Ecclesiastical
Annual Report
& Accounts
2017
Building a movement for good.
A good head
and a good
heart are always
a formidable
combination.
Nelson Mandela
A clear head and a warm heart.
It’s what shapes the way we
do business.
Ecclesiastical is a commercial
business owned by a charity and
with a purely charitable purpose.
This sets us apart from others.
We’ve never been afraid to
stand up for what we believe in.
Even if that means doing things
differently from everyone else.
Building a movement for good.
It’s easy to stand with the crowd.
It takes courage to stand alone.
Mahatma Gandhi
My religion is very simple.
My religion is kindness.
Dalai Lama
For it is in giving that we receive.
Francis of Assisi
Contents
Section One About Us
Building a movement for good
Ecclesiastical at a glance
Our businesses
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 Performance Report
Risk Management Report
Corporate Responsibility Report
Strategic Report approval
Section Three Governance
Board of Directors
Directors’ Report
Corporate Governance
Independent Auditor’s Report
Section Four Financial Statements
Consolidated statement of profit or loss
Consolidated and parent statement of comprehensive income
Consolidated and parent statement of changes in equity
Consolidated and parent statement of financial position
Consolidated and parent statement of cash flows
Notes to the financial statements
Section Five Other Information
Directors, executive management and company information
United Kingdom regional centres
United Kingdom business division and international branches
Insurance subsidiaries and agencies
Notice of meeting
Notes
3
4
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34
37
43
49
57
73
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Section One
About Us
Building a movement for good
Ecclesiastical at a glance
Our businesses
4
6
10
Section One
About Us – Building a movement for good
Ecclesiastical Annual Report & Accounts 2017
4/5
We exist to contribute to
the greater good of society.
We do this by managing
a successful, ethically run
portfolio of businesses.
And by giving a significant
proportion of our profits to
our owner, Allchurches Trust,
which donates independently
to deserving causes.
We’re committed to doing the
right thing for our customers
and to delivering growing
financial returns to our owner.
So they can continue with their
good work, helping improve
people’s lives.
These strongly held beliefs,
together with deep expertise
in our chosen markets, give us
a competitive edge.
And have helped us deliver
impressive returns. So, by daring
to be different – and working in
a way that’s good, not just a little
less bad – everyone benefits.
Building a movement for good.
Section One
About Us – Ecclesiastical at a glance
Ecclesiastical Annual Report & Accounts 2017
6/7
Ecclesiastical
at a glance
Who we are
130
years’ experience
Established in 1887 to
provide fire protection
to Anglican churches
Insurance
Company
of the Year
UK’s Better Society
Awards in 2017 & 2016
insurer for charitable giving in the UK
One of the UK’s top
five corporate donors
to charity*
* Directory of Social Change UK Guide to Company Giving 2017-18
33%
of pre-tax profit
to good causes
£45m
to charity against
our target of £100m
by 2020
£2.7bn
Funds under management
£0.59bn
Net assets
What we do
We help protect 10 of the UK’s
World Heritage sites*
Including Stonehenge and Canterbury Cathedral
* alongside other insurers
£305bn
of property insured worldwide
Award-winning
ethical investment
Moneyfacts ‘Best Ethical Investment Provider’
for ninth successive year (2009 to 2017)
Insure many
thousands of
charities
48,000+
in the UK alone
Leading
insurer for
the Anglican
church
in all our territories
Leading multi-faith insurer
Insuring synagogues and mosques in all
our territories
Major insurer of
independent schools
50%+ of CAIS* members; 40%+ of
independent schools in the UK
* Canadian Accredited Independent Schools
Gold standard
home insurance
Awarded 1st place Gold Ribbon by
Fairer Finance as most trusted provider
of UK home insurance
Main insurer
of the UK’s
Grade 1 listed
buildings
Section One
About Us – Ecclesiastical at a glance
Ecclesiastical Annual Report & Accounts 2017
8/9
Trusted to do the right thing
A different kind of business
97%–
99%
UK overall customer satisfaction
Across all the sectors we measure
98%
of our UK customers satisfied
with how their claim is handled
98% in UK
100% in Ireland
One of fewer than 30
insurers to achieve
CII Chartered Status
Awarded to both UK and Ireland
insurance operations
97%
of key brokers
satisfied with
our service
97% of top 250
brokers in UK
92% in Ireland
Recognised by UK
brokers as the best
insurer in the charity,
commercial heritage,
education and faith
sectors*
* Independent survey by FWD
Best for developing
young people
Canada recognised as Top 100
Employer for Young People for
the fifth consecutive year
85%
Staff survey employee
engagement score
88% are “Proud to work for my company”
(8% above the finance industry average)
Leading the way for
Health and Safety
First insurer to register
commitment to Health and
Safety Executive (HSE)
‘Helping Great Britain
Work Well’ strategy
Living
Wage
accredited
A UK Living Wage
employer
Founding signatory
of the Women in
Finance Charter
Making a difference
Our financial performance
£27.5m
given to charity in 2017
£26m to our charitable owner and £1.5m
Ecclesiastical Group giving
60%+
of our employees
volunteer
£100,000
Closer to You grants to
brokers to give to charities
close to their hearts
Gold Standard
for Payroll Giving
We match 100% of what our
employees give to charity
CommunityMark
status
Our UK business
is one of only 34
companies to hold
the Business in the
Community (BITC)
CommunityMark
£82m
profit before tax,
+ 31.6% from 2016
86.9%
combined operating ratio,
improved by 2.9pp*
£27.1m
underwriting result
(£20.1m in previous year)*
* Alternative performance measure, refer to note 33 to the financial statements for further explanation.
Section One
About Us – Our businesses
Ecclesiastical Annual Report & Accounts 2017
10/11
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
real estate 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 churches 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. EdenTree also manages the majority of the
Group’s financial investments.
Broking and Advisory
SEIB Insurance Brokers (SEIB) / Ecclesiastical Financial Advisory Services
(EFAS) / Ecclesiastical Planning Services Ltd* (EPSL) / Lycetts Insurance
Brokers* / Lycetts Financial Services*
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 Financial Services offer financial advice to businesses
and individual customers including Church of England clergy. EPSL markets
and administers prepayment funeral plans under the Perfect Choice brand.
* Part of Ecclesiastical Insurance Group (EIG)
12/13
Ecclesiastical UK
Rededication of St Michael’s, Mytholmroyd
On Boxing Day 2015 Cumbria suffered
one of its worst floods on record.
Thousands of people were displaced and
hundreds of buildings, including 30 churches,
were devastated following a series of
severe storms which hit the country
during December.
Among them was the Grade II listed St Michael’s, Mytholmroyd.
The entire ground floor, including tiles, pews and historic organ,
were extensively damaged along with the church hall and adjacent
bowling club. It was a major blow to the church and the local
community, with many groups using the church and its hall.
Repairing the damage was a major and complex undertaking due to
the age and structure of the building and the types of construction
materials used. Ecclesiastical worked closely to support the church,
sharing its specialist expertise of historic buildings. This was particularly
important during the initial stages of drying and decontamination as
water and silt had penetrated several layers of flooring.
The restoration of the church took almost two years to complete,
including internal renovations and rebuilding the church organ.
It was rededicated at a special service led by the Archbishop of York,
John Sentamu, on 5 November 2017.
“Having seen the terrible destruction which the Boxing Day floods
caused to St Michael’s church, Mytholmroyd, I didn’t know what to
expect when I went to rededicate the church on 5 November this year.
I was bowled over by what I saw – a magnificent restoration of the
church, made possible by Ecclesiastical’s specialist expertise and deep
understanding of churches and the communities they serve and working
in a sensitive partnership with the clergy and congregation of
St Michael’s church. A truly fantabulous result.”
John Sentamu
Archbishop of York
“It was such a long haul to get to the day when we can return to worship
in our church building. Ecclesiastical Insurance were amazing, going
above and beyond what might have been hoped for. On behalf of
everyone who uses and loves our buildings, thank you.”
Eric Alston
Church Warden at St Michael’s, Mytholmroyd
Building a movement for good.
Image courtesy of Storah Architecture Ltd
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 Performance Report
Risk Management Report
Corporate Responsibility Report
Strategic Report approval
16
20
28
34
37
43
49
57
73
100
Strategic Report – Chairman’s Statement
16/17
Chairman’s
Statement
The journey continues
2017 saw the Group benefit further from its drive for sustainable,
profitable growth. I am pleased to report increased profits for the third
successive year at £82.2m (2016: £62.5m), underpinned by strong
investment returns, GWP growth across our territories and good
underwriting profit.
The profits we made in 2017 enabled us to pay £26m to
our charitable owner Allchurches Trust and £1.5m through
our own giving programme, meaning we have given
£45.2m since setting our new target in 2016 of giving
£100m to charity by 2020.
The Group’s pleasing and consistent financial performance
reflects the continued progress of our strengthened
management team in harnessing the Group’s core
strengths – our deep understanding of our customers’
needs, the properties we insure and our specialist markets.
Specialism is our strength
We are a specialist financial services group with a
diversified portfolio of insurance, investment management,
broking and advisory businesses. Our aim is to be the most
expert, ethical and trusted player in all our chosen markets,
providing our customers with the specialist products and
services they prize.
Feedback from our customers and partners confirms that
we are recognised as one of the few true specialists in the
markets we serve.
We do not seek to compete in terms of scale with the
large generalist players in our chosen markets. With trust in
financial services remaining low, our focus instead remains
on exceeding our customers’ service expectations and
differentiating ourselves through our responsible approach
to business.
We believe firmly that this approach helps us to stand out
in an increasingly competitive and homogenised market.
As chairman, I have become keenly aware of the high
levels of recognition our brand enjoys and the positive,
often affectionate feedback we receive from those who
have dealt with us. This is a strong indication of the
significant influence and reach of our business into its
communities, both through our work supporting customers
and business partners and also our charitable endeavours
within those communities.
Governance
The financial services sector continues to respond to
regulatory changes. In 2017 our Group gave considerable
and sustained management focus to preparing for our
Internal Model application to the Prudential Regulation
Authority, with emphasis not only on the technical elements
of the application but also on enhancing management
systems to control and manage risk.
Board developments
During the year there were a number of important changes
to the Board. In March 2017 we announced that chairman
Edward Creasy was stepping down. I would like to thank
Edward for the wide-ranging and considerable contribution
he made to the Ecclesiastical Insurance Group, firstly as
chairman of our insurance broker Lycetts and latterly as
chairman of the Ecclesiastical Insurance Office Group Board.
In April we welcomed Andrew McIntyre, who brings his
extensive experience of financial services to the Board,
while in September the Board was further strengthened
by the appointment of Chris Moulder, former director of
general insurance at the Prudential Regulation Authority.
I would like to take this opportunity to thank all my fellow
directors for their expertise and support during a busy year.
Our people
I never cease to be impressed with the motivation and
desire of our people to serve customers better and make
the business better, and their firm alignment to the Group’s
charitable purpose. They also deserve the Board’s thanks
and congratulations for the successes of 2017 and the
continued upward trajectory of the business.
It is important to us that we support and invest
continuously in our employees, whose specialist skills and
knowledge are our biggest asset. To this end, in 2017 we
launched a new leadership development programme for
leaders across our Group, while continuing to develop our
ongoing programme of training courses.
To support our established Diversity Policy, in 2017 we
undertook a number of initiatives including the production of
our first diversity report, online training for all employees on
unconscious bias, specific training for recruiting managers
and the publication of our gender pay gap statistics.
Looking to the future
In 2018 and beyond, we will continue to focus on
creating competitive advantage from our position as a
trusted specialist in our chosen markets and through our
responsible approach to doing business.
We will also, thanks to a number of years of profitable
growth, take the opportunity to invest in our business,
with particular emphasis on improving our technology and
infrastructure as well as on delivering the second phase of
our change programme.
With committed and motivated teams across the Group,
we are well placed to continue punching well above our
weight in the markets and communities in which we operate.
John Hylands
Chairman
Section TwoEcclesiastical Annual Report & Accounts 2017
Ecclesiastical UK
Insuring the moon
Not many insurers can say they insure part of
the moon. But as insurer of the National Space
Centre in Leicester, it’s a claim that we can
proudly justify. As the only dedicated facility
for space science and astronomy in the UK,
the National Space Centre is a truly unique
building, providing resources for education
and research and an internationally recognised
exhibition venue.
Built in 2001, the building evokes the wonders of space, with the main
visitor centre wrapped in a perforated metal shell, and overlooked by
its soaring rocket tower. Standing 42m high and clad in plastic ‘pillows’,
the tower contains the Blue Streak and Thor Able rockets, built in the
early pioneering days of space exploration. Alongside the rockets, the
space centre houses a unique collection of artefacts relating to space
discovery – including moon rocks from the last moon landing.
Ecclesiastical’s expertise in insuring some of the UK’s most
irreplaceable items made us the ideal insurer for the centre.
Having previously insured the centre, we worked hard to win the
business back when the policy came up again, developing a strategic
relationship with the broker Berkeley Insurance Group, and working
with the centre to understand their specific needs. Our specialist
knowledge in risk management and understanding of the fine art
exposures were key factors in the space centre’s decision to
choose Ecclesiastical.
“When broking a risk like the National Space Centre we have to be
incredibly particular about the insurer we choose to work with. Not only
do we need the confidence that they understand the uniqueness of the
exposures – but also the relationship between ourselves and the client.
With such a high profile and complex risk, we are only going to do that
with an insurance partner we really trust.”
Tim Maxted
CEO, Berkeley Insurance Group
Building a movement for good.
Strategic Report – Chief Executive’s Report
20/21
Chief Executive’s
Report
Doing business differently
In the world of financial services, Ecclesiastical treads a different path.
For us, charitable giving is not something we do as part of our corporate
responsibility programme, or something we do to meet our reporting
obligations. Instead, it’s the very reason we exist.
This is because, unlike others in our
sector, our sole purpose is to contribute
to the greater good of society. A significant
proportion of our profits are channelled
towards funding good causes, through
independent grants from our charitable
owner or our own considerable donations
to the communities we serve.
This very different purpose means we are
able to do business in a very different way.
Yes, we work hard to be successful, so our
growing profits can be used to help even
more people who find themselves in need.
But we also strive to be the most trusted
and caring business in our chosen markets.
A business that supports its customers not
just by giving them first-class service and
products, but by prioritising their needs
should the worst happen.
We are, together, demonstrating that the
way Ecclesiastical does business is a
powerful movement for good – a ‘beacon
of light’ that I hope others will follow.
Our approach is shaped by our charitable
purpose. We are not driven by the need
to grow at any cost in order to satisfy
short-term shareholder or owner demands.
Instead, we are driven by building a
sustainable, ethical, values-driven business
over the longer term, providing insurance
that you can believe in rather than cheap
insurance that may not provide the cover
you expected at your time of need.
