances within
which the Board authorises the Group
Management Board to carry out the
business plan. Compliance with risk
appetite is reported to the Group Risk
Committee at each meeting.
Amongst other things, our risk appetite
sets limits on the type, nature, size and
concentration of insurance risks that will
be accepted by the Group together with
the Board’s requirements for a group-
wide reinsurance strategy. We purchase
reinsurance cover to protect against
property catastrophe events that are
predicted to occur once every 250 to
500 years, depending upon the territory.
A key objective of our risk appetite is to
ensure that we have sufficient capital to
meet our liabilities in extreme adverse
scenarios. The risk appetite aims to
achieve and support a credit rating of
at least single A minus from Standard &
Poor’s and A.M. Best.
Quantitative Risk Measures and
Stress Testing framework
The primary tool used to measure
aggregate risk is an Internal Model
which has been calibrated to estimate
the resources required to meet the
UK regulatory risk-based capital
requirements.
Over the last year we have improved and
further embedded our Internal Model
in order to better inform our strategic
decision-making within Ecclesiastical.
For example, the Internal Model was
used extensively in order to support a
Reinsurance Strategy Review.
We continue to refine a comprehensive
scenario and Stress Testing framework
to complement our Quantitative
Risk Measures and meet regulatory
requirements.
Principal risks
The following table shows the principal
risks we face that could have the
highest potential to damage our Group
both in the short and long term.
35
Ecclesiastical Insurance Office plc Section 2/Risk Management
Principal Risks
RISK TYPE AND DESCRIPTION WHY WE HAVE IT
HOW WE MITIGATE IT
BUSINESS MIX, UNDERWRITING
AND PRICING RISK
The risk of failing to price adequately
for claims costs, expenses, cost
of capital and profit requirements;
failure to manage portfolio risk; failure
to manage the underwriting cycle;
diversification and concentration;
failure to establish appropriate
underwriting disciplines.
General insurance is a
highly competitive business.
The premium required for
an insurance policy needs
to reflect the cover provided
and the risk factors present.
Disciplined underwriting and pricing is central to our business and key to the success
of the Group. Since 2010 we have established sales, claims and underwriting
academies to support these activities and to ensure the correct skill
set is maintained and developed. In 2013 we made a significant investment
to enhance underwriting and pricing techniques across the Group.
We have a specialist focus and a strategy of diversification within the type of business
underwritten and between territories, which helps us to manage the underwriting
cycle and reduce the variability of the expected outcome. Concentration risk is a key
consideration and limits are established within the risk appetite.
The size of this risk has fallen slightly over the year; partly due to our reduction in risk
appetite for liability business within the UK and Ireland and partly due to increased
premiums.
REINSURANCE RISK
The risk of failing to access and
manage reinsurance capacity at a
reasonable price.
Reinsurance is a central
component of our business
model, enabling us to insure
a portfolio of large risks
in relation to our capital
base. The Board has long
accepted a high appetite for
a strategic exposure to the
reinsurance market.
This risk is managed by taking a long-term relationship view towards reinsurance
purchases to deliver sustainable capacity rather than opportunistic results. The
global reinsurance market has undergone a major change over the last two years,
driven mainly by record amounts of capital entering the market from various sources.
This abundance of new capital, supported by strong balance sheets and low loss
experience has driven reinsurance rates down in most territories and lines of business
for 2014. In 2013 we conducted a major review of our reinsurance strategy and will
maintain improved cover at a lower cost during 2014.
The size of this risk has fallen slightly over the year.
CLAIMS RESERVING RISK
The risk of actual claims payments
exceeding the amount we are holding
on our statement of financial position
for these liabilities.
Claims reserving risk is a
natural consequence of
incurring insurance claims.
Throughout the lifecycle
of a claim the estimated
ultimate cost will vary as
additional information
becomes available.
COMPETITION AND
DISTRIBUTION RISK
The risk of failing to recognise and
address changes in a competitive
market, particularly competitor
actions, distribution channels, an
imbalance of bargaining power with
distributors, business concentration
and resource issues.
General insurance is a
highly competitive business.
A niche and investment
strategy is a critical
component of our ability
to put products in front of
customers in a compliant
manner which minimises the
risk of consumer detriment.
Claims development and reserving levels are closely monitored. Claims reserving risk
primarily arises from longer tail liability business. For statutory and financial reporting
purposes margins are added to a best estimate outcome to allow for uncertainties. This
approach generally results in a favourable release of previous year’s provisions within
the current financial year. Claims reserves are reviewed and signed off by the Board
acting on the advice and recommendations of the Chief Actuary and the Group Audit
Committee.
Over the last year an external review of reserving levels was carried out, resulting in a
small reserves release.
Further information on this risk is given in notes 2, 3 and 26 to the financial statements
in section 4 of this annual report and accounts.
The Group Management Board monitors key competitors on a regular basis, managing
their impact on our markets. We have a strategy to deliver excellent customer service
through multiple distribution channels. Doing this helps us to diversify our distribution
risk as does transacting business with well-diversified broker panels.
The size of this risk is largely unchanged over the year.
36
Ecclesiastical Insurance Office plc RISK TYPE AND DESCRIPTION WHY WE HAVE IT
HOW WE MITIGATE IT
Annual Report and Accounts 2013
MARKET RISK
The risk of adverse movements in net
asset values arising from a change
in interest rates, equity prices and
foreign exchange rates.
CREDIT RISK
The risk of non-payment of their
obligations by counterparties and
financial markets borrowers.
BUSINESS INTELLIGENCE RISK
The risk of shortfalls in the quality
or availability of management
information for decision-making.
Market risk principally
arises from investment of
reserves (these are held
to pay future claims) and
shareholders’ funds.
Our investment strategy
is focused on fixed income
and as a result has exposure
to interest rate risk. Some
of our fixed income is
invested in corporate
bonds giving exposure
to credit spread risk.
Market risk also arises
as we have a significant
equity portfolio.
A proportion of our equity
portfolio is invested in
overseas equities in
pursuit of better and/or
more diversified
investment returns.
Our principal exposure
to credit risk arises from
reinsurance, which is central
to our business model.
Additional credit risk arises
from our investment in debt
securities, cash deposits
and amounts owed to
us by intermediaries and
policyholders.
Accessing claims data in
relation to the risk offered
is a key tool in enabling
sufficient and competitive
pricing. Other management
information can enable a
quick response to claims or
other market developments.
A robust management framework is in place to mitigate the impact of changes in
financial markets.
EIM manages shareholders’ funds in accordance with the investment strategy and
guidelines agreed by the Finance and Investment Committee of the Board.
We hold a relatively significant equity portfolio in order to deliver a real long-term
investment return on capital and the Board has long accepted a high appetite for
variable investment returns. When appropriate, as was the case in 2013, we use
derivatives to reduce equity exposure.
As we have exposure to overseas businesses and investments we ensure that
currency risk is appropriately monitored and controlled with oversight by our Group
Finance function to try and reduce the impact of fluctuating currency rates.
Interest rate risk is partly managed through selecting appropriate portfolios to back
pools of longer term liabilities and partly through holding a portfolio which has a
relatively short average period to maturity.
Credit spread risk is managed by limiting exposure to non-rated and lower rated bonds
and adherence to limits for exposure to any single issuer.
Market risk exposure fell in 2013 due to the sale of around £50m overseas equities
which we have reinvested in UK fixed income debt securities.
Further information on this risk is given in note 4 to the financial statements on
page 110.
Investment credit risk is controlled through the investment strategy and guidelines
agreed by the Finance and Investment Committee of the Board. Reinsurer credit
risk is controlled by the Group Reinsurance Security Committee, principally through
careful selection and monitoring of reinsurance partners. All reinsurers on the 2013
reinsurance programme had a minimum rating of A minus from Standard & Poor’s
or an equivalent agency at the time of purchase with the exception of MAPFRE RE
whose rating was adversely impacted by the sovereign rating of Spain. However,
MAPFRE RE was upgraded by Standard & Poor’s to A minus with a stable outlook in
February 2014.
Counterparty risk remained in line with 2012, as there were no material changes in
our exposure to counterparties during the year.
Further information on this risk is given in note 4 to the financial statements on page 110.
Over the last four years an extensive programme has focused on accuracy,
completeness and appropriateness of data and on the development of a strategic
data warehouse.
The size of this risk has reduced slightly this year due to continuing deliverables from
internal projects.
REGULATORY AND LEGAL RISK
Regulatory and legal risk is the risk
of non-compliance with applicable
law and regulations, unenforceable
contractual rights and any dispute
resolution or other proceedings
arising in relation to legal rights.
Regulatory and legal risk
arises in each territory in
which we write business and
this can result in significant
cost and reputational
implications if it is not
managed appropriately.
Legal and regulatory developments are monitored throughout the Group and working
parties are established to consider significant developments which impact on our
business.
We have an appropriately resourced regulatory compliance function which is headed
up by a Group Compliance Officer. That said, during the year, by recognising the
increasing importance of regulatory compliance and the continued evolution of
regulation following the establishment of the separate and independent PRA and
Financial Conduct Authority (FCA) regimes, (commonly referred to as twin peaks) we
have strengthened our compliance capability.
The size of this risk has increased during the year given the emergence of the twin
peaks regulatory regime and increasing regulatory obligations and expectations.
OPERATIONAL RISK
The risk of unexpected loss or cost
arising from the operation of the
business or due to external impacts
not covered above.
We have a relatively complex
business operating in a
number of specialist markets
and territories. Whilst
considerable attention to
detail is paid, errors and
non-controllable external
events do occur.
Over the last year we have introduced, and nearly completed, the roll-out of a live
Operational Risk Profile approach which enables us to capture risks and management
actions within each business unit. Risks are managed to comply with the levels set by
the Board approved within the risk appetite. Stress and scenario testing is undertaken
and the results are taken into capital requirement considerations.
Each area of our Group has a Disaster Recovery and Business Continuity Plan in
place that is regularly tested and updated.
The size of this risk is largely unchanged over the year.
REPUTATIONAL RISK
The risk of a reduction in trust by
customers, brokers, reinsurers and
other stakeholders as a result of an
event or series of events.
We always aim to be fair to
our stakeholders. However,
if disagreements occur,
it could result in negative
commentary in many forms
of media.
Reputational risk is primarily managed through our approach to treating stakeholders
fairly, combined with the other actions taken to manage risks to our financial position.
Reputational risk is overseen by the Group Management Board together with the
Group Risk Committee. We will not accept risks that will materially damage our
reputation. We work closely with external stakeholders, gathering feedback and
encouraging dialogue through a variety of communication channels, to proactively
monitor and build our reputation.
The size of this risk is largely unchanged over the year.
37
Ecclesiastical Insurance Office plc Section 2/Corporate Responsibility Report
Corporate
Responsibility
Report
In 2013, we continued our commitment to Corporate
Responsibility (CR) as a Group, focusing specifically
on delivering our community investment programme,
key CR initiatives and building our local charity
partnerships across the globe.
Continued commitment to making a difference
Support for our communities in 2013 was given through a range of initiatives,
including company matching for staff giving, the company’s Helping Hands
volunteering programme and grant giving through the Ecclesiastical 125 Fund,
set up in our 125th anniversary year in 2012.
In recognition of our community investment programme activities over the last few
years in particular, we were awarded the prestigious CommunityMark by Business
in the Community (BITC), an external endorsement of our significant community
investment and our continuous efforts to exceed industry targets. We were also
ranked as the 8th largest corporate donor in the UK for our charitable giving by the
Directory of Social Change* and Our Helping Hands volunteering programme received
insurance industry recognition by being shortlisted for the 2013 British Insurance
Awards in the Corporate Social Responsibility Initiative of the Year category.
*Source: UK Guide to Company Giving 2013/2014, published by the Directory of Social Change
38
Ecclesiastical Insurance Office plc Annual Report and Accounts 2013
▶▶ CORE ISSUES AT THE HEART OF OUR CR PROGRAMME
Over the last few years our community investment programme has focused on issues that are important
to our customers and the communities we operate in.
We have used our understanding of our customers (charity, heritage, faith and education sectors) and
the challenges they face to focus on three core issues, which all of our community investment projects
aim to tackle in some way:
Protecting our heritage against crime and anti-social behaviour
Supporting vulnerable children and adults in our local communities
Supporting the sustainability of local charities that address the specific needs of our communities.
Responsibility for CR in the Group
Formal responsibility and accountability for our approach to CR is clear at all levels in our organisation:
l
i
a
c
i
t
s
a
s
e
c
c
E
t
a
l
y
t
i
l
i
i
b
s
n
o
p
s
e
R
e
t
a
r
o
p
r
o
C
Group Strategy and Corporate Affairs Director
Responsible for reporting on progress and achievements in CR to the Board and Group
Management Board
Corporate Affairs Team
Responsible for developing and implementing the Group CR strategy, monitoring and
reporting on CR activities to the UK General Insurance Managing Director
Employee Community Panel
Responsible for engaging and inspiring employees to get involved in community support activities,
championing community activity, and leading relationships with our local charity partners
39
Ecclesiastical Insurance Office plc
Section 2/Corporate Responsibility Report
Highlights of
2013 CR Activities
Community
We gave 1,600 hours of volunteering
support to charities in the UK
We raised a total of £78,000 for our charity partners
across the UK through employee fundraising
We donated £25,000 to the DEC Philippines appeal and
provided 100% match-funding of all staff donations to the appeal
1,600 £78,000
£25,000 £3,000
5%
£6,300
£40,000
£10,000
We continued our
approach to matching
employee fundraising
and payroll giving
and were awarded
a Payroll Giving
Quality Mark Silver
Award for 5%
employee participation
We gave £6,300 in small grants to local
charities through Gloucestershire Community
Foundation and the Ecclesiastical 125 Fund
Our annual Charity Carol Concert in
Gloucester Cathedral raised more than
£3,000 for charity partners in Gloucestershire
Taking part in the Nightrider cycle challenge through
London for Carers Trust raised £10,000
Our employees donated £40,000 in payroll giving
40
Ecclesiastical Insurance Office plc Annual Report and Accounts 2013
Environment
Our Billiter Street office in London won a Gold Award in the annual Clean City Awards Scheme, which is run by
the City of London. Gold Awards are given to those sites that meet and exceed the requirements of the scheme
so it is a great recognition of our continued recycling and waste management efforts.
Workplace
We continued our focus on improving performance and enhancing skills and capabilities across the business. In
2013 we launched MyEcclesiastical which provides all employees with a central resource to support them across
all aspects of human resources and learning. We also continued to build on the range of training and development
opportunities we offer our people, launching an online learning management system, new regulatory compliance
modules, an advanced apprenticeship programme as well as focused development activity to support our higher
potential employees. With a strong focus on technical skill, we were also delighted to attain Corporate Chartered
Insurer Status with the CII.
Suppliers
We include standard questions within our procurement process with CR performance as a key consideration.
We will continue to question how our suppliers and business partners address their responsibilities.
Customers
In November, Ecclesiastical ran a two-day Helping Hands initiative in conjunction with insurance brokers D E Ford
to provide professional volunteering support to three Yorkshire charities. This is the third year Ecclesiastical has
run a similar professional volunteering initiative, which has proved hugely successful over the years.
41
Ecclesiastical Insurance Office plc Section 2/Corporate Responsibility Report
Overview of CR
Programme
Achievements
by region
UK
The Ecclesiastical 125 Fund
Ecclesiastical’s 125 Fund was set up with the Foundation in 2012 and currently receives 100% government match-funding.
It distributes small grants to Gloucestershire charities through the Gloucestershire Community Foundation.
The Fund supports local registered charities, social enterprises and voluntary or community groups that:
Support people who care for others
Work with vulnerable children and adults
Focus on preserving our heritage.
Seven worthy causes benefited from a total of £6,300 in small grants during the last grant-giving period in 2013.
National charity partnership with Carers Trust
In 2012 Ecclesiastical chose Carers Trust as the company’s national charity to support in 2012–2013 because it has strong links
with a number of our core business areas. In the first year, activity as part of the partnership included supporting the charity’s
first national network conference and financing the post of a care adviser. In the second year of our partnership we funded the
charity’s national research into dementia care in the UK, resulting in the first ever in-depth report into dementia care in the UK
titled ‘A Road Less Rocky’.
BITC Business Class programme
Our support to Gloucestershire-based Millbrook Academy through a number of mentoring and coaching activities marked the
launch of the UK-wide BITC Business Class programme in Gloucestershire. As part of the initiative, local schools and businesses
are grouped together to meet on a regular basis to share best practice and pool resources. Programme members are also able to
share learning and ideas with other Business Class clusters nationwide.
In 2013 Ecclesiastical worked closely with Millbrook Academy for the second year and the partnership has already resulted in:
An increase in the year 7 intake
Enhanced marketing material and opportunities for the school
Opportunities for mentoring of students by staff from Ecclesiastical’s talent pool
A collaborative event with two other schools to equip students with employability skills.
42
Ecclesiastical Insurance Office plc Ecclesiatical Employees taking part in the Nightrider challenge for Carer’s Trust
Ecclesiastical Insurance Office plc
43
Section 2/Corporate Responsibility Report
IRELAND
National charity partnership with SOAR
In 2013 our Irish business partnered with SOAR – an Irish charity foundation which delivers positive life-skills workshops within
and outside the school system for young people aged 10–18. These programmes are high energy, youth relevant and uniquely
different with a focus on key transitional stages in young peoples’ lives.
In addition to corporate support we undertook fundraising throughout the year and raised over €10,000 in support of the work
that SOAR does to make a difference to the lives of local young people.
Our support was specifically used to fund SOAR programmes in 10 schools in the North West Inner City School’s Programme
which is local to our Dublin office.
Fundraising included cake sales, a Christmas jumper day, a table quiz attended by staff and brokers, running the Dublin
women’s mini-marathon and Connemara and Wexford half-marathons. One employee even climbed Ben Nevis and another
grew a moustache for November (Movember) in support of SOAR.
In 2014 we will continue to support SOAR and in addition to fundraising, hope to undertake some volunteering within SOAR.
Other community support
In December 2013 we lent a hand to the Dublin Simon Community in support of the work they do to help prevent and address
homelessness in Dublin, Kildare and Wicklow. As well as making a monetary donation, staff also gave non-perishable foods, gifts
and toys to help make a difference at Christmas to those less fortunate.
The Irish team also supported other events such as the Dublin Relay in aid of Irish Autism Action and the Dublin Dockland’s 5k
in aid of Barnardos. Many employees were additionally involved in and supported initiatives within their local communities.
SOAR programme
44
Ecclesiastical Insurance Office plc Annual Report and Accounts 2013
AUSTRALIA
Every year in Australia, Ansvar donates a proportion of its profits to its Community Education Programme (CEP), which provides
grants for organisations that support disadvantaged Australian youth through education and life-skills programmes. Since 1994,
investment in these programmes has exceeded $10 million. Ansvar grants help organisations enrich the lives of young people,
so they can develop themselves and give back to their communities.
Doxa Youth Foundation
One CEP grant recipient was the 2013 Doxa Youth Foundation Cadetship Programme, which provides grants to talented young
people from disadvantaged backgrounds to enable them to go to university and make the transition from students to young
professionals. The adversity experienced by the students includes homelessness, regional isolation, poverty, family/personal
illness, drug and alcohol-affected family members and financial hardship. As part of the programme, Ansvar mentors two cadets
and provides eight-week work experience opportunities across the three years of their university degrees.
Red Dust Programme
For the last three years Ansvar has also supported the Red Dust Programme, which promotes health awareness in several
remote indigenous communities across Australia. The health programmes aim to raise awareness of the link between lifestyle
choices and chronic disease, with a particular focus on Australian youth.
In 2013, as part of the ‘Living Longer Programme’ eight volunteers from Ansvar spent a week working in schools in three remote
communities across Australia, including the outback and a remote island north of Darwin. The volunteers are role models for the
youth and use sport, art, music and dance to educate students in healthy living.
Red Dust programme - Australia
45
Ecclesiastical Insurance Office plc Section 2/Corporate Responsibility Report
CANADA
During 2013 Ecclesiastical Canada staff continued to exhibit a strong commitment to giving back and supporting charities,
communities, worthy causes and fundraising activities through a variety of philanthropic initiatives.
Kids Help Phone (KHP)
In 2013 Ecclesiastical Canada became a proud national sponsor of KHP, a counselling, information, and referral service that
provides professional support to young people who are experiencing difficult and often overwhelming problems. In addition to
our corporate sponsorship which funds specialised programmes, our staff lent their support by raising funds and participating in
KHP’s ‘Walk So Kids Can Talk’, Canada’s largest annual charity walk in support of youth mental health and wellbeing. Our staff
from across the country also participated in KHP’s national Halloween themed bowling fundraiser ‘Boo-la-thon’ in October.
Heart and Stroke Foundation
For the second consecutive year our Toronto staff engaged in fundraising activities to support the Heart and Stroke Foundation’s
‘Big Bike’ campaign. Riding a bike built for 30 and pedalling around our local community was a fun way for the team to celebrate
achieving its fundraising goal. Monies raised supported heart and stroke research, prevention and education.
Other community support
Other causes our staff lent their time, support and generosity to during the year included Aboriginal Community Forum, Halifax
Clean Sweep and Typhoon Haiyan Philippine Disaster Relief. In total our Canadian staff volunteered 454 hours during 2013.
‘Walk so kids can talk’ Canada
STRATEGIC REPORT APPROVAL
The Strategic Report, outlined on pages 11 to 47, incorporates the Chief Executive’s Review, the Business Model and Strategy,
the Key Performance Indicators, reviews of Financial Performance and Risk Management and the Corporate Social Responsibility
Report and when taken as a whole, is considered by the Directors to be fair, balanced and understandable.
By order of the Board
Mark Hews
Group Chief Executive
25 March 2014
46
Ecclesiastical Insurance Office plc “We make a real difference to the
lives of people in the markets and
communities in which we operate,
and I believe that our financial
strength and committed ethical
approach give our business strong
foundations upon which we can
build our charitable giving.”
Mark Hews, Group Chief Executive
Ecclesiastical Insurance Office plc
47
48
Ecclesiastical Insurance Office plc
Royal Albert Hall
N
O
I
T
C
E
S
Section 3/Corporate Governance
Board of Directors
Directors’ Report
Corporate Governance
- Board Governance
- Group Finance and Investment Committee Report
- Group Nominations Committee Report
- Group Risk Committee Report
- Group Audit Committee Report
- Group Remuneration Report
Independent Auditor’s Report
50
52
56
56
60
62
66
68
74
90
49
Ecclesiastical Insurance Office plc Section 3/Board of Directors
Board of
Directors
David Christie BA,
BSc (Econ) Dip. Ed.*
(a) (b) (e)
Deputy Chairman
and Senior
Independent Director
Appointed to the
Board in 2001 and
was appointed as the
Deputy Chairman and
Senior Independent
Director in February
2013. He retired as
Warden of St Edward’s
School, Oxford, in
2004. Previously he
taught and researched
economics in schools
and universities in
the UK and Europe,
and has been a
trustee to a number
of charities. He was
appointed as a Trustee
of Allchurches Trust
Limited in June 2013.
Will Samuel BSc,
FCA* (a) (b)
Chairman
Appointed to the Board
in January 2006 and
became Chairman
in June 2009. He is
Chairman of TSB Bank
plc and Chairman of
Howden Joinery Group
plc (formerly Galliform
plc). Previously he was
a Senior Adviser to
Lazard & Co. Limited,
Senior Adviser to the
PRA, Trustee and
Honorary Treasurer
of International Alert,
a Non-Executive
Director of Edinburgh
Investment Trust,
Director of Schroder
plc, Vice Chairman of
Investment Banking of
Citigroup Europe and
Deputy Chairman and
Senior Independent
Non-Executive Director
of Inchcape plc.
Mark Hews BSc
(Hons), FIA (c)
Group Chief
Executive
S. Jacinta Whyte
MC Inst. M, ACII,
Chartered Insurer
Deputy Group Chief
Executive
John Hylands FFA*
(b) (c) (d)
Appointed to the
Board in September
2007. Until March
2007 he was an
Executive Director
of Standard Life plc.
He is currently a
Director of Alliance
Trust PLC, Chairman
of the trustees of the
BOC and Standard
Life pension schemes,
a Governor of the
Royal Conservatoire of
Scotland and a school
governor.
Appointed Group
Chief Executive in
May 2013 and was
previously the Group
Chief Financial
Officer for the Group.
Appointed to the
Board in June 2009
and appointed to the
Board of MAPFRE RE
in December 2013.
He was formerly a
Director of HSBC Life
and Chief Executive
of M&S Life. Prior to
this he was Finance
Director at Norwich
Union Healthcare. He
started his financial
career at Deloitte
as a consultant
and actuary.
Appointed Deputy
Group Chief Executive
and to the Board in
July 2013. She is
responsible for the
Group’s General
Insurance business
globally, and was
also appointed to the
Ansvar Australia Board
during 2013. She
joined Ecclesiastical
in 2003 as a General
Manager and Chief
Agent of the Group’s
Canadian business.
Starting her career as
an Underwriter with
RSA in Dublin in 1974,
she moved with them
to Canada in 1988,
holding a number
of senior executive
positions in both
Ireland and Canada.
50
Ecclesiastical Insurance Office plc Annual Report and Accounts 2013
Tony Latham ACII*
(a) (c) (d)
The Venerable
Christine Wilson* (e)
Denise Wilson BA
(Hons), FCII* (d) (e)
Tim Carroll FCII, BA,
MBA* (a) (c) (d)
Appointed to the
Board in March 2008.
Until December 2007
he was a member of
the Group Executive
of RSA Group plc. He
is Chairman of Pool
Reinsurance Limited
and a Director of
Codan A/S.
* Non-Executive
Directors (NEDs)
Key to
membership of
Group Board
Committees
(a) Finance and
Investment
(b) Nominations
(c) Risk
(d) Audit
(e) Remuneration
Appointed to the
Board in June 2012
and has served for
13 years in parochial
ministry. She was
Chaplain to the High
Sheriff of East Sussex
in 2008 and has
been Archdeacon of
Chesterfield in the
Diocese of Derby
since 2010. She is
also a member of the
Church of England
General Synod. In
December 2013
she was elected as
the East Midlands
female regional
representative to the
House of Bishops.
She has also been
chair of a number
of charities.
Appointed to the
Board in December
2010. She is currently
CEO for the Lord
Davies Review of
Women on Boards,
Chairman of the
Friends Board at the
Royal Academy of
Arts, Chairman of
Lorica International
Limited and a Director
of Lorica Consulting
Group. In a prior
Executive capacity,
at National Grid until
2011 and previously
BG Group and British
Gas, she has served
in many senior roles
including Head of
Investor Relations,
Global Audit Director,
and Commercial and
Customer Director,
and started her career
in insurance with RSA.
Appointed to the
Board in March 2013,
he is an international
business leader
with significant
London Market and
Lloyd’s experience,
including roles as
CEO of Swiss Re’s
UK holding company,
CEO Europe of GE
Insurance Solutions,
President and CEO
of GE Reinsurance
Inc in the USA and
Active Underwriter of
Canopius Syndicate
4444 at Lloyd’s. He
has held a number
of industry positions
including Chairman
of the International
Underwriting
Association and
President of the
Insurance Institute
of London.
51
Ecclesiastical Insurance Office plc Section 3/Directors’ Report
Directors’
Report
The Directors submit their annual report and accounts for Ecclesiastical
Insurance Office plc, together with the consolidated financial statements of the
Group for the year ended 31 December 2013. The Group Chief Executive’s
Review, Strategic Report and Corporate Governance section (this includes
Board Governance, the Group Finance and Investment Committee Report, the
Group Nominations Committee Report, the Group Risk Committee Report, the
Group Audit Committee Report and the Group Remuneration Report) are all
incorporated by reference into this Directors’ Report.
Principal activities
Board of Directors
The Group operates principally as a
provider of general insurance in addition
to offering a range of financial services,
with offices in the UK, Ireland, Canada
and Australia. A list of the Company’s
main subsidiary undertakings are given
on page 157 and details of international
branches are shown on page 156.
Ownership
At the date of this report the entire
issued Ordinary share capital of the
Company and none of the issued
8.625% Non-Cumulative Irredeemable
Preference Shares of £1 each
(‘Preference shares’) were owned by
Ecclesiastical Insurance Group plc. In
turn, the entire issued Ordinary share
capital of Ecclesiastical Insurance
Group plc was owned by Allchurches
Trust Limited, the ultimate parent of
the Group.
The Directors of the Company at
the date of this report are stated on
page 51.
Tim Carroll was appointed as a Director
of the Company on 2 April 2013. Mark
Hews was appointed as Group Chief
Executive on 1 May 2013. Michael
Tripp and Steve Wood resigned from
the Board on 21 May and 12 June
2013, respectively. S. Jacinta Whyte
was appointed as Deputy Group Chief
Executive on 16 July 2013.
In line with the Financial Reporting
Council’s (FRC) UK Corporate
Governance Code (the Code) the
Board has voluntarily chosen to
comply with the recommended
annual re-election of Directors. All
Directors that have served since the
last annual general meeting (AGM)
will be proposed for re-election at
the forthcoming AGM, and S. Jacinta
Whyte will be recommended for election
at the forthcoming AGM following
recommendation from the Group
Nominations Committee.
The Group has made qualifying third-
party indemnity provisions for the
benefit of its Directors. These were in
place throughout the year and remain
in force at the date of this report.
Neither the Directors nor their
connected persons held any beneficial
interest in any Ordinary shares of the
Company during the year ended 31
December 2013. There has been no
change in this position since the end
of the financial year and the date of
this report.
The following Directors of the Company,
and their connected persons, held
Preference shares in the capital of the
Company at 31 December 2013:
52
Ecclesiastical Insurance Office plc Annual Report and Accounts 2013
DIRECTOR
NATURE OF INTEREST
NUMBER OF NON-CUMULATIVE IRREDEEMABLE
PREFERENCE SHARES HELD
David Christie
Director
Mark Hews
Will Samuel
Connected person
Director
11,079
75,342
151,000
There have been no changes to their holdings between the end of the financial year and the date of this report.
No contract of significance subsisted
during or at the end of the financial year
in which a Director was or is materially
interested.
Dividends
Dividends paid on the Preference
shares were £9,181,000 (2012:
£9,181,000).
The Directors do not recommend a final
dividend on the Ordinary shares (2012:
£nil), and no interim dividends were
paid in respect of either the current
or prior year.
Charitable and political donations
Charitable donations paid, and provided
for, by the Group in the year amounted
to £5.5 million (2012: £5.7 million).
During the last 10 years, a total of
£95.3 million (2012: £94.3 million) has
been provided by Group companies for
church and charitable purposes.
It is the Group’s policy not to make
political donations.
Employees
Going concern
The Group recognises the importance
of employee communication and
aims to keep employees informed
about its affairs through the use of
briefing groups, Group newsletters
and the publication of financial reports.
Regular meetings are held between
management and other employees and
discussion encouraged. It is the Group’s
policy to give full consideration to
applications for employment by disabled
persons. Appropriate adjustments
are arranged for disabled persons,
including retraining for alternative work
of employees who become disabled, to
promote their career development within
the organisation.
Principal risks and uncertainties
The principal risks and uncertainties,
together with the financial risk
management objectives and policies of
the Group and Company, are included
in the Risk Management section of
the Strategic Report and can be found
starting on page 34.
The Financial Performance section
on page 30 and Risk Management
section of the Strategic Report starting
on page 34 provide a review of the
Group’s business activities and describe
the principal risks and uncertainties,
including exposures to insurance and
financial risk.
The Group has considerable financial
resources: financial investments of
£946.5m, 97% of which are liquid
(2012: financial investments of
£922.1m, 96% liquid); cash and
cash equivalents of £107.2m and
no borrowings (2012: cash and
cash equivalents of £112.6m and
no borrowings); and a regulatory
enhanced capital cover of 2.6 (2012:
2.7). As a consequence, the Directors
have a reasonable expectation that
the Group is well placed to manage
its business risks successfully and
continue in operational existence for
the foreseeable future. Accordingly,
they continue to adopt the going
concern basis in preparing the annual
report and accounts.
53
Ecclesiastical Insurance Office plc
Section 3/Directors’ Report
Auditor and the disclosure of
information to auditor
So far as each person who was a
Director at the date of approving this
report is aware, there is no relevant
audit information that the auditor is
unaware of, that could be needed by
the auditor in order to prepare their
report. Having made enquiries of fellow
Directors and the Company’s auditor,
each Director has taken all the steps
that they ought to have taken as a
Director, in order to make themselves
aware of any relevant audit information,
and to establish that the auditor is
aware of that information.
This confirmation is given and should
be interpreted in accordance with
the provisions of Section 418 of the
Companies Act 2006.
The Group Audit Committee reviews
the reappointment of the auditor,
including the auditor’s effectiveness
and independence, and recommends
the auditor’s reappointment and
remuneration to the Board. Further
details are disclosed in the Corporate
Governance section on page 56.
In accordance with Section 489 of
the Companies Act 2006, a resolution
proposing that Deloitte LLP be re-
appointed as auditor of the Company
will be put to the forthcoming AGM.
Directors’ responsibilities
The Directors are responsible for
preparing the annual report and the
financial statements in accordance with
applicable law and regulations.
