CONTENTS
Contents
Our strategic goal is to be the most trusted
and ethical specialist financial services group
About Us
A different kind of business
Ecclesiastical at a glance
Our businesses
Strategic Report
Chairman's Statement
Chief Executive's Report
Global trends in financial services
Our Business Model and Strategy
Strategy in action
Key Performance Indicators
Financial Performance Report
Risk Management Report
Corporate Responsibility Report
Governance
Board of Directors
Directors’ Report
Corporate Governance
Financial Statements
Consolidated Statement of Profit or Loss
136
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
Other Information
Directors and Executive Management
United Kingdom Regional Centres
United Kingdom Business Division and
International Branches
Insurance Subsidiaries and Agencies
Notice of Meeting
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Independent Auditor’s Report
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ANNUAL REPORT & ACCOUNTS 2015
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SECTION ONE – ABOUT US
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ANNUAL REPORT & ACCOUNTS 2015
SECTION ONE – ABOUT US
A different kind of business
Ecclesiastical at a glance
Our businesses
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ANNUAL REPORT & ACCOUNTS 2015
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A DIFFERENT KIND OF BUSINESS
A different kind
of business
We are a specialist financial services group, with a
strong portfolio of insurance, investment management,
broking and advisory businesses in the UK, Ireland,
Canada, and Australia.
Owned by a charity, we are a commercial business
with a charitable purpose – a rarity in our sector. This
means that we grant a significant proportion of our
profits to our charitable owner Allchurches Trust Limited
(ATL), which in turn invests them independently into
the heart of communities, helping to change people’s
lives for the better. We also have our own programme
of charitable giving.
We strive to be the most ethical and trusted
business in our chosen markets. This has helped us
to build enduring relationships with our customers
and partners, giving us a deep knowledge and
understanding of their needs. As a result, we offer
products and services that are trusted and add real
value, giving us the competitive edge that allows us to
deliver significant financial returns to ATL.
At a time when the financial services sector is under
increasing scrutiny, we believe our business model
sets us apart, enabling us to benefit not only our
customers but also the wider community.
ANNUAL REPORT & ACCOUNTS 2015
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SECTION ONE – ABOUT US
Ecclesiastical
at a glance
UK’S 13TH
LARGEST
CORPORATE DONOR
TO CHARITY*
*DSC GUIDE TO CHARITABLE GIVING
UK’S N
INSURER1O
129
FOR CHARITABLE GIVING*
*DSC GUIDE TO CHARITABLE GIVING
YEARS’
EXPERIENCE
Established in 1887 to provide
fire protection to Anglican churches.
OWNED BY CHARITY
Our charitable owner is Allchurches Trust Limited (ATL)
£0.5
BN
NET ASSETS
£2.3
BN FUNDS
UNDER MANAGEMENT
WHAT WE DO
INSURE £276BN
OF PROPERTY WORLDWIDE
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ANNUAL REPORT & ACCOUNTS 2015
WHAT WE DO
LEADING INSURER FOR THE
ANGLICAN CHURCH
in all our territories
LEADING
MULTI-FAITH INSURER
Insuring synagogues and mosques in all our territories
INSURE 10 OF THE UK’S
WORLD HERITAGE SITES*
INCLUDING STONEHENGE AND CANTERBURY CATHEDRAL
*alongside other insurers
INSURE MANY
THOUSANDS
40,000+
OF CHARITIES
IN THE UK ALONE
MAIN INSURER
OF THE UK’S
GRADE 1
LISTED
BUILDINGS
MAJOR INSURER OF
INDEPENDENT SCHOOLS
50%
+ 40%
+
OF INDEPENDENT
OF CAIS* MEMBERS
SCHOOLS IN THE UK
*Canadian Accredited Independent Schools
AWARD-WINNING
ETHICAL
INVESTMENT
PROVIDER
2009
2015
UK’S N
INSURER1O
FOR CHARITABLE GIVING*
*DSC GUIDE TO CHARITABLE GIVING
UK’S 13TH
LARGEST
CORPORATE DONOR
TO CHARITY*
*DSC GUIDE TO CHARITABLE GIVING
129
YEARS’
EXPERIENCE
Established in 1887 to provide
fire protection to Anglican churches.
£0.5
NET ASSETS
BN
OWNED BY CHARITY
Our charitable owner is Allchurches Trust Limited (ATL)
£2.3
BN FUNDS
UNDER MANAGEMENT
WHAT WE DO
INSURE £276BN
OF PROPERTY WORLDWIDE
ECCLESIASTICAL AT A GLANCE
WHAT WE DO
LEADING INSURER FOR THE
ANGLICAN CHURCH
in all our territories
LEADING
MULTI-FAITH INSURER
Insuring synagogues and mosques in all our territories
INSURE 10 OF THE UK’S
WORLD HERITAGE SITES*
INCLUDING STONEHENGE AND CANTERBURY CATHEDRAL
*alongside other insurers
INSURE MANY
THOUSANDS
40,000+
OF CHARITIES
IN THE UK ALONE
MAIN INSURER
OF THE UK’S
GRADE 1
LISTED
BUILDINGS
AWARD-WINNING
ETHICAL
INVESTMENT
PROVIDER
2009
2015
MAJOR INSURER OF
INDEPENDENT SCHOOLS
50%
+ 40%
+
OF CAIS* MEMBERS
OF INDEPENDENT
SCHOOLS IN THE UK
*Canadian Accredited Independent Schools
ANNUAL REPORT & ACCOUNTS 2015
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SECTION ONE – ABOUT US
95%
OF CUSTOMERS
HOW WE DO BUSINESS
SATISFIED
WITH HOW
THEIR CLAIM
IS HANDLED
99% in UK; 96% in Ireland
98-100%
UK CUSTOMER SATISFACTION
Across all the sectors we measure
OUR CORPORATE RESPONSIBILITY
MORE
THAN
40%
OF OUR EMPLOYEES
HOURS
VOLUNTEER
OVER 3,500
VOLUNTEER
FOR THREE
CONSECUTIVE
YEARS
1 of only 5 insurers with CII chartered
status across whole UK business
95 +%
OF BROKERS SATISFIED
WITH OUR SERVICE
95% in Canada;
96% of key brokers in UK
IN 2015, WE GAVE
£20.6M
TO CHARITY
£20m to ATL and £0.6m via
our Greater Giving programme
BEST
IN CLASS
STANDARD
OUR PEOPLE
TOP EMPLOYERS
FOR YOUNG PEOPLE
Canadian and Australian businesses named in
national awards (see ‘Strategy in action’)
88%
OF EMPLOYEES UNDERSTAND
OUR VALUES
+7% above private sector norm
OUR FINANCIAL PERFORMANCE
£20M
GRANT TO ATL
£23.5M
IN PREVIOUS YEAR
£43.2M
INVESTMENT RETURN
£46.2M
IN PREVIOUS YEAR
92.0%
COMBINED
OPERATING RATIO
+3.2pp
£53.6M
PROFIT BEFORE TAX
3.0
PRA
CAPITAL
COVER
2.9 in previous year
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ANNUAL REPORT & ACCOUNTS 2015
ECCLESIASTICAL AT A GLANCE
HOW WE DO BUSINESS
OUR CORPORATE RESPONSIBILITY
95%
OF CUSTOMERS
SATISFIED
WITH HOW
THEIR CLAIM
IS HANDLED
99% in UK; 96% in Ireland
98-100%
UK CUSTOMER SATISFACTION
Across all the sectors we measure
MORE
THAN
OF OUR EMPLOYEES
40%
VOLUNTEER
OVER 3,500
VOLUNTEER
HOURS
IN 2015, WE GAVE
£20.6M
TO CHARITY
£20m to ATL and £0.6m via
our Greater Giving programme
BEST
IN CLASS
STANDARD
OUR FINANCIAL PERFORMANCE
£20M
GRANT TO ATL
£23.5M
IN PREVIOUS YEAR
£43.2M
INVESTMENT RETURN
£46.2M
IN PREVIOUS YEAR
92.0%
COMBINED
OPERATING RATIO
+3.2pp
£53.6M
PROFIT BEFORE TAX
3.0
PRA
CAPITAL
COVER
2.9 in previous year
ANNUAL REPORT & ACCOUNTS 2015
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FOR THREE
CONSECUTIVE
YEARS
1 of only 5 insurers with CII chartered
status across whole UK business
95 +%
OF BROKERS SATISFIED
WITH OUR SERVICE
95% in Canada;
96% of key brokers in UK
OUR PEOPLE
TOP EMPLOYERS
FOR YOUNG PEOPLE
Canadian and Australian businesses named in
national awards (see ‘Strategy in action’)
88%
OF EMPLOYEES UNDERSTAND
OUR VALUES
+7% above private sector norm
SECTION ONE – ABOUT US
Our businesses
We are organised into three divisions: Specialist Insurance, Investment
Management, and Broking and Advisory. All are underpinned by a
reputation for delivering an outstanding service to our customers.
We provide products and services to businesses, organisations and
retail customers, both directly and through intermediaries.
Operating
primarily from
the UK, our
Divisions and
their associated
companies are:
Specialist Insurance
Ecclesiastical UK / Ansvar UK / Ansvar Australia /
Ecclesiastical Canada / Ecclesiastical Ireland
Our insurance businesses offer insurance products and risk management services
to customers in the faith, heritage, charity, education, and property investor markets.
We have particular expertise in valuing and protecting distinctive properties both
old and new – from cathedrals to concert halls, schools to stately homes and
iconic modern buildings to youth hostels.
We also provide a discrete range of specialist products including household
insurance for church and congregations and fine art insurance to the high net
worth market.
Investment Management
EdenTree Investment Management (EdenTree)
Our multi-award winning investment management team manages and sells
ethically screened and non-screened investment products to institutional
customers, including the charity and faith markets, and to retail customers
through the advisory market.
In July 2015, the investment business was rebranded to EdenTree Investment
Management, to achieve greater resonance in the socially responsible
investment market.
EdenTree also manages the majority of the Group’s financial investments.
Broking and Advisory
SEIB Insurance Brokers (SEIB) / Ecclesiastical Financial
Advisory Services (EFAS) / Lycetts Insurance Brokers* /
Lycetts Financial Services* * Part of Ecclesiastical Insurance Group (EIG)
Our specialist brokers, SEIB and Lycetts, provide tailored insurance products
for customers, particularly those in the high net worth, farming and rural estates,
equine, animal trades, and specialist motor insurance sectors.
EFAS and Lycetts offer financial advice to businesses and individual customers
including Church of England clergy. EFAS also marketed and administered
prepayment funeral plans under the Perfect Choice brand.
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ANNUAL REPORT & ACCOUNTS 2015
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SECTION TWO – STRATEGIC REPORT
Chairman's Statement
Chief Executive's Report
Global trends in financial services
Our Business Model and Strategy
Strategy in action
Key Performance Indicators – financial
Key Performance Indicators – non-financial
Financial Performance Report
Risk Management Report
- Principle risks
Corporate Responsibility Report
- Doing what’s important
- Our themes
- Our overall CR framework
- Workplace – our people and culture
- Sustainability – responding to climate change
- CR stories from around our Group
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ANNUAL REPORT & ACCOUNTS 2015
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SECTION TWO – STRATEGIC REPORT
Chairman’s
Statement
Financial performance
Ecclesiastical has delivered another set of strong and consistent results
in 2015, testimony to the transformation in its performance over the last
two years. Profit before tax grew by 11% to £54m, with underwriting
profits and investment returns both performing well despite a challenging
business climate.
These are pleasing results, but insurance remains
a cyclical business and the industry is facing soft
markets and lower investment returns. To prosper
in these conditions, Ecclesiastical will continue to
provide a specialist trusted proposition, backed up by
disciplined underwriting and expense control.
The profits we made in 2015, combined with our
strong balance sheet, have enabled us to pay a grant
of £20m to our charitable owner, bringing the total we
have granted ATL since 2014 to £43.5m. Including
all other charitable giving, we have given £45.8m to
charitable causes in that time, taking us closer to our
goal of giving £50m to charity over three years.
Group underwriting profits increased from £11m to
£16m, generating a combined operating ratio (COR)
of 92.0% against 95.2% in 2014. In the UK and
Ireland, the impact of challenging property claims and
December’s storm and flood events were offset by the
improvement in the performance of our liability book.
This helped us deliver an overall COR of 90.4%
compared to 94.0% in our home market, the
previous year.
We achieved a return on our equity portfolio that exceeded
FTSE All-Share Index returns. We also enhanced our
investment property portfolio during 2014 and 2015 which
generated a return of 11% during the year.
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ANNUAL REPORT & ACCOUNTS 2015
CHAIRMAN'S STATEMENT
Investment returns were on budget at £43m in 2015,
despite falling global equity markets and a reduction
in the capital value of fixed interest investments due
to rising yields. We achieved a return on our equity
portfolio that exceeded FTSE All-Share Index returns.
We also enhanced our investment property portfolio
during 2014 and 2015 which generated a return of
11% during the year. Ecclesiastical has a sound
capital base, which enables us to pursue our long-term
strategy while being cognisant of short-term volatility.
People
First and foremost, our current and future success
rests with our people. Ecclesiastical has a skilled,
adaptable and dedicated team and I would like to
thank and congratulate them for this year’s successes
and the transformation they have achieved.
We have continued to invest in our employees
through a comprehensive, ongoing programme of
training and development. In 2015, we provided over
3,000 technical and personal development training
courses and over 500 management courses, many
in conjunction with our business partners. We have
also recruited to augment our underwriting and risk
management capability.
Board
I would like to thank my fellow directors for
their support and hard work in the past year.
In particular, I want to express my thanks to David
Christie, who retires as a non-executive director
in March 2016. David has made an invaluable
contribution to our company and we wish him well
in his future endeavours.
This is my final review as Chairman of Ecclesiastical,
as I will be retiring in March 2016 after ten years with
the Company. It has been an honour to lead it through
this period of transformation and to work with the
committed and motivated people who work here.
My successor, Edward Creasy, brings to Ecclesiastical
a wealth of financial services and board level
experience and I wish him every success as he
takes the Company forward.
Ecclesiastical is a company with distinctive ethical
values. Its ongoing success will come from a judicious
fusion of the best of those values with a keen
acceptance of the change required to succeed in a
competitive insurance and investment market. I firmly
believe that, with the substantial changes made to the
Board and executive management team over the last
three years, we have the necessary skills in place to
embrace that change and take Ecclesiastical to even
greater success.
Group underwriting profits increased to £16m
generating a combined operating ratio of 92.1%.
Will Samuel
Chairman
Corporate culture
The Board recognises the importance, particularly
in times of change, of ensuring that our corporate
culture supports long-term success. To that end
we are reviewing our leadership and talent
development strategy, to ensure that the values
Ecclesiastical espouses are combined with
outstanding commercial acumen.
Customer service is central to our corporate culture;
our most recent surveys show customer satisfaction
of between 98% and 100% across all measured
groups and territories. We are committed to putting
the customer at the heart of our business, for
example by conducting regular ‘listening exercises’
with small groups of customers to discuss their
current and emerging needs and concerns.
ANNUAL REPORT & ACCOUNTS 2015
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SECTION TWO – STRATEGIC REPORT
Chief Executive’s
Report
Customers and partners often tell us that our charitable purpose sets us apart.
Founded 129 years ago to insure the Church of England, we have always
had a strong sense of moral purpose. Today, as we face the modern
challenge of public mistrust in financial services, that purpose inspires
our drive to be a very different kind of business.
In 2014, we set out a strategic goal for the Group
that built upon our ethical foundations. It was clear,
stretching and inspirational:
To work together to be the most
trusted and ethical specialist
financial services group, giving
£50m to charity over three years.
Put simply, we want to deliver on our promises. We
want to do the right thing for our customers and
partners. And, above all, we want to give help, support
and money to those who need it most. That is not just
an adjunct to what we do; it is the reason we exist.
Another strong year
As a commercial business with a charitable purpose,
we are focused on delivering strong and sustainable
returns. To do good, we know we must be good.
That is why it gives me immense pleasure to report
another year of strong results. We have achieved
a pre-tax profit of £53.6m compared to £48.2m in
2014 and an underwriting profit of £15.9m, up from
£10.7m the previous year. Our capital strength has
also been enhanced and our net assets ended the
year at £505m, a record high, compared to £495m
in 2014.
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ANNUAL REPORT & ACCOUNTS 2015
All this been delivered against a backdrop of volatile
investment markets, unusually high property losses,
and severe weather events, including Canada’s
exceptionally cold January and the storms that hit the
UK at the end of the year.
Last year, I described our results as ‘nothing short of
transformational’. This year’s results signal that our
ambitious change programme, new leadership teams
and the tough decisions that we have taken over the
past few years are reaping further dividends. Our
momentum is building and we are now well placed to
invest more in our future so that, over time, we can
grow both our business and our charitable giving.
Being good to do good
Our charitable purpose shapes every aspect of how
we do business.
For example, unlike many of our competitors, we do
not have to pay hefty returns to external shareholders.
This means we are not driven by short-term decisions
focused mainly on the bottom line. Instead, we can
focus on longer-term goals that are in our customers'
best interests.
We are very conscious that trust in financial services
companies has declined sharply in recent years. In a
deliberate move to buck this trend, we have set about
securing the trust of our customers and business
partners for the long-term. In practice, this means
meeting or exceeding our customers’ expectations,
being honest and professional at every turn and, most
important, being unfailingly supportive in times of need.
You meet claims fairly and promptly,
and your valuation service is highly
valued and unique.
Broker,
London and South East
The human side and the caring that
everyone at Ecclesiastical showed
has been so tremendous. I don’t
know how we’d have got through
it all without your support.
Kathryn Creese,
churchwarden and treasurer,
St. Michael and All Angels Church, Tirley
CHIEF EXECUTIVE'S REPORT
This is where we differentiate ourselves in today’s
competitive environment. By being the most
intelligent and knowledgeable player in our chosen
markets, by offering real value for money and by
always delivering on our promises, we know we are
honing a competitive edge.
A raft of independent data shows that we have
already made enormous progress.
Our latest UK customer satisfaction levels are
98-100% across the board and satisfaction with
claims handling sits at 99% in the UK and 96%
in Ireland. UK brokers have recognised us as the
best charity, education and heritage insurer for
the ninth consecutive year. In home insurance, we
top the UK’s Fairer Finance league table and pay
93% of claims against an industry average of just
79%. Our investment management business has
been voted Moneyfact’s Best Ethical Investment
Provider for seven consecutive years and achieved
the top assessment rating from the UN Principles of
Responsible Investment.
All this reinforces my belief that, while not perfect,
we are getting many things right.
The case studies in this report and on our website
show how highly our customers and partners think
of us, and I thank them all for their kind words. They
represent just a fraction of the positive comments we
receive, such as the handful shown:
It is also appropriate here to salute
the insurance companies, many of
which have been praised for the speed
and nature of their response to those
flooded. Affected churches have greatly
valued the service of the Ecclesiastical
Insurance Group in particular during
recent weeks.
Rt. Revd. Nick Baines,
Bishop of Leeds, speaking
in the House of Lords
We should perhaps praise the Lord there
is an insurer out there with a conscience…
Patrick Collinson,
personal finance editor, Guardian
(on our behaviour towards a policyholder)
ANNUAL REPORT & ACCOUNTS 2015
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CHIEF EXECUTIVE'S REPORT
I would like to thank and congratulate every one of
my Ecclesiastical colleagues, who work tirelessly to
deliver the service that elicits comments like these.
They illustrate better than any words I could ever
write how we are fulfilling our commitment to being
the most trusted and ethical financial services group.
Doubly rewarding is the fact that by doing so, we are
also meeting our ultimate goal of giving £50m to
charity over three years.
Progress in detail
Our focus is firmly on taking the right decisions to
create long-term ethical and sustainable growth. In
2015, we continued to apply strong underwriting
disciplines across the Group, which saw our overseas
businesses achieve an increase in gross written
premium (GWP) although our global GWP declined
slightly. We won a number of significant accounts
such as the Canadian Cancer Society, Scouts New
South Wales, National Trust of Victoria and the Irish
Management Institute, and we now insure the majority
of Grade I listed buildings in the UK.
In the UK, we maintained high retention levels, despite
further losses of academies to the Department for
Education's risk protection arrangement for academy
trusts, and managed our portfolio rigorously, with a
deliberate emphasis on delivering profit in a highly
competitive market. This approach lies behind the
year’s 7% fall in GWP and has contributed to the £5.2m
increase in underwriting profits. Our aim is to achieve
moderate GWP growth over the coming years, by
adding profitable business at a sustainable rate.
Our Australian and Canadian businesses continued
to achieve measured growth, increasing GWP by
4% and 9% respectively in local currency. Australia
delivered an underlying underwriting profit of £0.1m
and COR of 99.3%. Canada secured another set of
robust underwriting results despite a record ‘freeze’
at the beginning of the year.
The investment management division, which rebranded
as EdenTree Investment Management (EdenTree)
during the year, delivered a profit of £2m against £3m
in 2014. We invested substantially in this business
during 2015, with the launch of the new brand and
successful implementation of a new IT platform.
Investment like this takes time to bear fruit but we
are confident that it will enable us to make our offer
clearer, more distinct and give it a wider appeal.
The name of the company may have changed but the
profits with principles ethos remains as strong as ever.
ANNUAL REPORT & ACCOUNTS 2015
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SECTION TWO – STRATEGIC REPORT
Our independently run broking operation, SEIB, had a
more difficult year as it dealt with the transition of one
scheme to another provider. This resulted in a £0.8m
decrease in profit from £3.0m to £2.2m, although in
part this reflected a programme of investment in new
employees, systems, websites, and marketing.
I know that our financial strength and committed
ethical approach give us strong foundations upon
which we can build our business and grow our
charitable giving. We have high aspirations, we are
on target to give £50m to charity over three years,
and there is abundant energy and goodwill drawing
us together to achieve this.
Working together
for the greater good
In 2015, we gave £20.6m to charity, including grants
to our charitable owner and through our wider Greater
Giving programme.
Yes, this is a big number. But for us, what really
matters is the lives we are able to improve. And
having seen first-hand the impact of our giving, there
is no doubt that we make a real and life-changing
difference to many vulnerable people in the markets
and communities in which we operate. That is the
reason why so many of us support Ecclesiastical,
either as employees, customers or business partners.
I thank all our customers and our business partners
whom we serve, and whose expectations we aim to
exceed. It is only with their support that we can give
so much to good causes.
I would also like to take the opportunity to invite
prospective partners and customers to consider
working with us and experience the ‘Ecclesiastical
difference’ for yourselves. I would also encourage
potential employees from all walks of life to consider
joining us. Our doors are always open to like-minded
individuals and organisations who share our aspirations
and can help us to help others.
I am confident that with the ongoing support and
commitment of our extraordinary people, we will deliver
this exciting new chapter and build a Group that
stands by its customers ever more firmly. A Group that
is formed from a unique blend of business, charity and
faith. A Group that is changing people’s lives.
Mark Hews
Group Chief Executive
Looking forward to our future
I see 2016 as an exciting year of transition: a year
where one successful chapter of transformation
draws to a close and a fresh new chapter of
investment in our future begins.
We are enormously grateful to Will Samuel for his
outstanding chairmanship in recent years. There is
no doubt that with his guidance we have made huge
strides in reshaping and repositioning our Group,
going through each of our businesses thoroughly,
taking decisive action to improve them and delivering
a Group-wide change programme. This has all
contributed to strong results and increased grants
for our charitable owner.
In our next chapter, we have much to look forward to.
We will launch and drive forward the next stage of our
transformation programme, led by an exceptionally
committed and energised team in each of our
territories and businesses around the world. I know
they are keen to build on our recent success and
deliver against our charitable purpose.
We know that challenges lie ahead and are prepared
for them. We expect market volatility to continue in
the near term and are positioned for this, taking a
defensive stance where appropriate. Equity markets
have performed strongly over the long term but we
know that the level of return cannot be guaranteed.
However, our financial strength and unique ownership
allow us to take a long-term view and ride out periods
of market turbulence.
In 2016, institutions in England and Wales will be
scrutinised as the Independent Inquiry into Child
Sexual Abuse starts its investigations. We welcome
the openness and transparency that the Inquiry
heralds and recognise it may result in more victims
and survivors feeling able to come forward. Our
reserving techniques for latent claims of this nature
have been developed and enhanced over a number of
years; ensuring appropriate reserves are held which
take into account the typically higher uncertainties
that are attached to this kind of risk.
The general insurance market remains very
competitive in some of our markets; however, our
results demonstrate that with our specialist focus,
disciplined underwriting and premium service we can
successfully confront these challenges.
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ANNUAL REPORT & ACCOUNTS 2015
CASE STUDY
Helping hand for a
hurricane-damaged school
In November 2015, Manchester Grammar
School celebrated the opening of its new,
state-of-the-art sports hall by ex-England
cricket captain Mike Atherton OBE. Just 20
months earlier, their old hall had been damaged
beyond repair by hurricane-force winds.
We worked alongside the school from start to
finish, quickly assessing the damage, agreeing
options for the use of temporary facilities and
supporting the school’s ambition to improve its
sporting facilities.
The brand-new two-storey sports hall includes
four cricket nets, separate badminton, basketball
and volleyball courts, a five-a-side football pitch
and an indoor hockey pitch. We are delighted
that our specialist claims consultants were
invited to the reopening ceremony.
I would like to extend my sincere
thanks to Ecclesiastical, our
insurance company, for their help
and support throughout this project
and enabling us to build this
fantastic new venue. It has been
a pleasure to work with them and
I am extremely grateful for their
assistance in helping us create this
fantastic facility.
Dr Martin Boulton
High Master, The Manchester
Grammar School
ANNUAL REPORT & ACCOUNTS 2015
21
SECTION TWO – STRATEGIC REPORT
Global trends
in financial services
We monitor a number of global trends that we believe will affect our business
in the future. Our insight and response to these trends is shown over the
next few pages:
Trend
Our perspective
Our response
Regulation
Developments
in technology,
data and
analytics
With Solvency II now
live, regulators will
continue to focus
on capital strength,
transparency and
governance.
Customer focus will be
central to ensuring a
successful response to
regulatory requirements.
Along with increased
management attention,
businesses will need
to invest further in the
systems, processes and
organisational culture
that help them meet
customers’ needs.
Businesses are seeking
deeper insights into
customer behaviour
to gain competitive
advantage. Such data
underpins insurance
pricing models, offering
the potential for
superior risk selection,
better risk pricing,
an improved offering
to customers and,
ultimately, an enhanced
underwriting result.
Businesses continue
to invest in systems
and technology in
order to improve
operational efficiency.
We met Solvency II requirements by 1 January
2016, resulting in a step change in the Group’s
management of risk and capital. All frameworks
are embedded and operational, and we have
agreed a scheduled application submission for
the Internal Model in 2017.
We have already begun to prepare for future
regulatory requirements, such as the EU
Insurance Mediation Directive (IMD2) and
planned updates to Markets in Financial
Instruments Directive (MiFiD2). Consideration
is being given to the potential impact of any
regulatory decisions regarding the distribution
model in our Broking and Advisory division.
We already place customers at the heart of our
business. Our ethical approach and the enduring
relationships we build with our customers mean
that we are well placed to respond to regulatory
requests for greater transparency and improved
customer relationships.
As part of our long-term strategy, we have begun
to make significant investments in upgrading and
replacing the technology across the Group.
We have streamlined the front-end operations of
EdenTree, our investment management business,
with the implementation of the specialist platform
Charles River.
Plans are underway to migrate the underlying
trading platforms in our major broker businesses
onto a single IT architecture, using the technology
expertise in our SEIB broker business.
Our UK underwriting business is evaluating
options for its underlying platform to enhance
data analytics and remove unnecessary processes
from operational areas.
22
ANNUAL REPORT & ACCOUNTS 2015
GLOBAL TRENDS IN FINANCIAL SERVICES
Trend
Our perspective
Our response
Changing
demographic
and social
trends; increased
customer
expectations
Advances in technology
are helping businesses
gain a better
understanding of their
property portfolio.
Unmanned drones are
used increasingly to map
buildings by 3D laser and
built-in sensors are used
to detect environmental
changes such as the
escape of water.
Demographics and
social profiles are
changing across
our key markets
and territories. In
particular, increased
immigration and ethnic
diversity will provide
new opportunities for
companies operating
in faith markets.
Customers and
intermediaries
expect increasingly
enhanced levels of
service and tailored
products that meet
their specific needs.
Customers are
actively seeking
ethical and trusted
providers. Corporate
responsibility is
also increasingly
being taken into
account during the
procurement process.
We scan the horizon to anticipate and
understand the potential impact of emerging
technologies on the broader environment,
our business and our customers.
We have deepened our understanding of customer
and broker needs, supported by an ongoing
programme of market and customer research.
In the UK, we have established our ‘Select
Broker’ programme. This offers an enhanced
proposition and specialist in-house support to
our brokers.
We look at developing opportunities in new and
emerging markets. For example, our broking
businesses have been developing their expertise
in the alternative energy sector.
We have appointed directors to manage each
of our UK divisions, with responsibility for
continuing to ensure that customers’ needs are
understood and that our products and services
meet those needs.
Our underwriting Business Model is based on the
creation of longstanding trusted relationships,
which we achieve through partnerships with our
customers, brokers and ourselves as the insurer.
This has attracted many prestigious customers
in 2015, including the Canadian Cancer Society,
Scouts New South Wales, National Trust of
Victoria, and the Irish Management Institute.
We strive to be the most trusted and ethical
financial services group and this is a cornerstone
of our Business Model.
Our investment management team, which
launched one of the UK’s first socially responsible
retail funds, continues to win awards for its
ethical investment proposition.
ANNUAL REPORT & ACCOUNTS 2015
23
SECTION TWO – STRATEGIC REPORT
Trend
Our perspective
Our response
Low trust
in financial
services
Climate
change
Our strategic goal is to become the most trusted
and ethical specialist financial services group. This
shapes the way we do business across all our
markets and territories.
As a commercial business with a charitable
purpose, we grant a significant proportion of our
profits to ATL for distribution to charitable causes
and communities. Our research tells us that this
resonates positively with key customer groups.
We are the UK’s top charitable donor in the
insurance sector and have publicly announced our
intention to give £50m to charity over three years.
In 2015 alone, we granted £20m to ATL and £0.6m
to our own Greater Giving programme, making a
cumulative total of £20.6m at the end of the year.
We find it
disappointing that
consumers’ trust in
financial services is
expected to remain
low, though there
are signs of a slight
recovery as indicated
by the 2015 Edelman
Trust barometer.
A recent survey by
the Financial Services
Compensation Scheme
(FSCS) indicated that
banks are now more
trusted than insurance
companies.
Ecclesiastical has an
unusual level of trust
among brokers. A
recent independent
survey shows that
61% of brokers trust
us to do the right thing
compared to only
37% who trust the
insurance industry and
24% the UK financial
services industry.
The world’s climate has
changed over the past
decade, with average
temperatures rising by
just over one degree.
Potentially, this will
lead to less predictable
and more extreme
weather events. This
is likely to result in a
greater concentration
of insurance losses and
will require changes in
the way risk is evaluated
and managed.
Alternative energy
sources are being
considered and the
impact of businesses on
the environment will be
scrutinised more closely.
We are using predictive tools and expertise to
map the probability and potential impacts of major
weather events, helping us to understand the
longer-term impact of climate change and the
implications for our customers and our business.
We have deepened our understanding of flood
risk, monitoring high-risk areas and providing
proactive risk management advice and assistance
to help customers develop informed flood
resistance and resilience plans.
Our broker businesses have specialist expertise
in many kinds of renewable energy. They offer
commercial policies for a range of renewable
energy sources, such as biomass, geothermal
and wind.
EdenTree, with its award-winning ethical
investment track record, is engaging proactively
with public policy issues, signing the Paris Pledge
and the COP21 Investor Statement on Climate
Change and joining the Institutional Investors
Group on Climate Change (IIGCC).
24
ANNUAL REPORT & ACCOUNTS 2015
Trend
Our perspective
Our response
GLOBAL TRENDS IN FINANCIAL SERVICES
Cyber
security
In 2016, we will use third-party expert insurers
to find solutions to cyber security challenges for
our customers, including the provision of new
products and specialist advice.
We have a number of controls operating
within our technology infrastructure, which
aim to safeguard and deny unauthorised or
malicious access to our systems, internal data
and infrastructure.
Our specialist broker, SEIB, has created a
specialist product for SMEs to address the
gap in commercial combined insurance, with
increased indemnity limits for denial of service
and cyber-attacks. They have also worked with
both Essex Police and the Serious Fraud Office
to raise awareness of internet-enabled crime
among the local business community.
Third party cyber-
attacks on businesses
are becoming larger,
more complex and
more commonplace,
according to Arbor
Networks’ 11th
Worldwide Infrastructure
Security Report.
While the loss of data
is damaging in itself, it
also has wider impacts
on companies’ finances
and reputations.
Companies will see
increased regulatory
scrutiny, particularly
given the impending
introduction of the EU
General Data Protection
Regulations, which will
require compulsory
reporting and increased
financial sanctions for
any breaches.
ANNUAL REPORT & ACCOUNTS 2015
25
SECTION TWO – STRATEGIC REPORT
Our Business
Model and Strategy
FULFIL OUR
CHARITABLE PURPOSE
– WE’RE OWNED
BY A CHARITY
Contribute to society’s
greater good
STRIVE TO BE THE
MOST TRUSTED AND
ETHICAL FINANCIAL
SERVICES GROUP
BUILD ENDURING
RELATIONSHIPS,
BASED ON TRUST
DELIVER GROWING
FINANCIAL RETURNS
TO OUR OWNER
PROVIDE PRODUCTS
AND SERVICES THAT
OUR CUSTOMERS
VALUE AND TRUST
DEVELOP DEEP
SPECIALIST
UNDERSTANDING
AND EXPERTISE
Like all commercial businesses, our aim is to create
long-term value for our shareholders, by using our
skills and approach that differentiates us to create
competitive advantage.
What sets us apart from others in the financial services
sector is the fact that our Group's owner is a charity.
Our purpose is, therefore, to deliver growing financial
returns to our shareholder and owner, which are in
turn distributed to charitable causes and communities,
contributing to society’s greater good.
Our charitable purpose underpins our culture, enhancing
the Group’s reputation as an ethical business.
This helps us build longstanding relationships and high
levels of customer loyalty.
These enduring relationships mean we really understand
our customers and sectors, and have built deep
expertise within them, allowing us to provide highly
valued products and services.
All these factors help us to deliver sustainable and
growing returns over the long term.
26
ANNUAL REPORT & ACCOUNTS 2015
OUR BUSINESS MODEL AND STRATEGY
The most trusted specialist insurer
Our aim is to be the most trusted specialist insurer, offering unrivalled
expertise and knowledge in our core markets, with appealing customer
propositions and an excellent claims service that meet the concerns and
needs of our customers and business partners.
The most trusted specialist adviser
We aim to be the most trusted specialist adviser in our chosen markets,
providing our customers with the best independent and impartial insurance
or financial advice in order to meet their needs.
The best ethical investment provider
We aim to be the best ethical investment provider and thought leader on
socially responsible investment. Building on an impressive track record, we
will continue to enhance our proposition and our ethical credentials, leading
the debate on the ethical investment issues that matter to our customers.
ANNUAL REPORT & ACCOUNTS 2015
27
r
o
t
c
o
r
P
r
a
k
s
O
y
b
h
p
a
r
g
o
t
o
h
P
STRATEGY IN ACTION
Strategy in action
Giving £50m to charity over three years
In 2014, we set out our goal to give £50m to charity over a three-year
period. In 2015, we gave £20.6m to charity, including £20m in grants to
ATL and £0.6m in donations via our own Greater Giving programme. With
£45.8m donated to date, we are well on our way to achieving that goal.
Most trusted specialist insurer
We achieve
this by being
Customer focused
– keeping customers at the heart of
our business and aiming to deliver
exceptional customer service
Disciplined in our underwriting
– having a well-defined risk appetite
that supports profitability and
sustainability in our business mix
Strategy
in action
We measure UK performance against
the 15 guiding principles of our new
Ecclesiastical Promise, which will be
introduced across our other territories
in 2016
To support our outstanding reputation
for risk management advice, we have
introduced thermographic imaging
and will launch drone technology
in Australia in 2016. This will help
us provide preventative guidance
to customers and support a speedy
response to those affected by extreme
weather events
We have made significant hires into
the business including the further
strengthening of our underwriting
and risk management capabilities,
particularly in the UK
Focused on relationships
– building strong, lasting relationships
with brokers, with a focus on trilateral
relationships between brokers,
customers and ourselves
Real specialists
– building a deep knowledge of
those areas of financial services in
which we specialise
Prepared to invest
– investing in our operational capability,
to create the best possible experience
for our customers, our business
partners and our people
We have established Centres of
Excellence to share best practice
and learning across core disciplines
We have enhanced our technology
landscape including the mobilisation
of a programme of systems
development in the UK
Our Select Broker programme was
introduced at the start of 2015, to
build even stronger relationships
with these brokers
ANNUAL REPORT & ACCOUNTS 2015
29
SECTION TWO – STRATEGIC REPORT
Most trusted specialist insurer
Highlights
UK customer satisfaction sits at
98-100% across every sector
we measure
We are top of the independent Fairer
Finance rankings for our home
insurance offerings
Customer satisfaction with claims
handling stands at 99% in the UK and
96% in Ireland
Ecclesiastical Canada was named one
of Canada’s Top Employers for Young
People for the fourth successive year
88% of our UK brokers and 95% of
our Canadian brokers are satisfied
with our service
We are recognised by brokers as the
best insurer in the charity, education
and heritage sectors for the 9th
consecutive year, according to an
independent survey by FWD
Our UK Corporate Chartered Insurance
status was renewed by the Chartered
Insurance Institute (CII), illustrating our
commitment to its code of ethics and
our professionalism
Ansvar Australia was selected as a
finalist for Youth Development Insurer
of the Year in the ANZIIF 2015
Insurance Industry Awards
The UK’s Landmark Trust, which we
have insured for 25 years, has selected
us as their first Corporate Patron
together with their insurance broker,
JLT Specialty
98-100% UK
CUSTOMER
SATISFACTION
30
ANNUAL REPORT & ACCOUNTS 2015
CASE STUDY
Dealing sensitively
with flood damage
For many of our customers in Cumbria, Lancashire
and Yorkshire, December 2015 was a traumatic
and emotional time as they wrestled with the
devastation caused by extreme flooding.
In Carlisle, the Grade II Listed church of St. Aiden’s
was flooded along with the attached church hall,
as was the vicarage a few hundred yards away.
Floodwater, in places two to three feet deep,
deposited huge amounts of silt and debris which
damaged the timber parquet floor, sandstone
walling and columns and timber panelling.
Our priority was to provide quick and effective
support. We sent out our specialist claims handlers
to assess the situation and helped St. Aiden’s
vicar, Rev. Keith Teasdale, to secure alternative
accommodation. We also brought in loss adjusters
and restorers with a deep, specialist knowledge of
working with listed properties.
I cannot fault Ecclesiastical at all. Their
timing, care and attention to detail has
been first class, both in respect of the
church and the hall, as well as the vicarage,
where we had over five feet of water.
Ecclesiastical has provided emergency
funding and called me regularly to check
on progress. They even turned up with
a hamper to provide a bit of Christmas
cheer! I’ve been recommending
Ecclesiastical to my flooded neighbours,
not all of whom have such wonderfully
understanding insurers.
Rev. Keith Teasdale
ANNUAL REPORT & ACCOUNTS 2015
31
CASE STUDY
An enduring
customer relationship
When the Nova Scotia Schools Insurance
Exchange (NSSIE) appointed a new
broker, strong customer relationships saw
Ecclesiastical Canada retain and refresh
this remarketed account.
NSSIE has been an Ecclesiastical customer
since 2009 and has chosen to remain with
us through three changes of broker. The
non-profit organisation manages all insurance
placements for Nova Scotia schools and adult
community colleges via its School Insurance
Programme – a total insured
value of around CAD$5.8bn.
We know that our risk management,
underwriting and claims expertise was central
to NSSIE’s decision to reappoint us in 2015,
together with coverage enhancements that
met their specific needs.
The partnership between the
School Insurance Program (SIP)
and Ecclesiastical is more than just
an insured–insurer relationship.
SIP’s business is to provide quality
insurance services to Nova Scotia
schools. As a non-profit organisation,
we welcome an insurer whose vision
includes working for the greater
good. This is one of the many
reasons SIP finds an excellent fit
with Ecclesiastical.