It is for this reason that for 130 years,
we have been trusted to protect so much
of the heritage and history in the countries
where we operate, insuring as we do
palaces and castles, World Heritage sites,
museums, treasure houses, independent
schools and cherished faith buildings
– including the majority of the UK’s
Grade I listed buildings.
Society demands more
Today’s consumers and employees are
demanding higher standards and increased
responsibility from businesses, led by
millennials – ‘the most socially responsible
generation that ever existed’1.
This trend is evidenced by international
surveys showing that a third of consumers
are now choosing to buy from brands they
believe are doing social or environmental
good2 and 73% of millennials are prepared
to pay more for products from such
brands3. Furthermore, 67% of global
consumers want to work for companies
that are giving back to society4.
As businesses debate how best to
secure the trust of such consumers,
I believe it has never been more
important for companies such as ours
to demonstrate that it is possible to be
commercially successful while fulfilling
a charitable purpose, so that others
may consider doing business differently.
1 Who Cares Wins: Why Good Business Is Better Business, David Jones, 2011
2 Europanel/Flamingo/Unilever, January 2017
3 The Sustainability Imperative, Nielsen Report 2015
4 Global Shopper survey, Nielsen Q1 2015
Section TwoEcclesiastical Annual Report & Accounts 2017
Strategic Report – Chief Executive’s Report
22/23
Clearly, our charitable purpose is
a powerful force for good.
It is also a powerful motivator.
The fact that our profits change lives makes
our people look at their work in a different
way. It motivates them to be even better at
what they do and to go above and beyond
for our customers. And because we give
them the opportunity to contribute directly to
the causes closest to their hearts, it motivates
them to do good in our communities.
With our employees committed to the
Company’s charitable goals6, it is no surprise
that our employees’ engagement reached
a record high in 20176.
A trusted business
Lack of trust in institutions and businesses
has become a pervading social theme,
and every year the leading global trust
survey shows that financial services remains
the least trusted industry in the world7.
Yet every year, independent surveys show
that our own customers and business
partners continue to put their trust in
Ecclesiastical – a remarkable achievement
in today’s climate of mistrust.
For the 11th consecutive
year, we were recognised
by UK brokers as the
best insurer in the
charity, heritage and
education sectors, as well
as in the faith sector where
we measured broker
sentiment for the first time.
Our profits change
lives and benefit society
I am delighted to report that in 2017
we again delivered strongly against our
charitable purpose, with a pre-tax profit of
£82.2m compared with £62.5m in 2016
and GWP growth of 11% to £343m.
These excellent results enabled us to
make donations of £27.5m during the
year, meaning that we have now given
£45.2m of the £100m target we set
ourselves in April 2016. In doing so,
we have supported around 2,750 charities
worldwide, helping to improve the lives of
many thousands of people. Thanks to the
considerable sums we give every year,
we are now ranked as the UK’s fourth
largest UK corporate donor by value,
alongside major international companies5.
However, looking at our charitable
donations as a percentage of our profit,
we stand alone. The rankings show that
we give over 30% of our profits to charity5.
Of course this is about so much more than
financial metrics; the thousands of good
causes we have supported since we set
our new target are wide ranging and touch
lives in moving ways. They range from
charities supporting children who have
been bereaved of their parents, through
to hospices that provide so much care
to loved ones in their final days.
They range from charities supporting
vulnerable people like the homeless,
or those suffering from addiction problems
with alcohol or drugs, through to parish
churches setting themselves up as a
community hub in deprived areas.
They include charities that support people
whose lives have been destroyed by natural
catastrophes all over the world. Reviewing
the long list of charities supported and the
thousands of thank-you letters received is
a humbling and uplifting experience.
5 2016-17 UK Guide to Company Giving
6 Ecclesiastical employee survey, November 2017
7 Edelman Trust Barometer 2017
Our UK customer satisfaction levels remained
exceptionally high at 97-99% across all
sectors, while 98% of customers were
satisfied with how we handled their claim.
I am proud to report that we again received
many external accolades for the way we
do business. For the second year running,
we were named Insurance Company of the
Year by the UK’s Better Society Awards
and ranked by UK customers as the Fairer
Finance most trusted home insurance
provider for the fourth consecutive time.
In the UK our chartered status was renewed,
making us one of only five composite UK
insurers to hold this prestigious status.
EdenTree, our investment management
business, was named Moneyfacts
Best Ethical Investment Provider for an
extraordinary ninth year in a row,
while our Canadian insurance business was
recognised as a Top Employer for Young
People for the fifth consecutive year.
One of the most inspiring parts of my job
is receiving written and verbal thanks for
the outstanding work and compassion
shown by our exceptional people.
This year it gladdened us all to be
described as ‘fantabulous’ for the very
first time, by the Archbishop of York
John Sentamu for the restoration of a rural
church which is featured on pages 12-13
of this report.
We do not take the trust placed in us for
granted and work hard to remain ‘fantabulous’
in the eyes of our customers. In striving to do
this, we will continue to put their needs first
as befits a values-driven business.
Progress in detail
2017 marked a fourth year of robust
financial performance, testimony to the
focus on achieving sustainable, profitable
long-term growth that has underpinned
our turnaround.
In 2017 we benefited from exceptional
investment returns driven by stable
We achieved a pre-tax profit of £82.2m
compared with £62.5m in 2016 and GWP
growth of 11% to £343m. Our underwriting
profit increased to £27.1m from £20.1m
the previous year, resulting in a Group
combined operating ratio of 86.9%
compared with 89.8% during 2016.
investment income and double-digit returns
on equities as stock markets rose, due to
the low value of sterling and strong growth
in the world economy. These returns reflect
our long-term strategy of holding a relatively
high proportion of higher risk assets,
which we believe will continue to deliver
strong returns over the long term while
our capital strength allows us to withstand
short-term market volatility such as that
seen at the beginning of 2018.
We seek to mitigate our exposure to risk by
holding a balanced portfolio of businesses
and saw the benefit of this in our insurance
business as significant natural events
including winter storms, floods and wildfires
in Canada were offset by benign weather
conditions in other territories.
In the UK and Ireland GWP grew by 5%
with positive contributions from most
sectors. We achieved a £33m underwriting
profit compared with £25m in 2016.
This was driven by an exceptionally low
level of weather claims for the second
time in three years and a large reduction
in case reserves as older claims continue
to close, coupled with an associated
release of IBNR reserves. This exceptional
underwriting performance is unlikely to be
sustained into the future, underpinned as it
is by a confluence of favourable factors on
our property and liability accounts.
We continued to monitor and consult on
the shape of our defined benefit pension
scheme and any potential long-term risks it
may present.
Section TwoEcclesiastical Annual Report & Accounts 2017
Strategic Report – Chief Executive’s Report
24/25
The Canadian and Australian insurance
businesses delivered GWP growth of
6% and 26% respectively in local currency.
Canada experienced an underwriting loss
of £7.2m due to a number of large property
claims and reserve strengthening in relation
to physical and sexual abuse claims, while
Australia’s underwriting profit of £0.7m
was driven by strong revenue growth and
reserve releases on the liability account.
EdenTree, our investment management
business, saw profits increase from
£1.6m in 2016 to £1.7m, benefiting from
higher fee income due to higher fund
valuations as assets performed strongly,
and supported by strong levels of net new
money from both retail and institutional
clients. These factors saw funds under
management increase to £2.7bn from
£2.5bn the previous year. The company
also launched its new Amity Short Dated
Bond Fund during the year.
SEIB, our insurance brokerage,
enjoyed moderate growth, increasing profit
to £2.5m from £2.4m in 2016. It reinforced
its reputation as a provider of specialist
insurance that meets customers’ changing
needs, with new and refreshed products
for the equine, small pets, vineyards, and
funeral director sectors.
Looking forward to 2020
We look forward to 2020 with optimism
and confidence, having achieved so much
in the last four years.
Our consistently strong financial
performance is enabling us to invest
significantly in the future of our business.
In 2016, having reached our goal of giving
£50m to good causes over three years,
we launched the second phase of our
change programme to support a new target
of giving £100m by 2020.
This programme is designed to position
us for further profitable growth in our
existing markets, both organic and
inorganic, and to develop new market
segments which capitalise on our existing
specialisms and knowledge.
I am pleased to report
that we have made
considerable progress,
with over 90% of the
programme’s 2017
deliverables attained
and many others in train.
We are also strengthening technology
and systems across the Group.
Having upgraded our IT platforms in
Canada, streamlined EdenTree’s front-end
operations and embarked on a project
to integrate the systems of our broker
businesses, we are now investing in a
new core operating system for our UK
and Ireland general insurance business.
This will improve processes for front-line
staff, provide a platform for business
growth and better serve our customers
and partners.
The changes effected in our Group
have been made by exceptional,
reshaped teams in our businesses
worldwide. We are committed to ongoing
investment in developing their specialist
knowledge and expertise, so we can
continue to anticipate and meet our
customers’ changing needs.
In 2018, the UK’s Independent Inquiry into
Child Sexual Abuse (IICSA) will continue to
scrutinise institutions in England and Wales.
We will provide information and expertise
as required by IICSA and will refresh our
industry-leading guiding principles on
handling abuse claims, principles that have
been received so positively by a number of
audiences, including lawyers representing
abuse survivors. We encourage other
insurers to follow suit in the interests of the
abuse survivors.
We are, together, demonstrating that
the way Ecclesiastical does business
is a powerful movement for good
– a ‘beacon of light’ that I hope others will
follow. In 2018 we wish to build on this
success and increase our momentum.
We are clear in our vision and sure in our
purpose. We have record financial strength,
an ambitious group-wide transformation
programme well on track, and we have a
high-performing, aligned team, with strong
ethics and values running through their
bloodstream working hard to make
a difference.
On behalf of so many beneficiaries and
customers worldwide, we thank all our
supporters. Whether we realise it in the cut
and thrust of our day-to-day lives or not,
there is no doubt that we are working
together in a movement for good, touching
and transforming lives in our villages,
in our towns, in our communities, in this
country and abroad. Because that is what
we exist to do.
Mark Hews
Group Chief Executive
We will maintain our prudent reserving
strategy for potential claims of physical and
sexual abuse against our policyholders.
Our financial strength, robust reinsurance
programme and hedged investment
portfolio see us not only well positioned to
withstand the uncertainty of insurance and
investment markets, but also to capitalise
on the opportunities that such events
may present.
We expect the insurance market to remain
extremely competitive in most of our
sectors. However, our consistent results
demonstrate that we are able to overcome
such challenges successfully, thanks to our
specialist focus, exceptional service and
trusted status.
Working together in a
movement for good
This is our 130th year and over the past
three decades the amount we have given to
charity exceeds £220m. Quite something
for a small financial services group of
around 1,200 people.
For this, I say a heartfelt thank you.
Thank you to our customers and our
business partners for trusting us to protect
the places and things that are irreplaceable
to those who own and care for them.
Thank you to our employees, for working so
exceptionally hard every day to do the best
for our customers.
And thank you to people across all those
groups who have volunteered, raised
money and nominated charities for us to
support on their behalf.
Section TwoEcclesiastical Annual Report & Accounts 2017
Ecclesiastical Canada
Protecting Canada’s heritage
2017 was a landmark year for Ecclesiastical
as we celebrated 130 years in business.
It was also a significant milestone for our
Canadian business, which celebrated its 45th
birthday, and the 10th anniversary of a very
special relationship – our partnership with the
Canadian Museums Association (CMA).
The CMA is responsible for the advancement of the Canadian museum
sector, representing Canadian museum professionals both within Canada
and internationally. Its 2,000 members range from large metropolitan
galleries, such as the sleek steel and glass Art Gallery of Alberta, to small
community museums, many of which are housed in older buildings.
One of the core values of our Canadian business is to provide
specialist insurance solutions and services designed to protect
and preserve Canada’s distinct communities, cultures and heritage.
These values are shared by the CMA and so when it came to finding
a specialist insurance partner to help develop the Association’s group
insurance programme – the only known group insurance plan offered
for museums in the world – Ecclesiastical was a clear choice.
Since then, the programme has more than doubled in size and now
includes many of the landmark museums across the country.
Ten years on and our relationship with the CMA has gone from
strength to strength. By working closely together, we have helped the
CMA improve its coverage, reduce premiums and helped the museum
community better manage its risks, including our staff offering training
for museum workers.
We also support the Association through our sponsorship of the
Governor General’s History Award for Excellence in Museums:
History Alive! Award, which recognises individuals or institutions that
have made remarkable contributions to a better knowledge of
Canadian history.
“We discovered Ecclesiastical Insurance 10 years ago and they have
become one of the primary insurers for our large group plan for the
museums in Canada. We are extremely satisfied with Ecclesiastical’s
work, their openness, their friendliness as well as the coverage they
provide. Ecclesiastical has generously supported us by being the named
sponsor to our History Alive! Award presented annually by the Governor
General of Canada at a gala ceremony at Rideau Hall in Ottawa.
We are honoured to work with such a trusted and respected partner,
whose origins and charitable values relate so closely to our own.”
John G. McAvity
Executive Director and CEO
Canadian Museums Association
Building a movement for good.
Image courtesy of the Art Gallery of Alberta
28/29
Global trends in
financial services
As part of our everyday business management, we monitor a number of global
trends that we believe have the potential to impact our business in the future.
Our insight into these trends is shown over the next few pages and our response
to these trends is demonstrated within Strategy in action:
Trend
Our perspective
Trend
Our perspective
Regulation
Regulators have continued to focus on capital strength, transparency and governance
It is essential for businesses to focus on their customers to ensure a successful response
to regulatory needs. Financial services organisations need to continue investment in their
businesses, processes, systems and culture to support their efforts to meet customers’
evolving needs
Regulatory scrutiny continues on financial services across the value chain. 2018 sees
the introduction of new EU regulation including the Markets in Financial Instruments
Directive (MiFiD II), General Data Protection Regulations (GDPR), the Insurance Distribution
Directive and the Senior Insurance Managers’ Regime (SIMR). All our businesses have been
considering the impact of the updated regulatory environment as shown in Strategy in action
(page 37) including EdenTree’s preparations for the January 2018 effective date for the
MiFiD II regulations
Further regulatory developments are anticipated, with considerable focus on asset
management due to the UK’s exceptionally strong global position and the £6.9 trillion
marketplace
Over the past decade, demographics have changed with social profiles changing across
our key markets and territories. In much of the developed world, populations are ageing
– leading to a fall in the working population. This creates expectations of increased
participation in the workforce, alongside higher levels of immigration, delayed retirement
and increased productivity arising from progress in digital technology
The above-mentioned migration is likely to lead to greater ethnic diversity which in turn
will provide new opportunities for businesses, particularly those operating in faith markets.