Company law requires the Directors
to prepare financial statements for
each financial year. Under that law
the Directors are required to prepare
the Group financial statements in
accordance with International Financial
Reporting Standards (IFRSs) as adopted
by the European Union and Article 4 of
the International Accounting Standards
(IAS) Regulation and have also chosen
to prepare the parent company financial
statements under IFRSs as adopted by
the European Union. Under company
law the Directors must not approve
the accounts unless they are satisfied
that they give a true and fair view of
the state of affairs of the Company
and of the profit or loss of the Company
for that period. In preparing these
financial statements, IAS 1 requires
that Directors:
Properly select and apply accounting
policies;
Present information, including
accounting policies, in a manner that
provides relevant, reliable, comparable
and understandable information;
Provide additional disclosures
when compliance with the specific
requirements in IFRSs are insufficient
to enable users to understand the
impact of particular transactions,
other events and conditions on the
Company’s financial position and
financial performance; and
Make an assessment of the
Company’s ability to continue as
a going concern.
The Directors are responsible for
keeping adequate accounting records
that are sufficient to show and explain
the Company’s transactions and
disclose with reasonable accuracy at
any time the financial position of the
Company and enable them to ensure
that the financial statements comply
with the Companies Act 2006. They
are also responsible for safeguarding
the assets of the Company and hence
for taking reasonable steps for the
prevention and detection of fraud and
other irregularities.
The Directors are responsible for
the maintenance and integrity of the
corporate and financial information
included on the Company’s website.
Legislation in the United Kingdom
governing the preparation and
dissemination of financial statements
may differ from legislation in other
jurisdictions.
Responsibility statement
We confirm that to the best of our
knowledge:
The financial statements, prepared
in accordance with IFRS, give a true
and fair view of the assets, liabilities,
financial position and profit or loss of
the Company and the undertakings
included in the consolidation taken as
a whole;
The Strategic Report includes a
fair review of the development and
performance of the business and
the position of the Company and
the undertakings included in the
consolidation taken as a whole,
together with a description of the
principal risks and uncertainties that
they face; and
The annual report and financial
statements, taken as a whole, are fair,
balanced and understandable and
provide the information necessary
for shareholders to assess the
Company’s performance, business
model and strategy.
By order of the Board
Will Samuel
Chairman
25 March 2014
Mark Hews
Group Chief
Executive
25 March 2014
54
Ecclesiastical Insurance Office plc
Students at Wycliffe College
Ecclesiastical Insurance Office plc
55
Section 3/Corporate Governance
Corporate
Governance
The Board of Directors are committed to applying the highest standards of
corporate governance and believe that the affairs of the Company should be
conducted in accordance with best business practice. Accordingly, the Company
has chosen to voluntarily comply with the Code’s Main Principles and Code
Provisions, where relevant to the Company. The Code is available from the FRC’s
website. The Company does not have any shares with a Premium Listing on the
London Stock Exchange and is therefore not legally required to comply with the
Code. The corporate governance disclosures include the Board Governance
section, Group Nominations Committee Report, Group Risk Committee Report,
Group Audit Committee Report and Group Remuneration Report.
Board Governance
The Board
The Chairman and Group Chief
Executive
The roles of the Chairman and the
Group Chief Executive are undertaken
by separate individuals. The Chairman,
Will Samuel, is responsible for
leadership of the Board. The day-
to-day management of the business
is undertaken by the Group Chief
Executive, Mark Hews, assisted by the
Group Management Board.
Senior Independent Director
David Christie, Deputy Chairman,
has been appointed as the Senior
Independent Director (SID). The SID
supports and acts as a sounding board
for the Chairman and is responsible for
overseeing the governance practices of
the Company and leading the Directors
in their appraisal of the Chairman.
Along with the Chairman, the SID is
the primary contact for the shareholder
and they meet regularly to share and
understand views.
Directors’ conflicts
A Conflicts Register is maintained
by the Group Company Secretary to
monitor and manage any potential
conflicts of interest. Training on the
Companies Act 2006 has been given
to all Directors on the provisions and
Directors are regularly reminded of
their duties. Any conflicts are declared
at the first Board meeting at which the
Director becomes aware of a potential
conflict and then recorded in the
Conflicts Register. The Board considers
all conflicts in line with the provisions
set out in the Company’s Articles. The
Directors are required to review their
interests recorded in the Conflicts
Register on a biannual basis.
Role of the Board
The Board is responsible to the Group’s
shareholders for the long-term success
of the Group, its strategy, values and its
governance. Great importance is placed
on a well-informed and decisive Board,
and Board meetings are scheduled and
held regularly throughout the year.
A one-year rolling plan of business for
discussion is reviewed and agreed by
the Board annually to ensure that the
Board is focused on the right issues
at the right times and sufficient time is
allowed for appropriate consideration
and debate.
56
Ecclesiastical Insurance Office plc Annual Report and Accounts 2013
Ecclesiastical
Board of
Directors
Group Finance
and Investment
Committee
Group
Nominations
Committee
Group Risk
Committee
Group Audit
Committee
Group
Remuneration
Committee
The Board sets annual objectives for
each year in addition to setting the
Group’s strategic direction. These are
implemented through approval and
regular assessment of the business
plan and strategy process. At each
Board meeting the Directors discuss
strategic and business matters, financial,
operational and governance issues
and other relevant business items that
arise. Following Committee meetings
the Board receives oral reports from the
Chairs of each Committee at the next
Board meeting.
Details of all the Board Committees are
contained within their respective reports
that follow: the Group Finance and
Investment Committee Report on page
60; the Group Nominations Committee
Report on page 62; the Group Risk
Committee Report on page 66; the
Group Audit Committee Report on page
68; and the Group Remuneration Report
on page 74.
The terms of reference for all five Board
Committees can be obtained from either
the Company’s registered office address
or the website at:
Board Committees
The Group has five Board Committees
which are shown above.
www.ecclesiastical.com/general/
investorrelations/corporategovernance/
termsofreferenceofcommittees
Attendance at meetings
Directors are required to attend all
Board meetings and strategy days as
well as Committee meetings where they
are members. In 2013, six scheduled
Board meetings, two additional Board
meetings and two off-site strategy days
were held. In addition, three scheduled
training sessions took place.
All Directors receive papers and minutes
for all meetings, unless restricted due
to conflict or sensitivity. Papers are
circulated electronically, generally
one week in advance of all scheduled
meetings. All Directors have access to
the Group Company Secretary and to
independent professional advice at the
Company’s expense as required.
57
Ecclesiastical Insurance Office plc Section 3/Corporate Governance
Below is a record of the Directors’ attendance for the Board meetings during 2013:
Board attendance table
EXECUTIVE DIRECTORS
DIRECTOR SINCE
MEETINGS ELIGIBLE TO ATTEND MEETINGS ATTENDED
Mark Hews
S. Jacinta Whyte
Michael Tripp
Steve Wood
June 2009
July 2013
January 2007
(resigned May 2013)
January 2006
(resigned June 2013)
10
3
4
5
9
2
3
4
NON-EXECUTIVE DIRECTORS
DIRECTOR SINCE
MEETINGS ELIGIBLE TO ATTEND MEETINGS ATTENDED
Will Samuel (Chairman)
January 2006
David Christie (SID)
Tim Carroll
Sir Philip Mawer
John Hylands
Denise Wilson
Tony Latham
Christine Wilson
January 2001
March 2013
February 2008
(resigned February 2013)
September 2007
December 2010
March 2008
June 2012
10
10
7
2
10
10
10
10
10
10
6
2
9
10
8
8
During 2013, the Board made decisions on the following business issues and routine matters:
Routine matters
Operational matters
Board’s annual objectives
Financial performance and statements
Risk management, appetite, and registers
Overview of compliance and audit work undertaken for the Group Audit Committee
Dividends, charitable donations and Gift Aid
Setting and reviewing budgets
Committee reports and recommendations
Performance, strategic and business plans for Group businesses
Group reinsurance arrangements
General insurance claims reserves
Sales and claims
Treating Customers Fairly and complaints handling
Review of staff pension arrangements
Determining NEDs’ fees for recommendation at a general meeting
Stakeholder relationships
Review of UK General Insurance business including niches
Review of overseas businesses
Projects
Exiting motor insurance
Review of capital structure
Restructure of the underwriting business
Review of Group structure
Review of Governance arrangements
Governance and regulatory
matters
Changes to Executive Directors
Taxation matters
Evaluation of the Board
58
Ecclesiastical Insurance Office plc Assurance on the adequacy and
effectiveness of internal control systems
is obtained through management
reviews, control self-assessment and
internal audits.
Systems of internal control are designed
to manage rather than eliminate the
risk of failure to achieve business
objectives, and can provide reasonable,
but not absolute assurance as to the
prevention and detection of financial
misstatements, errors, fraud or violation
of law or regulations.
By order of the Board
Mrs. R. J. Hall
Group Company Secretary
25 March 2014
Internal controls
The Board is ultimately responsible for
the systems of risk management and
internal control maintained by the Group
and reviews their appropriateness
and effectiveness annually. The Board
views the management of risk as a key
accountability and is the responsibility
of all management and believes that, for
the period in question, the Company has
maintained an adequate and effective
system of risk management and internal
control that complies with the Code.
Further details are set out in the Risk
Management section on page 34.
The Company embeds risk management
into its strategic and business planning
activities whereby major risks that
could affect the business in the short
and long term are identified by the
relevant management together with
an assessment of the effectiveness of
the processes and controls in place to
manage and mitigate these risks.
The Chartered Institute of Internal
Auditors (CIIA) issued guidance during
2013, and as a result of this guidance
the Internal Audit and Compliance
functions now have separate reporting
lines. The Compliance function is now
clearly operating in the second line
of defence. More detail on how these
functions operate can be found in the
Group Audit Committee Report which
starts on page 68.
The Group’s internal control framework
is vital in setting the tone for the Group
and in creating a high degree of control
consciousness in all employees.
A Code of Conduct and a Code of
Ethics is embedded into the culture of
the Group and is accessible to all staff
via the intranet.
Annual Report and Accounts 2013
59
Ecclesiastical Insurance Office plc Section 3/Group Finance and Investment Committee Report
Group Finance
and Investment
Committee Report
Chairman’s introduction
I am pleased to present the Group Finance and
Investment Committee’s report describing the work
we have undertaken during the past year. I have
handed the Chairmanship of the Committee over to
Tim Carroll from 1 January 2014 and he will report
on the Committee’s activities in future years. Our
main purpose is to ensure that the management of
the Group’s financial assets, including its investment
portfolio, is properly governed, controlled and
performing as expected. We also review and advise
on any major financial decisions on behalf of the
Board. This report gives more information on how
we performed our duties during 2013.
David Christie
Chairman of the Group Finance and Investment Committee
Membership
The members of the Group Finance and Investment Committee are shown in the table below:
COMMITTEE MEMBER
MEMBER SINCE
MEETINGS ELIGIBLE TO ATTEND MEETINGS ATTENDED
David Christie (Chairman)*
September 2010
Tim Carroll*
Will Samuel
Tony Latham
Michael Tripp
August 2013
March 2006
February 2009
June 2008
(resigned May 2013)
5
4
5
5
2
5
3
5
5
1
*Tim Carroll was appointed Chairman of the Committee with effect from 1 January 2014.
60
Ecclesiastical Insurance Office plc The Committee reviews its terms of
reference annually and during the year
held four scheduled meetings and an
additional meeting. The remit of the
Committee, in line with its terms of
reference and designated financial
limits, is to:
Provide broad Group strategy and
set investment parameters for
Group portfolio investment matters
including derivative instruments within
the context of overall risk to the
business and monitor adherence to
parameters;
Consider and review Group treasury
management and Group tax
strategies;
Consider monthly investment reports
and review investment performance
against benchmark levels; and
Consider and review Group
Oversee and review performance of
capital management, taking into
consideration the Individual Capital
Assessment (ICA) and risk appetite;
Consider and review major capital
projects and contracts;
delegated funds.
During 2013, the remit of the
Committee was extended to be on a
‘Group basis’. Its main activities were in
line with its remit above and included:
Consider and review major
Review of the annual investment
investments of the Group including
the acquisition or disposal of interests
of more than 5% in the voting shares
of any listed company;
Consider and review acquisitions and
disposal of investment property or
businesses by the Group, and enter
into formal discussions with the
intention of making a takeover offer;
Consider and review borrowing
monies, committing any Group
Company to a guarantee or indemnity
for the performance of a subsidiary,
or authorising a mortgage or a charge
over the whole or any part of the
Group’s undertaking;
Consider and review circulars to
shareholders and listing particulars;
Provide broad strategy and set
specific investment parameters
for portfolio investment matters
within the context of the Board’s
assessment of overall risk to the
business;
strategy;
Setting investment parameters for
Group portfolio investment and review
of derivative instruments;
Review of quarterly investment
reports and investment performance
against benchmark levels;
Review of investment property;
Consideration of a potential
acquisition by a subsidiary;
Review of tax strategy;
Review of treasury management; and
Review of the evaluation results of
the Committee undertaken in 2012.
By order of the Board
David Christie
Chairman of the Group Finance and
Investment Committee
25 March 2014
Annual Report and Accounts 2013
61
Ecclesiastical Insurance Office plc Section 3/Group Nominations Committee Report
Group
Nominations
Committee Report
Chairman’s introduction
I am pleased to present the Group Nominations
Committee’s report describing the work we
have carried out in 2013. Our main purpose is
to ensure that there is an appropriate balance of
skills, knowledge and experience on the Board,
its Committees and within the Group’s subsidiary
companies. This report gives more detailed
information on how we performed our duties during
the year.
Will Samuel
Chairman of the Group Nominations Committee
Membership
The Group Nominations Committee comprises the NEDs shown below and are appointed by the Board:
COMMITTEE MEMBER
MEMBER SINCE
MEETINGS ELIGIBLE TO ATTEND MEETINGS ATTENDED
Will Samuel (Chairman)
June 2008
David Christie
John Hylands
Sir Philip Mawer
January 2001
May 2013
November 2009
(resigned February 2013)
4
4
3
1
4
4
3
1
The Committee held three scheduled meetings and one additional meeting during the year. The remit of the Committee, in line
with its terms of reference, is to:
Review the structure, size and composition of the Board, its Committees and subsidiary companies;
Conduct evaluations of the Board and Committees and make recommendations to the Board;
Oversee and approve the Board composition and officer changes in Group subsidiaries and senior management changes
within the Group;
62
Ecclesiastical Insurance Office plc Annual Report and Accounts 2013
Consider Board and senior executive
succession planning for the Group;
Assess and review Directors’ skills,
knowledge and experience;
Review the Group’s leadership needs
in order to compete effectively in the
target markets;
Undertake recruitment of new
Directors and Executives to the
Board, utilising external search
consultancy as appropriate; and
Oversee the content and operation
of the induction programme, annual
training programme, and continuous
professional development (CPD) of
Directors.
The principal activities of the Committee
during 2013 included:
Review of the Board’s composition;
Review and agreement of the matrix
of the Board’s leadership skills and
technical skills to identify gaps;
Review of the Succession Plans for
the Board and Senior Management;
Selection and recommendation of the
appointment of Tim Carroll as a new
NED to the Board;
Commencement of a selection
process for a new NED;
Utilisation of an external search
consultancy, to select and
recommend the appointment of Mark
Hews as Group Chief Executive;
Recommendation of S. Jacinta Whyte
as Deputy Group Chief Executive;
Review of diversity trends across the
Group;
Monitoring the implementation of
recommendations arising from the
external evaluation of the Board’s
strategy approach undertaken in 2012;
Assessing the outcomes of the
evaluation of Internal Board
Committees which was undertaken at
the end of 2012;
Internal Board evaluation at the end
of 2013;
Review of the Directors’ annual
appraisal and development needs;
Review of the CPD programme for
Directors; and
Review of the Board training
programme.
Board composition and
independence
The Board comprises a Non-Executive
Chairman, six other NEDs and two
Executive Directors. The Company
believes the size and composition of the
Board gives it sufficient independence,
balance and broad experience to
consider the issues of strategy,
performance, resources and standards
of conduct. The strong representation
of NEDs on the Board demonstrates its
independence, provides a greater depth
of experience and facilitates challenge.
Board appointments
All NEDs are provided with a Letter
of Appointment on acceptance of the
appointment, which includes the terms
and conditions of their role. Letters of
Appointment are available on request
from the Group Company Secretary.
Board diversity
Ecclesiastical recognises the benefits
of having a diverse Board. It is
committed to improving diversity on
the Board, including gender diversity
and acknowledges diversity both
improves performance of the Board and
strengthens the business.
Currently the representation of women
on the Board stands at 33%, with
three women members in a current
membership of nine. The Board will
take the opportunity, as and when
appropriate, to improve further its
gender balance. An external search
consultancy has been used in the
appointment of NEDs during the year to
ensure best practice is adhered to.
The Board also recognises the
importance of improving gender balance
at senior levels within the organisation
and is actively reviewing diversity across
the Group.
Board performance and evaluation
Induction
All Directors are required to undertake a
formal and comprehensive induction to
the Group upon joining the Board. The
induction is a three-stage process and is
undertaken by the Legal and Secretarial
Department.
On acceptance of a position on the
Board, all Directors receive an induction
pack, which includes their appointment
letter and terms; latest audited report
and accounts; constitutional documents;
protocols on conflicts of interest,
price-sensitive information, Directors’
duties, share dealing, data protection
and Board procedures; the Code; Board
minutes for the current and past year;
and Board dates and contact details.
After appointment, a two-day induction
programme is provided where
presentations are given by Legal and
Secretarial, Group Compliance, Finance,
Group Risk, Actuarial, Group Strategy,
and Heads of the businesses. The
programme is also offered to other
Directors as a refresher every two years
and when a programme is being run.
New Directors also meet individually
with the Chairman of the ultimate parent
company (Allchurches Trust Limited),
63
Ecclesiastical Insurance Office plc Section 3/Group Nominations Committee Report
the Group Chairman, the Deputy
Chairman and the SID, and each of the
Executive Directors.
The third stage of the induction is
participation in the Board’s CPD
programme.
Training
Throughout the year, Directors
participate in the CPD programme,
which includes internal training on
topical issues (including business
familiarisation) relevant to the
Company’s commercial and regulatory
environment and attendance on relevant
external CPD opportunities, funded by
the Company. In 2013, three internal
training sessions took place and
covered Underwriting, Risk Framework,
Treating Customers Fairly, and Human
Resources.
The Group Company Secretary
maintains annual CPD records for all
Directors, which the Chairman reviews
as part of their annual appraisal. Training
and development needs of Board
members are also reviewed in the
Committee.
Performance evaluations
At the end of 2012 the Committee led
an internal evaluation of the five Board
Committees, assisted by the Company
Secretariat. All Committee members
were required to complete bespoke
Committee assessments. The outcome
of the evaluations was considered by
the Group Nominations Committee in
February 2013 and recommendations
were agreed and implemented.
In October 2013, an internal
evaluation of the Board was
undertaken, assisted by the Company
Secretariat. The outcome of the
evaluation was considered by the
Board at its December Meeting and
recommendations were agreed. The
Group Nominations Committee will
monitor their implementation. The
Committee intends to keep the need
for a full external evaluation of the
Board under regular review, with the
expectation that it will be undertaken
every two years as recommended by the
Code. A company called Independent
Audit Limited carried out the previous
external evaluation of the Board and
is not connected to Ecclesiastical
Insurance Office plc. The next external
evaluation is expected to take place at
the end of 2014 and we have not yet
decided which company will carry this
out on our behalf.
All Directors receive an annual appraisal
from the Chairman. The Chairman is
appraised by the Board, in his absence,
led by the SID.
Re-election of Directors
In line with the Code, the Board has
voluntarily chosen to comply with the
annual re-election of Directors. NEDs
are appointed for a period of three
years, and are expected to serve a
minimum of two consecutive terms,
subject to satisfactory performance.
Where NEDs have served for more than
six years the Committee has undertaken
a rigorous annual review before their
recommendation for annual re-election.
The report and accounts accompany
the AGM notice and therefore provide
the biographical information for the
Board members seeking election and
re-election.
In 2013, three NEDs, Will Samuel, David
Christie and John Hylands, have all
served for more than six years on the
Board. The Committee has considered,
in their absence, each NED’s respective
contribution and attributes, the Board
composition and succession planning
when making their decision. Following
rigorous review, the Committee was
satisfied that their length of service has
not affected their independence and
has proposed them for re-election at the
forthcoming AGM.
The Chairman is satisfied that the
performance of each NED is effective
and sufficient time has been spent on
the Company’s affairs.
The Board believes that all the NEDs
were independent throughout 2013.
Independence is reviewed as part
of each Director’s annual appraisal,
considered by the Committee, and
agreed by the Board annually. The
Board has determined that, even though
David Christie has served as a Director
for more than nine years, he should be
regarded as an independent NED as
he remains independent in character
and judgement and there are no
circumstances or relationships likely to
affect his judgement as a Director.
Executive Directors’ other
commitments
External directorships are considered to
be valuable in terms of broadening the
experience and knowledge of Executive
Directors, provided there is no actual
or potential conflict of interest, and the
commitment required is not excessive.
All appointments are subject to approval
by the Board, and the Conflicts Register
maintained by the Group Company
Secretary is used to monitor external
interests. Any monetary payments
received by Executive Directors from
outside directorships are paid over to
and retained by the Company.
Non-Executive Directors’
commitments
The Committee evaluates the time
NEDs spend on the Company’s
business annually and is satisfied
that in 2013 the NEDs continued to
be effective and fulfilled their time
commitment as stated in their letters of
appointment. Accordingly, all NEDs at
the date of this report are recommended
for re-election at the AGM.
By order of the Board
Will Samuel
Chairman of Group Nominations
Committee
25 March 2014
64
Ecclesiastical Insurance Office plc Photograph by Claire Niewiarowski
Ecclesiastical Insurance Office plc
65
Section 3/Group Risk Committee Report
Group Risk
Committee Report
Chairman’s introduction
I am pleased to present the Group Risk
Committee’s report describing the work we
have done during the past year. The Group
has voluntarily chosen to include a Group Risk
Committee Report in the Annual Report of the
Company in addition to the disclosures in the
Risk Management section on page 34.
Tony Latham
Chairman of the Group Risk Committee
Membership
The Group Risk Committee members and their attendance at meetings during the year are shown below:
COMMITTEE MEMBER
MEMBER SINCE
MEETINGS ELIGIBLE TO ATTEND
MEETINGS ATTENDED
Tony Latham (Chairman)
June 2010
Mark Hews
Tim Carroll
John Hylands
June 2010
(resigned 12 February 2014)*
August 2013
September 2010
4
4
2
4
4
4
2
4
* S. Jacinta Whyte has been appointed to replace Mark Hews with effect from 12 February 2014
66
Ecclesiastical Insurance Office plc Annual Report and Accounts 2013
The Group Risk Committee was created
in June 2010 and comprises the
Directors shown in the table opposite
who were appointed by the Board. In
addition, Will Samuel (Chairman of the
Board) is normally in attendance at
the meetings.
The Chief Risk Officer reports to the
Committee and has direct access to
the Chairman of the Committee and
the NEDs. The Committee ensure that
they meet with the Chief Risk Officer
at least once a year without the
Executives present.
The remit of the Committee is to:
Recommend and monitor the Group’s
overall risk appetite, tolerance and
strategy in the context of the current
and prospective macroeconomic and
financial environment;
Recommend and monitor the Group’s
strategy, policy and processes for risk
management;
Monitor the effectiveness of the
Group’s Enterprise Risk Management
Framework, risk policies and systems;
Receive and review risk-based
management reports and other
information, making recommendations
for change as appropriate;
Ensure that material risks facing
the Group have been identified and
addressed appropriately;
Consider the effect on the risks of
the Group of material findings of
Compliance and Internal Audit reports
carried out for the Group Audit
Committee;
Recommend the Individual Capital
Assessment (ICA);
A ‘dry run’ Own Risk and Solvency
Assessment (ORSA) at Group level;
The risk impact of remuneration
proposals and approval of the
report to the Group Remuneration
Committee;
The risks arising from writing liability
business;
Property concentrations by business
unit;
The approval of Reverse Stress Test
results and recommendations arising;
The approval of Insurance Risk and
Operational Risk Policy; and
The capital requirements across the
Group, and recommendation of the
Group’s ICA as at the end of 2012.
By order of the Board
Tony Latham
Chairman of the Group Risk Committee
25 March 2014
Approve the appointment or removal
of the Chief Risk Officer;
Ensure that the Board receives
adequate training on risk matters; and
Ensure appropriate liaison with other
Board Committees, e.g. the Group
Remuneration Committee and the
Group Audit Committee.
During 2013, the Committee held four
meetings. In addition to the routine
matters highlighted above, it also
specifically considered:
The Group’s strategic risk profile,
ensuring that this provided an
accurate reflection of the Group’s
key risks;
The annual review and
recommendation of the Group’s risk
appetite (including catastrophe risk
appetite);
Reporting against the risk appetite
from each of the Executive Risk
Committees at each ordinary meeting
and where appropriate challenging
appetite breaches or potential
breaches;
Proposed changes to risk appetite
and proposed exceptional
transactions on an as required
basis to confirm that these were
appropriately authorised and did not
expose the Group to undue risks;
Stress and scenario testing carried
out across the Group including
Reverse Stress Testing;
67
Ecclesiastical Insurance Office plc Section 3/Group Audit Committee Report
Group Audit
Committee Report
Chairman’s introduction
I am pleased to present the Group Audit Committee’s
report describing the work we have done during
the past year. We have considered the provisions
of the new Code and the FRC Guidance on audit
committees and modified our terms of reference to
take account of them. These changes have reinforced
the role of the Committee, on behalf of the Board, in
ensuring that the Annual Report, taken as a whole,
is fair, balanced and understandable. We have also
expanded our report to provide more detail on the
significant issues considered by the Committee in
relation to the financial statements and how these
issues were addressed.
John Hylands
Chairman of the Group Audit Committee
Membership
The Committee members have been selected with the aim of providing the wide range of financial and commercial expertise
necessary to fulfil the Committee’s duties. The Board considers that John Hylands has recent and relevant financial experience,
as required by the Code.
The Group Audit Committee members and their attendance at meetings during the year are shown below:
COMMITTEE MEMBER
MEMBER SINCE
MEETINGS ELIGIBLE TO ATTEND
MEETINGS ATTENDED
John Hylands (Chairman)
March 2008
Tim Carroll
Tony Latham
Denise Wilson
April 2013
December 2008
August 2011
6
2
6
6
6
2
5
6
68
Ecclesiastical Insurance Office plc Committee meetings
During the year, the Committee had
six scheduled meetings. In addition to
the members of the Committee the
Chairman of the Board, the Group
Chief Executive, the Group Finance
Director, the Group Internal Audit
Director and the Group Compliance
Director attend meetings by invitation.
Other relevant people from the business
are also invited to attend certain
meetings in order to provide a deeper
level of insight into certain key issues
and developments. We also invite our
external auditor, Deloitte LLP, to
attend most meetings, and during
2013 they attended five out of the
six meetings held.
The Committee also meets with the
Group Internal Audit Director on an
annual basis, without management
present, to discuss the Group Internal
Audit (GIA) function and any issues
arising from its activity. In addition,
the Committee also meets with the
external auditor on an annual basis,
without management present, to
discuss the external audit and any
issues arising from it.
Key objectives
The Committee’s key objectives are
the provision of effective governance
over the appropriateness of the Group’s
financial reporting (including the
appropriateness of the judgements
made in respect of the financial
results and the adequacy of related
disclosures), the performance of both
the GIA function and the external
auditor, and the management of the
Group’s systems of internal control and
related compliance activities.
Main activities of the Committee
during the year
At its six meetings during the year, the
Committee focused on:
Financial reporting
The primary role of the Committee
in relation to financial reporting is
to review, challenge and agree the
appropriateness of the half-year
and annual financial statements
concentrating on, amongst other
matters:
The quality and acceptability of the
Group’s accounting policies and
practices;
The clarity of the disclosures and
compliance with financial reporting
standards and relevant financial and
governance reporting requirements;
Material areas in which significant
judgements have been made by the
Group or there has been discussion
with the external auditor;
Whether the Group’s annual report
and accounts, taken as a whole, are
fair, balanced and understandable and
provide the information necessary for
shareholders to assess the Group’s
performance, business model and
strategy; and
Any correspondence from regulators
in relation to our financial reporting.
To aid this review, the Committee
considered reports from the Group
Management Board, the Group Finance
Director and also reports from the
external auditor on the outcomes of
their half-year review and annual audit.
As a Committee we support Deloitte
LLP in displaying the necessary
professional scepticism their role
requires.
Annual Report and Accounts 2013
Audit planning
The Committee oversees the plans for
the audit to ensure it is comprehensive,
risk based and cost effective. Deloitte
and each component auditor draft an
initial audit plan in conjunction with
executive management and present
them for review by the Committee. The
plans describe the proposed scope of
the work and the approach to be taken.
They also propose the materiality levels
to be used. In order to focus the audit
work on the right areas the auditors
identify particular risk issues based on
their knowledge of the business and
operating environment, discussions with
management and the half-year review.
The fee for the audit is also proposed as
part of this discussion.
Review of financial statements and
audit findings
The Committee reviewed the full and
half-year financial statements and
the reports of the external auditor on
these statements. The Deloitte partner
responsible for the Group’s audit
attends the Audit Committee meetings
to present the reports and answer
questions from Committee members.
Senior Deloitte staff who have had day-
to-day involvement in the conduct of the
audit also attend.
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Ecclesiastical Insurance Office plc Section 3/Group Audit Committee Report
The Committee considered the following significant issues:
ISSUE
ASSESSMENT
General insurance claims reserves
Life insurance reserves
Carrying value of goodwill
Valuation of defined benefit pension scheme
liability
Carrying value of tax liabilities
The estimation of the ultimate liability arising from claims made under general business insurance
contracts is a critical accounting estimate. 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 timings of
any payments.
The Committee considered detailed reports provided by the Group’s senior actuary on the
adequacy of the Group’s general insurance reserves at both the half year and the full year. During
2013 an independent review of liability claims reserves for our UK business was carried out by
Towers Watson. Following challenge and debate the Committee concluded that the assumptions
made and judgements applied were reasonable and appropriate.
The calculation of the Group’s life insurance reserves requires management to make significant
judgements about bond yields, discount rates, credit risk, mortality rates and current expectations
of future expense levels. The Actuarial Function Holder’s proposed assumptions are reviewed,
challenged and agreed by the Ecclesiastical Life Limited Board. Any one-off or unusual items are
referred to the Committee for further approval. During 2013 the Committee specifically considered
the run-off expense provision set up once ELL closed to new business and concluded that it was
reasonable. All other assumptions were reviewed by the Committee at a high level and, following
this review and consideration of the report of the external auditor, the Committee was satisfied that
the judgements made were reasonable and appropriate.
The judgements in relation to asset impairment largely relate to the assumptions underlying
the calculation of the value in use of the business being tested for impairment, primarily the
achievability of the long-term business plan and macroeconomic assumptions underlying the
valuation process. The Committee addresses these matters by receiving reports from management
outlining the basis for the assumptions used. Business plans are reviewed, challenged and signed
off by the Board.
After review, the Committee agreed with management’s conclusions that no material impairment
was required for any of the businesses under review.
Although the Group’s defined benefit pension schemes remain in surplus, the liabilities of the
schemes are material in comparison to the Group’s net assets and the valuation requires many
actuarial assumptions, including judgements in relation to long-term interest rates, inflation,
longevity and investment returns.
The actuarial assumptions used are based on advice from the Group’s pension adviser, who also
performs the calculations in respect of the schemes.
The Committee considered the assumptions used, and also compared them to benchmark data.
In addition, the Committee considered whether it was appropriate to recognise the pension fund
surplus as an asset of the Group.
After review of the assumptions used, the external advice provided, benchmark data and
careful consideration of the requirements of IAS 19(R) and International Financial Reporting
Interpretations Committee (IFRIC) 14, the Committee concluded that reasonable assumptions had
been used and recognition of the surplus as an asset of the Group was appropriate.
The calculation of tax liabilities requires management to make judgements in respect of the
expected tax payable for the current and prior periods based on the interpretation of applicable tax
legislation. In particular, the Group has a material liability for deferred tax which primarily relates
to future tax due on unrealised gains in respect of equities held prior to 2002. The Committee
reviewed the material judgements management had applied in respect of tax calculations in 2013
and concluded that they were appropriate.
70
Ecclesiastical Insurance Office plc Annual Report and Accounts 2013
Assessment of the external auditor
The Committee is required to assess the
qualifications, expertise, resources and
independence of the external auditor
and the objectivity and effectiveness of
the audit process. At the conclusion of
each audit the Committee performs a
specific evaluation of the performance
of the external auditor. This assessment
was carried out during the year on the
basis of the Committee’s own appraisal
of the performance of the auditor and
the views of the senior management
team as well as consideration of
materials provided by the auditor.
The criteria used for this assessment
remained unchanged from last year and
were as follows:
Delivery of a thorough and efficient
global audit in compliance with
agreed plan and timescales;
Provision of accurate, robust and
perceptive advice on key accounting
and audit judgements, technical
issues and best practice;
A high level of professionalism and
technical expertise consistently
demonstrated by all audit staff and
maintenance of continuity within the
core audit team; and
Strict adherence to independence
policies and other regulatory
requirements.
There were no significant findings
from the evaluation this year, although
where appropriate, actions were agreed
against any points raised.
Independence of the external
auditor
Deloitte LLP has been the external
auditor of the Company since 1998
and there has been no tender held for
audit services during that time. The
Committee monitors arrangements to
ensure that the partner in charge of the
audit is changed every five years and
that the relationship between the auditor
and management does not affect the
auditor’s independence.