Diane McRae
Chief Executive Officer NSSIE
32
ANNUAL REPORT & ACCOUNTS 2015
STRATEGY IN ACTION
Most trusted specialist adviser
We achieve
this by
Strategy
in action
Highlights
Providing excellent service
– building long-term sustainable
relationships with our customers and
their insurers
Strengthening our proposition
– deepening our expertise further in
our chosen markets, cementing
our position as market leaders
in these areas
Building our business
– delivering growth by developing
new offerings and schemes
which complement our existing
niche markets
Working more closely together
– developing closer operational links
across the Group to offer solutions
that meet our customers’ needs
Diversified into insurance for
commercial drone operators
We rebranded South Essex Insurance
Brokers to SEIB Insurance Brokers,
increasing business opportunities
by removing perceived regional ties
Integrated the 2014 acquisition of
Lansdown successfully into SEIB
Working with other Ecclesiastical
companies, we have created a
number of focussed propositions,
including a joint offering to Church
of England clergy
SME business opportunities have
been developed with the Essex
Chamber of Commerce
Sourced a new insurance product
to address cybercrime issues
Finalists in Insurance Times
Awards for Brand Campaign
of the Year – Broker
Finalists at the UK Broker Awards
for Schemes Broker of the Year
Our UK Corporate Chartered
Insurance status was renewed by
the CII across our UK operations
SEIB maintained an exceptional
customer satisfaction score of 97%
ANNUAL REPORT & ACCOUNTS 2015
33
CASE STUDY
From cyber security to
commercial drones: SEIB
meets new customer needs
Our specialist brokers pride themselves on
anticipating their customers’ changing needs
and developing new products to meet them.
When internet-enabled crime emerged as a
growing issue, SEIB sourced a new insurance
product to address it, partnering with a leading
specialist insurer for cybercrime. Designed
especially for small and medium-sized companies,
the product offers increased indemnity limits for
incidents such as denial of service and cyber-
attacks. It also aims to meet businesses’ specific
needs following an attack or accidental loss of
data, by providing a dedicated helpline.
SEIB has recently diversified into insurance for
commercial drone operators, again demonstrating
that it is at the forefront of understanding and
catering for emerging risks.
Essex Chambers of Commerce is
particularly grateful to SEIB for helping
us to understand the implications of
cyber-related crime to our business and
to source suitable cover to match our
business needs, as well as those of our
business members. Furthermore, they are
also successfully raising the awareness
and importance of cyber insurance cover
through membership of the Essex Business
Crime Forum, which is chaired by the Police
and Crime Commission for Essex.
Denise Rossiter
Chief Executive, Essex Chambers of Commerce
34
ANNUAL REPORT & ACCOUNTS 2015
STRATEGY IN ACTION
Best ethical investment provider
We achieve
this by
Strategy
in action
Highlights
Creating a platform for growth
– we are upgrading our IT capabilities
to create a platform for growth and
increase processing efficiency
Refining our service
– we are enhancing our services to
keep pace with the evolving needs
of our customers
Promoting socially
responsible investment
– we have an industry-leading reputation
for our socially responsible investment
funds and investment thought leadership
Delivering long-term performance
– we use a consistent proven approach
to delivering long-term investment
success
Developing our offering
– we are developing and deepening
our fund offering with particular
focus on institutional investors and
the charity segment
The investment management business
has been rebranded to EdenTree
Investment Management
A market-leading investment website
has been launched to service all
clients, including institutional and
charity investors, financial advisers
and private investors
We have implemented an investment
management system that supports
electronic trading and automated
compliance monitoring
Our investment team sustained
its award-winning track record,
securing numerous plaudits based
on its above-average long-term
performance record
Secured top assessment rating
of A+ from UNPRI (United Nations
Principles of Responsible Investment)
– an external, independent validation
of EdenTree’s responsible investment
process affirming our leadership
position among our global peers
2015 Citywire Platinum rated for
Mixed Asset Sector
2015 Lipper’s Best Group over
3 years for Mixed Assets Small
Won FUNDCLASS European Funds
Trophy for Best European Asset
Manager – for 4 to 7 rated funds
for the fourth year in a row
Awarded the Moneyfacts Best
Ethical Investment Provider Award
for the seventh year in a row, voted
for by the Independent Financial
Adviser community
ANNUAL REPORT & ACCOUNTS 2015
35
CASE STUDY
EdenTree Higher Income Fund
continues to win supporters
Launched in 1994, our award winning Higher
Income Fund has demonstrated a strong long-term
performance history.
In February 2015 it was selected by Hargreaves
Lansdown as one of their favourite funds and joined
their Wealth 150+ list. Hargreaves Lansdown is
one of the largest investment platforms in the UK
for private investors and the funds for this list are
chosen following detailed assessments of fund
investment strategies, in-depth mathematical
analysis to find those funds that have produced
consistent outperformance and thousands of hours
of interviews with leading fund managers.
Hargreaves Lansdown believe
this list offers the ultimate
combination of ‘best in class’
performance potential and low
management charges.
Hargreaves Lansdown
36
ANNUAL REPORT & ACCOUNTS 2015
SECTION TWO – STRATEGIC REPORT
Key Performance
Indicators – financial
Measure
Performance
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.
In 2014, transformation of our results
allowed us to make £23.5m of grants to
our charitable owner as well as £1.7m
donations to other good causes.
Another year of consistent financial
results has enabled us to continue our
targeted level of charitable giving, with
£20.6m of donations paid in 2015.
We have now made donations of £45.8m
towards our goal of giving £50m to
charity over three years.
Donations
(£m)
0
20
30
10
11.7
20.6
25.2
Ecclesiastical’s capital position has
remained strong throughout its period
of transformation. We have balanced the
need to retain profit within the business to
support future growth and development with
our target to distribute £50m to charity over
three years.
5.7
The Group’s regulatory capital requirements
’12
changed on 1 January 2016 as Solvency II
was launched in the European Union. We
have agreed a set of targets for capital
cover on both the regulatory standard
formula basis and our own view of economic
capital. We are comfortable that we will
be able to meet the Solvency II capital
requirements.
’11
’14
’15
’13
5.5
Regulatory capital*
The capital resources
available to meet
the Prudential
Regulation Authority’s
(PRA) regulatory
requirements.
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 requirement is to
exceed regulatory
capital requirements
at all times.
PR capital and ECR cover
(£m)
Broker Satisfaction Survey
(%)
100
94
94
88
79
38
ANNUAL REPORT & ACCOUNTS 2015
200
100
0
142
’11
51
’12
102
98
15
’13
’14
’15
50
0
(£m)
Donations
(£m)
PR capital and ECR cover
(£m)
Profit/(Loss) before tax
(£m)
30
20
10
0
(£m)
400
300
200
100
0
200
100
0
25.2
20.6
5.5
400
300
200
100
0
353
362 371 379 371
3.1x
2.7x
2.6x
2.9x
3.0x
67
54
48
38
-8
92
96
103
105
109
90
100
110
500
400
300
200
100
484 481
399
329 308
46
39
40
40
36
’13
’14
’15
’11
’12
’13
’14
’15
-20
’11
’12
’13
’14
’15
’11
’12
’13
’14
’15
’11
’12
’13
’14
’15
’11
’12
’13
’14
’15
11.7
’11
5.7
’12
PRA Capital
ECR
PR capital and ECR cover
(£m)
Profit/(Loss) before tax
(£m)
353
362 371 379 371
3.1x
2.7x
2.6x
2.9x
3.0x
80
60
40
20
0
67
54
48
38
-8
92
96
103
105
109
Combined Operating Ratio
(%)
Gross Written Premium
(£m)
Net Expense Ratio
(%)
484 481
399
329 308
46
39
40
40
36
’11
’12
’13
’14
’15
-20
’11
’12
’13
’14
’15
’11
’12
’13
’14
’15
’11
’12
’13
’14
’15
’11
’12
’13
’14
’15
Combined Operating Ratio
(%)
Gross Written Premium
(£m)
Net Expense Ratio
(%)
80
60
40
20
0
90
100
110
100
80
60
40
20
0
100
50
0
500
400
300
200
100
100
50
0
100
50
0
50
45
40
35
30
25
100
50
0
100
50
0
50
45
40
35
30
25
100
50
0
Broker Satisfaction Survey
(%)
100
94
94
88
79
Select broker
satisfaction survey (%)
96
Claims Satisfaction Survey
– Direct (%)
SEIB Customer
Satisfaction Survey (%)
Risk Management Satisfaction Survey
– Direct (%)
96
97
97
99
97
97
97
97
98
100
’12
’13
’14
’15
’15
’12
’13
’14
’15
’14
’15
’12
’13
’14
’15
Extremely Satisfied
Very Satisfied
Fairly Satisfied
Select broker
satisfaction survey (%)
96
Extremely Satisfied
Very Satisfied
Fairly Satisfied
Extremely Satisfied
Very Satisfied
Fairly Satisfied
Very Satisfied
Satisfied
Extremely Satisfied
Very Satisfied
Fairly Satisfied
Claims Satisfaction Survey
– Direct (%)
SEIB Customer
Satisfaction Survey (%)
Risk Management Satisfaction Survey
– Direct (%)
96
97
97
99
97
97
97
97
98
100
50
0
100
80
60
40
20
0
PRA Capital
ECR
PR capital and ECR cover
(£m)
142
’11
51
’12
102
98
15
’13
’14
’15
’12
’13
’14
’15
’15
’12
’13
’14
’15
’14
’15
’12
’13
’14
’15
Extremely Satisfied
Very Satisfied
Fairly Satisfied
Extremely Satisfied
Very Satisfied
Fairly Satisfied
Extremely Satisfied
Very Satisfied
Fairly Satisfied
Very Satisfied
Satisfied
Extremely Satisfied
Very Satisfied
Fairly Satisfied
KEY PERFORMANCE INDICATORS
Measure
Performance
Profit/(loss) before tax*
PR capital and ECR cover
(£m)
Better-than-expected Group underwriting
profit, supported by stable total investment
returns, delivered a year-on-year improvement
in total profit which increased to £53.6m
362 371 379 371
300
in 2015.
353
400
200
100
2.6x
3.1x
Our Investment Management and Broking
2.7x
3.0x
and Advisory divisions also continued to
contribute consistent profits to the Group
result.
2.9x
0
’12
’13
’14
’11
’15
More information on underwriting
PRA Capital
performance is given below.
ECR
See the Financial Performance Report on
page 44 for more details.
(£m)
Profit/(Loss) before tax
(£m)
80
60
40
20
0
67
54
48
38
-8
Combined Operating Ratio
(%)
Gross Written Premium
(£m)
Net Expense Ratio
(%)
92
96
103
105
109
90
100
110
500
400
300
200
100
484 481
399
329 308
46
39
40
40
36
-20
’11
’12
’13
’14
’15
’11
’12
’13
’14
’15
’11
’12
’13
’14
’15
’11
’12
’13
’14
’15
Donations
(£m)
The Group’s profit
or loss (excluding
discontinued operations)
before deduction
of tax.
25.2
20.6
’15
5.7
5.5
’12
Each year, refreshed
11.7
targets are set in
relation to the Group’s
business plans for profit
’14
’13
’11
before tax. Details of
the target that was
set for 2015 can be
found in the Group
Remuneration Report
on page 123. Our
short-term target is
to generate sufficient
profit to enable us to
give £50m to charity
over three years.
Combined operating ratio (COR)*
Profit/(Loss) before tax
(£m)
80
60
40
67
The COR has improved for a fourth
consecutive year, reflecting the Group’s
focus on underwriting and pricing discipline
Broker Satisfaction Survey
prioritising profit over growth in the
(%)
competitive business environment. The ratio
exceeded our longer-term target for the first
88
time since 2009 primarily driven by better-
than-expected performance of our liability
’12
’11
business in 2015.
50
20
100
’14
’13
’15
38
48
54
94
79
94
-20
-8
0
See the Financial Performance Report on
page 44 for more details.
0
(%)
90
100
110
Combined Operating Ratio
(%)
Gross Written Premium
(£m)
Net Expense Ratio
(%)
92
Select broker
satisfaction survey (%)
96
103
96
109
’12
’13
’14
’15
100
105
80
60
’11
40
20
0
Claims Satisfaction Survey
484 481
– Direct (%)
399
329 308
96
97
97
99
SEIB Customer
46
Satisfaction Survey (%)
39
40
97
40
36
97
’11
’12
’13
’14
’15
’11
’12
’13
’14
’15
Risk Management Satisfaction Survey
– Direct (%)
97
97
98
100
500
400
300
100
200
100
50
0
’12
’13
’14
’15
’15
’12
’13
’14
’15
’14
’15
’12
’13
’14
’15
Extremely Satisfied
Very Satisfied
Fairly Satisfied
Extremely Satisfied
Very Satisfied
Fairly Satisfied
Extremely Satisfied
Very Satisfied
Fairly Satisfied
Very Satisfied
Satisfied
Extremely Satisfied
Very Satisfied
Fairly Satisfied
PR capital and ECR cover
(£m)
362 371 379 371
The sum of
Ecclesiastical’s general
insurance incurred
losses and expenses
PR capital and ECR cover
divided by earned
2.9x
(£m)
premiums for each
financial year.
2.7x
2.6x
3.0x
353
3.1x
15
’15
’15
51
’13
’11
’12
’12
’13
’14
ECR
102
Each year, refreshed
’11
targets are set in
PRA Capital
relation to the Group’s
business plans for the
98
142
Group COR. Details
’14
of the target that was
set for 2015 can be
found in the Group
Remuneration Report on
page 123. Our target
over the longer term is
to achieve a 95% COR.
30
20
10
0
400
300
200
100
200
0
100
0
Donations
(£m)
30
20
10
0
25.2
20.6
11.7
5.5
5.7
’12
’11
’13
’14
’15
* These figures have not been restated, they are as reported in the appropriate year’s report and accounts
PR capital and ECR cover
(£m)
Broker Satisfaction Survey
(%)
100
94
94
88
79
Select broker
satisfaction survey (%)
96
ANNUAL REPORT & ACCOUNTS 2015
Claims Satisfaction Survey
– Direct (%)
39
SEIB Customer
Satisfaction Survey (%)
Risk Management Satisfaction Survey
– Direct (%)
96
97
97
99
97
97
97
97
98
100
200
100
0
142
’11
51
’12
102
98
15
’13
’14
’15
50
0
100
80
60
40
20
0
100
50
0
100
50
0
’12
’13
’14
’15
’15
’12
’13
’14
’15
’14
’15
’12
’13
’14
’15
Extremely Satisfied
Very Satisfied
Fairly Satisfied
Extremely Satisfied
Very Satisfied
Fairly Satisfied
Extremely Satisfied
Very Satisfied
Fairly Satisfied
Very Satisfied
Satisfied
Extremely Satisfied
Very Satisfied
Fairly Satisfied
50
45
40
35
30
25
100
50
0
50
45
40
35
100
30
25
50
0
100
50
0
SECTION TWO – STRATEGIC REPORT
Donations
(£m)
PR capital and ECR cover
Profit/(Loss) before tax
(£m)
(£m)
25.2
20.6
353
362 371 379 371
3.1x
2.7x
2.6x
2.9x
3.0x
400
300
200
100
0
11.7
5.5
5.7
’12
PRA Capital
ECR
80
60
40
20
0
67
54
48
38
-8
90
100
110
’11
’13
’14
’15
’11
’12
’13
’14
’15
-20
’11
’12
’13
’14
’15
30
20
10
0
200
100
0
PR capital and ECR cover
(£m)
Broker Satisfaction Survey
(%)
100
94
94
88
79
Select broker
satisfaction survey (%)
96
142
’11
51
’12
102
98
15
’13
’14
’15
50
0
100
80
60
40
20
0
96
100
50
0
Measure
Performance
Net expense ratio (NER)*
Donations
(£m)
11.7
’11
5.7
’12
30
20
10
0
PR capital and ECR cover
(£m)
Profit/(Loss) before tax
(£m)
25.2
20.6
5.5
400
300
200
100
0
353
362 371 379 371
3.1x
2.7x
2.6x
2.9x
3.0x
80
60
40
20
0
67
54
48
38
-8
92
96
103
105
109
90
100
110
500
400
300
200
100
Combined Operating Ratio
(%)
Gross Written Premium
(£m)
Net Expense Ratio
(%)
484 481
399
329 308
46
39
40
40
36
’13
’14
’15
’11
’12
’13
’14
’15
-20
’11
’12
’13
’14
’15
’11
’12
’13
’14
’15
’11
’12
’13
’14
’15
’11
’12
’13
’14
’15
92
Combined Operating Ratio
Total expenses as a
(%)
proportion of the net
premium earned in the
year. These expenses
96
include acquisition costs,
administration costs, the
movement in deferred
acquisition costs and
’14
’12
commission paid less
commission received.
103
109
105
’11
’13
’15
Our aim is to make year-
on-year improvements in
the NER.
Gross Written Premium
(£m)
Our NER increased in 2015 to
46% with an 11% fall in net earned
premium, offsetting a 2% decrease in
484 481
net expenses.
399
329 308
The storm and flood events in the
UK significantly affected commission
income from reinsurers, with the
reduction contributing to 2% of the
overall increase in NER.
’11
’12
’13
’14
’15
500
400
300
200
100
We expect to continue to control our
costs, seeking efficiencies where we
can to ensure we can continue to
invest in systems and processes that
benefit our customers.
Net inflows (investments)
Net inflows are the
difference between
the gross sales and
redemptions made during
the period from third
parties in the range of
funds our investment
division offers.
Claims Satisfaction Survey
– Direct (%)
Each year refreshed
targets are set which
take into account current
97
market conditions and
potential new initiatives.
97
99
2015 proved to be a volatile and difficult
year for many investment management
companies and EdenTree was similarly
affected, particularly in the second half
of the year. Gross inflows remained
similar to 2014, but outflows were
almost equal to inflows leaving a net
result of £15m for the year. This was
SEIB Customer
below our target to maintain net inflows
Satisfaction Survey (%)
at levels similar to those achieved
in 2013 and 2014. We expect the
97
continuing market volatility to depress
net inflows during 2016.
100
97
50
(%)
Net Expense Ratio
(%)
PRA Capital
ECR
50
45
40
35
30
25
46
39
40
40
36
’11
’12
’13
’14
’15
PR capital and ECR cover
(£m)
Broker Satisfaction Survey
(%)
100
94
94
88
79
Select broker
satisfaction survey (%)
96
Claims Satisfaction Survey
– Direct (%)
SEIB Customer
Satisfaction Survey (%)
Risk Management Satisfaction Survey
– Direct (%)
96
97
97
99
97
97
97
97
98
100
142
51
102
98
15
50
0
100
80
60
40
20
0
100
50
0
100
50
0
’12
Risk Management Satisfaction Survey
’11
– Direct (%)
’13
’14
’15
97
97
98
100
’12
’13
’14
’15
’15
’12
’13
’14
’15
’14
’15
’12
’13
’14
’15
Extremely Satisfied
Very Satisfied
Fairly Satisfied
Extremely Satisfied
Very Satisfied
Fairly Satisfied
Extremely Satisfied
Very Satisfied
Fairly Satisfied
Very Satisfied
Satisfied
Extremely Satisfied
Very Satisfied
Fairly Satisfied
(£m)
200
100
0
100
50
50
45
40
35
30
25
100
50
0
* These figures have not been restated, they are as reported in the appropriate year’s report and accounts
0
0
’12
’13
’14
’15
’15
’12
’13
’14
’15
’14
’15
’12
’13
’14
’15
Extremely Satisfied
Very Satisfied
Fairly Satisfied
Extremely Satisfied
Very Satisfied
Fairly Satisfied
Extremely Satisfied
Very Satisfied
Fairly Satisfied
Very Satisfied
Satisfied
Extremely Satisfied
Very Satisfied
Fairly Satisfied
40
ANNUAL REPORT & ACCOUNTS 2015
30
20
10
0
200
100
0
Donations
(£m)
PR capital and ECR cover
Profit/(Loss) before tax
(£m)
(£m)
Combined Operating Ratio
(%)
Gross Written Premium
(£m)
Net Expense Ratio
(%)
25.2
20.6
353
362 371 379 371
3.1x
2.7x
2.6x
2.9x
3.0x
400
300
200
100
0
80
60
40
20
0
67
54
48
38
-8
92
96
103
105
109
90
100
110
500
400
300
200
100
484 481
399
329 308
46
39
40
40
36
’11
’13
’14
’15
’11
’12
’13
’14
’15
-20
’11
’12
’13
’14
’15
’11
’12
’13
’14
’15
’11
’12
’13
’14
’15
’11
’12
’13
’14
’15
11.7
5.5
5.7
’12
PRA Capital
ECR
KEY PERFORMANCE INDICATORS
Key Performance
Indicators – non-financial
Donations
(£m)
PR capital and ECR cover
(£m)
Measure
30
Performance
20
25.2
20.6
10
Direct customer satisfaction
Broker Satisfaction Survey
11.7
(%)
Results from customer
satisfaction surveys carried
94
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.
’11
79
94
88
40
0
PR capital and ECR cover
(£m)
142
’11
51
’12
102
98
15
’13
’14
’15
100
50
0
Donations
(£m)
’13
Customers are asked to rate their
’14
’12
experience on a six-point scale:
1 – extremely dissatisfied to
6 – extremely satisfied.
Very Satisfied
Extremely Satisfied
’15
30
20
10
0
11.7
’11
Fairly Satisfied
We measure the level of
400
25.2
positive satisfaction, particularly
300
extremely and very satisfied.
20.6
200
Our target is to achieve at least
100
90% very or extremely satisfied.
5.7
0
5.5
’13
’12
’14
Broker satisfaction
’15
Results from broker opinion
surveys carried out each year.
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%
satisfied score.
PR capital and ECR cover
(£m)
142
’11
51
’12
102
98
15
’13
’14
’15
200
100
0
100
50
0
80
5.7
’14
’12
’15
Select broker
satisfaction survey (%)
We take pride in placing the
5.5
customer at the heart of everything
96
’13
100
we do, particularly when they are
in real need of help and support at
the time of a claim. In 2015, 94%
of customers surveyed were either
extremely or very satisfied with the
way their claim was handled and
99% were satisfied overall.
60
20
0
’15
Very Satisfied
Extremely Satisfied
PR capital and ECR cover
(£m)
Similar results were also seen in
the responses for customer surveys
on general satisfaction levels.
Fairly Satisfied
In particular, 100% of our home
362 371 379 371
353
insurance customers were satisfied
with their new business experience
2.7x
2.9x
3.1x
with us.
2.6x
3.0x
80
60
40
20
’11
’12
’13
’14
’15
PRA Capital
ECR
0
-20
200
100
The Group continued to score a
PR capital and ECR cover
good level of satisfaction with our
(£m)
brokers in 2015, although the overall
result has dropped by 6% over the
prior year. Results have polarised this
year with 6% more brokers being
extremely/very satisfied with service.
102
51
In 2015, 63% of our brokers were
0
extremely/very satisfied.
’12
142
’15
’11
’13
’14
98
15
The result for our Select Brokers,
a programme launched in 2015
aimed at our key broker relationships,
was an additional 11% stronger on
overall extremely/very satisfied. In
2015, 69% of our Select Brokers
Broker Satisfaction Survey
were extremely or very satisfied while
(%)
satisfaction remains at 96%. The Net
Promoter Score (NPS) has increased
94
from 32% to 42% in 2015.
88
94
79
This polarisation is also mirrored in
Ansvar UK’s results, which has
7% more brokers extremely/very
satisfied with service over the prior
year and a significant increase in
’12
NPS form 38% in 2014 to 57%
in 2015.
Extremely Satisfied
’13
’14
’15
Very Satisfied
Fairly Satisfied
50
45
40
35
30
25
50
0
90
100
110
500
400
300
200
100
100
50
0
100
50
0
50
45
40
35
30
25
100
50
0
(%)
50
45
40
35
30
25
100
50
0
100
50
0
353
362 371 379 371
3.1x
2.7x
2.6x
2.9x
3.0x
Claims Satisfaction Survey
– Direct (%)
’11
’12
’13
96
97
PRA Capital
’14
97
’15
99
ECR
400
300
200
100
(%)
0
100
50
0
’13
’12
’14
Profit/(Loss) before tax
(£m)
Extremely Satisfied
Very Satisfied
Fairly Satisfied
67
54
48
38
-8
Profit/(Loss) before tax
(£m)
80
60
40
20
0
54
48
38
-8
SEIB Customer
Satisfaction Survey (%)
Combined Operating Ratio
(%)
Gross Written Premium
(£m)
Net Expense Ratio
(%)
Risk Management Satisfaction Survey
103
105
– Direct (%)
109
92
96
500
400
300
200
100
484 481
399
329 308
46
39
40
40
36
-20
’11
100
’12
’14
’15
97
100
’11
’12
’13
’14
97
97
’15
98
100
’11
’12
’13
’14
’15
’11
’12
’13
’14
’15
67
’13
97
50
0
’15
’14
’15
’12
’13
’14
’15
Combined Operating Ratio
(%)
Very Satisfied
Satisfied
92
96
103
105
109
90
100
110
Gross Written Premium
Extremely Satisfied
Net Expense Ratio
(£m)
484 481
Very Satisfied
Fairly Satisfied
399
329 308
46
39
40
40
36
’11
’12
’13
’14
’15
’11
’12
’13
’14
’15
’11
’12
’13
’14
’15
’11
’12
’13
’14
’15
(%)
100
50
0
100
80
60
40
20
0
Broker Satisfaction Survey
(%)
94
79
94
88
Select broker
satisfaction survey (%)
96
100
80
60
40
20
0
Claims Satisfaction Survey
– Direct (%)
SEIB Customer
Satisfaction Survey (%)
Risk Management Satisfaction Survey
– Direct (%)
96
97
97
99
97
97
97
97
98
100
’12
’13
’14
’15
’15
’12
’13
’14
’15
’14
’15
’12
’13
’14
’15
Extremely Satisfied
Very Satisfied
Fairly Satisfied
Extremely Satisfied
Very Satisfied
Fairly Satisfied
Extremely Satisfied
Very Satisfied
Fairly Satisfied
Very Satisfied
Satisfied
Extremely Satisfied
Very Satisfied
Fairly Satisfied
Select broker
satisfaction survey (%)
Claims Satisfaction Survey
– Direct (%)
SEIB Customer
Satisfaction Survey (%)
Risk Management Satisfaction Survey
– Direct (%)
96
’15
100
50
0
96
97
97
99
97
97
97
97
98
100
’12
’13
’14
’15
’14
’15
’12
’13
’14
’15
Extremely Satisfied
Very Satisfied
Fairly Satisfied
Extremely Satisfied
Very Satisfied
Fairly Satisfied
ANNUAL REPORT & ACCOUNTS 2015
41
Very Satisfied
Satisfied
Extremely Satisfied
Very Satisfied
Fairly Satisfied
Donations
(£m)
PR capital and ECR cover
Profit/(Loss) before tax
(£m)
(£m)
Combined Operating Ratio
(%)
Gross Written Premium
(£m)
Net Expense Ratio
(%)
80
60
40
20
0
67
54
48
38
-8
92
96
103
105
109
90
100
110
500
400
300
200
100
484 481
399
329 308
46
39
40
40
36
’11
’13
’14
’15
’11
’12
’13
’14
’15
-20
’11
’12
’13
’14
’15
’11
’12
’13
’14
’15
’11
’12
’13
’14
’15
’11
’12
’13
’14
’15
30
20
10
0
11.7
5.5
5.7
’12
25.2
20.6
353
362 371 379 371
3.1x
2.7x
2.6x
2.9x
3.0x
400
300
200
100
0
PRA Capital
ECR
0
20
40
60
80
100
105
’11
’13
’14
’15
’11
’12
’13
’14
’15
-20
’11
’12
’13
’14
’15
’11
80
60
0
40
20
0
67
’12
’13
’14
48
54
’15
38
Extremely Satisfied
-8
Very Satisfied
Fairly Satisfied
90
100
110
PR capital and ECR cover
(£m)
Broker Satisfaction Survey
(%)
100
94
94
88
79
Donations
(£m)
PR capital and ECR cover
Profit/(Loss) before tax
50
(£m)
25.2
20.6
0
142
353
’11
51
’12
102
98
362 371 379 371
’13
’14
’15
15
3.1x
2.7x
2.6x
2.9x
3.0x
200
(£m)
100
400
300
200
100
0
PRA Capital
ECR
11.7
5.5
5.7
’12
PR capital and ECR cover
(£m)
Broker Satisfaction Survey
(%)
100
94
94
88
79
Select broker
satisfaction survey (%)
96
30
20
10
0
200
100
0
142
’11
51
’12
102
98
15
’13
’14
’15
50
0
100
80
60
40
20
0
100
50
0
96
’12
’12
’13
’14
’15
’15
Extremely Satisfied
Very Satisfied
Fairly Satisfied
Extremely Satisfied
Very Satisfied
Fairly Satisfied
50
45
40
35
30
25
100
50
0
Risk Management Satisfaction Survey
– Direct (%)
97
97
98
100
’12
’13
’14
’15
Extremely Satisfied
Very Satisfied
Fairly Satisfied
SEIB Customer
Satisfaction Survey (%)
97
97
Net Expense Ratio
(%)
39
’14
40
Very Satisfied
36
Satisfied
46
’15
40
(%)
100
50
50
0
45
40
35
30
25
SECTION TWO – STRATEGIC REPORT
Measure
Performance
SEIB customer satisfaction
Select broker
satisfaction survey (%)
Results from a satisfaction
survey carried out by our
96
broker SEIB. The survey
was set up in 2014 and
covers the administration,
Combined Operating Ratio
claims, commercial
(%)
client and new business
departments, and relates
to how satisfied SEIB’s
’15
customers were with the
96
service they received.
103
Extremely Satisfied
92
109
’12
Very Satisfied
’13
Fairly Satisfied
Customers were asked
to rate their service
’15
experience on a ten-point
scale: 10 – very satisfied
to 0 – not satisfied.
’14
100
50
96
97
99
Claims Satisfaction Survey
– Direct (%)
SEIB customer satisfaction results have
been very pleasing over the past 2 years
with 97% of SEIB’s customers who
97
responded to the survey, being either very
satisfied or satisfied in 2015. From these
results, a staggering 87% of SEIB’s
customers fell into the very satisfied
category rating the service they received
484 481
as a 9 or 10. This is well above our target
’14
’13
399
for 90% satisfaction.
Gross Written Premium
(£m)
’12
’15
500
0
400
300
200
100
Extremely Satisfied
329 308
Very Satisfied
Fairly Satisfied
We have measured the
level of positive satisfaction
and we have based the
results on scores of 7-8
being satisfied and scores
of 9-10 being very satisfied.
Our target is to achieve at
least 90% of customers
being satisfied or very
satisfied with the service
they receive.
Risk management satisfaction survey – direct
’11
’12
’13
’14
’15
’11
’12
’13
’14
’15
Risk Management Satisfaction Survey
– Direct (%)
97
97
98
100
(%)
100
50
0
’12
’13
’14
’15
Extremely Satisfied
Very Satisfied
Fairly Satisfied
SEIB Customer
Our Risk Management team supports
Satisfaction Survey (%)
our customers in the identification,
quantification (including valuations),
assessment and improvement of risk.
100
97
97
50
Our surveyors and consultants conduct
on-site survey assessments at periodic
intervals with a view to helping our
customers understand and protect
themselves from risk.
0
’14
’15
We also provide customer guidance
Very Satisfied
online and via regular risk insight updates.
Satisfied
Having a strong in-house risk
management service is seen as a key
competence for the Group and is clearly
valued by our customers who responded
to the survey, with 92% very or extremely
satisfied with their risk management survey
and 100% satisfied. Of those customers
surveyed, 98% are satisfied with their risk
management report of which 88% are
very or extremely satisfied.
Claims Satisfaction Survey
– Direct (%)
99
97
This is a new KPI.
Following our site surveys,
customers are asked to
97
complete a customer
satisfaction report in
respect of their on-site
experience with our
surveyor or consultant and
the quality and clarity of
’13
advice provided.
Extremely Satisfied
Customers are asked
Very Satisfied
to rate their experience
Fairly Satisfied
on a six point scale 1 –
extremely dissatisfied to
6 – extremely satisfied.
’15
’14
We measure the level
of positive satisfaction,
particularly extremely and
very satisfied. Our target
is to achieve at least 90%
very or extremely satisfied
customer feedback.
42
ANNUAL REPORT & ACCOUNTS 2015
r
o
t
c
o
r
P
r
a
k
s
O
y
b
h
p
a
r
g
o
t
o
h
P
SECTION TWO – STRATEGIC REPORT
Financial
Performance Report
We delivered another year of strong and consistent financial results,
reporting a pre-tax profit of £53.6m (2014: £48.2m). Our underwriting
performance improved again, despite a more active year for property
claims across all of our territories. Investment returns were also similar
to last year in the face of challenging markets, particularly in the
second half of the year.
Our consistent financial performance and continuing
strong capital position have enabled us to make
further substantial charitable grants to ATL. Grants
of £20m were paid during the year taking our total
charitable giving since the start of 2014 to £45.8m.
We invested in our investment management business
during the year, rebranding as EdenTree and
continuing the modernisation of their IT systems. We
continued to streamline and develop our broking and
advisory business in the year, successfully concluding
the sale of our legacy mortgage book in the early
months of the year.
General insurance
Our underwriting performance for the year was a
profit of £15.9m (2014: £10.7m profit), resulting
in a Group COR of 92.0% (2014: 95.2%). Each
of our business units has delivered an underlying
underwriting profit for a second year.
United Kingdom and Ireland
Our insurance businesses in the UK and Ireland
reported an underwriting profit of £14.5m (2014:
£10.4m profit) and a COR of 90.4% (2014: 94.0%).
It has been a more active year for property claims with
a higher than average cost of large losses, particularly
fire losses, together with the storms and floods that
hit the UK in December. We incurred net losses of
£12.2m in respect of those weather events which
were adequately reserved for at the year end.
The performance of our liability book, however,
has continued to improve and produced strong
profits, enhancing the overall positive underwriting
performance for the year. Current year claims
performance has been better than expected, and
we have also had the benefit of reserve releases as
historical claims have been settled at amounts that
were less than anticipated.
In 2015, GWP has fallen by 7% to £228m (2014:
£246m). Retention levels were high at 85%, despite
further losses of academies to the Department
for Education's risk protection arrangement for
academy trusts. We considered all new business
carefully and did not seek to write business at
prices we considered unsustainable.
Our Strategy over the medium-term is to seek
moderate GWP growth by adding good-quality
business at a steady pace, but we expect the
market environment to remain very competitive,
particularly for commercial property business.
We will not expect to change our approach, in
accordance with our philosophy of not putting our
underwriting performance at risk by seeking growth
above profit.
Ansvar Australia
Australia achieved an underlying underwriting profit
of AUD$0.2m (COR 99.3%) before the impact of
movements on discount rates, which resulted in
an underwriting loss of AUD$0.7m overall (2014:
AUD$2.1m loss). The business was affected by
a higher than average number of catastrophe
events during the year, which was an issue for the
whole Australian market. However, the reinsurance
arrangements in place reduced the impact of these
losses to a manageable level.
44
ANNUAL REPORT & ACCOUNTS 2015
FINANCIAL PERFORMANCE REPORT
GWP grew by 4% in local currency to AUD$76.2m
(2014: AUD$73.5m). Retention rates remained very
strong and new business was 40% ahead of the
prior year.
Canada
Canada continued its track record of delivering
strong, profitable growth, reporting a 9% increase
in GWP in the year in local currency. The branch’s
contribution to GWP increased to CAD$77.9m
(2014: CAD$71.6m).
The territory reported an underwriting profit of
CAD$2.0m (2014: CAD$3.0m profit), a COR of
96.5%. As with other territories, it has been a
more active year for property claims than in the
prior year with higher than expected costs coming
from large losses.
Other insurance operations
Profits were improved by releases of reserves from
our businesses in run-off, resulting in an overall profit
of £0.8m (2014: £0.2m loss).
Investments
Against the backdrop of rising political tensions
across the world, increased concern over the extent
of the economic slowdown in China, and deterioration
of growth in emerging economies, market volatility
increased in the second half of 2015. The price of
oil and other major resources continued to fall,
hitting multi-year lows, significantly damaging
many companies’ balance sheets and
dividend-paying ability.
Over the course of 2015, the FTSE All-Share Index
produced a return of 1.0% while the FTSE 100 Index
ended the year down 4.9%. By contrast, our
UK equity portfolio increased by 4.4%, outperforming
both indices, reflecting its lower weighting in poorly
performing sectors such as oil and mining.
Government bond yields ended the year marginally
higher, though they succumbed to significant bouts
of volatility. Quantitative easing from the Eurozone
and Japan, the surprise devaluation of the Chinese
Yuan in August, fears about a Chinese growth
slowdown and persistent commodity price declines
all pushed global bond yields lower at different
times throughout the year.
The end of 2015 was dominated by central bank
monetary policy divergence between the US
Federal Reserve and the European Central Bank
(ECB). While the Federal Reserve saw fit to begin
the process of interest rate normalisation, the ECB
took the opposite approach, extending the duration
of its asset purchase programme. These policy
announcements triggered a bond sell-off which
caused yields to rise in the final weeks of the year.
In 2015, our UK bond portfolio produced a total
return of 1.1%, which compared favourably against
the FT All Stocks Gilt Index’s 0.6% return for the
same period, due to its short dated position.
Investment management
The Group’s investment management business
completed a successful rebrand as EdenTree during
2015, as ethical investment continues to become
more main-stream in investment management
markets, reflecting the future growth ambitions
of the company. The new brand coincided with
the launch of a new EdenTree website, digital
advertising, use of social media and national
outdoor advertising. The team also launched a
new front office IT platform to support investment
trading and compliance activities, delivering better
service to clients. Despite the change in name,
there has been no change to the strategic aims of
the business as it continues to focus on an active,
value-based and long-term approach to stock picking,
building upon its long track record of delivering
profit with principles for investors and charities.
EdenTree benefited from receipt of a one-off
performance fee of £0.7m in 2014, which was not
repeated in 2015, meaning overall fee income for
the year decreased by 4.7% to £13.6m (2014:
£14.3m). Pre-tax profits fell to £1.8m (2014:
£3.2m) reflecting the level of investment made
during the year in the operations of the business.
ANNUAL REPORT & ACCOUNTS 2015
45
SECTION TWO – STRATEGIC REPORT
Stock market volatility increased during the second
half of the year and led to greater investor caution
with the industry as a whole generally experiencing
net outflows in 2015. Faced with a challenging
investment environment, EdenTree generated net
inflows to its funds of £15m (2014: £98m net
inflow), holding assets under management at the
end of the year of £2.3bn (2014: £2.3bn).
EdenTree has maintained its track record as a
multi-award-winning ethical investment provider,
with the company winning the Moneyfacts Best
Ethical Investment Provider Award for a seventh
consecutive year. Its funds continue to win awards,
as shown earlier in the Strategic Report on page 35.
EdenTree was rated platinum by Citywire, and
across the team our Fund Managers continue to be
highly rated.
Long-term insurance
The long-term insurance business result for 2015
was a profit of £1.0m (2014: £0.2m loss).
Ecclesiastical Life Limited is closed to new business
and the expected favourable run-off of the business
during the year was enhanced by the positive
impact of increased bond yields.
Broking and advisory
The broking and advisory business comprises our
insurance broker business SEIB and EFAS, our small
financial advisory business.
In 2015, SEIB was affected by disruption during the
transition of one scheme to another provider. Profit
before tax reduced to £2.2m (2014: £3.0m).
EFAS completed the sale of its mortgage book in
early 2015, as the business looks to focus on its
core independent financial advisory and funeral
plan administration business. It reported a small
loss of £0.3m in the year (2014: £1.0m loss which
included £0.6m of costs in relation to the sale of the
mortgage book).
Overall, our broking and advisory business delivered a
stable pre-tax profit of £1.9m (2014: £2.0m profit).
Ian Campbell
Group Chief Financial Officer
Grants of £20m were paid during the
year taking our total charitable giving
since the start of 2014 to £45.8m.
46
ANNUAL REPORT & ACCOUNTS 2015
SECTION TWO – STRATEGIC REPORT
Risk Management
Report
Introduction
The Group’s Business Model is explained in detail
on page 26. The operations of the Group present a
number of risks including Insurance, Market, Credit,
Operational, and Strategic.
An enterprise-wide risk management framework
has been embedded across the Group, with the
purpose of providing the tools, guidance, policies,
standards and defined responsibilities to enable
us to achieve our Strategy and objectives. This
also ensures that individual and aggregated risks
to our objectives are identified and managed on a
consistent basis.