Ecclesiastical insures a wide variety of faith risks including Muslim, Hindu and Jewish places
of worship, attracting and retaining prestigious customers across its territories, as shown in
Strategy in action (page 37)
Over a similar time period, the pace of change (particularly in technology) has been significant.
This is an important factor in the increased expectations of customers and business partners,
who are more assertive, expecting enhanced levels of service and tailored propositions that
meet their specific needs. In 2017 Ecclesiastical entered the UK e-trading channel with
tailored charity products, reflecting its understanding of its customers’ needs
Increased standards in public life are influencing expectations from businesses with
customers and business partners actively seeking proven ethical and trusted providers.
Young people have become more marginalised in terms of financial services provision,
but they are showing strong appetite for ethical employers and businesses
Changing
demographic
and social trends;
increased customer
expectations
Developments
in technology,
data and analytics
Today’s insurers are rapidly moving towards digitalisation and now depend on innovation
to introduce products faster, improve efficiency and provide a superior customer service.
As technology evolves, data is becoming more accessible leading to smarter insights into
customer behaviour and risk assessment
In insurance, data insights are underpinning new pricing models that are creating superior
insights and significantly enhance risk selection. This leads to improved underwriting
performance as a result of improved offerings and a better experience for customers.
A deeper understanding of customer behaviour is also being sought by businesses across
the financial services sector in order to build desirable value propositions to increase their
competitive advantage
Across the sector, investment continues in underlying systems and technology to increase
operational efficiency and agility. Cyber security is of paramount importance as the threat of
a cyber-attack has become a business-as-usual risk across all industries. The Global Risks
Report from the World Economic Forum shows that cyber-attacks are increasing in relevance
and urgency with the potential to have far-reaching implications. May 2018 will see the
introduction of the General Data Protection Regulations (GDPR) across Europe which will
introduce a 21st century approach to data protection
Disruptive innovation from non-traditional sources is having an impact on financial services,
from challenger banks through to payment systems. Artificial Intelligence (AI) has the potential
to be a significant disruptor across financial services; Lemonade (a USA-based start-up)
uses AI-driven chatbots to perform full-cycle insurance transactions and settle its claims.
Businesses need to consider how to respond to the challenges posed by disruptive innovation
These developments in technology are also being applied by businesses to obtain deeper
insights into their property portfolios and to allow a move into a more preventative mindset.
Examples include installation of sensors to monitor and identify changes in environmental
and physical conditions (such as water leakage) and the use of cameras to perform a thermal
analysis of the building
Ecclesiastical continues to address these changing dynamics in technology, data and
analytics. Both thermal imaging and unmanned aerial vehicles are tools at the disposal of our
Risk Management teams. As shown in Strategy in action (page 37), in 2017 Cyber products
were launched in Canada and Australia after the successful launch of these products in the
UK during the previous year
Strategic Report – Global trends in financial servicesSection TwoEcclesiastical Annual Report & Accounts 2017
30/31
Trend
Our perspective
Trend
Our perspective
Low trust in financial
services
Trust remains fragile in financial services. According to the Edelman Trust Barometer,
just 54% trust the financial services sector, compared with the technology sector which is
trusted by 74%
Geopolitical
landscape
The geopolitical landscape remains volatile and uncertain. There is significant political ambiguity
as evidenced by the stalled outcome of the Italian elections, and the time it has taken to build
a Grand Coalition in Germany. Growing resistance to Brussels from eastern Europe with
challenges by some countries to the European Union’s touchstone values remains febrile
This ambiguity is compounded by continuing uncertainty over Britain’s exit from the European
Union led by a minority UK Government. Furthermore, policies from the US administration are
creating ripples of uncertainty across the geopolitical landscape, including the prospect of a
trade war
This uncertainty has led to lower levels of investment, particularly in Europe and the
United States due to uncertainty about political stability and potential changes in policy.
All our businesses continue to monitor the global landscape to understand the potential impact
of the uncertainty
While levels of trust in financial services have improved by 11% over the past five years,
globally it remains the least trusted sector. While this upwards trend demonstrates
progress, financial services businesses must focus on creating trust with their stakeholders.
There is a clear opportunity for ethical and trusted businesses who can demonstrate a proven
track record in upholding high standards
Ecclesiastical has a distinct positioning reflected by our aim to be the most trusted and
ethical financial services group. Our business model supports this ambition and we have
an unusually high level of trust compared with other insurers. Our investment management
business EdenTree has a market-leading reputation as both an ethical investment provider
and as an ethical investor, winning Best Ethical Investment Provider for the ninth consecutive
year (as shown in Strategy in action, (page 37)
Climate change
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
The Global Risks Report from the World Economic Forum identifies the combination of
climate change and extreme weather events as a significant global risk, with further
challenges posed by natural disasters and lack of climate change mitigation. As a socially
responsible investor, EdenTree has commissioned carbon risk footprints for our equity funds.
As shown in Strategy in action (page 37), all our funds have portfolio carbon footprints below
the required thresholds
Despite the withdrawal of the USA from the Paris Climate Accord, political commitments
continue from governments to combat climate change in order to limit global warming to
under two degrees Celsius
Primary fossil fuels such as coal are under considerable economic pressure as the cost of
renewable energy is falling sharply. Progress has been made with increased adoption of
renewables – in 2017 the UK achieved several days where more energy was derived from
renewables than fossil fuels
Strategic Report – Global trends in financial servicesSection TwoEcclesiastical Annual Report & Accounts 2017
EdenTree
Innovation in responsible investing
Sustainable and responsible investing
continues to be a growth area and EdenTree
has been at the forefront of the industry for
over 30 years. Our experience and expertise
in the field enables us to identify opportunities
for growth and lead the way in innovation.
The fixed interest market in the UK remains a key area of many
investors’ portfolios and in 2017 EdenTree launched a new fund,
the Amity Short Dated Bond Fund, to meet investors’ ongoing and
changing demands. This fund invests in high quality bonds with a short
time frame, which reduces the fund’s sensitivity to interest rate rises,
helping to preserve capital. The fund is part of the Amity range and is
subject to our positive and negative screening process. The launch of
the fund was a great example of recognising our clients’ needs,
reacting quickly and delivering a solution. In its first three months,
the fund has grown well and generated strong client interest.
2017 also saw EdenTree win a large institutional investment client
who was looking for a pan-European sustainable fund to add to their
portfolio. The fund was created for the client and is managed by
Chris Hiorns, Senior Fund Manager, based on our successful Amity
European Fund which is available to UK investors. The partnership
was a reflection of all the things that make EdenTree a leader in its field
– the long-term performance of the investment team, our experience
in responsible investing and high levels of client service – as well as
demonstrating our appetite to work with institutional investors.
Building a movement for good.
Strategic Report – Our business model and strategy
34/35
Our business
model and strategy
We are a commercial business with a charitable owner and purpose,
with a distinctive positioning that sets us apart from other businesses in
the financial services sector. Our purpose is to deliver growing financial
returns to our shareholder and owner, which are then distributed to
charitable causes and communities, contributing to society’s greater
good. We use our distinctive proposition to create competitive advantage.
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
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
Section TwoEcclesiastical Annual Report & Accounts 2017
Strategic Report – Our business model and strategy
Our charitable purpose drives our strategic goal of being the most
trusted and ethical business in our chosen markets. It shapes the way
we do business, particularly our focus on doing the right thing for our
customers and business partners. It creates an environment where
sustainable, long-term value generation is prized over short-term results.
Thanks to our long-term approach we have built longstanding relationships
with our customers and brokers, as demonstrated by their high levels
of trust, loyalty and engagement with our business. These enduring
relationships have helped us build deep understanding and expertise within
our sectors, allowing us to provide highly-valued products and services.
These factors combine to support our drive to deliver sustainable
and growing returns over the long term, creating long-term value for our
shareholder and demonstrating that a distinctly ethical, specialist financial
services group can succeed in competitive markets.
Section Two
Strategic Report
Strategy in action
Section Two
Strategic Report – Strategy in action
38/39
Strategy in action
Our strategic goal is:
To be the most trusted and ethical specialist
financial services group, giving £100m to charity
by the end of 2020.
Our business has made considerable progress towards this target:
during 2017, £27.5m was donated to good causes and the total now
stands at £45.2m. This has been made possible by the efforts of all the
businesses across the Ecclesiastical Insurance Group and is achieved
by meeting the needs of customers and business partners.
This charitable purpose underpins our business strategy.
In 2017, Ecclesiastical continued to be recognised as the number one
insurer for corporate giving and a leading UK corporate donor with the
accolade of fourth place in the UK Guide to Company Giving 2017/18
(published by the Directory of Social Change).
We have continued to deliver the key elements of our strategy whilst
investing in our businesses – as demonstrated by new products,
propositions and upgrades to technology infrastructure.
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
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
Strategy in action
Focused on relationships
– building strong, lasting relationships
with brokers, with a focus on trilateral
relationships between brokers,
customers and ourselves
• Attracted and retained prestigious
• Highlighted our specialist expertise
customers across all our segments in all
our territories
• Launched new products to meet
customers’ evolving needs, including
charity and heritage in the UK and Ireland
and cyber in Canada and Australia
• Successfully entered new markets
including farming in the UK, selected
health professionals in Australia and
property owners in Ireland and Australia
• Entered e-trading channel for some
intermediated products, particularly in the
charity segment
• Continued to demonstrate our expertise
in risk management, developing further
specialist offerings including online self-
help tools, online guidance tutorials for our
customers and dedicated social media
• Submitted evidence to HM Government to
support a full review of current legislation
on scrap metal, to help to address thefts
of metal from our communities, places of
worship and heritage buildings
• Submitted Internal Model application to
the Prudential Regulation Authority (PRA)
with final approval expected in April 2018
• Continued to have constructive
engagement with the Independent Inquiry
into Child Sexual Abuse (IICSA)
through marketing with When it feels
irreplaceable, trust Ecclesiastical
• Focused on relationships with our Select
Broker partners including Closer to You
campaign which enabled Brokers to
choose a charity of their choice
• Launched Fabric of the Community
campaign, demonstrating Ecclesiastical’s
understanding of, and support for,
parishes and their mission
• Displayed the Great Community Mural,
comprised of 400 entries from churches
across the UK, in a tour of Great Britain
that included landmark cathedrals such as
St. Paul’s, Ely, Wells and Brecon
• Provided support to local communities
through our Trust130 offering which
enabled household policyholders to
nominate their local church for a £130
donation in celebration of Ecclesiastical’s
130th anniversary
• In partnership with English Heritage,
launched the Irreplaceable, A History
of England in 100 Places campaign
to recognise places that inspired the
country’s greatest moments in history
Section TwoEcclesiastical Annual Report & Accounts 2017
Strategic Report – Strategy in action
40/41
Most trusted specialist insurer
Best ethical investment provider
Highlights
Recognised by UK brokers as the best
insurer in the charity, commercial
heritage and education sectors for the
11th consecutive year, according to an
independent survey by FWD
Recognised by UK brokers as the best
insurer in the faith sector (measured for
the first time) in an independent survey
by FWD
Retained Chartered Status across our UK
and Ireland insurance operations
A Top 100 Employer for Young People in
Canada for the fifth consecutive year
Recognised externally for our expertise
and ethical approach
• Won Insurance Company of the Year
2017 at the Better Society Awards for the
second year running
• Awarded 1st place Gold Ribbon by
Fairer Finance as most trusted provider
of UK Home Insurance
Became the first insurer to register
commitment to the Helping Great Britain
Work Well strategy from the Health and
Safety Executive
Launched our GI Academy offering
specialist training programmes across
different areas of the business
UK customer satisfaction at 97-99%
across every sector we measure
Retained our high levels of customer
satisfaction with 98% of customers
satisfied with our UK claims handling
97% of our Top 250 brokers in the UK
are satisfied with our service
We achieve this by
Promoting socially responsible
investment
– we have an industry-leading reputation
for our socially responsible investment funds
and investment thought leadership
Creating a platform for growth
– we are upgrading our IT capabilities to
create a platform for growth and increase
processing efficiency
Strategy in action
Highlights
Refining our service
– we are enhancing our services to
keep pace with the evolving needs of
our customers
Delivering long-term performance
– we use a consistent proven approach
to deliver 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
• Retained our leadership position in ethical
investment with our unrivalled track record
• Secured numerous plaudits based on its
above-average long-term performance
• Published our acclaimed Amity Insights
research on The Energy Paradox, The
Future of Work and Thirsty Planet
Revisited
• Commissioned carbon risk footprints
• Prepared for MiFiD II regulations
to demonstrate that all our equity funds
have portfolio carbon footprints below the
required thresholds
• Reinforced our thought leadership
position with our SRI expert briefings
covering diverse topics from Farm Animal
Welfare to Modern Slavery
(effective from January 2018) including
enhanced client reporting
• Invested in strengthening our capabilities,
with a project underway to replace the
back-office accounting system
Recognised as Best Ethical Investment
Provider by Moneyfacts for the ninth
successive year
Retained an A+ rating for Governance
& Strategy as part of our annual PRI
(Principles of Responsible Investment)
assessment
Achieved a fifth accreditation under the
European SRI Transparency Scheme
Retained Tier I rating under the UK
Stewardship Code disclosure
Launched the Amity Short Dated Bond
Fund to offer capital preservation whilst
working to generate steady income for
investors
Established a partnership with the London
Community Foundation to provide grants
to charities that align to EdenTree’s positive
investment criteria
Section TwoEcclesiastical Annual Report & Accounts 2017
Section Two
Strategic Report
Key Performance Indicators
Financial
Non-financial
44
47
Strategic Report – Strategy in action
Most trusted specialist adviser
We achieve this by
Providing excellent service
– building long-term sustainable
relationships with our customers and
their insurers
Building our business
– delivering growth by developing new
offerings and schemes which complement
our existing niche markets
Strategy in action
Strengthening our proposition
– deepening our expertise further in our
chosen markets, cementing our position
as market leaders in these areas
Working more closely together
– developing closer operational links across
the Group to offer solutions that meet our
customers’ needs
• Launched new products to meet
customers’ evolving needs, including
equestrian trades (e.g. saddlery and tack
shops), equestrian home and small pets
• Developed Motor Trade Scheme
specifically for members of
Broker Network
• Refreshed existing products with new
covers including Vineyards and
Funeral Directors
• Developed new propositions to be
launched in 2018 for adjacent specialist
market segments
• Appointed new expertise in schemes to
build further capability across SEIB and
its Lansdown brand
• Strengthened collaboration with other
Group business, developing schemes and
tailored propositions for launch in 2018
• Improved SEIB’s social media presence
during 2017 raising awareness
• EFAS continued to meet the key financial
concerns of clergy and church-related
people as shown by increased net inflows
• Provided financial education to the clergy
through seminars run by EFAS across a
variety of dioceses
• Continued to integrate Funeral Planning
Services into Ecclesiastical Planning
Services Limited (part of the Ecclesiastical
Insurance Group)
Highlights
Secured an exclusive product launch with
established rural and equestrian press for
the new Equestrian Home product
Received very strong feedback from
clergy for EFAS’ financial education
seminars
Won new Equestrian affinity group
relationship having created a proposition to
meet their specialist requirements
Updated our partnership proposition to
attract new partners for funeral planning
products and administration services
Provided technology expertise to support
the development and roll-out of OpenGI
across Lycetts (an Ecclesiastical Insurance
Group subsidiary)
Section Two
Strategic Report – Key Performance Indicators
44/45
Key Performance
Indicators – financial
Measure
Performance
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 £100m to
charity by the end of 2020.