The Committee also keeps under review
whether the external audit should be
tendered. Due to the rotation of the
audit partner for the 2013 financial
period, the Committee did not consider
a tender of the external audit was
required. However, the Committee
intends to comply fully with the FRC
Audit Committees Guidance regarding
the frequency of audit tender and we
will consider each year whether to
tender the audit.
The Committee is responsible for the
development, implementation and
monitoring of the Group’s policy on the
provision of non-audit services by the
external auditor. The policy is reviewed
annually by the Committee to ensure
alignment with the latest standards on
auditor objectivity and independence,
and compliance with the policy.
The policy covers a number of areas
including:
The Group’s restrictions, procedures
and safeguards, relative to the
engagement of the external auditor
on non-audit services;
The Group’s requirements for the
pre-approval and reporting of fees for
non-audit services;
Policy on the appointment of former
audit employees of the external
auditor; and
The requirement to keep a register of
all former employees of the current
external auditor employed by the
Group.
The Company determines non-audit
services which are prohibited and
those which are permitted ‘subject
to safeguards’. The Group’s aim is to
identify appropriate service providers
and ensure that any non-audit work
is carried out by the most appropriate
provider in a manner that affords fullest
value for money. The policy is shared
with the external auditor of the Group.
Adherences to the policy and non-audit
fees incurred are regularly reviewed by
the Committee.
For the year ended 31 December 2013,
the Group was charged £340,000 (exc
VAT) by Deloitte LLP and its associates
for audit services. The fees for other
services amounted to £103,000,
making total fees from Deloitte LLP
of £443,000. None of the non-audit
services provided during the year was
in respect of significant engagements.
More detail can be found in note 11 to
the financial statements on page 123.
There are no contractual obligations to
restrict the choice of external auditor.
Following the assessment of the
external auditor’s effectiveness and
their remuneration, the Committee
recommended to the Board that Deloitte
LLP be reappointed as the auditor of
the Company at the forthcoming AGM.
Effectiveness of internal control
and risk management
The Group’s approach to internal
control and risk management is set
out in the Corporate Governance report
on page 59.
In reviewing the effectiveness of
the system of internal control and
risk management during 2013 the
Committee has:
Reviewed internal audit reports;
Monitored management’s
responsiveness to the findings and
recommendations of the Head of
Internal Audit;
Met with the Head of Internal
Audit once during the year, without
management being present, to
discuss any issues arising from
internal audits carried out;
71
Ecclesiastical Insurance Office plc Section 3/Group Audit Committee Report
Decided to undertake a formal
evaluation and independent
assessment of the GIA function in the
forthcoming year;
Received update reports from the
Group Risk Committee;
Reviewed regular reports from the
Head of Group Compliance;
Reviewed the Group’s anti-bribery
and corruption code of conduct; and
Reviewed the Group’s Whistleblowing
policy.
As explained in the Corporate
Governance report on page 59,
Internal Audit and Compliance now
have separate reporting lines. The
change took place with effect from 1
January 2014; during 2013 both areas
reported to the same individual, the
Director of Group Internal Audit and
Group Compliance, who reported to the
Committee in respect of both areas.
Internal control over financial
reporting
Internal control over financial reporting
is a process designed to provide
reasonable, but not absolute, assurance
regarding the reliability of management
and financial reporting in accordance
with generally accepted accounting
principles. Controls over financial
reporting policies and procedures
include controls to ensure that:
Through clearly defined role profiles
and financial mandates, there is
effective delegation of authority;
There is adequate segregation of
duties in respect of all financial
transactions;
Commitments and expenditure
are appropriately authorised by
management;
Records are maintained which
accurately and fairly reflect
transactions;
Any unauthorised acquisition, use
or disposal of the Company’s assets
that could have a material effect on
the financial statements should be
detected on a timely basis;
Transactions are recorded as required
to permit the preparation of financial
statements; and
The Company is able to report its
financial statements in compliance
with IFRS.
Due to inherent limitations, internal
control over financial reporting may
not prevent or detect misstatements.
Risk management and control systems
provide reasonable assurance that the
financial reporting does not contain any
material inaccuracies. Through its review
of reports received from management,
along with those from internal and
external auditors, the Committee did
not identify any material weaknesses in
internal controls over financial reporting
during the year. The financial systems
are deemed to have functioned properly
during the year under review, and there
are no current indications they will not
continue to do so in the forthcoming
period.
GIA
GIA is guided by the Committee
and provides independent, objective
assurance to the Board that the
governance processes, management of
risk and systems of internal control are
adequate and effective to mitigate the
most significant risks to the Group.
The Committee has oversight
responsibilities for the Internal Audit
Department and the Group Internal
Audit Director is accountable to
the Committee Chairman, reports
administratively to the Group Chief
Executive Officer and has access to the
Chairman of the Board.
GIA’s annual programme of work is risk
based and designed to cover areas of
higher risk or specific focus across the
Group. The plan is approved annually
by the Committee and during 2013 it
was reviewed regularly to accommodate
changes required as a consequence
of the Group’s changing risk profile.
All proposed changes to the plan were
reviewed, challenged and approved by
the Committee during the year.
Throughout the year, the GIA submitted
quarterly reports to the Committee
summarising findings from their work,
and the responses from and action
plans established by management.
During 2013, the Committee monitored
the progress of the most significant
action plans to ensure that these were
completed in a timely manner and to a
satisfactory standard.
Group Compliance
Group Compliance provides assurance
to the Board that the Group is compliant
with its regulatory obligations and for
mitigating any risk that the firm might
be used to further financial crime. In
addition, it also ensures that appropriate
mechanisms exist to identify, assess and
address new and emerging regulatory
obligations and compliance risks that
may impact the Group.
The Committee has received and
considered regular reports from the
Group Compliance Director at each of
its meetings and discussed the specific
management actions identified to
address or mitigate issues which arose
during the year. The Committee also
considered the impact of the changes
in the UK and European regulatory
72
Ecclesiastical Insurance Office plc landscape, particularly in light of the
shift in UK regulatory focus following
the split of the Financial Services
Authority into the Prudential Regulation
Authority and the Financial Conduct
Authority during the year.
Legal and regulatory developments
The Committee receives regular reports
and considers the impact of legal and
regulatory developments on the UK
Group to control legal and regulatory
risk. They monitor the application and
impact of any actions required by the
business or organisation through to
completion. Reports are shared with
relevant business areas, and with
relevant subsidiary Boards and Board
Committees.
By order of the Board
John Hylands
Chairman of the Group Audit Committee
25 March 2014
© Richard Proctor
Ecclesiastical Insurance Office plc
73
Section 3/Group Remuneration Report
Group
Remuneration
Report
The information contained in the Group
Remuneration Committee Chairman’s Statement
and the Directors Remuneration Policy is not
subject to audit.
Dear Shareholder,
As Chair of the Group Remuneration
Committee (the Committee), I am
pleased to introduce the Group
Remuneration Report for the year
ending 31 December 2013 and to
highlight some of the key aspects of
the Committee’s work during the
financial year.
In addition to me, the Committee during
the year comprised two Non-Executive
Directors (NEDs), Christine Wilson and
David Christie, who were appointed
by the Board in April, following the
resignation of John Hylands in March.
There were six meetings in total,
three scheduled meetings and three
additional meetings.
Membership
The Group Remuneration Committee members and their attendance at meetings during the year are shown below:
COMMITTEE MEMBER
MEMBER SINCE
MEETINGS ELIGIBLE TO ATTEND
MEETINGS ATTENDED
Denise Wilson (Chair)
December 2011
David Christie
John Hylands
April 2013
November 2012
(resigned March 2013)
Christine Wilson
April 2013
6
5
1
5
6
5
1
5
74
Ecclesiastical Insurance Office plc Annual Report and Accounts 2013
Group Remuneration Committee
Chairman’s Statement
This year we have improved the structure
and content of the Group Remuneration
Report, following the final publication
of the new reporting regulations by the
government in June 2013. Albeit our
Group structure does not require us
to comply with the listed companies
regulations, as in previous years, we have
chosen to largely adopt current reporting
requirements, in order to provide greater
transparency and follow best practice.
Following on from this statement, there
is a distinct Directors Remuneration
Policy, which sets out the structure and
elements of pay and how they interact.
This can be found starting on page 76,
and in addition, an Annual Report on
Remuneration, starting on page 82 which
describes how our policies have been
implemented and provides retrospective
disclosures on Directors remuneration
for 2013.
As announced on 1 May 2013, Mark
Hews, previously Chief Financial Officer,
succeeded Michael Tripp as Group Chief
Executive. The Committee carefully
considered transition arrangements for
the outgoing Group Chief Executive, as
well as the remuneration package for
the new Group Chief Executive. These
were discussed with our ultimate parent
company Allchurches Trust Limited
(ATL), and details of these arrangements
can be found starting on page 77 in this
remuneration report.
We also saw the appointment of S.
Jacinta Whyte to the Board in July
2013, as she succeeded Steve Wood
as Managing Director of UK General
Insurance and assumed additional Group
responsibilities under a new position
of Deputy Group Chief Executive.
Consideration was given to the
remuneration package of the Deputy
Group Chief Executive, as well as the
contractual entitlements of the departing
Managing Director of UK General
Insurance.
Appointing two new Executive Directors
to the Board clearly presented some
challenges. It was important to balance
the immediate demands of the role,
given the poor underwriting performance
across the Group, to the experience of
those appointed. Engaging specialist
advice from Hewitt New Bridge Street,
we were able to benchmark appropriate
remuneration packages, including the
design of a new three-year incentive
plan, beginning in the 2014 financial
year. This is intended to focus efforts
on specific deliverables deemed
critical to the required turnaround
in underwriting performance and
profitability of the Group.
As described in the Strategic Report
starting on page 11, the Group continues
to operate in challenging times with
efforts focused in the second half of
the year on improving underwriting
profitability and transforming business
processes, whilst maintaining good
service to customers. This work will
continue throughout 2014. We know
that these are difficult economic times,
bringing challenges for the industry
and for Ecclesiastical, and therefore
our approach to remuneration remains
restrained. On the basis of 2012’s
performance, a decision was taken to
forgo the usual annual pay increase for
all UK and Ireland employees, though
we were able to give a degree of
recognition for individual performance
through our annual bonus scheme.
However during 2013, we have delivered
a strong investment return with mixed
underwriting results, improving our
Profit Before Tax (PBT) to £67m (2012:
£38m) and it is important that we
reward employees at all levels for good
performance, in a year which has seen
many challenges for Ecclesiastical.
In this context, the Committee are
satisfied that an annual bonus payment
of around 45% of the maximum potential
value for the Group Chief Executive is
reflective of performance.
This year we have also reviewed the
structure of our incentive schemes and
the Committee are satisfied that the
current arrangements are appropriate.
However, we will be undertaking a
strategic review of our Remuneration
Policy during the coming year, including
incentive schemes, to ensure we are able
to attract and retain talented individuals
for the Group.
Finally, I value continued support from our
charitable owner ATL, and remain mindful
of our responsibilities to drive sustained
and improved performance over the
long term and ensure our remuneration
strategy, policy and principles deliver our
objective of giving £50m to charity over
three years.
Denise Wilson
Chair of the Group Remuneration
Committee
75
Ecclesiastical Insurance Office plc Section 3/Group Remuneration Report
Directors Remuneration Policy
The Directors Remuneration Policy (the Policy) described in this part of the
report is intended to apply for the year from January to December 2014, and
describes the structure and elements of pay and how they interact. The Policy
differs very little from the one that was applied for the 2013 financial year.
The principles underlying the Policy
are the recruitment, incentivisation and
retention of talented individuals for
the Group. We aim to do this without
encouraging unnecessary risk-taking, and
by developing remuneration practices
consistent with the wider workforce.
A key objective of the Policy is to
align the Executive Director’s pay to
the Group’s strategy and we shall be
undertaking a root and branch review
of our remuneration strategy this year
to further strengthen those links. Key
measures of Group performance are
embedded as performance measures in
the annual and long-term bonus plans.
The Group aims to provide competitive
remuneration packages, reflective of the
markets in which it operates, in order
to attract and retain high calibre
employees and to encourage and
reward superior performance.
The Policy places strong emphasis on
the importance of delivering long-term
value to our shareholder, by not only
continuing to focus on the Combined
Operating Ratio (COR) as a measure
of the quality of the insurance business
we write, but also on the overall PBT
that ensures the sustainability of the
charitable grants we deliver to our
charitable owner ATL. It also recognises
the importance of continuing to drive
for ever higher standards of service and
good value for our customers. This Policy
is also fundamental to delivering our
objective of giving £50m to charity over
three years.
The Committee considers the Policy
annually to ensure that it remains
aligned with the needs of Ecclesiastical
and its longer term strategy and that
it remains appropriately aligned with
the external market. We use target
performance measures to estimate the
total potential reward and benchmark
this against reward packages paid by
our competitors.
We use a comparator group of
companies within the insurance industry
as well as the wider financial services
sector. The group that we measure
our performance against consists of
insurance plcs, Mutuals and other
organisations. Companies within the
comparator group may be similar in size
and complexity to Ecclesiastical. However
we also include other companies which
may be larger and more complex, as they
are potential competitors for talent.
For completeness, we measure our reward
arrangements against the whole of the
UK financial services market. This broader
review is a risk management exercise to
ensure that we do not inadvertently lose
talent as a result of falling behind the
broader marketplace.
The main aim of the Policy, however,
remains the incentivisation and reward
of the level of performance we judge
is necessary to achieve the successful
implementation of our business strategy.
Balancing short and long-term
remuneration
We have established the remuneration
elements set out in this report based
on our view of current market practice.
Fixed annual elements including salary,
pension and benefits, are to recognise
the responsibility and experience of our
Executive Directors and to ensure current
and future market competitiveness. The
annual and long-term incentives are to
incentivise and reward our Executive
Directors for making Ecclesiastical
successful on a sustainable basis. The
balance between these elements is an
aspect of our reward strategy which will
require particular focus as we pursue our
strategic review.
76
Ecclesiastical Insurance Office plc Annual Report and Accounts 2013
Future policy table
ELEMENT AND PURPOSE OPERATION
OPPORTUNITY
SALARY
To provide a core reward
for doing the job, at a level
needed to recruit and retain
talented individuals.
Salaries are paid in 12 equal
monthly instalments during the
year, and are reviewed annually
with changes taking effect
from 1 April each year.
When the annual review is conducted various
factors are taken into account, including
Company and individual performance,
relevant market information and levels of
pay increases in the wider UK population.
PERFORMANCE
MEASURES
CHANGE
FROM 2013
Individual contribution and
Group performance
None
BENEFITS
To provide a market
competitive reward package
and promote the wellbeing of
employees.
PENSION
To aid retention and provide a
market competitive provision
for post-retirement income.
Benefits normally comprise
a car allowance or company
car and a private healthcare
scheme. Executive Directors
also receive life assurance
cover on the same basis as the
wider employee population.
Defined Benefit Scheme: the
Staff Retirement Benefit Fund
was provided by Ecclesiastical
but has now been closed to
new employees. Neither of the
current Executive Directors are
members of this scheme.
Defined Contribution
Scheme: this is the Group
Personal Pension plan where
contributions are made by the
employee and employer.
GROUP BONUS SCHEME
To incentivise the Executive
Directors to achieve key
financial and strategic goals
and targets that have been
set for the financial year.
This cash bonus is paid
annually, normally three months
after the end of the financial
year to which it relates.
LONG-TERM INCENTIVE
PLAN (LTIP)
To focus the Executives and
incentivise the achievement
of the Group’s long-term
objectives. This also helps to
align the Executive Directors
interests with those of the
shareholder. The LTIP aims
to attract and retain talented
individuals.
The outcome of this award is
subject to the Committee’s
assessment of underlying
performance. When agreeing
targets, the Committee also
receives advice from the Chief
Risk Officer on the extent to
which the scheme meets the
Group’s risk appetite.
There is no deferral, but there
is scope for clawback within
the rules of the scheme.
Relevant pay data including market
practice among a chosen set of comparator
organisations in the financial services sector
is also considered.
Not applicable
Not applicable
None
Any contributions that are above the Annual
or Lifetime Earnings Limit may be paid in
cash, net of National Insurance contributions
charge.
Not applicable
None
Maximum opportunity of 100% of salary with
25% payable for on-target performance.
The annual bonus structure
is based upon:
None
Maximum opportunity of 30% of salary.
On-target opportunity of 15% of salary.
For the Group Chief Executive the maximum
opportunity is 100% of salary, with an on-
target opportunity of 50% of salary.
Group PBT
Group COR
UK & Ireland COR
Top 5 Group priorities
Personal performance
rating.
There are two underlying
performance conditions
which are weighted
equally:
1. 50% of award
dependent on average
Group COR
2. 50% of award
dependent on Group
PBT performance
There is a 36 month
performance period from
the date of grant.
The Group Chief
Executive’s
maximum
opportunity has
changed to
100% of salary.
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Section 3/Group Remuneration Report
ELEMENT AND PURPOSE OPERATION
OPPORTUNITY
PERFORMANCE
MEASURES
CHANGE
FROM 2013
EXCEPTIONAL BONUS
ARRANGEMENTS
The Committee may
decide, from time to time, to
incentivise specific Executive
Directors on either a multi-
year or single year basis to
achieve specific objectives.
These arrangements will
either be in place of or in
addition to existing bonus
arrangements.
GROUP CHIEF
EXECUTIVE’S 3-YEAR
INCENTIVE PLAN
To incentivise the Group Chief
Executive and Deputy Group
Chief Executive to achieve
specific goals that have been
set for the period 2014-2016.
See the elements below
Maximum opportunity of 100% of salary
over the 2014-2016 performance period.
No mandatory deferral
provision.
Staged payments:
Year 1 up to 25% of salary
Year 2 up to 50% of salary,
less payments made in the
previous year
Year 3 up to 100% of salary,
less payments made in Year 1
and Year 2 above
FORMER GROUP CHIEF
EXECUTIVE INCENTIVE
AWARD 2013
This incentive replaced
Michael Tripp’s participation
in both the annual bonus
scheme and the LTIP with
effect from 1 January 2013.
This incentive was agreed in
January 2013 to focus the
Group Chief Executive to
deliver certain objectives and
was subject to the Committee’s
assessment of the Group Chief
Executive’s performance.
The maximum opportunity was
capped at three months’ salary.
New element
for 2014
There are three areas of
performance conditions
that apply to this award:
1. 50% dependent upon
financial performance
2. 25% dependent
on achievement of
measurable, non-
financial results
3. 25% dependent
upon achievement
of qualitative
achievements
Performance period 2014-
2016
The delivery of a
smooth transition of
the management to a
successor in the role of
Group Chief Executive.
New element
for 2013
Notes to the policy table
The Committee selected these performance conditions because they are central to the Group’s overall strategy and are key metrics
used by the Executive Directors in measuring the performance of the Group. The performance conditions are reviewed and set
annually by the Committee, following consultation with the Chief Risk Officer.
The Committee are of the opinion that the performance targets are commercially sensitive to the Group and that disclosure at the
beginning of the financial year would be detrimental to its interests. The targets will therefore be disclosed at the end of the relevant
financial year in that year’s Remuneration Report.
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Ecclesiastical Insurance Office plc
Annual Report and Accounts 2013
Differences in Remuneration Policy for all employees
All employees of Ecclesiastical are entitled to a salary, benefits, pension and annual bonus. The maximum bonus opportunity is
based on differing levels of seniority and responsibility. For example, there is an increased emphasis on performance-related pay
for the Executive Directors through a higher bonus opportunity and participation in the LTIP. This aligns the interests of Directors in
the long-term performance of the Group with those of the shareholders.
Statement of consideration of employment conditions elsewhere in the Group
The Committee invites the HR Director to present at its meeting (normally in March) on proposals for salary increases for the
general employee population and on any other changes to the Remuneration Policy within the Group.
The HR Director consults with the Committee on the performance measures for Executive Directors’ bonuses and the extent to
which these should be cascaded to other employees. The Committee approves the overall bonus cost to the Group each year and
has oversight of the grant of all LTIP awards across the Group.
The Committee is provided with data on the remuneration structure for designated senior management below the Executive
Directors and use this information to work with the HR function to ensure consistency of approach throughout the Group.
The discretion available to the Committee has been identified against the separate elements of the future policy table shown
above. It exists and is only to be relied upon to address extreme circumstances.
Approach to recruitment remuneration
Ecclesiastical Insurance Office plc is a specialist insurer competing for talent across a variety of markets and often with
organisations which are much larger than we are.
The Committee’s approach is to pay a fair market value to attract appropriate candidates to the role, taking into consideration their
individual skills and experience and the ethos of the organisation. Where it is thought necessary to compensate an individual’s
awards from previous employment, the Committee will, as far as practicable, seek to match the expected value of such awards by
granting awards that vest over a similar timeframe as that of the original awards. There would be a proportionate reduction in the
amount vesting, should the new awards not be subject to performance conditions as stretching as those on the awards foregone.
Any new Executive Director’s package would include the same elements and generally be subject to the same constraints as
existing Executive Directors.
ELEMENT OF REMUNERATION
MAXIMUM PERCENTAGE OF SALARY
Salary
Benefits
Annual bonus
LTIP
Pension contribution/allowance
-
Dependent upon position
100%
30% / 100%1
15%
1 The higher percentage is the maximum payable for the position of Group Chief Executive
The Committee has discretionary authority over matters within its remit, and may from time to time exercise discretion according to
exceptional or specific circumstances, albeit the Committee will not do so in a frivolous manner.
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Ecclesiastical Insurance Office plc Section 3/Group Remuneration Report
Policy on termination payments for Executive Directors
STANDARD PROVISION
POLICY
DETAILS
Notice periods in Executive
Directors’ service contracts2
12 months by Company or Executive Director.
Executive Directors may be required to work through their notice
period, or may be paid in lieu of notice if they are not required to work
the full notice period.
Summary termination – payment
in lieu of notice
Mitigation
The Company may decide if it wishes to make a
payment in lieu of notice of an amount prescribed
under the contract. This is salary and benefits for the
balance of the notice period, excluding bonus and
accrued holiday entitlement.
The Executive Directors’ service contracts do not
expressly provide for mitigation on termination.
Payable as a lump sum, within 14 days of termination date.
The Committee will take account of the circumstances of the
termination and the Director’s performance during the period of
qualifying service to determine whether the exercise of any discretion
is appropriate.
Treatment of annual bonus on
termination or change of control
under plan rules
No payment unless employed on date of bonus
payment except for ‘good leavers’ as defined in the
plan rules and other circumstances at the Committee’s
discretion. If there is a change of control event, then an
early payment can be calculated and made.
Good leavers are entitled to a bonus payment subject to the
achievement of bonus criteria which is pro-rated down to reflect their
service during the performance year unless the Committee determines
that a higher amount is justified. A similar provision would apply if
there were a change of control event.
Good leavers include those who cease to be employed
by reason of death, ill health or disability, redundancy,
retirement by agreement or any other reason, at
discretion of the Committee (which would not be
exercised where the Executive Director is at fault).
Treatment of long-term incentive
awards on termination or
change of control under plan
rules
All awards lapse except for ‘good leavers’ as defined
in the plan rules and other reason at the discretion of
the Committee.
If there is a change of control event, then an early
payment can be calculated as stated in the rules of
the scheme.
For good leavers vesting is determined based on the application of
the performance conditions and any award is then pro-rated down
based on the proportion of the 36-month performance period that
the employee has served since the grant date unless the Committee
determines that a higher amount is justified. A similar provision would
apply if there were a change of control event.
Exercise of discretion
Intended to be relied upon only in exceptional or
specific circumstances.
The Committee’s determination will take into account the
circumstances of the Executive Director’s departure and the recent
performance of the Company when using discretion in relation to
short or long-term bonus payments.
Group Chief Executive’s 3-year
incentive plan
If the Group Chief Executive ceases to be employed
in this capacity, the award will lapse unless they are a
good leaver.
If the Group Chief Executive is a good leaver the Committee may
decide to make an immediate pro-rata payment based on the
Executive’s performance up to the termination date.
Other matters
There is an express provision for clawback if the
financial information or factual reports on which a
judgement to pay an award has been made was
materially misstated and the Committee so determines.
The Company’s policy is to honour commitments made
to contractual arrangements that may have been
entered into with an employee prior to their becoming
a Director.
There are no other provisions for termination payments
or payments for loss of office in standard directors’
service contracts.
2 Steve Wood had a nine-month contract with Ecclesiastical Insurance Office plc.
Copies of the relevant service contracts and letters of appointment are available for inspection at the Company’s registered office,
details of which can be found on page 154.
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Ecclesiastical Insurance Office plc Annual Report and Accounts 2013
Total remuneration opportunity
The total remuneration for each of the Executive Directors that could result from the application of this policy in 2014 under the
three different performance levels is shown below.
Mark Hews: Effect of the application of this policy in financial year 2014
Percentages/Amounts (£000s)
Fixed pay
100%
On-target
60%
Maximum
39%
Total £446k
12%
28%
Total £742k
33%
28%
Total £1,130
■ Fixed elements ■ Annual variable ■ Multiple period variable
Fixed elements of pay comprises of salary, benefits and pension.
S. Jacinta Whyte: The details of the Deputy Group Chief Executive’s package is still subject to negotiation and will be included in future remuneration
reports.
NEDs’ fees policy
HOW THE ELEMENT SUPPORTS
OUR STRATEGIC OBJECTIVES
OPERATION
To attract NEDs who have a range of
experience and skills to oversee the
implementation of our strategy.
NEDs’ fees, including the Committee Chairman’s fees are
approved by the Board at a General meeting, following
recommendation by the Chairman and Executive Directors.
The Committee Chair takes no part in the discussion relating
to their fees.
Fees are paid in 12 equal monthly instalments during the year.
Fees are reviewed every two years against those for NEDs in
companies of a similar scale and complexity.
NEDs are not eligible to receive benefits and do not participate
in incentive or pension plans.
OPPORTUNITY
Current fee levels are
shown in the section on
implementation of policy.
PERFORMANCE
MEASURES
NEDs are not eligible
to participate in any
performance-related
arrangements.
Statement of consideration of shareholder views
The Committee, through the Board, consults with the shareholder on any changes to this policy in order to understand expectations
with regard to Executive Directors remuneration and any changes in shareholder views. Any views expressed by the shareholder are
then considered and taken into account at the annual review of the policy.
81
Ecclesiastical Insurance Office plc Section 3/Group Remuneration Report
Annual Report on
Remuneration
The following information contained in this report is auditable unless otherwise stated:
Statement of implementation of Remuneration Policy in 2014 (not auditable)
Differences between the Remuneration Policy for 2013 and the policy for 2014 are set out in the table below:
ELEMENT
SALARY
OPERATION
No difference
OPPORTUNITY
No difference
BENEFITS
No difference
No difference
PERFORMANCE MEASURES
N/A
N/A
ANNUAL BONUS
No mandatory deferral
provision
Clawback at the discretion of
the Committee
No difference
In 2013, the annual bonus was based upon:
Group PBT
Group COR
UK & Ireland COR
Top 5 Group priorities
Personal performance rating
LTIP
No mandatory deferral
provision
Clawback at discretion of
Committee
Maximum grant is 100% of salary for the
Group Chief Executive.
There are two underlying performance
conditions which are weighted equally:
Normal grant policy is either 20% or 30% of
salary dependent on the position for all other
Executive Directors.
1. 50% of award dependent on average
Group COR
2. 50% of award dependent on Group PBT
performance
There is a 36-month performance period from
the date of grant.
GROUP CHIEF
EXECUTIVE’S 3-YEAR
INCENTIVE PLAN
No mandatory deferral
provision
Maximum bonus is 100% of salary over the
2014-2016 performance period.
There are three areas of performance
conditions that apply to this award:
This operates through staged
payments:
Year 1 up to 25% of salary
Year 2 up to 50% of salary,
less payments made in the
previous year
Year 3 up to 100% of salary,
less payments made in Year
1 and Year 2 above
1. 50% dependent upon financial
performance
2. 25% dependent on achievement of
measurable, non-financial results
3. 25% dependent upon achievement of
qualitative achievements
Performance period is 2014-2016.
FORMER GROUP CHIEF
EXECUTIVE INCENTIVE
AWARD 2013.
This incentive replaced
Michael Tripp’s participation
in both the annual bonus
scheme and the LTIP.
This incentive was agreed in
January 2013 to focus the
Group Chief Executive to
deliver certain objectives and
was subject to the Committee’s
assessment of the Group Chief
Executive’s performance.
The maximum opportunity was capped at
three months’ salary.
The delivery of a smooth transition of the
management to the successor in the role of
Group Chief Executive.
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Ecclesiastical Insurance Office plc Annual Report and Accounts 2013
None of the Executive Directors received an increase in salary last year, except those that changed their role within the Group.
Details are shown in the table below:
Salary at the annual review date
NAME
Mark Hews
Michael Tripp
Steve Wood
SALARY £000s3
1 April 2013
260
335
257
SALARY £000s3
1 July 2012
260
335
257
PERCENTAGE INCREASE
0.0%
0.0%
0.0%
3 The change in period dates results from a change to annual pay review dates in 2013.
Mark Hews became Group Chief Executive on 1 May 2013 and therefore his salary was increased to £350k with effect from
this date.
Single total figure of remuneration
For Executive Directors
The table below shows a single total figure of remuneration received in respect of qualifying services for the 2013 financial year for
each Executive Director, together with comparative figures for 2012, where applicable. Aggregate Executive Directors’ emoluments
are shown on page 87. Details of NEDs’ fees are set out in a separate table on page 86.
SINGLE TOTAL
FIGURE FOR
EXECUTIVE
DIRECTORS
Mark Hews6
S. Jacinta Whyte7
Michael Tripp8
Steve Wood9
Total
SALARY
£000s
BENEFITS4
£000s
ANNUAL BONUS
£000s
LTIP5
£000s
TOTAL
£000s
2013
320
162
196
244
922
2012
253
N/A
332
254
839
2013
37
10
44
32
2012
19
N/A
58
32
2013
157
33
84
0
123
109
274
2012
83
N/A
0
0
83
2013
2012
5
15
2
3
25
0
N/A
0
0
0
2013
519
220
326
279
2012
355
N/A
390
286
1,344
1,031
4 Benefits include items such as a car allowance and private medical insurance which are valued at their taxable value
5 LTIP represents the amount payable in respect of the three-year performance period 2011-2013 for 2013 and 2010-2012 for 2012. All
Executive Directors hold unvested LTIP awards in accordance with the rules of the plan
6 Mark Hews was appointed Group Chief Executive on 1 May 2013
7 S. Jacinta Whyte was appointed Deputy Group Chief Executive on 16 July 2013 and did not participate in the Executive Director’s annual bonus
and LTIP scheme during 2013. The annual bonus for 2013 and the LTIP payment shown in table above only relates to her appointment as a
General Manager in Canada
8 Michael Tripp resigned from the Board on 21 May 2013. He received no payment under the annual bonus or the Executive Director’s LTIP for
performance in 2013. He did, however, receive a payment under the terms of his special bonus scheme, outlined in the policy table on page 77.
The LTIP payment is in respect of performance in the years 2011 and 2012.
9 Steve Wood resigned from the Board on 12 June 2013
Mark Hews is also a NED for MAPFRE RE and was appointed to their Board in December. The fees that Mark earns in respect of
this role are paid directly to the Group by MAPFRE RE.
83
Ecclesiastical Insurance Office plc
Section 3/Group Remuneration Report
Additional requirements in respect of the single total figure table
The annual bonus payable to Executive Directors is assessed taking into account both Group and individual performance, both of
which are assessed in a range of 0-2. The two results are multiplied together and applied to the on-target bonus opportunity of
25%. For example, if Group performance was assessed at 1.2 and individual performance at 1.1, the bonus payable would be
1.2 x 1.1 x 25% = 33%.
Performance targets are set in respect of the Group multiplier, and these are shown in the table below. Actual results are assessed
against these targets to calculate the Group multiplier as shown in the second table below. The proposed personal performance
multiplier is reviewed and agreed by the Committee.
Bonuses are earned in respect of the financial year and are paid in March following the end of the financial year. The bonuses
accruing to the Executive Directors in respect of 2013 are shown in the single total figure for Executive Directors table above.
None of the 2013 annual bonuses are subject to deferral.
Annual bonus table
Original targets:
MEASURE
Group COR
UK & Ireland COR
Group PBT
Group Top 5 Priorities
THRESHOLD
ON-TARGET
MAXIMUM
WEIGHTING
101%
100%
£29.8m
0%
100%
98%
£37.0m
75%
97%
96%
£51.8m
100%
25%
25%
35%
15%
Actual results giving the Group multiplier:
MEASURE
Group COR
UK & Ireland COR
Group PBT
Group Top 5 Priorities
Overall multiplier
RESULT
102.9%
99.7%
£67m
83%
RANGE
WEIGHTING
MULTIPLE
-
0.58
2.00
1.32
25%
25%
35%
15%
-
0.1
0.7
0.2
1.0
84
Ecclesiastical Insurance Office plc Annual Report and Accounts 2013
Performance against conditions for LTIP payment
The LTIP amount included in the single total figure of remuneration is the cash award resulting from the LTIP grant in 2011 for
the period 2011-2013. Vesting was dependent on performance over the three financial years ending on 31 December 2013 and
continued service until March 2014. The performance achieved against the performance targets is shown below:
PERFORMANCE
MEASURE
THRESHOLD – 20%
VESTING
TARGET – 50 %
VESTING
MAXIMUM – 100%
VESTING
COR
Group PBT
101.0%
£95m
95.5%
£170m
90.0%
£260m
ACTUAL
105.6%
£97m
PERCENTAGE OF
SALARY PAID
0.0%
1.6%
Total pension entitlement
Below is a table which shows the pension benefits for the Executive Directors that are in the Defined Benefit Scheme. The Defined
Benefit Scheme was closed to new members during 2006.