The risk management framework is integrated into
the culture of the Group and is owned by the Board.
Responsibility for the implementation and oversight
is delegated to the Group Risk Function, led by the
Group Chief Risk Officer. This is supported by three
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 Risk Committee
which has oversight of the investment and
market risks of the Group; and
the Group Operational Risk Committee
which has oversight for all the operational
risks of the Group.
The insurance risks relating to our life business
are overseen by the Life Management Committee.
The risk management process demands
accountability and is embedded in performance
measurement and reward, thus promoting clear
ownership for risk and operational efficiency at
all levels.
CE
N
FE
E
RISK
STRATEGY
RISK APPETITE
RISK POLICIES & STANDARDS
R
I
S
K
INTERNAL
MODEL
S OF D
E
E LIN
E
R
D TH
N
K A
R
O
EW
M
A
RISK
MANAGEMENT
PROCESS
STRESS &
SCENARIO
TESTING
ORSA
R
E
P
O
R
T
I
N
G
&
M
O
N
I
T
O
R
I
N
G
BUSINESS
PERFORMANCE
& CAPITAL
MANAGEMENT
VALUES & CULTURE
PEOPLE, SYSTEMS & PROCESSES
GOVERNANCE
OL FR
NTR
O
AL C
N
R
INTE
48
ANNUAL REPORT & ACCOUNTS 2015
RISK MANAGEMENT REPORT
On an annual basis, the Group Risk Committee (on
behalf of the Board) identifies key strategic risks for
the Group with input from the Group Management
Board (GMB) and the Strategic Business Units
(SBUs). The Group Risk Committee allocates
responsibility for each of the risks to individual
members of the Group’s executive management.
Any risk management actions that arise are regularly
monitored and any gaps in risk mitigants challenged.
The key to the success of this process is the
deployment of a strong Three Lines of Defence
Model whereby the:
1st Line (Business Management) is responsible
for strategy, performance and management of
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 Group Internal
Audit function which is subject to oversight and
challenge by the Group Audit Committee.
We have a continuously evolving approach to
enterprise risk management and use emerging
experience to refine our approach. During 2015,
key improvements included:
formal documentation of the risk
management framework;
further embedding of the risk management
framework within the 1st line of defence;
consolidation of the qualitative risk profiles
with a focus on business plans;
significant development of quantitative risk
profiling capabilities to ensure capture of
all material risks and the development of an
Internal Model validation framework;
a revised Group risk appetite to strengthen
risk oversight which was approved by the Group
Risk Committee on behalf of the Board and
refreshed SBU risk appetites aligned to the
Group appetite;
enhanced stress testing and scenario analysis;
enhanced control risk and self-assessment
(CRSA) process;
implementation of a policy framework supported
by standards and guidance; and
improvements were made to the Own Risk and
Solvency Assessment (ORSA) process.
ANNUAL REPORT & ACCOUNTS 2015
49
SECTION TWO – STRATEGIC REPORT
Risk appetite
The risk appetite defines the level of risk-taking
that the Board feel is appropriate for the Group
as we pursue our business objectives. It has been
defined in line with the different categories of risk
that the Group faces, and provides the backdrop
against which the business plan is developed and
validated. This ensures that the risk profile resulting
from the business plan is in line with the risk-taking
expectations of the Board. Compliance with the risk
appetite is reported to the Group Risk Committee at
each meeting. A formal escalation process exists for
activities outside of the risk appetite.
The risk appetite is refreshed at least annually and
is signed-off and approved by the Board.
The Board takes the reputation of the Group
seriously and will not undertake any activity whose
outcome might reasonably be expected to have
a sufficiently negative reputational impact on the
Group and undermine the sustainability of the
Business Model.
Our overarching risk appetite sets the minimum
levels of capital and solvency that the Group wishes
to maintain, and contains statements detailing the
maximum exposure to different risk types that are
deemed to be desirable. This includes limits on the
type, nature, size and concentration of insurance
risks that will be accepted by the Group and limits
on the mix of assets to be held within the Group’s
investment portfolio.
The main objective of our risk appetite is to ensure
that we have sufficient capital to meet our liabilities
and maintain our financial strength 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 (S&P).
Quantitative risk measures
and stress testing framework
The tool we use to measure aggregate risk is
our Internal Model, which has been calibrated to
estimate the internal view of the capital resources
required to deliver our business plan. Over the
last year we have improved both the scope and
methodology of our Internal Model to better reflect
the risk profile. The model has become further
embedded in our strategic decision-making
processes. As an example, the Internal Model
was used as an input to the development of our
reinsurance strategy and pricing decisions and
setting of investment strategy.
Under the Solvency I Regime this model was used
to calculate our capital requirements. With the
introduction of Solvency II our regulatory capital
requirement will be calculated using the standard
formula, although we will continue to use and
develop our Internal Model alongside this. Our
intention is to seek regulatory approval for our
Internal Model as the basis for the calculation of
our regulatory capital requirements during 2017.
We have continued to refine a comprehensive
stress testing and scenario analysis framework to
complement our quantitative risk measures.
This framework seeks to stress the business plan
and identifies potential outcomes generated from a
range of scenarios, providing evidence to the Board
that the plan is robust. These stress tests are also
used to identify additional actions that can be taken,
including contingency plans, to mitigate any risks
or potential adverse experiences identified. As such
the Group uses stress and scenario testing as a key
component of its business planning process.
50
ANNUAL REPORT & ACCOUNTS 2015
RISK MANAGEMENT REPORT
Principle risks
The Board of directors has carried out a robust assessment of the
principal risks that could have the highest potential to damage the
Business Model, the Strategy or solvency of the Group both in the
short and long term. Those risks identified are as follows:
Risk type
and description
Insurance risks
Why we have it
How we mitigate it
Business mix, underwriting and pricing risk
General insurance is our
core business. It is a highly
competitive business.
The premium required for an
insurance policy needs to
reflect the cover provided
and the risk factors present.
The risk of failure
to price insurance
products adequately for
claims costs, expenses,
cost of capital and
profit requirements;
failure to manage
portfolio risk according
to the underwriting
cycle; failure to
establish appropriate
underwriting disciplines.
Disciplined underwriting and pricing is central
to our business and the success of the Group.
We have targeted training programmes in place
to ensure the correct skill set is maintained and
developed. There continues to be significant
investment in underwriting and pricing capabilities
across the Group, and the organisational structure
in the UK General Insurance business is now well
established. A documented underwriting strategy
and risk appetite is in place to ensure there is a
clear focus on our chosen niches and classes of
business, and all underwriters have documented
authority levels to which they must adhere.
This risk has not changed materially over the
year. Actions continue to be taken to improve our
underwriting capabilities and improve the quality
of the business we write.
Claims reserving risk
The risk of actual claims
payments exceeding
the amount we are
holding in reserves.
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.
The Goddard inquiry, which
is an independent inquiry
into child sexual abuse in
England and Wales, in the
UK may have an impact on
the frequency and severity of
Physical and Sexual Abuse
(PSA) claims across the
insurance industry. This is an
emerging risk that we are
actively monitoring.
Claims development and reserving levels are closely
monitored. Claims reserving risk primarily arises
from long-tail liability business. For statutory and
financial reporting purposes, prudential margins
are added to a best estimate outcome to allow
for uncertainties. This approach may result in a
favourable release of the 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 Group Reserving
Actuary, Actuarial Function Director, the Reserving
Committee and the Group Audit Committee.
Further information on this risk is given in notes 2, 3
and 27 to the financial statements in section 4 of
this Annual Report and Accounts.
We believe that this risk has remained at a similar
level during the year given our prudent approach
to reserving.
ANNUAL REPORT & ACCOUNTS 2015
51
SECTION TWO – STRATEGIC REPORT
Risk type
and description
Insurance risks
Reinsurance mix
The risk of failing to
access and manage
reinsurance capacity
at a reasonable price.
Why we have it
How we mitigate it
This risk is managed by taking a long-term
relationship view towards reinsurance purchases
to deliver sustainable capacity rather than benefit
from opportunistic results. Strict criteria exist
which relate to the ratings of the reinsurers we
choose and a Reinsurance Security Committee
approves all of our reinsurance partners.
We purchase reinsurance to protect against
property catastrophe events that are predicted to
occur up to every 250 to 500 years, depending
upon the territory.
The level of this risk has remained broadly similar
over the year.
Reinsurance is a central
component of our Business
Model, enabling us to insure
a portfolio of large risks in
proportion to our capital base.
The current Business Model
for our Australian subsidiary
utilises a 100% property
reinsurance arrangement.
The global reinsurance
market has seen a large
amount of merger and
acquisition activity during
2015. This has not restricted
the capacity available or
adversely affected our ability
to place the reinsurance
programme.
Concentration and model error risk
The risk of failure
to manage risk
concentrations across
our different business
and risk areas, and
including reliance on
models which if found
to be wrong could
give rise to significant
unplanned losses.
Exposure measures are
fundamental to determining
our reinsurance purchases.
Errors within the models
could fail to identify
significant concentrations
of risk and lead to the
Group having net retentions
which are in excess of our
risk appetite.
Risk appetite limits have been established to
manage our concentrations of risk and these are
reviewed regularly by the Group Risk Committee.
The risk is mitigated through the use of industry
recognised models that have been validated by
the vendors as well as our own assessments of
their appropriateness, alongside our scenario and
stress testing framework.
The level of risk has remained static during the year.
52
ANNUAL REPORT & ACCOUNTS 2015
Risk type
and description
Market risk
Market risk
The risk of adverse
movements in net
asset values arising
from a change in
interest rates, equity
and property prices,
credit spreads and
foreign exchange rates.
RISK MANAGEMENT REPORT
Why we have it
How we mitigate it
Market risk principally arises
from investments held by the
Group. We accept such risks
to seek enhanced returns on
these investments.
Our investment strategy for
assets backing reserves is
primarily focused on fixed
income stocks. This gives
us exposure to interest
rate risk. We also hold
some of our investments
in corporate bonds, which
expose us to credit spread
risk, for which higher
expected yields are obtained.
Market risk also arises as
we have a significant equity
portfolio.
A proportion of our equity
portfolio is invested in
overseas equities. This
gives us exposure to wider
investment opportunities and
diversified returns but also
introduces currency risk.
A robust investment risk management framework
is in place to mitigate the impact of changes in
financial markets.
Our Fund Manager, EdenTree, manages our
funds in accordance with the investment strategy
and guidelines agreed by the Finance and
Investment Committee.
Interest rate risk is partly managed through
selecting stocks of an appropriate duration
that will match the expected cash flows from
longer-term liabilities, and partly through holding
stocks with a relatively short period to maturity,
that are not exposed to significant volatility upon
changes in interest rates.
Credit spread risk is controlled through the
investment strategy and guidelines agreed by the
Finance and Investment Committee. It is managed
by EdenTree’s assessments of risk and by limiting
our exposure to both non-rated and lower-rated
bonds, and ensuring that we adhere to the limits
set for exposure to any single issuer.
We hold a relatively significant equity portfolio
in order to deliver a risk-adjusted long-term
investment return on capital. When we feel it is
appropriate, we will use derivatives to reduce
equity exposure. A small amount of hedging of
equity risk was in place during 2015.
We manage our exposure to liabilities in our
overseas businesses by holding appropriate
levels of cash and investments in local currencies.
We ensure that currency risk is appropriately
monitored and controlled and is overseen by our
Group Finance function in order to reduce the
impact of fluctuating currency rates. Currency risk
arising from holding overseas equities is accepted
as part of the decision to invest in such assets.
We have increased diversification in our asset
portfolio by investing more in property. We mitigate
investment property risk by ensuring that appropriate
due diligence is conducted on all prospective
investments and through the monitoring of
concentration risk, performance, sector allocation
and income.
Further information on this risk is given in note 4
to the financial statements starting on page 153.
This risk has not changed materially over the year.
ANNUAL REPORT & ACCOUNTS 2015
53
SECTION TWO – STRATEGIC REPORT
Risk type
and description
Credit risk
Credit risk
The risk of non-payment
of their obligations
by counterparties
and financial markets
borrowers.
Why we have it
How we mitigate it
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.
Reinsurer credit risk is overseen by the Group
Reinsurance Security Committee, principally through
careful selection and monitoring of reinsurance
partners. All reinsurers on the 2015 and 2016
reinsurance programmes have a minimum rating
of A minus from S&P or an equivalent agency at
the time of purchase.
Reliance on a single counterparty by our subsidiary,
Ansvar Australia, continued due to the reinsurance
arrangement with National Indemnity, which is part
of the Berkshire Hathaway Group; however, it has a
very strong S&P rating of AA+.
Investment credit default risk is managed using
the same processes as for credit spread risk as
noted under Market Risk.
We utilise robust agency and collection procedures
to ensure that our credit and bad debt risk from
our intermediaries and policyholders is minimised.
The level of this risk remained largely unchanged
during the year.
Further information on this risk is given in note 4
to the financial statements starting on page 153.
Operational risks
IT systems, data quality and business intelligence risk
The risk of shortfalls in
the quality or availability
of management
information required
for decision-making,
inadequate, ageing or
unsupported systems
and infrastructure, and
system failure preventing
processing efficiency.
Accessing claims data in
relation to the risk offered
is a key tool in enabling
sufficient and competitive
pricing. Other management
information is vital to ensure
timely decision making
or responses to claims or
other market developments.
Efficient and reliable
systems are paramount
to delivering excellent
customer service and
business processing.
There has been significant focus on the
accuracy, completeness and appropriateness
of data and on the development of a strategic
data warehouse.
A number of projects are underway to replace
legacy systems and upgrade the key business
systems.
An enablement strategy has been developed to
define the long-term approach for our systems,
processing and data.
The level of this risk has remained the same
this year.
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ANNUAL REPORT & ACCOUNTS 2015
RISK MANAGEMENT REPORT
Risk type
and description
Why we have it
How we mitigate it
Operational risk
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.
This includes the conduct
elements of failing to
deliver fair outcomes for
consumers or resulting
in consumer detriment.
Cyber security risk
The risk of criminal or
unauthorised use of
electronic information,
either belonging to the
Group or its stakeholders.
Conduct risk
The risk of unfair
outcomes arising from
the Company’s conduct
in its direct relationship
with customers, or where
the Company has a direct
duty to customers.
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 where necessary to consider significant
developments which affect our business.
The regulatory compliance function is key to
the oversight of this risk and provides advice
and guidance to the 1st line of defence.
Regulatory compliance continued to increase
in importance during 2015 with the continuing
development of the PRA and Financial Conduct
Authority (FCA) regimes.
The level of this risk has remained the same during
the year.
Increasing reliance is placed
on electronic processing,
storage and transmission
of customer, company and
employee information.
Cyber security threats
from malicious parties are
increasing.
We have a number of proactive and preventative
technical controls to deny malicious or unauthorised
access to our systems, confidential data and
internal infrastructure. These controls operate at
different levels within our technology infrastructure,
strategically placed to restrict access and safeguard
our systems and data.
The level of the risk has increased over the year due
to the increasing number and sophistication of threats
seen by many organisations across all industries.
The management of this risk is owned by the Board.
As a Company, we place
the customer at the heart of
the business, treating them
fairly and ethically, whilst
safeguarding the interests
of all other key stakeholders.
Regulatory principles in the
territories in which we operate
aim to protect customers.
A conduct risk framework has been developed
during 2015 which includes enhanced Consumer
Risk Board reporting alongside specific risk
appetite metrics.
A project is underway which includes the
development of customer charters and
improvements to the product review process
across the Group.
The level of this risk has remained the same this year.
ANNUAL REPORT & ACCOUNTS 2015
55
SECTION TWO – STRATEGIC REPORT
Risk type
and description
Why we have it
How we mitigate it
Operational risk
Other operational risks
The risk of unexpected
loss or cost arising
from other operational
risks not covered above
but includes employee
risks, internal or external
events, and inadequate
or inefficient processes.
Operational risk is inherent
in the business and it is
not always cost effective
or possible to completely
eradicate such risks by
the implementation of
mitigating actions.
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.
As a specialist financial
services group with
a distinctive ethical
positioning, maintaining our
reputation in our chosen
markets is key to our
success.
We always aim to be fair to
our stakeholders. However,
if disagreements occur,
it could result in negative
commentary in many forms
of media.
During 2015 we continued to strengthen
our operational risk management through
the consolidation and embedding of the risk
management framework. This includes the
continued development of the operational risk
profiles which capture risks and management
actions within each of our business areas. These
profiles are specifically focused on the delivery of
individual business area's plans and objectives. On
an annual basis a CRSA process is undertaken
by each SBU and they attest to the overall
effectiveness of their management of risk.
The Group risk appetite contains a number of
statements which clearly define the appetite
for operational risk. In addition operational risk
scenario analysis is undertaken which helps to
identify additional management actions required
and the results are taken into account in 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 level of this risk is largely unchanged
over the year.
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. Our Group’s purpose is to
contribute to society’s greater good by managing
a portfolio of businesses operating to the highest
ethical principles and delivering significant financial
returns to ATL and this is reflected in all our
business activities and operations. More information
on our Group’s ambitions can be found in our
Business Model and our Strategy sections starting
on page 26 and 29 respectively.
Reputational risk is overseen by the GMB together
with the Group Risk Committee. Our reputation is
fundamental to our business and we will not accept
risks that will materially damage our reputation. We
monitor a variety of communication channels and
proactively gather feedback to ensure there is no
detriment to our reputation.
The level of this risk is largely unchanged over
the year.
56
ANNUAL REPORT & ACCOUNTS 2015
RISK MANAGEMENT REPORT
Why we have it
How we mitigate it
Financial services are highly
competitive business. There
are a number of companies
operating within our
markets which means that
competitor activity remains
a significant threat to our
strategic objectives.
The GMB and SBUs monitor key competitors
on a regular basis, reacting as appropriate to
competitor developments. We have a strategy to
deliver excellent customer service through multiple
distribution channels to ensure diversification risk.
The level of this risk has increased over the year due
to competitor activity within our chosen markets.
Risk type
and description
Operational risk
Competition
The risk of failure 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
and the impact to the
Group of a loss of a key
account or niche market.
Strategic risks
Increasing or strained expense base
The risk of failure to
maintain the expense
base within targets and
in line with competitors.
While we do not seek to
compete on price alone
and service has been a
key differentiator for us,
the fact remains that we
are competing in a highly
commoditised and price-
focussed insurance market.
Therefore, controlling
expenses relative to the size
of the Group is important
to ensure the continued
profitability of our Business
Model.
We manage our cost base closely and have taken
many difficult decisions over the last few years
to ensure our cost base remains sustainable.
Our internal operating costs are 5% lower than
they were five years ago, and the average rate
of commission paid to our brokers has remained
stable over the same period.
Our costs have not reduced as quickly as our GWP
has over the last three years, and we recognise that
the level of this risk has increased over the year
due to reduced GWP to support the expense base.
Strategic execution delivery
The risk of failure to
deliver our strategic
initiatives underpinning
our strategic plan
and failure to meet
stakeholder expectations
resulting in negative
reactions from our owner,
the regulator or rating
agencies.
Delivering the initiatives
underpinning our strategic
plan is critical to ensuring
the achievement of our
corporate strategy and
ensuring the ongoing
confidence of key
stakeholders, including our
owner, the regulator and
rating agencies.
A three-year Group-wide strategic programme
of change is underway, with enhanced governance,
agreed prioritisation, regular reporting
(including to the Board) and alignment with
incentive schemes implemented. A Group
Programme Director is in place to oversee
delivery of the group's strategic initiatives.
The level of this risk has remained similar over
the year.
ANNUAL REPORT & ACCOUNTS 2015
57
SECTION TWO – STRATEGIC REPORT
Risk type
and description
Group risks
Why we have it
How we mitigate it
Governance and oversight of SBU
The risk of failure to
effectively manage the
different parts of the
Group across different
territories in accordance
with social, economic
and regulatory
expectations.
The Group consists of
a number of different
business divisions which
operate across a number
of territories and regulatory
regimes. Failure to
effectively manage our
operations in line with
Group expectations
could lead to sub-optimal
business performance or
damage to our reputation.
The expectations of the SBU have been defined
and they have all confirmed the adoption of the
required standard. Alongside this all SBU’s have
locally adopted risk appetites, which are regularly
monitored with formal escalation processes in place
for potential breaches.
Annual risk reviews and CRSA’s are undertaken.
Additionally, Group Internal Audit reviews are carried
out.
The level of this risk has reduced over the year
due to increased 2nd line oversight and challenge,
and greater clarity around SBU expectations and
obligations.
Longer-term viability statement
The directors confirm that they have a reasonable
expectation that the Group will continue in operation
and meet its liabilities as they fall due over the next
three years.
While the directors have no reason to believe
the Group will not be viable over a longer period,
the three-year outlook period has been selected as it
aligns with the planning horizon in the business plan.
The directors have assessed the viability of the Group
with reference to the business plan, which includes
stress tests and scenario analysis, taking into account
the current position of the Group and the potential
impact of the principal risks.
Production of the business plan incorporates
submissions from SBUs who consider the Strategy
of the Group and use their expert knowledge,
before submitting their financial plans. All of the
plans are reviewed and challenged by the GMB and
a Group-wide consolidated business plan is produced
for consideration and approval by the Board.
The key assumptions underlying the business
plan relate to premium retention, rate changes,
new business, claims experience, inflation,
investment performance and the cost of the
reinsurance programme.
The stress testing and scenario analysis encompass
a spectrum of potential outcomes designed to
assess the impact of certain events on the Group’s
profitability, solvency and liquidity.
The stresses are designed to be severe but plausible
and are linked to the key principal risks starting on
page 51. They include:
catastrophe claim events – insurance risks;
the performance of equity markets – market risk;
default of key reinsurers – credit risk;
the loss of significant lines of business –
operational risk;
a sustained economic downturn – insurance risks
and market risk; and
premiums, claims and the expense base differing
materially from expectations – strategic risks.
In addition, the solvency position of the Group has
been projected as part of the Own Risk and Solvency
Assessment, which has a forward-looking emphasis
to ensure that business strategy and plans are
formulated with full recognition of the risk profile and
future capital needs, with the results showing the
Group to have sufficient capital resources to cover its
capital requirements for the period of the Business Plan.
In making their assessment, the directors have taken
into account the Group’s very strong capital position,
the strong risk management framework in place
and the Group’s resilience to the variety of adverse
circumstances as demonstrated in the results of the
stress testing. The directors have also considered the
potential mitigating actions management would take
should any of these scenarios arise.
58
ANNUAL REPORT & ACCOUNTS 2015
r
o
t
c
o
r
P
r
a
k
s
O
y
b
h
p
a
r
g
o
t
o
h
P
SECTION TWO – STRATEGIC REPORT
2015 Highlights
£20
M TOTAL
CHARITABLE
GRANTS TO ATL
ECCLESIASTICAL IS A BITC
COMMUNITY MARK COMPANY
40%
OF UK STAFF
VOLUNTEERED
£21
NEARLY
M TOTAL
ECCLESIASTICAL
GROUP GIVING
TO CHARITIES
38%
ECCLESIASTICAL
GROUP PRE-TAX PROFIT
GIVEN TO CHARITY
TOP EMPLOYERS FOR YOUNG PEOPLE IN CANADA
OVER £400,000
GIVEN IN EMPLOYEE TIME,
PARTNERSHIP FUNDING AND IN-KIND SUPPORT
OVER €20,000
RAISED FOR
IRELAND
CHARITY PARTNER SOAR
LIVING
WAGE
STAUS
ACHIEVED
ANSVAR
AUSTRALIA
HAS GIVEN OVER
$10 MILLION
to education and
life skills programmes
since 1994
60
ANNUAL REPORT & ACCOUNTS 2015
r
o
t
c
o
r
P
r
a
k
s
O
y
b
h
p
a
r
g
o
t
o
h
P
SECTION TWO – STRATEGIC REPORT
Corporate
Responsibility Report
Ecclesiastical has always been committed to giving back to the
communities, where it operates. In 2015, we launched our ‘Greater
Giving’ programme – the new shape of our Group-wide corporate
responsibility (CR) approach. This new CR programme gives us an
ambitious goal, clear focus and a strong structure to ensure we are
fulfilling our responsibilities and challenging ourselves to improve.
It’s also very clearly aligned to our business strategy.
Structure and governance
Corporate responsibility at Ecclesiastical has an established structure and governance:
Board
overall responsibility for CR, review and
sign-off of reporting
General
Management Board
reviews policies and directs CR strategy
and objectives
Strategic
Business Units
local development and implementation of
the Group CR strategy, monitoring and
reporting on CR activities
CR Steering Group
drives the development and leadership
of CR within the business
Pillar responsibility
functional responsibility for key aspects of
CR, for example environmental management
and workplace responsibilities
Community
advocates
networks of advocates enthusiastically
support local community investment at
all of our locations
62
ANNUAL REPORT & ACCOUNTS 2015
CORPORATE RESPONSIBILITY REPORT
The external environment
Monitoring and auditing
Our community investment approach is audited
and accredited independently by Business In The
Community (BITC) through its CommunityMark
standard. Ecclesiastical’s UK operation has completed
BITC’s CR Index submission to guide its development.
We are facing many issues and trends in our markets
– many of which are covered in our Strategy in action
section starting on page 29, and Global trends in
financial services section starting on page 22. These
affect our customers, our partners and the future
sustainability of our business.
Within EdenTree, we are fortunate to have colleagues
whose business it is to monitor and advise on global
corporate responsibility trends. Head of corporate
governance and socially responsible investment
analyst Neville White comments:
Neville White
Head of SRI Policy & Research
at EdenTree
There are many macro and local
issues affecting our business – in
fact, there have never been more
issues to consider and tackle.
For Ecclesiastical in particular,
technology, regulation, an ageing
population, climate change and trust
in financial services are major issues
which will all have a varying impact
now and in the near future.
Ecclesiastical also faces specific issues
such as the preservation of heritage
properties – a key area of specialist
insurance for the Group. The protection
of vulnerable people is also a major
consideration, whether from flood, abuse
or financial mis-selling. And as a financial
services business with charitable ownership
we are in a strong position to face up to
customers’ lack of trust in the sector.
ANNUAL REPORT & ACCOUNTS 2015
63
CORPORATE RESPONSIBILITY REPORT
Doing what’s
important
A key aspect of the Greater Giving programme
involved a review and refresh of the themes around
which our CR programme is aligned. To achieve this,
we consulted with:
our charitable owner ATL;
our staff across the entire Group. Over 500 people
responded to our survey, with over 95% supporting
each of the first two themes and 84% the third.
They also gave useful feedback on how we might
support and embed them across all aspects of our
business activity; and
we also have plans to engage with stakeholders to
build an even more thorough picture of materiality.
Our themes are:
preserving heritage;
engagement with our communities; and
promoting ethics in financial services.
ANNUAL REPORT & ACCOUNTS 2015
65
SECTION TWO – STRATEGIC REPORT
Our themes:
what we achieved
Promoting ethics
in financial services
Preserving heritage
Why is this
theme important?
What we planned to achieve
This theme, introduced
formally in 2015, draws
together several aspects
of our performance and
behaviour as an ethical
financial services business,
underpinning our business
practices and ambition to
achieve a leadership position
as a responsible business.
To reach the highest standards of responsible business practice:
l achieve and maintain BITC ‘CommunityMark’ status in 2016
l enter BITC’s CR Index
l achieve relevant business standards
To promote ethical business practice through thought leadership:
l produce at least three issue papers each year – generate
positive media coverage and distribute to all advisors
To select partnerships that promote ethical practice and
measure their success:
l including schools partnership – reach at least 100 students
with employment advice and support, raise their aspirations
and understanding.
To maintain our position as a thought leader in heritage
preservation and protection, including our number 1 brand
position as voted for by brokers in 2015.
To build awareness and understanding of heritage protection
issues, using dedicated research to identify issues and
communicate them to leading heritage influencers.
To specifically support the preservation and protection of
Anglican Church buildings, providing risk management
support to customers.
Ecclesiastical is the UK’s
leading heritage insurer,
protecting more Grade I
listed buildings than any
other insurer, including
prestigious properties
such as Stonehenge and
Canterbury Cathedral.
It is important that we
play a leading role in the
protection and preservation
of UK heritage, by creating
strong partnerships and
raising the profile of issues.
66
ANNUAL REPORT & ACCOUNTS 2015
CORPORATE RESPONSIBILITY REPORT
What are we doing and what has been achieved?
We have reached the highest standards of responsible business practice. In the UK, we are a CommunityMark company
accredited by BITC and will undertake the reaccreditation process in 2016. We achieved UK Living Wage status in 2015
and maintained our UK Chartered Insurance Institute status, being one of only five composite insurers who are chartered for
their entire UK General Insurance operations and one of only 29 insurers who hold the Charter.
EdenTree continued to promote ethical business practice through thought leadership. In 2015, our investment management
business published five reports on healthcare, shipping, corporate misconduct, big data, and digital planet.
We have participated in BITC’s three-year Business Class programme to help educate young people about financial services
and improve employability. This programme has delivered a range of benefits including:
l Training eight staff and matching them to mentor students
l Conducting mock interview sessions for 20 students
l Careers event support, work experience placements and revision help
l Supporting an employability day for 30 students – 85% of students agreed that it gave them a clearer idea of what they
might do in the future and over 80% of business volunteers felt it improved their skills and gave them greater motivation
for their organisation and role.
Established strategic partnerships with, among others, English Heritage/Historic England, The Heritage Alliance, and the
Historic Houses Association.
Conducted research among around 200 heritage members and 79 insurance brokers, identifying wear and tear, lack of
funding and weather/water damage as the biggest risks.
Established a core stakeholder group, bringing together key heritage stakeholders for the first time in a roundtable
discussion. 100% of attendees found it a useful networking event and everyone was interested in maintaining contact
as part of this group to discuss future heritage issues.
Supported initiatives which assure the long-term preservation of heritage. For example, we sponsor students
completing the Sustainable Heritage degree at University College London and a stonemasonry apprenticeship
scheme run by the Cathedrals Workshop Fellowship.
Shared best practice in the insurance sector, with seminar and training programmes including a programme of six
events covering topics such as architecture, construction and repair. Our flagship event at the Society of Antiquaries
attracted over 70 leading insurance brokers; 100% rated the event as excellent or good and over 90% found the
speakers useful and informative.
As a leading voice in the heritage sector we attend and share our views at various forums including The Church Buildings
Council, Institute of Fire Engineers, and Fire Sector Federation.
We lead the market in risk management advice and support on heritage issues, with a team of over 50 field staff who
survey and provide risk management support to our customers. We conduct 8,000 site assessments annually – two-thirds
on heritage properties – and recommend 20,000 risk improvements.
ANNUAL REPORT & ACCOUNTS 2015
67
SECTION TWO – STRATEGIC REPORT
Why is this
theme important?
What we planned to achieve
Engagement with
our communities
This broad theme
encapsulates our direct
community investment
activity, guiding how we
structure our programme
of giving to ensure it is
focused and impactful.
To increase engagement and support from our employees for
community investment activities. Specifically:
l increase volunteering levels in 2015 to 30% (2014: 24%)
l increase matching from £25,000
l target 60% of staff to give their personal grant with half of
these volunteering for the same cause
To focus our giving to charities and causes which align behind this
theme, improving its effectiveness and impact:
l at least 90% of charitable support to align with our core themes
l give to every Disasters Emergency Committee international
appeal.
85% OF STUDENTS
AGREED THAT IT GAVE
THEM A CLEARER IDEA OF WHAT
THEY MIGHT DO IN THE FUTURE
OVER 8,000 SITE VISITS
68
ANNUAL REPORT & ACCOUNTS 2015
CORPORATE RESPONSIBILITY REPORT
What are we doing and what has been achieved?
In 2015, we clarified the offer of support for employees by improving internal branding, launching a new publication and
enhancing our policy.
Following outperformance in 2014, we offered every member of staff a personal grant of £125 to give to any charity of their
choice. Over 60% took up the grant, with 32% volunteering for their chosen cause to secure matched funding from the
Company. In total, we have given over £90,000 to charities through the scheme.
Overall, 40% of our employees volunteered in 2015 – the second-highest level of engagement ever recorded and above
best practice benchmarks.
We continued our community grant-giving programme through the Gloucestershire Community Foundation, investing a further
£10,000 and are making plans to develop the Foundation further. Since establishing the fund, we have given 19 grants and
invested over £75,000, benefiting from 50 or 100% Government matching of over £30,000. Projects supported have all
been aligned to our core themes and have delivered measurable community impact.
In 2015, we agreed an approach to international giving through a partnership with DEC, the Disasters Emergency Committee.
We supported several appeals including the Ebola crisis, where our donation helped DEC to:
l reach over 869,000 people with aid
l give 807,000 people Ebola prevention messages
l train 4,800 people to deliver Ebola education
l provide 53,000 hygiene kits and 12,000 food packages
l find homes for 150 orphans
We broadened our support for charities. In 2015, this included subsidising rent for three charities based in our offices in
Gloucester, increasing professional volunteering support, and increasing partner engagement with our giving, for example by
taking part in a joint volunteering initiative with one of our brokers.
OVER
£90,000
GIVEN
TO GOOD
CAUSES
THROUGH OUR EMPLOYEE
PERSONAL GRANT SCHEME
ANNUAL REPORT & ACCOUNTS 2015
69
SECTION TWO – STRATEGIC REPORT
Our overall CR framework
Considering sustainability, community, workplace and marketplace
Our focus on core themes is central to our CR programme, as well as a
balanced consideration of all aspects of being a responsible business, from
environmental impact to workplace support and customer selling practices.
The following infographic highlights our core priorities in each area, as
well as some headline achievements and some detail on our activity.
COMMUNITY
COMMUNITY
WORKPLACE
WORKPLACE
COMMUNITY
WORKPLACE
£0.6M
TOTAL
GROUP GIVING
OVER
3,500
HOURS OF
VOLUNTEERING
LIVING
WAGE
ACHIEVED
OVER
3,000
TRAINING
COURSES
In the UK, we achieved our second-highest level of employee
volunteering ever at nearly 40% – well above industry benchmarks.
Nearly two-thirds of our employees used their £125 personal
grant and we increased our fundraising matching to 100% for any
cause. Further afield, we gave to several Disasters Emergency
Committee appeals and our businesses worldwide all partnered
with local causes. In total, we have given over £1m to charitable
causes – and much more when considering in-kind support such
SUSTAINABILITY
as subsidising rent for several charities using our office space or
donating old computer monitors to an IT initiative for Africa.
SUSTAINABILITY
Caroline Taplin, Group HR Director
COMMUNITY
COMMUNITY
We’re proud to have achieved Living Wage status for our UK operation
in 2015, marking our commitment to fair pay. We invested in many
aspects of our working environment and the wellbeing of our people,
including office refurbishments, free flu jabs and pedometers. We also
ran over 3,000 training courses and tripled the number of ‘bitesize’
courses, many of which we extended to our broker partners. Our annual
independent employee survey, ‘MySay’, saw a high response rate and
strong levels of engagement, commitment and pride. We’re improving
MARKETPLACE
communication; investing in systems, processes and learning and
development; and staying true to delivering on our commitments.
MARKETPLACE
WORKPLACE
Caroline Taplin, Group HR Director
WORKPLACE
£75,000
GIVEN
TO EMERGENCY
APPEALS
TOP
PRIORITIES
promotion
National Giving
Ecclesiastical
Foundation
TOP
PRIORITIES
80%
OF STAFF
Living Wage
L&D review
Wellbeing
environment
BELIEVE WE’RE A
‘SOCIALLY RESPONSIBLE
EMPLOYER’ –
MYSAY SURVEY
SUSTAINABILITY
SUSTAINABILITY
MARKETPLACE
MARKETPLACE
In 2015, we completed the Government-backed Energy Saving
Opportunity Scheme (ESOS) review in the UK, as well as
independent reviews in other Group businesses. ESOS assessed
30 buildings as well as our business travel and we’ll be making plans
in 2016 based on the findings. We also continued with our ongoing
programme of continuous improvement, reducing energy usage
in our head office in Gloucester despite moving more people in;
reducing our energy usage by half for our London office as a result
of relocation; and recycling over 30 tonnes of paper. We’re also
reviewing our climate change policy in line with our Strategy.
In 2015, we spent a great deal of time internally and talking
to our Board about our aspirations for our ‘customer promise’.
This will drive our future customer strategy and plans, and
includes our conduct, our service, our advice, our products
and our pricing. Alongside this, we completed a full product
and proposition review and expect to be sharing this work
with partners and customers in 2016. We also continued to
improve our supply chain practices – focusing on the corporate
responsibility approaches of our most material suppliers in our
UK claims network.
Ian Campbell, Group Chief Financial Officer
John Schofield, Group Chief Risk Officer
70
ANNUAL REPORT & ACCOUNTS 2015
RITAG E
E
H
G
N
I
V
R
E
S
E
R
P
.
1
2. ENGAGE
COM
M
E
M
U
N
T
N
W
I
T
I
I
T
E
H
S
O
U
R
GREATER
GIVING
PROGRAMME
3. PROMO T I N G E T HICS
R VICE
IN FINAN C I A L S
E
30
BUILDINGS
ASSESSED FOR
ENERGY USAGE
ESOS review
Recycling/waste management
Climate change policy review
TOP
PRIORITIES
31 TONNES
OF PAPER RECYCLED
ON TRACK TO GIVE
£50M+
TO CHARITY
Customer
Promise review
Product & Proposition review
Sustainability in supply chain
TOP
PRIORITIES
PRODUCED
CUSTOMER
PROMISE
100%
155
PRODUCT &
PROPOSITION
REVIEWS
SUSTAINABILITY
50% REDUCTION
IN ENERGY USAGE AS A
RESULT OF LONDON OFFICE MOVE
TOP 5 CLAIMS
SUPPLIERS CR CREDENTIALS
REVIEWED
MARKETPLACE
CORPORATE RESPONSIBILITY REPORT
£0.6M
TOTAL
GROUP GIVING
OVER
3,500
HOURS OF
VOLUNTEERING
LIVING
WAGE
ACHIEVED
OVER
3,000
TRAINING
COURSES
COMMUNITY
WORKPLACE
TOP
PRIORITIES
Living Wage
L&D review
Wellbeing
environment
80%
OF STAFF
BELIEVE WE’RE A
‘SOCIALLY RESPONSIBLE
EMPLOYER’ –
MYSAY SURVEY
2. ENGAGE
COM
M
E
M
U
N
T
£75,000
GIVEN
TO EMERGENCY
APPEALS
TOP
PRIORITIES
promotion
National Giving
Ecclesiastical
Foundation
RITAG E
E
H
G
N
I
V
R
E
S
E
R
P
.
1
ESOS review
N
I
T
I
W
I
T
E
H
S
O
U
R
GREATER
GIVING
PROGRAMME
3. PROMO T I N G E T HICS
R VICE
IN FINAN C I A L S
E
Customer
Promise review
30
BUILDINGS
ASSESSED FOR
ENERGY USAGE
Recycling/waste management
Climate change policy review
Product & Proposition review
Sustainability in supply chain
TOP
PRIORITIES
31 TONNES
OF PAPER RECYCLED
ON TRACK TO GIVE
£50M+
TO CHARITY
TOP
PRIORITIES
PRODUCED
CUSTOMER
PROMISE
100%
155
PRODUCT &
PROPOSITION
REVIEWS
SUSTAINABILITY
50% REDUCTION
IN ENERGY USAGE AS A
RESULT OF LONDON OFFICE MOVE
TOP 5 CLAIMS
SUPPLIERS CR CREDENTIALS
REVIEWED
MARKETPLACE
ANNUAL REPORT & ACCOUNTS 2015
71
SECTION TWO – STRATEGIC REPORT
Workplace – our
people and culture
We are committed to giving opportunities to our employees, embracing
initiatives which develop talent at all levels, supporting diversity, staff
development and providing positive and engaging working environments.