A third consecutive year of stable financial
results has enabled us to continue our targeted
level of charitable giving, with £27.5m of
donations paid to good causes in 2017.
This includes grants of £26m to our charitable
owner Allchurches Trust and takes the total
amount of giving, towards our £100m target,
up to £45.2m.
Ecclesiastical’s capital position under Solvency
II has remained strong throughout 2017.
Our capital cover improved during the year in
line with growth in own funds; risk exposure
remained consistent with prior year.
We continue to balance the need to retain profit
within the business, to support our strategy for
future growth and investment in technology and
innovation, with our aspiration to meet charitable
giving targets.
The figures, for 2017, are based on the
information provided to the Board as part of
their ongoing management of the business and
are unaudited.
Comparable figures for 2013 are not available
as at that time the Group was reporting on a
Solvency I basis under the Individual Capital
Assessment (ICA) regime.
Regulatory capital1
The Group’s regulatory
capital requirements are
defined under the Solvency
II directive as issued by the
European Union and adopted
by the Prudential Regulation
Authority (PRA).
As the Group assessment
is conducted at the level
of Ecclesiastical Insurance
Group plc, the following refers
to the regulatory capital of
EIO Group’s parent company
Ecclesiastical Insurance Office
plc and excludes the impact of
Ecclesiastical Life Limited and
Ansvar Insurance Limited.
The Solvency Capital
Requirement (SCR) is a risk-
based statistical calculation
that quantifies risks specific
to our business. The Group
sets a target level of capital
that is in excess of the SCR to
ensure ongoing compliance.
(£m)
30 -
25 -
20 -
15 -
10 -
5 -
0 -
(£m)
600 -
500 -
400 -
300 -
200 -
100 -
0 -
27.5
25.2
24.7
20.6
5.5
’13
’14
’15
’16
’17
Solvency II capital cover
(unaudited)
167
300
198
285
199
278
279
287
’13
’14
’15
’16+
’17
SCR
Excess own funds
Capital cover
- 200%
- 150%
- 100%
- 50%
- 0%
+ 2016 figures are audited and reflect figures
from the company’s published Solvency and
Financial Condition Report which is available via
the company’s website
Profit before tax*
The Group’s profit (excluding
discontinued operations)
before deduction of tax.
Each year, refreshed targets
are set in relation to the
Group’s business plans for
profit before tax. Details of
the target that was set for
2017 can be found in the
Group Remuneration Report
on page 154. Our short-
term target is to generate
sufficient profit to enable
us to meet our targets for
charitable donations.
Total profit increased to £82.2m in 2017,
with better-than-expected Group underwriting
profit combining with strong total investment
returns to deliver a fourth consecutive year of
improvement.
Our Investment Management and Broking and
Advisory divisions also continued to contribute
consistent profits to the Group result.
More information on underwriting performance
is given below.
See the Financial Performance Report on page
49 for more details.
Combined operating ratio*1 (COR)
The sum of Ecclesiastical’s
general insurance incurred
losses and expenses divided
by earned premiums for
each financial year.
Each year, refreshed targets
are set in relation to the
Group’s business plans for
the Group COR. Details of
the target that was set for
2017 can be found in the
Group Remuneration Report
on page 154. Our target
over the longer term is to
achieve a 95% COR.
The COR has improved for a sixth consecutive
year. The Group continues to keep underwriting
and pricing discipline at the centre of its
strategy, prioritising profit over growth in the
competitive business environment. In 2017,
the ratio continued to outperform our
longer-term target, supported by higher than
usual prior year releases as claims in respect of
liability business we exited in 2012 and 2013
continue to settle and prudence is released. It
has also been a favourable year for UK property
with no major weather events in the year. While
we expect to report underwriting profits in the
future, we don’t expect this exceptional level
of underwriting performance to be sustained
longer term.
For a breakdown of how COR is calculated,
see note 33 on page 237.
See the Financial Performance Report on page
49 for more details.
(£m)
100 -
80 -
60 -
40 -
20 -
0 -
(£m)
80 -
85 -
90 -
95 -
100 -
105 -
67
54
48
82
62
’13
’14
’15
’16
’17
87
90
92
103
96
’13
’14
’15
’16
’17
1 Alternative performance measure, refer to note 33 for further explanation.
* These figures have not been restated, they are as reported in the appropriate year’s report and accounts.
1 Alternative performance measure, refer to note 33 for further explanation.
Section TwoEcclesiastical Annual Report & Accounts 2017
Strategic Report – Key Performance Indicators
46/47
Key Performance
Indicators – financial
Measure
Performance
Net expense ratio*1 (NER)
Total expenses as a
proportion of the net
premium earned in the
year. These expenses
include acquisition costs,
administration costs, the
movement in deferred
acquisition costs and
commission paid less
commission received.
Our aim is to make year-on-
year improvements in the
NER. However, in the short
term we expect NER to
reflect a planned increase in
strategic investment.
Our NER increased in 2017 to 54% with a 5%
increase in net earned premium, offsetting a
9% increase in net expenses.
The continued low value of the pound since
June 2016 has resulted in a further increase
in expenses from our overseas businesses on
translation into sterling, with the rest of the
increase in net expenses coming from our
planned programme of strategic investment in
technology, innovation and in our people.
For a breakdown of how NER is calculated, see
note 33 on page 237.
Net inflows1 (investment management)
2017 was a year characterised by improving
and increasingly synchronised global economic
growth combined with the continuation of low
interest rates and controlled levels of inflation.
In the year we saw record gross inflows from all
sources in excess of £300m. Total net inflows
were the second highest level in our history at
over £121m, with a significant contribution from
an institutional mandate win. This represents a
return to our target level of net inflows, and was
similar to those achieved in 2013 and 2014.
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
Management division offers.
Net inflows contribute to
funds under management
which is a key driver of the
division’s revenue.
Each year refreshed targets
are set which take into
account current market
conditions and potential
new initiatives.
* These figures have not been restated, they are as reported in the appropriate year’s report and accounts.
1 Alternative performance measure, refer to note 33 to the financial statements for further explanation.
(%)
100 -
80 -
60 -
40 -
36
40
46
54
51
20 -
0 -
(%)
150 -
100 -
50 -
0 -
-50 -
’13
’14
’15
’16
’17
102
98
121
15
-28
’12
’13
’14
’15
’16
Key Performance
Indicators – non-financial
We are passionate about outstanding customer experience
We aspire to be a market leader in the way we conduct ourselves,
delivering a customer experience that delights our customers. We provide
expert advice and protection through products and services that meet
customer needs supported by communications that are clear and easy to
understand. We charge a fair price and are proud to be generating profits
for good causes.
on how customers rate us on trust,
transparency, complaints and
overall happiness.
A commitment to unrivalled standards
of customer care is a core part of
our culture and behaviour models.
In 2017 91% of our people were
positive (+1% on 2016) that we are
‘committed to customer satisfaction’.
In the UK we celebrated National
Customer Service Week in 2017 with
activities at all of our insurance offices.
We connected our charitable giving by
committing to give £20 every time a
customer shared some praise with us
from May to September. We gathered
over 500 items of praise which meant
a donation of £10,000. We gave it to
Insurance United Against Dementia an
insurance industry collaboration aiming
to raise £10m to fund vital dementia
research and help businesses to
become more dementia-friendly.
These words are taken from our
‘customer promise’ which sets out our
commitment. In 2017 every part of
our Group published its own promise
and we also established strategic
measures for customer service which
are consistent across our Group.
We are a specialist insurance and
financial services group so we aspire
to be market leaders wherever we
operate. We’re proud that UK brokers
ranked us as THE BEST specialist
insurance provider for commercial
heritage, education, charity and faith;
and we’ve been voted the NUMBER
1 ethical investment provider for nine
years running.
We’re proud of external recognition of
our passion for customer experience.
In our UK General Insurance business
we were named ‘Insurance Company of
the Year’ at the Better Society Awards
and finalists in two categories including
‘customer care’ at the British Insurance
Awards. Topping Fairer Finance’s
ranking of home insurance providers for
the third year running was particularly
encouraging because it is wholly based
Section TwoEcclesiastical Annual Report & Accounts 2017
Section Two
Strategic Report
Financial Performance Report
Strategic Report – Key Performance Indicators
In our UK General Insurance business:
97%
broker satisfaction
(+1% on 2016)
98%
household insurance satisfaction
(-1% on 2016)
Chartered
Insurer
One of only five
composite UK insurers
to hold this status
Top of the Fairer
Finance home
insurance rankings
voted by customers for the third year running
91%
employees
positive that we
are ‘committed
to customer
satisfaction’ (+1%
on 2016: ‘Mysay’
employee survey)
£10,000
donated to Insurance United Against Dementia
as part of our National Customer Service
Week celebrations
‘Insurance
Company
of the Year’
in the Better Society Awards
Ranked THE BEST for specialist
insurance – commercial heritage,
education, charity and faith
Finalists in the
Customer Care
and Major Loss
Awards at the
British Insurance
Awards
Section Two
Strategic Report – Financial Performance Report
50/51
Financial
Performance Report
2017 has been a very successful year for the group and we report
a pre-tax profit of £82.2m (2016: £62.5m), our best financial result
in over a decade.
We have delivered consistently strong
financial results over the last few years
together with successful delivery against
strategic objectives; 2017 has continued
that trend and our financial results were
also supported by favourable investment
market performance during the year.
We continue to make significant investment
across the Group to upgrade and build
our capabilities to deliver even greater
value and benefits to customers. This new
programme of business change will support
us in achieving our business strategy and
ambitious charitable aim but, in the short
term, will continue to impact our expense
ratio. The success of these wide-reaching
initiatives, however, will ensure our
profitable growth can be maintained in
the longer term.
General insurance
Our underwriting performance1 for the year
was a profit of £27.1m (2016: £20.1m
profit), resulting in a Group COR1 of 86.9%
(2016: 89.8%). Another year of largely
benign weather in the UK and Ireland and
more favourable development of prior year
claims on the Group’s liability business has
meant that, despite higher than average
claims experience in our Canadian business,
we have delivered a fourth consecutive year
of improvement in underwriting profits.
United Kingdom
and Ireland
In the UK and Ireland underwriting profits
increased to £32.7m (2016: £25.0m profit)
giving a COR of 77.1% (2016: 82.5%).
This is an exceptional underwriting result which
has been driven by a number of favourable
factors on both the property and liability
accounts all occurring in the same year.
It is not a level of underwriting performance
we expect to be sustained into the future.
The underwriting result on the property
account was ahead of last year.
The weather in the UK and Ireland has again
been very settled across most of the year,
with Storm Doris and ex-tropical storm
Ophelia being the only notable exceptions.
The latter mainly affected geographical areas
where we have limited exposure and, with
the number of fire related losses also down
on both 2015 and 2016, we have seen
an increase in profits. The property result
also benefited from a distribution from our
pooled terrorism reinsurance arrangements
reflecting a surplus in the pool.
The underwriting result from the liability
account was very favourable, which was
consistent with the prior year. Current year
claims performance was again 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. The run-off of liability claims
in respect of the unprofitable business
we exited in 2012 and 2013 is now well
progressed and we don’t expect to see
prior year releases continuing at the levels
seen in the last two years.
We expect the UK and Ireland segment
to continue to deliver underwriting profits
in the future, but consider it very unlikely
that claims will continue to be so low on an
ongoing basis.
In 2017, GWP has grown by 5% to
£231m, (2016: £220m). We have seen
high retention levels across our UK and
Ireland business which shows the trust our
customers have in us to deliver both value
and exceptional service. One of our largest
markets, Real Estate, saw GWP growth of
8% as we continue to attract prestigious
new customers. Our Art & Private Client
business grew by more than 50% in 2017,
with our recent investment in deepening
our expertise, innovation and product
development resonating with the market.
Commercial insurance business in the UK
and Ireland remains highly competitive and
our growth of 9%, in that context, shows
we are able to compete and succeed in
the tough environment. GWP in respect of
1 Alternative performance measure, refer to note 33 to the financial statements for further explanation.
Section TwoEcclesiastical Annual Report & Accounts 2017
Strategic Report – Financial Performance Report
52/53
household business fell by 13%, reflecting a
continued focus on risk selection in what is
a highly competitive market.
We expect the soft market conditions to
continue, with excess capacity adding to
the intense competition in the UK market.
Our strategy over the medium term is
unchanged and remains to leverage our
deep underwriting expertise, focusing on
adding good-quality business to deliver
measured GWP growth, as we look to
embed a step change improvement in
our specialist capabilities through the use
of technology and innovation. In doing
so, we will continue to seek profit over
growth, maintaining our strong underwriting
discipline in accordance with our group-
wide underwriting philosophy.
Ansvar Australia
Our Australian business reported an
underwriting profit of AUD$1.2m giving a
COR of 96.9% (2016: AUD$2.2m loss,
COR of 106.7%). The 2017 performance
was driven by the growing liability account
which benefited from prior year releases,
partly offset by losses on property business.
The property result reflected the impact
of Tropical Cyclone Debbie and the New
South Wales hail storm, but losses on those
events were in part offset by releases on
catastrophe event claims from prior years.
The reinsurance arrangements in place also
helped reduce the impact of the property
loss at the net level.
GWP grew by 26% in local currency
to AUD$96.3m (2016: AUD$76.4m).
Retention rates remained very strong,
and new business was 73% ahead of
the prior year with growth initiatives
implemented in both 2016 and 2017
delivering as expected.
Canada
Our Canadian business continued its track
record of delivering growth, reporting a
6% increase in the branch’s contribution
towards group GWP at CAD$86.9m
(2016: CAD$81.8m).
The territory reported an overall underwriting
loss of CAD$12.1m giving a COR of
118.5% (2016: CAD$6.2m loss, COR
of 110.3%). Canada had another difficult
year following on from the 2016 Fort
McMurray wildfire in Alberta, with property
business being impacted by a number of
weather events and fire losses. This was
compounded by a loss on liability
business as reserves were strengthened
during the year to take account of adverse
claims development.
Other insurance
operations
General insurance profits were improved
slightly by development of prior accident
years from our businesses in run-off,
resulting in an overall profit of £0.9m
(2016: £0.3m loss).