Pension table
DIRECTOR
ALL FIGURES ARE
SHOWN IN £000s
INCREASE
IN ACCRUED
PENSION
DURING 2013
(PER ANNUM)
INCREASE IN
ACCRUED LUMP
SUM DURING
2013 (PER
ANNUM)
TOTAL ACCRUED
ANNUAL
PENSION AT 31
DECEMBER 2013
TOTAL ACCRUED
LUMP SUM AT 31
DECEMBER 2013
PENSION
INPUT AMOUNT
DURING THE
ACCOUNTING
PERIOD ENDING
31 DECEMBER
2013
PENSION
INPUT AMOUNT
DURING THE
ACCOUNTING
PERIOD ENDING
31 DECEMBER
2012
Steve Wood
2
6
14
43
36
33
The table below shows the employer contributions that have been made by the Group in respect of the following Executive Directors
participating in the Defined Contribution Scheme.
DIRECTOR
Mark Hews
S. Jacinta Whyte
Michael Tripp10
2013
£000s
48
19
0
2012
£000s
38
N/A
0
10 A cash allowance of 15% of salary (net of NIC) is paid to Executive Directors where continued Company contributions would result in a breach of
the HMRC annual allowance.
Single total figure of remuneration for NEDs
NEDs do not participate in any of the Company’s incentive arrangements nor do they receive any benefits. NED fees were last
reviewed in 2012, at which time they were found to be lagging behind the market. An increase is due to be put to the general
meeting which will become effective from 1 January 2014. We believe that it is appropriate to reflect the level of fees paid by
organisations of similar size and complexity and this will enable us to attract NEDs of the calibre we require to help us to implement
our future strategy.
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Ecclesiastical Insurance Office plc Section 3/Group Remuneration Report
NEDs’ fees for the current and prior year
DIRECTOR
Will Samuel
David Christie
John Hylands
Tony Latham
Denise Wilson
The Venerable Christine Wilson11
Tim Carroll12
Sir Philip Mawer13
Nigel Peyton15
Mervyn Couve14
Total
2013
£000s
68
42
40
40
36
32
24
4
0
0
286
2012
£000s
68
38
40
40
32
16
0
43
14
18
309
11 The Venerable Christine Wilson was appointed to the Board on 21 June 2012 and her fees are paid directly to charity at her request
12 Tim Carroll was appointed to the Board on 2 April 2013
13 Sir Philip Mawer resigned on 6 February 2013
14 Nigel Peyton resigned on 21 June 2012
15 Mervyn Couve resigned on 21 June 2012
Executive Directors’ termination payments
Michael Tripp resigned as Group Chief Executive on 1 May 2013 and resigned from the Board on 21 May 2013. Steve Wood
resigned as an Executive Director and from the Board on 12 June 2013. The following table shows the payments made in
accordance with their contractual entitlements:
DIRECTOR
Michael Tripp
Steve Wood
TOTAL PAID IN CASH
£000s
167
134
Early vesting of LTIP award
There is no early vesting of the Executive Directors’ LTIP. For good leavers grants will vest on the original anniversary date. Any
payment is then pro-rated to reflect employment during the 36-month performance period.
Payments to past Directors
No payments were made to past Directors other than the compensatory payments shown in the table above and bonus payments
included in the single figure table on page 83.
LTIP grant policy (not auditable)
Grants of participation in the LTIP are made annually following the publication of the Company’s accounts. In 2013 awards were
made to Executive Directors and other designated senior managers in accordance with our normal grant policy. This is included in
the single figure table. During the year, the maximum opportunity for the Group Chief Executive was raised to 100% of salary with
effect from 1 January 2013 as a result of the benchmarking information which was considered before determining the package.
86
Ecclesiastical Insurance Office plc Annual Report and Accounts 2013
Performance graph (not auditable)
As Ecclesiastical Insurance Office plc does not have equity shares traded on a regulated market, total equity shareholder’s funds
growth over time as reported each year (plus the grant to ATL) has been used in the performance graph compared with the FTSE
250. Total equity excludes Preference shareholders’ capital since this is not attributable to ATL.
Ecclesiastical Insurance Office plc 8-year to 2013 TSR performance against the FTSE 250
i
l
g
n
d
o
h
0
0
1
£
l
a
c
i
t
e
h
t
o
p
y
h
f
o
e
u
a
V
l
250
200
150
100
50
0
Dec 05
Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
Dec 13
Ecclesiastical Total Shareholder Return FTSE 250 Total return
Total emoluments of Executive Directors
For the purposes of the disclosure required by Schedule 5 to the Large and Medium-sized Companies and Groups (Accounts and
Reports) Regulations, the total aggregate remuneration of the Executive Directors in respect of qualifying services during 2013 was
£1,605,000 (2012: £1,336,000).
After inclusion of amounts receivable under long-term incentive schemes and pension benefits, the total aggregate emoluments of
the Executive Directors was £1,705,000 (2012: £1,381,000)
Ecclesiastical Investment Management (EIM) (not auditable)
EIM is a limited licence Investment management firm under IFPRU, at proportionality level 3 for reporting purposes. EIM has been
subject to the FCA Remuneration Code since 1 January 2011. EIM operates a remuneration policy which is compliant with the
Remuneration Code, details of which can be found in the EIM pillar 3 statement on Ecclesiastical’s website.
CODE STAFF
NUMBER OF EMPLOYEES
AGGREGATE TOTAL REMUNERATION PAID IN 2013
EIM staff
EIO staff
5
4
£000s
1,162
1,262
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Ecclesiastical Insurance Office plc
Section 3/Group Remuneration Report
Consideration by the Committee of matters relating to Directors’ remuneration (not auditable)
Advisers to the Committee
Hewitt New Bridge Street (HNBS) were the appointed advisers to the Committee for 2013. During the year external professional
advice was sourced from HNBS when determining appropriate remuneration packages for Executive Directors and those holding
Significant Influence Functions. HNBS have no other advisory function within the Group. The Committee also has access to
benchmarking reports from Towers Watson and McLagan, which provide data for determining pay and conditions throughout
the Group.
The Committee is content that advice received from Hewitt New Bridge Street was impartial.
The Committee is responsible for recommending to the Board the Remuneration Policy for Executive Directors and for setting the
remuneration packages for each Executive Director, members of the Group Management Board, Remuneration Code Staff and
Heads of strategic business units. The Committee also has overarching responsibility for the group-wide Remuneration Policy.
88
Ecclesiastical Insurance Office plc Castle Howard, the South Front. Credit: Mike Kipling.
Ecclesiastical Insurance Office plc
89
Section 3/Independent Auditor’s Report
Independent
Auditor’s Report
to the Members of
Ecclesiastical Insurance
Office plc
we have not identified any material
uncertainties that may cast significant
doubt on the Group’s ability to
continue as a going concern.
However, because not all future events
or conditions can be predicted, this
statement is not a guarantee as to the
Group’s ability to continue as a going
concern.
Our assessment of risks of
material misstatement
The assessed risks of material
misstatement described below are those
that had the greatest effect on our audit
strategy, the allocation of resources in
the audit and directing the efforts of the
engagement team:
Opinion on financial statements of
Ecclesiastical Insurance Office plc
In our opinion:
the financial statements give a true
and fair view of the state of the
Group’s and of the parent company’s
affairs as at 31 December 2013 and
of the Group’s profit for the year then
ended;
the Group financial statements have
been properly prepared in accordance
with International Financial Reporting
Standards (IFRSs) as adopted by the
European Union;
the parent company financial
statements have been properly
prepared in accordance with IFRSs
as adopted by the European Union
and as applied in accordance with
the provisions of the Companies Act
2006; and
the financial statements have been
prepared in accordance with the
requirements of the Companies Act
2006 and, as regards the Group
financial statements, Article 4 of the
IAS Regulation.
The financial statements comprise
the Consolidated Statement Of Profit
Or Loss, the Consolidated and Parent
Statement of Comprehensive Income,
the Consolidated and Parent Statement
of Changes in Equity, the Consolidated
and Parent Statement Of Financial
Position and the Consolidated and
Parent Statement Of Cash Flows, and
the related notes 1 to 32. The financial
reporting framework that has been
applied in their preparation is applicable
law and IFRSs as adopted by the
European Union and, as regards the
parent company financial statements,
as applied in accordance with the
provisions of the Companies Act 2006.
Going concern
We have reviewed the directors’
statement contained within the
Directors Report on page 54 that
the Group is a going concern. We
confirm that:
we have concluded that the
Directors’ use of the going concern
basis of accounting in the preparation
of the financial statements is
appropriate; and
90
Ecclesiastical Insurance Office plc Annual Report and Accounts 2013
RISK
HOW THE SCOPE OF OUR AUDIT RESPONDED TO THE RISK
GENERAL INSURANCE TECHNICAL RESERVES
The assessment of the calculation of the general insurance
technical reserves requires management to make significant
judgements about the quantum of the reported losses and
the estimated incurred but not reported losses based on past
experience and current expectations of future cost levels.
CARRYING VALUE OF GOODWILL
The Group’s assessment of impairment of goodwill is a
judgemental process which requires estimates concerning the
estimated future cash flows and associated discount rates
and growth rates based on management’s view of future
business prospects at the time of the assessment.
LIFE INSURANCE RESERVES
The assessment of the calculation of the life insurance
reserves requires management to make significant
judgements about bond yields, discount rates, credit
risk, mortality rates and current expectations of future
expense levels.
ASSUMPTIONS UNDERPINNING THE CALCULATION
AND RECOGNITION OF RETIREMENT BENEFIT
OBLIGATIONS
The assessment of the carrying value of the pension surplus
relating to the Group’s defined benefit pension schemes and
retirement benefit liability relating to post employment medical
benefits are based on assumptions which require significant
management judgement.
We challenged the key judgements within the calculation of
the general insurance reserves as set out in note 26 to the
financial statements by working with our general insurance
actuarial specialists to specifically assess the movements
in prior year reserves, material changes in methodology and
assumptions and the impact of claims experience in the year.
We also tested the completeness and accuracy of underlying
data used in the reserving.
We challenged management’s key assumptions used in
the impairment model for goodwill and intangible assets,
described in note 16 to the financial statements, relating to
estimated future cash flows, growth rates and the discount
rate applied through comparing this against benchmarks
on similar assets, comparison against the prevailing group
cost of capital at the year-end and our understanding of
management’s past forecasting accuracy and future prospects
of the business.
We evaluated the key judgements underpinning the
calculation of the life insurance reserves as set out in note
26 to the financial statements by involving our internal life
actuarial specialists to benchmark the valuation and expense
assumptions to those used in the market.
We also tested the completeness and accuracy of underlying
data used in the reserving.
We assessed management’s assumptions used in the
calculations of the defined benefit pension asset and
retirement benefit obligations as set out in note 18 to the
financial statements by involving our internal pensions
actuarial specialists to benchmark the assumptions in respect
of the discount rate, inflation and mortality assumptions to
those used in the market. We tested the completeness and
accuracy of underlying data used in the calculation of the
retirement benefit obligations. We assessed management’s
valuation of pension assets, held at fair value, by comparison
to observable market prices.
We also evaluated the accessibility of the surplus on the main
scheme by reference to applicable accounting standards and
advice received by management from external parties.
CARRYING VALUE OF TAX LIABILITIES
The calculation of tax liabilities requires management to
make judgements in respect of the expected tax payable for
the current and prior periods based on the interpretation of
applicable tax legislation.
We worked with our internal tax specialists to evaluate the
appropriateness of management’s assumptions in deriving
the tax liabilities described in notes 13, 27 and 28 to the
financial statements, by reviewing relevant correspondence
with HMRC.
91
Ecclesiastical Insurance Office plc
Section3/Independent Auditor’s Report
The Audit Committee’s consideration of
these risks is set out on page 70.
Our audit procedures relating to these
matters were designed in the context of
our audit of the financial statements as
a whole, and not to express an opinion
on individual accounts or disclosures.
Our opinion on the financial statements
is not modified with respect to any
of the risks described above, and we
do not express an opinion on these
individual matters.
Our application of materiality
We define materiality as the magnitude
of misstatement in the financial
statements that makes it probable that
the economic decisions of a reasonably
knowledgeable person would be
changed or influenced. We use
materiality both in planning the scope
of our audit work and in evaluating the
results of our work.
We determined materiality for the Group
to be £3.7m, which is below 1% of both
Gross Written Premiums and Equity.
We agreed with the Audit Committee
that we would report to the Committee
all audit differences in excess of
£77,000, as well as differences
below that threshold that, in our view,
warranted reporting on qualitative
grounds. We also report to the Audit
Committee on disclosure matters that
we identified when assessing the overall
presentation of the financial statements.
An overview of the scope of our
audit
Our Group audit was scoped by
obtaining an understanding of the
Group and its environment, including
group-wide controls, and assessing the
risks of material misstatement at the
Group level. Based on that assessment,
we focused our Group audit scope
primarily on the audit work for the
general and life insurance businesses in
the UK, Ireland, Australia and Canada.
Together, these represent the principal
business units and account for 96%
of the Group’s net assets, 93% of
the Group’s revenue and 85% of the
Group’s profit before tax. All significant
components were subject to full scope
audits which were executed at levels
of materiality applicable to each
individual entity and which were
lower than Group materiality.
We completed the majority of our audit
work in the UK. The group audit team
continued to follow a programme of
planned visits that has been designed
so that a senior member of the
group audit team visits each of the
components where the group audit
scope is focused at least once every
three years. In years when we do not
visit a significant component we discuss
the risk assessment with the component
auditor, and review documentation of
the findings from their work.
At the parent entity level we also tested
the consolidation process and carried
out analytical procedures to confirm
our conclusion that there were
no significant risks of material
misstatement of the aggregated
financial information of the remaining
components not subject to audit or
audit of specified account balances.
Opinion on other matter
prescribed by the Companies
Act 2006
In our opinion the information given in
the Strategic Report and the Directors’
Report for the financial year for which
the financial statements are prepared is
consistent with the financial statements.
Matters on which we are required
to report by exception
Adequacy of explanations received and
accounting records
Under the Companies Act 2006 we
are required to report to you if, in our
opinion:
we have not received all the
information and explanations we
require for our audit; or
adequate accounting records have
not been kept by the parent company,
or returns adequate for our audit have
not been received from branches not
visited by us; or
the parent company financial
statements are not in agreement with
the accounting records and returns.
We have nothing to report in respect of
these matters.
Directors’ remuneration
Under the Companies Act 2006 we
are also required to report if in our
opinion certain disclosures of directors’
remuneration have not been made.
We have nothing to report arising
from this matter.
Our duty to read other information in
the Annual Report
Under International Standards on
Auditing (UK and Ireland), we are
required to report to you if, in our
opinion, information in the annual
report is:
materially inconsistent with the
information in the audited financial
statements; or
apparently materially incorrect based
on, or materially inconsistent with, our
knowledge of the Group acquired in
the course of performing our audit; or
otherwise misleading.
92
Ecclesiastical Insurance Office plc In particular, we are required to consider
whether we have identified any
inconsistencies between our knowledge
acquired during the audit and the
directors’ statement that they consider
the annual report is fair, balanced
and understandable and whether the
annual report appropriately discloses
those matters that we communicated
to the audit committee which we
consider should have been disclosed.
We confirm that we have not identified
any such inconsistencies or misleading
statements.
Other matters
Directors’ remuneration report
In our opinion the part of the Directors’
Remuneration Report to be audited has
been properly prepared in accordance
with the provisions of the Companies
Act 2006 that would have applied were
the company a quoted company.
Corporate Governance Statement
Although not required to do so, the
directors have voluntarily chosen to
make a corporate governance statement
detailing the extent of their compliance
with the UK Corporate Governance
Code. At the request of the directors, we
have reviewed the part of the Corporate
Governance Statement relating to
the company’s compliance with the
nine provisions of the UK Corporate
Governance Code. We have nothing to
report arising from our review.
Respective responsibilities of
directors and auditor
As explained more fully in the Directors’
Responsibilities Statement, the directors
are responsible for the preparation
of the financial statements and for
being satisfied that they give a true
and fair view. Our responsibility is to
audit and express an opinion on the
financial statements in accordance
with applicable law and International
Standards on Auditing (UK and Ireland).
Those standards require us to comply
with the Auditing Practices Board’s
Ethical Standards for Auditors. We also
comply with International Standard on
Quality Control 1 (UK and Ireland).
Our audit methodology and tools
aim to ensure that our quality control
procedures are effective, understood
and applied. Our quality controls
and systems include our dedicated
professional standards review team and
independent partner reviews.
This report is made solely to the
company’s members, as a body, in
accordance with Chapter 3 of Part 16
of the Companies Act 2006. Our audit
work has been undertaken so that we
might state to the company’s members
those matters we are required to state
to them in an auditor’s report and/or
those further matters we have expressly
agreed to report to them on in our
engagement letter and for no other
purpose. To the fullest extent permitted
by law, we do not accept or assume
responsibility to anyone other than the
company and the company’s members
as a body, for our audit work, for this
report, or for the opinions we have
formed.
Scope of the audit of the financial
statements
An audit involves obtaining evidence
about the amounts and disclosures
in the financial statements sufficient
to give reasonable assurance that
the financial statements are free
from material misstatement, whether
caused by fraud or error. This includes
an assessment of: whether the
accounting policies are appropriate to
the Group’s and the parent company’s
circumstances and have been
consistently applied and adequately
disclosed; the reasonableness of
significant accounting estimates
Annual Report and Accounts 2013
made by the directors; and the
overall presentation of the financial
statements. In addition, we read
all the financial and non-financial
information in the annual report to
identify material inconsistencies with
the audited financial statements and
to identify any information that is
apparently materially incorrect based
on, or materially inconsistent with,
the knowledge acquired by us in the
course of performing the audit. If we
become aware of any apparent material
misstatements or inconsistencies we
consider the implications for our report.
Mark McQueen ACA
(Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory
Auditor
London, United Kingdom
25 March 2014
93
Ecclesiastical Insurance Office plc N
O
I
T
C
E
S
Section 4/Financial Statements
Consolidated Statement of Profit or Loss
Consolidated and Parent Statement of
Comprehensive Income
95
96
Consolidated and Parent Statement of Changes in Equity 97
Consolidated and Parent Statement of Financial Position 98
Consolidated and Parent Statement of Cash Flows
Notes to the Financial Statements
99
100
94
Ecclesiastical Insurance Office plc
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
for the year ended 31 December 2013
Revenue
Gross written premiums
Outward reinsurance premiums
Net change in provision for unearned premiums
Net earned premiums
Fee and commission income
Net investment return
Total revenue
Expenses
Claims and change in insurance liabilities
Reinsurance recoveries
Fees, commissions and other acquisition costs
Other operating and administrative expenses
Total operating expenses
Operating profit
Finance costs
Profit before tax
Tax expense
Profit for the year from continuing operations
Net loss attributable to discontinued operations
Profit for the year (attributable to equity holders of the Parent)
Notes
5, 6
6
6
7
8
8
9
5
13
14
10
2013
£000
2012
£000
399,345
(131,274)
24,592
292,663
58,088
77,243
427,994
(234,789)
36,545
(80,285)
(82,411)
(360,940)
67,054
(117)
66,937
(4,819)
62,118
-
62,118
481,334
(157,843)
(12,846)
310,645
53,657
64,991
429,293
(256,057)
41,447
(97,454)
(79,311)
(391,375)
37,918
(115)
37,803
(4,448)
33,355
(5,737)
27,618
On 15 May 2012, the Group disposed of its wholly-owned subsidiary, ACS (NZ) Limited. The results of the disposed business are presented
within discontinued operations in the prior year.
95
Ecclesiastical Insurance Office plc CONSOLIDATED AND PARENT STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2013
Profit for the year
Other comprehensive income
Items that will not be reclassified to profit or loss:
Fair value losses on property
Actuarial losses on retirement benefit plans
Attributable tax
Items that may be reclassified subsequently to profit or loss:
Losses on currency translation differences
Net other comprehensive income
Total comprehensive income attributable to equity holders of
the Parent
2013
Group
£000
Parent
£000
2012
Group
£000
62,118
52,494
27,618
(104)
(1,526)
484
(1,146)
(10,071)
(11,217)
-
(1,526)
453
(1,073)
(2,727)
(3,800)
(313)
(1,331)
511
(1,133)
(3,784)
(4,917)
Parent
£000
16,162
(313)
(1,331)
511
(1,133)
(904)
(2,037)
50,901
48,694
22,701
14,125
96
Ecclesiastical Insurance Office plc CONSOLIDATED AND PARENT STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2013
Share
premium
£000
Equalisation Revaluation
reserve
£000
reserve
£000
Translation
reserve
£000
Group
At 1 January 2013
Profit for the year
Other net expense
Total comprehensive income
Dividends
Net charitable grant to
ultimate parent
Group tax relief in excess
of standard rate
Reserve transfers
At 31 December 2013
At 1 January 2012
Profit for the year
Other net expense
Total comprehensive income
Dividends
Net charitable grant to
ultimate parent
Group tax relief in excess
of standard rate
Reserve transfers
At 31 December 2012
Parent
At 1 January 2013
Profit for the year
Other net income/(expense)
Total comprehensive income
Dividends
Net charitable grant to
ultimate parent
Group tax relief in excess
of standard rate
Reserve transfers
At 31 December 2013
At 1 January 2012
Profit for the year
Other net expense
Total comprehensive income
Dividends
Net charitable grant to
ultimate parent
Group tax relief in excess
of standard rate
Reserve transfers
At 31 December 2012
Share
capital
£000
120,477
-
-
-
-
4,632
-
-
-
-
25,590
-
-
-
-
-
-
-
-
-
120,477
120,477
-
-
-
-
-
-
4,632
4,632
-
-
-
-
-
247
25,837
22,719
-
-
-
-
-
-
-
-
-
120,477
120,477
-
-
-
-
-
-
4,632
4,632
-
-
-
-
-
2,871
25,590
25,590
-
-
-
-
-
-
-
-
-
120,477
120,477
-
-
-
-
-
-
4,632
4,632
-
-
-
-
-
247
25,837
22,719
-
-
-
-
-
-
-
-
-
120,477
-
-
4,632
-
2,871
25,590
Retained
earnings
£000
279,795
62,118
(1,094)
61,024
(9,181)
Total
£000
455,657
62,118
(11,217)
50,901
(9,181)
24,411
-
(10,071)
(10,071)
-
-
(3,070)
(3,070)
-
-
14,340
28,195
-
(3,784)
(3,784)
-
(164)
(247)
328,157
268,267
27,618
(914)
26,704
(9,181)
(164)
-
494,143
445,261
27,618
(4,917)
22,701
(9,181)
-
(3,020)
(3,020)
-
-
24,411
(104)
(2,871)
279,795
(104)
-
455,657
9,185
-
(2,727)
(2,727)
-
232,176
52,494
(1,094)
51,400
(9,181)
392,602
52,494
(3,800)
48,694
(9,181)
-
(3,070)
(3,070)
-
-
6,458
10,089
-
(904)
(904)
-
(751)
(247)
270,327
232,202
16,162
(914)
15,248
(9,181)
(751)
-
428,294
390,880
16,162
(2,037)
14,125
(9,181)
-
(3,020)
(3,020)
-
-
9,185
(202)
(2,871)
232,176
(202)
-
392,602
752
-
(52)
(52)
-
-
-
-
700
971
-
(219)
(219)
-
-
-
-
752
542
-
21
21
-
-
-
-
563
761
-
(219)
(219)
-
-
-
-
542
The equalisation reserve is not distributable and must be kept in compliance with the insurance companies' reserves regulations. The
revaluation reserve represents cumulative net fair value gains on owner-occupied property. The translation reserve arises on consolidation of
the Group's and Parent's foreign operations.
97
Ecclesiastical Insurance Office plc CONSOLIDATED AND PARENT STATEMENT OF FINANCIAL POSITION
for the year ended 31 December 2013
Assets
Goodwill and other intangible assets
Deferred acquisition costs
Deferred tax assets
Pension assets
Property, plant and equipment
Investment property
Financial investments
Reinsurers' share of contract liabilities
Current tax recoverable
Other assets
Cash and cash equivalents
Total assets
Equity
Share capital
Share premium account
Retained earnings and other reserves
Total shareholders' equity
Liabilities
Insurance contract liabilities
Finance lease obligations
Provisions for other liabilities
Retirement benefit obligations
Deferred tax liabilities
Current tax liabilities
Deferred income
Other liabilities
Total liabilities
Notes
2013
Group
£000
Parent
£000
2012
Group
£000
Parent
£000
16
17
28
18
19
20
21
26
23
24
25
26
27
18
28
29
23,684
34,757
3,261
32,288
7,292
45,099
946,452
132,593
135
124,464
107,241
1,457,266
120,477
4,632
369,034
494,143
848,267
1,624
6,710
11,744
40,116
2,463
14,231
37,968
963,123
3,795
30,542
37
32,288
6,084
45,099
763,926
121,490
135
108,271
80,430
1,192,097
120,477
4,632
303,185
428,294
663,188
1,624
6,566
11,744
39,548
2,171
13,950
25,012
763,803
24,349
34,626
3,202
36,521
8,414
27,315
922,109
141,011
316
145,714
112,584
1,456,161
120,477
4,632
330,548
455,657
878,691
1,812
7,273
14,810
38,653
290
14,782
44,193
1,000,504
3,811
35,886
-
36,521
6,623
27,315
726,652
127,472
316
124,525
88,963
1,178,084
120,477
4,632
267,493
392,602
675,787
1,812
6,939
14,810
38,024
99
14,238
33,773
785,482
Total shareholders' equity and liabilities
1,457,266
1,192,097
1,456,161
1,178,084
The financial statements of Ecclesiastical Insurance Office plc, registered number 24869, on pages 95 to 152 were approved and authorised
for issue by the Board of Directors on 25 March 2014 and signed on its behalf by:
Will Samuel
Chairman
Mark Hews
Group Chief Executive
98
Ecclesiastical Insurance Office plc CONSOLIDATED AND PARENT STATEMENT OF CASH FLOWS
for the year ended 31 December 2013
Profit before tax
Adjustments for:
Loss before tax on discontinued operations
Depreciation of property, plant and equipment
Loss/(profit) on disposal of property, plant and equipment
Amortisation and impairment of intangible assets
Loss on disposal of intangible assets
Net fair value gains on financial instruments and investment property
Dividend and interest income
Finance costs
Changes in operating assets and liabilities:
Net (decrease)/increase in insurance contract liabilities
Net decrease in reinsurers' share of contract liabilities
Net (increase)/decrease in deferred acquisition costs
Net decrease/(increase) in other assets
Net decrease in operating liabilities
Net increase/(decrease) in other liabilities
Cash generated by operations
Dividends received
Interest received
Interest paid
Tax (paid)/recovered
Net cash from operating activities
Cash flows from investing activities
Purchases of property, plant and equipment
Proceeds from the sale of property, plant and equipment
Purchases of intangible assets
Investment in subsidiaries, net of cash acquired
Disposal of businesses, net of cash transferred
Purchases of financial instruments and investment property
Sale of financial instruments and investment property
Net cash used by investing activities
Cash flows from financing activities
Payment of finance lease liabilities
Payment of group tax relief in excess of standard rate
Dividends paid to Company's shareholders
Donations paid to ultimate parent undertaking
Net cash used by financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Exchange (losses)/gains on cash and cash equivalents
Cash and cash equivalents at end of year
2013
Group
£000
Parent
£000
2012
Group
£000
66,937
57,394
37,803
-
1,930
112
2,770
7
(36,072)
(38,364)
117
(8,689)
5,275
(1,075)
16,385
(777)
48
8,604
9,923
27,388
(117)
(225)
45,573
(1,017)
54
(2,232)
-
-
(269,766)
242,082
(30,879)
(418)
(163)
(9,181)
(8,000)
(17,762)
(3,068)
112,584
(2,275)
107,241
-
1,673
(30)
2,017
-
(32,603)
(28,453)
114
(7,941)
5,056
4,902
12,792
(4,766)
214
10,369
9,228
18,350
(114)
1,117
38,950
(941)
54
(2,096)
-
-
(209,153)
182,040
(30,096)
(418)
524
(9,181)
(8,000)
(17,075)
(8,221)
88,963
(312)
80,430
(834)
2,132
79
2,125
83
(23,498)
(38,867)
115
(23,201)
71,872
1,037
1,404
(8,971)
(877)
20,402
9,358
28,967
(115)
303
58,915
(1,633)
51
(1,237)
-
(12,734)
(256,467)
180,742
(91,278)
(527)
(463)
(9,181)
-
(10,171)
(42,534)
155,024
94
112,584
Parent
£000
17,658
-
1,656
57
1,405
83
(15,606)
(28,541)
115
29,112
14,767
(1,545)
(8,159)
(314)
(746)
9,942
8,947
19,116
(115)
1,949
39,839
(1,477)
41
(1,217)
(1,589)
-
(182,299)
130,468
(56,073)
(527)
(1,910)
(9,181)
-
(11,618)
(27,852)
116,239
576
88,963
99
Ecclesiastical Insurance Office plc NOTES TO THE FINANCIAL STATEMENTS
1 Accounting policies
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 in
addition to offering a range of financial services, with offices in the
UK, Australia, Canada and Ireland. The principal accounting policies
adopted in preparing the Group's International Financial Reporting
Standards (IFRS) financial statements are set out below.
Basis of preparation
The Group’s consolidated financial statements have been prepared
using the following accounting policies, which are in accordance
with IFRS applicable at 31 December 2013 issued by the
International Accounting Standards Board and endorsed by the
European Union (EU). The financial statements have been prepared
on the historical cost basis, except for the revaluation of properties
and certain financial instruments.
The Financial Performance and Risk Management sections of the
Strategic Report provide a review of the Group’s business activities
and describe the principal risks and uncertainties, including
exposures to insurance and financial risk. The Group has
considerable financial resources: financial investments of £946.5m,
97% of which are liquid (2012: financial investments of £922.1m,
96% liquid); cash and cash equivalents of £107.2m and no
borrowings (2012: cash and cash equivalents of £112.6m and no
borrowings); and a regulatory enhanced capital cover of 2.6 (2012:
2.7). As a consequence, the Directors have a reasonable
expectation that the Group is well placed to manage its business
risks successfully and continue in operational existence for the
foreseeable future. Accordingly, they continue to adopt the going
concern basis in preparing the annual report and accounts.
In accordance with IFRS 4, Insurance Contracts , on adoption of
IFRS the Group applied existing accounting practices for insurance
and participating investment contracts, modified as appropriate to
comply with the IFRS framework and applicable standards,
introducing changes only where they provide more reliable and
relevant information.
Items included in the financial statements of each of the Group’s
entities are measured in the currency of the primary economic
environment in which that entity operates (the 'functional currency').
The consolidated financial statements are stated in sterling, which
is the Company’s functional and presentation currency.
As permitted by Section 408 of the Companies Act 2006, a
separate profit and loss account for the Company is not presented.
New and revised Standards
In the current year the Group has adopted the following Standards
and Amendments:
- IAS 27 (Revised), Separate Financial Statements;
- IAS 28 (Revised), Investments in Associates and Joint Ventures;
- IFRS 10, Consolidated Financial Statements;
- IFRS 11, Joint Arrangements;
- IFRS 12, Disclosure of Interests in Other Entities;
- IFRS 13, Fair Value Measurement;
100
- Amendment to IAS 1 (Revised), Presentation of Items of Other
Comprehensive Income;
- Amendment to IFRS 7, Disclosures: Offsetting Financial Assets
and Financial Liabilities;
- Amendments to IFRS 10, IFRS 11 and IFRS 12, Transition
Guidance; and
- Annual Improvements to IFRSs 2009 - 2011 Cycle.
IFRS 13 clarifies the definition of fair value and provides related
guidance and enhanced disclosures about fair value measurements.
The adoption has had no material impact on the measurement of
fair value of financial assets and financial liabilities in the Group,
and the disclosures required are shown in note 4.
The amendment to IAS 1 requires items of other comprehensive
income to be grouped by those items that will be reclassified
subsequently to profit or loss and those that will never be
reclassified, along with their associated tax. The amendments have
been applied retrospectively and hence the presentation of items of
other comprehensive income has been modified to reflect the
changes. The amendment also introduces new terminology, whose
use is not mandatory, for the statement of comprehensive income
and the income statement. As such, the 'income statement' has
been renamed as the 'statement of profit or loss'.
The amendment to IFRS 7 requires disclosure of the gross amounts
of recognised financial assets and liabilities where they are offset
and the net amount presented in the statement of financial position.
Disclosure of amounts offset within pension assets, other assets
and other liabilities are shown in notes 18, 23 and 29, respectively.
The other Standards, Interpretation and Amendments adopted in
the year have not had a significant impact on the financial
statements.