We are focused on:
Enabling our people to fulfil their potential,
equipping them with the right skills to manage
their career supported by our talent and
learning approach
Attracting, retaining and getting the best
from our people with the right approach to
remuneration and performance management
Engagement – building an engaged and
motivated team
l Engagement is the sum of many parts. We
regularly request our people’s views through
our independent ‘MySay’ survey. We look at
all aspects of what it is like to work here, from
management to strategy and wellbeing, and we
act on what we hear
Diversity – respecting and developing diversity
Supporting the health, safety and wellbeing
in everything we do
of our people
These core areas are
underpinned by:
Values – our core values are shaped by our
unique Business Model
l Our charitable purpose, our strong dedication
to serving and supporting our customers
and our commitment to supporting
communities shape the way we do business
l We encourage diversity across all elements of our
business, gathering and publishing key data such
as gender by level, and analysing performance
and pay by gender. We provide diversity training
for all of our people and train recruiting managers
in how to avoid unconscious bias
We are
focused on
TALENT AND LEARNING
REMUNERATION AND PERFORMANCE
HEALTH AND SAFETY AND WELLBEING
Underpinned by
VALUES
ENGAGEMENT
DIVERSITY
72
ANNUAL REPORT & ACCOUNTS 2015
CORPORATE RESPONSIBILITY REPORT
Talent and learning
We have actively developed a learning culture within
our organisation. In 2015 we provided over 3,000
technical and personal development training courses
for our people. We delivered over 500 management
and personal development courses, many in
conjunction with our broker partners. We retained our
Corporate Chartered Insurer status, reflecting our high
professional standards and our promise to provide
expert and trusted advice to our customers. Our
talent strategy focuses on continually developing our
employees and ensuring that those with high potential
have the opportunity to develop and add enhanced
value across the Group.
and, as an added bonus, halving our energy use.
We also run a Wellbeing Week and provide a
range of other benefits and support including a
confidential employee assistance helpline and
bespoke workplace assessments.
Employee diversity
Diversity is important to Ecclesiastical and we
recognise that diversity at all levels in the business
will enhance our business performance. The table
below shows the split of employees by gender
and level, and is based on the number of individual
employees as at 31 December 2015.
Remuneration and performance
We develop our remuneration strategy in line with
market practice and regulatory requirements, in
particular Solvency II, and aim to attract and retain the
very best people. Reward is linked strongly to how well
we serve and support our customers, with customer
conduct measures embedded in our bonus scheme.
Directors1
Senior managers2
Employees
Gender
Numbers
Male
Female
Male
Female
Male
Female
7
4
23
13
476
551
Health and safety and wellbeing
Providing a safe working environment is of paramount
importance to us. We also strive to provide a supportive
and productive working environment for our people. For
example, we moved our London team to a new office in
2015, providing a much improved working environment
1 This includes non-executive and executive directors for
Ecclesiastical Insurance Office plc only.
2 This includes the leadership teams and the direct reports to
the Group Chief Executive.
Overall
engagement
scores:
ENGAGEMENT SCORE
74%OUR OVERALL
83%IN MY OPINION THIS
COMPANY IS COMMITTED TO
CUSTOMER SATISFACTION
77%I AM PROUD TO WORK
FOR ECCLESIASTICAL
INSURANCE GROUP
80%ECCLESIASTICAL
INSURANCE GROUP
IS A SOCIALLY
RESPONSIBLE EMPLOYER
ANNUAL REPORT & ACCOUNTS 2015
73
SECTION TWO – STRATEGIC REPORT
Sustainability –
responding to
climate change
Climate change represents a material risk to the planet, people and society.
It also represents a material business risk for the insurance industry and
Ecclesiastical. As a Group, we are responding to climate change in
several ways:
Our General Insurance business has:
Our Investment Management business, EdenTree has:
continued to support our customers in the
taken a ‘no oil sands or Arctic drilling’
aftermath of major weather events – for example
the Cumbria floods. Our claims support plan
was put into action, responding within our target
timescales. In this instance, we worked with the
Firefighters Charity to get the immediate clean-up
task completed as quickly as possible;
used our geographical mapping systems
expertise and data analytics to map and plan the
risks and impact of major weather events – to
better understand and account for risk and to
continually improve our approach to supporting
our customers;
worked in partnership with our customers and
supply chain to find sustainable solutions to
climate change impact – for example offering
cash settlements where appropriate for customers
to invest in flood-resilient improvements as part of
the restoration process;
managed our own energy and waste – making
reductions and reducing our impact where we can.
stance within the Amity range of ethically
screened Funds;
maintained a below-benchmark weighting to fossil
fuels as the Amity Funds have no mining and very
little oil-related investments. Coal-fired power
generation is also minimal;
produced an in-house carbon footprint analysis
of the Amity UK Fund and commissioned an
independently verified carbon footprint;
joined the IIGCC to lead our collaborative
investor public-policy engagement;
participated in collaborative engagement
on climate change with UNPRI investors
on Arctic drilling and oil sands;
lobbied the Alberta Government on
emissions reduction;
signed the Paris Pledge and the COP21
Investor Statement on Climate Change;
supported ‘Aiming for A’ shareholder resolutions
on climate change portfolio resilience at BP and
Shell where these are held in institutional funds;
produced a client SRI Expert Briefing on Fossil
Fuel Divestment.
74
ANNUAL REPORT & ACCOUNTS 2015
CORPORATE RESPONSIBILITY REPORT
CR stories from
around our Group
Ecclesiastical Canada continued to be a proud
sponsor of the Kids Help Phone (KHP). Staff
across Canada rallied to fundraise $21,400 and
participated in Canada’s largest walk in support of
KHP and the mental health of young Canadians.
Broker teams at Lycetts and SEIB led a charity
cycle ride of over 300 miles between their offices
in South Essex and Newcastle, raising over
£11,000 for seven charities.
Ansvar Australia’s ‘Superheroes’ community
fundraising champions led company fundraising
of over $30,000 and a 50% increase in
volunteering.
Ireland gave over €20,000 to their charity
partner SOAR, including a cycle challenge
from East to West Ireland.
Ansvar Superheroes
Ireland cycle challenge
r
o
t
c
o
r
P
r
a
k
s
O
y
b
s
h
p
a
r
g
o
t
o
h
P
Broker cycle challenge
ANNUAL REPORT & ACCOUNTS 2015
75
SECTION TWO – STRATEGIC REPORT
Our Canadian office was recognised as a ‘Top
Ansvar UK continued their partnerships with
Employer for Young People’. The award is given
to employers that offer the nation’s best
workplaces and programs for young people just
starting their careers.
several charities including the UK Rock Challenge,
a performing arts competition encouraging young
people to take an active role in building safe and
healthy communities.
Our UK IT team gave 500 computer monitors to
the IT Africa project – they used their volunteering
time to box them up for shipping and donated
their personal grants too.
Our UK Group Internal Audit team spent some
time volunteering at the National Trust’s Lodge
Park in Gloucestershire, repairing parts of the
40km of dry stone walls at the estate.
One of our UK volunteers gave their time to help
Over 100 Ecclesiastical staff volunteered for
set up a new accounting system at the Gloucester
Academy of Music, using their professional skills
to make a huge difference to the future running of
the charity.
‘Hamper Scamper’, a Christmas campaign to give
hampers and gifts to disadvantaged children and
families in Gloucestershire.
Canada Top Employer
Flavia at the Academy
IT Africa monitors
r
o
t
c
o
r
P
r
a
k
s
O
y
b
s
h
p
a
r
g
o
t
o
h
P
National Trust volunteering
76
ANNUAL REPORT & ACCOUNTS 2015
STRATEGIC REPORT
Strategic Report
approval
The Strategic Report, outlined on pages 16 to 76,
incorporates the Chief Executive’s Review, the
Business Model and Strategy, the Key Performance
Indicators, reviews of Financial Performance and
Position and Risk Management, and the Corporate
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
16 March 2016
ANNUAL REPORT & ACCOUNTS 2015
77
SECTION THREE – GOVERNANCE
Board of Directors
Directors’ Report
Corporate 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
80
82
86
90
92
96
98
106
130
r
o
t
c
o
r
P
r
a
k
s
O
y
b
s
h
p
a
r
g
o
t
o
h
P
ANNUAL REPORT & ACCOUNTS 2015
79
SECTION THREE – GOVERNANCE
Board of Directors
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.
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.
Mark Hews
BSc (Hons), FIA
Group Chief Executive
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.
S. Jacinta Whyte
MC Inst. M, ACII (c)
John Hylands FFA*
(b) (c) (d)
Anthony Latham ACII*
(a) (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 The Insurance
Board of Lloyd's Banking Group and
of Alliance Trust PLC, Chairman of the
trustees of the BOC Pension Schemes,
a Governor of the Royal Conservatoire of
Scotland and a school governor.
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.
Deputy Group Chief Executive
Appointed Deputy Group Chief Executive and
to the Board in July 2013. She is responsible
for the Group’s General Insurance business
globally. She is the Interim UK Managing
Director 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, a role which she continues
to hold. Having commenced 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.
80
ANNUAL REPORT & ACCOUNTS 2015
BOARD OF DIRECTORS
Key to membership of
Group Board Committees
(a) Group Finance and Investment
(b) Group Nominations
(c) Group Risk
(d) Group Audit
(e) Group Remuneration
* Non-executive directors (NEDs)
The Venerable
Christine Wilson* (e)
Appointed to the Board in June 2012
and has served for 15 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 was also a member of the Church
of England General Synod from 2010
- 2015. 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.
Denise Wilson BA (Hons),
OBE, FCII* (d) (e)
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. 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.
Tim Carroll
BA, MBA, FCII* (a) (c) (d)
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.
Caroline Taylor
BSc (Hons) Banking and
International Finance* (e)
Appointed to the Board in September
2014. Until May 2012, she was an
Executive Director of Goldman Sachs
Asset Management International. She
is currently a Non-Executive Director of
Brewin Dolphin Holdings plc.
Ian Campbell
BSc (Econ) Hons, ACA,
Group Chief Financial Officer
Appointed to the Board in April 2014.
He is a Chartered Accountant with more
than 27 years’ experience in the financial
services sector. His career started at KPMG
where he spent 13 years in their Insurance
and Consulting Practice covering a wide
range of projects for Lloyd's, London,
market and life insurance companies. Since
then he has held executive positions at a
number of insurance companies. Before
joining Ecclesiastical in 2012, he was Group
Chief Financial Officer for Torus Insurance
where his role included acquisitions, finance,
investment and tax management, capital
raising, actuarial and reinsurance.
Edward Creasy, MBA,
MA (Cantab), FCII* (a)
Appointed to the Board on 10 February
2016. He has extensive experience in the
insurance sector, in broking, underwriting
and management. He is currently
Chairman of insurance brokers Lycetts,
one of the Ecclesiastical Insurance Group
of companies, and is the non-executive
Chairman of Charles Taylor plc and a
Director of Pacific Horizon Investment
Trust plc. He is also a Director of WR
Berkley Insurance (Europe) Ltd and WR
Berkley Syndicate Management Ltd.
He is a member of The Lloyd's Market
Supervisory and Regulatory Committee,
and a previous Director of the Lloyd's
Franchise Board. He was also Chairman
and Chief Executive of the Kiln Group.
ANNUAL REPORT & ACCOUNTS 2015
81
SECTION THREE – GOVERNANCE
Directors’
Report
The directors submit their Annual Report and Accounts for Ecclesiastical
Insurance Office plc, together with the consolidated financial statements
of the Company for the year ended 31 December 2015. 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.
Information about the use of financial instruments
by the Group is given in note 23 to the financial
statements.
Principal activities
The Group operates principally as a provider of
general insurance in addition to offering a range
of financial services, with offices in the UK, Ireland,
Canada, and Australia. A list of the Company’s main
subsidiary undertakings are given on page 201
and details of international branches are shown on
page 200.
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 (ATL), the ultimate parent of the Group.
82
ANNUAL REPORT & ACCOUNTS 2015
DIRECTORS' REPORT
Board of directors
The directors of the Company at the date of this
report are stated on page 80 and 81.
Edward Creasy was appointed as a NED of the
Company on 10 February 2016. Will Samuel and
David Christie will resign as directors and Chairman
and Deputy Chairman at the conclusion of the Board
meeting on 16 March 2016. Edward Creasy will
succeed Will Samuel as Chairman.
In line with the Financial Reporting Council’s (FRC)
2012 UK Corporate Governance Code (the Code)
the Board has voluntarily chosen to comply with the
recommended annual re-election of directors. With
the exception of Will Samuel and David Christie,
all directors that have served since the last annual
general meeting (AGM) will be proposed for
Directors
David Christie
Mark Hews
Will Samuel
re-election at the forthcoming AGM and Edward
Creasy will be recommended for election at the
forthcoming AGM following recommendation from
the Group Nominations Committee.
The Company 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 2015.
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 2015:
Nature of interest
Director
Connected person
Director
Number of Non-Cumulative
Irredeemable Preference Shares held
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 existed during or at the end of the financial year in which a director was or is
materially interested.
Dividends
Employees
Dividends paid on the Preference shares were
£9,181,000 (2014: £9,181,000).
The directors do not recommend a final dividend
on the Ordinary shares (2014: £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 £20.6 million (2014:
£25.2 million).
During the last 10 years, a total of £130.0 million
(2014: £115.2 million) has been provided by Group
companies for church and charitable purposes.
It is the Company’s policy not to make
political donations.
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
of employees for alternative work who become
disabled, to promote their career development within
the organisation.
Principal risks and uncertainties
The directors have carried out a robust assessment
of the principal risks facing the Group including
those that threaten its Business Model, future
performance, solvency and liquidity. The principal risks
and uncertainties, together with the financial risk
management objectives and policies of the Group,
are included in the Risk Management section of the
Strategic Report and can be found starting on page 48.
ANNUAL REPORT & ACCOUNTS 2015
83
SECTION THREE – GOVERNANCE
Going concern
Directors’ responsibilities
The Financial Performance section on page 44 and
Risk Management section of the Strategic Report
starting on page 48 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 £833.4m, 96% of which
are liquid (2014: financial investments of £892.3m,
98% liquid); cash and cash equivalents of £118.4m
and no borrowings (2014: cash and cash equivalents
of £107.5m and no borrowings); and a regulatory
enhanced capital cover of 3.0 (2014: 2.9). Liquid
financial investments consist of listed equities
and OEICs, government bonds and listed debt. 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.
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 Group’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 Group
Audit Committee Report starting on page 98.
In accordance with Section 489 of the Companies
Act 2006, a resolution proposing that Deloitte LLP be
reappointed as auditor of the Group will be put to the
forthcoming AGM.
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.
84
ANNUAL REPORT & ACCOUNTS 2015
DIRECTORS' REPORT
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 (which is incorporated into
this Directors' 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.
The Annual Report and financial statements, taken
as a whole, are fair, balanced and understandable,
and provide the information necessary for
shareholders to assess the Company’s position
and performance, Business Model and Strategy.
By order of the Board
Will Samuel
Chairman
Mark Hews
Group Chief Executive
16 March 2016
16 March 2016
ANNUAL REPORT & ACCOUNTS 2015
85
SECTION THREE – GOVERNANCE
Corporate
Governance
The Board of directors is 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 throughout the year ended 31 December 2015,
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 or other legislation relating solely to quoted companies. 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
Senior Independent Director
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. Will Samuel will resign as a
director at the conclusion of the Board meeting held
on 16 March 2016. Edward Creasy will succeed Will
Samuel as Chairman.
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. David Christie will resign as a director
at the conclusion of the Board meeting held on
16 March 2016. John Hylands will succeed David
Christie as Deputy Chairman and SID.
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ANNUAL REPORT & ACCOUNTS 2015
CORPORATE GOVERNANCE
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 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.
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.
A Directors’ and Officers’ Insurance Policy is in place
for all Group directors.
Board Committees
The Group has five Board Committees which are
shown below:
Ecclesiastical Board
of Directors
Group Finance
& Investment
Committee
Group
Nominations
Committee
Group
Risk
Committee
Group
Audit
Committee
Group
Remuneration
Committee
Details of all the Board Committees are contained within their respective reports that follow: the Group Finance
and Investment Committee Report on page 90; the Group Nominations Committee Report on page 92; the
Group Risk Committee Report on page 96; the Group Audit Committee Report on page 98; and the Group
Remuneration Report on page 106.
The Terms of Reference (ToR) for all five Board Committees can be obtained from either the Company’s
registered office address or the website at:
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 2015, six scheduled
Board meetings, and one off-site strategy day was
held. In addition, four scheduled training sessions
took place.
Will Samuel met with the non-executive directors
(NEDs) without the executive directors present on a
number of occasions throughout the year.
All directors receive papers and minutes for all
meetings, unless restricted due a conflict of interest.
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.
It is the Board’s policy to record any unresolved
concerns about the running of the Company or any
proposed action in the Board minutes. During 2015,
no director had any such concerns.
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SECTION THREE – GOVERNANCE
Below is a record of the directors’ attendance for the Board meetings (including the off-site strategy day)
during 2015:
Board attendance table
Executive directors
Non-executive
directors
Mark Hews
S. Jacinta Whyte
Ian Campbell
Will Samuel (Chairman)
David Christie (SID)
Tim Carroll
John Hylands
Anthony Latham
Caroline Taylor
Christine Wilson
Denise Wilson
Director since
June 2009
July 2013
April 2014
January 2006
January 2001
March 2013
September 2007
March 2008
September 2014
June 2012
December 2010
Meetings eligible
to attend
Meetings
attended
7
7
7
7
7
7
7
7
7
7
7
7
7
7
7
6
7
7
6
7
7
6
During 2015, 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 by the Group Audit Committee
Dividends, charitable donations and Gift Aid
Setting and reviewing budgets
Committee reports and recommendations
Health and safety
Performance, strategic and business plans for Group businesses
Group reinsurance arrangements
General insurance claims reserves
Treating Customers Fairly and complaints handling
Determining NEDs’ fees for recommendation at a general meeting
Stakeholder relationships
Review of General Insurance business including niches
Review of other strategic businesses
Employee engagement
Cyber security
Projects
Review of Group structure
Proposition review
Review of IT strategy
Change programme and Group Vision
Rebranding of the Investment division
Review of corporate responsibility (CR) strategy
Governance and
regulatory matters
Board composition
Taxation matters
Implementation of actions arising from the evaluation of the Board
Capital requirements, solvency position and ORSA
Relationship with the regulator
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ANNUAL REPORT & ACCOUNTS 2015
Internal controls
Relationship with shareholder
CORPORATE GOVERNANCE
Ecclesiastical Insurance Group owns the entire
issued Ordinary share capital of Ecclesiastical
Insurance Office. Ecclesiastical Insurance Group in
turn is wholly owned by ATL with whom the Board has
an open and constructive relationship. The Chairman
ensures that the views of ATL are communicated to
the Board as a whole following regular meetings with
Sir Philip Mawer (Chairman of ATL). In addition, David
Christie and Denise Wilson have been appointed
as 'Common Directors' of both companies which
enables ATL to effectively communicate its views
and expectations to the Board. In turn, the common
directors are able to support the directors of ATL to
understand the performance and strategic issues
faced by the Company.
A conflict of interest policy which sets out how actual
and perceived conflicts of interests between the two
companies are managed is in place.
By order of the Board
Mrs. R. J. Hall
Group Company Secretary
16 March 2016
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 Group 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
Report starting on page 48.
The Group 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 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 are
embedded into the culture of the Group and is
accessible to all staff via the intranet.
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.
ANNUAL REPORT & ACCOUNTS 2015
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SECTION THREE – GOVERNANCE
Group Finance
and Investment
Committee Report
Chairman’s introduction
I am pleased to present the
Group Finance and Investment
Committee Report describing the
work we have undertaken during
the past year. 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 2015.
Tim Carroll
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
members
Tim Carroll (Chairman)
David Christie
Will Samuel
Anthony Latham
Member since
August 2013
September 2010
March 2006
February 2009
Meetings eligible
to attend
Meetings
attended
4
4
4
4
4
4
4
4
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ANNUAL REPORT & ACCOUNTS 2015
CORPORATE GOVERNANCE
The Committee reviews its ToR annually and during
the year held four scheduled meetings. The remit of
the Committee, in line with its ToR and designated
financial limits, is to:
consider and review Group treasury management
and Group tax strategies;
consider and review Group capital management,
taking into consideration the Individual Capital
Assessment (ICA) and risk appetite;
consider and review major capital
projects and contracts;
consider and review major 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;
During 2015, the Committee’s main activities were
in line with its remit and included:
review of the annual investment strategy;
review of quarterly investment reports
and investment performance against
benchmark levels;
consideration of a potential acquisition
of a business;
review of tax strategy;
review of bond default risk;
review of the Group’s financial
risk appetite statement;
review of the acquisition strategy;
oversight of a pension scheme
triennial valuation; and
consideration of the potential acquisition
of shares in a business.
By order of the Board
Tim Carroll
Chairman of the Group Finance
Investment Committee
provide broad Group strategy and set investment
16 March 2016
parameters for Group portfolio investment
matters including derivative instruments within the
context of overall risk to the business and monitor
adherence to parameters;
consider monthly investment reports and review
investment performance against benchmark
levels; and
oversee and review the performance of
delegated funds.
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SECTION THREE – GOVERNANCE
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 2015. 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
members
Will Samuel (Chairman)
David Christie
John Hylands
Member since
June 2008
January 2001
May 2013
Meetings eligible
to attend
Meetings
attended
5
5
5
5
5
5
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ANNUAL REPORT & ACCOUNTS 2015
CORPORATE GOVERNANCE
The Committee held three scheduled meetings during
the year and two ad-hoc meetings. The remit of the
Committee, in line with its ToR, is to:
Board composition
and independence
review the structure, size and composition of the
Board and its Committees;
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;
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
2015 included:
review of the Board and Committee’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;
commencement of a selection process for a
new NED;
selection and recommendation of the appointment
of Edward Creasy as a new NED and Chairman
elect to the Board;
consideration of a new Deputy Chairman and SID
to succeed David Christie during 2016.
monitoring the implementation of the actions
arising from the external Board evaluation at the
end of 2014;
review of the directors’ annual appraisal and
development needs;
review of the CPD programme for directors; and
The Board comprises a non-executive Chairman,
eight other NEDs and three executive directors.
The Group 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.
Appointment of Edward Creasy,
non-executive director and
Chairman elect
In autumn 2014, it was agreed that the key priority
for the Committee and the Board would be the
appointment of a new Chairman. The incumbent
Chairman, Will Samuel, did not take part in the
selection process but was consulted given his
extensive knowledge of the role.
A selection panel led by David Christie and
comprising John Hylands, The Venerable
Christine Wilson and Tim Carroll was established
in February 2015.
An external search consultant, Egon Zehnder
International (who had no other connection to the
Group and are signatories to the Voluntary Code
of Conduct on gender diversity and best practice)
were engaged to support the selection process.
In addition, a web-based search agent, Nurole,
assisted the selection in the recruitment process.
Nurole had assisted the Group’s ultimate parent,
ATL, in the recruitment of a Trustee in 2015.
A candidate profile was developed, which is
summarised as follows:
experience of leading a Board and displaying
behaviours consistent with the culture and values
of the Group;
review of the Board training programme.
commercial business leader with significant
experience in the management and governance
of a financial services company;
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SECTION THREE – GOVERNANCE
independent-minded and robust;
able to voice well-grounded opinions and facilitate
rigorous challenge and debate;
a clear structured thinker with a strategic
outlook; and
a commitment to the highest standards of integrity
and a reputation for sound judgement.
The initial candidate list was reduced to a short list
for consideration by the selection panel. The short
list was further reduced by the selection panel
based on the skills and knowledge of the candidate
and identified Board skills gaps. After a series of
interviews and further due diligence, Edward Creasy
emerged as the preferred candidate. This was based
on consideration of personal attributes, external
commitments and needs of the Board. Given the
importance of the role to the Group, all members
of the Board met with Edward Creasy and provided
feedback. In addition, discussions were held with ATL.
At the end of the process the full Board approved
the appointment of Edward Creasy, which was
announced in December 2015. Edward has over
35 years’ experience in the insurance industry as
both a broker and underwriter. He brings robust
leadership, integrity and expertise consistent with the
Group’s culture and values. In addition, his extensive
insurance market background will assist the Board in
giving consideration to its business strategies and in
particular, meeting one of the Group’s objectives of
becoming the Most Trusted Specialist Insurer.
Edward Creasy was independent on appointment to
the Group.
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 four women members in a
current membership of 12. As at 31 December 2015,
the representation of women on the Board stood at
36%, with four women members in a membership of
11. The Board will take the opportunity, as and when
appropriate, to improve further its gender balance.
The Board also recognises the importance of
improving gender balance at senior levels within the
organisation and is actively reviewing diversity across
the Group. Further information is provided in the
Corporate Responsibility Report.
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 led 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, the handling of
price-sensitive information, directors’ duties, share
dealing, data protection and Board procedures; the
Code; Board minutes for the current and past year;
the Governance Framework (including Expectations
of SBUs and Board Charter) 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 Group’s
trading 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 ATL, 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 Group’s commercial and regulatory
environment and attendance on relevant external
CPD opportunities, funded by the Company. In 2015,
four internal training sessions took place and covered
Solvency II, Conduct Risk and Anti-Bribery.
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ANNUAL REPORT & ACCOUNTS 2015
CORPORATE GOVERNANCE
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 by the Committee.
Performance evaluations
Given the anticipated changes to the Board, it was
agreed that a formal Board evaluation would be
deferred. During the year, the Board supported by
the Group Nominations Committee, monitored the
implementation of the agreed recommendations
arising from the 2014 Board evaluation focusing
on the Group’s long-term strategy, developing
a structured approach to succession plans, and
enhancing the Board’s understanding of competitors
and markets. The Board evaluation in 2014 was
conducted by Lintstock Limited; who are not
connected to the Group. The Board was satisfied that
the Board and its Committees were effective and that
progress had been made against all objectives.
It is the Board’s policy for its evaluations to be
facilitated every two years with the next external
evaluation expected to be undertaken at the end
of 2016.
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 who have served their initial term. 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 they are recommended for annual re-election.
The report and accounts accompany the AGM notice.
The biographical information for the Board members
seeking election and re-election is contained within
the Report and Accounts.
The Board believes that all the NEDs were
independent throughout 2015. Independence is
reviewed as part of each director’s annual appraisal,
considered by the Committee, and agreed by the
Board annually. In 2015, two NEDs, Will Samuel and
David Christie have served for more than nine years
on the Board, and John Hylands and Anthony Latham
have served for more than six years. In addition,
two directors, David Christie and Denise Wilson are
directors of ATL. The Committee has considered the
circumstances and relationships of
all NEDs and, following rigorous review, the
Committee confirmed to the Board that all NEDs
remained independent in character and judgement.
No individual participated in the discussions relating
to their own independence.
The Chairman is satisfied that the performance of
each NED is effective and sufficient time has been
spent on the Group’s affairs.
Will Samuel and David Christie will resign as directors
on 16 March 2016. All other directors are proposed
for re-election at the forthcoming AGM.
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 Group.
Non-executive directors’
commitments
The Committee evaluates the time NEDs spend on
the Company’s business annually and is satisfied
that, in 2015, 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 the Group
Nominations Committee
16 March 2016
ANNUAL REPORT & ACCOUNTS 2015
95
SECTION THREE – GOVERNANCE
Group Risk
Committee Report
Chairman’s introduction
I am pleased to present the Group
Risk Committee's Report describing
the work done by the Committee
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 48.
The Group Risk Committee was created in June
2010 and comprises the directors shown in the table
below who were appointed by the Board. In addition,
Will Samuel (Chairman of the Board) is normally in
attendance at the meetings.
The Group Chief Risk Officer reports to the Committee
and has direct access to the Chairman of the
Committee and the NEDs. The Committee ensures
that they meet with the Group Chief Risk Officer at
least once a year without the executives present.
Anthony Latham
Chairman of the
Group Risk Committee
Membership
The Group Risk Committee members and their attendance at meetings during the year are shown below:
Member since
Meetings eligible
to attend
Meetings
attended
Committee
members
Anthony Latham (Chairman)
June 2010
S. Jacinta Whyte
Tim Carroll
John Hylands
February 2014
August 2013
September 2010
5
5
5
5
5
5
4
5
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ANNUAL REPORT & ACCOUNTS 2015
CORPORATE GOVERNANCE
The remit of the Committee is to:
capital requirements across the Group including
recommend to the Board the Group’s overall risk
appetite tolerance and strategy in the context of
the current and prospective macroeconomic and
financial environment and monitor compliance
with it;
ensure a risk management culture is embedded
across the Group;
recommend to the Board the Group’s strategy,
policy and processes for risk management,
and monitor compliance;
monitor the operational 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
reviewing the Group’s Internal
Capital Assessment;
amendments to and implementation of the Control
and Risk Self-Assessment process at Group level;
the implementation of Solvency II and the
implications for the Group, including
Board training;
the implications of the Senior Insurance
Manager's Regime;
the appropriateness of the Standard Formula;
continuing development and integration of
the Group’s Internal Model, and the approach
to validation;
review of the Governance and Overarching
Policy Framework;
reports from Group Compliance;
been identified and addressed appropriately;
the implications of FloodRe; and
the Group’s relationship with its regulators
including reviewing statutory returns and
the output from PRA and FCA visits.
By order of the Board
Anthony Latham
Chairman of the
Group Risk Committee
16 March 2016
consider the material findings of Compliance
and Internal Audit reports carried out for the
Group Audit Committee and their effect on the
Group’s risks;
recommend to the Board the Own Risk and
Solvency Assessment (ORSA) and Internal
Model changes;
approve the appointment or removal of the
Group Chief Risk Officer;
ensure 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 2015, the Committee held five meetings.
In addition to the routine matters highlighted above,
it also considered specifically:
the Group’s risk profile, ensuring that this reflected
the Group’s key risks during the year;
the annual review and recommendation of
the Group’s risk appetite (including catastrophe
risk appetite);
the ORSA at Group level;
a review of the risk impact of remuneration
proposals and the Group Chief Risk Officer’s
reports to the Group Remuneration Committee;
discussion and approval of reverse stress test
results and recommendations arising there from;
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SECTION THREE – GOVERNANCE
Group Audit
Committee Report
Chairman’s overview
A key aspect of the Group Audit Committee’s work this year was to
oversee a formal and comprehensive tender process for the external
auditor appointment. After careful consideration of the strength of each
proposal, the Board accepted the recommendation from the Group
Audit Committee (the Committee) to retain the services of our external
auditor, Deloitte LLP (Deloitte). The audit tender process is described in
more detail in the following pages, together with the Committee’s other
principal activities during the year.
A particular focus of the Committee last year was
the appropriateness of the Group’s general insurance
liability claims reserves and, in particular, the reserves
held in respect of physical and sexual abuse (PSA)
claims. We have continued to focus on both PSA and
other liability reserves during 2015 and undertook a
detailed review of changes to the approach to setting
reserves in respect of asbestos-related diseases in
the second half of the year.
From an accounting and reporting perspective,
the significant issues considered in detail by the
Committee are set out on pages 100 and 101.
The Committee seeks to ensure that the identification
and management of significant risks is embedded
across all areas of the business, with continued and
effective oversight from the Group Management
Board (GMB). We are satisfied that the business
has maintained a robust risk management and
internal controls culture, supported by strong overall
governance processes.
The Group’s principal risks and uncertainties are set
out on pages 51 to 58. We have reviewed these in
detail and are comfortable that the business has
addressed them appropriately within its ongoing
operating model and identification of strategic priorities.
John Hylands
Chairman of the
Group Audit Committee
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ANNUAL REPORT & ACCOUNTS 2015
CORPORATE GOVERNANCE
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 UK Corporate Governance Code.
The Committee members and their attendance at meetings during the year are shown below:
Committee
members
John Hylands (Chairman)
Tim Carroll
Anthony Latham
Denise Wilson
Member since
March 2008
April 2013
December 2008
August 2011
Meetings eligible
to attend
Meetings
attended
6
6
6
6
6
5
6
5
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 Chief Financial Officer
and the Director of Group Internal Audit (GIA) attend
meetings by invitation. Other relevant people from
the business are invited to attend certain meetings
in order to provide a deeper level of insight into key
issues and developments. Deloitte is invited to attend
meetings, and during 2015 they attended five of the
six meetings held.
The Committee meets with the Director of GIA on
an annual basis, in the absence of management to
discuss the GIA function and any issues arising from
its activity. In addition, the Committee meets with
Deloitte on an annual basis, without management
present, to discuss the external audit and any issues
arising from it.
The Committee’s key responsibilities include:
monitoring the integrity of the
financial statements;
challenging the Group’s financial reporting,
and reporting upon anything that it is not
satisfied with;
reviewing the Group’s whistleblowing
arrangements;
reviewing the Group’s audit arrangements,
both externally and internally; and
reviewing the effectiveness of the Group’s
systems of internal financial controls and the
management of financial risks.
A summary of the main activities of the Committee
during the year are shown on the next few pages.
Appropriateness of the Group’s
external 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
position and performance, Business Model and
Strategy; and
any correspondence from regulators in relation
to financial reporting.
The Committee gave consideration to the
presentation of the financial statements, and in
particular the coherence and consistency between
the risks, critical accounting estimates and accounting
policies disclosed within the Annual Report.
To aid their review, the Committee considered reports
from the GMB, the Group Chief Financial Officer and
reports from Deloitte on the outcomes of their half-
year review and annual audit.
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The significant areas of focus considered by the Committee in relation to the 2015 accounts, and how these
were addressed, are outlined below. These were discussed and agreed with management during the course
of the year, and we also discussed them with Deloitte at both the half year and year end. The nature of these
issues and how they are mitigated is explained in more detail in the Risk Management Report on page 51,
and also note 2 to the financial statements on page 148.
Issue
Assessment
General insurance
claims reserves
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 Reserving Actuary and the
Actuarial Function Director on the adequacy of the Group’s general insurance reserves at both
the half year and the full year. We also considered reports from Deloitte following their audit.
There was evidence of an improvement in the performance of general liability claims in the UK
during the year and the Committee considered in detail the resulting favourable development
of prior year reserves recommended by management, taking into account the Group Reserving
Actuary’s assessment of the sufficiency of these reserves. The Committee agreed that the
proposed releases were reasonable and that the reserves remained appropriately prudent.
At the half year, management also reviewed the historic exposure profile and claims resulting
from asbestos-related diseases and increased the reserves accordingly. The Committee held
had a detailed session with the Group’s Reserving Actuary to consider changes to the basis
of modelling these reserves. After consideration, the Committee agreed it was appropriate to
strengthen reserves for this long-tail risk in line with the management recommendation.
There was a particular focus on PSA reserves last year, and the Committee reviewed actual
claims experience against expectations throughout the year. It was noted that experience was
better than expected over 2015, but after discussions with management we agreed that it
was appropriate to maintain reserves at their current level given the likely volatility in claims
patterns from year to year.
Following all of our reviews and discussions, the Committee was satisfied that the reserving
process and outcomes were robust and well managed and that the overall reserves set
were reasonable.
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 2015,
the Committee considered proposed changes to mortality assumptions and the assumptions
for the pattern of reductions in the Group’s expenses as the business runs off. Following their
review and consideration of Deloitte’s report, the Committee was satisfied that the changes
proposed were appropriate and overall the judgements made in respect of the reserves
were reasonable.
Life insurance
reserves
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Issue
Assessment
Carrying value
of goodwill
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. During 2015, the Committee considered
management’s proposal to change the discount rate used. The Committee was satisfied that
the proposed rate better reflected current market assessments of the time value of money
and the asset-specific risk.
After review, the Committee agreed with management’s conclusions that no material
impairment was required for any of the businesses under review.
Valuation of defined
benefit pension
scheme liability
Although the Group’s main defined benefit pension scheme remains 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. The Committee noted the recent clarification
of International Financial Reporting Interpretations Committee (IFRIC) 14 regarding the
continuance of a minimum funding requirement for contributions relating to future service.
After review of the assumptions used, the external advice provided, benchmark data and
careful consideration of the requirements of IAS 19(R) and IFRIC 14, the Committee
concluded that reasonable assumptions had been used and recognition of part of the surplus
as an asset of the Group was appropriate.
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.
The Committee considered the tax provisions proposed by management and the material
judgements management had applied. We reviewed the calculation for the release of
deferred tax provision following the recently enacted changes in the future corporation tax
rate. Following our review, the Committee concluded that tax provisions were appropriate.
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Fair, balanced and
understandable
At the request of the Board, the Committee as
considered whether, in its opinion, the 2015 Annual
Report and Financial Statements are fair, balanced
and understandable and provide the information
necessary for shareholders to assess the Group’s
position and performance, Business Model and
Strategy. An early draft of the Annual Report was
provided to the Committee for initial review and
feedback at its February meeting. Feedback was
provided by the Committee highlighting any areas
where they believed further clarity was required in
the final version. The final draft was provided one
week prior to the meeting at which it would be
requested to provide its final opinion, and further
minor feedback from the Committee was incorporated
into the final version.
The Committee was provided with comprehensive
verification of all the information and facts in the
Annual Report, and any statements of belief were
highlighted and considered separately by the
Committee. When forming its opinion, the Committee
reflected on information it had received and its
discussions throughout the year as well as their own
knowledge of the business and its performance.
The Committee also asked an employee of the Group,
who does not work in a financial or actuarial area
and is not involved in the production of the Annual
Report or financial results, to review a near-final draft
and give their opinion on whether they consider it
to be fair, balanced and understandable. Guidance
on what is meant by these statements and aspects
the employee may wish to consider when forming
an opinion was provided. The employee produced
a written report for the Committee which gave their
overall opinion on the Annual Report and also set
out their view of the strengths and any areas for
development for the future.
Following its review, the Committee was of the
opinion that the 2015 Annual Report is representative
of the year and presents a fair, balanced and
understandable overview, providing the necessary
information for shareholders to assess the Group’s
performance, Business Model and Strategy.
There has been no correspondence from regulators
in relation to financial reporting during the year.
Overseeing the relationship
with and performance of the
external auditor
External audit tender
Last year, we advised that Deloitte had been the
external auditor of the Group since 1998 and that
there had been no tender held for audit services since
their appointment. We advised that, after considering
the longer-term implications of the recently adopted
EU legislation requiring mandatory audit firm
rotation, which will apply from June 2016 and The
Statutory Audit Services for Large Companies Market
Investigation (Mandatory Use of Competitive Tender
Processes and Audit Committee Responsibilities)
Order 2014, the Committee had determined that an
external audit tender would commence in the spring
of 2015 for the 2015 year-end audit.
The Committee took the decision to invite three
firms to tender for the audit. It was the Committee’s
intention to complete this process in time to make
a recommendation to the Board at its August 2015
meeting with a view to making any new appointment
on 1 September 2015. The Committee felt this gave
any new audit firm sufficient time to prepare for the
year-end audit.
Governance
The proposal to tender for the audit work of the
Group was overseen by the Committee Chairman.
The tender process involved several stages, which are
summarised below:
Consideration of firms to invite. After
consideration of the skills and resources required
to undertake the external audit of the Group and
any potential conflicts of interest, the Committee
decided to invite three firms to tender, one of
which was the incumbent Deloitte.
Identification of key criteria and development
of documentation. The Committee considered
and agreed the key criteria and the format of the
invitation to tender. These were then shared with
the invited firms.
Interview phase. Each firm was invited to an
extensive series of interviews with members of the
Committee, members of the Board and a number
of the Group’s senior management team. These
interviews formed part of a formal assessment
process where each firm was scored against the
key criteria, including matters such as the strength
and experience of senior team members and
their firm’s ability to serve effectively the Group’s
diverse operations.
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Submission of a written proposal document.
Each firm was asked to provide detailed
information in writing on certain matters in support
of their proposal.
Tender presentations. All three of the firms were
invited to present their audit proposition to the full
Committee. The Group Chief Executive and Group
Chief Financial Officer were also in attendance for
these presentations. Following the presentations,
the Committee considered the strength of
each proposal, discussed the strengths and
weaknesses of each firm against the key criteria
and considered feedback and scoring provided
by the Board members and senior managers who
had met the firms during the tender process.
The Committee in turn provided a recommendation
to the Board for consideration and approval.
Outcome. The Committee unanimously
agreed to recommend to the Board that the
services of Deloitte be retained, and the Board
accepted this recommendation. Accordingly,
subject to shareholders’ approval, Deloitte will
be reappointed as auditor. The Committee also
recommended that the Group move the external
audit of all its subsidiaries to Deloitte and no
longer use any non-Deloitte component audit
firms, which the Board also agreed.
We believe that the audit tender was a valuable
exercise, and the Group expects to achieve a number
of improvements to its audit service as a result.
Audit planning
The Committee oversees the plans for the external
audit to ensure it is comprehensive, risk based and
cost effective. Deloitte drafted an initial audit plan
for the 2015 audit in conjunction with executive
management and presented it for review by the
Committee at its November meeting. 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.
The Committee discussed the audit plan for the 2015
audit with Deloitte. The proposed change in approach
to setting materiality was considered reasonable, and
the Committee agreed that the right key audit risks
had been identified.