Investments
Investment returns for the year were
£72.3m (2016: £54.4m) with UK stock
markets concluding a strong year with solid
gains in the fourth quarter, ending the year
at another record high. Over the course of
2017 global equity markets trended higher
on the back of continued optimism in the
outlook for the global economy.
The return to volatility at the beginning of
2018 is a timely reminder that the stable
market returns, seen over the last two years,
cannot be taken for granted.
The small and mid-cap bias in our UK equity
portfolio had a positive impact in 2017.
The FTSE small-cap and FTSE 250 mid-cap
indices delivered +18.2% and +17.8%
respectively, significantly higher than the
FTSE 100 large-cap return of +11.9%.
win from a European global bank.
Total funds under management grew
8.8% to £2.7bn (2016: £2.5bn), further
supported by global equity markets which
concluded a strong year with solid gains
in the fourth quarter. The business has
continued to develop its capabilities
throughout 2017, investing in technology
and systems, to meet the needs of its
customers and support the new MiFID
II reporting requirements which become
effective from 2018.
Long-term insurance
The life business insurance result for 2017
was a profit of £0.4m (2016: £0.7m loss).
Ecclesiastical Life Limited (ELL) is closed to
new business and the expected favourable
run-off of the business during the year was
partly offset by the long-term impact of
increased audit costs. The increase has
resulted from reclassification as a public
interest entity (PIE), under the European
Union audit legislation, which became
effective during the year.
Broking and advisory
The broking and advisory business
comprises our insurance broker and
financial advisory businesses, South Essex
Insurance Brokers Limited (SEIB) and
Ecclesiastical Financial Advisory Services
Limited (EFAS). SEIB reported a rise in
profit before tax to £2.5m (2016: £2.4m).
EFAS reported a small loss of £0.2m in the
year (2016: £0.3m loss).
Overall, our broking and advisory business
reported an increase in pre-tax profit to
£2.3m (2016: £2.1m profit).
Ian Campbell
Group Chief Financial Officer
Our direct property investments also
performed well in the year.
The shorter duration of our bond
investments resulted in underperformance
relative to the broader FTSE Allstock
index, and reflects the Group’s strategy of
favouring capital protection over marginal
increases in returns. The fund’s fixed
interest portfolio benefited from a healthy
allocation to corporate bonds, as well
as solid performance from long-dated
preference shares and permanent interest
bearing shares, whilst investments in
government bonds were broadly flat on
the year.
A slight downward movement in yields
reduced the discount rate applied in
calculating the present value of certain
long-tail general business insurance
liabilities. The change in discount rate on
those liabilities resulted in a £1.4m loss
being recognised within investment returns
(2016: £7.7m loss).
The investment result includes a £3.2m
return (2016: £12.2m) on assets backing
our long-term insurance business, which is
discussed later in this report, partly offset by
a £0.4m loss (2016: £10.9m loss) from the
impact of the change in discount rate on the
long-term business liability. The net return
of £2.8m (2016: £1.3m) was offset by a
£2.4m increase (2016: £2.0m increase)
in long-term insurance claims liabilities
reflecting the close match of assets and
liabilities as we would expect.
Investment management
The Group’s investment management
business, EdenTree, saw a rise in pre-tax
profits to £1.7m (2016: £1.6m) and has
made good progress on its strategy to
develop its presence in the Charity and
Institutional markets. Net inflows to funds
of £121m (2016: £28m net outflow) were
the second best in EdenTree’s history, with
institutional business boosted by a mandate
Section TwoEcclesiastical Annual Report & Accounts 2017
Ansvar UK
Changing the face of buying charity insurance
As the preferred insurer for the UK’s small
charities*, our Ansvar business is uniquely
placed to meet the changing needs of our
charity customers. In 2017, following feedback
from brokers and to meet the growing
demand for online services, Ansvar worked in
partnership with systems provider Acturis to
launch a web service that introduced the first
specialist charity products to the platform.
Acturis works in a similar way to price comparison sites, so the broker
puts in details of a risk and once completed the system will produce
quotes from several different insurers. Brokers can then continue with
the quote they’re happy with and issue the documents to the client
themselves.
We launched two charity products on the system – Charity Protect
aimed at smaller charities with an annual income or turnover up to
£100,000, and Charity Protect Plus aimed at charities with an annual
income or turnover up to £1.5 million.
This new service has changed the way specialist charity insurance
is bought, by saving brokers time and allowing them to be more
responsive to customer needs by simplifying the process and keeping
costs down.
A dedicated web team is available to support our brokers as well as to
discuss any non-standard risks.
“The Ansvar online system is one of the easiest systems we use here at
Unity. When a client calls into the office you have the confidence that
the system will respond how you need it to in order to get a quotation.”
“The products on the new system are competitive, and cover a wide
range of activities with our specialism which means we are able to
answer our clients’ questions quickly and effectively.”
Unity Insurance Services
Building a movement for good.
* Source FWD research 2017
Section Two
Strategic Report
Risk Management Report
Principal risks
64
Image courtesy of Eelco Maan
Strategic Report – Risk Management Report
58/59
Risk Management
Report
Introduction
The Group’s business model is explained in detail on page 34.
The operations of the Group present an ongoing number of risks including
Insurance, Market, Credit, Liquidity, Operational, Conduct, Reputational
and Strategic.
nce
efe
es of d
e lin
d thre
ork an
w
e
ntrol fram
Internal co
Risk
strategy
Risk appetite
Risk policies and standards
Internal
model
R
i
s
k
r
e
p
o
r
t
i
n
g
a
n
d
m
o
n
i
t
o
r
i
n
g
Stress and
scenario
testing
ORSA
Risk
management
process
Business
performance and
capital management
Values and culture
People, systems and processes
Governance
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 via the Group Chief Executive
to the Group Risk Function, led by the
Group Chief Risk Officer. This is supported
by three executive Risk Management
Committees:
• the Insurance Risk Committee which has
oversight of the general insurance risks of
the Group;
• the Market and Investment Risk
Committee which has oversight of the
market and investment risks of the
Group; and
• the Group Operational, Regulatory
and Conduct Risk Committee which
has oversight of all the operational and
conduct risks of the Group.
Strategic risks are overseen by the Group
Management Board (GMB) and the life
insurance risks by the key function holders.
The risk management process demands
accountability and is embedded in
performance measurement and reward,
thus promoting clear ownership for risk
and operational efficiency at all levels.
On an annual basis, the Group Risk
Committee (on behalf of the Board) carries
out a formal review of the key strategic
risks for the Group with input from the
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. Formal monitoring
of the key strategic risks is undertaken
quarterly including progress of risk
management actions and any gaps in
risk mitigants are challenged by the Risk
Committees.
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 from
business activities;
• 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.
Section TwoEcclesiastical Annual Report & Accounts 2017
Strategic Report – Risk Management Report
60/61
The risk appetite is refreshed formally
annually with approval and sign-off by the
Board and there are ongoing assessments
to ensure its continued appropriateness for
the business.
Our overarching risk appetite sets the
minimum levels of capital and solvency
that the Group wishes to maintain.
Further statements detail the maximum
exposure to different risk types that are
deemed to be acceptable. 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- from Standard & Poor’s (S&P).
Quantitative risk
measures and stress
testing framework
Since the introduction of Solvency II at
the start of 2016 our regulatory capital
requirement has been calculated using
the standard formula approach.
However, we have applied for regulatory
approval to use our Internal Model as the
basis for the calculation of our regulatory
capital requirements.
We seek to develop and improve our risk
management framework and strategy on
an ongoing basis to ensure it continues
to enable us to achieve our strategy and
objectives. Recent key improvements
have included:
• continued embedding of the risk
management framework within the 1st
line of defence;
• greater focus on the key controls in place
to manage the risks to the business
plans;
• continued development of quantitative
risk profiling capabilities to ensure all
material risks are captured;
• enhancement and further embedding of
our Internal Model validation framework;
• material enhancement of the Group’s
stress testing and scenario analysis
which is undertaken both as a validation
tool for the Group’s Internal Model and
as a method of assessing operational risk
for the Group;
• improved reverse stress testing;
• strengthened approach to the Control
Risk and Self-Assessment (CRSA)
process; and
• continued embedding and enhancement
of the Own Risk and Solvency
Assessment (ORSA) process.
Risk appetite
The risk appetite defines the level of
risk-taking that the Board feels is appropriate
for the Group as we pursue our business
objectives. It is defined in line with the
different categories of risk that the Group
faces, and provides the backdrop against
which the business plan is developed and
validated. This ensures that the risk profile
resulting from the business plan is in line
with the risk-taking expectations of the
Board. Compliance with the risk appetite
is formally monitored every quarter and
reported to the Group Risk Committee
at each meeting.
Individual and aggregate risk exposures
are calculated using our Internal Model,
which has been calibrated to determine
our internal view of the capital resources
required to deliver our business plan and
further evaluated within our ORSA.
Over the last year, in addition to adjusting
the calibration of the model to reflect
updated risk exposures, we have
continued to improve both the scope
and methodology of our Internal Model to
better reflect our current risk profile and
completed several cycles of independent
model validation. Use of the model has also
continued to embed within our strategic
decision-making processes, for example its
use as an input to the development of our
reinsurance strategy, pricing decisions and
setting of investment strategy.
The performance of stress testing and
scenario analysis is a key component of
our risk management framework, which
further contributes to meeting the
Solvency II requirements.
Through assessing the impact of adverse
risk scenarios on our business plan,
operations and financial health it provides a
quantitative and qualitative assessment of
the Group’s ability to respond to financial,
insurance and operational shocks. It helps
us to understand the risks faced under
extreme conditions and provides assurance
to the Board on the robustness of our
risk mitigation and control improvement
strategies. It is also used as a tool for
the validation of our internal capital
requirements within the ORSA process.
Over the year this stress testing and
scenario analysis framework has been
further refined and embedded across the
business, thereby helping to inform and
drive business planning and decision-
making processes.
Section TwoEcclesiastical Annual Report & Accounts 2017
SEIB
A proud partner to the equestrian industry
SEIB’s connection with the horse industry
dates back more than 50 years. Our specialist
broker has been meeting the specific needs
of the equestrian sector ever since, from high
value veterinary fee cover for horses and
ponies to horsebox insurance.
As an expert in its field, SEIB has a deep understanding of its
customers and seeks opportunities to help meet their insurance needs
through innovative solutions.
SEIB insures several of the major equestrian charities as well as the
British Equestrian Trade Association (BETA), and recently introduced
professional indemnity insurance for its members, in response to the
increasing number of claims made against retailers.
In addition, SEIB has also launched a new Equestrian Trade Product,
providing bespoke equipment cover for businesses that reflects
the unique risks associated with working in the equestrian industry.
Launched in association with the British Equestrian Trade Association
(BETA), it’s the first scheme of its kind in the market, offering members
a number of benefits, including a discount and more flexible
payment options.
The new cover reflects the reality that as well as selling equipment,
many equestrian retailers also fit, clean and repair equipment. They need
to visit their clients with an array of expensive tack and saddlery then fit it
to a sometimes uncooperative horse. The cover can be tailored to meet
the varied needs of the sector, covering manufacturers, wholesalers,
online sellers, mobile shops and saddle fitters.
Fittingly, the new policy was launched at the British Equestrian Trade
Association (BETA) Trade Show, the business show for the equestrian
trade, and once more showed that SEIB is ahead of the pack when it
comes to horse-related insurance.
“I am delighted that SEIB has launched its new bespoke insurance
policy for equestrian businesses. This policy will help many of my
members find insurance to cover them when on the road fitting saddles
or when out at shows when they have faced real struggles to find cover
in the past. Judging by the reaction of those at BETA international where
we introduced it, the new policy looks like offering a real solution for so
many, just as the Professional Indemnity Insurance policy is proving so
useful for others.”
Claire Williams
Executive Director and Secretary, British Equestrian Trade Association
Building a movement for good.
Strategic Report – Principal risks
64/65
Principal 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.
The impacts of Brexit for the Group are being assessed as more information becomes available, however, it has not been
assessed as a principal risk. Impacts of Brexit are referred to under Market Risk and Pension Risk below.
The principal risks identified by the Board are as follows:
Risk type and description
Why we have it
How we mitigate it
Change*
Insurance risks
Underwriting, pricing
and reserving risk
The risk of failure to
price insurance products
adequately, failure to
establish appropriate
underwriting disciplines
and failure to manage risk
concentrations across our
different business and
risk areas.
Reserving risk is the risk
of actual claims payments
exceeding the amounts we
are holding in reserves.
Reinsurance risk
The risk of failing to
access and manage
reinsurance capacity
at a reasonable price.
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.
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. Claims reserving risk primarily arises from
long-tail liability business, and failure to interpret emerging
experience or fully understand the risks written could result
in insufficient reserves being held to meet our obligations.
We are continuing to actively monitor the Independent Inquiry
into Child Sexual Abuse (IICSA) in the UK to determine if this
will have an impact on the frequency and severity of Physical
and Sexual Abuse claims across the insurance industry.
Reinsurance is a central component of our business model,
enabling us to insure a portfolio of large risks in proportion
to our capital base.
We would be severely impacted by an inability to obtain the
relevant reinsurance programme.
Despite significant catastrophe losses in the reinsurance
market during 2017 the traditional reinsurers remain
strongly capitalised and regulated alongside the continued
availability of alternative capital.
Targeted training programmes are in place to ensure that we maintain and develop the
appropriate skill sets. A documented underwriting strategy and risk appetite is in place which is
supported by formally documented authority levels for all underwriters which must be adhered
to. This ensures a clear focus on our chosen niches and classes of business.
The level of this risk has
not changed materially
during the last year.
Risk appetite limits have been established to manage our concentrations of risk and these are
reviewed regularly by the Group Risk Committee.
Claims development and reserving levels are closely monitored. For statutory and financial
reporting purposes, prudential margins are added to a best estimate outcome to allow for
uncertainties. 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 note 3 to the financial statements starting on
page 191.
We continue to maintain our commitment to developing a broad panel of well rated reinsurers across
the main reinsurance programmes. We manage this risk by taking a long-term view of reinsurance
relationships to deliver sustainable capacity rather than seeking to benefit from opportunistic
purchases and this meant we were well positioned to respond to a more challenging renewal season.
The level of this risk has
remained broadly similar
since last year.
Strict criteria exist which relate to the ratings of the reinsurers we choose and a Reinsurance
Security Committee approves all of our reinsurance partners. Merger and acquisition activity
is monitored closely to ensure that this does not result in increased exposures with one group
exceeding our accepted limits.
A Group Reinsurance Board is in place which approves all strategic reinsurance decisions.
We purchase reinsurance to protect against property catastrophe events in line with our risk
appetite and/or regulatory requirements.