At the date of authorisation of these financial statements, the
following Standard and Amendments which have not been applied
in these financial statements were in issue but not yet effective (and
in some cases had not yet been adopted by the EU):
- IFRS 9 (Revised), Financial Instruments;
- IFRIC 21, Levies;
- Amendment to IAS 19 (Revised), Defined Benefit Plans: Employee
Contributions;
- Amendment to IAS 32, Offsetting Financial Assets and Financial
Liabilities;
- Amendment to IAS 36, Recoverable Amount Disclosures for Non-
Financial Assets;
- Amendment to IAS 39, Novation of Derivatives and Continuation
of Hedge Accounting;
- Amendments to IFRS 10, IFRS 12 and IAS 27 (Revised),
Investment Entities;
- Annual Improvements to IFRSs 2010 - 2012 Cycle; and
- Annual Improvements to IFRSs 2011 - 2013 Cycle.
On adoption of the amendment to IAS 19 (R) (effective for annual
periods beginning on or after 1 July 2014), there will be a
presentational change in the pension asset and retirement benefit
obligations note. The adoption of the other Standard, Interpretation
and Amendments is not expected to significantly impact the Group.
Ecclesiastical Insurance Office plc The Group has no transactions within the scope of other new or
revised Standards or Interpretations which are effective in the year
or in issue but not yet effective.
Use of estimates
The preparation of financial statements requires the use of
estimates and assumptions that affect the reported amounts of
assets and liabilities, and the disclosure of contingent assets and
liabilities at the date of the financial statements. Although these
estimates are based on management’s best knowledge of current
events and actions, actual results ultimately may differ from those
estimates.
Operating profit or loss
Operating profit or loss is stated before finance costs.
Basis of consolidation
Subsidiaries
Subsidiaries are those entities in which the Group, directly or
indirectly, has the power to govern the financial and operating
policies in order to gain economic benefits. The results and cash
flows relating to subsidiaries acquired or disposed of in the year are
included in the consolidated statement of profit or loss and the
consolidated statement of cash flows from the date of acquisition or
up to the date of disposal. All inter-company transactions, balances
and profits are eliminated.
In the Parent statement of financial position subsidiaries are
accounted for within financial investments at cost, in accordance
with IAS 27 (Revised), Separate Financial Statements.
The Group uses the acquisition method of accounting to account
for business combinations. The cost of an acquisition is measured
as the fair value of the assets given, equity instruments issued and
liabilities incurred or assumed at the acquisition date. Identifiable
assets acquired and liabilities and contingent liabilities assumed in a
business combination are measured initially at their fair values at
the acquisition date. Non-controlling interests are measured either
at fair value or at a proportionate share of the identifiable net assets
of the acquiree. Goodwill is measured as the excess of the
aggregate of the consideration transferred, the non-controlling
interests and for an acquisition achieved in stages, the fair value of
previously held equity interest, over the fair value of the identifiable
net assets acquired. If the cost of acquisition is less than the fair
value of the net assets acquired, the difference is recognised
directly through profit or loss.
For business combinations involving entities or businesses under
common control, the cost of the acquisition equals the value of net
assets transferred, as recognised by the transferor at the date of the
transaction. No goodwill arises on such transactions.
Investment vehicles
Investment vehicles such as mutual funds are consolidated when
the Group has a controlling interest.
Foreign currency translation
The assets and liabilities of foreign operations are translated from
their functional currencies into the Group's presentation currency
using year end exchange rates, and their income and expenses
using average exchange rates for the year. Exchange differences
arising from the translation of the net investment in foreign
operations are taken to the currency translation reserve within
equity. On disposal of a foreign operation, such exchange
differences are transferred out of this reserve and are recognised in
the statement of profit or loss as part of the gain or loss on sale.
Foreign currency transactions are translated into the functional
currency using exchange rates prevailing at the date of the
transactions. Exchange gains and losses resulting from the
settlement of such transactions, and from the translation of
monetary assets and liabilities denominated in foreign currencies,
are recognised through profit or loss.
Product classification
Contracts under which the Group accepts significant insurance risk
from another party (the policyholder) by agreeing to compensate
the policyholder or other beneficiary if a specified uncertain future
event (the insured event) adversely affects the policyholder, are
classified as insurance contracts. Contracts that do not transfer
significant insurance risk are classified as investment or service
contracts. All of the Group's long-term business contracts are
classified as insurance contracts.
Both insurance and investment contracts may contain a
discretionary participating feature, which is defined as a contractual
right to receive additional benefits as a supplement to guaranteed
benefits. The Group does not have any such participating contracts
(referred to as with-profit contracts). The Company's long-term
business contracts are referred to as non-profit contracts in the
financial statements.
Premium income
General insurance business
Premiums are shown gross of commission paid to intermediaries
and accounted for in the period in which the risk commences.
Estimates are included for premiums not notified by the year end
and provision is made for the anticipated lapse of renewals not yet
confirmed. Those proportions of premiums written in a year which
relate to periods of risk extending beyond the end of the year are
carried forward as unearned premiums.
Premiums written include adjustments to premiums written in prior
periods and estimates for pipeline premiums and are shown net of
insurance premium taxes. Outward reinsurance premiums are
accounted for in the same accounting period as the premiums for
the related direct insurance or inwards reinsurance business.
Long-term business
Insurance contract premiums are recognised as income when
receivable, at which date the liabilities arising from them are also
recognised.
Fee and commission income
Fee and commission income consists primarily of reinsurance
commissions receivable in addition to income from the Group's
insurance broking activities, investment fund management fees,
distribution fees from mutual funds and commission revenue from
the sale of mutual fund shares. Reinsurance commissions
receivable and other commission income are recognised on the
trade date. Income generated from insurance placements is
recognised at the inception date of the cover.
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Ecclesiastical Insurance Office plc NOTES TO THE FINANCIAL STATEMENTS
1 Accounting policies (continued)
Fees charged for investment management services are recognised
as revenue when the services are provided. Initial fees which exceed
the level of recurring fees and relate to the future provision of
services are deferred and amortised over the anticipated period in
which services will be provided. Fees charged for investment
management services for institutional and retail fund management
are also recognised on this basis.
Net investment return
Net investment return consists of dividends, interest and rents
receivable for the year, realised gains and losses, and unrealised
gains and losses on financial instruments and investment properties.
Dividends on equity securities are recorded as revenue on the ex-
dividend date. Interest and rental income is recognised as it accrues.
Unrealised gains and losses are calculated as the difference
between carrying value and original cost, and the movement during
the year is recognised through profit or loss. The value of realised
gains and losses includes an adjustment for previously recognised
unrealised gains or losses on investments disposed of in the
accounting period.
Claims
General insurance claims incurred include all losses occurring
during the year, whether reported or not, related handling costs, a
reduction for the value of salvage and other recoveries, and any
adjustments to claims outstanding from previous years.
Claims handling costs include all internal and external costs
incurred in connection with the negotiation and settlement of
claims.
Long-term insurance business claims and death claims are
accounted for when notified.
Insurance contract liabilities
General insurance provisions
(i) Outstanding claims provisions
General insurance outstanding claims provisions are based on the
estimated ultimate cost of all claims incurred but not settled at the
year end date, whether reported or not, together with related claims
handling costs. Significant delays are experienced in the notification
and settlement of certain types of general insurance claims,
particularly in respect of liability business, the ultimate cost of which
cannot be known with certainty at the year end date. An estimate is
made representing the best estimate plus a risk margin within a
range of possible outcomes. Designated insurance liabilities are
remeasured to reflect current market interest rates.
(ii) Provision for unearned premiums
The proportion of written premiums, gross of commission payable to
intermediaries, attributable to subsequent periods is deferred as a
provision for unearned premiums. The change in this provision is
taken to profit or loss in order that revenue is recognised over the
period of risk.
(iii) Liability adequacy
At each reporting date, the Group reviews its unexpired risks and
carries out a liability adequacy test for any overall excess of
expected claims and deferred acquisition costs over unearned
premiums, using the current estimates of future cash flows under its
contracts. Unexpired risks are assessed separately for each class of
102
business. Surpluses and deficits are offset where business classes
are considered to be managed together.
Long-term business provisions
Under current IFRS requirements, insurance contract liabilities are
measured using accounting policies consistent with those adopted
previously. Accounting for such contracts is determined in
accordance with the Statement of Recommended Practice issued
by the Association of British Insurers in December 2005, and
amended in December 2006.
The long-term business provision is determined using methods and
assumptions approved by the Directors based on advice from the
Actuarial Function Holder. Initially it is calculated to comply with the
reporting requirements under the Prudential Sourcebook for
Insurers. This statutory solvency basis of valuation is then adjusted
by eliminating or adjusting certain reserves advised under insurance
companies' regulations and general contingency reserves. This
adjusted basis is referred to as the modified statutory solvency
basis.
Reinsurance
The Group assumes and cedes reinsurance in the normal course of
business, with retention limits varying by line of business. Premiums
on reinsurance assumed are recognised as revenue in the same
manner as direct business. Outwards reinsurance premiums are
accounted for in the same accounting period as the related
premiums for the direct or inwards reinsurance business being
reinsured. The Group does not reinsure its long-term business.
Reinsurance assets primarily include balances due from both
insurance and reinsurance companies for ceded insurance liabilities.
Amounts recoverable from reinsurers are estimated in a manner
consistent with the outstanding claims provisions or settled claims
associated with the reinsured policies and in accordance with the
relevant reinsurance contract.
Intangible assets
Goodwill
Goodwill represents the excess of the cost of an acquisition over
the fair value of the Group’s share of the identifiable assets and
liabilities of the acquired subsidiary at the date of acquisition.
Goodwill on acquisitions prior to 1 January 2004 (the date of
transition to IFRS) is carried at book value (original cost less
amortisation) on that date, less any subsequent impairment. Where
it is considered more relevant, the Group uses the option to
measure goodwill initially at fair value, less any subsequent
impairment.
Goodwill is tested annually for impairment and carried at cost less
accumulated impairment losses. Gains and losses on the disposal of
an entity include the carrying amount of goodwill relating to the
entity sold.
Computer software
Computer software is carried at historical cost less accumulated
amortisation, and amortised over a useful life of between three and
five years, using the straight-line method. The amortisation charge
for the period is included in the statement of profit or loss within
other operating and administrative expenses.
Ecclesiastical Insurance Office plc Other intangible assets
Other intangible assets consist of acquired customer and
distribution relationships, and are carried at cost at acquisition less
accumulated amortisation after acquisition. Amortisation is on a
straight-line basis over the weighted average estimated useful life
of intangible assets acquired. The amortisation charge for the
period is included in the statement of profit or loss within other
operating and administrative expenses.
Property, plant and equipment
Owner-occupied properties are stated at open market value and
movements are taken to the revaluation reserve within equity, net of
deferred tax. When such properties are sold, the accumulated
revaluation surpluses are transferred from this reserve to retained
earnings. Where the market value of an individual property is below
original cost, any revaluation movement arising during the year is
recognised within net investment return in the statement of profit or
loss. Valuations are carried out at least every three years by external
qualified surveyors. All other items classed as property, plant and
equipment within the statement of financial position are carried at
historical cost less accumulated depreciation.
Land is not depreciated. No depreciation is provided on owner-
occupied properties since such depreciation would be immaterial.
Depreciation is calculated on the straight-line method to write down
the cost of other assets to their residual values over their estimated
useful lives as follows:
Computer equipment
3 - 5 years
Motor vehicles
27% reducing balance or
length of lease
Fixtures, fittings and
office equipment
3 - 15 years
Where the carrying amount of an item carried at historical cost less
accumulated depreciation is greater than its estimated recoverable
amount, it is written down to its recoverable amount by way of an
impairment charge to profit or loss.
Repairs and maintenance are charged to profit or loss during the
financial period in which they are incurred.
Investment property
Investment property comprises land and buildings which are held for
long-term rental yields. It is carried at fair value with changes in fair
value recognised in the statement of profit or loss within net
investment return. Investment property is valued annually by
external qualified surveyors at open market value.
Financial instruments
IAS 39, Financial Instruments: Recognition and Measurement
requires the classification of certain financial assets and liabilities
into separate categories for which the accounting requirements
differ.
The classification depends on the nature and purpose of the
financial assets and liabilities, and is determined at the time of initial
recognition. Financial instruments are initially measured at fair value.
Their subsequent measurement depends on their classification:
- Financial instruments designated as at fair value through profit or
loss and those held for trading are subsequently carried at fair
value. Changes in fair value are recognised through profit or loss in
the period in which they arise.
- All other financial assets and liabilities are held at amortised cost,
using the effective interest method (except for short-term
receivables and payables when the recognition of interest would be
immaterial).
The Directors consider that the carrying value of those financial
assets and liabilities not carried at fair value in the financial
statements approximates to their fair value.
Offset of financial assets and financial liabilities
Financial assets and liabilities are offset, and the net amount
reported in the statement of financial position, when there is a
legally enforceable right to offset the recognised amounts and there
is an intention to settle on a net basis, or realise the asset and settle
the liability simultaneously.
Financial investments
The Group classifies its financial investments as either financial
assets at fair value through profit or loss (designated as such or
held for trading) or loans and receivables.
Financial assets at fair value through profit or loss
Financial investments are classified into this category if they are
managed, and their performance evaluated, on a fair value basis.
Purchases and sales of these investments are recognised on the
trade date, which is the date that the Group commits to purchase or
sell the assets, at their fair value adjusted for transaction costs.
Financial investments within this category are classified as held for
trading if they are derivatives or acquired principally for the purpose
of selling in the near-term.
The fair values of investments are based on quoted bid prices.
Where there is no active market, fair value is established using a
valuation technique based on observable market data where
available. There is no current intention to dispose of these
investments.
Loans and receivables
Loans and receivables, comprising mortgages and other loans, are
recognised when cash is advanced to borrowers. These are carried
at amortised cost using the effective interest method. To the extent
that a loan is uncollectable, it is written off as impaired. Subsequent
recoveries are credited to profit or loss.
Derivative financial instruments
Derivative financial instruments include financial instruments that
derive their value from underlying equity instruments or foreign
exchange rates. Group derivative transactions, while providing
effective economic hedges under the Group’s risk management
positions, do not qualify for hedge accounting under the specific
IFRS rules and are therefore treated as derivatives held for trading.
All derivatives are initially recognised in the statement of financial
position at their fair value, which usually represents their cost,
including any premium paid. They are subsequently remeasured at
their fair value with changes in the fair value recognised
103
Ecclesiastical Insurance Office plc NOTES TO THE FINANCIAL STATEMENTS
1 Accounting policies (continued)
immediately in net investment return. All derivatives are carried as
assets when the fair values are positive and as liabilities when the
fair values are negative.
The notional or contractual amounts associated with derivative
financial instruments are not recorded as assets or liabilities on the
statement of financial position as they do not represent the fair
value of these transactions. Collateral pledged by way of cash
margins on futures contracts is recognised as an asset on the
statement of financial position within cash and cash equivalents.
Deferred acquisition costs
General insurance business
For general insurance business, a proportion of commission and
other acquisition costs relating to unearned premiums is carried
forward as deferred acquisition costs or, with regard to reinsurance
outwards, as deferred income. Deferred acquisition costs are
amortised over the period in which the related revenues are earned.
The reinsurers’ share of deferred acquisition costs is amortised in
the same manner as the underlying asset.
Long-term business
For insurance contracts, acquisition costs comprise direct costs
such as initial commission and the indirect costs of obtaining and
processing new business. Acquisition costs which are incurred
during a financial year are deferred and amortised over the period
during which the costs are expected to be recoverable, if applicable.
Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at
call with banks, other short-term highly liquid investments with
original maturities of three months or less and bank overdrafts.
Insurance broking debtors and creditors
Where the Group acts as agent in placing the insurable risks of
clients with insurers, debtors arising from such transactions are not
included within the Group's assets. When the Group receives cash
in respect of resultant premiums or claims, a corresponding liability
is established in other creditors in favour of the insurer or client.
Where the Group provides premium finance facilities to clients,
amounts due are included within other debtors, with the amount
owing for onward transmission included in other creditors.
Leases
Leases, where a significant portion of the risks and rewards of
ownership is retained by the lessor, are classified as operating
leases. Payments made as lessees under operating leases are
charged to profit or loss on a straight-line basis over the period of
the lease. Rental income received as lessor under operating leases
is credited to profit or loss on a straight-line basis over the period of
the lease.
Leases, where a significant portion of the risks and rewards of
ownership is transferred to the Group, are classified as finance
leases. Assets obtained under finance lease contracts are
capitalised as property, plant and equipment and are depreciated
over the period of the lease. Obligations under such agreements are
included within liabilities net of finance charges allocated to future
periods. The interest element of the lease payments is charged to
profit or loss over the period of the lease. Assets held under finance
leases are not significant to these financial statements.
104
Provisions and contingent liabilities
Provisions are recognised when the Group has a present legal or
constructive obligation, as a result of past events, and it is probable
that an outflow of resources, embodying economic benefits will be
required to settle the obligation, and a reliable estimate of the
amount of the obligation can be made. Where the Group expects a
provision to be reimbursed, the reimbursement is recognised as a
separate asset, but only when the reimbursement is more probable
than not.
The Group recognises a provision for onerous contracts when the
expected benefits to be derived from a contract are less than the
unavoidable costs of meeting the obligations under the contract.
Contingent liabilities are disclosed if there is a possible future
obligation as a result of a past event, or if there is a present
obligation but either an outflow of resources is not probable or the
amount cannot be reliably estimated.
Employee benefits
Pension obligations
The Group operates a number of defined benefit and defined
contribution plans, the assets of which are held in separate trustee
administered funds.
For defined benefit plans, the pension costs are assessed using the
projected unit credit method. Under this method, the cost of
providing pensions is charged to profit or loss so as to spread the
regular cost over the service lives of employees, in accordance with
the advice of qualified actuaries. The pension obligation is
measured as the present value of the estimated future cash
outflows using a discount rate based on market yields for high
quality corporate bonds. The resulting pension plan surplus or deficit
appears as an asset or obligation in the statement of financial
position. Any asset resulting from this calculation is limited to past
service cost, plus the present value of available refunds and
reductions in future employer contributions to the plan.
In accordance with IAS 19 (Revised), Employee Benefits , current
and past service costs, gains and losses on curtailments and
settlements and net interest expense or income (calculated by
applying a discount rate to the net defined benefit liability or asset),
are recognised through profit or loss. Actuarial gains or losses are
recognised in full in the period in which they occur in other
comprehensive income.
Contributions in respect of defined contribution plans are
recognised as a charge to profit or loss as incurred.
Other post-employment obligations
Some Group companies provide post-employment medical benefits
to their retirees. The expected costs of these benefits are accrued
over the period of employment using an accounting methodology
similar to that for defined benefit pension plans. Actuarial gains and
losses are recognised immediately in other comprehensive income.
Independent qualified actuaries value these obligations annually.
Other benefits
Employee entitlements to annual leave and long service leave are
recognised when they accrue to employees. A provision is made for
the estimated liability for annual leave and long service leave as a
result of services rendered by employees up to the year end date.
Ecclesiastical Insurance Office plc Taxation
Income tax comprises current and deferred tax. Income tax is
recognised in the statement of profit or loss except to the extent
that it relates to items recognised in other comprehensive income,
in which case it is recognised in the statement of comprehensive
income.
Current tax is the expected tax payable on the taxable result for the
period and any adjustment to the tax payable in respect of previous
periods.
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 year end date.
Deferred tax assets are recognised to the extent that it is probable
that future taxable profit will be available against which the
temporary differences can be utilised.
Deferred tax assets and liabilities are not discounted.
Appropriations
Dividends
Dividends on Ordinary shares are recognised in equity in the period
in which they are declared and, for the final dividend, approved by
shareholders. Dividends on Irredeemable Preference shares are
recognised in the period in which they are declared and
appropriately approved.
Charitable grant to ultimate parent undertaking
Payments are made via Gift Aid to the ultimate parent company,
Allchurches Trust Limited, a registered charity. The Group does not
regard these payments as being expenses of the business and, as
such, recognises them net of tax in equity in the period in which
they are approved.
105
Ecclesiastical Insurance Office plc NOTES TO THE FINANCIAL STATEMENTS
2 Critical accounting estimates and
judgements in applying accounting
policies
The Group makes estimates and assumptions that affect the
reported amounts of assets and liabilities within the next financial
year. Estimates and judgements are regularly reviewed and based
on historical experience and other factors, including expectations of
future events that are believed to be reasonable under the
circumstances.
(a) The ultimate liability arising from claims made under
general business insurance contracts
The estimation of the ultimate liability arising from claims made
under general business insurance contracts is a critical accounting
estimate. 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 timings of any payments. There are various
sources of uncertainty as to how much the Group will ultimately pay
with respect to such contracts. Such uncertainty includes:
- whether a claim event has occurred or not and how much it will
ultimately settle for;
- variability in the speed with which claims are notified and in the
time taken to settle them, especially complex cases resolved
through the courts;
- changes in the business portfolio affecting factors such as the
number of claims and their typical settlement costs, which may
differ significantly from past patterns;
- new types of claim, including latent claims, which arise from time
to time;
- changes in legislation and court attitudes to compensation, which
may apply retrospectively;
- the way in which certain reinsurance contracts (principally liability)
will be interpreted in relation to unusual/latent claims where
aggregation of claimants and exposure over time are issues; and
- whether all such reinsurances will remain in force over the long
term.
The uncertainties surrounding the estimates of claims payments for
the various classes of business are discussed further in note 3, and
where discount rates have been applied these are disclosed in note
26. General business insurance liabilities include a margin for risk
and uncertainty in addition to the best estimates for future claims.
The sensitivity of profit or loss to changes in the ultimate settlement
cost of claims reserves is presented in note 26.
(b) Estimate of future benefit payments arising from long-
term insurance contracts
The determination of the liabilities under long-term insurance
contracts is dependent on estimates made by the Group.
Estimates are made as to the expected number of deaths for each
of the years in which the Group is exposed to risk. The Group bases
these estimates on standard industry and national mortality tables
that reflect recent historical mortality experience, with allowance
also being made for expected future mortality improvements where
prudent. The estimated mortality rates profile provisions for forecast
benefit payments net of forecast premium receipts.
106
Estimates are also made as to future investment income arising
from the assets backing long-term insurance contracts. These
estimates are based on current market returns as well as
expectations about future economic and financial developments.
In addition to the best estimates of future deaths, inflation,
investment returns and administration expenses, a margin for risk
and uncertainty is added to these assumptions in calculating the
liabilities of long-term insurance contracts. The sensitivity of profit or
loss to changes in the key assumptions is presented in note 26.
(c) Pension and other post-employment benefits
The cost of these benefits and the present value of the pension and
other post-employment benefit liabilities depend on factors that are
determined on an actuarial basis using a number of assumptions.
The assumptions used in determining the charge to profit or loss for
these benefits include the discount rate and, in the case of the post-
employment medical benefits, expected medical costs inflation. Any
changes in these assumptions will impact profit or loss and may
affect planned funding of the pension plans. The Group determines
an appropriate discount rate at the end of each year, to be used to
determine the present value of estimated future cash outflows
expected to be required to settle the pension and other post-
employment benefit obligations.
In determining the appropriate discount rate, the Group considered
interest rates of high quality corporate bonds that are denominated
in the currency in which the benefits will be paid, and that have
terms to maturity approximating the terms of the related pension
liability. The expected rate of medical cost inflation has been
determined by comparing the historical relationship of the actual
medical cost increases with the rate of inflation. Other key
assumptions for the pension and post-employment benefit costs
and credits are based in part on current market conditions.
Additional information including the sensitivity of pension and post-
employment medical benefit scheme liabilities to changes in the key
assumptions is disclosed in note 18.
(d) Goodwill
Goodwill is tested annually for impairment and carried at cost less
accumulated impairment losses. An impairment loss is recognised
to the extent that the carrying value of goodwill exceeds the
recoverable amount. The recoverable amount is determined by
estimating the value in use of the business units to which the
goodwill has been allocated. The value in use calculation requires
the Group to make an estimation of the future cash flows expected
to arise from the business unit and a suitable discount rate to
calculate present value. Details of the carrying value of goodwill at
the balance sheet date are shown in note 16.
(e) Carrying value of tax liabilities
Calculating tax liabilities requires management to make judgements
in respect of the tax payable for current and prior periods based on
the interpretation of applicable tax legislation. In particular, the
material deferred tax liability held by the Group primarily relates to
future tax due on unrealised gains in respect to equities held prior to
2002. Gains on these assets are only recognised for tax purposes
when sold and an estimate has to be made of the tax rate that
would be applicable at the point of sale in order to determine the tax
liability relating to the gain, applying tax rates substantively enacted
at the balance sheet date.
Ecclesiastical Insurance Office plc 3 Insurance risk
Through its general and life insurance operations, the Group is exposed to a number of risks, as summarised in the Risk Management section
of the Strategic Report. The risk under any one insurance contract is the possibility that the insured event occurs and the uncertainty of the
amount and timing of the resulting claim. Factors such as the business and product mix, the external environment including market competition
and reinsurance capacity all may vary from year to year, along with the actual frequency, severity and ultimate cost of claims and benefits. This
subjects the Group to Underwriting and Pricing risk (risk selection and required premium), Claims Reserving Risk (the risk that the cost to settle
claims exceeds the carrying amount of the related insurance liabilities) and Reinsurance Risk (the risk of failing to access and manage
reinsurance capacity at a reasonable price).
(a) Risk mitigation
Experience shows that the larger and more diversified the portfolio of insurance contracts, the smaller the relative variability about the expected
outcome will be. The Group’s underwriting strategy is designed to ensure that the underwritten risks are well diversified in terms of type and
amount of risk and geographical spread. In all operations pricing controls are in place, underpinned by sound statistical analysis, market
expertise and appropriate external consultant advice. Gross underwriting exposure is protected through the use of a comprehensive programme
of reinsurance and proactive claims handling. Net retention limits are in place and the Group arranges catastrophe reinsurance cover to protect
against aggregations of losses.
(b) Concentrations of risk
The core business of the Group is general insurance, with the principal classes of business written being property and liability. The Group also
underwrites a small portfolio of motor policies, but this class is in run-off following the decision in November 2012 to focus on the principal
classes. The accident class of business covers injury, death or incapacity as a result of an unforeseen event. The Group's whole-of-life
insurance policies support funeral planning products.
With reference to written premiums, the concentration of insurance risk for the financial year before and after reinsurance by territory in relation
to the type of risk accepted is summarised below.
2013
Group
Territory
United Kingdom
Australia
Canada
Ireland
Total
Parent
Territory
United Kingdom
Canada
Ireland
Total
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Property
£000
195,720
105,832
27,126
10,784
29,521
19,835
7,876
4,610
260,243
141,061
199,673
105,832
29,521
19,835
7,876
4,610
237,070
130,277
General insurance
Liability
£000
Motor
£000
Accident
£000
Life insurance
Funeral plans
£000
64,578
58,753
16,477
13,869
11,651
10,772
5,691
5,241
98,397
88,635
64,578
58,753
11,651
10,772
5,691
5,241
81,920
74,766
14,467
13,138
861
761
-
-
1
1
15,329
13,900
14,467
13,138
-
-
1
1
14,468
13,139
17,380
16,519
1,205
1,163
-
-
38
40
18,623
17,722
17,380
16,519
-
-
38
40
17,418
16,559
6,753
6,753
-
-
-
-
-
-
6,753
6,753
-
-
-
-
-
-
-
-
Total
£000
298,898
200,995
45,669
26,577
41,172
30,607
13,606
9,892
399,345
268,071
296,098
194,242
41,172
30,607
13,606
9,892
350,876
234,741
107
Ecclesiastical Insurance Office plc NOTES TO THE FINANCIAL STATEMENTS
3 Insurance risk (continued)
2012
Group
Territory
United Kingdom
Australia
Canada
Ireland
Total
Parent
Territory
United Kingdom
Canada
Ireland
Total
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Property
£000
210,913
111,748
41,483
11,495
27,122
18,748
8,032
4,704
287,550
146,695
218,889
111,749
27,122
18,748
8,032
4,704
254,043
135,201
General insurance
Liability
£000
Motor
£000
Accident
£000
Life insurance
Funeral plans
£000
72,705
68,629
19,585
13,915
9,873
8,921
5,762
5,296
107,925
96,761
75,260
68,574
9,873
8,921
5,762
5,296
90,895
82,791
40,937
38,261
2,658
710
-
-
7
7
43,602
38,978
40,937
38,261
-
-
7
7
40,944
38,268
20,404
19,308
1,400
1,319
-
-
245
222
22,049
20,849
20,404
19,308
-
-
245
222
20,649
19,530
20,208
20,208
-
-
-
-
-
-
20,208
20,208
-
-
-
-
-
-
-
-
Total
£000
365,167
258,154
65,126
27,439
36,995
27,669
14,046
10,229
481,334
323,491
355,490
237,892
36,995
27,669
14,046
10,229
406,531
275,790
(c) General insurance risks
Property classes
Property cover mainly compensates the policyholder for damage suffered to their properties or for the value of property lost. Property insurance
may also include cover for pecuniary loss through the inability to use damaged insured commercial properties.
For property insurance contracts, including the property element of motor contracts, there can be variability in the nature, number and size of
claims made in each period.
The nature of claims may include fire, business interruption, weather damage, subsidence, accidental damage to insured vehicles and theft.
Subsidence claims are difficult to predict because the damage is often not apparent for some time. Changes in soil moisture conditions can
give rise to changes in claim volumes over time. The ultimate settlements can be small or large with a greater risk of a settled claim being re-
opened at a later date.
The number of claims made can be affected by weather events, changes in climate and crime rates. Climate change may give rise to more
frequent and severe extreme weather events, such as river flooding, hurricanes and drought, and their consequences, for example, subsidence
claims. If a weather event happens near the end of the financial year then the uncertainty about ultimate claims cost in the financial statements
is much higher because there is insufficient time for adequate data to be received to assess the final cost of claims.
Individual claims can vary in amount since the risks insured are diverse in both size and nature. The cost of repairing property varies according
to the extent of damage, cost of materials and labour charges.
The maximum claim payable is limited to the sum insured. These contracts are underwritten on a reinstatement basis or repair and renovation
basis as appropriate. Costs of rebuilding properties, of replacement or indemnity for contents and time taken to restart operations for business
interruption are the key factors that influence the level of claims. Individual large claims are more likely to arise from fire, storm or flood damage.
The greatest likelihood of an aggregation of claims arises from weather or recession-related events.
Claims payment, on average, occurs within a year of the event that gives rise to the claim. However, there is variability around this average with
larger claims typically taking longer to settle.
108
Ecclesiastical Insurance Office plc Liability classes
Liability insurance contracts protect policyholders from the liability to compensate injured employees (employers' liability) and third parties
(public liability) and motor injuries.
Claims that may arise from the liability portfolios include damage to property, physical injury, disease and psychological trauma. The Group has
a different exposure profile to most other commercial lines insurance companies as it has lower exposure to industrial risks, where uncertainty
is higher. Therefore, claims for industrial diseases are less common for the Group than injury claims such as slips, trips and back injuries.
The frequency and severity of claims arising on liability insurance contracts, including the liability element of motor contracts, can be affected by
several factors. Most significant are the increasing level of awards for damages suffered, the courts’ move to periodic payments awards and the
increase in the number of cases that have been latent for a long period of time.
The severity of bodily injury claims is highly influenced by the value of loss of earnings and the future cost of care. The settlement value of
claims arising under public and employers'
liability and the liability element of motor contracts is particularly difficult to predict. There is
uncertainty as to whether any payments will be made and, if they are, the amount and timing of the payments. Key factors driving the high levels
of uncertainty include the late notification of possible claim events and the legal process.
Late notification of possible claims necessitates the holding of provisions for incurred claims that may only emerge some years into the future.
In particular the effect of inflation over such a long period can be considerable and is uncertain. A lack of comparable past experience makes it
difficult to quantify the number of claims and, for certain types of claims, the amounts for which they will ultimately settle. The legal and
legislative framework continues to develop which has a consequent impact on the uncertainty as to the length of the claims settlement process
and the ultimate settlement amounts.
Claims payment, on average, occurs about three to four years after the event that gives rise to the claim. However, there is significant variability
around this average.
Provisions for latent claims
The public and employers’ liability classes can give rise to very late reported claims, which are often referred to as latent claims. These can vary
in nature and are difficult to predict. They typically emerge slowly over many years. The Group has reflected this uncertainty and believes that it
holds adequate reserves for latent claims that may result from exposure periods up to the reporting date.
Note 26 presents the development of the estimate of ultimate claim cost for public and employers' liability claims occurring in a given year. This
gives an indication of the accuracy of the estimation technique for incurred claims.
(d) Life insurance risks
The Group provides whole-of-life insurance policies to support funeral planning products, for most of which the future benefits are linked to
inflation and backed by index-linked assets. The risk that actual claims payments exceed the carrying amount of the insurance liabilities may
occur if the timing of claims is different from assumed.
Uncertainty in the estimation of the timing of future claims arises from the unpredictability of long-term changes in overall levels of mortality.
The Group bases these estimates on standard industry and national mortality tables. The most significant factors that could alter the expected
mortality rates profile are epidemics, widespread changes in lifestyle and continued improvement in medical science and social conditions. The
primary risk on these contracts is the level of future investment returns on the assets backing the liabilities over the life of the policyholders. The
investment risk within this has been largely mitigated by holding fixed interest assets of a similar term to the expected liabilities profile. The
mortality risk is retained by the Group and directly impacts shareholders' equity.