External audit process
effectiveness
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 shortly before the
start of the external audit tender process and was
based on 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 points were identified for improving
the overall external audit process which was taken
into account in the external audit tender process. The
Committee is satisfied that the changes made and
agreed for the future as a result of that process will
address these points.
Independence of the
external auditor
Both the Board and the external auditor have
safeguards in place to protect the independence and
objectivity of the external auditor.
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;
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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 Group 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 gives best value for money. The policy
is shared with the external auditor of the Group.
Adherence to the policy and non-audit fees incurred
is regularly reviewed by the Committee.
For the year ended 31 December 2015, the Group
was charged £411,000 (exc VAT) by Deloitte and
its associates for audit services. The fees for other
assurance services required by legislation and/or
regulation amounted to £92,000, making total fees
from Deloitte of £503,000. 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 166.
Oversight of the Group’s
systems of internal control
including the internal audit
function
Assessment of internal controls
The Group’s approach to internal control and risk
management is set out in the Corporate Governance
Report on page 86.
In reviewing the effectiveness of the system of
internal control and risk management during 2015
the Committee has:
reviewed the findings and agreed management
actions arising from both external and internal
audit reports issued during the year;
monitored management’s responsiveness to the
findings and recommendations of the Director
of GIA;
met with the Director of GIA once during the year
without management being present to discuss any
issues arising from internal audits carried out; and
considered a report prepared by the Director of
GIA giving his assessment of the strength of the
Group’s internal controls based on internal audits
performed during the year.
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 Group’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 Group 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.
Group Internal Audit (GIA)
GIA is monitored 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 responsibility for
GIA and the Director of GIA is accountable to the
Committee Chairman, reports administratively to
the Group Chief Executive and has access to the
Chairman of the Board.
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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
16 March 2016
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 in advance by the Committee and is regularly
reviewed throughout the year to ensure that it
continues to reflect areas of higher priority. Where
necessary, changes to the agreed plan are identified
as a consequence of the Group’s changing risk
profile. All proposed changes to the agreed internal
audit plan are reviewed, challenged and approved by
the Group Audit Committee during the year.
Throughout the year, GIA submitted quarterly reports
to the Committee summarising findings from audit
activity undertaken and the responses and action
plans agreed with management. During the year,
the Committee monitored progress of the most
significant management action plans to ensure that
these were completed in a timely manner and to a
satisfactory standard.
Whistleblowing
The Committee is responsible for reviewing the
Group’s whistleblowing procedures and receives
regular updates. No concerns were raised through
these channels in 2015.
During the year, the Group’s approach to
whistleblowing was refreshed and set out in a
new Standard and Guidance Document (which is
available internally on the Group’s intranet). The
Chairman of the Group Audit Committee was
designated the Group’s 'Whistleblowing Champion'
having responsibility to ensure the independence,
autonomy and effectiveness of the Group's policies
and procedures on whistleblowing including the
procedures for protection of staff that raise concerns
from detrimental treatment. On behalf of the
Whistleblowing Champion, the Director of GIA is
responsible for ensuring the effectiveness of
internal whistleblowing arrangements, including
arrangements for protecting whistleblowers against
detrimental treatment.
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Group
Remuneration
Report
Group Remuneration Committee
Chairman’s statement
As Chair of the Group Remuneration Committee, I am pleased to introduce
the Group Remuneration Report for the year ending 31 December 2015
and to highlight some of the key aspects of the Committee’s work during
the financial year.
About this report
As has been the case in previous years, while our
Group structure does not require us to comply with
the regulations governing the disclosure of executive
remuneration to which quoted companies are subject,
we have chosen to largely adopt these reporting
requirements in order to provide greater transparency
and follow best practice. This introductory statement
summarises: the business context for the executive
remuneration in 2015; major decisions taken by the
Committee during the year; and, changes made to
directors’ remuneration. The Directors’ Remuneration
Policy on pages 111 to 122 sets out the Group’s
policy in relation to the structure and elements of pay
for our directors, and the Annual Report on Remuneration
on pages 122 to129 describes how the Group’s
remuneration policies have been implemented
in 2015, providing retrospective disclosures on
directors’ remuneration for 2015 and setting out
how the policy will be implemented in 2016.
Review of performance and
incentive outcomes
As described in the Strategic Report starting on
page 14, the Group has delivered another set of
strong and consistent results in 2015, continuing the
transformation in its performance over the last two
years. Our profit before tax (PBT) grew by 11% to
Denise Wilson OBE
Chair of the Group
Remuneration Committee
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CORPORATE GOVERNANCE
£54m (2014: £48m), with underwriting profits and
investment returns performing well. During 2015, the
Group once again delivered a strong underwriting
profit, with the Combined Operating Ratio (COR) for
the Group improving to 92.0% (2014: 95.2%).
Given the Group’s strong performance over the
year, the Committee is satisfied that (i) the annual
bonus awards of 88% (Group Chief Executive), 81%
(Deputy Group Chief Executive) and 78% (Group
Chief Financial Officer) of the maximum potential
value and (ii) the extent to which the LTIP granted in
2013 vested, were appropriate.
The Committee reviews risk management across the
Group as part of its deliberations on remuneration,
to ensure that the financial results achieved over
the one- and three-year periods applicable to the
directors’ annual bonus and long-term incentive plan
(LTIP) outcomes have been achieved within the risk
appetite limits set for the Group. The Committee is
advised by the Group Chief Risk Officer (CRO) in
relation to the risk impact of incentive scheme design,
targets, and whether the outturns have been achieved
within the Group’s risk appetite. I am pleased to report
that following this review for the period ending 31
December 2015, no adjustments were considered
necessary to the 2015 Group annual bonus or the
2013-2015 LTIP.
Key Committee activities during
the year
Following the strategic review of the Group’s
Remuneration Policy in 2014, revised Group annual
bonus and Group LTIP arrangements came into force
in 2015. During the year, the Committee worked with
the CRO to further refine the measures underpinning
the Customer and Conduct performance condition
within the Group annual bonus.
The remuneration package of the Deputy Group
Chief Executive was reviewed during 2015. During
the year, S. Jacinta Whyte continued to exercise
her responsibilities as General Manager and Chief
Agent for Canada and as Managing Director of UK
General Insurance, alongside her responsibilities
as Deputy Group Chief Executive. In recognition of
the continuing requirement for S. Jacinta Whyte to
lead the UK and General Insurance transformation
programme and to fulfil the role of Managing Director
of UK General Insurance, the Deputy Group Chief
Executive’s incentive plan was extended in duration
from two to three years with a pro-rata increase in
the potential value.
During the year, the Committee continued to oversee
the development of remuneration policy and incentive
scheme design across the wider Group. In particular,
revised annual bonus and LTIP arrangements were
reviewed and approved for EdenTree Investment
Management Limited (EdenTree), South Essex
Insurance Brokers Limited (SEIB) and Ansvar
Australia, further aligning these with the Group
Remuneration Policy.
The regulatory and corporate governance
environment for executive remuneration continues
to develop apace. During the year the Committee
considered, amongst other developments, the
implications of the European Banking Authority
(EBA) consultation on sound remuneration principles
for EdenTree and the implications of Solvency II on
the Group’s remuneration governance, structures and
risk adjustment approaches. In line with Solvency II
remuneration requirements, the deferral period for the
Group annual bonus will be increased in 2016 from
a period of two years to three years. The Committee
additionally benefited from an in-depth update
provided by PricewaterhouseCoopers LLP (PwC) on
developments in remuneration arrangements and
regulation in asset management firms.
The Committee undertook a competitive tender
process during 2015 to appoint an external adviser
to the Committee. As a result of the tender process,
New Bridge Street were appointed as adviser to the
Committee with effect from December 2015.
The Board also reviewed fees for non-executive
directors (NEDs) during 2015, in line with its two-
year review cycle. The increases (set out on page
127) reflect the continuing increases in workloads
in recent years and are designed to bring fees in line
with those paid at similar-sized companies, ensuring
that the Group will continue to be able to attract
NEDs with the range of experience and skills to
oversee the implementation of our Strategy.
Finally, I value the continued support from our
charitable owner and shareholder Allchurches
Trust Limited (ATL), and remain mindful of our
responsibilities to drive sustained and improved
performance over the long term through our
remuneration strategy, policy and principles.
Denise Wilson OBE
Chair of the Group Remuneration Committee
16 March 2016
ANNUAL REPORT & ACCOUNTS 2015
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SECTION THREE – GOVERNANCE
The Remuneration Committee
Purpose and membership
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. None of the
executive directors were involved in discussions
relating to their own remuneration. The Committee
also has overarching responsibility for the Group-wide
Remuneration Policy.
The Committee’s roles and responsibilities are set out
in full in the ToR. The Committee’s ToR is reviewed
annually and there were no substantive changes in
2015. The Committee reviews its effectiveness annually.
During 2015, the Committee held five meetings in
total, four scheduled meetings and one additional
meeting. The Group Remuneration Committee
members and their attendance at meetings
during the year are set out in the table below.
All members are independent NEDs and have the
necessary experience and expertise to meet the
Committee’s responsibilities.
Appointed
to the Committee
Meetings eligible
to attend
Meetings
attended
Committee
members
Denise Wilson (Chair)
December 2011
David Christie
Christine Wilson
Caroline Taylor
April 2013
April 2013
November 2014
5
5
5
5
5
5
4
5
Advisers to the Committee
During the year, the Committee received external
advice from FIT Remuneration Consultants LLP
(FIT) in relation to the implementation of the Group
Remuneration Strategy Review and the determination
of appropriate remuneration packages for executive
directors, members of the Group Management Board
(GMB) and heads of strategic business units. The
Committee received external advice from PwC in
relation to remuneration arrangements and regulation
in asset management firms and in relation to the
Solvency II remuneration requirements. FIT has no
other advisory function within the Group. PwC acted
as advisors to the Group during 2015 in relation to
non-remuneration aspects of Solvency II and also
provided services in respect of tax compliance.
Fees paid to FIT and PwC during 2015 for
professional advice to the Committee were £38,658
and £29,220 respectively. The Committee is satisfied
that the advice received during 2015 from its advisers
was impartial, as both FIT and PwC are signatories to
the voluntary code of conduct of the Remuneration
Consultants Group.
As set out earlier, in the Chairman’s statement, a
competitive tender process was undertaken in 2015
to appoint an external adviser to the Committee. As a
result of the tender process, New Bridge Street has
been appointed with effect from December 2015.
The Committee is satisfied that the advice that will
be received from New Bridge Street will be impartial,
as New Bridge Street is a signatory to the voluntary
code of conduct of the Remuneration Consultants
Group.
The Committee also had access to benchmarking
reports from Towers Watson and McLagan, each of
which also provide data to support the determination
of pay and conditions throughout the Group.
Where appropriate, the Committee received input
from the Chairman, Group Chief Executive, Group HR
Director, Director of Group Finance, CRO, Director
of Group Internal Audit and Group Reward Manager.
Such input never relates to their own remuneration.
Activities of the Remuneration
Committee in 2015
The Committee discussed the following key matters
during 2015:
approving the new Group Remuneration Policy;
setting of performance conditions and targets
for 2015 annual bonuses and 2015-2017
LTIPs applicable to executive directors,
members of the GMB and heads of strategic
business units and employees;
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ANNUAL REPORT & ACCOUNTS 2015
considering the CRO’s opinion on the risk impact
of incentive scheme design and targets;
approving the 2015 salaries and vesting
outcomes of 2014 annual bonuses and
2012-2014 LTIPs for the above population;
approving a revised annual and LTIP for
code staff within EdenTree;
approving a revised annual bonus plan for the
Chief Executive Officer and employees of Ansvar
Australia, and the LTIP applicable to the Chief
Executive Officer of Ansvar Australia;
approving a revised annual incentive plan for the
directors of SEIB;
approving, in relation to EdenTree, the code
staff population, remuneration policy and Pillar 3
remuneration disclosure, together with the annual
audit of compliance with the Remuneration Code;
considering the change in Remuneration Code
applicable to EdenTree (to SYSC 19C);
approving the 2014 Directors’
Remuneration Report;
reviewing external market developments
and trends;
evaluating the Committee’s performance in 2015
and setting the Committee’s objectives for 2016;
reviewing the pension policy for executives
and designated senior managers;
approving changes to the discretionary
incentive plan applicable to the Deputy
Group Chief Executive;
approving the appointment of New Bridge Street
as external adviser to the Committee following a
tender process;
considering remuneration regulation and
market best practice applicable to asset
management firms;
reviewing the implications of the EBA consultation
on sound remuneration policies on remuneration
policy for code staff; and
reviewing the implications of Solvency II
on remuneration policy.
CORPORATE GOVERNANCE
ANNUAL REPORT & ACCOUNTS 2015
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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
2016 and describes the structure and elements of pay and how they
interact. A strategic review of the Group’s Remuneration Policy was
carried out in 2014 and implemented in 2015. The Policy set out below
reflects the outcomes of this review and is largely unchanged from 2015.
As outlined in the Group’s Strategic Report, starting
on page 14, our ambition includes the following
strategic objectives:
Most Trusted Specialist Insurer
Most Trusted Specialist Adviser
Best Ethical Investment Provider
To support the achievement of the Group’s strategic
objectives, we need to attract, motivate and retain
highly capable, productive and motivated employees
who are aligned to the Group’s values and culture.
The Group therefore needs to provide a progressive,
dynamic working environment which allows its
employees to fulfil their potential and an appropriately
structured set of remuneration policies.
The Group’s Remuneration Policy is aligned to
delivery of the Group’s strategic objectives and
establishes a set of principles which underpin the
Group’s reward structures for all Group employees:
Reward structures will promote the delivery of
long-term sustainable returns. As such, the
performance measures in the annual and LTIP
will reflect and support the Group’s underlying
strategic goals and risk appetite and may
comprise both financial and non-financial targets.
Reward will be performance-related, reflecting
individual and business performance, including
both what is delivered and the way in which results
are achieved. However, the Group will adopt a prudent
and considered approach when determining
what portion of an employee’s package should
be performance-linked and/or variable so as to
ensure that irresponsible conduct and behaviours
are neither encouraged nor rewarded and that
customer experience is not prejudiced in any way
by the operation of its pay arrangements.
Reward structures will be straightforward and
simple for everyone to understand.
Remuneration packages will be set by reference
to levels for comparable roles in comparable
organisations. However, benchmark data will be
only one of a number of factors that will determine
remuneration packages.
Reward structures will deliver an appropriate
balance of fixed to variable pay in order to
foster a performance culture, with the proportion
of ‘at risk’ pay typically increasing with seniority.
However, high levels of leverage are not
appropriate for the Group.
Reward structures will achieve a balance between
short- and long-term incentives, supporting
the overall aim of the Group’s Remuneration
Policy of promoting the long-term success of the
Group. The balance between short- and long-term
incentive pay is largely driven by role and seniority,
with generally a greater role played by long-term
incentives for more senior employees.
The Group will strive to adhere to the highest
standards of remuneration-related regulatory
compliance and best practice guidelines, while
ensuring that the Group’s remuneration policies
are appropriately tailored to its circumstances,
challenges and strategic goals.
The Committee reviews the Group’s Remuneration
Policy annually to ensure that it remains aligned
with the needs of the Group and its longer-term
strategy and that it remains appropriately aligned
with the external market.
Balancing short- and
long-term remuneration
We have established the remuneration elements set
out in this report guided by the Group’s Remuneration
Policy principles above. 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 the Group successful on a
sustainable basis.
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SECTION THREE – GOVERNANCE
Future policy table (executive directors)
Salary
Benefits
Pension
How the element
supports our
strategic objectives
To provide a core reward at
the level needed to attract
and retain the required
level of talent.
Operation of the element
Salaries are paid in 12 equal monthly instalments during the year.
Salaries are reviewed annually with changes taking effect from 1 April
each year.
To provide a market-
competitive reward package
and promote the wellbeing
of employees.
Benefits normally comprise a car allowance, a private healthcare scheme
and medical assessments. Executive directors also receive life assurance
cover on the same basis as the wider employee population and in the case
of the Deputy Group Chief Executive, health and dental cover, accidental
death and dismemberment cover and long-term disability cover on the
same basis as the wider employee population in our Canadian branch.
To aid retention and provide a
market competitive provision
for post-retirement income.
UK Defined Contribution Scheme: UK-based executive directors are
eligible to participate in the Group Personal Pension plan. Contributions
are made by the employee and employer.
Canadian EIO plc Defined Contribution Pension plan: the Canadian
Defined Contribution plan is applicable to Ecclesiastical’s Canadian staff.
The Deputy Group Chief Executive participates under this plan and does
not participate in the UK Defined Contribution Scheme. Contributions are
made by the employer.
Group annual
bonus scheme
To incentivise the executive
directors to achieve key
financial and strategic goals
and targets that have been
set for the financial year.
Deferral provides further
alignment with shareholder
interests and promotes
retention.
This cash bonus is paid annually, normally three months after the end of
the financial year to which it relates.
Targets are set annually and award levels are determined by the
Committee based on performance against these targets. When agreeing
targets, the Committee also receives advice from the CRO on the extent
to which the scheme meets the Group’s risk appetite.
Any bonus earned in excess of 75% of an individual’s maximum bonus
opportunity is deferred over a period of three years.
Bonus already paid, or deferred, is subject to malus/clawback in certain
circumstances: (i) mis-statement of performance; (ii) regulatory censure,
material reputational damage and/or material non-adherence to the
Group’s risk tolerances; and (iii) misconduct. A three-year time limit applies.
The Committee has discretion to reduce any bonus prior to award in
certain circumstances, including (but not limited to): (i) there are issues
regarding the Group’s underlying financial strength and position; (ii) there
is an actual or potential regulatory censure; (iii) the Group is in material
breach of its risk policies (including conduct risk) and/or its values/ethics;
and (iv) there is a material diminution in the regard by which the Group is
held by its customer base through mismanagement.
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Maximum potential value and
payment at threshold
Performance measures
used, weighting and
time period applicable
Change from 2015
When the annual review is conducted various factors are taken into account,
including Group and individual performance, relevant market information and
levels of pay increases in the wider UK or relevant territory population.
Group and individual
performance
None
None
Relevant pay data including market practice among a chosen set of
comparator organisations in the financial services sector is also considered.
Benefits are set at a level taking into account benefit packages offered
by comparable organisations for comparable roles; benefits offered to the
wider employee population and the objective of promoting the wellbeing of
employees. The costs are those relating to providing the benefit.
Not applicable
None
The level of pension contribution takes into account the seniority of the role and
pension benefits offered by comparable organisations for comparable roles.
Not applicable
None
The employer contribution rate to the UK Defined Contribution Scheme will
be 15% of basic salary.
Any contributions to the UK Defined Contribution Scheme that are above the
annual or lifetime earnings limit are paid in cash, net of National Insurance (NI)
contributions charge.
The employer contribution rate to the Canadian EIO plc Defined Contribution
Pension plan will be 12% of basic salary.
Any contributions to the Canadian pension plan that are above the Canadian
government maximum contribution limit are paid into a Supplemental Employee
Retirement Plan (SERP) and are maintained as a liability on the Canadian
balance sheet and attract interest annually.
Maximum opportunity of 100% of salary of which 50% is payable for a target
level of performance.
Deferral period
increased from two
to three years, for
any bonus earned in
excess of 75% of an
individual’s maximum
bonus opportunity.
The Group annual bonus
is subject to a range of
challenging metrics linked to
key strategic priorities.
For 2016, the following
performance metrics
will apply:
Ecclesiastical Insurance
Group (EIG) PBT (including
fair value investment gains/
losses)
Group COR
Strategic targets
Customers and conduct
and
Personal performance
rating.
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SECTION THREE – GOVERNANCE
Future policy table (executive directors)
Group LTIP
How the element
supports our
strategic objectives
To focus the executives
and incentivise the
achievement of the Group’s
long-term objectives;
to align the executive
directors’ interests with
those of the shareholders
and to promote attraction
and retention of talented
individuals.
Operation of the element
Cash awards under the Group LTIP vest dependent on the Committee’s
assessment of performance against the performance conditions over the
relevant three-year period.
Targets are set annually for each successive three-year LTIP period.
When agreeing targets, the Committee also receives advice from the
CRO on the extent to which the scheme meets the Group’s risk appetite.
Any LTIP already vested and any unvested LTIP is subject to malus/
clawback in certain circumstances: (i) mis-statement of performance;
(ii) regulatory censure, material reputational damage and/or material
non-adherence to the Group’s risk tolerances; and (iii) misconduct.
A three-year time limit applies.
The Committee has discretion to reduce any LTIP award in certain
circumstances, including (but not limited to): (i) there are issues regarding
the Group’s underlying financial strength and position; (ii) there is an
actual or potential regulatory censure; (iii) the Group is in material breach
of its risk policies (including conduct risk) and/or its values/ethics;
and (iv) there is a material diminution in the regard by which the Group is
held by its customer base through mismanagement.
Additional targeted incentive
The Committee may decide, from time to time,
to incentivise specific executive directors, in
exceptional circumstances, 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 incentive arrangements.
How the element
supports our
strategic objectives
To incentivise the Group
Chief Executive to achieve
specific goals that have
been set for the period
2014-2016.
Group Chief
Executive’s three-year
incentive plan
In addition to the arrangements set out in the
table above, the following discretionary incentive
arrangements are in existence for the Group Chief
Executive and Deputy Group Chief Executive.
Operation of the element
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.
Payments under the plan are subject to clawback in respect of
mis-statement and misconduct.
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Maximum potential value and
payment at threshold
Under the rules of the LTIP, awards of up to 100% of salary can be made.
At on-target performance a target opportunity of 50% of the award applies.
Threshold business performance would result in vesting of no more than
20% of the award.
The Group LTIP plan granted in respect of 2014-2016 will continue to vest
under the previously applicable policy.
The Group LTIP plan granted in respect of 2015-2017 will continue to vest
under this policy.
CORPORATE GOVERNANCE
Change from 2015
None
Performance measures
used, weighting and
time period applicable
The Group LTIP is subject
to a range of challenging
conditions linked to key
strategic priorities.
For 2016 awards relating
to a performance period
2016-2018, the following
performance conditions
will apply:
Group EIG PBT
(excluding fair value
investment gains/losses)
Group EIG PBT
(including fair value
investment gains/losses)
Group COR
Strategic targets and
Customers and conduct.
There is a 36-month
performance period from
the date of grant.
Maximum potential value and
payment at threshold
Performance measures
used, weighting and
time period applicable
Change from 2015
Maximum opportunity of 100% of salary over the 2014-2016
performance period.
There are three areas of
performance conditions that
apply to this award:
None
50% dependent upon
financial performance
25% dependent on
achievement of measurable,
non-financial results
25% dependent upon
achievement of qualitative
targets.
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Discretionary bonus arrangements
Deputy Group
Chief Executive’s
three-year
incentive plan
How the element
supports our
strategic objectives
To incentivise the Deputy
Group Chief Executive
to achieve specific goals
that have been set for the
period 12 June 2013 to
30 June 2016.
Operation of the element
No mandatory deferral provision.
Staged payments:
Jun-Dec 2013 up to £25.6k1
Jan-Dec 2014 up to £51.2k1
Jan-Dec 2015 up to £51.2k1
Jan-Jun 2016 up to £25.6k1.
1 An average 2015 exchange
rate of 1.9524 Canadian dollars
to 1 GBP has been used.
Notes to the policy table
Performance measures and targets
The Committee selected the performance conditions used for annual bonus and long-term incentives because
they are central to the Group’s overall strategy and are key metrics used in measuring the performance of the
Group. The performance conditions are reviewed and set annually by the Committee, following consultation with
the CRO.
The Committee is 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 provided they are not
considered commercially sensitive at that time.
Changes to the Policy from that operating in 2015
The following changes to the Group’s Remuneration Policy will be made in 2016 and are reflected in the Future
Policy table above. Unless indicated below, the Policy remains unchanged from that implemented in 2015.
The deferral period for the Group annual bonus will be increased for the financial year 2016 from a period
of two years to three years, for any bonus earned in excess of 75% of an individual’s maximum bonus
opportunity, reflecting Solvency II remuneration requirements.
The Deputy Group Chief Executive’s incentive plan has been extended in duration from two to three years
with a pro-rata increase in the value attaching to this plan. This change reflects the continuing requirement
for S. Jacinta Whyte to lead the UK and general insurance transformation programme and to fulfil the role
of UK Managing Director.
Remuneration arrangements elsewhere in the Group
The Group’s approach to executive director and wider employee remuneration is based on the common set
of principles set out in the Group’s Remuneration Policy starting on page 122. However, given the size of
the Group and the range of its operations, the manner in which these principles are implemented varies with
seniority and, where appropriate, with the nature of the business transacted by a Group entity.
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Maximum potential value and
payment at threshold
Maximum opportunity of £153.7k1 for the performance
period from 12 June 2013 to 30 June 2016.
CORPORATE GOVERNANCE
Change from 2015
Duration extended
to three years with
pro-rata increase in
the value attaching
to the plan.
Performance measures
used, weighting and
time period applicable
There are three areas of
performance conditions
that apply to this award:
40% dependent upon
financial performance
40% dependent on
achievement of measurable,
non-financial results
20% dependent
upon achievement of
qualitative targets.
All employees of the Group are entitled to a salary, benefits, pension and annual bonus. However, remuneration
for executive directors is more heavily weighted towards variable remuneration, through a higher annual bonus
opportunity and participation in the three year incentive plan and the Group LTIP. Such variable remuneration
is conditional on the achievement of performance targets that are linked to the successful delivery of the
Group Strategy. The greater weighting towards variable remuneration thereby aligns the interests of executive
directors with those of the shareholders.
Remuneration scenario charts
The remuneration scenario charts below illustrate what each executive director could earn in respect of the
policy for 2016, under different performance scenarios:
Minimum: fixed pay only (being basic salary, pension or cash in lieu of pension and benefits) with no annual
bonus and no vesting of the LTIP;
On target: fixed pay (being basic salary, pension or cash in lieu of pension and benefits) with annual bonus
of 50% of basic salary and 50% vesting of the LTIP;
Maximum: fixed pay (being basic salary, pension or cash in lieu of pension and benefits) with maximum
bonus of 100% of basic salary and 100% vesting of the LTIP.
Mark Hews:
Effect of the application of this policy in financial year 2016
Minimum
On-Target
Maximum
100% Total £459k
54%
37%
23%
23% Total £850k
32%
31% Total £1,240k
Fixed Pay
Annual Variable
LTIP
The Group Chief Executive’s three-year incentive plan is not included in the above illustration as the three-
year incentive plan is an additional multi-period bonus arrangement granted in a prior year. The amount
earnable under the Group Chief Executive's three-year incentive plan in 2016 is £107k at target and £213k
at maximum.
On-Target
Fixed Pay
Annual Variable
LTIP
100% Total £353k
Minimum
23% Total £650k
23%
54%
Maximum
37%
32%
31% Total £948k
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Minimum
On-Target
Maximum
100% Total £329k
55%
38%
23%
22% Total £595k
31%
30% Total £861k
Fixed Pay
Annual Variable
LTIP
Minimum
SECTION THREE – GOVERNANCE
100% Total £459k
On-Target
54%
23%
23% Total £850k
Fixed Pay
Annual Variable
LTIP
Maximum
S. Jacinta Whyte:
Effect of the application of this policy in financial year 2016
32%
37%
31% Total £1,240k
Minimum
Minimum
On-Target
On-Target
Maximum
Maximum
100% Total £459k
100% Total £353k
54%
23%
23%
54%
37%
37%
23% Total £850k
23% Total £650k
32%
32%
Fixed Pay
Annual Variable
Fixed Pay
LTIP
Annual Variable
LTIP
31% Total £1,240k
31% Total £948k
Minimum
The Deputy Group Chief Executive’s three-year incentive plan is not included in the above illustration as
the three-year incentive plan is an additional multi-period bonus arrangement granted in a prior year. The
amount earnable under the Deputy Group Chief Executive's three-year incentive plan in 2016 is £16k at
target and £33k at maximum.
100% Total £353k
100% Total £329k
54%
23% Total £650k
Minimum
On-Target
23%
Fixed Pay
Annual Variable
Fixed Pay
LTIP
Annual Variable
LTIP
On-Target
Maximum
Ian Campbell:
Maximum
Effect of the application of this policy in financial year 2016
22% Total £595k
32%
55%
37%
31%
23%
38%
31% Total £948k
30% Total £861k
Minimum
On-Target
Maximum
100% Total £329k
55%
38%
23%
22% Total £595k
31%
30% Total £861k
Fixed Pay
Annual Variable
LTIP
Notes to the charts:
Fixed pay is base salary for 2016 plus the value of pension and benefits.
Base salary is the aggregate of the salary applicable at 1 January for January to March 2016 and the salary
applicable at 1 April 2016 for April to December 2016.
The value of pension is calculated as described in the future policy table. The value of pensions for the
Group Chief Executive and the CFO is the sum of pension contributions to the UK Defined Contribution
scheme and, to the extent applicable in 2016, the pension cash allowance applicable where contributions
would be above the Annual or Lifetime Allowance.
The value of benefits in-kind is taken from the single figure table for 2015 which can be found on page 122.
On-target performance is the level of performance required to deliver an annual bonus of 50% of basic
salary and 50% vesting of the LTIP.
Maximum performance is the level of performance required to deliver a maximum annual bonus award and
100% vesting of the LTIP.
The Group Chief Executive's and the Deputy Group Chief Executive’s three-year incentive plans are not
included in the above illustrations as the three-year incentive plans are an additional multi-period bonus
arrangement granted in a prior year.
Approach to recruitment remuneration
Ecclesiastical is a specialist financial services group competing for talent across a variety of markets and with
often much larger organisations.
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
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necessary to compensate for an individual’s awards from previous employment, the Committee may, as far as
practicable, seek to match the expected value of such awards through the use of the Group’s existing incentive
arrangements. Where this is not possible, it may be necessary to offer some form of ‘buy-out’ award, the size of
which will in the normal course reflect the commercial value of the award foregone (and the vesting timetable
of the awards foregone) and will also (where possible) be subject to some form of clawback if the individual
leaves Ecclesiastical within a set timeframe.
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
–
Dependent upon position
100%
100%
Pension contribution/allowance
15% UK Defined Contribution Scheme
12% Canadian EIO plc Defined
Contribution Pension Plan
Service contracts and policy on payment for loss of office
Standard provision
Policy
Details
Notice periods in
executive directors’
service contracts
Twelve months by the Group or executive
director for the Group Chief Executive
and six months by the Group or executive
director for other executive directors.
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.
Payment in lieu of notice
The Group may decide if it wishes to make
a payment in lieu of notice of an amount
prescribed under the contract. This is
salary (and in the case of the Group Chief
Executive, benefits) for the balance of the
notice period, excluding bonus and accrued
holiday entitlement.
Payable as a lump sum within 14 days of
termination date but, in the case of the
Deputy Group Chief Executive and Group
Chief Financial Officer, it can be paid in
monthly instalments over the balance of
the notice period.
Severance payment
for Deputy Group
Chief Executive
The Deputy Group Chief Executive’s pre-
existing contract of employment before
her appointment to her new role contained
severance provisions in line with Canadian
law and practice. The policy of the Group has
been to honour these commitments insofar
as they relate to accrued service up to the
date of her appointment to her new role, but
not in respect of service after that date.
The executive’s entitlement arises in the
case of any termination by the Group for
‘No Cause’ as defined and represents
the sum of £445k and the provision of
dental and health insurance cover and life
assurance cover for a period of 21 months
after the termination date of
her employment.
The sums due may be made in monthly
instalments to allow for mitigation.
In addition, any sums otherwise due under
the rules of any bonus or cash incentive plan
in respect of the bonus year in which the
termination date falls or in any subsequent
year are only payable to the extent that they
would otherwise exceed £131k.
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Standard provision
Policy
Details
Mitigation
Treatment of annual bonus
on termination or change of
control under plan rules
The executive directors’ service contracts
do not expressly provide for mitigation on
termination except in the case of the Deputy
Group Chief Executive’s and Group Chief
Financial Officer’s contracts which allow for
payment in instalments over the balance of
the notice period.
No payment unless employed on date of
bonus payment except for ‘good leavers’
as defined in the plan rules (e.g. death, ill
health, redundancy, retirement) 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.
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 (e.g. death, ill
health, redundancy, retirement) 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 plan.
Exercise of discretion
Intended to be relied upon only in certain
circumstances as set out in the Future
Policy table.
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.
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.
Bonus payments for good leavers are
subject to deferral, malus and clawback.
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. For
good leavers grants vest on the original
anniversary date.
The Committee’s determination will take
into account the circumstances of the
executive director’s departure and the
recent performance of the Group when
using discretion in relation to short- or
long-term bonus payments.
Group Chief Executive’s
three-year incentive plan
If the Group Chief Executive ceases to be
employed in this capacity, the award will
lapse unless he is a ‘good leaver’.
There is an express provision for clawback
in respect of mis-statement and misconduct.
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.
Deputy Group Chief
Executive’s three-year
incentive plan
If the Deputy Group Chief Executive
ceases to be employed in this capacity,
the award will be treated in accordance
with her contract.
Other matters
The Group’s policy is to honour
commitments made to contractual
arrangements that may have been entered
into with an employee prior to them
becoming a director.
There are no other provisions for termination
payments or payments for loss of office in
standard directors’ service contracts.
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Standard provision
Policy
Details
Non-executive directors
Each NED is appointed for an initial three
year term, and is subject to re-election by
shareholders at the first annual general
meeting (AGM) following their appointment
and the relevant AGM every three years.
In addition, the Board has agreed that all
directors (including NEDs) will be subject
to annual re-election by shareholders.
Notwithstanding any mutual expectation,
there is no right to re-nomination either
annually or after any three-year period.
Each NED is provided with a letter
of appointment, which sets out the
circumstances in which their appointment
can be terminated.
NEDs are entitled to receive a pro-rata
proportion of their fees that they have
accrued to the date of termination, together
with reimbursement of properly incurred
expenses prior to that date.
NEDs’ fees policy
How the element
supports our
strategic objectives
Operation
of the element
Maximum potential
value and payment
at threshold
Performance measures
used, weighting and
time period applicable
Current fee levels are
shown in the section on
implementation of policy.
NEDs are not eligible
to participate in any
performance-related
arrangements.
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
and 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. The Chairman’s fees are
considered and approved by
the Board in the absence of
the Chairman.
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.
NEDs' travel and
accommodation costs for
attendance at Board meetings
are reimbursed by the Group
and are classed as a taxable
benefit when they are in
respect of travel to their
permanent workplace.
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Consideration of employment conditions elsewhere in the Group
When reviewing and setting the policy for executive directors’ remuneration, the Committee takes into account
the pay and employment conditions of employees elsewhere within the Group. In particular, the level of the pay
review for UK Ecclesiastical employees is a key consideration in setting the level of any salary increase for
executive directors.
The Committee is informed about the Group’s approach on salary increases; benefits arrangements including
pensions and the distribution of remuneration outcomes throughout the wider organisation. When reviewing
and setting the performance measures for executive directors’ annual bonuses the Committee considers the
extent to which these should be cascaded to other employees. The Committee has oversight of the incentive
arrangements that are in operation for all Group entities and reviews the remuneration arrangements for
designated senior management below the executive directors. The Committee uses this information to work
with the HR function to ensure consistency of approach throughout the Group.
Although the Committee does not consult directly with employees on remuneration policy for executive
directors, it reviews proposals in the context of the above understanding of the remuneration arrangements
for the wider employee population.
Consideration of shareholder views
The Committee, through the Board, consults with the shareholders on any changes to this policy in order to
understand expectations with regard to executive directors’ remuneration and any changes in shareholders'
views. Any views expressed by the shareholders are then considered and taken into account at the annual
review of the Policy. The above Policy reflects the consultation undertaken with the shareholders in 2014 on
the proposed changes to the Group’s Remuneration Policy and incentive arrangements for executives.
Annual Report on Remuneration
This section of the Directors’ Remuneration Report sets out how the above Remuneration Policy was
implemented in 2015 and the resulting payments each executive director received. The financial information
contained in this report has been audited where indicated.
Single total figure of remuneration for executive directors (audited)
The table below shows a single total figure of remuneration received in respect of qualifying services for the
2015 financial year for each executive director, together with comparative figures for 2014, where applicable.
Aggregate executive directors’ emoluments are shown on page 128. Details of NEDs’ fees are set out in a
separate table on page 127.
Executive
directors
Mark Hews4
S. Jacinta Whyte5
Ian Campbell
Total
Fixed Pay
(£000)
Variable Pay
(£000)
Pension
(£000)
Total
Remuneration
(£000)
Salary
Benefits1
Annual bonus
LTIP2
Pension benefit
Total
2015 2014 2015 2014 20153 2014 2015
2014 2015 2014 2015 2014
381
363
15
15
338
287
306
191
49
51
1,089 907
294
276
18
17
239
151
90
76
35
33
676
553
259
250
26
33
2356
161
0
0
38
34
558
478
934
889
59
65
812
599
396
267
122
118 2,323 1,938
1 Benefits include items such as a car allowance and private medical insurance which are valued at their taxable value. It also includes travel and
accommodation benefits, valued at their grossed up tax and NI value. Provision of benefits during 2015 was in line with the previous year and the
directors’ remuneration policy, and no exceptional benefits were paid.
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ANNUAL REPORT & ACCOUNTS 2015
CORPORATE GOVERNANCE
2 LTIP represents the amount payable in respect of the three-year LTIP performance period 2013-2015 for 2015 and 2012-2014 for 2014,
together with the amounts payable in respect of the Group Chief Executive’s three-year incentive plan (2015: £98k; 2014: £85k) and the Deputy
Group Chief Executive’s 3-year incentive plan (2015: £44k; 2014: £51k). All executive directors hold unvested LTIP awards in accordance with the
rules of the LTIP plan.
3 In line with the deferral policy introduced in 2015, annual bonus earned in excess of 75% of the maximum bonus opportunity is deferred over a
period of two years. In 2015 the value of executive directors’ annual bonuses that were deferred is: £48k (Group Chief Executive); £18k (Deputy
Group Chief Executive) and £7k (CFO).
4 Mark Hews received a cash allowance in lieu of pension during 2015, in line with company policy that a cash allowance of 15% of salary (net of
NI contributions) is paid to UK-based executive directors where continued company contributions would result in a breach of the HMRC annual and or
lifetime allowance.
5 Contributions to the Canadian pension plan that are above the Canadian government maximum contribution limit are paid into a SERP. These
contributions for S. Jacinta Whyte are included in the figures shown. An average 2015 exchange rate of 1.9524 Canadian dollars to 1 GBP have
been used in respect of both 2015 and 2014.
6 Ian Campbell received a discretionary award of £32k in respect of his contribution to financial and strategic deliverables over the period to 2015,
notably his contribution towards the successful run-off of the former New Zealand subsidiary.
Mark Hews is also a NED for MAPFRE RE and was appointed to their Board in December 2013. The fee of
£17k that Mark earns in respect of this role is paid directly to the Group by MAPFRE RE and is not received
by Mark Hews.
Additional requirements in respect
of the single total figure table
Annual bonus outcomes for 2015 (audited)
The annual bonuses payable to executive directors in respect of 2015 are assessed taking into account both
Group and individual performance.
Individual performance is subject to delivery of personal performance objectives and performance in line with
the Group’s behavioural competency framework for strategic leaders. A personal performance percentage
of between 0% and 75% may be awarded in respect of this element of the annual bonus. The personal
performance percentage is reviewed and agreed by the Committee.
Group performance is subject to the four performance conditions which together form the Group performance
multiplier. For 2015, these were Group EIG PBT (including fair value investment gains and losses) (30%);
Group COR (40%); delivery of Group strategic initiatives in line with the Group’s strategic plan (15%); Customer
and Conduct performance (15%). Results in respect of each performance condition are assessed against the
required performance levels set at threshold, target and maximum, in order to calculate the aggregate Group
performance multiplier as shown in the second table below.
The overall bonus outturn for each executive director is the product of personal performance percentage and
the aggregate Group performance multiplier. The maximum opportunity under the annual bonus plan is 100%
of salary.
The targets relating to the Group annual bonus for the financial year 2015 were:
Threshold
(0.5x)
Target
(1.0x)
Maximum
Weighting
(1.5x)
Performance
conditions
Group EIG PBT
£21.0m
£55.8m
£79.9m
Group COR
99.0%
93.9%
92.0%
Strategic Targets
Customer and Conduct
50%
80%
75%
90%
100%
100%
30%
40%
15%
15%
ANNUAL REPORT & ACCOUNTS 2015
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SECTION THREE – GOVERNANCE
The results relating to the Group annual bonus for the financial year 2015, and the resultant aggregate Group
performance multiplier, are shown below.