Link to viability statement – risk included in stress and scenario analysis
* change arrows reflect movement in underlying risks
Section TwoEcclesiastical Annual Report & Accounts 2017
Strategic Report – Principal risks
66/67
Risk type and description
Why we have it
How we mitigate it
Change*
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.
Market risk principally arises from investments held by the
Group. We actively take 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,
though we have limited appetite for stocks with credit
ratings below investment grade.
Market risk is also present in our holding of a significant
equity portfolio.
A proportion of our equity portfolio is invested in overseas
markets to give us exposure to wider investment
opportunities and diversified returns which also introduces
currency risk.
Further, we invest in property to obtain income, the
opportunity for long-term real returns, and offer some
diversification from other classes of assets.
Although our exposure
to this risk has not
changed materially
since last year, there
have been some
changes in the asset
mix, in particular an
increase in exposure
to property. The key
drivers for this risk are
those affecting the
economic environment.
Such indicators have
been less volatile over
the past year than in
previous years, though
uncertainty in issues,
such as the outcome of
the Brexit negotiations
and the global political
environment, are
expected to influence
levels of uncertainty.
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 to
enable expected cash flows from assets to match the expected cash flows from liabilities.
The relatively short average duration of our fixed interest portfolio gives us some protection from
the impact of volatility of interest rates on asset values.
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 bond issuers,
limiting our exposure to both non-rated and lower-rated bonds, and ensuring that we maintain
an appropriate spread of counterparties, including adherence 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 within limits for exposure to individual companies and industry
sectors. When we feel it is appropriate, we will use derivatives to reduce equity exposure.
Some hedging of equity risk was in place throughout 2017 whilst we implemented a small
reduction in gross equity exposure as a proportion of our overall assets.
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 also arises from holding overseas equities.
Throughout 2017 we have hedged the majority of our currency risk exposure, as we have
limited appetite for retaining that risk.
Our investment in property gives us a degree of diversification in our asset portfolio.
We mitigate property investment 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 on page 194.
Link to viability statement – risk included in stress and scenario analysis
* change arrows reflect movement in underlying risks
Section TwoEcclesiastical Annual Report & Accounts 2017
Strategic Report – Principal risks
68/69
Risk type and description
Why we have it
How we mitigate it
Change*
The Group may need to pay significant amounts of claims at
short notice if there is a natural catastrophe or other large
event in order to deliver on our promise to our customers.
This has the potential to create a mismatch in the timing of
cash flows.
We hold a high proportion of our assets in readily realisable investments to ensure that we
could respond in such a scenario. In addition, the arrangements we have in place with our
reinsurers include agreements to pay recoverables on claims prior to us making the payments to
customers. This minimises the impact on the Company’s cash flows.
There have been no
material changes to this
risk since last year.
Liquidity risk
The risk that the Group,
although solvent, either does
not have sufficient financial
resources available to enable
it to meet its obligations as
they fall due, or can secure
them only at excessive cost.
Credit risk
The risk that a counterparty,
for example a reinsurer,
fails to perform its financial
obligations to the Company
or does not perform them in
a timely manner resulting in
a loss for the Group.
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.
Operational risks
IT systems risk
The risk of inadequate,
ageing or unsupported
systems and infrastructure
and system failure
preventing processing
efficiency.
The successful delivery of our strategy is reliant on the
availability of efficient and reliable systems to our strategic
business units. These are critical to enable us to deliver
excellent customer service and business processing.
Reinsurer credit risk is overseen by the Group Reinsurance Security Committee,
principally through careful selection and monitoring of reinsurance partners. All reinsurers on the
reinsurance programmes are required to have a minimum rating of A- (property) or AA- (casualty)
from S&P or an equivalent agency at the time of purchase with specific approval required for any
lower ratings.
Changes to the reinsurance arrangements for our subsidiary, Ansvar Australia, removed the
previous reliance on a single counterparty for 2017.
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.
Further information on this risk is given in note 4 to the financial statements starting on
page 194.
As the changes to the
Australia reinsurance
programme mentioned
above are only one
element of this risk, at
an overall level, this risk
has remained broadly
similar since last year.
Remedial work including a number of system upgrades has been undertaken in a number of key
areas to mitigate this risk.
A strategic systems programme is also underway which will deliver improved systems, processes
and data. Significant progress has been made on this programme during 2017 which will
continue through 2018 with phased releases from 2019.
The overall level of
this risk has remained
unchanged since
last year.
Link to viability statement – risk included in stress and scenario analysis
* change arrows reflect movement in underlying risks
Section TwoEcclesiastical Annual Report & Accounts 2017
Strategic Report – Principal risks
70/71
Risk type and description
Why we have it
How we mitigate it
Cyber security risk
and data privacy risk
The risk of data privacy
and information security
breaches including criminal
or unauthorised use of
electronic information, either
belonging to the Group or
its stakeholders.
We hold significant amounts of electronic information and
increasing reliance is placed on electronic processing,
storage and transmission of customer, company and
employee information. Cyber security threats from malicious
parties are increasing in both number and sophistication
across all industries. New data privacy regulations
(General Data Protection Regulation) introduce enhanced
standards of stewardship.
As the challenge with cyber security is constantly changing, we constantly review and
update the information security controls in place, which aim to safeguard and deny
unauthorised or malicious access to our systems, confidential data and internal infrastructure.
We have responded to GDPR by reviewing our management of personal data and have a
programme of improvement to meet the May 2018 implementation date.
The management of this risk is owned by the Board.
Change*
This continues to be a
high risk as the inherent
threat is ever increasing.
We continue to invest in
specialist resources to
ensure that our controls
keep pace with the
evolving threats and these
have remained effective in
protecting us against any
significant event.
Conduct risk
The risk of unfair outcomes
arising from the Company’s
conduct in its relationship
with customers, or in
performing its duties and
obligations to its customers.
Strategic risks
At the core of our business model is the desire to place the
customer at the centre 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 is in place including Board reporting alongside specific risk
appetite metrics.
All strategic business units have Customer Promises in place with associated management
information monitored on an ongoing basis by local Boards and a Group level Customer First
Steering Committee.
The level of this risk
has remained the same
since last year.
Rating agency downgrade
The risk of a downgrade
in the Company’s rating
impacting on the business
model and operations.
The rating provides a market-wide view of the strength of
the Company and is a key factor used by a number of our
stakeholders in deciding to do business with us. A reduction
in the rating could result in the loss of customer confidence,
reputation and ultimately a loss of business.
Pension risk
These are risks associated
with our defined benefit
pension scheme.
The risks are primarily
market related, with interest
rate and inflation risk the
largest exposures, though
there is also exposure to
longevity and
operational risks.
The Company sponsors a defined benefit pension scheme
which remains open for accrual for some employees.
Changes in expected future interest rates and inflation
can increase or decrease the value of providing the benefit
to employees. Changes in these assumptions used in the
valuation of the scheme’s liabilities, or a movement in the
market values of the scheme’s assets, could change the
funding position of the scheme and may mean that the
Company has to make additional contributions into the
scheme to fund any deficit emerging.
A focus on managing all our principal risks to ensure delivery of our business and maintenance
of our specialist knowledge in our chosen markets is key to ensuring our financial strength and
the mitigation of this risk.
The level of this risk
is unchanged.
The Company works with the scheme’s trustees to understand and manage the risks.
There is close scrutiny on matching assets and liabilities to mitigate the risks of market
movements. Over the course of the last year the scheme has enhanced its matching position
by increasing its holdings of liability driven investments. This has been accompanied by a
reduction in exposure to equities.
The main changes to
the risk profile of the
scheme are noted
in the details of the
mitigations.
The financial position of the scheme improved over the year, due mainly to positive investment
performance. The scheme remains exposed to potential volatility in economic conditions,
particularly as Brexit negotiations progress, and we are working with the scheme’s trustees
to further reduce the scheme’s exposure to market risk.
Link to viability statement – risk included in stress and scenario analysis
* change arrows reflect movement in underlying risks
Section TwoEcclesiastical Annual Report & Accounts 2017
Section Two
Strategic Report
Corporate Responsibility Report
2017 highlights
Introduction and governance
External environment and monitoring and auditing
Our community
Our people
Our environment
Our marketplace
76
78
80
82
86
90
94
Strategic Report – Principal risks
Longer-term
viability statement
It is fundamental to the Group’s longer
term strategy that the directors manage
and monitor risk, taking into account all key
risks the Group faces, including longer-term
insurance risks, so that it can continue to
meet its obligations to policyholders.
The Group is also subject to extensive
regulation and supervision including Solvency
II. Against this background, the directors
have assessed the prospects of the
Group in accordance with provision C.2.2 of
the 2014 UK Corporate Governance Code,
with reference to the Group’s current
position and prospects, its strategy, risk
appetite, and the potential impact of the
principal risks and how these are managed.
The assessment of the Group’s prospects
by the directors covers the three years to
2020 and is underpinned by management’s
2018-2020 business plans which make
assumptions relating to: the prevailing
economic climate and global economy;
the structural challenges facing our sector;
and the costs associated with delivering our
strategy. They also include projections of the
Group’s capital, liquidity and solvency.
While the directors have no reason to
believe the Group will not be viable over a
longer period, a three-year outlook period
has been selected. Given the rate of
change in the markets in which the
Group operates, three years provides an
appropriate balance between the period of
outlook and degree of clarity over specific,
foreseeable risk events that could impact on
the viability of the Group. The outlook period
also aligns with the planning horizon in the
business plan.
Stress and scenario analysis has been
performed with reference to the principal
risks of the Group, which are documented
on pages 64 to 71. The stresses are
designed to be severe but plausible and
assess the impact of certain events on the
Group’s profitability and capital strength.
They include:
Scenario
Principal risks
Increase in attritional claims
Insurance risk – underwriting and pricing risks
1 in 50 year deterioration in PSA reserves
Insurance risk – reserving risk
10% reduction in GWP year on year
Insurance risk – underwriting and pricing risks
CAT windstorm combined with reinsurer default
Insurance risk and credit risk
1 in 10 and 1 in 20 investment market events Market risk
10% increase in annual operating expenses Operational risk
Scenario testing found that a 1 in 20 investment
market event combined with either reduced
GWP or a catastrophe event has a significant
impact on capital. A range of plausible
mitigating actions in these circumstances have
been identified and documented.
The solvency position of the Group has
been projected as part of the Own Risk
and Solvency Assessment (ORSA),
which is a private, internal, forward-looking
assessment of own risk, as required as
part of the Solvency II regime. The forward-
looking emphasis of the ORSA ensures that
business strategy and plans are formulated
with full recognition of the risk profile and
future capital needs.
The results show that the Group has
sufficient capital resources to cover its
capital requirements for the period of the
business plan.
The directors have also considered the
Group’s ability to service its preference share
borrowing and the dividend expectations
of its owner. The Group has fixed annual
dividend payments of £9.2m in respect of
its non-cumulative irredeemable preference
shares. The Group makes regular donations
to its ultimate charitable owner, Allchurches
Trust. There is a regular cycle of discussion
with Allchurches Trust to determine the
appropriate level of grants, in which the
Group’s capital position and future business
needs are taken into account.
Confirmation of viability
Based on 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 and potential
mitigating actions, the directors confirm that
they have a reasonable expectation that
the Group will continue in operation and
be able to meet its liabilities as they fall due
over the next three years.
Section Two
Ecclesiastical Ireland
Supporting charity
Owned by a charity and with a purpose to
contribute to the greater good of society,
Ecclesiastical understands the charity sector
better than most – a fact that resonates with
many of our customers. In 2017, our Irish
business had great success in growing its
charity book, thanks to its key relationships
in the sector.
One of the cases that we won was the Dublin Simon Community,
which works to prevent and address homelessness in Dublin and
its surrounding areas. The charity provides services at all stages of
homelessness – from advice and work support to hostels and soup
kitchens – to enable people to move to a place they can call home.
The charity moved its business to Ecclesiastical on a long-term basis
late last year when the risk became due. The management team were
impressed with the fact that we met them to discuss their needs and
put forward a compelling proposition – even before we talked about
price. The case was also a great example of early engagement
and working closely with the broker to provide the best solution
for the customer.
Other key wins in the charity sector last year include Glasnevin Trust,
The Iveagh Trust and the National Council for the Blind in Ireland.
Building a movement for good.
Section Two
Strategic Report – Corporate Responsibility Report
Ecclesiastical Annual Report & Accounts 2017
76/77
Corporate
Responsibility Report
2017 highlights
61%
of employees
took up
volunteering time
Our community
£27.5m
total charitable
giving
33%
of pre-tax profit
given to charity
Our people
85% +ve
overall employee engagement score
(+3% on Financial Services benchmark)
88% +ve
of staff say ‘I am proud to work for this company’
(+8% on Financial Services benchmark)
Over 800 attendees to 88 bitesize
training sessions including more than
300 business partners
£300,000
funding for heritage skills partnerships
Gold Standard
for Payroll Giving
£100,000
in Closer to You broker grants distributed
Free wellbeing support
250 flu jabs, 200 health checks,
new resilience training
Living
Wage
status extended
across our Group
45%
is the target for
women in senior
management
and management
group
Our environment
76%
electricity from
renewable sources
73%
recycling rate
Carbon footprint
of all EdenTree funds better than benchmark
Average fleet CO2 emissions reduced to
104g/km
Our marketplace
Insurance Company
of the Year
Winner at the Better Society Awards
Responsible business review of
all material claims
suppliers
Best Ethical
Investment Provider
for the 9th year running
Fairer Finance Gold
Standard
for the 3rd year running
Strategic Report – Corporate Responsibility Report
78/79
Corporate
Responsibility Report
Introduction and governance
Thank you for taking the time to look at our CR Report 2017.
Many companies have commendable CR programmes as part of their
operations but Ecclesiastical is different because our entire purpose is to do
good. For us, corporate responsibility isn’t an added value activity, it’s core
to who we are. It supports and challenges how we do what we do.
Mark Hews
Group Chief Executive
Our Purpose: To contribute to the greater good
of society. We do this by managing a portfolio of businesses
that operates on the highest ethical principles and delivers a superior
financial return for our shareholder.
Structure and governance
Corporate responsibility (CR) 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
‘Greater Good’
Steering Group
Pillar
responsibility
Community
advocates
drives the development and leadership of CR within the business
functional responsibility for key aspects of CR, for example environmental management
and workplace responsibilities
networks of advocates enthusiastically support local community investment at all of
our locations
Section TwoEcclesiastical Annual Report & Accounts 2017
Strategic Report – Corporate Responsibility Report
Ecclesiastical Annual Report & Accounts 2017
80/81
The external environment
The issues and trends we are facing in our markets are
covered in our Strategy in action section starting on page
37, and Global trends in financial services section starting
on page 28.