109
Ecclesiastical Insurance Office plc NOTES TO THE FINANCIAL STATEMENTS
4 Financial risk and capital management
The Group is exposed to financial risk through its financial assets, financial liabilities, reinsurance assets and insurance liabilities. In particular
the key financial risk is that the proceeds from its financial assets are not sufficient to fund the obligations arising from its insurance contracts.
The most important components of financial risk are interest rate risk, credit risk, currency risk and equity price risk.
There has been no change from the prior period in the nature of financial risks that the Group is exposed to. Financial risk exposure fell in 2013
due to the sale of around £50m overseas equities which we have reinvested in UK fixed income debt securities. The Group's management and
measurement of financial risks is informed by either stochastic modelling or stress testing techniques.
(a) Categories of financial instruments
Group
At 31 December 2013
Financial investments
Other assets
Cash and cash equivalents
Other liabilities
Net other
Total
At 31 December 2012
Financial investments
Other assets
Cash and cash equivalents
Other liabilities
Net other
Total
Parent
At 31 December 2013
Financial investments
Other assets
Cash and cash equivalents
Other liabilities
Net other
Total
At 31 December 2012
Financial investments
Other assets
Cash and cash equivalents
Other liabilities
Net other
Total
Financial assets
Designated
at fair value
£000
Held for
Loans and
trading receivables*
£000
£000
Financial
liabilities**
£000
Other assets
and liabilities
£000
Total
£000
938,383
-
-
-
-
938,383
910,785
-
-
-
-
910,785
713,989
-
-
-
-
713,989
675,027
-
-
-
-
675,027
158
-
-
-
-
158
1,846
-
-
-
-
1,846
158
-
-
-
-
158
1,846
-
-
-
-
1,846
7,911
121,411
107,241
-
-
236,563
9,478
142,667
112,584
-
-
264,729
14
105,606
80,430
-
-
186,050
14
121,621
88,963
-
-
210,598
-
-
-
(31,571)
-
(31,571)
-
-
-
(37,796)
-
(37,796)
-
-
-
(19,646)
-
(19,646)
-
-
-
(28,407)
-
(28,407)
-
3,053
-
(6,397)
(646,046)
(649,390)
946,452
124,464
107,241
(37,968)
(646,046)
494,143
-
3,047
-
(6,397)
(680,557)
(683,907)
922,109
145,714
112,584
(44,193)
(680,557)
455,657
49,765
2,665
-
(5,366)
(499,321)
(452,257)
763,926
108,271
80,430
(25,012)
(499,321)
428,294
49,765
2,904
-
(5,366)
(513,765)
(466,462)
726,652
124,525
88,963
(33,773)
(513,765)
392,602
* Cash and cash equivalents have been presented with loans and receivables.
** Financial liabilities are held at amortised cost.
110
Ecclesiastical Insurance Office plc (b) Fair value hierarchy
The fair value measurement basis used to value those financial assets and financial liabilities held at fair value is categorised into a fair value
hierarchy as follows:
Level 1: fair values measured using quoted bid prices (unadjusted) in active markets for identical assets or liabilities. This category includes
listed equities in active markets, listed debt securities in active markets and exchange-traded derivatives.
Level 2: fair values measured using inputs other than quoted prices included within level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes listed debt or equity securities in a market that is not active
and derivatives that are not exchange-traded.
Level 3: fair values measured using inputs for the asset or liability that are not based on observable market data (unobservable inputs). This
category includes unlisted debt and equities, including investments in venture capital, and suspended securities. Where a look-through valuation
approach is applied, underlying net asset values are sourced from the investee and adjusted to reflect illiquidity where appropriate, with the fair
values disclosed being directly sensitive to this input.
There have been no transfers between investment categories in the current year.
Analysis of fair value measurement bases
Group
At 31 December 2013
Financial assets at fair value through profit or loss
Financial investments
Equity securities
Debt securities
Derivatives
Total financial assets at fair value through profit or loss
At 31 December 2012
Financial assets at fair value through profit or loss
Financial investments
Equity securities
Debt securities
Derivatives
Total financial assets at fair value through profit or loss
Parent
At 31 December 2013
Financial assets at fair value through profit or loss
Financial investments
Equity securities
Debt securities
Derivatives
Total financial assets at fair value through profit or loss
At 31 December 2012
Financial assets at fair value through profit or loss
Financial investments
Equity securities
Debt securities
Derivatives
Total financial assets at fair value through profit or loss
Fair value measurement at the
end of the reporting period based on
Level 1
£000
Level 2
£000
Level 3
£000
Total
£000
276,660
636,330
-
912,990
263,968
619,557
-
883,525
246,756
446,067
-
692,823
240,922
408,049
-
648,971
270
5,416
158
5,844
50
2,476
1,846
4,372
270
1,193
158
1,621
50
1,789
1,846
3,685
19,390
317
-
19,707
296,320
642,063
158
938,541
18,558
6,176
-
24,734
282,576
628,209
1,846
912,631
19,386
317
-
19,703
266,412
447,577
158
714,147
18,514
5,703
-
24,217
259,486
415,541
1,846
676,873
111
Ecclesiastical Insurance Office plc NOTES TO THE FINANCIAL STATEMENTS
4 Financial risk and capital management (continued)
Fair value measurements based on level 3
Fair value measurements in level 3 for both the Group and Parent consist of financial assets, analysed as follows:
Group
At 31 December 2013
Opening balance
Total gains/(losses) recognised in profit or loss
Disposal proceeds
Closing balance
Total gains/(losses) for the period included in profit or loss for assets
held at the end of the reporting period
At 31 December 2012
Opening balance
Total gains/(losses) recognised in profit or loss
Purchases
Disposal proceeds
Closing balance
Total gains/(losses) for the period included in profit or loss for assets
held at the end of the reporting period
Parent
At 31 December 2013
Opening balance
Total gains/(losses) recognised in profit or loss
Disposal proceeds
Closing balance
Total gains/(losses) for the period included in profit or loss for assets
held at the end of the reporting period
At 31 December 2012
Opening balance
Total gains/(losses) recognised in profit or loss
Purchases
Disposal proceeds
Closing balance
Total gains/(losses) for the period included in profit or loss for assets
held at the end of the reporting period
Financial assets at fair value
through profit and loss
Equity
securities
£000
Debt
securities
£000
18,558
832
-
19,390
6,176
(5,782)
(77)
317
Total
£000
24,734
(4,950)
(77)
19,707
832
(5,782)
(4,950)
17,215
1,343
-
-
18,558
226
(5,179)
11,130
(1)
6,176
17,441
(3,836)
11,130
(1)
24,734
1,343
(5,179)
(3,836)
18,514
872
-
19,386
5,703
(5,309)
(77)
317
24,217
(4,437)
(77)
19,703
872
(5,309)
(4,437)
17,171
1,343
-
-
18,514
226
(4,115)
9,593
(1)
5,703
17,397
(2,772)
9,593
(1)
24,217
1,343
(4,115)
(2,772)
All the above gains or losses included in profit or loss for the period (for both the Group and Parent) are presented in net investment
return within the statement of profit or loss.
112
Ecclesiastical Insurance Office plc 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
management's knowledge of the markets. Where material, these valuations are reviewed by the Group Audit Committee.
is regularly reviewed and internally calibrated based on
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 and interest rates corresponding to the maturity of the contract. Over-the-counter equity or index options and futures are valued
by reference to observable index prices.
Unlisted equity securities (Level 3)
These financial assets are valued using observable net asset data, adjusted for unobservable inputs including comparable price-to-book ratios
based on similar listed companies, and management's consideration of constituents as to what exit price might be obtainable. Where material,
these valuations are reviewed by the Group Audit Committee.
The valuation is most sensitive to the level of underlying net assets, the euro exchange rate, the price-to-book ratio chosen and an illiquidity
discount applied to the valuation to account for the risks associated with holding the asset. If the price-to-book ratio and illiquidity discount
applied changed by +/- 10% the value of unlisted equity securities could move by +/- £3m.
The increase in value during the year is the result of an increase in underlying net assets, the movement in the euro exchange rate and an
increase in the price-to-book ratio from the previous year end.
Unlisted debt (Level 3)
Unlisted debt is valued using an adjusted net asset method whereby management uses a look-through approach to the underlying assets
supporting the loan, discounted using observable market interest rates of similar loans with similar risk, and allowing for unobservable future
transaction costs. Where material, these valuations are reviewed by the Group Audit Committee.
The valuation is most sensitive to the level of underlying net assets but it is also sensitive to the interest rate used for discounting and the
projected date of disposal of the asset, with the exit costs sensitive to an expected return on capital of any purchaser and estimated transaction
costs. Reasonably likely changes in unobservable inputs used in the valuation would not have a significant impact on shareholders' equity or the
net result.
The decrease in value during the year is primarily the result of a decrease in underlying net assets.
113
Ecclesiastical Insurance Office plc NOTES TO THE FINANCIAL STATEMENTS
4 Financial risk and capital management (continued)
(c) Interest rate risk
The Group’s exposure to interest rate risk arises primarily from movements on financial investments that are measured at fair value and have
fixed interest rates, which represent a significant proportion of the Group’s assets, and from those insurance liabilities for which discounting is
applied at a market interest rate. Investment strategy is set in order to control the impact of interest rate risk on anticipated Group cash flows
and asset and liability values. The fair value of the Group's investment portfolio of fixed income securities reduces as market interest rates rise
as does the present value of discounted insurance liabilities, and vice versa.
Interest rate risk concentration is reduced by adopting asset-liability duration matching principles where appropriate. Excluding assets held to
back the long-term business, the average duration of the Group’s fixed income portfolio is two years (2012: three years), reflecting the relatively
short-term average duration of its general insurance liabilities. The mean-term of discounted general insurance liabilities is disclosed in note 26
(a) part (iv).
For the Group’s long-term insurance funeral plan business, benefits payable to policyholders are independent of the returns generated by
interest-bearing assets. Therefore the interest rate risk on the invested assets supporting these liabilities is borne by the Group. This risk can be
mitigated by purchasing fixed interest investments with durations that precisely match the profile of the liabilities. For funeral plan policies,
benefits are linked to the Retail Prices Index (RPI). Assets backing these liabilities are also linked to the RPI, and include index-linked gilts and
corporate bonds. For practical purposes it is not possible to exactly match the durations due to the uncertain profile of liabilities (e.g. mortality
risk) and the availability of suitable assets, therefore some interest rate risk will persist. The Group monitors its exposure by comparing
projected cash flows for these assets and liabilities and making appropriate adjustments to its investment portfolio.
The table below summarises the maturities of long-term business assets and liabilities that are exposed to interest rate risk.
Group long-term business
At 31 December 2013
Assets
Debt securities
Cash and cash equivalents
Liabilities
Long-term business provision
At 31 December 2012
Assets
Debt securities
Cash and cash equivalents
Liabilities
Long-term business provision
Within
1 year
£000
1,104
2,214
3,318
Maturity
Between
1 & 5 years
£000
After
5 years
£000
Total
£000
27,024
-
27,024
73,075
-
73,075
101,203
2,214
103,417
6,125
22,200
64,121
92,446
8,498
441
8,939
19,218
-
19,218
74,584
-
74,584
102,300
441
102,741
5,951
21,985
65,020
92,956
Group financial investments with variable interest rates, including cash and cash equivalents, insurance instalment receivables and mortgage
loans are subject to cash flow interest rate risk. This risk is not significant to the Group.
114
Ecclesiastical Insurance Office plc (d) Credit risk
The Group has exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. Areas where the
Group is exposed to credit risk are:
-
-
-
-
reinsurers’ share of insurance liabilities (excluding provision for unearned premiums) and amounts due from reinsurers in respect of
claims already paid;
deposits held with banks;
amounts due from insurance intermediaries and policyholders; and
counterparty default on loans and debt securities.
The carrying amount of financial and reinsurance assets represents the Group's maximum exposure to credit risk. The Group structures the
levels of credit risk it accepts by placing limits on its exposure to a single counterparty. Limits on the level of credit risk are regularly reviewed.
Reinsurance is used to manage insurance risk. This does not, however, discharge the Group's liability as primary insurer. If a reinsurer fails to
pay a claim for any reason, the Group remains liable for the payment to the policyholder. The creditworthiness of reinsurers is considered on a
regular basis through the year by reviewing their financial strength. The Group Reinsurance Security Committee assesses, monitors and
approves the creditworthiness of all reinsurers, reviewing relevant credit ratings provided by the recognised credit rating agencies, as well as
other publicly available data and market information. The Committee also monitors the balances outstanding from reinsurers and maintains an
approved list of reinsurers.
There has been no significant change in the recoverability of the Group’s reinsurance balances during the year with all reinsurers on the 2013
reinsurance programme having a minimum rating of 'A-' from Standard & Poor’s or an equivalent agency at the time of purchase, with the
exception of MAPFRE RE whose rating was adversely impacted by the sovereign rating of Spain. However, MAPFRE RE was upgraded by
Standard & Poor’s to 'A-' with a stable outlook in February 2014.
Group cash balances are regularly reviewed to identify the quality of the counterparty bank and to monitor and limit concentrations of risk.
The Group's credit risk policy details prescriptive methods for the collection of premiums and control of intermediary and policyholder debtor
balances. The level and age of debtor balances are regularly assessed via monthly credit management reports. These reports are scrutinised to
assess exposure in more than one region in respect of aged or outstanding balances. Any such balances are likely to be major international
brokers who are in turn monitored via credit reference agencies and considered to pose minimal risk of default. The Group has no material
concentration of credit risk in respect of amounts due from insurance intermediaries and policyholders due to the well diversified spread of
such debtors.
is held over loans secured by mortgages. The debt securities portfolio consists of a range of mainly fixed interest instruments
Collateral
local authority issues, corporate loans and bonds, overseas bonds, preference shares and other interest
including government securities,
bearing securities. Limits are imposed on the credit ratings of the corporate bond portfolio and exposures regularly monitored. Group
investments in unlisted securities represent less than 1% of this category in the current and prior year. The Group’s exposure to counterparty
default on debt securities is spread across a variety of geographical and economic territories, as follows:
2013
2012
Group
£000
463,879
93,283
58,629
26,272
-
642,063
Parent
£000
362,676
-
58,629
26,272
-
447,577
UK
Australia
Canada
Europe
Other
Total
Group
£000
428,760
108,761
61,113
23,773
5,802
628,209
Parent
£000
325,326
-
61,113
23,773
5,329
415,541
UK
Australia
Canada
Europe
Other
Total
115
Ecclesiastical Insurance Office plc NOTES TO THE FINANCIAL STATEMENTS
4 Financial risk and capital management (continued)
(e) Liquidity risk
Liquidity risk is the risk that funds may not be available to pay obligations when due. The Group is exposed to daily calls on its available cash
resources mainly from claims arising from insurance contracts. An estimate of the timing of the net cash outflows resulting from insurance
contracts is provided in note 26. The Group has robust processes in place to manage liquidity risk and has available cash balances, other
readily marketable assets and access to funding in case of exceptional need. This is not considered to be a significant risk to the Group.
Non-derivative financial liabilities consist of finance leases, which are not material to the Group, and other liabilities for which a maturity analysis
is included in note 29.
(f) Currency risk
The Group operates internationally and its main exposures to foreign exchange risk are noted below. The Group's foreign operations generally
invest in assets and purchase reinsurance denominated in the same currencies as their insurance liabilities, which mitigates the foreign
currency exchange rate risk for these operations. As a result, foreign exchange risk arises from recognised assets and liabilities denominated in
other currencies and net investments in foreign operations. The Group mitigates this risk through the use of derivatives from time to time.
The Group exposure to foreign currency risk within the investment portfolios arises from purchased investments that are denominated in
currencies other than sterling.
The Group foreign operations create two sources of foreign currency risk:
-
the operating results of the Group foreign branches and subsidiaries in the Group financial statements are translated at the average
exchange rates prevailing during the period; and
-
the equity investment in foreign branches and subsidiaries is translated into sterling using the exchange rate at the year end date.
The largest currency exposures with reference to net assets/liabilities are shown below, before the mitigating effect of derivatives, representing
effective diversification of resources.
2013
2012
Aus $
Can $
Euro
US $
Japanese Yen
Group
£000
43,053
33,044
12,828
1,479
1,130
Parent
£000
2,747
33,044
12,819
1,479
1,130
Aus $
Can $
Euro
Hong Kong $
Singapore $
Group
£000
54,459
36,651
28,093
8,180
7,207
Parent
£000
6,618
36,651
28,083
8,180
7,207
(g) Equity price risk
The Group is exposed to equity price risk because of financial investments held by the Group and stated at fair value through profit or loss. The
Group mitigates this risk by holding a diversified portfolio across geographical regions and market sectors, and through the use of derivative
contracts from time to time which would limit losses in the event of a fall in equity markets.
The concentration of equity price risk by geographical listing, before the mitigating effect of derivatives, to which the Group and Parent are
exposed is as follows:
2013
2012
Group
£000
273,650
19,393
1,909
979
389
296,320
Parent
£000
243,742
19,393
1,909
979
389
266,412
UK
Europe
Canada
US
Other
Total
Group
£000
236,972
20,775
8,032
6,128
10,669
282,576
Parent
£000
213,882
20,775
8,032
6,128
10,669
259,486
UK
Europe
Hong Kong
Singapore
Other
Total
116
Ecclesiastical Insurance Office plc (h) Market risk sensitivity analysis
The sensitivity of profit and other equity reserves to movements on market risk variables (comprising interest rate, currency and equity price
risk), each considered in isolation, is shown in the following table:
Group
Variable
Interest rate risk
Currency risk
Equity price risk
Parent
Variable
Interest rate risk
Currency risk
Equity price risk
Change in
variable
-100 basis points
+100 basis points
-5%
+5%
+/- 5%
Change in
variable
-100 basis points
+100 basis points
-5%
+5%
+/- 5%
Potential increase/
(decrease) in profit
2013
£000
(254)
(4,769)
811
(770)
11,371
2012
£000
1,725
(4,212)
2,042
(1,940)
10,667
Potential increase/
(decrease) in profit
2013
£000
1,269
(2,174)
811
(770)
10,224
2012
£000
2,185
(3,935)
1,820
(1,729)
9,796
Potential increase/
(decrease) in
other equity reserves
2013
£000
(121)
131
3,513
(3,337)
-
2012
£000
(24)
17
4,419
(4,198)
-
Potential increase/
(decrease) in
other equity reserves
2013
£000
(88)
85
1,391
(1,321)
-
2012
£000
(15)
15
1,922
(1,826)
-
The following assumptions have been made in preparing the above sensitivity analysis:
-
the value of fixed income investments will vary inversely with changes in interest rates, and all territories experience the same interest
rate movement;
-
currency gains and losses will arise from a change in the value of sterling against all other currencies moving in parallel;
- equity prices will move by the same percentage across all territories; and
-
change in profit is stated net of tax at the standard rate applicable in each of the Group's territories.
(i) Capital management
The Group's primary objectives when managing capital include:
-
-
to comply with the regulators' capital requirements of the markets in which the Group operates; and
to safeguard the Group's ability to continue to meet stakeholders' expectations, in accordance with its corporate mission, vision and
values.
The Group is subject to insurance solvency regulations in all the territories in which it issues insurance and investment contracts, and capital is
managed and evaluated on the basis of regulatory capital.
In the UK, the Group and its UK regulated entities are required to comply with rules issued by the Financial Conduct Authority (FCA) and the
Prudential Regulation Authority (PRA), and submit PRA returns detailing levels of regulatory capital held. Regulatory capital should be in excess
of the higher of two amounts. The first is an amount which is calculated by applying fixed percentages to premiums and claims (general
insurance business) or by applying fixed percentages to insurance liabilities and applying stress testing (long-term business). The second is an
economic capital assessment by the regulated entity, which the PRA reviews and may amend by issuing Individual Capital Guidance. The Group
sets internal capital standards above the PRA's minimum requirement. For overseas business the relevant capital requirement is the minimum
requirement under the local regulatory regime. Both the Group and the regulated entities within it have complied with all externally imposed
capital requirements throughout the current and prior year.
Regulated subsidiaries are restricted in the amount of cash dividends they transfer to the parent entity, in order for them to meet their individual
minimum capital requirements. The Group's total available capital resources are disclosed in note 26 (b).
117
Ecclesiastical Insurance Office plc NOTES TO THE FINANCIAL STATEMENTS
5 Segment information
(a) Operating segments
The Group segments its business activities on the basis of differences in the products and services offered and, for general insurance, the
underwriting territory. This reflects the management and internal Group reporting structure. Group activities that are not reportable operating
segments on the basis of size are included within an 'Other activities' category. A change has been made to segments during 2013 as follows:
- The 'Broking' segment has been renamed 'Broking and Advisory' and includes Ecclesiastical Financial Advisory Services Limited, which
had previously been included in 'Other activities'.
The prior period has been restated to the revised basis.
The activities of each operating segment are described below.
- General business
United Kingdom
The Group's principal general insurance business operation is in the UK, where it operates under the Ecclesiastical and Ansvar brands.
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.
Ireland
The Group operates an Ecclesiastical branch in the Republic of Ireland underwriting general business across the whole of Ireland.
Central operations
This includes the Group's internal reinsurance function, corporate underwriting costs, adverse development cover sold to ACS (NZ)
Limited and operations that are in run-off or not reportable due to their immateriality.
- Investment management
The Group provides investment management services both internally and to third parties through Ecclesiastical Investment Management
Limited.
- Broking and Advisory
The Group provides insurance broking through South Essex Insurance Brokers Limited and financial advisory services through
Ecclesiastical Financial Advisory Services Limited.
- Life business
Ecclesiastical Life Limited provides long-term insurance policies to support funeral planning products.
- Other activities
This includes corporate costs relating to acquisition and disposal of businesses.
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.
118
Ecclesiastical Insurance Office plc Segment revenue
The Group uses gross written premiums as the measure for turnover of the general and life insurance business segments. Turnover of the non-
insurance segments comprises fees and commissions earned in relation to services provided by the Group to third parties. Segment revenues
do not include net investment return or general business fee and commission income, which are reported within revenue in the consolidated
statement of profit or loss.
Continuing operations
General business
United Kingdom
Australia
Canada
Ireland
Central operations
Total
Life business
Investment management
Broking and Advisory
Group revenue from continuing
operations
Gross
written
premiums
£000
291,338
45,669
41,172
13,606
807
392,592
6,753
-
-
2013
Non-
insurance
services
£000
-
-
-
-
-
-
-
10,535
8,031
Total
£000
291,338
45,669
41,172
13,606
807
392,592
6,753
10,535
8,031
Gross
written
premiums
£000
336,579
65,126
36,995
14,046
8,380
461,126
20,208
-
-
2012
Non-
insurance
services
£000
-
-
-
-
-
-
-
8,396
7,979
Total
£000
336,579
65,126
36,995
14,046
8,380
461,126
20,208
8,396
7,979
399,345
18,566
417,911
481,334
16,375
497,709
Group revenues are not materially concentrated on any single external customer.
Segment result
General business segment results comprise the insurance underwriting profit or loss,
investment activities and other expenses of each
underwriting territory. The Group uses the industry standard net combined operating ratio (COR) as a measure of underwriting efficiency. The
COR expresses the total of net claims costs, commission and underwriting expenses as a percentage of net earned premiums.
The life business segment result comprises the profit or loss on insurance contracts (including return on assets backing liabilities in the long-
term fund), shareholder investment return and other expenses.
All other segment results consist of the profit or loss before tax measured in accordance with IFRS.
2013
General business
United Kingdom
Australia
Canada
Ireland
Central operations
Life business
Investment management
Broking and Advisory
Other activities
Profit before tax
Combined
operating
ratio
95.3%
114.8%
104.0%
186.4%
102.9%
Insurance
£000
Investments
£000
9,815
(4,182)
(1,142)
(9,068)
(3,666)
(8,243)
367
-
-
-
(7,876)
59,726
3,913
1,459
385
-
65,483
6,627
1,728
-
-
73,838
Other
£000
(114)
(2)
-
-
-
(116)
(5)
-
1,689
(593)
975
Total
£000
69,427
(271)
317
(8,683)
(3,666)
57,124
6,989
1,728
1,689
(593)
66,937
119
Ecclesiastical Insurance Office plc NOTES TO THE FINANCIAL STATEMENTS
5 Segment information (continued)
2012
Continuing operations
General business
United Kingdom
Australia
Canada
Ireland
Central operations
Life business
Investment management
Broking and Advisory
Other activities
Profit before tax
Combined
operating
ratio
105.5%
122.1%
101.1%
162.8%
108.5%
Insurance
£000
Investments
£000
Other
£000
(12,333)
(5,194)
(297)
(6,213)
(559)
(24,596)
5,947
-
-
-
41,255
8,663
1,257
1,130
12
52,317
3,113
1,194
-
-
(18,649)
56,624
(113)
-
(2)
-
-
(115)
(5)
-
596
(648)
(172)
Total
£000
28,809
3,469
958
(5,083)
(547)
27,606
9,055
1,194
596
(648)
37,803
(b) Geographical information
Gross written premiums from external customers and non-current assets, as attributed to individual countries in which the Group operates, are
as follows:
United Kingdom
Australia
Canada
Ireland
2013
2012
Gross
written
premiums
£000
298,898
45,669
41,172
13,606
399,345
Non-current
assets
£000
73,329
918
1,338
74
75,659
Gross
written
premiums
£000
365,167
65,126
36,995
14,046
481,334
Non-current
assets
£000
74,902
1,453
734
241
77,330
Gross written premiums are allocated based on the country in which the insurance contracts are issued. Non-current assets exclude
rights arising under insurance contracts, deferred tax assets, pension assets and financial
instruments and are allocated based on
where the assets are located.
120
Ecclesiastical Insurance Office plc 6 Net insurance premium revenue
For the year ended 31 December 2013
Gross written premiums
Outward reinsurance premiums
Net written premiums
Change in the gross provision for unearned premiums
Change in the provision for unearned premiums, reinsurers' share
Change in the net provision for unearned premiums
General
business
£000
Long-term
business
£000
392,592
(131,274)
261,318
27,205
(2,613)
24,592
6,753
-
6,753
-
-
-
Total
£000
399,345
(131,274)
268,071
27,205
(2,613)
24,592
Earned premiums, net of reinsurance
285,910
6,753
292,663
For the year ended 31 December 2012
Gross written premiums
Outward reinsurance premiums
Net written premiums
Change in the gross provision for unearned premiums
Change in the provision for unearned premiums, reinsurers' share
Change in the net provision for unearned premiums
461,126
(157,843)
303,283
(404)
(12,442)
(12,846)
20,208
-
20,208
-
-
-
481,334
(157,843)
323,491
(404)
(12,442)
(12,846)
Earned premiums, net of reinsurance
290,437
20,208
310,645
7 Net investment return
Income from financial assets at fair value through profit or loss:
- equity income
- debt income
Income from financial assets not at fair value through profit or loss:
- interest income on mortgages and other loans
- cash and cash equivalents income, net of exchange movements
- other income received
Other income
- rental income
Investment income
Fair value movements on financial instruments at fair value through profit or loss
Fair value movements on investment property
Net investment return
Less: discontinued operations
Net investment return of continuing operations
2013
£000
9,948
25,118
414
1,933
1,754
2,004
41,171
34,729
1,343
77,243
-
77,243
2012
£000
9,274
24,450
477
3,504
2,011
1,783
41,499
24,677
(1,179)
64,997
(6)
64,991
Included within cash and cash equivalents income are exchange gains of £865,000 (2012: £1,494,000 gains).
Included within fair value movements on financial instruments at fair value through profit or loss are £7,813,000 losses (2012: £9,919,000
losses) in respect of derivatives classified as held for trading.
121
Ecclesiastical Insurance Office plc NOTES TO THE FINANCIAL STATEMENTS
8 Claims and change in insurance liabilities and reinsurance recoveries
Continuing operations
For the year ended 31 December 2013
Gross claims paid
Gross change in the provision for claims
Gross change in long-term business provisions
Claims and change in insurance liabilities
Reinsurers' share of claims paid
Reinsurers' share of change in the provision for claims
Reinsurance recoveries
General
business
£000
Long-term
business
£000
206,963
20,526
-
227,489
(38,888)
2,343
(36,545)
7,854
(44)
(510)
7,300
-
-
-
Total
£000
214,817
20,482
(510)
234,789
(38,888)
2,343
(36,545)
Claims and change in insurance liabilities, net of reinsurance
190,944
7,300
198,244
For the year ended 31 December 2012
Gross claims paid
Gross change in the provision for claims
Gross change in long-term business provisions
Claims and change in insurance liabilities
Reinsurers' share of claims paid
Reinsurers' share of change in the provision for claims
Reinsurance recoveries
244,444
(6,559)
-
237,885
(75,228)
33,781
(41,447)
6,930
-
11,242
18,172
-
-
-
251,374
(6,559)
11,242
256,057
(75,228)
33,781
(41,447)
Claims and change in insurance liabilities, net of reinsurance
196,438
18,172
214,610
Discontinued operations
Prior year discontinued general business gross claims and change in insurance liabilities, and related reinsurance recoveries are
disclosed in note 14.
9 Fees, commissions and other acquisition costs
Fees paid
Commission paid
Change in deferred acquisition costs
Other acquisition costs
Fees, commissions and other acquisition costs
2013
£000
404
62,744
(1,075)
18,212
80,285
2012
£000
484
70,436
1,034
25,500
97,454
122
Ecclesiastical Insurance Office plc 10 Profit for the year
Profit for the year has been arrived at after (crediting)/charging
Net foreign exchange gains
Depreciation of property, plant and equipment
Loss on disposal of property, plant and equipment
Amortisation of intangible assets
(Increase)/decrease in fair value of investment property
Employee benefits expense
Operating lease rentals
11 Auditor's remuneration
Fees payable to the Company's auditor for the audit of the Company's annual accounts
Fees payable to the Company’s auditor and its associates for other services:
- The audit of the Company's subsidiaries
Total audit fees
- Audit-related assurance services
- Taxation compliance services
- Taxation advisory services
Total non-audit fees
Total auditor's remuneration
2013
£000
(865)
1,930
112
2,706
(1,343)
64,271
3,671
2013
£000
242
113
355
94
-
9
103
458
2012
£000
(1,494)
2,131
79
2,117
1,179
60,515
3,723
2012
£000
219
144
363
92
18
8
118
481
Amounts disclosed are net of services taxes, where applicable. Audit-related assurance services include Prudential Regulatory Authority
and other regulatory audit work.
Fees payable to the Company's auditor in respect of the audit of the Group's associated pension plans amounted to £15,000 (2012:
£15,000).
123
Ecclesiastical Insurance Office plc NOTES TO THE FINANCIAL STATEMENTS
12 Employee information
The average monthly number of employees of the Group, including Executive Directors, during the year by geographical location was:
United Kingdom
Australia
Canada
Ireland
General
business
No.
2013
Long-term
business
No.
732
110
60
22
924
9
-
-
-
9
Other
No.
101
-
-
-
101
General
business
No.
758
132
59
33
982
Wages and salaries
Social security costs
Pension costs - defined contribution plans
Pension costs - defined benefit plans
Other post-employment benefits
2012
Long-term
business
No.
10
-
-
-
10
2013
£000
55,071
4,192
2,577
1,648
783
64,271
Other
No.
116
-
-
-
116
2012
£000
51,588
3,878
2,485
1,804
760
60,515
The above figures include termination benefits of £4,257,000 (2012: £2,223,000).
The remuneration of the Directors (including Non-Executive Directors), who are the key management personnel of the Group, is set out both
individually and in aggregate within the Group Remuneration Report in the Corporate Governance section of this report.
124
Ecclesiastical Insurance Office plc 13 Tax expense
Current tax
Deferred tax
- current year
- prior years
- temporary differences
- prior years
- reduction in tax rate
Total tax expense
Less: tax expense of discontinued operations
Tax expense of continuing operations
2013
£000
5,192
(1,696)
6,466
(254)
(4,889)
4,819
-
4,819
2012
£000
932
(798)
7,497
-
(2,867)
4,764
(316)
4,448
Tax on the Group’s result before tax differs from the United Kingdom standard rate of corporation tax for the reasons set out in the following
reconciliation:
Profit before tax (continuing operations)
Loss before tax (discontinued operations)
Total pre-tax profit
Tax calculated at the UK standard rate of tax of 23.25% (2012: 24.5%)
Factors affecting charge for the year:
Expenses not deductible for tax purposes
Non-taxable income
Life insurance and other tax paid at non-standard rates
(Utilisation)/generation of tax losses for which no deferred tax asset has been recognised
Impact of reduction in deferred tax rate
Adjustments to tax charge in respect of prior periods
Total tax expense
2013
£000
66,937
-
66,937
15,563
101
(3,340)
(389)
(277)
(4,889)
(1,950)
4,819
2012
£000
37,803
(6,053)
31,750
7,779
4,663
(3,462)
(1,799)
1,248
(2,867)
(798)
4,764
A deferred tax credit on fair value movements on owner-occupied property of £52,000 (2012: £94,000 credit) and tax relief on charitable
grants of £930,000 (2012: £980,000) are taken directly to equity.
A change in the UK standard rate of corporation tax from 24% to 23% became effective from 1 April 2013. Where appropriate, current tax has
been provided at the blended rate of 23.25%. Further reductions in the rate of corporation tax to 21% from April 2014, and to 20% from April
2015, were substantively enacted on 2 July 2013. Deferred tax has been provided at the rate of 20%.