Performance
conditions
Result
Multiplier
Weighting
multiplier
Weighted
Group EIG PBT
Group COR
Strategic Targets
Customer and Conduct
£56.4m
92.0%
83%
94%
1.0
1.5
1.2
1.2
Aggregate Group performance multiplier
30%
40%
15%
15%
0.3
0.6
0.2
0.2
1.25
Bonuses are earned in respect of the financial year and are paid in March following the end of the financial
year. Any proportion of a bonus outcome above 75% of the maximum bonus outcome is deferred over two
years, in cash. All annual bonus outcomes are subject to malus and clawback as set out in the Future Policy
table starting on page 112.
LTIP outcomes in 2015 (audited)
The LTIP amount included in the single total figure of remuneration is the cash award resulting from the Group
LTIP grant in 2013 for the period 2013-2015. Vesting was dependent on performance over the three financial
years ending on 31 December 2015 and continued service until March 2016.
The 2013-2015 Group LTIP is subject to the two performance conditions: Group PBT (50%) and Group COR
(50%). Results in respect of each performance condition are assessed against the required performance levels
set at threshold, target and maximum as shown below.
Threshold
20% vesting
Target
Maximum
50% vesting 100% vesting Actual
Vesting
(% of
maximum for
performance
condition)
Performance
conditions
Group COR
100.0%
98.0%
95.0%
97.6%
56.2%
Group PBT
£100m
£140m
£200m
£169m
73.9%
Total
65.0%
The Group LTIP outcome that vests in respect of each executive director in respect of 2013-2015 is shown below.
LTIP grant
% of salary
Total LTIP vesting
£000
% of maximum
Mark Hews1
30% / 100%
S. Jacinta Whyte²
30%
208
45
65%
65%
1 Mark Hews LTIP entitlement increased from 30% to 100% of salary on appointment as Group Chief Executive on 1 May 2013.
The 2013-2015 LTIP that vests is the sum of the pro-rated award in relation to the January-April 2013 period under the LTIP
grant at 30% and the pro-rated award in relation to the May 2013-December 2015 period under the LTIP grant at 100%.
2 An average 2015 exchange rate of 1.9524 Canadian dollars to 1 GBP has been used in respect of 2015.
Scheme interests awarded during 2015 (audited)
During 2015, awards over a cash sum were granted under the 2015-2017 Group LTIP to each executive
director as set out below. These awards will vest, and the cash sum will be transferred to the award holder, in
March 2018, to the extent that the applicable performance targets are met. The vesting date for these awards
is the date the Group’s 2017 results are announced, in March 2018.
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ANNUAL REPORT & ACCOUNTS 2015
CORPORATE GOVERNANCE
Maximum
cash sum
subject
to the
Award
(% base
salary)
Award
Date
Face
value of
award
at grant
£000s
Cash award
if threshold
performance
achieved
(% base salary)
End of the
period over
which the
performance
targets have
to be fulfilled
Executive
directors
2015-2017 Group LTIP
Mark Hews
2015
2017
17 June 100%
368
20%
31 December
S. Jacinta Whyte1
2015
2017
17 June 100%
280
20%
31 December
Ian Campbell
2015
2017
17 June 100%
250
20%
31 December
Performance
measures2
Group EIG PBT (excluding
fair value investment gains
/losses) (20%)
Group EIG PBT (including
fair value investment gains
/losses) (20%)
Group COR (20%)
Strategic targets (20%)
Customers and conduct.
(20%)
¹ An average 2015 exchange rate of 1.9524 Canadian dollars to 1 GBP has been used.
² Vesting occurs on a straight line basis between pre-determined milestones set in relation to threshold, target and maximum performance.
These will be disclosed on a retrospective basis in the Directors' Remuneration Report for the year for which the Group LTIP awards vest.
Percentage change in remuneration of Group Chief Executive
The table below shows the percentage year-on-year change in salary, benefits and annual bonus (from 2014 to
2015) for the Group Chief Executive compared with UK-based employees1. The Committee has selected this
comparator group as being the most appropriate because the composition and structure of remuneration for
this group most closely reflects that of the Group Chief Executive.
Group Chief Executive
Average UK-based employees ¹
% change
% change
Salary
Taxable benefits²
Annual bonus
5.0%
5.7%
17.5%3
4.4%
5.7%
(5.5)%
¹ UK-based employees of Ecclesiastical Insurance Office plc; excluding employees in SEIB.
² Based on contractual P11D taxable benefits for the tax year ending 5 April in the relevant year.
3 As set out in the Directors' Remuneration Report for 2014, a revised Group annual bonus arrangement
was introduced for executive directors in 2015. The Group annual bonus award in 2014 was made
under the previous scheme.
Relative importance of spend on pay
The table below sets out for 2015 and 2014, the actual expenditure on employee remuneration; grants paid to
ATL and dividends paid to Preference shareholders. PBT in each year is provided for context.
Remuneration paid to all Group employees
62,706
62,660
0.1%
Gross charitable grants to the ultimate parent company, Allchurches Trust Limited
20,000
23,500
(14.9)%
Non-Cumulative Irredeemable Preference share dividend
9,181
9,181
Nil
PBT
53,605
48,154
11.3%
2015
£000
2014
£000
% change
ANNUAL REPORT & ACCOUNTS 2015
125
SECTION THREE – GOVERNANCE
Group Chief Executive pay for performance comparison
As Ecclesiastical does not have equity shares traded on a regulated market, total equity shareholders’
funds growth over time as reported each year (plus the grant to ATL) has been used in the performance
graph compared with the FTSE 100. Total equity excludes Preference shareholders’ capital since this is not
attributable to ATL.
Ecclesiastical Insurance Office plc 7-year to 2015
TSR performance against the FTSE 100
l
i
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
200
150
100
50
0
FTSE 100 Total Return
Ecclesiastical Total Shareholder Return
Dec
2008
Dec
2009
Dec
2010
Dec
2011
Dec
2012
Dec
2013
Dec
2014
Dec
2015
The table below shows the single figure of total remuneration for the incumbent and prior Group Chief
Executive for the seven years to 31 December 2015.
Financial year
Total remuneration
(single figure) £000
Annual bonus received
(% of maximum)
Long-term incentive
vesting (% of maximum)
Group Chief
Executive1
Mark Hews
Michael Tripp
Mark Hews
Michael Tripp
Mark Hews
Michael Tripp3
Financial year ending 31 December
2009
2010
2011
2012
2013
2014
2015
N/A
516
N/A
88%
N/A
27%
N/A
430
N/A
23%
N/A
27%
N/A
416
N/A
0%
N/A
34%
N/A
390
N/A
0%
N/A
0%
569
330
45%
N/A²
4%
4%
907
162
78%
N/A
60%
47%
1,089
N/A
88%
N/A
70%
N/A
1 Michael Tripp resigned from the Board on 21 May 2013 and Mark Hews was appointed Group Chief Executive on 1 May 2013, having previously
held the position of Group Chief Financial Officer. The total remuneration single figure value for both Michael Tripp and Mark Hews is shown for 2013.
² Michael Tripp received no payment under the annual bonus or the executive director’s LTIP for performance in 2013. He did, however, receive a
payment (£100k) under the terms of a discretionary arrangement put in place to incentivise the delivery of a smooth transition of the management
to the successor in the role of Group Chief Executive. The maximum opportunity was capped at three months' salary.
³ Michael Tripp received a 2013 LTIP payment in respect of performance in the years 2011 and 2012 (only) under the 2011-2013 LTIP. He received
a 2014 LTIP payment in respect of performance in 2012 (only) under the 2012-2014 LTIP.
Statement of directors’ shareholdings and share interests
Directors’ shareholdings and share interests are set out in the Directors' Report on page 83.
126
ANNUAL REPORT & ACCOUNTS 2015
CORPORATE GOVERNANCE
Directors’ service agreements
All directors are proposed for re-election at the next general meeting (excluding Will Samuel and David Christie
as they will resign as directors on 16 March 2016).
Mark Hews has a service contract which provides for a notice period of twelve months by the Company.
S. Jacinta Whyte and Ian Campbell have service contracts which provide for a notice period of six months by the
Company. No non-executive director has a service contract.
Payments for loss of office (audited)
No termination payments were made to executive directors in 2015.
Early vesting of LTIP award
There is no early vesting of the executive directors’ LTIP. For good leavers, grants 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 (audited)
No payments were made to past directors.
Single total figure of remuneration for NEDs (audited)
NEDs do not participate in any of the Group’s incentive arrangements nor do they receive any benefits. NEDs'
travel and accommodation costs for attendance at Board meetings are reimbursed by the Group and are
classed as a taxable benefit when they are in respect of travel to their permanent workplace.
NED fees were reviewed in December 2015 with increased fees becoming effective from 1 January 2016. We
believe that it is appropriate to reflect the level of fees paid by organisations of similar size and complexity and
that this will enable us to attract NEDs of the calibre we require to help us to implement our future strategy.
The increases (set out below) reflect the continuing increases in workloads in recent years and are designed to
bring fees in line with those paid at similar-sized companies, ensuring that the Group will continue to be able to
attract NEDs with the range of experience and skills to oversee the implementation of our Strategy.
Non-executive
directors
Will Samuel1
David Christie
John Hylands
Anthony Latham
Denise Wilson
The Venerable Christine Wilson 2
Tim Carroll
Caroline Taylor3
Total
Fees (£000)
Fees (£000)
2015
2014
68
60
55
55
53
45
53
45
68
60
55
55
53
45
53
16
434
405
¹ The Chairman has waived £27k of his 2015 fee, which was increased to £95k from 1 January 2014.
2 The Venerable Christine Wilson’s fees are paid directly to charity at her request.
3 Caroline Taylor was appointed to the Board on 8 September 2014.
ANNUAL REPORT & ACCOUNTS 2015
127
SECTION THREE – GOVERNANCE
Total aggregate emoluments of directors
The total aggregate remuneration of the directors in respect of qualifying services during 2015 was £2,257k
(2014: £1,958k).
After inclusion of amounts receivable under long-term incentive schemes and pension benefits, the total
aggregate emoluments of the directors was £2,775k (2014: £2,382k).
The 2014 figures have been adjusted to reflect changes made to prior year figures as mentioned in the single
figure table on page 122.
EdenTree
During 2015, EdenTree applied to the FCA for a Variation of Permission to remove its permission to hold client
assets and limit the client money permission to its non-MiFID business. As a result of the approval by the FCA
of the Variation of Permission on 7 October 2015, EdenTree was re-categorised as a limited licence investment
management firm under BIPRU, at proportionality level 3 for reporting purposes. EdenTree has been subject to
the FCA Remuneration Code since 1 January 2011. EdenTree operates a remuneration policy which is compliant
with the Remuneration Code, details of which can be found in the EdenTree Pillar 3 statement on EdenTree’s
website (www.edentreeim.com).
Statement of implementation of Remuneration Policy in 2016
The implementation of the remuneration policy will be consistent with that outlined in the Directors’
Remuneration Policy above. Details of how this policy will apply in 2016 are set out below.
Salary (executive directors)
Executive directors’ salaries are reviewed annually in line with the Directors’ Remuneration Policy. The following
salaries will apply from 1 April 2016.
Executive
directors
Salary
(£000)
Salary
(£000)
Percentage
1 April 2016
1 April 2015
increase
Mark Hews
S. Jacinta Whyte1
Ian Campbell
396
301
269
386
294
263
2.5%
2.5%
2.5%
1 An average 2015 exchange rate of 1.9524 Canadian dollars to 1 GBP has been used.
These increases are consistent with the average increases awarded across the broader employee population.
Annual bonus for 2016
The annual bonus performance conditions and targets will be set in accordance with the Directors’
Remuneration Policy above, on the same basis as 2015.
As in 2015, the annual bonuses payable to executive directors in respect of 2016 will be assessed based on
both Group and individual performance. Individual performance is subject to delivery of personal performance
objectives and performance in line with the Group’s behavioural competency framework for strategic leaders.
Group performance is subject to the four performance conditions which together form the Group performance
multiplier. For 2016, these will continue to be Group EIG PBT (including fair value investment gains and
losses) (30%); Group COR (40%); delivery of Group strategic initiatives in line with the Group’s strategic plan
(15%); and Customer and Conduct performance (15%). The overall bonus outturn for each executive director
128
ANNUAL REPORT & ACCOUNTS 2015
CORPORATE GOVERNANCE
is the product of personal performance percentage and the aggregate Group performance multiplier. The
maximum opportunity under the annual bonus plan in 2016 is unchanged at 100% of salary.
Annual bonuses in respect of 2016 will be subject to deferral over a period of three (2014: two) years of
any bonus earned in excess of 75% of an executive director’s maximum bonus opportunity.
LTIP for 2016-2018
The 2016-2018 LTIP performance conditions and targets will be set in accordance with the Directors’
Remuneration Policy above, on the same basis as the 2015-2017 LTIP.
The 2016-2018 Group LTIP will be subject to the following performance conditions (which are unchanged
from 2015): Group EIG PBT (excluding fair value investment gains and losses) (20%); Group EIG PBT
(including fair value investment gains and losses) (20%); Group COR (20%); delivery of Group strategic
initiatives in line with the Group’s strategic plan (20%); and Customer and Conduct performance (20%).
Awards under the 2016-2018 Group LTIP will be up to 100% of salary (unchanged from 2015).
Discretionary bonus arrangements
The Group Chief Executive’s three-year incentive plan and the Deputy Group Chief Executive’s three-year
incentive plan will continue to operate during 2016, as set out on pages 114 to 117.
Fees (non-executive directors)
Non-executive directors’ fees are reviewed every two years and were reviewed during 2015. The following fees
will apply from 1 January 2016. The increases shown reflect the increased workloads in recent years and are
designed to bring fees in line with those paid at similar-sized companies.
All-inclusive fee for the Group Chairman
All-inclusive fee for the Deputy Chairman / SID
Basic Fee for a non-executive director (including Committee Membership)
Fee for chairing the Group Finance and Investment Committee
Fee for chairing the Group Nominations Committee
Fee for chairing the Group Audit Committee
Fee for chairing the Group Remuneration Committee
Fee for chairing the Group Risk Committee
Fees (£000)
125
65
50
8
8
10
10
10
ANNUAL REPORT & ACCOUNTS 2015
129
SECTION THREE – GOVERNANCE
Independent
Auditor’s Report
To the Members of Ecclesiastical Insurance Office plc
Opinion
on financial
statements of
Ecclesiastical
Insurance
Office plc
Going concern
and the directors’
assessment of the
principal risks that
would threaten the
solvency or liquidity
of the Group
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 2015 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 International Accounting Standards
(“IAS”) Regulation.
The financial statements comprise 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 35. 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.
We have nothing material to add or draw attention to in relation to:
the directors' confirmation on page 84 that they have carried out a robust
assessment of the principal risks facing the Group, including those that
would threaten its business model, future performance, solvency or liquidity;
the disclosures on pages 51 to 58 that describe those risks and explain
how they are being managed or mitigated;
the directors’ statement in note 1 to the financial statements about whether
they considered it appropriate to adopt the going concern basis of accounting
in preparing them and their identification of any material uncertainties to the
Group’s ability to continue to do so over a period of at least twelve months
from the date of approval of the financial statements;
director's explanation on page 58 as to how they have assessed the prospects
of the Group, over what period they have done so and why they consider that
period to be appropriate, and their statement as to whether they have a reasonable
expectation that the Group will be able to continue in operation and meet its
liabilities as they fall due over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or assumptions.
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ANNUAL REPORT & ACCOUNTS 2015
INDEPENDENT AUDITOR'S REPORT
Independence
We agreed with the directors’ adoption of the going concern basis of accounting and
we did not identify any such material uncertainties. 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
We are required to comply with the Financial Reporting Council’s Ethical Standards
for Auditors and we confirm that we are independent of the Group and we have
fulfilled our other ethical responsibilities in accordance with those standards. We also
confirm we have not provided any of the prohibited non-audit services referred to in
those standards.
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.
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 (“IBNR”) losses based
on past experience and current expectations of future cost
levels. Gross provisions for outstanding claims total £552m
(2014: £564m), with IBNR a portion of this, as set out in note
28 to the financial statements. The more judgemental areas
of reserving are considered higher risk, being the liability
claims reserves and in particular the ‘PSA’ reserves, referred
to by the Group Audit Committee in their report on page 100.
Carrying Value of Goodwill
The 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. The Group’s intangible assets include
£24m (2014: £24m) of goodwill relating to acquisitions;
material goodwill is held in respect of the brokers SEIB and
Lansdown, as set out in note 17 to the financial statements.
We challenged the key judgements within the calculation
of the general insurance reserves 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. Key assumptions and methodologies
were benchmarked using our industry knowledge and specific
peer benchmarking. Particular areas of focus were PSA,
asbestos, employers’ and public liability and UK flooding
IBNR, as the most judgemental reserves.
We also evaluated the design and implementation of key
controls around reserving, including, with the input of our IT
audit specialists, the IT controls, and the completeness and
accuracy of the underlying data used in the reserving.
We challenged management’s key assumptions used in the
impairment model for goodwill, relating to estimated future
cash flows, growth rates and the discount rate applied. Our
valuation experts calculated independently a discount rate
range which we would consider appropriate and we compared
this to management’s selected rate.
We also compared the cash flows used in the value in use
calculation to the most recent signed off business plans and
challenged the appropriateness of growth rates applied into
the future. Furthermore, we tested the mathematical accuracy
of management’s calculations and developed a sensitivity
analysis, having evaluated the design and implementation of
controls around the impairment review process.
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. Although closed for new business, the
Group’s maintains reserves for existing business of £85m
(2014: £94m), as set out in note 28 to the financial
statements.
We evaluated the key judgements underpinning the calculation
of the life insurance reserves by working with our internal
life actuarial specialists to benchmark the key assumptions
to those used in the market and against the company’s
experience. We also evaluated the design and implementation
of key controls around the life reserving and the completeness
and accuracy of underlying data used in the reserving,
including whether key assumptions were used appropriately
in the model.
ANNUAL REPORT & ACCOUNTS 2015
131
SECTION THREE – GOVERNANCE
Risk
How the scope of our audit
responded to the risk
Assumptions Underpinning the Calculation and
Recognition of Retirement Benefit Obligations and
recognition of surpluses
The determination of the value of the surpluses and deficits
relating to the Group’s defined benefit pension schemes and
liability relating to post-employment medical benefits requires
significant judgement in the selection of key assumptions
and is highly sensitive to such assumptions. Management
makes significant judgements in respect of mortality, medical
expense inflation, discount rates and inflation rate. The
Group recognises a total of £11m (2014: £21m) for pension
schemes in surplus and a deficit of £240k (2014: £250k) for
one scheme; the post-employment medical benefits scheme
has a liability of £9m (2014: £13m), as set out in note 19 to
the financial statements, along with the key assumptions and
a sensitivity analysis.
We evaluated the appropriateness of the assumptions used
in deriving the defined benefit pension and post-retirements
medical benefits balances by working with our internal
pension actuarial experts to benchmark the assumptions
in respect of the discount rate, inflation rate and mortality
assumptions to those observed in the market.
We evaluated the design and implementation of key controls
around DB pension scheme balances and the completeness
and accuracy of underlying data used in the calculation of
the retirement benefit obligations. Furthermore, we assessed
management’s ownership and valuation of pension scheme
assets, held at fair value, by comparison to observable market
prices and custodian statements. Finally, we evaluated
the accessibility of the surplus on the main scheme with
reference to the latest interpretations of the applicable
accounting standards and advice received by management
from external parties.
Revenue Recognition
We have identified earning patterns applied to gross
written premiums (“GWP”) and the risk of data from policy
administration systems not being reflected appropriately as
our revenue risks for general insurance business and we have
identified the calculation of management fees as the revenue
risk for investment management business. GWP totalled
£308m (2014: £329m) for the year, EdenTree Investment
Management’s management fee income totalled £10m
(2014: £10m).
We have tested the design and implementation and operating
effectiveness of the key controls over revenue recognition
and underwriting. We focussed our work on the automated
controls and interfaces between the underlying policy
administration systems and the general ledger. Furthermore,
we performed tests of details on the gross and unearned
premium balances, agreeing a sample to policy documents
and cash receipts where appropriate. We also performed
substantive analytical procedures on the writing patterns and
unearned premium percentage. Our IT audit specialists were
involved in the testing of systems and controls and also in
performing data analytics on the premiums population to
enable selection of a risk-weighted sample for detailed testing.
EdenTree management fee income was tested by
recalculation and we performed analytical procedures,
focussing on fees earned compared to funds under
management, throughout the year.
The description of risks above should be read in conjunction with the significant issues considered by the Audit Committee
discussed on page 100 and 101. These matters were addressed in the context of our audit of the financial statements as a whole,
and in forming our opinion thereon, and we do not provide a separate opinion on these 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 £5.0m (2014: £3.1m), which is 1%
of total shareholders’ equity (2014: 1%) and 1.6% (2014: 1%) of gross written
premiums. We have used total shareholders’ equity as a base for our materiality,
which is a change from 2014, where we used gross written premium as our base.
We have used 1% of total shareholders’ equity in determining an appropriate
materiality in line with size and risk profile of the Group. We have changed the basis
as the main focus of the Group is long-term value generation; the strategic focus of
the Group has shifted in recent years away from targeting GWP growth and towards
the ambition to deliver longer-term value and support charitable giving. This ensures
our judgement on materiality remains in line with the focus and risk profile of the Group.
We agreed with the Group Audit Committee that we would report to the Committee all
audit differences in excess of £96k (2014: £62k) for the Group, 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 and smaller differences
relating to small subsidiaries, in the context of their entity materialities.
132
ANNUAL REPORT & ACCOUNTS 2015
INDEPENDENT AUDITOR'S REPORT
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 insurance businesses in the UK,
Ireland, Australia and Canada. All non-dormant subsidiaries, consolidated in the
financial statements, were subject to a full scope statutory audit, executed at levels
of materiality applicable to each individual entity, in the range £0.1k to £4.3m.
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 locations where the Group audit scope was focused at least once every three
years. We include the component audit teams in our team briefings, discuss their
risk assessments, and review documentation of the findings from their work. This
year, the Group Audit Senior Manager visited the Canadian Branch of EIO plc, as
well as usual visits to UK-based components.
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.
Directors’ remuneration
Other matters
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. We reviewed the part of the Corporate
Governance Statement relating to the company’s compliance with certain
provisions of the UK Corporate Governance Code. We have nothing to report
arising from our review.
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.
ANNUAL REPORT & ACCOUNTS 2015
133
SECTION THREE – GOVERNANCE
Respective
responsibilities
of directors
and auditor
Scope of the
audit of the financial
statements
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.
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.
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). 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.
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 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.
Paul Stephenson BA FCA (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
16 March 2016
134
ANNUAL REPORT & ACCOUNTS 2015
SECTION FOUR – FINANCIAL STATEMENTS
Consolidated Statement of Profit or Loss
Consolidated and Parent Statement of
Comprehensive Income
136
137
Consolidated and Parent Statement of Changes in Equity
138
Consolidated and Parent Statement of Financial Position
139
Consolidated and Parent Statement of Cash Flows
Notes to the Financial Statements
140
141
r
o
t
c
o
r
P
r
a
k
s
O
y
b
h
p
a
r
g
o
t
o
h
P
ANNUAL REPORT & ACCOUNTS 2015
ANNUAL REPORT & ACCOUNTS 2015
135
135
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
for the year ended 31 December 2015
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 (attributable to equity holders of the Parent)
Notes
5, 6
6
6
7
8
8
9
5
13
10
2015
£000
2014
£000
308,199
(113,115)
4,677
199,761
53,009
43,228
295,998
(163,916)
66,925
(61,202)
(84,099)
(242,292)
53,706
(101)
53,605
(6,988)
46,617
328,797
(135,132)
31,178
224,843
62,258
46,197
333,298
(197,170)
62,306
(70,813)
(79,381)
(285,058)
48,240
(86)
48,154
(7,837)
40,317
136
ANNUAL REPORT & ACCOUNTS 2015
CONSOLIDATED AND PARENT STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2015
Profit for the year
Other comprehensive income
Items that will not be reclassified to profit or loss:
Fair value gains 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
2015
Group
£000
Parent
£000
2014
Group
£000
46,617
42,759
40,317
30
(5,809)
1,061
(4,718)
(6,461)
(11,179)
30
(5,809)
1,061
(4,718)
(3,913)
(8,631)
30
(13,184)
2,647
(10,507)
(1,697)
(12,204)
Parent
£000
31,359
30
(13,184)
2,647
(10,507)
(405)
(10,912)
35,438
34,128
28,113
20,447
ANNUAL REPORT & ACCOUNTS 2015
137
CONSOLIDATED AND PARENT STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2015
Group
At 1 January 2015
Profit for the year
Other net income/(expense)
Total comprehensive income
Dividends
Gross charitable grant
Tax relief on charitable grant
Group tax relief in excess
of standard rate
Reserve transfers
At 31 December 2015
At 1 January 2014
Profit for the year
Other net income/(expense)
Total comprehensive income
Dividends
Gross charitable grant
Tax relief on charitable grant
Group tax relief in excess
of standard rate
Reserve transfers
At 31 December 2014
Parent
At 1 January 2015
Profit for the year
Other net income/(expense)
Total comprehensive income
Dividends
Gross charitable grant
Tax relief on charitable grant
Group tax relief in excess
of standard rate
Reserve transfers
At 31 December 2015
At 1 January 2014
Profit for the year
Other net income/(expense)
Total comprehensive income
Dividends
Gross charitable grant
Tax relief on charitable grant
Group tax relief in excess
of standard rate
Reserve transfers
At 31 December 2014
Share
capital
£000
120,477
-
-
-
-
-
-
-
-
120,477
120,477
-
-
-
-
-
-
-
-
120,477
120,477
-
-
-
-
-
-
-
-
120,477
120,477
-
-
-
-
-
-
-
-
120,477
Share
premium
£000
Equalisation Revaluation
reserve
£000
reserve
£000
Translation
reserve
£000
4,632
-
-
-
-
-
-
-
-
4,632
4,632
-
-
-
-
-
-
-
-
4,632
4,632
-
-
-
-
-
-
-
-
4,632
4,632
-
-
-
-
-
-
-
-
4,632
25,299
-
-
-
-
-
-
-
(342)
24,957
25,837
-
-
-
-
-
-
-
(538)
25,299
25,299
-
-
-
-
-
-
-
(342)
24,957
25,837
-
-
-
-
-
-
-
(538)
25,299
541
-
52
52
-
-
-
-
(97)
496
700
-
40
40
-
-
-
-
(199)
541
541
-
52
52
-
-
-
-
(97)
496
563
-
40
40
-
-
-
-
(62)
541
12,643
-
(6,461)
(6,461)
-
-
-
-
-
6,182
14,340
-
(1,697)
(1,697)
-
-
-
-
-
12,643
6,053
-
(3,913)
(3,913)
-
-
-
-
-
2,140
6,458
-
(405)
(405)
-
-
-
-
-
6,053
Retained
earnings
£000
331,041
46,617
(4,770)
41,847
(9,181)
(20,000)
4,050
(6)
439
348,190
328,157
40,317
(10,547)
29,770
(9,181)
(23,500)
5,053
5
737
331,041
263,370
42,759
(4,770)
37,989
(9,181)
(20,000)
4,050
(246)
439
276,421
270,327
31,359
(10,547)
20,812
(9,181)
(23,500)
5,053
(741)
600
263,370
Total
£000
494,633
46,617
(11,179)
35,438
(9,181)
(20,000)
4,050
(6)
-
504,934
494,143
40,317
(12,204)
28,113
(9,181)
(23,500)
5,053
5
-
494,633
420,372
42,759
(8,631)
34,128
(9,181)
(20,000)
4,050
(246)
-
429,123
428,294
31,359
(10,912)
20,447
(9,181)
(23,500)
5,053
(741)
-
420,372
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.
138
ANNUAL REPORT & ACCOUNTS 2015
CONSOLIDATED AND PARENT STATEMENT OF FINANCIAL POSITION
for the year ended 31 December 2015
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
Current assets classified as held for sale
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
Pension liabilities
Retirement benefit obligations
Deferred tax liabilities
Current tax liabilities
Deferred income
Other liabilities
Total liabilities
Notes
2015
Group
£000
Parent
£000
2014
Group
£000
Parent
£000
17
18
30
19
20
21
22
28
24
25
26
27
28
29
19
19
30
31
29,104
28,394
1,674
10,893
7,704
98,750
833,390
170,740
331
124,842
118,441
-
1,424,263
120,477
4,632
379,825
504,934
790,690
1,431
4,066
240
9,193
34,124
3,403
15,532
60,650
919,329
4,206
24,582
-
10,893
6,922
98,750
682,549
130,414
331
96,547
84,779
-
1,139,973
120,477
4,632
304,014
429,123
605,824
1,431
3,890
240
9,193
33,511
2,308
13,079
41,374
710,850
28,998
31,117
1,295
21,068
6,405
69,775
886,186
157,465
-
119,394
107,526
6,204
1,435,433
120,477
4,632
369,524
494,633
820,328
1,259
3,588
250
12,547
36,014
5,767
16,432
44,615
940,800
4,230
26,974
11
21,068
5,693
69,775
714,428
115,004
-
102,239
77,774
-
1,137,196
120,477
4,632
295,263
420,372
618,887
1,259
2,770
250
12,547
35,559
4,962
13,443
27,147
716,824
Total shareholders' equity and liabilities
1,424,263
1,139,973
1,435,433
1,137,196
The financial statements of Ecclesiastical Insurance Office plc, registered number 24869, on pages 136 to 195 were approved and authorised
for issue by the Board of Directors on 16 March 2016 and signed on its behalf by:
Will Samuel
Chairman
Mark Hews
Group Chief Executive
ANNUAL REPORT & ACCOUNTS 2015
139
CONSOLIDATED AND PARENT STATEMENT OF CASH FLOWS
for the year ended 31 December 2015
NOTES TO THE FINANCIAL STATEMENTS
Profit before tax
Adjustments for:
Depreciation of property, plant and equipment
Revaluation 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)/losses on financial instruments and investment
property
Dividend and interest income
Finance costs
Changes in operating assets and liabilities:
Net decrease in insurance contract liabilities
Net (increase)/decrease in reinsurers' share of contract liabilities
Net decrease in deferred acquisition costs
Net (increase)/decrease in other assets
Net increase in operating liabilities
Net increase/(decrease) in other liabilities
Cash (used)/generated by operations
Purchases of financial instruments and investment property
Sale of financial instruments and investment property
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
Acquisition of business, net of cash acquired
Acquisition of shares issued by subsidiary
Disposal of business
Net cash from/(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 increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Exchange losses on cash and cash equivalents
Cash and cash equivalents at end of year
2015
Group
£000
Parent
£000
2014
Group
£000
53,605
47,926
48,154
1,708
(140)
16
1,397
11
(7,737)
(29,934)
101
(15,193)
(17,068)
1,754
(6,316)
14,884
866
(2,046)
(103,333)
122,519
8,714
23,868
(101)
(6,886)
42,735
(2,657)
260
(1,817)
-
-
5,260
1,046
(331)
-
(9,181)
(20,000)
(29,512)
14,269
107,526
(3,354)
118,441
1,555
(90)
(18)
1,116
-
(10,665)
(25,792)
101
(5,004)
(16,666)
1,670
5,825
12,935
1,484
14,377
(75,141)
81,436
11,194
16,984
(101)
(5,218)
43,531
(2,437)
260
(1,392)
-
-
-
(3,569)
(331)
(746)
(9,181)
(20,000)
(30,258)
9,704
77,774
(2,699)
84,779
1,638
-
(32)
1,751
19
(8,918)
(34,709)
86
(21,413)
(26,814)
3,327
3,792
8,814
(3,498)
(27,803)
(152,899)
185,401
8,624
26,889
(86)
1,127
41,253
(1,369)
677
(1,548)
(5,000)
-
-
(7,240)
(359)
(15)
(9,181)
(23,500)
(33,055)
958
107,241
(673)
107,526
Parent
£000
35,644
1,464
-
(13)
1,092
-
739
(26,150)
86
(41,066)
6,087
3,377
4,725
1,777
(4,177)
(16,415)
(123,780)
144,870
7,863
18,774
(86)
2,512
33,738
(1,171)
126
(1,547)
-
(300)
-
(2,892)
(359)
(122)
(9,181)
(23,500)
(33,162)
(2,316)
80,430
(340)
77,774
140
ANNUAL REPORT & ACCOUNTS 2015
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 and in addition offers a
range of financial services, with offices in the UK & Ireland, Australia and Canada. The principal accounting policies adopted in preparing the
Group's International Financial Reporting Standards (IFRS) financial statements are set out below.
The Group’s consolidated financial statements have been prepared using the following accounting policies, which are in accordance with IFRS
applicable at 31 December 2015 issued by the International Accounting Standards Board (IASB) 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
Basis of preparation
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, financial, operational and strategic risk. The Group has
considerable financial resources: financial
investments of £833.4m, 96% of which are liquid (2014: financial
investments of £892.4m
(including current assets classified as held for sale), 98% liquid); cash and cash equivalents of £118.4m and no borrowings (2014: cash and
cash equivalents of £107.5m and no borrowings); and a regulatory enhanced capital cover of 3.0 (2014: 2.9). Liquid financial investments
consist of listed equities and OEICs, government bonds and listed debt. 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
The Standards adopted in the current year are either outside the scope of Group transactions or do not materially impact the Group.
The following Standards were in issue but not yet effective and have not been applied in these financial statements.
Accounting Standard Key requirements
Expected impact on financial statements
Effective date
IFRS 9, Financial
Provides a new model for the
It is expected that equity instruments will continue
Annual periods
Instruments
classification and measurement
to be measured at fair value through profit or loss.
beginning on or
of financial instruments, a single,
There is a possibility that the measurement of
after 1 January
forward-looking ‘expected loss’
certain debt instruments will change to amortised
2018. Although
impairment model and a reformed
cost or fair value through other comprehensive
expected to be
approach to hedge accounting.
income, although this is being assessed and
deferred until 2020
depends on the conclusion of IFRS 4 Phase II, the
or 2021 for entities
IASB's ongoing insurance accounting project.
that issue insurance
contracts.
IFRS 15, Revenue
Establishes principles for
Insurance contracts are outside the scope of the
Annual periods
from Contracts with
reporting useful information to
Standard. The impact on fee and commission
beginning on or
Customers
users of financial statements
income is being assessed. There is the possibility of
after 1 January
about the nature, amount, timing
commission income being recognised earlier if a
2018 (effective
and uncertainty of revenue and
contract is approved and consideration is probable.
date deferred by
cash flows arising from an entity’s
Variable consideration will be recognised earlier if
one year during the
contracts with customers.
receipt is considered highly probable.
current year).
IFRS 16, Leases
Provides a single lessee
The Group is currently assessing the full impact of
Annual periods
accounting model, requiring
IFRS 16. As operating leases (as disclosed in note
beginning on or
lessees to recognise assets and
32) are in place for the majority of the Group’s
after 1 January
liabilities for all leases unless the
offices, these changes will significantly increase the
2019 (subject to
term is 12 months or less or the
value of both assets and liabilities recognised in the
EU endorsement).
underlying asset has a low value.
financial statements.
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
1 Accounting policies
1 Accounting policies
Ecclesiastical Insurance Office plc (hereafter referred to as the ‘Company’, or ‘Parent’), a public limited company incorporated and domiciled in
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 and in addition offers a
England, together with its subsidiaries (collectively, the ‘Group’) operates principally as a provider of general insurance and in addition offers a
range of financial services, with offices in the UK & Ireland, Australia and Canada. The principal accounting policies adopted in preparing the
range of financial services, with offices in the UK & Ireland, Australia and Canada. The principal accounting policies adopted in preparing the
Group's International Financial Reporting Standards (IFRS) financial statements are set out below.
Group's International Financial Reporting Standards (IFRS) financial statements are set out below.
Basis of preparation
Basis of preparation
The Group’s consolidated financial statements have been prepared using the following accounting policies, which are in accordance with IFRS
The Group’s consolidated financial statements have been prepared using the following accounting policies, which are in accordance with IFRS
applicable at 31 December 2015 issued by the International Accounting Standards Board (IASB) and endorsed by the European Union (EU).
applicable at 31 December 2015 issued by the International Accounting Standards Board (IASB) 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
The financial statements have been prepared on the historical cost basis, except for the revaluation of properties and certain financial
instruments.
instruments.
The Financial Performance and Risk Management sections of the Strategic Report provide a review of the Group’s business activities and
The Financial Performance and Risk Management sections of the Strategic Report provide a review of the Group’s business activities and
including exposures to insurance, financial, operational and strategic risk. The Group has
describe the principal risks and uncertainties,
including exposures to insurance, financial, operational and strategic risk. The Group has
describe the principal risks and uncertainties,
investments of £892.4m
considerable financial resources: financial
considerable financial resources: financial
investments of £892.4m
(including current assets classified as held for sale), 98% liquid); cash and cash equivalents of £118.4m and no borrowings (2014: cash and
(including current assets classified as held for sale), 98% liquid); cash and cash equivalents of £118.4m and no borrowings (2014: cash and
cash equivalents of £107.5m and no borrowings); and a regulatory enhanced capital cover of 3.0 (2014: 2.9). Liquid financial investments
cash equivalents of £107.5m and no borrowings); and a regulatory enhanced capital cover of 3.0 (2014: 2.9). Liquid financial investments
consist of listed equities and OEICs, government bonds and listed debt. As a consequence, the directors have a reasonable expectation that the
consist of listed equities and OEICs, government bonds and listed debt. 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,
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.
they continue to adopt the going concern basis in preparing the annual report and accounts.
investments of £833.4m, 96% of which are liquid (2014: financial
investments of £833.4m, 96% of which are liquid (2014: financial
In accordance with IFRS 4, Insurance Contracts , on adoption of IFRS the Group applied existing accounting practices for insurance and
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
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.
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
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
which that entity operates (the 'functional currency'). The consolidated financial statements are stated in sterling, which is the Company’s
functional and presentation currency.
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.
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
New and revised Standards
The Standards adopted in the current year are either outside the scope of Group transactions or do not materially impact the Group.
The Standards adopted in the current year are either outside the scope of Group transactions or do not materially impact the Group.
The following Standards were in issue but not yet effective and have not been applied in these financial statements.
The following Standards were in issue but not yet effective and have not been applied in these financial statements.
Accounting Standard Key requirements
Accounting Standard Key requirements
IFRS 9, Financial
IFRS 9, Financial
Instruments
Instruments
Provides a new model for the
Provides a new model for the
classification and measurement
classification and measurement
of financial instruments, a single,
of financial instruments, a single,
forward-looking ‘expected loss’
forward-looking ‘expected loss’
impairment model and a reformed
impairment model and a reformed
approach to hedge accounting.
approach to hedge accounting.
Expected impact on financial statements
Expected impact on financial statements
It is expected that equity instruments will continue
It is expected that equity instruments will continue
to be measured at fair value through profit or loss.
to be measured at fair value through profit or loss.
There is a possibility that the measurement of
There is a possibility that the measurement of
certain debt instruments will change to amortised
certain debt instruments will change to amortised
cost or fair value through other comprehensive
cost or fair value through other comprehensive
income, although this is being assessed and
income, although this is being assessed and
depends on the conclusion of IFRS 4 Phase II, the
depends on the conclusion of IFRS 4 Phase II, the
IASB's ongoing insurance accounting project.
IASB's ongoing insurance accounting project.
IFRS 15, Revenue
IFRS 15, Revenue
from Contracts with
from Contracts with
Customers
Customers
IFRS 16, Leases
IFRS 16, Leases
Establishes principles for
Establishes principles for
reporting useful information to
reporting useful information to
users of financial statements
users of financial statements
about the nature, amount, timing
about the nature, amount, timing
and uncertainty of revenue and
and uncertainty of revenue and
cash flows arising from an entity’s
cash flows arising from an entity’s
contracts with customers.
contracts with customers.
Provides a single lessee
Provides a single lessee
accounting model, requiring
accounting model, requiring
lessees to recognise assets and
lessees to recognise assets and
liabilities for all leases unless the
liabilities for all leases unless the
term is 12 months or less or the
term is 12 months or less or the
underlying asset has a low value.
underlying asset has a low value.
Insurance contracts are outside the scope of the
Insurance contracts are outside the scope of the
Standard. The impact on fee and commission
Standard. The impact on fee and commission
income is being assessed. There is the possibility of
income is being assessed. There is the possibility of
commission income being recognised earlier if a
commission income being recognised earlier if a
contract is approved and consideration is probable.
contract is approved and consideration is probable.