Our EdenTree ethical investment business tracks
responsible business trends and challenges companies
on their sustainability credentials:
Each year world leaders gather at the Swiss resort of
Davos to reflect on the risks and opportunities facing the
global economy. The World Economic Forum (WEF)
which hosts the event, at the same time publishes its
insightful Global Risks Report. Now in its 13th edition this
is a comprehensive survey of the most significant risks
facing the world in terms of likelihood and impact.
The 2018 Report is published at a time when global
markets are booming, greater numbers of people are
being lifted out of poverty, and living conditions show the
greatest progress and improvement in human history.
Despite these positives, we also face enormous challenges
where ‘acceleration and interconnectedness in every field
of human activity are pushing the absorptive capacities
of institutions, communities and individuals to their limits’
(WEF 2018). The global risk landscape shows the growing
pervasiveness of climate change and extreme weather
events as a major challenge – now ranked the global
number one risk in terms of likelihood, and number two in
terms of impact. In all of the areas Ecclesiastical operates
either through its insurance business, or via investment
management, we see the challenge of responding to
major risks as outlined by the WEF: natural disasters (third
greatest risk), failure of climate change mitigation (fourth),
water and food crises (fifth and seventh respectively).
Environmental risks now account for 40% of the most
globally pervasive risks in terms of their impact, and other
areas such as cyber-attacks are increasing in relevance
and urgency (rising from number six in 2017 to number
three in 2018 in terms of likelihood). Cyber-attacks did
not feature at all in terms of impact in 2017, but have
now been elevated to the sixth major risk in terms of their
impact. At a time of such immense challenge and change
Ecclesiastical’s commitment to being ‘the most trusted
and ethical specialist financial services group’ stands
us in good stead, and has never been more important in
retaining customer confidence across our businesses.
Neville White
Head of SRI Policy and Research at EdenTree
Monitoring and auditing
We believe independent assessment is an important aspect
of maintaining and raising standards. In 2017 we continued
to hold standards including Living Wage, Business In The
Community’s CommunityMark and the Fairer Finance Gold
Ribbon. We progressed our commitment to the Women
In Finance Charter, completing our first annual report, and
we were recognised as one of Canada’s top employers for
young people once again. Our ethical investment business
EdenTree maintains a number of memberships including the
UK Sustainable Investment and Finance Association, UN
Principles for Responsible Investment and the Institutional
Investors Group on Climate Change.
Materiality
To guide our responsible business agenda we take a
materiality approach to issues. We balance importance to
our stakeholders with importance to our business to judge
the relative risk and impact. We presented and discussed
our materiality review at our Board in 2017 and continue
to use it to shape our focus. Key issues it has helped us
to prioritise include employee conduct, diversity, heritage
preservation and environmental management.
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What’s important
to our business
We use a range of measures
to monitor and manage our
performance across all areas of
responsible business – including
our community, our people,
our environment and
our marketplace. The following
pages summarise our position
and include previous
performance if available.
Section Two
Employee-led
giving
Our community
We champion
being a good
corporate citizen.
We support our communities
in two main ways: through our
programme of employee giving
– MyGiving – and through
corporate charity donations
and partnerships.
82/83
2017 performance
2016 performance
61%
of UK employees took up a volunteering day
60%
87%
of employees took up personal grants
92%
12%
Payroll Giving
10%
£37,000
Fundraising matching
£33,000
90%
85%
of employees in our externally benchmarked employee survey say:
My company is a socially responsible employer
Ecclesiastical Annual Report & Accounts 2017
Strategic Report – Corporate Responsibility Report
84/85
Corporate giving
and partnerships
2017 performance
2016 performance
33%
of pre-tax profit given to charity
40%
£27.5m
Total Group charitable giving
£24.7m
Overseas grants programmes
AUS$250,000 AUS$258,000
Australia
CAN$250,000
Canada
Corporate charitable funding for specific social causes
Mental health and wellbeing of young people
£135,000
£300,000
Heritage skills
‘Closer to You’ broker grants programme
42
charities benefiting
£100,000
distributed
to launch a campaign to create a list of
100 irreplaceable places which tell the remarkable
story of England and its impact on the world.
We continued a partnership with children’s charity
Coram, established by our UK Ansvar business,
to develop their Life Education programme which
promotes positive behaviour, mental and physical
health, wellbeing, resilience and achievement in UK
primary schools. We specifically funded development
of relationships education resources which will reach
200,000 school children.
Our employees sustained their high level of
engagement in our giving programme,
MyGiving, with 61% giving their time to volunteer
and 87% giving a ‘personal grant’ to a charity of their
choice. We also increased matching for fundraising
and Payroll Giving.
In 2017 we launched several new charitable giving
initiatives. The first was designed to bring our select
broker partners closer to our charitable giving
through £2,500 donations to a charity of their choice.
We distributed over £100,000 to 42 charities.
Our broker SEIB launched a campaign to give
£50,000 to a good cause, asking SEIB clients to vote
for their favourite charity. At Christmas we offered
£1,000 to 130 charities in our 12 Days of Giving
Campaign. We asked employees, partners,
customers and supporters to nominate a cause
and we received over 20,000 nominations.
Our community
As a unique commercial business
owned by a charity, our community
investment commitment continues
to be core to who we are.
In 2017 we increased our total charitable giving to
£27.5m and giving direct from the Ecclesiastical
Group to £1.5m, representing 33% and 2% of pre-tax
profit respectively. We ranked 4th in the Directory of
Social Change’s UK Guide to Company Giving and
we are the number one insurer.
We make a difference in three key ways. By:
– being a different kind of business – delivering
profits to charity
– focusing on key social issues important to our
customers and partners
– enabling our people and partners to give to causes
close to them
Our charitable owner, Allchurches Trust,
continued to deliver grants to projects in line with
its mission and charitable objectives and in 2016
distributed a record £15.6m to 1,324 churches,
charities and communities across the UK and
Ireland. Under the auspices of Allchurches Trust
our Australian and Canadian businesses also gave
to their communities. Our Australian business’s
Community Education Programme distributed
another AUS$250,000 supporting a range of
sustainable programmes for young Australians
promoting education and skills. Our Canadian
business also launched a giving programme donating
CAN$250,000 to causes that benefit youth,
vulnerable and under-represented people and the
preservation of Canadian heritage.
Ecclesiastical in the UK focused its attention
on two key social issues – heritage skills and the
mental health and wellbeing of young people.
Our partnerships include the Landmark Trust to
restore Cobham Dairy, Cathedrals’ Workshop
Fellowship to train stonemasons and University
College London to support Sustainable Heritage
Master’s students. We partnered with Historic England
Section TwoEcclesiastical Annual Report & Accounts 2017
Our people
We foster an open
and responsible
culture.
In 2017 we made progress in a
number of areas to support our
employees, develop talent at all
levels, encourage diversity and
provide a positive and engaging
working environment.
86/87
2017 performance
2016 performance
Hours of learning logged on our Learning Management System
17,000
11,000
813 580
Bitesize training session attendees
Learning and
development
Employee
engagement
Annual results from our externally benchmarked employee survey,
MySay (including difference from previous year’s results)
85%+ve
Overall engagement score
82%+ve
88%+ve
I am proud to work for my company
87%+ve
91%+ve
90%+ve
In my opinion my company is committed to customer satisfaction
Living Wage
Standard
*
* Extended across the Group
Ecclesiastical Annual Report & Accounts 2017
Strategic Report – Corporate Responsibility Report
88/89
Wellbeing
Diversity
2017 performance
2016 performance
250
Free flu jabs
200
Free health checks
250
150
Women in Finance
By 2020 % of women in senior
management and management group
Target 45%
MySay questions
I am treated with fairness and respect at my company
I think Ecclesiastical respects individual differences
84%+ve
80%+ve
83%+ve
75%+ve
Gender Pay Gap
Fixed pay gap mean/median
30.7%/25.0%
Bonus pay gap mean/median
53.5%/33.1%
BME representation in our business
4.9% 4.9%
Our people
We developed and articulated
our target culture model at the
start of 2017 and have started
a structured roll-out including
embedding in behavioural models,
introducing it to everyone at
induction and reinforcing through
a new group-wide employee
recognition scheme ‘Shout Out’.
We launched a new leadership development
programme which welcomed leaders from all parts
of our Group, including Canada, Australia, EdenTree
and our brokers. The programme includes a variety
of development activities such as a strategic project
working alongside one of our charity partners. Other
development activity included a programme of over
80 ‘bitesize’ training courses which welcomed over
800 attendees including more than 300 people from
brokers – our own brokers SEIB and our broker
partners too. We also introduced a ‘resilience’ module
to enhance our wellbeing approach.
To support our established Diversity Policy Ian
Campbell, Group CFO and Director, is our senior
executive responsible for diversity. We produced
the first report as part of our commitment to the
Women in Finance Charter. Our activity included
online training for all employees on unconscious
bias and specific training for recruiting managers;
a ‘leadership masterclass’ led by Denise Wilson, one
of our Directors and Chair of the Hampton-Alexander
Review; and improved data gathering, reporting and
communication. Our reporting now includes our
Gender Pay Gap, which we published ahead of the
required deadline.
We consider human rights risks to our business.
This led us to reaffirm our Living Wage employer
status and extend it across our Group. We also
retained our Chartered Insurer status in the UK and
Ireland, launched a new General Insurance Academy
to develop our talent and retained our title as one of
the ‘Top Employers for Young People’ in Canada.
Gender by level*
Group Management Board
Senior Leader
Manager
Team Member
TOTAL
Male
Female
TOTAL
MALE %
FEMALE %
6
73
228
342
649
3
25
151
587
766
9
98
379
929
1,415
67
74
60
37
46
%
4.9
33
26
40
63
54
TOTAL
1,415
Ethnicity*
White
1,169
%
Prefer not to say
82.6
177
%
12.5
BME
69
* Data for Ecclesiastical Insurance Group
Section TwoEcclesiastical Annual Report & Accounts 2017
Our environment
We run our
business in a
responsible and
sustainable way.
We manage our own impact
on the environment through
energy usage, waste and
business travel. We also consider
wider sustainability issues
including climate change and
ethical investment.
90/91
Environmental
management*
2017 performance
2016 performance
Scope 1 total emissions
421
tonnes CO2e
Scope 2 total emissions
177
tonnes CO2e
457
590
Scope 3 total emissions
477
tonnes CO2e
Total carbon emissions (Scopes 1-3)
1,075
tonnes CO2e
359
1,406
Business travel
1,079,274
Total air travel (km)
1,075,241
Rail (km)
201,067
Business (km)
126,887
Car rental (km)
741,926
880,437
262,313
135,272
Average fleet CO2 emissions in g/km reduced to
108
104
(our target 120g/km)
Water usage (scope – head office only, c40% of employees)
3,892
cubic metres
4,019
* Environmental reporting includes management activities led by the UK Facilities Management team who have control and
responsibility for premises occupied by circa two thirds of the Ecclesiastical Group by headcount, except where stated.
Ecclesiastical Annual Report & Accounts 2017
Strategic Report – Corporate Responsibility Report
92/93
Our environment
We believe managing and
mitigating the direct impact of
our business is an important
consideration. In 2017 we approved
an environmental management plan
for premises managed by our UK
facilities team.
We completed an audit of our carbon footprint
including our electricity usage which is now sourced
from 76% renewable energy and our fleet which
achieved an average CO2 emission of 104g/km and
continues to improve. We also made plans to improve
our waste management approach at our head office
to increase recycling and reduce landfill waste. Due to
extra investment in recycling coffee grounds and glass
in our London office the building was recognised with
a Gold Award with special commendation as part of
the Clean City Awards Scheme.
Our ethical investment business EdenTree was
among the fund managers that have formalised our
commitment to conduct carbon footprints for our
funds by signing the Montreal pledge. All but one of
our funds have reduced their carbon footprint from
2016 to 2017 and all of the funds are below the
benchmark for their sector. This approach continues to
be an effective way to demonstrate our commitment
to investment including below benchmark weighting in
fossil fuels and ‘no oil sands or Arctic drilling’ stance.
Environmental
management
2017 performance
2016 performance
Waste (scope – head office only, c40% of employees)
28
tonnes of landfill
74
tonnes of recycling
76%*
electricity from renewable sources
28
106
19%
Fund carbon footprints
tonnes of CO2 per £1m invested (% vs benchmark)
81
Amity UK (-57%)
311
Amity European (-2%)
166
Amity International (-22%)
158
Amity Global Equity Income (-26%)
49
UK Equity Growth (-74%)
96
288
256
178
88
Ethical investment
Signatory to Montreal Pledge
Principles of Responsible
Investment signatory
* 2017’s reporting has benefited from a full year of renewable energy tariff
(we were only on this tariff for three months of 2016).
Section TwoEcclesiastical Annual Report & Accounts 2017
Satisfaction
rates
Our marketplace
We put customers
at the centre of
everything we do.
We aim to lead the way by
providing our customers with
fair and ethical products that
are transparent and meet all
regulatory requirements.
We also focus on companies
in our supply chain to ensure
they uphold high standards.
94/95
2017 performance
2016 performance
UK direct customer claims satisfaction
Broker satisfaction
98%
97%
96%
98%
SEIB broker satisfaction
Risk management survey – Direct
98%
96%
96%
99%
Ecclesiastical Annual Report & Accounts 2017
Strategic Report – Corporate Responsibility Report
96/97
Customer service
and support
Fairer Finance
Gold Ribbon Award
Supplier ethics
Modern Slavery Act
Compliance
Better Society Award
Supply chain
Claims suppliers compliance with standards
We consider human rights, anti-corruption and
anti-bribery risks to our business. Tackling financial
crime continues to be a key component of our
Code of Conduct for employees. To comply with the
Modern Slavery Act and continue to challenge our
most material supply chain partners we conducted an
in-depth responsible business survey with our claims
suppliers. We received responses from our key claims
suppliers and confirmed their compliance with the
Modern Slavery Act if appropriate. In advance of the
Payment Practices and Performance legislation we
also completed an audit of the payment practices
and terms for all of our UK suppliers.
Our marketplace
Our Group companies embraced
our Customer Promise throughout
2017 and published their own
interpretations publically on their
websites. We have rolled out
consistent strategic customer
metrics across our Group,
including, for example, satisfaction,
retention and complaints.
Our performance is detailed on
page 47 of the Strategic Report.
Our passion and commitment for our customers
was underlined by various awards and standards
– for example winning the ‘Best Ethical Investment
Provider’ Award at the Moneyfacts Investment Life
and Pensions Awards for the ninth year running;
and topping the Fairer Finance customer experience
ratings for the third year. We believe it’s important
to really understand the challenges our customers
face so we attended and presented at key industry
events including the National Disability Services and
Faith-based Governance and Dispute Resolution
Conferences in Australia and the Independent Bursars
Association, Heritage Alliance and Historic Houses
Association events in the UK. We have established
relationships with charity sector bodies including CO3
in Ireland, a body for third sector leaders, the Charity
Finance Group and Honorary Treasurers Forum in the
UK and we work with think tank New Philanthropy
Capital in the UK including supporting research into
the state of the sector.