125
Ecclesiastical Insurance Office plc NOTES TO THE FINANCIAL STATEMENTS
14 Prior year discontinued operations
During the prior year, the Group disposed of its wholly-owned subsidiary, ACS (NZ) Limited, transferring its holdings of Ordinary shares in ACS
(NZ) Limited to the Canterbury Earthquake Church and Heritage Trust, an independent trust constituted in New Zealand, with objectives similar
to those of the Group. The loss on disposal includes a contribution made to the Trust of NZ$10.0m.
The disposal was effected in order to reduce the insurance and financial risks associated with the run-off of claims in relation to the series of
earthquakes in Canterbury, New Zealand.
The results and cash flows of the discontinued operations, which have been included in the consolidated statement of profit or loss and
consolidated statement of cash flows, respectively, were as follows:
Total revenue
Claims and change in insurance liabilities
Reinsurance recoveries
Other expenses
Total expenses
Loss before tax
Loss on disposal, net of selling costs
Attributable tax
Net loss attributable to discontinued operations
Net cash used by operating activities
Net cash from financing activities*
Period to
15 May
2012
£000
246
(41,226)
40,751
(605)
(1,080)
(834)
(5,219)
316
(5,737)
(2,466)
5,863
* Net cash from financing activities relates to loans provided by Group companies which are eliminated on consolidation. The full
balance was repaid prior to the 2012 year end.
15 Appropriations
Amounts recognised as distributions to equity holders in the period:
Dividends
Non-Cumulative Irredeemable Preference share dividend
Charitable grants
Gross charitable grants to the ultimate parent company, Allchurches Trust Limited
Tax relief
Net appropriation for the year
2013
£000
2012
£000
9,181
9,181
4,000
(930)
3,070
4,000
(980)
3,020
126
Ecclesiastical Insurance Office plc 16 Goodwill and other intangible assets
Group
Cost
At 1 January 2013
Additions
Disposals
Exchange differences
At 31 December 2013
Accumulated impairment losses and amortisation
At 1 January 2013
Amortisation charge for the year
Impairment losses for the year
Disposals
Exchange differences
At 31 December 2013
Net book value at 31 December 2013
Cost
At 1 January 2012
Additions
Disposals
Exchange differences
At 31 December 2012
Accumulated impairment losses and amortisation
At 1 January 2012
Amortisation charge for the year
Impairment losses for the year
Disposals
Exchange differences
At 31 December 2012
Goodwill
£000
19,387
-
-
-
19,387
8
-
64
-
-
72
19,315
19,387
-
-
-
19,387
-
-
8
-
-
8
Net book value at 31 December 2012
19,379
Computer
software
£000
Other
intangible
assets
£000
21,629
2,232
(1,206)
(515)
22,140
17,668
2,113
-
(1,198)
(396)
18,187
3,953
21,841
1,237
(1,349)
(100)
21,629
17,495
1,524
-
(1,266)
(85)
17,668
3,961
3,918
-
-
-
3,918
2,909
593
-
-
-
3,502
416
3,918
-
-
-
3,918
2,316
593
-
-
-
2,909
1,009
Total
£000
44,934
2,232
(1,206)
(515)
45,445
20,585
2,706
64
(1,198)
(396)
21,761
23,684
45,146
1,237
(1,349)
(100)
44,934
19,811
2,117
8
(1,266)
(85)
20,585
24,349
£16,885,000 of the goodwill balance in the current and prior year relates to the acquisition of South Essex Insurance Holdings Limited during
2008. The recoverable amount, determined on a value in use basis indicates no impairment has arisen. The calculation uses discounted cash
flow projections based on management approved business plans, with forecast annual cash flows at the end of the planning period continuing
thereafter at a constant growth rate in perpetuity.
Assumptions used are consistent with historical experience within the business acquired and external sources of information, and discounting is
at the Group's long-term targeted return on capital.
Other intangible assets consist of acquired customer and distribution relationships, which have an overall remaining useful life of one year on a
weighted average basis.
127
Ecclesiastical Insurance Office plc Computer
software
£000
18,699
2,096
(199)
(723)
19,873
14,888
2,017
(104)
(723)
16,078
3,795
17,944
1,217
(34)
(428)
18,699
13,854
1,405
(26)
(345)
14,888
3,811
2013
2012
Group
£000
34,626
35,795
(34,720)
(944)
34,757
Parent
£000
35,886
31,023
(35,925)
(442)
30,542
Group
£000
35,788
34,690
(35,724)
(128)
34,626
Parent
£000
34,476
35,973
(34,428)
(135)
35,886
NOTES TO THE FINANCIAL STATEMENTS
16 Goodwill and other intangible assets (continued)
Parent
Cost
At 1 January 2013
Additions
Exchange differences
Disposals
At 31 December 2013
Amortisation
At 1 January 2013
Charge for the year
Exchange differences
Disposals
At 31 December 2013
Net book value at 31 December 2013
Cost
At 1 January 2012
Additions
Exchange differences
Disposals
At 31 December 2012
Amortisation
At 1 January 2012
Charge for the year
Exchange differences
Disposals
At 31 December 2012
Net book value at 31 December 2012
17 Deferred acquisition costs
At 1 January
Increase in the period
Release in the period
Exchange differences
At 31 December
All balances are current.
128
Ecclesiastical Insurance Office plc 18 Pension asset and retirement benefit obligations
Defined benefit pension plans
The Group's main plan is a defined benefit plan operated by the Parent for UK employees, which includes two discrete sections, the EIO
Section and Ansvar Section. The assets of the plan are held separately from those of the Group by the Trustee of the Ecclesiastical Insurance
Office plc Staff Retirement Benefit Fund (the 'Fund'). The Fund is subject to the Statutory Funding Objective under the Pensions Act 2004. An
independent qualified actuary appointed by the Trustee is responsible for undertaking triennial valuations to determine whether the Statutory
Funding Objective is met. Pension costs for the plan are determined by the Trustee, having considered the advice of the actuary and having
consulted with the Employer. The most recent triennial valuation was at 31 December 2010. Pension liabilities for the Ireland branch were dealt
with by payment to an Irish life office. It was announced prior to the year end that the Irish plan would close on 31 March 2014, in agreement
with the Trustees. Actuarial valuations have been reviewed and updated by the actuary at 31 December 2013 for IAS 19 (R) purposes. The
plan typically exposes the Group to risks such as:
- Investment risk: The Fund holds some of its investments in asset classes, such as equities, which have volatile market values and, while these
assets are expected to provide the best returns over the long term, any short-term volatility could cause additional funding to be required if a
deficit emerges. Derivative contracts are used from time to time which would limit losses in the event of a fall in equity markets.
- Interest rate risk: The Fund's liabilities are assessed using market rates of interest to discount the liabilities and are therefore subject to any
volatility in the movement of the market rate of interest. The net interest income or expense recognised in profit or loss is also calculated using
the market rate of interest.
- Inflation risk: A significant proportion of the benefits under the Fund are linked to inflation. Although the Fund's assets are expected to provide
a good hedge against inflation over the long term, movements over the short term could lead to a deficit emerging.
- Mortality risk: In the event that members live longer than assumed the liabilities may be understated originally, and a deficit may emerge if
funding has not adequately provided for the increased life expectancy.
During the year, the Trustee and Employer completed a revision of the Fund’s Statement of Investment Principles, to align with the Trustee’s
strategic objectives. The Trustees continue to work closely with the Plan Actuary and Fund Manager to deliver the optimal implementation of
these objectives. The Trustees of the Irish plan chose to insure certain benefit payments using an annuity contract purchased with Irish Life
Assurance plc. The payments made under the terms of the annuity contract exactly matched the benefits. The announced closure of the Irish
plan will result in the Group relinquishing all obligations via settlement with the Trustees. The closure will not have a material impact on the
Group accounts.
Pension assets and liabilities of entities within the Group have been offset where there is a legal right of offset or where the gross effect of
offsetting is immaterial to the financial statements. The amount by which the pension asset has been offset in the current year is £638,000
(2012: £844,000).
All Group defined benefit plans are now closed to new entrants. The Group operates a number of defined contribution pension plans, for which
contributions by the Group are disclosed in note 12.
129
Ecclesiastical Insurance Office plc NOTES TO THE FINANCIAL STATEMENTS
18 Pension asset and retirement benefit obligations (continued)
Group and Parent
The amounts recognised in the statement of financial position are determined as follows:
Present value of funded obligations
Fair value of plan assets
Net asset in the statement of financial position
Movements in the net asset recognised in the statement of financial position are as follows:
At 1 January
Exchange differences
Expense charged to profit or loss*
Amounts recognised in other comprehensive income
Contributions paid
At 31 December
The amounts recognised through profit or loss are as follows:
Current service cost
Administration cost
Interest expense on liabilities
Interest income on plan assets
Total, included in employee benefits expense
The amounts recognised in the statement of other comprehensive income are as follows:
Return on plan assets, excluding interest income
Experience gains on liabilities
Losses from changes in financial assumptions
Total included in other comprehensive income
2013
£000
2012
£000
(255,604)
287,892
32,288
(225,164)
261,685
36,521
36,521
(24)
(1,961)
(5,180)
2,932
32,288
3,441
221
9,971
(11,672)
1,961
16,921
127
(22,228)
(5,180)
35,227
18
(1,967)
203
3,040
36,521
3,305
405
9,846
(11,589)
1,967
18,602
45
(18,444)
203
* Charge to profit or loss includes £313,000 (2012: £163,000) in respect of member salary sacrifice contributions and costs ultimately
borne by related parties.
130
Ecclesiastical Insurance Office plc The principal actuarial assumptions (expressed as weighted averages) were as follows:
Discount rate
Inflation (RPI)
Inflation (CPI)
Future salary increases
Future increase in pensions in deferment
Future pension increases (linked to RPI)
Future pension increases (linked to CPI)
2013
%
4.60
3.50
2.70
5.00
2.70
3.50
2.70
2012
%
4.50
3.00
2.20
4.50
2.20
3.00
2.20
Mortality rate
2013
2012
The average life expectancy in years of a pensioner retiring at age 65, at the year end date, is as
follows:
Male
Female
The average life expectancy in years of a pensioner retiring at age 65, 20 years after the year end
date, is as follows:
Male
Female
Plan assets are weighted as follows:
Cash and cash equivalents
Equity instruments
UK quoted
Overseas quoted
Debt instruments
UK public sector quoted - fixed interest
UK non-public sector quoted - fixed interest
UK quoted - index-linked
Other
The actual return on plan assets was a gain of £28,593,000 (2012: gain of £30,191,000).
24.2
26.3
26.5
28.7
24.0
26.2
26.3
28.6
2013
%
2012
%
4
30
29
59
3
15
12
30
7
6
28
26
54
5
12
18
35
5
100
100
131
Ecclesiastical Insurance Office plc NOTES TO THE FINANCIAL STATEMENTS
18 Pension asset and retirement benefit obligations (continued)
The movements in the fair value of plan assets and the present value of the defined benefit obligation over the year are as follows:
Plan assets
At 1 January
Interest income
Return on plan assets, excluding interest income
Pension benefits paid and payable
Contributions paid
Exchange differences
At 31 December
Defined benefit obligation
At 1 January
Current service cost
Administration cost
Interest cost
Pension benefits paid and payable
Experience gains on liabilities
Losses from changes in financial assumptions
Exchange differences
At 31 December
History of plan assets and liabilities
Present value of defined benefit obligations
Fair value of plan assets
Surplus
2013
£000
(255,604)
287,892
32,288
2012
£000
(225,164)
261,685
36,521
2011
£000
(199,087)
234,314
35,227
2013
£000
2012
£000
261,685
11,672
16,921
(5,406)
2,932
88
287,892
225,164
3,441
221
9,971
(5,406)
(127)
22,228
112
255,604
2010
£000
(213,740)
237,440
23,700
234,314
11,589
18,602
(5,762)
3,040
(98)
261,685
199,087
3,305
405
9,846
(5,762)
(45)
18,444
(116)
225,164
2009
£000
(190,985)
205,628
14,643
The weighted average duration of the defined benefit obligation at the end of the reporting period is 21 years (2012: 21years).
The contribution expected to be paid by the Group during the year ending 31 December 2014 is £3.1 million.
Significant actuarial assumptions for the determination of the defined benefit obligation are discount rate, inflation, expected salary increases
and mortality. The sensitivity analysis below has been determined on reasonably possible changes of the assumptions occurring at the end of
the reporting period assuming that all other assumptions are held constant.
Assumption
Change in assumption
Impact on plan liabilities
2013
2012
Discount rate
Inflation
Salary increase
Life expectancy
Increase/decrease by 0.5%
Increase/decrease by 0.5%
Increase/decrease by 0.5%
Increase/decrease by 1 year
Decrease/increase by 10%/12%
Increase/decrease by 10%/10%
Increase/decrease by 3%
Increase/decrease by 3%
Decrease/increase by 10%/12%
Increase/decrease by 11%/10%
Increase/decrease by 3%
Increase/decrease by 3%
132
Ecclesiastical Insurance Office plc Post-employment medical benefits
The Parent operates a post-employment medical benefit plan, for which it chooses to self-insure. The method of accounting, assumptions and
the frequency of valuation are similar to those used for the defined benefit pension plans.
The provision of the plan leads to a number of risks as follows:
- Interest rate risk: The reserves are assessed using market rates of interest to discount the liabilities and are therefore subject to volatility in
the movement of the market rates of interest. A reduction in the market rate of interest would lead to an increase in the reserves required to be
held.
- Medical expense assumption: Claims experience can be volatile, exposing the Company to the risk of being required to pay over and above
the assumed reserve. If future claims experience differs significantly from that experienced in previous years this will increase the risk to the
Company.
- Spouse and widows' contributions: The self-insured benefit includes a potential liability for members who pay contributions in respect of their
spouse and for widows who pay contributions. There is the possibility that the contributions charged may not be sufficient to cover the medical
costs that fall due.
- Mortality risk: If members live longer than expected the Company is exposed to the expense of medical claims for a longer period, with
increased likelihood of needing to pay claims.
The amounts recognised in the statement of financial position are determined as follows:
Group and Parent
2013
£000
2012
£000
Present value of unfunded obligations and net obligations in the statement of financial position
11,744
14,810
Movements in the net obligations recognised in the statement of financial position are as
follows:
At 1 January
Total expense charged to profit or loss
Net actuarial (gains)/losses during the year, recognised in other comprehensive income
Benefits paid
At 31 December
The amounts recognised through profit or loss are as follows:
Current service cost
Interest cost
Total, included in employee benefits expense
14,810
783
(3,654)
(195)
11,744
116
667
783
12,760
760
1,534
(244)
14,810
122
638
760
The weighted average duration of the net obligations at the end of the reporting period is 22 years (2012: 22 years).
The main actuarial assumptions for the plan are a long-term increase in medical costs of 12.0% (2012: 12.0%) and a discount rate of 4.6%
(2012: 4.5%). The sensitivity analysis below has been determined on reasonably possible changes of the assumptions occurring at the end of
the accounting period assuming that all other assumptions are held constant.
Assumption
Change in assumption
Impact on plan liabilities
2013
2012
Discount rate
Medical expense inflation
Life expectancy
Increase/decrease by 0.5%
Increase/decrease by 1.0%
Increase/decrease by 1 year
Decrease/increase by 10%/11%
Increase/decrease by 23%/18%
Increase/decrease by 11%/8%
Decrease/increase by 10%/12%
Increase/decrease by 24%/18%
Increase/decrease by 11%/8%
133
Ecclesiastical Insurance Office plc NOTES TO THE FINANCIAL STATEMENTS
19 Property, plant and equipment
Group
Cost or valuation
At 1 January 2013
Additions
Disposals
Revaluation
Exchange differences
At 31 December 2013
Depreciation
At 1 January 2013
Charge for the year
Disposals
Exchange differences
At 31 December 2013
Net book value at 31 December 2013
3,065
Cost or valuation
At 1 January 2012
Additions
Disposals
Revaluation
Exchange differences
At 31 December 2012
Depreciation
At 1 January 2012
Charge for the year
Disposals
Exchange differences
At 31 December 2012
3,679
-
-
(412)
(19)
3,248
-
-
-
-
-
Net book value at 31 December 2012
3,248
Land and
buildings
£000
Motor
vehicles
£000
Furniture,
fittings and
equipment
£000
Computer
equipment
£000
3,248
-
-
(104)
(79)
3,065
-
-
-
-
-
3,190
621
(971)
-
-
2,840
1,259
507
(635)
-
1,131
1,709
3,045
659
(514)
-
-
3,190
1,055
537
(333)
-
1,259
1,931
6,830
58
(612)
-
(119)
6,157
5,296
518
(548)
(89)
5,177
980
6,452
809
(388)
-
(43)
6,830
5,045
667
(388)
(28)
5,296
1,534
7,621
867
(604)
-
(354)
7,530
5,920
905
(540)
(293)
5,992
1,538
8,079
697
(1,076)
-
(79)
7,621
6,122
927
(1,071)
(58)
5,920
1,701
Total
£000
20,889
1,546
(2,187)
(104)
(552)
19,592
12,475
1,930
(1,723)
(382)
12,300
7,292
21,255
2,165
(1,978)
(412)
(141)
20,889
12,222
2,131
(1,792)
(86)
12,475
8,414
A certain property, held as an investment property by a subsidiary undertaking but occupied by the Group, was revalued at 31 December 2013.
All others were revalued at 31 December 2012. Valuations were carried out by Cluttons, an external firm of Chartered Surveyors, using
standard industry methodology to determine a fair market value. All properties are classified as level 2 assets.
The value of land and buildings on a historical cost basis is £3,019,000 (2012: £3,049,000).
Depreciation expense has been charged in other operating and administrative expenses.
Included within net book value of motor vehicles is £1,530,000 (2012: £1,719,000) in respect of assets held under finance leases.
134
Ecclesiastical Insurance Office plc Parent
Cost or valuation
At 1 January 2013
Additions
Disposals
Exchange differences
At 31 December 2013
Depreciation
At 1 January 2013
Charge for the year
Disposals
Exchange differences
At 31 December 2013
Net book value at 31 December 2013
2,360
Cost or valuation
At 1 January 2012
Additions
Disposals
Revaluation
Exchange differences
At 31 December 2012
Depreciation
At 1 January 2012
Charge for the year
Disposals
Exchange differences
At 31 December 2012
2,747
-
-
(387)
-
2,360
-
-
-
-
-
Net book value at 31 December 2012
2,360
Land and
buildings
£000
Motor
vehicles
£000
Furniture,
fittings and
equipment
£000
Computer
equipment
£000
2,360
-
-
-
2,360
-
-
-
-
-
3,051
621
(971)
-
2,701
1,195
487
(635)
-
1,047
1,654
2,913
631
(493)
-
-
3,051
1,003
510
(318)
-
1,195
1,856
5,762
29
(23)
(37)
5,731
4,532
464
(36)
(38)
4,922
809
5,125
789
(137)
-
(15)
5,762
4,225
456
(137)
(12)
4,532
1,230
5,239
820
(389)
(42)
5,628
4,062
722
(389)
(28)
4,367
1,261
5,628
591
(969)
-
(11)
5,239
4,341
691
(964)
(6)
4,062
1,177
Total
£000
16,412
1,470
(1,383)
(79)
16,420
9,789
1,673
(1,060)
(66)
10,336
6,084
16,413
2,011
(1,599)
(387)
(26)
16,412
9,569
1,657
(1,419)
(18)
9,789
6,623
The Company’s land and buildings were revalued at 31 December 2012 by Cluttons, an external firm of Chartered Surveyors, using standard
industry methodology to determine a fair market value. All properties are classified as level 2 assets.
The value of land and buildings on a historical cost basis is £2,484,000 (2012: £2,484,000).
Depreciation expense has been charged in other operating and administrative expenses.
Included within net book value of motor vehicles is £1,530,000 (2012: £1,719,000) in respect of assets held under finance leases.
135
Ecclesiastical Insurance Office plc NOTES TO THE FINANCIAL STATEMENTS
20 Investment property
Group and Parent
Net book value at 1 January
Additions
Disposals
Fair value gains/(losses)
Net book value at 31 December
2013
£000
27,315
17,894
(1,453)
1,343
45,099
2012
£000
27,473
1,982
(961)
(1,179)
27,315
The Group’s investment properties were last revalued at 31 December 2013 by Cluttons, an external firm of Chartered Surveyors. Valuations
were carried out using standard industry methodology to determine a fair market value. All properties are classified as level 2 assets.
Investment properties are held for long-term capital appreciation rather than short-term sale. Rental
income arising from the investment
properties owned by both the Group and Parent amounted to £2,004,000 (2012: £1,783,000) and is included in net investment return. Other
operating and administrative expenses include £350,000 (2012: £337,000) relating to investment property.
21 Financial investments
Financial investments summarised by measurement category are as follows:
Financial investments at fair value through profit or loss
Equity securities
- listed
- unlisted
Debt securities
- government bonds
- listed
- unlisted
Derivative financial instruments
- futures
- options
Loans and receivables
Loans secured by mortgages
Other loans
2013
Group
£000
Parent
£000
2012
Group
£000
Parent
£000
276,930
19,390
225,413
416,445
205
-
158
938,541
7,892
19
7,911
247,026
19,386
147,418
299,954
205
-
158
714,147
-
14
14
264,018
18,558
266,300
355,733
6,176
443
1,403
912,631
9,455
23
9,478
240,972
18,514
172,700
237,138
5,703
443
1,403
676,873
-
14
14
Parent investments in subsidiary undertakings
Shares in subsidiary undertakings
-
49,765
-
49,765
Total financial investments
946,452
763,926
922,109
726,652
Current
Non-current
391,205
555,247
357,674
406,252
384,080
538,029
339,423
387,229
All investments in subsidiary undertakings are unlisted.
136
Ecclesiastical Insurance Office plc 22 Derivative financial instruments
The Group utilises non-hedge derivatives to mitigate equity price risk arising from investments held at fair value and foreign exchange risk
arising from insurance liabilities denominated in foreign currencies.
Group and Parent
Equity/Index contracts
Futures
Options
Foreign exchange contracts
Options
All balances are current.
Contract/
notional
amount
£000
-
30,000
-
30,000
2013
Fair value
asset
£000
-
158
-
158
Fair value
liability
£000
-
-
-
-
Contract/
notional
amount
£000
53,075
30,000
25,000
108,075
2012
Fair value
asset
£000
443
846
557
1,846
Fair value
liability
£000
-
-
-
-
The notional amounts above reflect the aggregate of individual derivative positions on a gross basis and so give an indication of the overall
scale of the derivative transaction. They do not reflect current market values of the open positions.
The derivative fair value assets are recognised within financial investments (note 21).
Amounts pledged as collateral in respect of derivative contracts are disclosed in note 24.
137
Ecclesiastical Insurance Office plc NOTES TO THE FINANCIAL STATEMENTS
23 Other assets
Receivables arising from insurance and reinsurance contracts
- due from contract holders
- due from agents, brokers and intermediaries
- due from reinsurers
Other receivables
- accrued interest and rent
- other prepayments and accrued income
- amounts owed by related parties
- other debtors
Current
Non-current
2013
2012
Group
£000
25,474
43,287
8,808
7,876
3,268
17,566
18,185
124,464
107,206
17,258
Parent
£000
25,456
31,727
8,051
5,821
2,868
31,006
3,342
108,271
78,015
30,256
Group
£000
31,027
53,695
13,356
7,251
3,236
17,241
19,908
145,714
128,462
17,252
Parent
£000
30,792
38,080
7,820
5,123
3,086
35,327
4,297
124,525
97,973
26,552
The Group has recognised a credit of £77,000 (2012: charge of £47,000) in other operating and administrative expenses in the statement of
profit or loss for the impairment of its trade and other receivables during the year. The Parent has recognised a charge of £17,000 (2012:
credit of £18,000).
The Group balance due from reinsurers comprises £11,728,000 (2012: £15,121,000) receivable net of £2,920,000 (2012: £1,765,000)
payable. The Parent balance comprises £10,971,000 (2012: £9,585,000) receivable net of £2,920,000 (2012: £1,765,000) payable.
The Group balance owed by related parties comprises £17,584,000 (2012: £17,549,000) receivable net of £18,000 (2012: £308,000)
payable. The Parent balance comprises £31,610,000 (2012: £36,401,000) receivable net of £604,000 (2012: £1,074,000) payable.
There has been no significant change in the recoverability of the Group's trade receivables, for which no collateral
is held. The Directors
consider that the amounts are recoverable at their carrying values, which are stated net of an allowance for doubtful debts for those debtors
that are individually determined to be impaired.
Movement in the allowance for doubtful debts
Balance at 1 January
Movement in the year
Balance at 31 December
2013
2012
Group
£000
882
(559)
323
Parent
£000
553
(364)
189
Group
£000
666
216
882
Parent
£000
384
169
553
Included within trade receivables of the Group is £2,964,000 (2012: £4,165,000) overdue but not impaired, of which £2,558,000 (2012:
£3,665,000) is not more than three months overdue at the reporting date. Included within trade receivables of the Parent is £2,115,000 (2012:
£3,579,000) overdue but not impaired, of which £1,887,000 (2012: £3,079,000) is not more than three months overdue at the reporting date.
138
Ecclesiastical Insurance Office plc 24 Cash and cash equivalents
Cash at bank and in hand
Short-term bank deposits
2013
2012
Group
£000
48,298
58,943
107,241
Parent
£000
30,715
49,715
80,430
Group
£000
60,154
52,430
112,584
Parent
£000
42,576
46,387
88,963
Included within cash at bank and in hand of the Group is £4,948,000 (2012: £nil) pledged as collateral in respect of an insurance liability.
Included within short-term bank deposits of the Group and Parent are cash deposits of £nil (2012: £2,257,000) pledged as collateral by way of
cash margins on open derivative contracts and cash to cover derivative liabilities.
25 Called up share capital
Ordinary shares of 4p each
8.625% Non-Cumulative Irredeemable Preference shares of £1 each
Movements in the number of shares in issue during the year were as follows:
Ordinary shares
At 1 January
Sub-division of shares
At 31 December
8.625% Non-Cumulative Irredeemable Preference shares of £1 each
At 1 January and 31 December
Issued, allotted and
fully paid
2013
£000
14,027
106,450
120,477
2012
£000
14,027
106,450
120,477
350,678
-
350,678
140,270
210,408
350,678
106,450
106,450
During the prior year each of the issued Ordinary shares of 10 pence in the capital of the Company was sub-divided into 2.5 Ordinary shares of
4 pence with each sub-divided share having the rights and being subject to the restrictions attaching to Ordinary shares under the Articles of
Association.
On winding up, the assets of the Company remaining after payment of its liabilities are to be applied to holders of the Irredeemable Preference
shares in repaying the nominal capital sum paid up on the shares and an amount equal to all arrears of accrued and unpaid dividends up to the
date of the commencement of the winding up. The residual interest in the assets of the Company after deducting all liabilities belongs to the
Ordinary shareholders.
Holders of the Irredeemable Preference shares are not entitled to receive notice of, or to attend, or vote at any general meeting of the Company
unless at the time of the notice convening such meeting, the dividend on such shares which is most recently payable on such shares shall not
have been paid in full, or where a resolution is proposed varying any of the rights of such shares, or for the winding up of the Company.
139
Ecclesiastical Insurance Office plc NOTES TO THE FINANCIAL STATEMENTS
26 Insurance liabilities and reinsurance assets
Gross
Claims outstanding
Unearned premiums
Long-term business provision
Total gross insurance liabilities
Recoverable from reinsurers
Claims outstanding
Unearned premiums
Total reinsurers’ share of insurance liabilities
Net
Claims outstanding
Unearned premiums
Long-term business provision
Total net insurance liabilities
Gross insurance liabilities
Current
Non-current
Reinsurance assets
Current
Non-current
2013
Group
£000
569,179
186,642
92,446
848,267
89,472
43,121
132,593
479,707
143,521
92,446
715,674
Parent
£000
498,705
164,483
-
663,188
78,610
42,880
121,490
420,095
121,603
-
541,698
2012
Group
£000
565,937
219,798
92,956
878,691
94,902
46,109
141,011
471,035
173,689
92,956
737,680
Parent
£000
485,778
190,009
-
675,787
83,551
43,921
127,472
402,227
146,088
-
548,315
372,878
475,389
328,088
335,100
421,048
457,643
358,929
316,858
105,451
27,142
97,058
24,432
100,035
40,976
89,323
38,149
(a) General business insurance contracts
(i) Reserving methodology
Reserving for non-life insurance claims is a complex process and the Group adopts recognised actuarial methods, and, where appropriate, other
calculations and statistical analysis. Actuarial methods used include chain ladder, the Bornhuetter-Ferguson and average cost methods.
Chain ladder methods extrapolate paid amounts, incurred amounts (paid claims plus case estimates), the number of claims or average cost of
claims, to ultimate claims based on the development of previous years. This method assumes that previous patterns are a reasonable guide to
future developments. Where this assumption is felt to be unreasonable, adjustments are made or other methods such as Bornhuetter-Ferguson
or average cost are used. The Bornhuetter-Ferguson method places more credibility on expected loss ratios for the most recent loss years. For
smaller portfolios the materiality of the business and data available may also shape the methods used in reviewing reserve adequacy.
The selection of results for each accident year and for each portfolio depends on an assessment of the most appropriate method. Sometimes a
combination of techniques is used. The average weighted term to payment is calculated separately by class of business and is based on historic
settlement patterns.
(ii) Calculation of uncertainty margins
To reflect the uncertain nature of the outcome of the ultimate settlement cost of claims an uncertainty margin is added to the best estimate.
The addition for uncertainty is assessed primarily by the Thomas Mack actuarial method, based on at least the 75th percentile confidence level
for each portfolio. For smaller portfolios where the Thomas Mack method cannot be applied, provisions have been calculated at a level intended
to provide an equivalent probability of sufficiency. Where the standard methods cannot allow for changing circumstances then additional
uncertainty margins are added and are typically expressed as a percentage of outstanding claims. This approach generally results in a
favourable release of provisions in the current financial year, arising from the settlement of claims relating to previous financial years, as shown
in part (c) of the note.
(iii) Calculation of provisions for latent claims
The Group adopts commonly used industry methods including those based on claims frequency and severity and benchmarking.
140
Ecclesiastical Insurance Office plc (iv) Discounting
General
discounted provisions are held in the following territories:
insurance outstanding claims provisions are undiscounted, except for certain designated long-tail classes of business for which
Discount rate
Mean term of discounted
liabilities
Geographical territory
2013
2012
2013
2012
UK and Ireland
Canada
Australia
0.4% to 3.8%
1.1% to 3.2%
3.3%
0.3% to 3.4%
1.1% to 2.5%
2.8%
15
14
5
15
9
5
Parent consists of UK, Ireland and Canada. Group also includes Australia.
The applied rates of interest are based on government bond yield curves of the relevant currency and term at the reporting date, adjusted where
appropriate to reflect portfolio assets held and to allow for future investment expenses. At the year end the undiscounted gross outstanding
claims provision was £626,418,000 for the Group (2012: £582,674,000), and £540,739,000 for the Parent (2012: £496,255,000).
At 31 December 2013, it is estimated that a fall of 1% in the discount rates used would increase the Group's net outstanding claims provisions
by £12,402,000 (2012: £11,541,000). Financial investments backing these liabilities are not hypothecated across general insurance classes
of business. The sensitivity of Group profit or loss and other equity reserves to interest rate risk, taking into account the mitigating effect on
asset values is provided in note 4 (h).
(v) Unexpired risks liability
In the prior year, the unearned premium of the Group’s Australia business was found to have a deficiency of £6,464,000. This deficiency was
reflected in the Group statement of financial position as a write-down against deferred acquisition costs. In the current year this has been
released as a credit against deferred acquisition costs.
(vi) Assumptions
The Group follows a process of reviewing its reserves for outstanding claims on a quarterly basis. This involves an appraisal of each portfolio
with respect to ultimate claims liability for the recent exposure period as well as for earlier periods, together with a review of the factors that
have the most significant impact on the assumptions used to determine the reserving methodology. The work conducted on each portfolio is
subject to an internal peer review and management sign-off process.
insurance reserves are the anticipated number and ultimate
The most significant assumptions in determining the undiscounted general
settlement cost of claims, and the extent to which reinsurers will share in the cost. Factors which influence decisions on assumptions include
legal and judicial changes, significant weather events, other catastrophes, subsidence events, exceptional claims or substantial changes in
claims experience and developments in older or latent claims. Significant factors influencing assumptions about reinsurance are terms of the
reinsurance treaties, the anticipated time taken to settle a claim and the incidence of large individual and aggregated claims.
(vii) Changes in assumptions
There are no significant changes in assumptions.
(viii) Sensitivity of results
The ultimate amount of claims settlement is uncertain and the Group's aim is to reserve to at least the 75th percentile confidence level.
If final settlement of insurance claims reserved for at the year end turns out to be 10% higher or lower than the reserves included in these
financial statements, the following pre-tax Group loss or profit will be realised:
Liability
Property
Motor
- UK
- Overseas
- UK
- Overseas
- UK
- Overseas
2013
2012
Gross
£000
28,300
12,000
6,900
5,200
2,900
-
Net
£000
25,500
9,900
4,100
3,200
2,500
-
Gross
£000
24,800
11,600
6,700
5,900
3,100
100
Net
£000
22,600
5,700
4,000
3,000
2,500
100
141
Ecclesiastical Insurance Office plc NOTES TO THE FINANCIAL STATEMENTS
26 Insurance liabilities and reinsurance assets (continued)
(ix) Claims development tables
The nature of liability classes of business is that claims may take a number of years to settle and before the final liability is known. The tables
below show the development of the undiscounted estimate of ultimate gross and net claims cost for these classes across all territories.