Variable consideration will be recognised earlier if
Variable consideration will be recognised earlier if
receipt is considered highly probable.
receipt is considered highly probable.
The Group is currently assessing the full impact of
The Group is currently assessing the full impact of
IFRS 16. As operating leases (as disclosed in note
IFRS 16. As operating leases (as disclosed in note
32) are in place for the majority of the Group’s
32) are in place for the majority of the Group’s
offices, these changes will significantly increase the
offices, these changes will significantly increase the
value of both assets and liabilities recognised in the
value of both assets and liabilities recognised in the
financial statements.
financial statements.
Effective date
Effective date
Annual periods
Annual periods
beginning on or
beginning on or
after 1 January
after 1 January
2018. Although
2018. Although
expected to be
expected to be
deferred until 2020
deferred until 2020
or 2021 for entities
or 2021 for entities
that issue insurance
that issue insurance
contracts.
contracts.
Annual periods
Annual periods
beginning on or
beginning on or
after 1 January
after 1 January
2018 (effective
2018 (effective
date deferred by
date deferred by
one year during the
one year during the
current year).
current year).
Annual periods
Annual periods
beginning on or
beginning on or
after 1 January
after 1 January
2019 (subject to
2019 (subject to
EU endorsement).
EU endorsement).
ANNUAL REPORT & ACCOUNTS 2015
141
NOTES TO THE FINANCIAL STATEMENTS
1 Accounting policies (continued)
The other Standards in issue but not yet effective are not expected to materially impact the Group.
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 over which the Company, directly or indirectly, has control, with control being achieved when the Company has
power over the investee, is exposed to variable return from its involvement with the investee and has the ability to use its power to affect its
returns. 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 International
Accounting Standard (IAS) 27, 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 fair value of contingent consideration, 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.
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ANNUAL REPORT & ACCOUNTS 2015
Premiums written include adjustments to premiums written in prior periods and estimates for pipeline premiums and are shown net of insurance
premium taxes.
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.
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 business. Surpluses and deficits are offset where business classes are considered to be managed
together.
Long-term business provisions
Under current IFRS requirements,
previously.
insurance contract liabilities are measured using accounting policies consistent with those adopted
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.
ANNUAL REPORT & ACCOUNTS 2015
143
NOTES TO THE FINANCIAL STATEMENTS
1 Accounting policies (continued)
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. Estimates are included for
premiums not notified by the year end and provision is made for the anticipated lapse of renewals not yet confirmed. The proportion of
premiums ceded in a year which relates to periods of risk extending beyond the current year is carried forward as unearned. 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 the 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
acquired 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. Goodwill is allocated to cash-generating
units for the purpose of impairment testing. 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.
Other intangible assets
Other intangible assets consist of acquired brand, 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
Motor vehicles
Fixtures, fittings and office equipment
3 - 5 years
27% reducing balance or length of lease
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.
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ANNUAL REPORT & ACCOUNTS 2015
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
trading) or loans and receivables.
investments as either financial assets at fair value through profit or loss (designated as such or held for
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.
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.
instruments include financial
Derivative financial instruments
Derivative financial
instruments that derive their value from underlying equity instruments. 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 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 in 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 in 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.
ANNUAL REPORT & ACCOUNTS 2015
145
NOTES TO THE FINANCIAL STATEMENTS
1 Accounting policies (continued)
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 an agent in placing the insurable risks of clients with insurers, debtors arising from such transactions are not included
in 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 in 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 a lessor under operating leases is credited to profit or loss on a straight-line basis over the period of the lease. Lease incentives are
recognised 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.
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 it is virtually certain that the reimbursement will be received.
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 the present value economic benefits of available in the form
of refunds from the plan or reductions in future employer contributions to the plan.
In accordance with IAS 19, 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.
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ANNUAL REPORT & ACCOUNTS 2015
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, after any adjustment in respect of prior 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.
Assets held for sale
Assets classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell.
Assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use.
This condition is regarded as met only when the sale is highly probable and expected to qualify for recognition as a completed sale within one
year from the date of classification.
ANNUAL REPORT & ACCOUNTS 2015
147
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. 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 28. 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 28.
(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.
Estimates are also made as to future investment returns 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, margins for risk and uncertainty are
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 28.
(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 expense 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 considers 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 expense inflation is determined by comparing the historical relationship of medical expense increases over a portfolio
of UK-based post-retirement medical plans with the rate of inflation, making an allowance for the size of the plan and actual medical expense
experience. Other key assumptions for the pension and post-employment benefit costs and credits are based in part on current market
conditions.
Additional
assumptions is disclosed in note 19.
information including the sensitivity of pension and post-employment medical benefit scheme liabilities to changes in the key
148
ANNUAL REPORT & ACCOUNTS 2015
(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 17.
(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 of 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.
ANNUAL REPORT & ACCOUNTS 2015
149
NOTES TO THE FINANCIAL STATEMENTS
3 Insurance risk
Through its general and life insurance operations, the Group is exposed to a number of risks, as summarised in the Risk Management section
of the Strategic Report. The risk under any one insurance contract is the possibility that the insured event occurs and the uncertainty of the
amount and timing of the resulting claim. Factors such as the business and product mix, the external environment including market competition
and reinsurance capacity all may vary from year to year, along with the actual frequency, severity and ultimate cost of claims and benefits. This
subjects the Group to underwriting and pricing risk (the risk of failing to ensure disciplined risk selection and achieve the required premium),
claims reserving risk (the risk of actual claims payments exceeding the amount we are holding in reserves) and reinsurance risk (the risk of
failing to access and manage reinsurance capacity at a reasonable price).
(a) Risk mitigation
Statistics demonstrate that the larger and more diversified the portfolio of insurance contracts, the smaller the relative variability in the expected
outcome will be. The Group’s underwriting strategy is designed to ensure that the underwritten risks are well diversified in terms of type and
amount of risk and geographical spread. In all operations pricing controls are in place, underpinned by sound statistical analysis, market
expertise and appropriate external consultant advice. Gross and net underwriting exposure is protected through the use of a comprehensive
programme of reinsurance using both proportional and non-proportional reinsurance and supported by proactive claims handling. The overall
reinsurance structure is regularly reviewed and modelled to ensure that it remains optimum to the Group's needs. The optimum reinsurance
structure provides the Group with sustainable, long-term capacity to support its specialist business strategy, with effective balance sheet and
profit and loss protection at a reasonable cost.
Catastrophe protection is purchased following an extensive annual modelling exercise of gross and net (of proportional reinsurance) exposures.
In conjunction with reinsurance brokers the Group utilises the full range of proprietary catastrophe models and continues to develop bespoke
modelling options that better reflect the specialist nature of the portfolio. Reinsurance is arranged to cover up to a 1/250 loss, which increases
to a 1/500 loss where earthquake risk exists.
(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 has
also underwritten 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.
Below is a table summarising written premiums for the financial year, before and after reinsurance, by territory and by class of business:
2015
Group
Territory
United Kingdom and Ireland
Australia
Canada
Total
Parent
Territory
United Kingdom and Ireland
Canada
Total
Property
£000
170,371
92,631
20,708
1,936
28,194
19,995
219,273
114,562
170,371
92,631
28,194
19,995
198,565
112,626
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Gross
Net
General insurance
Liability
£000
Motor
£000
Accident
£000
Life insurance
Funeral plans
£000
52,316
47,183
15,062
12,993
11,713
10,880
79,091
71,056
52,316
47,183
11,713
10,880
64,029
58,063
210
209
550
545
-
-
760
754
210
209
-
-
210
209
7,831
7,510
1,131
1,089
-
-
8,962
8,599
7,831
7,510
-
-
7,831
7,510
113
113
-
-
-
-
113
113
-
-
-
-
-
-
Total
£000
230,841
147,646
37,451
16,563
39,907
30,875
308,199
195,084
230,728
147,533
39,907
30,875
270,635
178,408
150
ANNUAL REPORT & ACCOUNTS 2015
2014
Group
Territory
United Kingdom and Ireland Gross
Australia
Canada
Total
Parent
Net
Gross
Net
Gross
Net
Gross
Net
Territory
United Kingdom and Ireland Gross
Canada
Total
Net
Gross
Net
Gross
Net
Property
£000
179,362
94,506
22,638
(8,558)
27,918
19,691
229,918
105,639
179,362
94,506
27,918
19,691
207,280
114,197
General insurance
Liability
£000
Motor
£000
Accident
£000
Life insurance
Funeral plans
£000
55,895
49,787
15,532
13,300
11,447
10,562
82,874
73,649
55,895
49,787
11,447
10,562
67,342
60,349
183
(924)
763
757
-
-
946
(167)
183
(924)
-
-
183
(924)
13,742
13,272
1,150
1,105
-
-
14,892
14,377
13,742
13,272
-
-
13,742
13,272
167
167
-
-
-
-
167
167
-
-
-
-
-
-
Total
£000
249,349
156,808
40,083
6,604
39,365
30,253
328,797
193,665
249,182
156,641
39,365
30,253
288,547
186,894
(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, there can be variability in the nature, number and size of claims made in each period.
The nature of claims may include fire, business interruption, weather damage, escape of water, subsidence, accidental damage to insured
vehicles and theft. Subsidence claims are particularly difficult to predict because the damage is often not apparent for some time. The ultimate
settlements can be small or large with a risk of a settled claim being reopened at a later date.
The number of claims made can be affected by weather events, changes in climate and crime rates. Climate change may give rise to more
frequent and extreme weather events, such as river flooding, hurricanes and drought, and their consequences, for example, subsidence claims.
If a weather event happens near the end of the financial year, the uncertainty about ultimate claims cost in the financial statements is much
higher because there is insufficient time for adequate data to be received to assess the final cost of claims.
Individual claims can vary in amount since the risks insured are diverse in both size and nature. The cost of repairing property varies according
to the extent of damage, cost of materials and labour charges.
Contracts are underwritten on a reinstatement basis or repair and restoration basis as appropriate. Costs of rebuilding properties, of
replacement or indemnity for contents and time taken to 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 earthquake, weather or fire events.
Claims payment, on average, occurs within a year of the event that gives rise to the claim. However, there is variability around this average with
larger claims typically taking longer to settle.
ANNUAL REPORT & ACCOUNTS 2015
151
NOTES TO THE FINANCIAL STATEMENTS
3 Insurance risk (continued)
Liability classes
The main exposures are in respect of liability insurance contracts which protect policyholders from the liability to compensate injured
employees (employers' liability) and third parties (public liability).
Claims that may arise from the liability portfolios include damage to property, physical injury, disease and psychological trauma. The Group has
a different exposure profile to most other commercial lines insurance companies as it has lower exposure to industrial risks. Therefore, claims
for industrial diseases are less common for the Group than injury claims such as slips, trips and back injuries.
The frequency and severity of claims arising on liability insurance contracts, 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 is particularly difficult to predict. There is often uncertainty as to the extent and type of injury,
whether any payments will be made and, if they are, the amount and timing of the payments. 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, during which time there can be particular uncertainty as to
the number of future potential claims and their cost. The Group has reflected this uncertainty and believes that it holds adequate reserves for
latent claims that may result from exposure periods up to the reporting date.
Note 28 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. This is not one of the Group's principal risks and the life fund is closed to new entrants,
with only minimal premiums now being received each year.
Uncertainty in the estimation of the timing of future claims arises from the unpredictability of long-term changes in overall levels of mortality.
The Group bases these estimates on standard industry and national mortality tables. The most significant factors that could alter the expected
mortality rates profile are epidemics, widespread changes in lifestyle and continued improvement in medical science and social conditions. The
primary risk on these contracts is the level of future investment returns on the assets backing the liabilities over the life of the policyholders. The
interest rate and inflation risk within this has been largely mitigated by holding index-linked assets of a similar term to the expected liabilities
profile. The main residual risk is the spread risk attaching to corporate bonds held to match the liabilities. The small mortality risk is retained by
the Group and directly impacts shareholders' equity.
152
ANNUAL REPORT & ACCOUNTS 2015
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 the financial risks to which the Group is exposed. 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 2015
Financial investments
Other assets
Cash and cash equivalents
Other liabilities
Net other
Total
At 31 December 2014
Financial investments
Other assets
Cash and cash equivalents
Assets classified as held for sale
Other liabilities
Net other
Total
Parent
At 31 December 2015
Financial investments
Other assets
Cash and cash equivalents
Other liabilities
Net other
Total
At 31 December 2014
Financial investments
Other assets
Cash and cash equivalents
Other liabilities
Net other
Total
Designated
at fair value
£000
Financial assets
Held for
Loans and
trading receivables*
£000
£000
832,661
-
-
-
-
832,661
886,170
-
-
-
-
-
886,170
631,757
-
-
-
-
631,757
664,349
-
-
-
-
664,349
713
-
-
-
-
713
-
-
-
-
-
-
-
713
-
-
-
-
713
-
-
-
-
-
-
16
121,840
118,441
-
-
240,297
16
116,485
107,526
6,204
-
-
230,231
14
93,950
84,779
-
-
178,743
14
99,652
77,774
-
-
177,440
* Cash and cash equivalents have been presented with loans and receivables.
** Financial liabilities are held at amortised cost.
Held for
trading
£000
Financial
liabilities**
£000
Other assets
and liabilities
£000
Total
£000
-
-
-
(1,466)
-
(1,466)
-
-
-
-
-
-
-
-
-
-
(1,466)
-
(1,466)
-
-
-
-
-
-
-
-
-
(54,177)
-
(54,177)
-
-
-
-
(40,338)
-
(40,338)
-
-
-
(35,547)
-
(35,547)
-
-
-
(23,885)
-
(23,885)
-
3,002
-
(5,007)
(511,089)
(513,094)
833,390
124,842
118,441
(60,650)
(511,089)
504,934
-
2,909
-
-
(4,277)
(580,062)
(581,430)
886,186
119,394
107,526
6,204
(44,615)
(580,062)
494,633
50,065
2,597
-
(4,361)
(393,378)
(345,077)
682,549
96,547
84,779
(41,374)
(393,378)
429,123
50,065
2,587
-
(3,262)
(446,922)
(397,532)
714,428
102,239
77,774
(27,147)
(446,922)
420,372
ANNUAL REPORT & ACCOUNTS 2015
153
NOTES TO THE FINANCIAL STATEMENTS
4 Financial risk and capital management (continued)
(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 2015
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 2014
Financial assets at fair value through profit or loss
Financial investments
Equity securities
Debt securities
Total financial assets at fair value through profit or loss
Parent
At 31 December 2015
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 2014
Financial assets at fair value through profit or loss
Financial investments
Equity securities
Debt securities
Total financial assets at fair value through profit or loss
154
ANNUAL REPORT & ACCOUNTS 2015
Fair value measurement at the
end of the reporting period based on
Level 1
£000
Level 2
£000
Level 3
£000
Total
£000
274,293
524,453
-
798,746
221
2,289
713
3,223
31,218
187
-
31,405
305,732
526,929
713
833,374
269,347
591,542
860,889
209
4,485
4,694
20,349
238
20,587
289,905
596,265
886,170
242,797
355,570
-
598,367
221
1,765
713
2,699
31,217
187
-
31,404
274,235
357,522
713
632,470
239,419
403,099
642,518
209
1,036
1,245
20,348
238
20,586
259,976
404,373
664,349
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 2015
Opening balance
Total gains/(losses) recognised in profit or loss
Purchases
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 2014
Opening balance
Total gains/(losses) recognised in profit or loss
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 2015
Opening balance
Total gains/(losses) recognised in profit or loss
Purchases
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 2014
Opening balance
Total gains/(losses) recognised in profit or loss
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
20,349
5,146
5,723
31,218
238
(51)
-
187
Total
£000
20,587
5,095
5,723
31,405
5,146
(51)
5,095
19,390
959
20,349
959
20,348
5,146
5,723
31,217
317
(79)
238
(79)
19,707
880
20,587
880
238
(51)
-
187
20,586
5,095
5,723
31,404
5,146
(51)
5,095
19,386
962
20,348
962
317
(79)
238
(79)
19,703
883
20,586
883
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.
ANNUAL REPORT & ACCOUNTS 2015
155
NOTES TO THE FINANCIAL STATEMENTS
4 Financial risk and capital management (continued)
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, an illiquidity
discount and a credit rating discount applied to the valuation to account for the risks associated with holding the asset. If the price-to-book
ratio, illiquidity discount and credit rating discount applied changes 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 and a decrease in the illiquidity margin applied to one
of the stocks. The illiquidity assumption was updated based on observable market inputs.
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.
156
ANNUAL REPORT & ACCOUNTS 2015
(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 (2014: two years), reflecting the relatively
short-term average duration of its general insurance liabilities. The mean term of discounted general insurance liabilities is disclosed in note 28
(a) 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 2015
Assets
Debt securities
Cash and cash equivalents
Liabilities (discounted)
Long-term business provision
At 31 December 2014
Assets
Debt securities
Cash and cash equivalents
Liabilities (discounted)
Long-term business provision
Within
1 year
£000
6,065
2,648
8,713
Maturity
Between
1 & 5 years
£000
23,119
-
23,119
After
5 years
£000
67,572
-
67,572
Total
£000
96,756
2,648
99,404
6,354
21,976
57,092
85,422
1,053
1,924
2,977
24,311
-
24,311
79,490
-
79,490
104,854
1,924
106,778
6,014
21,816
66,494
94,324
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.
ANNUAL REPORT & ACCOUNTS 2015
157
NOTES TO THE FINANCIAL STATEMENTS
4 Financial risk and capital management (continued)
(d) Credit risk
The Group has exposure to credit risk, which is the risk of non-payment of their obligations by counterparties and financial markets borrowers.
Areas where the Group is exposed to credit risk are:
-
-
-
-
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 2015
reinsurance programme having a minimum rating of 'A-' from Standard & Poor’s or an equivalent agency at the time of purchase.
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 that are in turn monitored via credit reference agencies and considered to pose minimal risk of default. The Group has no material
concentration of credit risk in respect of amounts due from insurance intermediaries and policyholders 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
including government securities,
local authority issues, corporate loans and bonds, overseas bonds, preference shares and other interest-
bearing securities. Limits are imposed on the credit ratings of the corporate bond portfolio and exposures regularly monitored. Group
investments in unlisted securities represent less than 1% of this category in the current and prior year. The Group’s exposure to counterparty
default on debt securities is spread across a variety of geographical and economic territories, as follows:
2015
2014
Group
£000
381,087
73,429
52,350
15,876
4,187
526,929
Parent
£000
284,331
778
52,350
15,876
4,187
357,522
UK
Australia
Canada
Europe
Other
Total
Group
£000
424,480
87,037
60,162
24,586
-
596,265
Parent
£000
319,625
-
60,162
24,586
-
404,373
UK
Australia
Canada
Europe
Other
Total
158
ANNUAL REPORT & ACCOUNTS 2015
(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 28. 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 31.
(f) Currency risk
The Group operates internationally and its main exposures to foreign exchange risk are noted below. The Group's foreign operations generally
invest in assets and purchase reinsurance denominated in the same currencies as their insurance liabilities, which mitigates the foreign
currency exchange rate risk for these operations. As a result, foreign exchange risk arises from recognised assets and liabilities denominated in
other currencies and net investments in foreign operations. The Group mitigates this risk through the use of derivatives when considered
necessary.
The Group exposure to foreign currency risk within the investment portfolios arises from purchased investments that are denominated in
currencies other than sterling.
The Group's foreign operations create two sources of foreign currency risk:
-
the operating results of the Group's foreign branches and subsidiaries in the Group financial statements are translated at the average
exchange rates prevailing during the period; and
-
the equity investment in foreign branches and subsidiaries is translated into sterling using the exchange rate at the year end date.
The largest currency exposures with reference to net assets/liabilities are shown below, representing effective diversification of resources.
2015
2014
Group
£000
45,431
32,544
19,598
2,598
2,125
Parent
£000
6,839
32,544
19,598
2,598
2,125
Aus $
Can $
Euro
USD $
NZ $
Aus $
Can $
Euro
NZ $
Japanese Yen
Group
£000
45,571
34,757
14,625
10,969
1,047
Parent
£000
2,614
34,757
14,625
10,969
1,047
(g) Equity price risk
The Group is exposed to equity price risk because of financial investments held by the Group which are stated at fair value through profit or
loss. The Group mitigates this risk by holding a diversified portfolio across geographical regions and market sectors, and through the use of
derivative contracts from time to time which would limit losses in the event of a fall in equity markets.
The concentration of equity price risk by geographical listing, before the mitigating effect of derivatives, to which the Group and Parent are
exposed is as follows:
2015
2014
Group
£000
269,724
31,440
2,257
2,139
172
305,732
Parent
£000
238,227
31,440
2,257
2,139
172
274,235
UK
Europe
Canada
US
Other
Total
Group
£000
264,716
20,442
2,583
1,950
214
289,905
Parent
£000
234,787
20,442
2,583
1,950
214
259,976
UK
Europe
Canada
US
Other
Total
ANNUAL REPORT & ACCOUNTS 2015
159
NOTES TO THE FINANCIAL STATEMENTS
4 Financial risk and capital management (continued)
(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 table below. This table does not include the impact of variables on retirement benefit schemes.
Financial risk sensitivities for retirement benefit schemes are disclosed separately in Note 19.
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
-10%
+10%
+/-10%
Change in
variable
-100 basis points
+100 basis points
-10%
+10%
+/-10%
Potential increase/
(decrease) in profit
2015
£000
(6,377)
2,154
3,627
(2,968)
24,382
2014
£000
(4,284)
1,243
2,930
(2,397)
22,758
Potential increase/
(decrease) in profit
2015
£000
(5,786)
3,524
3,628
(2,968)
21,870
2014
£000
(1,583)
299
2,930
(2,397)
20,408
Potential increase/
(decrease) in
other equity reserves
2015
£000
(29)
29
7,052
(5,770)
-
2014
£000
(15)
18
8,010
(6,554)
-
Potential increase/
(decrease) in
other equity reserves
2015
£000
(33)
33
2,764
(2,262)
-
2014
£000
-
5
3,237
(2,649)
-
The following assumptions have been made in preparing the above sensitivity analysis:
-
the value of fixed income investments will vary inversely with changes in interest rates, and all territories experience the same interest
rate movement;
-
currency gains and losses will arise from a change in the value of sterling against all other currencies moving in parallel;
- equity prices will move by the same percentage across all territories; and
-
change in profit is stated net of tax at the standard rate applicable in each of the Group's territories.
(i) Capital management
The Group's primary objectives when managing capital are to:
-
-
comply with the regulators' capital requirements of the markets in which the Group operates; and
safeguard the Group's ability to continue to meet stakeholders' expectations in accordance with its corporate mission, vision and values.
The Group is subject to insurance solvency regulations in all the territories in which it issues insurance and investment contracts, and capital is
managed and evaluated on the basis of 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. With effect from 1 January 2016 a new Europe-wide regulatory capital regime
(Solvency II) has been adopted by the PRA. The Group is well placed to comply with the new Solvency II reporting requirements and has
separately calculated its capital requirement under the new regime. The Group holds capital resources in excess of its expected Solvency II
capital requirement and its internal capital standard will continue to be set above the PRA's minimum requirement.
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 28 (b).
160
ANNUAL REPORT & ACCOUNTS 2015
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. Expenses relating to Group management activities are included within 'Corporate costs'. 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. Changes have been made to segments during 2015 as follows:
- The United Kingdom and Ireland segments have been combined on the basis of their similar economic characteristics, products and
customer base.
- Corporate costs which were previously included in 'Central operations' have been identified as a discrete segment and the definition of
corporate costs has been widened during the period.
- The 'Central operations' segment has been renamed 'Other insurance operations'.
The prior period has been restated to the revised basis.
The activities of each operating segment are described below.
- General business
United Kingdom and Ireland
The Group's principal general insurance business operation is in the UK, where it operates under the Ecclesiastical and Ansvar brands.
The Group also operates an Ecclesiastical branch in the Republic of Ireland underwriting general business across the whole of Ireland.
Australia
The Group has a wholly-owned subsidiary in Australia underwriting general insurance business under the Ansvar brand.
Canada
The Group operates a general insurance Ecclesiastical branch in Canada.
Other insurance operations
This includes the Group's internal reinsurance function, adverse development cover 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 EdenTree 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. It is closed to new business.
- Corporate costs
This includes costs associated with Group management activities.
- Other activities
This includes costs relating to acquisition 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.
ANNUAL REPORT & ACCOUNTS 2015
161
NOTES TO THE FINANCIAL STATEMENTS
5 Segment information (continued)
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.
Gross
written
premiums
£000
228,056
37,451
39,907
2,672
308,086
113
-
-
308,199
2015
Non-
insurance
services
£000
-
-
-
-
-
-
11,394
9,586
20,980
Total
£000
228,056
37,451
39,907
2,672
308,086
113
11,394
9,586
329,179
(restated)
2014
Non-
insurance
services
£000
-
-
-
-
-
-
12,045
9,865
21,910
Gross
written
premiums
£000
245,528
40,083
39,365
3,654
328,630
167
-
-
328,797
Total
£000
245,528
40,083
39,365
3,654
328,630
167
12,045
9,865
350,707
General business
United Kingdom and Ireland
Australia
Canada
Other insurance operations
Total
Life business
Investment management
Broking and Advisory
Group revenue
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.
2015
General business
United Kingdom and Ireland
Australia
Canada
Other insurance operations
Life business
Investment management
Broking and Advisory
Corporate costs
Profit before tax
Combined
operating
ratio
90.4%
102.3%
96.5%
92.0%
Insurance
£000
Investments
£000
14,454
(370)
1,017
792
15,893
1,001
-
-
-
16,894
34,683
2,468
1,090
-
38,241
2,161
1,812
-
-
42,214
Other
£000
4
(96)
-
-
(92)
(4)
-
1,934
(7,341)
(5,503)
Total
£000
49,141
2,002
2,107
792
54,042
3,158
1,812
1,934
(7,341)
53,605
162
ANNUAL REPORT & ACCOUNTS 2015
2014 (restated)
General business
United Kingdom and Ireland
Australia
Canada
Other insurance operations
Life business
Investment management
Broking and Advisory
Corporate costs
Other activities
Profit before tax
Combined
operating
ratio
94.0%
106.2%
94.2%
95.2%
Insurance
£000
Investments
£000
10,359
(1,129)
1,662
(172)
10,720
(178)
-
-
-
-
10,542
23,648
7,619
1,598
-
32,865
1,522
3,164
-
-
-
37,551
Other
£000
70
(139)
-
-
(69)
(4)
-
2,071
(1,521)
(416)
61
Total
£000
34,077
6,351
3,260
(172)
43,516
1,340
3,164
2,071
(1,521)
(416)
48,154
(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 and Ireland
Australia
Canada
2015
Gross
written
premiums
£000
230,841
37,451
39,907
308,199
Non-current
assets
£000
153,674
190
3,154
157,018
(restated)
2014
Gross
written
premiums
£000
249,349
40,083
39,365
328,797
Non-current
assets
£000
123,971
257
2,407
126,635
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.
ANNUAL REPORT & ACCOUNTS 2015
163
NOTES TO THE FINANCIAL STATEMENTS
6 Net insurance premium revenue
For the year ended 31 December 2015
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
308,086
(113,115)
194,971
3,889
788
4,677
113
-
113
-
-
-
Total
£000
308,199
(113,115)
195,084
3,889
788
4,677
Earned premiums, net of reinsurance
199,648
113
199,761
For the year ended 31 December 2014
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
328,630
(135,132)
193,498
23,651
7,527
31,178
167
-
167
-
-
-
328,797
(135,132)
193,665
23,651
7,527
31,178
Earned premiums, net of reinsurance
224,676
167
224,843
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
2015
£000
8,720
20,510
26
(154)
1,412
4,977
35,491
2,892
4,845
43,228
2014
£000
8,575
22,936
327
50
1,573
3,818
37,279
6,459
2,459
46,197
Included within cash and cash equivalents income are exchange losses of £1,405,000 (2014: £1,346,000 losses).
Included within fair value movements on financial
losses) in respect of derivatives classified as held for trading.
instruments at fair value through profit or loss are £2,133,000 gains (2014: £158,000
164
ANNUAL REPORT & ACCOUNTS 2015
8 Claims and change in insurance liabilities and reinsurance recoveries
General
business
£000
Long-term
business
£000
For the year ended 31 December 2015
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
Claims and change in insurance liabilities, net of reinsurance
For the year ended 31 December 2014
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
167,364
(1,448)
-
165,916
(50,721)
(16,204)
(66,925)
98,991
188,263
(13)
-
188,250
(43,034)
(19,272)
(62,306)
Total
£000
174,263
(1,445)
(8,902)
163,916
(50,721)
(16,204)
(66,925)
6,899
3
(8,902)
(2,000)
-
-
-
(2,000)
96,991
7,016
26
1,878
8,920
-
-
-
195,279
13
1,878
197,170
(43,034)
(19,272)
(62,306)
Claims and change in insurance liabilities, net of reinsurance
125,944
8,920
134,864
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
2015
£000
665
45,086
1,754
13,697
61,202
2014
£000
533
51,886
3,327
15,067
70,813
ANNUAL REPORT & ACCOUNTS 2015
165
NOTES TO THE FINANCIAL STATEMENTS
10 Profit for the year
Profit for the year has been arrived at after charging/(crediting)
Net foreign exchange losses
Depreciation of property, plant and equipment
Loss/(profit) on disposal of property, plant and equipment
Amortisation of intangible assets
Increase in fair value of investment property
Employee benefits expense including termination benefits
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
- Other assurance services
Total non-audit fees
Total auditor's remuneration
2015
£000
1,405
1,708
16
1,333
(4,845)
63,606
3,391
2015
£000
292
119
411
86
6
92
503
2014
£000
1,346
1,638
(32)
1,684
(2,459)
62,683
3,576
2014
£000
247
102
349
84
6
90
439
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 £17,000 (2014:
£15,000).
166
ANNUAL REPORT & ACCOUNTS 2015
12 Employee information
The average monthly number of full-time equivalent employees of the Group, including executive directors, during the year by geographical
location was:
2015
Long-term
business
No.
1
-
-
1
General
business
No.
709
92
68
869
(restated)
2014
Long-term
business
No.
1
-
-
1
General
business
No.
724
101
63
888
Other
No.
127
-
-
127
Other
No.
116
-
-
116
United Kingdom and Ireland
Australia
Canada
Average numbers of full-time equivalent employees have been quoted rather than average numbers of employees to give a better
reflection of the split between business areas, as some employees work is divided between more than one business area.
Wages and salaries
Social security costs
Pension costs - defined contribution plans
Pension costs - defined benefit plans
Other post-employment benefits
2015
£000
52,204
4,539
2,734
2,770
459
62,706
2014
£000
53,479
4,469
2,696
1,465
551
62,660
The above figures do not include termination benefits of £900,000 (2014: £23,000).
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.
ANNUAL REPORT & ACCOUNTS 2015
167
NOTES TO THE FINANCIAL STATEMENTS
13 Tax expense
Current tax
Deferred tax
Total tax expense
- current year
- prior years
- temporary differences
- prior years
- reduction in tax rate
2015
£000
7,771
474
2,421
2
(3,680)
6,988
2014
£000
11,063
(3,716)
14
476
-
7,837
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
Tax calculated at the UK standard rate of tax of 20.25% (2014: 21.5%)
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 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
2015
£000
53,605
10,853
450
(979)
71
(203)
(3,680)
476
6,988
2014
£000
48,154
10,353
(245)
(1,849)
424
(116)
-
(730)
7,837
A deferred tax credit on fair value movements on owner-occupied property of £22,000 (2014: £10,000 credit) and tax relief on charitable
grants of £4,050,000 (2014: £5,053,000) are taken directly to equity.
A change in the UK standard rate of corporation tax from 21% to 20% became effective from 1 April 2015. Where appropriate, current tax has
been provided at the blended rate of 20.25%. A further reduction in the rate of corporation tax to 19% will become effective from April 2017,
reducing again to 18% effective from April 2020. These changes were substantively enacted on 18 November 2015. Deferred tax has been
provided at an average rate of 18.2% (2014: 20%).
14 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
2015
£000
2014
£000
9,181
9,181
20,000
(4,050)
15,950
23,500
(5,053)
18,447
168
ANNUAL REPORT & ACCOUNTS 2015
15 Acquisition of business
On 15 April 2014, South Essex Insurance Brokers Limited acquired the assets of Lansdown Insurance Brokers (hereafter referred to as
Lansdown). Lansdown is an insurance broker across a variety of classes of business, with a particular specialism in blocks of flats and
apartments and high net worth homes. Lansdown was acquired as part of the Group's strategy to identify new market sectors in which to grow,
either organically or through acquisition, and is included within the Broking and Advisory segment in note 5.
The amounts recognised in respect of the identifiable assets acquired are as set out in the table below.
Property, plant and equipment
Intangible assets
Total identifiable assets
Goodwill
Total consideration
Satisfied by:
Cash
Contingent consideration arrangement
Total consideration
£000
12
1,166
1,178
4,392
5,570
5,000
570
5,570
The contingent consideration arrangement required £2,100,000 of retained commission income to be received for the twelve months to 15
April 2015, with the potential amount of the future payment that the Group could be required to make being between £nil and £1,000,000.
In 2014, the fair value of the contingent consideration was estimated to be £570,000 based on commission forecasts, without discounting as
the payment was payable after exactly one year from the date of acquisition. The actual contingent consideration paid in 2015 was £587,000.
16 Disposal of business
On 20 January 2015, Ecclesiastical Financial Advisory Services Limited entered into an agreement to transfer its mortgage business to
Holmesdale Building Society. The transfer was completed on 1 February 2015.
The net assets at the date of disposal were:
Financial investments
Consideration and costs of sale:
Cash received
Contingent consideration arrangement
Sale costs and related net expenses
Loss on disposal
£000
6,084
(5,260)
(824)
19
19
The net cash inflow arising on disposal was £5,260,000.
The contingent consideration is deferred over the next seven years and is dependent on the development of the mortgage book.
At the prior year end date, the assets were classified as held for sale (see note 26).
ANNUAL REPORT & ACCOUNTS 2015
169
NOTES TO THE FINANCIAL STATEMENTS
17 Goodwill and other intangible assets
Group
Cost
At 1 January 2015
Additions
Disposals
Exchange differences
At 31 December 2015
Accumulated impairment losses and amortisation
At 1 January 2015
Amortisation charge for the year
Impairment losses for the year
Disposals
Exchange differences
At 31 December 2015
Net book value at 31 December 2015
Cost (restated)
At 1 January 2014
Additions
Acquisition
Disposals
Exchange differences
At 31 December 2014
Accumulated impairment losses and amortisation (restated)
At 1 January 2014
Amortisation charge for the year
Impairment losses for the year
Disposals
Exchange differences
At 31 December 2014
Net book value at 31 December 2014
Computer
software
£000
Other
intangible
assets
£000
20,698
1,817
(1,799)
(428)
20,288
16,414
1,203
-
(1,788)
(125)
15,704
4,584
22,540
1,548
-
(3,348)
(42)
20,698
18,587
1,176
-
(3,329)
(20)
16,414
4,284
5,084
-
-
-
5,084
4,010
130
-
-
-
4,140
944
3,918
-
1,166
-
-
5,084
3,502
508
-
-
-
4,010
1,074
Goodwill
£000
23,779
-
-
-
23,779
139
-
64
-
-
203
23,576
19,387
-
4,392
-
-
23,779
72
-
67
-
-
139
23,640
Total
£000
49,561
1,817
(1,799)
(428)
49,151
20,563
1,333
64
(1,788)
(125)
20,047
29,104
45,845
1,548
5,558
(3,348)
(42)
49,561
22,161
1,684
67
(3,329)
(20)
20,563
28,998
£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. £4,392,000 of the balance relates to the acquisition of Lansdown Insurance Brokers Limited during the prior year (see note 15). The
recoverable amounts, determined on a value in use basis, indicate no impairment has arisen. The calculation uses cash flow projections based
on management-approved business plans, covering a three-year period, with forecast annual cash flows at the end of the planning period
continuing thereafter in perpetuity at the UK long-term average growth rate of 2.3% (2014: 2.3%), sourced from the Office for Budget
Responsibility. The discount rate of 11% reflects the way that the market would assess the specific risks associated with the estimated cash
flows (2014: 12%).
Assumptions used are consistent with historical experience within the business acquired and external sources of information. The headroom
above the goodwill carrying value is significant and reasonably possible changes to the key assumptions do not result in impairment.
Other intangible assets consist of acquired brand, customer and distribution relationships, which have an overall remaining useful life of two
years on a weighted average basis.
170
ANNUAL REPORT & ACCOUNTS 2015
Parent
Cost
At 1 January 2015
Additions
Disposals
Exchange differences
At 31 December 2015
Amortisation
At 1 January 2015
Charge for the year
Disposals
Exchange differences
At 31 December 2015
Net book value at 31 December 2015
Cost
At 1 January 2014
Additions
Disposals
Exchange differences
At 31 December 2014
Amortisation
At 1 January 2014
Charge for the year
Disposals
Exchange differences
At 31 December 2014
Net book value at 31 December 2014
18 Deferred acquisition costs
At 1 January
Increase in the period
Release in the period
Exchange differences
At 31 December
All balances are current.
Computer
software
£000
19,629
1,392
(1,462)
(418)
19,141
15,399
1,116
(1,462)
(118)
14,935
4,206
19,873
1,547
(1,741)
(50)
19,629
16,078
1,092
(1,741)
(30)
15,399
4,230
2015
2014
Group
£000
31,117
28,626
(30,380)
(969)
28,394
Parent
£000
26,974
24,831
(26,501)
(722)
24,582
Group
£000
34,757
31,267
(34,594)
(313)
31,117
Parent
£000
30,542
26,964
(30,341)
(191)
26,974
ANNUAL REPORT & ACCOUNTS 2015
171
NOTES TO THE FINANCIAL STATEMENTS
19 Retirement benefit schemes
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 2013. Actuarial valuations were reviewed and updated by
the actuary at 31 December 2015 for IAS 19 (R) purposes. In the current year, the IAS 19 (R) surplus in the scheme has been restricted in
accordance with International Financial Reporting Interpretations Committee 14 (IFRIC 14).
The Parent is also the sponsoring employer for the Ecclesiastical Insurance Office plc Pension and Life Assurance Scheme (EIOPLA). This is a
defined benefit scheme that has been closed to new entrants since 1 July 1998, providing benefits to pensioners of Methodist Insurance plc, a
company with a similar culture and whose insurance risks, excluding terrorism, are fully reinsured by the Parent. The assets of the scheme are
held separately from those of the Parent. The most recent triennial valuation was at 31 December 2013. The scheme had not previously been
reported within the Group accounts, and was therefore shown as a transfer in, in the prior year.
On 30 June 2015, formal notice was given to the Trustee of the Ecclesiastical
Insurance Office plc Pension & Life Assurance Scheme
(EIOPLA) to wind up the defined benefit pension scheme. The wind-up formally commenced on 1 July 2015. On 18 December 2015, the
scheme’s defined benefit obligations were discharged, resulting in nil obligations at the year end date. The wind-up is expected to complete in
the first half of 2016. In the prior year, the IAS 19 (R) surplus in the scheme was derecognised in full due to the uncertainty of its recoverability.
In the current year, part of the IAS 19 (R) surplus has been recognised in line with the amount of surplus that the Parent expects to receive
when the scheme wind-up is completed in 2016.
The Irish defined benefit plan closed on 31 March 2014 and was accounted for as a curtailment and settlement in the prior year.
The plans typically expose 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: Scheme 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 scheme benefits are linked to inflation. Although scheme 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.
The Group's main defined benefit plan is now closed to new entrants but remains open to future accrual. The Group operates a number of
defined contribution pension plans, for which contributions by the Group are disclosed in note 12.
172
ANNUAL REPORT & ACCOUNTS 2015
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
Restrictions on asset recognised
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
Gains on settlements/curtailments
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
Gains from changes in demographic assumptions
Gains/(losses) from changes in financial assumptions
Change in asset ceiling
Total included in other comprehensive income
2015
£000
2014
£000
(276,562)
294,498
17,936
(7,283)
10,653
(277,459)
298,840
21,381
(563)
20,818
20,818
-
(3,305)
(9,462)
2,602
10,653
3,645
342
10,125
(10,962)
155
3,305
(8,594)
197
-
5,655
(6,720)
(9,462)
32,288
22
(1,894)
(12,693)
3,095
20,818
3,516
392
11,549
(13,151)
(412)
1,894
2,391
5,569
5,273
(26,051)
125
(12,693)
* Charge to profit or loss includes £535,000 (2014: £429,000) in respect of member salary sacrifice contributions and costs ultimately
borne by related parties.
The following is the analysis of the defined benefit pension balances for financial reporting purposes:
Group and Parent
Pension assets
Pension liabilities
2015
£000
10,893
(240)
10,653
2014
£000
21,068
(250)
20,818
ANNUAL REPORT & ACCOUNTS 2015
173
NOTES TO THE FINANCIAL STATEMENTS
19 Retirement benefit schemes (continued)
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)
2015
%
3.80
3.10
2.10
4.60
2.10
3.10
2.10
2014
%
3.70
3.10
2.10
4.60
2.10
3.11
2.10
Mortality rate
2015
2014
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
Property
The actual return on plan assets was a gain of £2,368,000 (2014: gain of £15,542,000).
24.0
25.6
26.3
27.9
23.7
25.3
26.0
27.6
2015
%
2014
%
3
24
23
47
2
20
14
36
14
5
25
25
50
2
18
15
35
10
100
100
174
ANNUAL REPORT & ACCOUNTS 2015
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
Transfer in
Interest income
Return on plan assets, excluding interest income
Pension benefits paid and payable
Contributions paid
Assets distributed on settlements
Exchange differences
At 31 December
Defined benefit obligation
At 1 January
Transfer in
Current service cost
Administration cost
Interest cost
Pension benefits paid and payable
Experience gains on liabilities
Gains from changes in demographic assumptions
(Gains)/losses from changes in financial assumptions
Liabilities extinguished on settlements/curtailments
Exchange differences
At 31 December
Asset ceiling
At 1 January
Transfer in
Change in asset ceiling
At 31 December
History of plan assets and liabilities
Present value of defined benefit obligations
Fair value of plan assets
Restrictions on asset recognised
Surplus
2015
£000
(276,562)
294,498
17,936
(7,283)
10,653
2014
£000
(277,459)
298,840
21,381
(563)
20,818
2013
£000
(255,604)
287,892
32,288
-
32,288
2015
£000
2014
£000
298,840
-
10,962
(8,594)
(7,113)
2,602
(2,199)
-
294,498
277,459
-
3,645
342
10,125
(7,113)
(197)
-
(5,655)
(2,044)
-
276,562
563
-
6,720
7,283
2012
£000
287,892
2,947
13,151
2,391
(6,079)
3,095
(4,416)
(141)
298,840
255,604
2,259
3,516
392
11,549
(6,079)
(5,569)
(5,273)
26,051
(4,828)
(163)
277,459
-
688
(125)
563
2011
£000
(225,164)
261,685
36,521
-
36,521
(199,087)
234,314
35,227
-
35,227
The weighted average duration of the defined benefit obligation at the end of the reporting period is 23 years (2014: 23 years).
The contribution expected to be paid by the Group during the year ending 31 December 2016 is £2.5 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 based on reasonably possible changes in 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
2015
2014
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%/9%
Increase/decrease by 3%
Increase/decrease by 3%
Decrease/increase by 10%/12%
Increase/decrease by 10%/9%
Increase/decrease by 3%
Increase/decrease by 3%
ANNUAL REPORT & ACCOUNTS 2015
175
NOTES TO THE FINANCIAL STATEMENTS
19 Retirement benefit schemes (continued)
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
Present value of unfunded obligations and net obligations in the statement of financial position
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
2015
£000
9,193
12,547
459
(3,653)
(160)
9,193
-
459
459
2014
£000
12,547
11,744
551
491
(239)
12,547
33
518
551
The weighted average duration of the net obligations at the end of the reporting period is 19 years (2014: 22 years).
The main actuarial assumptions for the plan are a long-term increase in medical costs of 9.1% (2014: 12.0%) and a discount rate of 3.8%
(2014: 3.7%). The reduction in medical cost inflation is the result of a change in the calculation methodology following actuarial advice
received. The change in methodology generated an actuarial gain of £3.5m. The sensitivity analysis below has been determined based on
reasonably possible changes in 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
2015
2014
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 8%/10%
Increase/decrease by 19%/15%
Increase/decrease by 9%/8%
Decrease/increase by 10%/11%
Increase/decrease by 23%/18%
Increase/decrease by 11%/8%
176
ANNUAL REPORT & ACCOUNTS 2015
20 Property, plant and equipment
Group
Cost or valuation
At 1 January 2015
Additions
Disposals
Revaluation
Exchange differences
At 31 December 2015
Depreciation
At 1 January 2015
Charge for the year
Disposals
Exchange differences
At 31 December 2015
2,595
-
(225)
170
-
2,540
-
-
-
-
-
Net book value at 31 December 2015
2,540
Cost or valuation
At 1 January 2014
Additions
Acquisition
Disposals
Revaluation
Exchange differences
At 31 December 2014
Depreciation
At 1 January 2014
Charge for the year
Disposals
Exchange differences
At 31 December 2014
3,065
-
-
(504)
30
4
2,595
-
-
-
-
-
Net book value at 31 December 2014
2,595
Land and
buildings
£000
Motor
vehicles
£000
Furniture,
fittings and
equipment
£000
Computer
equipment
£000
2,524
737
(742)
-
-
2,519
1,078
394
(508)
-
964
1,555
2,840
471
-
(787)
-
-
2,524
1,131
454
(507)
-
1,078
1,446
5,414
1,868
(290)
-
(93)
6,899
4,373
604
(280)
(72)
4,625
2,274
6,157
509
12
(1,227)
-
(37)
5,414
5,177
379
(1,151)
(32)
4,373
1,041
5,995
772
(884)
-
(76)
5,807
4,672
710
(860)
(50)
4,472
1,335
7,530
603
-
(2,131)
-
(7)
5,995
5,992
805
(2,125)
-
4,672
1,323
Total
£000
16,528
3,377
(2,141)
170
(169)
17,765
10,123
1,708
(1,648)
(122)
10,061
7,704
19,592
1,583
12
(4,649)
30
(40)
16,528
12,300
1,638
(3,783)
(32)
10,123
6,405
All properties were revalued at 31 December 2015, with the exception of a certain property, which was revalued at 31 December 2014.
Valuations were carried out by Cluttons LLP, 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 £2,723,000 (2014: £2,867,000).
Depreciation expense has been charged in other operating and administrative expenses.
Included within net book value of motor vehicles is £1,364,000 (2014: £1,182,000) in respect of assets held under finance leases.
ANNUAL REPORT & ACCOUNTS 2015
177
NOTES TO THE FINANCIAL STATEMENTS
20 Property, plant and equipment (continued)
Parent
Cost or valuation
At 1 January 2015
Additions
Disposals
Revaluation
Exchange differences
At 31 December 2015
Depreciation
At 1 January 2015
Charge for the year
Disposals
Exchange differences
At 31 December 2015
Net book value at 31 December 2015
2,190
Cost or valuation
At 1 January 2014
Additions
Disposals
Revaluation
Exchange differences
At 31 December 2014
Depreciation
At 1 January 2014
Charge for the year
Disposals
Exchange differences
At 31 December 2014
2,360
-
(95)
30
-
2,295
-
-
-
-
-
Net book value at 31 December 2014
2,295
Land and
buildings
£000
Motor
vehicles
£000
Furniture,
fittings and
equipment
£000
Computer
equipment
£000
2,295
-
(225)
120
-
2,190
-
-
-
-
-
2,386
737
(742)
-
-
2,381
1,017
374
(508)
-
883
1,498
2,701
370
(685)
-
-
2,386
1,047
417
(447)
-
1,017
1,369
5,204
1,803
(278)
-
(89)
6,640
4,247
562
(278)
(70)
4,461
2,179
5,731
505
(995)
-
(37)
5,204
4,922
352
(995)
(32)
4,247
957
5,486
619
(775)
-
(59)
5,271
4,414
619
(775)
(42)
4,216
1,055
5,628
510
(640)
-
(12)
5,486
4,367
695
(640)
(8)
4,414
1,072
Total
£000
15,371
3,159
(2,020)
120
(148)
16,482
9,678
1,555
(1,561)
(112)
9,560
6,922
16,420
1,385
(2,415)
30
(49)
15,371
10,336
1,464
(2,082)
(40)
9,678
5,693
The Company’s properties were revalued at 31 December 2015, with the exception of a certain property, which was revalued at 31 December
2014. Valuations were carried out by Cluttons LLP, 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 £2,323,000 (2014: £2,467,000).
Depreciation expense has been charged in other operating and administrative expenses.
Included within net book value of motor vehicles is £1,364,000 (2014: £1,182,000) in respect of assets held under finance leases.
178
ANNUAL REPORT & ACCOUNTS 2015
21 Investment property
Group and Parent
Net book value at 1 January
Additions
Disposals
Fair value gains
Net book value at 31 December
2015
£000
69,775
24,130
-
4,845
98,750
2014
£000
45,099
23,817
(1,600)
2,459
69,775
The Group’s investment properties were last revalued at 31 December 2015 by Cluttons LLP, an external firm of chartered surveyors, with the
exception of one property purchased close to the year end which has been valued at its purchase price. 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 £4,977,000 (2014: £3,818,000) and is included in net investment return. Other
operating and administrative expenses include £742,000 (2014: £391,000) relating to investment property.
22 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
- options
Loans and receivables
Other loans
Parent investments in subsidiary undertakings
Shares in subsidiary undertakings
2015
Group
£000
Parent
£000
2014
Group
£000
Parent
£000
274,514
31,218
160,691
366,051
187
713
833,374
243,018
31,217
95,874
261,461
187
713
632,470
269,556
20,349
196,179
399,848
238
-
886,170
239,628
20,348
118,947
285,188
238
-
664,349
16
14
16
14
-
50,065
-
50,065
Total financial investments
833,390
682,549
886,186
714,428
Current
Non-current
408,439
424,951
370,387
312,162
327,552
558,634
296,566
417,862
All investments in subsidiary undertakings are unlisted.
ANNUAL REPORT & ACCOUNTS 2015
179
NOTES TO THE FINANCIAL STATEMENTS
23 Derivative financial instruments
The Group utilises non-hedge derivatives to mitigate equity price risk arising from investments held at fair value.
Group and Parent
Equity/Index contracts
Futures
Options
All balances are current.
Contract/
notional
amount
£000
30,763
7,501
38,264
2015
Fair value
asset
£000
-
713
713
Fair value
liability
£000
1,466
-
1,466
Contract/
notional
amount
£000
-
-
-
2014
Fair value
asset
£000
-
-
-
Fair value
liability
£000
-
-
-
The notional amount above reflects the aggregate of individual derivative positions on a gross basis and so gives an indication of the overall
scale of the derivative transaction. It does not reflect current market values of the open positions.
Derivative fair value assets are recognised within financial investments (note 22) and derivative fair value liabilities are recognised within other
liabilities (note 31).
Amounts pledged as collateral in respect of derivative contracts are disclosed in note 25.
24 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
2015
2014
Group
£000
27,310
40,095
9,481
6,109
3,173
20,673
18,001
124,842
103,384
21,458
Parent
£000
27,310
28,733
4,432
4,725
2,756
26,760
1,831
96,547
70,567
25,980
Group
£000
24,469
40,645
7,230
7,032
3,074
20,586
16,358
119,394
97,936
21,458
Parent
£000
24,468
29,735
5,437
5,317
2,745
34,596
(59)
102,239
69,323
32,916
The Group has recognised a credit of £63,000 (2014: charge of £449,000) 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 credit of £67,000 (2014:
charge of £502,000).
is held. The directors
There has been no significant change in the recoverability of the Group's trade receivables, for which no collateral
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.
Included within amounts owed by related parties of the Parent is £4,948,000 (2014: £4,808,000) pledged as collateral
insurance liability.
in respect of an
180
ANNUAL REPORT & ACCOUNTS 2015
Movement in the allowance for doubtful debts
Balance at 1 January
Movement in the year
Balance at 31 December
2015
2014
Group
£000
214
(63)
151
Parent
£000
169
(63)
106
Group
£000
323
(109)
214
Parent
£000
189
(20)
169
Included within trade receivables of the Group is £3,457,000 (2014: £3,365,000) overdue but not impaired, of which £3,178,000 (2014:
£3,020,000) is not more than three months overdue at the reporting date. Included within trade receivables of the Parent is £2,533,000 (2014:
£2,095,000) overdue but not impaired, of which £2,255,000 (2014: £1,844,000) is not more than three months overdue at the reporting date.
25 Cash and cash equivalents
Cash at bank and in hand
Short-term bank deposits
2015
2014
Group
£000
51,454
66,987
118,441
Parent
£000
29,318
55,461
84,779
Group
£000
48,167
59,359
107,526
Parent
£000
29,428
48,346
77,774
Included within short-term bank deposits of the Group and Parent are cash deposits of £3,122,000 (2014: £nil) pledged as collateral by way of
cash margins on open derivative contracts and cash to cover derivative liabilities.
26 Current assets held for sale
Ecclesiastical Financial Advisory Services Limited ceased to offer new mortgages following a strategic review in 2007, although it continued to
administer the existing book. During the prior year management decided to dispose of the mortgage book in order to more clearly focus their
attention on the current elements of the business.
After the end of the prior financial year the Company entered into an agreement to transfer its legacy mortgage business to Holmesdale
Building Society. The transfer was completed on 1 February 2015.
The current assets held for sale consisted of mortgages secured on residential property.
Cost at 1 January
Repayments and redemptions
Market value adjustment
Carrying value at 31 December
2014
£000
7,892
(1,022)
(666)
6,204
The effective interest rate on the mortgages in the prior year was 4.71%.
Clients have the option to redeem mortgages before the end of the mortgage term. The directors consider that the carrying value approximates
to fair value.
There were no debts which were past due at the prior reporting date and no amounts were impaired during the prior year.
The major class of assets comprising the operations classified as held for sale is financial investments.
ANNUAL REPORT & ACCOUNTS 2015
181
NOTES TO THE FINANCIAL STATEMENTS
27 Called up share capital
Ordinary shares of 4p each
8.625% Non-Cumulative Irredeemable Preference shares of £1 each
The number of shares in issue are as follows:
Ordinary shares of 4p each
At 1 January and 31 December
8.625% Non-Cumulative Irredeemable Preference shares of £1 each
At 1 January and 31 December
Issued, allotted and
fully paid
2015
£000
14,027
106,450
120,477
2014
£000
14,027
106,450
120,477
350,678
350,678
106,450
106,450
On winding up, the assets of the Company remaining after payment of its liabilities are to be applied to holders of the Non-Cumulative
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 Non-Cumulative 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.
182
ANNUAL REPORT & ACCOUNTS 2015
28 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
2015
Group
£000
551,571
153,697
85,422
790,690
120,753
49,987
170,740
430,818
103,710
85,422
619,950
Parent
£000
472,542
133,282
-
605,824
90,646
39,768
130,414
381,896
93,514
-
475,410
2014
Group
£000
564,380
161,624
94,324
820,328
107,331
50,134
157,465
457,049
111,490
94,324
662,863
Parent
£000
477,881
141,006
-
618,887
75,324
39,680
115,004
402,557
101,326
-
503,883
321,812
468,878
279,883
325,941
324,979
495,349
280,408
338,479
98,967
71,773
82,913
47,501
92,728
64,737
75,532
39,472
(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 the chain ladder, Bornhuetter-Ferguson and average cost methods.
Chain ladder methods extrapolate paid amounts, incurred amounts (paid claims plus case estimates) and 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
historical 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 using actuarial methods including the Mack method and Bootstrapping techniques, based on at least
the 75th percentile confidence level for each portfolio. The Mack method was used in current and prior periods, while Bootstrapping techniques
were intorduced in 2015. For smaller portfolios, where these methods cannot be applied, provisions are calculated at a level intended to provide
an equivalent probability of sufficiency. Where the standard methods cannot allow for changing circumstances, 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.
ANNUAL REPORT & ACCOUNTS 2015
183
NOTES TO THE FINANCIAL STATEMENTS
28 Insurance liabilities and reinsurance assets (continued)
(iv) Discounting
General insurance outstanding claims provisions are undiscounted, except for designated long-tail classes of business for which discounted
provisions are held in the following territories:
Discount rate
Mean term of discounted
liabilities (years)
Geographical territory
2015
2014
2015
2014
UK and Ireland
Canada
Australia
1.0% to 3.5%
1.1% to 3.2%
2.0%
0.8% to 3.3%
1.3% to 3.0%
2.3%
15
14
4
14
14
4
Parent consists of UK, Ireland and Canada. Group also includes Australia.
The above rates of interest are based on government bond yields of the relevant currency and term at the reporting date. Adjustments are
made, 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 £603,735,000 for
(2014:
£514,453,000).
the Group (2014: £606,259,000), and £520,085,000 for
the Parent
At 31 December 2015, it is estimated that a fall of 1% in the discount rates used would increase the Group's net outstanding claims provisions
by £14,380,000 (2014: £13,865,000). 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) Assumptions
The Group follows a process of reviewing its reserves for outstanding claims on a regular 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 the terms of
the reinsurance treaties, the anticipated time taken to settle a claim and the incidence of large individual and aggregated claims.
(vi) Changes in assumptions
There are no significant changes in assumptions.
(vii) 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
2015
2014
Gross
£000
26,000
8,400
9,300
4,900
2,200
Net
£000
24,000
7,200
4,700
1,600
1,100
Gross
£000
28,100
11,000
5,500
4,700
2,200
Net
£000
25,600
8,500
3,100
2,000
1,100
184
ANNUAL REPORT & ACCOUNTS 2015
(viii) 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 ultimate gross claims
2006
£000
2007
£000
2008
£000
2009
£000
2010
£000
2011
£000
2012
£000
2013
£000
2014
£000
2015
£000
Total
£000
45,688
45,900
40,092
36,168
30,791
28,470
27,154
27,377
28,534
28,637
50,840
47,307
43,270
35,510
35,556
34,925
34,036
33,917
33,028
56,420
53,552
47,643
44,658
40,433
37,546
37,864
37,289
74,742 84,476 82,095
59,807 75,550 76,371
55,250 62,239 71,543
66,422 68,587
57,134
55,695 61,330 60,841
58,631 62,074
54,942
100,612 81,725 61,901
88,046 80,027 50,571
78,196 69,860
72,516
46,464
28,637
33,028
37,289 54,942
62,074 60,841
72,516 69,860
50,571
46,464 516,222
(30,915) (43,347)
(22,954)
5,683
(27,910)
5,118
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
(30,248) (21,720)
(266,629)
(4,973)
42,268 48,140 45,598 45,638 249,593
(16,085)
233,508
119,772
353,280
(45,397) (38,339)
11,595 16,677 22,502
6,374
(826)
2006
£000
2007
£000
2008
£000
2009
£000
2010
£000
2011
£000
2012
£000
2013
£000
2014
£000
2015
£000
Total
£000
38,332 41,927 46,882 60,810 69,230 66,864
37,518 38,967 43,344 46,660 60,202 63,770
33,711 33,464 37,204 43,853 50,834 62,587
30,329
28,093 37,669 49,444 53,390 60,653
24,731 28,569 34,514 47,970 50,526 52,985
24,821 28,679 33,384 47,482 51,031
24,450 29,217 33,667 45,534
24,710 29,904 33,020
25,717 29,037
25,606
84,511 71,798 52,350 34,769
77,629 60,950
69,580
54,792
63,068
40,153
25,606 29,037 33,020 45,534 51,031 52,985
63,068 54,792 40,153 34,769 429,995
(20,889) (24,663) (27,650)
5,370
4,374
(35,672) (37,349) (34,357)
9,862 13,682 18,628
(3,826)
(27,090) (12,667)
35,978 42,125 36,327
4,717
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
(629) (224,792)
34,140 205,203
(12,872)
192,331
104,372
296,703
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
ANNUAL REPORT & ACCOUNTS 2015
185
NOTES TO THE FINANCIAL STATEMENTS
28 Insurance liabilities and reinsurance assets (continued)
Estimate of ultimate net claims
2006
£000
2007
£000
2008
£000
2009
£000
2010
£000
2011
£000
2012
£000
2013
£000
2014
£000
2015
£000
Total
£000
41,007 46,235 51,795 64,476 73,218 75,302 88,247 76,729
59,633
40,976 43,107 48,432 53,700 64,796 72,336 79,272 66,475 47,690
35,783 38,979 44,498 50,805 57,758 68,057 73,735 60,075
33,145 34,180 42,524 50,168 59,353 66,822 69,837
30,283 35,004 39,321 50,062 55,975
28,230 34,688 37,208 49,879 57,012
26,926
33,702 37,606 48,960
27,150 33,718 37,089
28,016 32,819
28,237
60,314
42,739
28,237 32,819 37,089 48,960 57,012 60,314 69,837 60,075 47,690 42,739 484,772
5,429
(22,808) (27,723) (30,715) (39,551) (41,253)
6,374
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
(809) (250,379)
9,409 15,759 22,342 40,158 45,143 42,753 41,930 234,393
(16,085)
218,308
101,878
320,186
(37,972) (29,679) (14,932)
(4,937)
5,096
2006
£000
2007
£000
2008
£000
2009
£000
2010
£000
2011
£000
2012
£000
2013
£000
2014
£000
2015
£000
Total
£000
59,011 74,361 67,690 50,025 33,122
69,805 57,538 38,944
29,650 33,814 40,198 48,250 59,997 65,297 51,828
33,318 36,959 41,631 51,226 57,135
32,547 34,656 38,270 39,841 49,060 59,873
29,284
27,449 26,905 34,983 43,879 51,827 59,352 61,795
24,103 28,322 34,458 44,064 49,171 52,850
24,707 28,670 33,366 43,640
24,407 29,203 33,666 41,966
24,696 29,904 33,021
25,699 29,037
25,575
49,598
25,575 29,037 33,021 41,966 49,598 52,850 61,795 51,828 38,944 33,122 417,736
(20,889) (24,663) (27,650)
5,371
4,374
4,686
(34,163) (36,795)
(12,567)
7,803 12,803 18,551 34,708 39,261
(34,299) (27,087)
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
(3,825)
35,119
(629)
32,493
(222,567)
195,169
(12,872)
182,297
91,248
273,545
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
186
ANNUAL REPORT & ACCOUNTS 2015
(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 investment expenses for the current valuation are as follows:
UK and overseas government bonds: non-linked
UK and overseas government bonds: index-linked
Corporate debt instruments: index-linked
2015
1.66%
-0.78%
-0.10%
2014
1.52%
-0.98%
-0.32%
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 gross of tax.
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 (2014: £2.70 per annum). Additionally, now the business volumes are
expected to fall, a number of expenses have been reserved for in a separate exercise. A reserve for these expenses is held at £4.8 million.
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 3.54% per annum (2014: 3.68%).
Tax
It has been assumed that tax legislation and rates applicable at 1 January 2016 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 £2.2 million (2014: £7.3 million increase).
Changes to unit renewal expense assumptions (described in (b)(i) above), was a £0.3 million increase (2014: no effect on insurance liabilities).
Mortality assumptions have been revised for funeral plan policies to be based on a more recent population mortality table and to reflect
experience of the portfolio over recent years. The impact of this change was a reduction in liabilities of £0.4million.
(iii) Sensitivity analysis
The sensitivity of profit 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
Change in
variable
Potential increase/
(decrease) in the result
2015
£000
300
(400)
(100)
(400)
(600)
500
(800)
700
2014
£000
500
(600)
1,000
(1,700)
(600)
500
(900)
700
+10%
-10%
+1% pa
-1% pa
+10%
-10%
+1% pa
-1% pa
ANNUAL REPORT & ACCOUNTS 2015
187
NOTES TO THE FINANCIAL STATEMENTS
28 Insurance liabilities and reinsurance assets (continued)
(iv) Available capital resources
2015
Shareholders' equity
Adjustments to assets/liabilities
Total available capital resources
Policyholder liabilities
- life insurance business
Net actuarial liabilities on statement of financial
position
2014
Shareholders' equity
Adjustments to assets/liabilities
Total available capital resources
Policyholder liabilities
- life insurance business
Net actuarial liabilities on statement of financial
position
Non-profit
life
fund
£000
(312)
7,500
7,188
85,422
85,422
(1,314)
7,500
6,186
94,324
94,324
Share-
holders'
fund
£000
44,833
(7,500)
37,333
-
-
43,008
(7,500)
35,508
-
-
Total
life
business
£000
44,521
-
44,521
85,422
85,422
41,694
-
41,694
94,324
94,324
Other
activities
£000
Group
total
£000
460,413
(133,643)
326,770
504,934
(133,643)
371,291
452,939
(115,468)
337,471
494,633
(115,468)
379,165
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.
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
Non-profit
life
fund
£000
6,186
249
670
(393)
32
444
7,188
Share-
holders'
fund
£000
35,508
-
-
-
-
1,825
37,333
Total
life
business
£000
41,694
249
670
(393)
32
2,269
44,521
Published capital resources as at 31 December 2014
Variance between actual and expected experience
Effect of changes to valuation interest rates
Effect of change in expense assumption
Effect of change in inflation assumption
Other movements
Capital resources as at 31 December 2015
188
ANNUAL REPORT & ACCOUNTS 2015
(c) Movements in insurance liabilities and reinsurance assets
Group
Claims outstanding
At 1 January 2015
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 2015
Provision for unearned premiums
At 1 January 2015
Increase in the period
Release in the period
Exchange differences
At 31 December 2015
Long-term business provision
At 1 January 2015
Effect of claims during the year
Changes in assumptions
Other movements
At 31 December 2015
Claims outstanding
At 1 January 2014
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 2014
Provision for unearned premiums
At 1 January 2014
Increase in the period
Release in the period
Exchange differences
At 31 December 2014
Long-term business provision
At 1 January 2014
Effect of claims during the year
Changes in assumptions
Other movements
At 31 December 2014
Gross
£000
Reinsurance
£000
Net
£000
564,380
(174,263)
(107,331)
50,721
457,049
(123,542)
200,148
(27,330)
(11,364)
551,571
161,624
154,575
(158,464)
(4,038)
153,697
94,324
(7,111)
(1,988)
197
85,422
(74,035)
7,110
2,782
(120,753)
(50,134)
(50,038)
49,250
935
(49,987)
-
-
-
-
-
126,113
(20,220)
(8,582)
430,818
111,490
104,537
(109,214)
(3,103)
103,710
94,324
(7,111)
(1,988)
197
85,422
569,179
(195,279)
(89,472)
43,034
479,707
(152,245)
183,977
11,315
(4,812)
564,380
186,642
162,393
(186,044)
(1,367)
161,624
92,446
(7,176)
7,317
1,737
94,324
(44,824)
(17,482)
1,413
(107,331)
(43,121)
(50,549)
43,022
514
(50,134)
-
-
-
-
-
139,153
(6,167)
(3,399)
457,049
143,521
111,844
(143,022)
(853)
111,490
92,446
(7,176)
7,317
1,737
94,324
ANNUAL REPORT & ACCOUNTS 2015
189
NOTES TO THE FINANCIAL STATEMENTS
28 Insurance liabilities and reinsurance assets (continued)
Parent
Claims outstanding
At 1 January 2015
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 2015
Provision for unearned premiums
At 1 January 2015
Increase in the period
Release in the period
Exchange differences
At 31 December 2015
Claims outstanding
At 1 January 2014
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 2014
Provision for unearned premiums
At 1 January 2014
Increase in the period
Release in the period
Exchange differences
At 31 December 2014
Gross Reinsurance
£000
£000
Net
£000
477,881
(131,803)
(75,324)
25,730
402,557
(106,073)
158,464
(25,801)
(6,199)
472,542
141,006
134,253
(139,159)
(2,818)
133,282
(50,836)
8,918
866
(90,646)
(39,680)
(39,865)
39,462
315
(39,768)
107,628
(16,883)
(5,333)
381,896
101,326
94,388
(99,697)
(2,503)
93,514
498,705
(167,475)
(78,610)
34,767
420,095
(132,708)
156,631
(7,865)
(2,115)
477,881
164,483
140,976
(163,680)
(773)
141,006
(32,772)
1,018
273
(75,324)
(42,880)
(39,691)
42,779
112
(39,680)
123,859
(6,847)
(1,842)
402,557
121,603
101,285
(120,901)
(661)
101,326
190
ANNUAL REPORT & ACCOUNTS 2015
29 Provisions for other liabilities and contingent liabilities
Group
At 1 January 2015
Additional provisions
Used during year
Not utilised
Exchange differences
At 31 December 2015
Current
Non-current
Parent
At 1 January 2015
Additional provisions
Used during year
Not utilised
Exchange differences
At 31 December 2015
Current
Non-current
Regulatory
and legal
provisions
£000
Restructuring
and other
provisions
£000
2,022
3,542
(1,106)
(1,215)
-
3,243
1,743
1,500
2,022
3,542
(1,106)
(1,215)
-
3,243
1,743
1,500
1,566
196
(651)
(277)
(11)
823
102
721
748
161
-
(261)
(1)
647
-
647
Total
£000
3,588
3,738
(1,757)
(1,492)
(11)
4,066
1,845
2,221
2,770
3,703
(1,106)
(1,476)
(1)
3,890
1,743
2,147
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, while 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 the estimated costs of customer complaints relating to services provided.
The Group continues to reassess the ultimate level of complaints expected and the appropriateness of the provision, which reflects the
expected redress and associated administration costs that would be payable in relation to any complaints we may uphold.
Restructuring and other provisions
The provision for restructuring and other costs relates to costs in respect of redundancies, dilapidations and deferred consideration.
ANNUAL REPORT & ACCOUNTS 2015
191
NOTES TO THE FINANCIAL STATEMENTS
30 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:
Group
At 1 January 2014
(Credited)/charged to profit or loss
Credited to other comprehensive income
Exchange differences
At 31 December 2014
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 2015
Parent
At 1 January 2014
(Credited)/charged to profit or loss
Credited to other comprehensive income
Exchange differences
At 31 December 2014
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 2015
Unrealised
gains on
investments
£000
32,351
(517)
-
(28)
31,806
Net
retirement
benefit
assets
£000
4,109
182
(2,637)
-
1,654
Equalisation
reserve
£000
Other
differences
£000
5,167
(108)
-
-
5,059
(4,772)
933
(10)
49
(3,800)
Total
£000
36,855
490
(2,647)
21
34,719
1,469
(183)
(62)
1,199
2,423
(3,190)
-
-
(52)
30,033
31,458
(981)
-
-
30,477
(166)
(1,039)
-
-
266
4,109
182
(2,637)
-
1,654
(506)
-
-
-
4,491
5,167
(108)
-
-
5,059
1,930
(183)
(62)
(3,048)
-
(165)
(1,038)
-
-
29,359
-
-
268
(506)
-
-
-
4,491
182
(10)
(12)
101
(2,340)
(1,223)
(408)
(10)
(1)
(1,642)
907
176
(11)
(12)
(25)
(607)
(3,680)
(1,049)
(12)
49
32,450
39,511
(1,315)
(2,647)
(1)
35,548
2,592
(3,543)
(1,049)
(12)
(25)
33,511
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
2015
2014
Group
£000
34,124
(1,674)
32,450
Parent
£000
33,511
-
33,511
Group
£000
36,014
(1,295)
34,719
Parent
£000
35,559
(11)
35,548
The Group has unused tax losses of £21,135,000 (2014: £21,392,000) 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.
192
ANNUAL REPORT & ACCOUNTS 2015
31 Other liabilities
Creditors arising out of direct insurance operations
Creditors arising out of reinsurance operations
Derivative liabilities
Other creditors
Amounts owed to related parties
Accruals
Current
Non-current
2015
2014
Group
£000
1,277
24,671
1,466
15,762
45
17,429
60,650
60,344
306
Parent
£000
724
17,894
1,466
7,106
556
13,628
41,374
41,374
-
Group
£000
831
13,034
-
14,254
103
16,393
44,615
44,285
330
Parent
£000
416
7,578
-
5,775
721
12,657
27,147
27,147
-
Derivative liabilities are in respect of equity futures contracts and are detailed in note 23.
32 Commitments
Capital commitments
At the year end, the Group and Parent had capital commitments of £nil relating to computer software (2014: £63,000) and £nil relating to
furniture, fittings and equipment (2014: £37,000).
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
2015
2014
Group
£000
5,263
16,649
28,858
50,770
Parent
£000
5,263
16,649
28,858
50,770
Group
£000
3,749
13,239
24,724
41,712
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
Within 1 year
Between 1 & 5 years
After 5 years
2015
2014
Group
£000
2,711
8,481
5,001
16,193
Parent
£000
1,866
7,806
4,341
14,013
Group
£000
2,285
8,416
6,668
17,369
Parent
£000
3,749
13,239
24,724
41,712
Parent
£000
1,223
7,189
5,928
14,340
Operating lease rentals charged to profit or loss during the year
3,391
2,380
3,576
2,009
ANNUAL REPORT & ACCOUNTS 2015
193
NOTES TO THE FINANCIAL STATEMENTS
33 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 197. 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 2015 is as follows:
Subsidiary undertakings
Incorporated and operating in Great Britain, engaged in investment, insurance
and financial services or other insurance-related business
Share capital
Holding of shares by
Parent
Subsidiary
Ecclesiastical Financial Advisory Services Limited
EdenTree Investment Management Limited
Ecclesiastical Life Limited
South Essex Insurance Holdings Limited
South Essex Insurance Brokers Limited
Incorporated in Great Britain, dormant
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
100%
100%
100%
100%
-
E.I.O. Trustees Limited * (Company Registration Number 00941199)
Ordinary shares
100%
Incorporated and operating in Australia, engaged in insurance business
Ansvar Insurance Limited
Incorporated in Australia, dormant
Ordinary shares
100%
-
-
-
-
100%
-
-
Ansvar Insurance Services Pty Limited * (Company Number 162612286)
Ordinary shares
-
100%
* Not audited
194
ANNUAL REPORT & ACCOUNTS 2015
34 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.
2015
Group
Trading, investment and other income, including recharges, and amounts received
Trading, investment and other expenditure, including recharges, and amounts paid
Amounts owed by related parties
Amounts owed to related parties
Parent
Trading, investment and other income, including recharges, and amounts received
Trading, investment and other expenditure, including recharges, and amounts paid
Amounts owed by related parties
Amounts owed to related parties
2014 (restated)
Group
Trading, investment and other income, including recharges, and amounts received
Trading, investment and other expenditure, including recharges, and amounts paid
Amounts owed by related parties
Amounts owed to related parties
Parent
Trading, investment and other income, including recharges, and amounts received
Trading, investment and other expenditure, including recharges, and amounts paid
Amounts owed by related parties
Amounts owed to related parties
Parent
£000
Subsidiaries
£000
249
51
19,458
45
249
51
19,458
45
8,050
12,082
19,458
64
8,050
12,082
19,458
64
-
-
-
-
13,042
3,724
6,099
511
-
-
-
-
4,942
7,086
14,026
618
Other
related
parties
£000
1,565
962
1,215
-
529
962
1,203
-
2,079
1,141
1,128
39
1,095
1,141
1,112
39
During the year, the Company received premiums, commission and reinsurance recoveries via a related party insurance agency amounting to
£1,093,000 (2014: £455,000) and paid reinsurance protection, commission and claims amounting to £1,979,000 (2014: £894,000).
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.
35 Non-adjusting events after the reporting period
On 27 January 2016, Ecclesiastical Insurance Group plc purchased NAFD Services Limited from the National Association of Funeral Directors
for a consideration of £1,000. New funeral plan business, which was previously administered through Ecclesiastical Financial Services Limited,
has been administered through the new company from the beginning of February 2016.
ANNUAL REPORT & ACCOUNTS 2015
195
Directors and Executive Management
United Kingdom Regional Centres
United Kingdom Business Division and
International Branches
Insurance Subsidiaries and Agencies
Notice of Meeting
197
199
200
201
202
r
o
t
c
o
r
P
r
a
k
s
O
y
b
h
p
a
r
g
o
t
o
h
P
196
ANNUAL REPORT & ACCOUNTS 2015
DIRECTORS AND EXECUTIVE MANAGEMENT
Directors
* W. M. Samuel BSc, FCA Chairman
* D. Christie BA, BSc (Econ) Dip. Ed. Deputy Chairman and Senior Independent Director
I. G. Campbell BSc (Econ) (Hons), ACA Group Chief Financial Officer
Group Management Board
* T. J. Carroll BA, MBA, FCII
*
E. G. Creasy, MA, MBA, FCII
M. C. J. Hews BSc (Hons), FIA Group Chief Executive
J. F. Hylands FFA
*
* A. P. Latham ACII
* C. H. Taylor BSc (Hons) Banking and International Finance
S. J. Whyte MC Inst. M, ACII 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 Deputy Group Chief Executive
I. G. Campbell BSc (Econ) (Hons), ACA Group Chief Financial Officer
R. Cox FCII, DMS
N. M. Louth-Davies MA
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: 0345 777 3322
Company Registration Number
24869
Investment Management Office
Legal advisers
24 Monument Street
London EC3R 8AJ
Tel: 0800 358 3010
Burgess Salmon LLP
Bristol
Charles Russell Speechlys LLP
London
DAC Beachcrofts LLP
Leeds
Harrison Clark Rickerbys LLP
Cheltenham
Matheson
Dublin
McDowell Purcell Solicitors
Dublin
Pinsent Masons LLP
Birmingham
Wragge Lawrence Graham and Co. LLP
London
* Non-executive directors
ANNUAL REPORT & ACCOUNTS 2015
197
DIRECTORS AND EXECUTIVE MANAGEMENT
Auditor
Registrar
Deloitte LLP
London
Computershare Investor Services plc
The Pavilions
Bridgwater Road
Bristol BS13 8AE
198
ANNUAL REPORT & ACCOUNTS 2015
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
0345 605 0209
24 Monument Street
London EC3R 8AJ
0345 608 0069
St Ann's House
St Ann's Place
Manchester M2 7LP
0345 603 7554
ANNUAL REPORT & ACCOUNTS 2015
199
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 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
0345 60 20 999
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
100 Eileen Stubbs Avenue
Suite 201
Dartmouth, Nova Scotia B3B 1Y6
K. Webster CRM, FCIP
Suite 521, 10333 Southport Road S.W.
Calgary, Alberta T2W 3X6
B. Mitchell, CIP
Suite 1795, Two Bentall Centre
555 Burrard Street, Box 239
Vancouver, British Columbia V7X 1M9
R. Jordan BBA, CRM, FCIP
20 Eglinton Avenue West, Suite 2200
P.O. Box 2004
Toronto, Ontario M4R 1K8
D. G. Lane B.Comm (Hons), Certified Insurance Director
1st Floor, Kilmore House
Spencer Dock, North Wall Quay
Dublin 1, DO1 YE64
200
ANNUAL REPORT & ACCOUNTS 2015
INSURANCE SUBSIDIARIES AND AGENCIES
Ansvar Insurance Limited
Chief Executive Officer:
Head Office:
Ecclesiastical Life Limited
Head Office:
Ecclesiastical Underwriting
Management Limited
South Essex Insurance
Brokers Limited
Office:
Director:
Office:
Tel:
W. R. Hutcheon MBA, GCM, Graduate AICD,
Fellow ANZIIF (CIP), Associate Fellow AIM
Ansvar House
Level 12
432 St Kilda Road
Melbourne VIC 3004
Beaufort House
Brunswick Road
Gloucester GL1 1JZ
24 Monument Street
London EC3R 8AJ
B. W. Fehler
South Essex House, North Road
South Ockendon
Essex RM15 5BE
01708 850000
ANNUAL REPORT & ACCOUNTS 2015
201
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 Thursday, 16 June 2016 at 12.35pm for the following purposes:
Ordinary business
1.
To receive the Report of the Directors and Accounts for the year ended 31 December 2015 and the report of the auditor
thereon.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
To re-elect Mr I. G. Campbell 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 Mrs C. H. Taylor as a director.*
To re-elect Mrs S. J. Whyte as a director.*
To re-elect The Venerable C. L. Wilson as a director.*
To re-elect Ms D. P. Wilson as a director.*
To elect Mr E. Creasy as a director.*
To consider the declaration of a dividend.
To reappoint Deloitte LLP as auditors and authorise the directors to fix their remuneration.
By order of the Board
Mrs R. J. Hall, Secretary
16 March 2016
* Brief biographies of the directors seeking election or re-election are shown on pages 80 to 81 of the 2015 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.
202
ANNUAL REPORT & ACCOUNTS 2015
Annual Report & Accounts 2015
Ecclesiastical Insurance Office plc
Beaufort House, Brunswick Road, Gloucester, GL1 1JZ
www.ecclesiastical.com
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.