Estimate of gross ultimate claims
2004
£000
2005
£000
2006
£000
2007
£000
2008
£000
2009
£000
2010
£000
2011
£000
2012
£000
2013
£000
Total
£000
42,503
40,075
35,645
33,431
31,870
25,912
25,713
25,685
25,112
24,814
46,155
32,998
35,001
30,365
26,835
25,860
25,893
25,312
25,753
45,688
45,900
40,092
36,168
30,791
28,470
27,154
27,377
50,840 56,420 74,742
47,307 53,552 59,807
43,270 47,643 55,250
35,510
44,658 57,134
35,556 40,433 55,695
34,925 37,546
34,036
84,476 82,095 100,612
88,046
75,550 76,371
62,239 71,543
66,422
81,725
24,814
25,753
27,377 34,036
37,546 55,695
66,422
71,543
88,046
81,725 512,957
(21,360)
3,454
(21,696)
4,057
(22,262) (26,119)
7,917
5,115
(28,621) (33,097) (28,259) (17,008)
8,925 22,598 38,163 54,535
Outstanding liability
Effect of discounting
Present value
Discounted liability in respect of earlier years
Total discounted gross liability (for liability classes) included in insurance liabilities in the statement of financial position
(208,334)
(8,193)
(1,719)
79,853 80,006 304,623
(21,899)
282,724
88,932
371,656
2004
£000
2005
£000
2006
£000
2007
£000
2008
£000
2009
£000
2010
£000
2011
£000
2012
£000
2013
£000
Total
£000
36,590 39,338 38,332 41,927 46,882 60,810 69,230 66,864
34,683 27,128 37,518 38,967 43,344 46,660 60,202 63,770
62,587
30,998 28,917 33,711 33,464 37,204 43,853 50,834
24,960 30,329 28,093 37,669 49,444 53,390
28,394
26,669 21,643 24,731 28,569 34,514 47,970
21,919 21,095 24,821 28,679 33,384
21,166 20,919 24,450 29,217
21,047 20,348 24,710
20,898 21,434
21,341
84,511 71,798
77,629
21,341 21,434 24,710 29,217 33,384 47,970 53,390 62,587
77,629 71,798 443,460
3,238
(18,103) (17,694) (20,281) (22,850) (25,795) (30,354) (24,999) (15,301)
7,589 17,616 28,391 47,286
Outstanding liability
Effect of discounting
Present value
Discounted liability in respect of earlier years
Total discounted gross liability (for liability classes) included in insurance liabilities in the statement of financial position
(1,502) (184,279)
259,181
(15,094)
244,087
75,176
319,263
(7,400)
70,229 70,296
6,367
4,429
3,740
Group
At end of year
One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Current estimate of
ultimate claims
Cumulative payments
to date
Parent
At end of year
One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Current estimate of
ultimate claims
Cumulative payments
to date
142
Ecclesiastical Insurance Office plc Estimate of net ultimate claims
Group
At end of year
One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Current estimate of
ultimate claims
Cumulative payments to
date
2004
£000
2005
£000
2006
£000
2007
£000
2008
£000
2009
£000
2010
£000
2011
£000
2012
£000
2013
£000
Total
£000
35,349 39,528 41,007 46,235 51,795 64,476 73,218 75,302
88,247
34,867 32,780 40,976 43,107 48,432 53,700 64,796 72,336 79,272
29,447 31,287 35,783 38,979 44,498 50,805 57,758 68,057
28,486 28,641 33,145 34,180 42,524 50,168 59,353
27,840 25,665 30,283 35,004 39,321
24,560 25,391 28,230 34,688 37,208
24,482
25,150 26,926 33,702
24,435 24,024 27,150
23,892 24,534
23,697
50,062
76,729
23,697 24,534 27,150 33,702 37,208 50,062 59,353 68,057 79,272 76,729 479,764
3,365
(20,332) (20,714) (22,116) (25,939) (28,424)
5,034
Outstanding liability
Effect of discounting
Present value
Discounted liability in respect of earlier years
Total discounted net liability (for liability classes) included in insurance liabilities in the statement of financial position
(1,712) (202,910)
8,784 18,604 32,193 51,160 71,114 75,017 276,854
(19,094)
257,760
72,832
330,592
(31,458) (27,160) (16,897)
(8,158)
7,763
3,820
2004
£000
2005
£000
2006
£000
2007
£000
2008
£000
2009
£000
2010
£000
2011
£000
2012
£000
2013
£000
Total
£000
51,226 57,135 59,011 74,361 67,690
49,060 59,873 69,805
25,279 29,284 29,650 33,814 40,198 48,250 59,997
29,839 32,394 33,318 36,959 41,631
29,328 26,772 32,547 34,656 38,270 39,841
24,552
24,061 23,304 27,449 26,905 34,983 43,879 51,827
23,622 20,929 24,103 28,322 34,458 44,064
21,399 20,551 24,707 28,670
20,828 20,811 24,407 29,203
20,877 20,100 24,696
20,744 21,119
21,131
33,366
21,131 21,119 24,696 29,203 33,366 44,064 51,827 59,997 69,805 67,690 422,898
Parent
At end of year
One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Current estimate of
ultimate claims
Cumulative payments to
date
(17,951) (17,583) (20,281)
4,415
3,536
3,180
(22,850)
6,353
(25,795)
(28,846) (24,444)
(15,288)
7,571 15,218 27,383 44,709
Outstanding liability
Effect of discounting
Present value
Discounted liability in respect of earlier years
Total discounted net liability (for liability classes) included in insurance liabilities in the statement of financial position
(7,399)
62,406
(1,501)
66,189
(181,938)
240,960
(15,093)
225,867
63,867
289,734
143
Ecclesiastical Insurance Office plc NOTES TO THE FINANCIAL STATEMENTS
26 Insurance liabilities and reinsurance assets (continued)
(b) Long-term insurance contracts
(i) Assumptions
The most significant assumptions in determining long-term business reserves are as follows:
Mortality
An appropriate base table of standard mortality is chosen depending on the type of contract. Where prudent, an allowance is made for future
mortality improvements based on trends identified in population data.
Investment returns
Projected investment returns are based on actual yields for each asset class less an allowance for credit risk, where appropriate. The risk
adjusted yields after allowance for tax and investment expenses for the current valuation are as follows:
UK government bonds: non-linked
UK government bonds: index-linked
Corporate debt instruments: index-linked
2013
2.76%
-0.31%
0.42%
2012
2.13%
-0.50%
0.29%
The investment return assumption is determined by calculating an overall yield on all cash flows projected to occur from the portfolio of
financial assets which are assumed to back the relevant class of liabilities. This is in accordance with a modification to PRA Rule INSPRU
3.1.35R, which was granted in September 2011. For index-linked assets, the real yield is shown.
Funeral plans renewal expense level and inflation
Numbers of policies in force and both projected and actual expenses have been considered when setting the base renewal expense level. The
unit renewal expense assumption for this business is £2.70 per annum (2012: £13.20 per annum).
Expense inflation is set with reference to the index-linked UK government bond rates of return, and published figures for earnings inflation, and
is assumed to be 4.05% per annum (2012: 3.39%).
Tax
It has been assumed that tax legislation and rates applicable at 1 January 2014 will continue to apply. All in-force business is classed as
protection business and is expected to be taxed on a profits basis.
(ii) Changes in assumptions
Projected investment returns have been revised in line with the changes in the actual yields of the underlying assets. As a result, liabilities have
decreased by £1.9 million (2012: £0.7 million increase).
The effect on insurance liabilities of the changes to unit renewal expense assumptions (described in (i) above), was a £0.4 million increase
(2012: £1.3 million decrease).
(iii) Sensitivity analysis
The sensitivity of profit or loss before tax to changes in the key assumptions used to calculate the long-term business insurance liabilities is
shown in the following table. No account has been taken of any correlation between the assumptions.
Variable
Deterioration in annuitant mortality
Improvement in annuitant mortality
Increase in fixed interest/cash yields
Decrease in fixed interest/cash yields
Worsening of base renewal expense level
Improvement in base renewal expense level
Increase in expense inflation
Decrease in expense inflation
144
Change in
variable
Potential increase/
(decrease) in the result
2013
£000
100
(100)
(1,400)
(1,100)
(500)
500
(700)
600
2012
£000
400
(500)
-
(1,300)
(500)
500
(600)
500
-10%
+10%
+1% pa
-1% pa
+10%
-10%
+1% pa
-1% pa
Ecclesiastical Insurance Office plc (iv) Available capital resources
2013
Shareholders' equity
Adjustments to assets/liabilities
Total available capital resources
Policyholder liabilities
- life insurance business
Net actuarial liabilities on statement of financial
position
2012
Shareholders' equity
Adjustments to assets/liabilities
Adjustments to actuarial liabilities
Total available capital resources
Policyholder liabilities
- life insurance business
Net actuarial liabilities on statement of financial
position
Non-profit
life
fund
£000
(1,136)
7,500
6,364
92,446
92,446
(1,814)
10,500
(1,188)
7,498
92,956
92,956
Share-
holders'
fund
£000
41,515
(7,500)
34,015
-
-
35,770
(10,500)
-
25,270
-
-
Total
life
business
£000
40,379
-
40,379
92,446
92,446
33,956
-
(1,188)
32,768
92,956
92,956
Other
activities
£000
Group
total
£000
413,385
(123,040)
290,345
494,143
(123,040)
371,103
421,701
(92,508)
-
329,193
455,657
(92,508)
(1,188)
361,961
Shareholders' equity/(deficit) in the non-profit fund represents the net profit or loss generated by this fund not transferred, to date, to the
shareholders' fund. The life shareholders' fund is the balance of shareholder equity in the life business. Available capital resources of the life
business include an allowance for solvency reserves which do not meet the recognition criteria in the accounts.
Other activities include the general insurance business of the Parent and its subsidiaries, and consequently all Group capital not required to
meet the solvency requirements of the general business is available to meet the solvency requirements of the life business.
The available capital resources in the non-profit life fund, subject to the regulatory capital requirements of the fund itself, are available to meet
requirements elsewhere in the Group. The capital requirements of the life business are based on the PRA capital requirements.
The Group uses both its Individual Capital Assessment and its Individual Capital Guidance as a tool for determining capital requirements and
their sensitivity to various risks. The Group manages these risks by means of its underwriting strategy, reinsurance strategy,
investment
strategy, and management control framework.
(v) Movements in life capital
Published capital resources as at 31 December 2012
Effect of new business
Variance between actual and expected experience
Change in methodology
Effect of changes to valuation interest rates
Effect of change to expense assumption
Effect of change in inflation assumption
Transfers between funds
Other movements
Capital resources as at 31 December 2013
Non-profit
life
fund
£000
7,498
(734)
388
20
724
(365)
4
(3,000)
1,829
6,364
Share-
holders'
fund
£000
25,270
-
-
-
-
-
-
3,000
5,745
34,015
Total
life
business
£000
32,768
(734)
388
20
724
(365)
4
-
7,574
40,379
145
Ecclesiastical Insurance Office plc NOTES TO THE FINANCIAL STATEMENTS
26 Insurance liabilities and reinsurance assets (continued)
(c) Movements in insurance liabilities and reinsurance assets
Group
Claims outstanding
At 1 January 2013
Cash (paid)/received for claims settled in the year
Change in liabilities/reinsurance assets
- arising from current year claims
- arising from prior year claims
Exchange differences
At 31 December 2013
Provision for unearned premiums
At 1 January 2013
Increase in the period
Release in the period
Exchange differences
At 31 December 2013
Long-term business provision
At 1 January 2013
Effect of new business during the year
Effect of claims during the year
Changes in assumptions
Change in methodology
Other movements
At 31 December 2013
Claims outstanding
At 1 January 2012
Cash (paid)/received for claims settled in the year
Change in liabilities/reinsurance assets
- arising from current year claims
- arising from prior year claims
Disposal of business
Exchange differences
At 31 December 2012
Provision for unearned premiums
At 1 January 2012
Increase in the period
Release in the period
Exchange differences
At 31 December 2012
Long-term business provision
At 1 January 2012
Effect of new business during the year
Effect of claims during the year
Changes in assumptions
Change in methodology
Other movements
At 31 December 2012
146
Gross
£000
Reinsurance
£000
Net
£000
565,937
(214,817)
(94,902)
38,888
471,035
(175,929)
238,818
(3,519)
(17,240)
569,179
219,798
191,426
(218,631)
(5,951)
186,642
92,956
6,291
(7,569)
(1,335)
(21)
2,124
92,446
(37,309)
764
3,087
(89,472)
(46,109)
(43,370)
45,983
375
(43,121)
-
-
-
-
-
-
-
201,509
(2,755)
(14,153)
479,707
173,689
148,056
(172,648)
(5,576)
143,521
92,956
6,291
(7,569)
(1,335)
(21)
2,124
92,446
935,253
(318,749)
(481,889)
140,988
453,364
(177,761)
302,155
(16,114)
(337,489)
881
565,937
221,087
220,820
(220,416)
(1,693)
219,798
81,714
20,857
(6,151)
(5,455)
199
1,792
92,956
(67,933)
(14,265)
333,745
(5,548)
(94,902)
(58,884)
(46,231)
58,673
333
(46,109)
-
-
-
-
-
-
-
234,222
(30,379)
(3,744)
(4,667)
471,035
162,203
174,589
(161,743)
(1,360)
173,689
81,714
20,857
(6,151)
(5,455)
199
1,792
92,956
Ecclesiastical Insurance Office plc Parent
Claims outstanding
At 1 January 2013
Cash (paid)/received for claims settled in the year
Change in liabilities/reinsurance assets
- arising from current year claims
- arising from prior year claims
Exchange differences
At 31 December 2013
Provision for unearned premiums
At 1 January 2013
Increase in the period
Release in the period
Exchange differences
At 31 December 2013
Claims outstanding
At 1 January 2012
Cash (paid)/received for claims settled in the year
Change in liabilities/reinsurance assets
- arising from current year claims
- arising from prior year claims
Exchange differences
At 31 December 2012
Provision for unearned premiums
At 1 January 2012
Increase in the period
Release in the period
Exchange differences
At 31 December 2012
Gross Reinsurance
£000
£000
Net
£000
485,778
(185,169)
(83,551)
34,935
402,227
(150,234)
208,488
(5,964)
(4,428)
498,705
190,009
166,342
(190,182)
(1,686)
164,483
(37,164)
6,105
1,065
(78,610)
(43,921)
(43,097)
43,957
181
(42,880)
171,324
141
(3,363)
420,095
146,088
123,245
(146,225)
(1,505)
121,603
467,588
(197,830)
(99,420)
44,595
368,168
(153,235)
258,345
(38,901)
(3,424)
485,778
180,746
190,367
(180,533)
(571)
190,009
(51,619)
21,812
1,081
(83,551)
(43,081)
(43,963)
43,049
74
(43,921)
206,726
(17,089)
(2,343)
402,227
137,665
146,404
(137,484)
(497)
146,088
147
Ecclesiastical Insurance Office plc NOTES TO THE FINANCIAL STATEMENTS
27 Provisions for other liabilities and contingent liabilities
(a) Provisions
Group
At 1 January 2013
Additional provisions
Used during year
Not utilised
Exchange differences
At 31 December 2013
Current
Non-current
Parent
At 1 January 2013
Additional provisions
Used during year
Not utilised
At 31 December 2013
Current
Non-current
Regulatory
and legal
provisions
£000
Restructuring
and other
provisions
£000
6,569
329
(1,344)
(2,092)
-
3,462
3,462
-
6,364
329
(1,344)
(1,887)
3,462
3,462
-
704
2,767
(97)
(102)
(24)
3,248
3,090
158
575
2,722
(97)
(96)
3,104
3,044
60
Total
£000
7,273
3,096
(1,441)
(2,194)
(24)
6,710
6,552
158
6,939
3,051
(1,441)
(1,983)
6,566
6,506
60
Regulatory and legal provisions
The Group operates in the financial services industry and is subject to regulatory requirements in the normal course of business, including
contributing towards any levies raised on UK general and life business. The provisions reflect an assessment by the Group of its share of the
total potential levies.
In addition, from time to time the Group receives complaints from customers and, whilst the majority relate to cases where there has been no
customer detriment, we recognise that we have provided, and continue to provide, advice and services across a wide spectrum of regulated
activities. We therefore believe that it is prudent to hold a provision for costs of customer complaints relating to services provided. The Group
continues to re-assess the ultimate level of complaints expected and the appropriateness of the provision, which reflects the potential redress
and associated administration costs that would be payable in relation to any complaints we may uphold. Further administration costs in relation
to invalid claims are also included in the provision.
Restructuring and other provisions
The provision for restructuring and other costs relates to costs in respect of redundancies, onerous leases and dilapidations.
(b) Contingent liabilities
The Company is in correspondence with HM Revenue and Customs regarding the treatment of its preference share capital for group tax
purposes. Whilst it is possible that this will lead to an additional tax cost to the Group, we do not consider it probable that a further charge will
arise and so have not made any provision in respect of this issue. In the unlikely event the issue is not settled as expected, the Group's best
estimate is that the additional tax cost would be in the range of £0.3m to £7.6m.
148
Ecclesiastical Insurance Office plc 28 Deferred tax
An analysis and reconciliation of the movement of the key components of the net deferred tax liability during the current and prior reporting
period is as follows:
Unrealised
gains on
investments
£000
Net
retirement
benefit
assets
£000
Equalisation
reserve
£000
Other
differences
£000
Group
At 1 January 2012
Charged to profit or loss
(Credited)/charged to profit or loss
- resulting from reduction in tax rate
Credited to other comprehensive income
Credited to other comprehensive income
- resulting from reduction in tax rate
Exchange differences
At 31 December 2012
Charged/(credited) to profit or loss
(Credited)/charged to profit or loss
- resulting from reduction in tax rate
Credited to other comprehensive income
Credited to other comprehensive income
- resulting from reduction in tax rate
Exchange differences
At 31 December 2013
Parent
At 1 January 2012
Charged to profit or loss
(Credited)/charged to profit or loss
- resulting from reduction in tax rate
Credited to other comprehensive income
Credited to other comprehensive income
- resulting from reduction in tax rate
Exchange differences
At 31 December 2012
Charged/(credited) to profit or loss
(Credited)/charged to profit or loss
- resulting from reduction in tax rate
Credited to other comprehensive income
Credited to other comprehensive income
- resulting from reduction in tax rate
Exchange differences
At 31 December 2013
26,525
5,053
(2,095)
-
-
2
29,485
6,721
(3,795)
-
-
(60)
32,351
25,888
4,652
(2,071)
-
-
1
28,470
6,701
(3,713)
-
-
-
31,458
5,694
128
(407)
(306)
(111)
(5)
4,993
5,680
660
(454)
-
-
-
5,886
(6,637)
1,656
89
(87)
(7)
73
(4,913)
Total
£000
31,262
7,497
(2,867)
(393)
(118)
70
35,451
72
49
(630)
6,212
(525)
(305)
(126)
-
4,109
5,694
128
(407)
(306)
(111)
(5)
4,993
72
(525)
(305)
(126)
-
4,109
(768)
-
-
-
5,167
5,680
660
(454)
-
-
-
5,886
49
(768)
-
-
-
5,167
199
(31)
(22)
625
(4,772)
(1,718)
395
89
(87)
(7)
3
(1,325)
(4,889)
(336)
(148)
565
36,855
35,544
5,835
(2,843)
(393)
(118)
(1)
38,024
(77)
6,745
198
-
(22)
3
(1,223)
(4,808)
(305)
(148)
3
39,511
149
Ecclesiastical Insurance Office plc NOTES TO THE FINANCIAL STATEMENTS
28 Deferred tax (continued)
Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances for financial reporting
purposes:
Deferred tax liabilities
Deferred tax assets
2013
2012
Group
£000
40,116
(3,261)
36,855
Parent
£000
39,548
(37)
39,511
Group
£000
38,653
(3,202)
35,451
Parent
£000
38,024
-
38,024
The Group has unused tax losses of £22,138,000 (2012: £27,686,000) arising from life business and capital transactions, which are available
for offset against future profits. No deferred tax asset has been recognised due to the unpredictability of future profit streams.
29 Other liabilities
Creditors arising out of direct insurance operations
Creditors arising out of reinsurance operations
Other creditors
Amounts owed to related parties
Accruals
Current
Non-current
2013
2012
Group
£000
656
13,578
11,801
117
11,816
37,968
37,682
286
Parent
£000
323
10,015
6,008
218
8,448
25,012
25,012
-
Group
£000
929
15,999
12,693
3,988
10,584
44,193
43,725
468
Parent
£000
32
14,878
7,460
4,876
6,527
33,773
33,773
-
The Group creditors arising out of reinsurance operations comprises £39,745,000 (2012: £43,346,000) payable net of £26,167,000 (2012:
£27,347,000)
receivable. The Parent balance comprises £36,182,000 (2012: £42,225,000) payable net of £26,167,000 (2012:
£27,347,000) receivable.
The Group amounts owed to related parties comprises £117,000 (2012: £4,002,000) payable net of £nil (2012: £14,000) receivable. The
Parent balance comprises £398,000 (2012: £5,020,000) payable net of £180,000 (2012: £144,000) receivable.
150
Ecclesiastical Insurance Office plc 30 Commitments
Capital commitments
At the year end, the Group and Parent had capital commitments of £1,685,000, relating to computer software (2012: £nil).
Operating lease commitments
The Group leases premises and equipment under non-cancellable operating lease agreements.
The future aggregate minimum lease rentals receivable under non-cancellable operating leases are as follows:
Within 1 year
Between 1 & 5 years
After 5 years
2013
2012
Group
£000
2,780
9,241
19,044
31,065
Parent
£000
2,780
9,241
19,044
31,065
Group
£000
1,711
5,458
9,554
16,723
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
Within 1 year
Between 1 & 5 years
After 5 years
2013
2012
Group
£000
2,901
5,181
1,072
9,154
Parent
£000
1,623
3,550
1,065
6,238
Group
£000
2,839
5,226
1,573
9,638
Parent
£000
1,711
5,458
9,554
16,723
Parent
£000
1,861
3,695
1,557
7,113
Operating lease rentals charged to profit or loss during the year
Total future minimum sublease payments expected to be received
under non-cancellable subleases
3,671
1,969
3,723
2,209
68
68
107
107
31 Parent and subsidiary undertakings
Ultimate parent company and controlling party
The Company is a wholly-owned subsidiary of Ecclesiastical Insurance Group plc. Its ultimate parent and controlling company is Allchurches
Trust Limited. Both companies are incorporated and operate in Great Britain and copies of their financial statements are available from the
registered office as shown on page 153. The parent companies of the smallest and largest groups for which group financial statements are
drawn up are Ecclesiastical Insurance Office plc and Allchurches Trust Limited, respectively. All the subsidiaries listed are included within the
consolidated financial statements. Voting rights are in line with the holdings of Ordinary shares.
The Company's interest in Group undertakings at 31 December 2013 is as follows:
Subsidiary undertakings
Incorporated and operating in Great Britain, engaged in investment, insurance
and financial services or other insurance-related business
Ecclesiastical Financial Advisory Services Limited
Ecclesiastical Investment Management Limited
Ecclesiastical Life Limited
South Essex Insurance Brokers Limited
Share capital
Holding of shares by
Parent
Subsidiary
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
100%
100%
100%
-
-
-
-
100%
Incorporated and operating in Australia, engaged in insurance business
Ansvar Insurance Limited
Ordinary shares
100%
-
Additionally, at the year end there were three other wholly-owned subsidiary undertakings of which the assets and contributions to Group
income are not significant.
151
Ecclesiastical Insurance Office plc NOTES TO THE FINANCIAL STATEMENTS
32 Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not included
in the Group analysis, but are included within the Parent analysis below.
The Parent related party transactions below relate to Ecclesiastical Insurance Group plc, the Group and Parent's immediate parent company.
Group and Parent other related parties include the Group's pension plans, fellow subsidiary undertakings and the ultimate parent undertaking.
2013
Group
Trading, investment and other income, including recharges
Trading, investment and other expenditure, including recharges
Amounts owed by related parties
Amounts owed to related parties
Parent
Trading, investment and other income, including recharges
Trading, investment and other expenditure, including recharges
Amounts owed by related parties
Amounts owed to related parties
2012
Group
Trading, investment and other income, including recharges
Trading, investment and other expenditure, including recharges
Amounts owed by related parties
Amounts owed to related parties
Parent
Trading, investment and other income, including recharges
Trading, investment and other expenditure, including recharges
Amounts owed by related parties
Amounts owed to related parties
Parent
£000
Subsidiaries
£000
191
113
15,539
106
191
113
15,539
106
7,596
6,348
15,260
-
7,596
6,348
15,260
-
-
-
-
-
9,270
8,423
13,445
101
-
-
-
-
16,441
9,657
18,096
888
Other
related
parties
£000
1,732
3,616
2,027
11
803
3,616
2,022
11
2,372
6,587
1,981
3,988
1,502
6,269
1,971
3,988
During the year, the Company received premiums, commission and reinsurance recoveries via a related party insurance agency amounting to
£7,096,000 (2012: £11,158,000) and paid reinsurance protection, commission and claims amounting to £11,608,000 (2012: £16,877,000).
Transactions and services within the Group are made on commercial terms. Amounts outstanding between Group companies are unsecured,
are not subject to guarantees, and will be settled in cash. No provisions have been made in respect of these balances.
The remuneration of the Directors, who are the key management personnel of the Group, is disclosed in the Group Remuneration Report in the
Corporate Governance section of this report.
152
Ecclesiastical Insurance Office plc N
O
I
T
C
E
S
Section 5/Other Information
Directors and Executive Management
United Kingdom Regional Centres
United Kingdom Business Division and
International Branches
Insurance Subsidiaries and Agencies
Notice of Meeting
154
155
156
157
158
153
Ecclesiastical Insurance Office plc DIRECTORS AND EXECUTIVE MANAGEMENT
Directors
Group Management Board
*
*
*
*
*
*
*
W. M. Samuel BSc, FCA Chairman
D. Christie BA, BSc (Econ) Dip. Ed. Deputy Chairman and Senior Independent Director
T. J. Carroll FCII, BA, MBA
M. C. J. Hews BSc (Hons), FIA Group Chief Executive
J. F. Hylands FFA
A. P. Latham ACII
S. J. Whyte MC Inst. M, ACII, Chartered Insurer Deputy Group Chief Executive
The Venerable C. L. Wilson
D. P. Wilson BA (Hons), FCII
M. C. J. Hews BSc (Hons), FIA Group Chief Executive
S. J. Whyte MC Inst. M, ACII, Chartered Insurer Deputy Group Chief Executive
I. Campbell BSc (Econ) (Hons), ACA
R. Cox FCII, DMS
K.S. Jones MA (Oxon), MSc, MBA
J. Schofield CFIIA
C. M. Taplin BSc (Hons), MSc, MBA
Company Secretary
Mrs R. J. Hall FCIS
Registered and Head Office
Beaufort House,
Brunswick Road,
Gloucester GL1 1JZ
Tel: 0845 777 3322
Company Registration Number
24869
19-21 Billiter Street,
London EC3M 2RY
Tel: 0845 604 4840
Deloitte LLP,
London
Addleshaw Goddard LLP,
Leeds
DAC Beachcrofts LLP,
Leeds
Matheson,
Dublin
McDowell Purcell Solicitors,
Dublin
Harrison Clark Rickerbys LLP,
Cheltenham
Speechly Bircham LLP,
London
Computershare Investor Services PLC,
The Pavilions,
Bridgwater Road,
Bristol BS13 8AE
*
Non-Executive Directors
Investment Management Office
Auditor
Legal advisors
Registrar
154
Ecclesiastical Insurance Office plc UNITED KINGDOM REGIONAL CENTRES
Central and South West
Office:
London and South East
Office:
Tel:
North
Tel:
Office:
Tel:
7th Floor,
9 Colmore Row,
Birmingham B3 2BJ
0845 605 0209
19-21 Billiter Street,
London EC3M 2RY
0845 608 0069
St Ann's House,
St Ann's Place,
Manchester M2 7LP
0845 603 7554
155
Ecclesiastical Insurance Office plc UNITED KINGDOM BUSINESS DIVISION AND INTERNATIONAL BRANCHES
Ansvar Insurance
Business Division
Managing Director:
Office:
Canada branch
Tel:
Deputy Group Chief Executive,
Ecclesiastical Insurance and
General Manager and Chief Agent:
Chief Office:
- Eastern Region:
Regional Vice President:
- Western Region:
Regional Vice President:
- Pacific Region:
Regional Vice President:
- Central Region:
Acting Regional Vice President:
- Risk Managed and
National Accounts:
Vice President:
Ireland branch
Managing Director:
Office:
R. Lane TD, BA, FCII, MCMI, MCGI
Ansvar House,
St Leonards Road,
Eastbourne, East Sussex BN21 3UR
01323 737541
S. J. Whyte MC Inst M, ACII
20 Eglinton Avenue West, Suite 2200,
P.O. Box 2004,
Toronto, Ontario M4R 1K8
M. Thornhill BA, CRM, FCIP
1969 Upper Water Street, Suite 2106,
Purdy's Wharf, Tower 2,
Halifax, Nova Scotia B3J 3R7
K. Webster CRM, FCIP
Suite 630, Box 20,
Bow Valley Square 1,
202-6th Avenue S.W.,
Calgary, Alberta T2P 2R9
E. M. Mak BA, BSc, FCIP
Suite 1795, Two Bentall Centre,
555 Burrard Street, Box 239,
Vancouver, British Columbia V7X 1M9
C. Robertson, ACII
20 Eglinton Avenue West, Suite 2200,
P.O. Box 2004,
Toronto, Ontario M4R 1K8
J. Wleugel BA, CRM
20 Eglinton Avenue West, Suite 2200,
P.O. Box 2004,
Toronto, Ontario M4R 1K8
D. G. Lane B.Comm (Hons)
1st Floor,
Kilmore House,
Spencer Dock,
Northwall Quay,
Dublin 1
156
Ecclesiastical Insurance Office plc
INSURANCE SUBSIDIARIES AND AGENCIES
Ansvar Insurance Limited
Acting Chief Executive Officer:
Head Office:
Ecclesiastical Life Limited
Head Office:
Ecclesiastical Underwriting
Management Limited
South Essex Insurance
Brokers Limited
Office:
Tel:
Director:
Office:
Tel:
D. F. Blythe BSc, FCA, FAICD
Ansvar House,
Level 12,
432 St Kilda Road,
Melbourne VIC 3004
Beaufort House,
Brunswick Road,
Gloucester GL1 1JZ
19-21 Billiter Street,
London EC3M 2RY
020 7283 0666
B. W. Fehler
South Essex House, North Road,
South Ockendon,
Essex RM15 5BE
01708 850000
157
Ecclesiastical Insurance Office plc NOTICE OF MEETING
NOTICE is hereby given that the annual general meeting of Ecclesiastical Insurance Office plc will be held at Beaufort House, Brunswick Road,
Gloucester, GL1 1JZ on Tuesday, 24 June 2014 at 12:15pm for the following purposes:
Ordinary business
1.
To receive the report of the Directors and accounts for the year ended 31 December 2013 and the report of the auditor thereon.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
To re-elect Mr W. M. Samuel as a Director.*
To re-elect Mr D. Christie as a Director.*
To re-elect Mr T. J. Carroll as a Director.*
To re-elect Mr M. C. J. Hews as a Director.*
To re-elect Mr J. F. Hylands as a Director.*
To re-elect Mr. A. P. Latham as a Director.*
To re-elect Ms D. P. Wilson as a Director.*
To re-elect The Venerable C. L. Wilson as a Director.*
To elect Ms. S. J. Whyte as a Director.*
To consider the declaration of a dividend.
To re-appoint Deloitte LLP as auditors and authorise the Directors to fix their remuneration.
By order of the Board
Mrs R. J. Hall, Secretary
25 March 2014
* Brief biographies of the Directors seeking election or re-election are shown on pages 50 to 51 of the 2013 Annual Report. All Non-Executive Directors seeking re-
election have been subject to formal performance evaluation by the Chairman who is satisfied that the performance of each Non-Executive Director is effective and
sufficient time has been spent on the Company’s affairs.
Only a member holding Ordinary shares, or their duly appointed representative(s), is entitled to attend, vote and speak at the annual general meeting.
A member holding Ordinary shares is entitled to appoint a proxy or proxies (who need not be a member of the Company) to exercise all or any of their rights to
attend, speak and vote on their behalf at the annual general meeting. Such a member may appoint more than one proxy in relation to the annual general meeting
provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that member.
Any corporation which is a member holding Ordinary shares can appoint one or more corporate representatives who may exercise, on its behalf, all of the same
powers as that corporation could exercise if it were an individual member, provided that they do not do so in relation to the same share or shares and that they act
within the powers of their appointment.
This notice is sent purely for information to the holders of 8.625% Non-Cumulative Irredeemable Preference shares who are not entitled to attend and vote at the
annual general meeting.
158
Ecclesiastical Insurance Office plc Annual Report & Accounts 2013
Ecclesiastical Insurance Group plc.
Beaufort House, Brunswick Road, Gloucester, GL1 1JZ
Ecclesiastical Insurance Office plc (EIO) Reg. No. 24869. Registered in England at Beaufort House, Brunswick Road, Gloucester, GL1 1JZ, UK. EIO is authorised by the Prudential
Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.