We use technology to develop our service and
support. In Australia we are the only insurer licensed
to fly drones for surveys and we are pioneering the
use of a ‘vegecam’ in the insurance industry which will
help us survey and understand the health of trees to
assess their risk to people and property.
Section TwoEcclesiastical Annual Report & Accounts 2017
Ansvar Australia
Protecting faith properties
Protecting places of worship has been at the
heart of our business since it was launched
130 years ago. And while we continue to
be synonymous with protecting churches,
we’re also a leading insurer of faith buildings,
including synagogues, mosques and Sikh,
Hindu and Buddhist temples, across all
our territories.
Reflecting its diverse and multi-cultural society, our Australian business
insures many faith buildings.
An example of this is Ansvar Insurance’s synagogue scheme,
which has been running for more than 15 years. Starting with only
a handful of buildings, it has now grown to over 100 policies,
covering 95% of synagogues in Australia. The portfolio features a
diverse range of buildings across every Australian territory, including
the Central Synagogue of Bondi Junction, Sydney, which is the
largest synagogue in the southern hemisphere and has the largest
Jewish congregation in Australasia. We also insure the heritage-listed
Melbourne Hebrew Congregation building which is often referred to
as the ’Cathedral Synagogue’ of Melbourne.
Ansvar has worked closely with its broker partner to understand our
customer needs and grow and develop the scheme. Our specialist
knowledge and expertise in risk management has allowed us to tailor
the product to meet the specific needs of the Jewish community.
The scheme has expanded to include wider Jewish community
organisations demonstrating our support for them and supporting
society’s needs.
“We’ve had a productive partnership with Ansvar Insurance for over
12 years and we’ve found them to be professional, reliable and experts
in their field, which has enabled the synagogue scheme to thrive and
contributed to its continued growth.”
Judy Makowski, Account Manager, SME Division,
Scott Winton Insurance Brokers
Building a movement for good.
Strategic Report – Strategic Report approval
Strategic Report approval
The Strategic Report, outlined on pages 20 to 99, 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
14 March 2018
Section Two
Section Three
Governance
Board of Directors
Directors’ Report
Corporate Governance
Independent Auditor’s Report
104
108
113
162
Section Three
Governance – Board of Directors
104/105
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
John Hylands (b)
Independent Non-Executive
Chairman
John Hylands was appointed to the Board
in September 2007. He was Deputy
Chairman from March 2016 until March
2017 when he was appointed Chairman.
He is also a Director of the Insurance
Board of Lloyds Banking Group. He is
currently Chairman of the BOC Pension
Schemes, a Governor of the Royal
Conservatoire of Scotland and a school
governor. Until March 2007, he was an
Executive Director of Standard Life plc.
The Very Reverend
Christine Wilson (b)
Senior Independent Non-Executive
Director
Christine Wilson was appointed to the
Board in June 2012 and has served for
20 years in ordained ministry. She was
appointed as a Senior Independent
Director in November 2017. She was
Archdeacon of Chesterfield in the
Diocese of Derby until October 2016
when she was installed as Dean of
Lincoln. She was a member of the Church
of England General Synod from 2010 to
2015. From December 2013 to 2016 she
was participant observer on the House
of Bishops. She has also been chair of
a number of charities.
Ian Campbell (a)
Group Chief Financial Officer
Ian Campbell was appointed to the
Board in April 2014. He is a Chartered
Accountant with more than 28 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.
Tim Carroll (a) (b) (c) (d)
Independent Non-Executive Director
Tim Carroll was 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, President and CEO of
GE Reinsurance Inc. in the USA and an
active underwriter of Canopius Syndicate
4444 at Lloyd’s. He has held a number
of industry positions including Chairman
of the International Underwriting
Association, President of the Insurance
Institute of London and Master of the
Insurers’ Livery Company. He holds
several Non-Executive Directorships in
the insurance industry.
David Henderson (a) (b) (e)
Independent Non-Executive Director
David Henderson was appointed to the
Board in April 2016. David began his
career specialising in personal tax and
UK trusts. He spent ten years as a banker
with Morgan Grenfell and, following that,
11 years in financial services executive
recruitment with Russell Reynolds
Associates. He joined the Board of
Kleinwort Benson Group plc as Personnel
Director in 1995. He was appointed
Chief Executive of Kleinwort Benson
Private Bank Ltd (now Kleinwort Benson)
in June 1997. He was Chairman of
Kleinwort Benson from 2004 to 2008
and is currently a Senior Advisor to the
Bank. He holds several external
Non-Executive Directorships.
Mark Hews
Group Chief Executive
Mark Hews was appointed Group Chief
Executive in May 2013 and was previously
the Group Chief Financial Officer.
He was appointed to the Board in June
2009, appointed to the Board of MAPFRE
RE in December 2013 and became a
Trustee of The Windsor Leadership Trust
in November 2017. 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.
Anthony Latham (c) (d)
Independent Non-Executive Director
Anthony Latham was appointed to the
Board in March 2008. He worked for an
international insurance broking group
until 1990 and he was a member of the
Group Executive of RSA Group plc until
December 2007. He is Chairman of Argo
Managing Agency Limited and a Director
of Codan A/S and Codan Forsikring A/S.
Andrew McIntyre (c) (d)
Independent Non-Executive Director
Andrew McIntyre was appointed to the
Board in April 2017. Andrew is the Senior
Independent Director of C. Hoare & Co
and an independent Non-Executive
Director of Lloyds Bank Corporate
Markets plc, where he also chairs the
Audit Committee. Andrew was for 28
years a partner at EY, and was for nine
years Chairman of the Board of Southern
Housing Group, one of the largest
Housing associations in the U.K.
Ecclesiastical Annual Report & Accounts 2017
Section Three
Governance – Board of Directors
106/107
Board of Directors
Board diversity
Key to membership
of Group Board Committees
(a) Group Finance and Investment
(b) Group Nominations
(c) Group Risk
(d) Group Audit
(e) Group Remuneration
Chris Moulder (c) (d)
Independent Non-Executive Director
Chris Moulder was appointed to the
Board in September 2017. For the last
five years he has been the Director of
General Insurance at the Prudential
Regulation Authority, having previously
spent 26 years as a partner at KPMG,
specialising in Financial Services. He is
also a Director of the Insurance Board
of Lloyds Banking Group.
Caroline Taylor (a) (d) (e)
Independent Non-Executive Director
Caroline Taylor was appointed to the
Board in September 2014. Until May
2012 she was a Director of Goldman
Sachs Luxembourg and Dublin based
SICAV Funds, having spent her executive
career in financial services principally in
asset management. She is currently a
Non-Executive Director of Brewin Dolphin
Holdings plc.
S. Jacinta Whyte (c)
Deputy Group Chief Executive
Jacinta Whyte was appointed Deputy
Group Chief Executive and joined the
Board in July 2013 with responsibility for
the Group’s General Insurance business
globally. She was appointed to the
Ansvar Australia Board during 2013.
Jacinta 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 for 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.
Denise Wilson OBE (d) (e)
Independent Non-Executive Director
Denise Wilson was appointed to the
Board in December 2010. She is currently
CEO of the Hampton-Alexander Review,
and is former Chairperson 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.
Balance of Non-Executive Directors
and Executive Directors
Non-Executive Directors: Executive Directors
Gender Balance
Male : Female
Length of Tenure
(Chairman and Non-Executive Directors)
0 – 3 years
3 – 6 years
6 – 9 years
10 years+
Geographical Mix
United Kingdom
Rest of Europe
North America
Rest of World
Age
35 – 45
45 – 55
55 – 65
65+
9:3
8:4
3
3
2
1
10
1
1
0
0
2
7
3
Ecclesiastical Annual Report & Accounts 2017
Governance – Directors’ Report
108/109
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 2017. 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 4
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
subsidiary undertakings are given in note
31 to the financial statements on page 235
and details of international branches are
shown on page 245.
Ownership
At the date of this report, the entire issued
Ordinary share capital of the Company and
2.5% (2016: 1.5%) of the issued 8.625%
Non-Cumulative Irredeemable Preference
Shares of £1 each (‘Preference shares’)
were owned by Ecclesiastical Insurance
Group plc. In turn, the entire issued
Ordinary share capital of Ecclesiastical
Insurance Group plc was owned by
Allchurches Trust Limited, the ultimate
parent of the Group.
Board of directors
The directors of the Company during the
year and up to the date of this report are
stated on page 104 to 106.
Andrew McIntrye and Chris Moulder were
appointed as Non-Executive Directors
(NEDs) of the Company on 4 April 2017
and 27 September 2017 respectively.
Edward Creasy resigned as a director and
Chairman on 31 March 2017 and John
Hylands was appointed Chairman on the
same date. The Very Revd Christine Wilson
was appointed as Senior Independent
Director on 1 November 2017, succeeding
Mr Hylands.
In line with the Financial Reporting
Council’s (FRC) 2016 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 Anthony
Latham who will retire at the annual
general meeting (AGM), all directors
who have served since the last AGM
will be proposed for re-election at the
forthcoming AGM. Andrew McIntyre and
Chris Moulder 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 2017.
There has been no change in this position
since the end of the financial year and the
date of this report.
Ecclesiastical Annual Report & Accounts 2017Section Three
Governance – Directors’ Report
110/111
The following directors of the Company, and their connected persons, held Preference
shares in the capital of the Company at 31 December 2017:
Director
Nature of interest
Number of Non-Cumulative
Irredeemable Preference
Shares held
Mark Hews
Connected person
75,342
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
Dividends paid on the Preference shares
were £9,181,000 (2016: £9,181,000).
The directors do not recommend a final
dividend on the Ordinary shares (2016:
£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 £27.5
million (2016: £24.7 million).
During the last 10 years, a total of £154.0
million (2016: £139.8 million) has been
provided by Group companies for church
and charitable purposes.
It is the Company’s policy not to make
political donations.
Employees
The Group recognises the importance
of building engagement to involve and
inform employees. We use a range of
communications channels to achieve
this including briefings, conferences and
publishing of financial reports and we
welcome feedback and discussion.
We respect diversity and are committed to
providing a positive and engaging working
environment. This includes giving full
consideration to people with disabilities
– making adjustments and providing
training and support where necessary.
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 57.
Events after the
reporting period
There were no events after the reporting
period that require disclosure in the
Financial Statements.
Going concern
The Financial Performance section on
page 49 and Risk Management section of
the Strategic Report starting on page 57
provide a review of the Group’s business
activities and describe the principal risks
and uncertainties, including exposures to
insurance financial risk, operational and
strategic risk.
The Group has considerable financial
resources: financial investments of
£859.7m, 93% of which are liquid (2016:
financial investments of £866.5m, 94%
liquid), cash and cash equivalents of
£93.8m and no borrowings (2016: cash
and cash equivalents of £89.5m and no
borrowings). Liquid financial investments
consist of listed equities and open-ended
investment companies, government bonds
and listed debt. The Group also has a
strong risk management framework and
solvency position, and has proved resilient
to stress testing. As a consequence,
the directors have a reasonable expectation
that the Group is well placed to manage its
business risks successfully and continue in
operational existence for at least 12 months
from the date of this report. Accordingly,
they continue to adopt the going concern
basis in preparing the Annual Report
and Accounts.
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, 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 on page 128.
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.
Directors’ responsibilities
The directors are responsible for preparing
the Annual Report and the financial
statements in accordance with applicable
law and regulations.
Company law requires the directors to
prepare financial statements for each
financial year. Under that law the directors
are required to prepare the Group financial
statements in accordance with International
Financial Reporting Standards (IFRSs) as
adopted by the European Union and Article
4 of the International Accounting Standards
(IAS) Regulation and have also chosen
to prepare the parent company financial
statements under IFRSs as adopted by
the European Union. Under company law,
the directors must not approve the
Ecclesiastical Annual Report & Accounts 2017Section Three
Section Three
Governance
Corporate Governance
Group Finance and Investment Committee Report
Group Nominations Committee Report
Group Risk Committee Report
Group Audit Committee Report
Group Remuneration Report
118
120
126
128
136
Governance – 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
John Hylands
Chairman
14 March 2018
Mark Hews
Group Chief Executive
14 March 2018
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.
Section Three
Governance – Corporate Governance
114/115
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,
although the Company is eligible for exemption from the Financial Conduct
Authority’s requirements related to corporate governance disclosures,
the Company has chosen to voluntarily comply with the UK Corporate
Governance Code 2016’s Main Principles and Code Provisions throughout
the year ended 31 December 2017, 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
The roles of the Chairman and the Group
Chief Executive are undertaken by separate
individuals. The Chairman, John Hylands,
is responsible for leadership of the
Board. The day-to-day management of the
business is undertaken by the Group Chief
Executive, Mark Hews, assisted by the
Group Management Board.
Senior Independent Director
Christine Wilson has been appointed as
the Senior Independent Director (SID).
The SID supports and acts as a sounding
board for the Chairman and is responsible
for overseeing the governance practices
of the Company and leading the directors
in their appraisal of the Chairman. Along
with the Chairman, the SID is the primary
contact for the shareholder and they meet
regularly to share and understand views.
Directors’ conflicts
A Conflicts Register is maintained by the
Group Company Secretary to monitor and
manage any potential conflicts of interest.
Training on the Companies Act 2006 has
been given to all directors 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.
Group Finance and
Investment Committee
Group Nominations
Committee
Group Risk Committee Group Audit Committee
Group Remuneration
Committee
Ecclesiastical Board of Directors
Attendance at meetings
Directors are required to attend all
Board meetings and strategy days as
well as Committee meetings where they
are members. In 2017, the Board held
five scheduled meetings, two ad hoc
meetings and two strategy days.
In addition, the Board participated in
regular training sessions.
John Hylands met with the Non-Executive
Directors 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 to
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 2017, no director
had any such concerns.
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
Chairman 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 above. Details of all
the Board Committees are contained
within their respective reports that follow:
the Group Finance and Investment
Committee Report on page 118; the Group
Nominations Committee Report on page
120; the Group Risk Committee Report
on page 126; the Group Audit Committee
Report on page 128; and the Group
Remuneration Report on page 136.
The Terms of Reference (ToR) for all five
Board Committees can be obtained from
either the Company’s registered office
address or the website.
Ecclesiastical Annual Report & Accounts 2017Section Three
Governance – Corporate Governance
116/117
Below is a record of the directors’ attendance for the Board meetings (including the strategy
days) during 2017:
Board attendance table
Executive Directors:
Director since
Meetings eligible
to attend
Meetings
attended
Mark Hews
S. Jacinta Whyte
Ian Campbell
June 2009
July 2013
April 2014
8
8
8
8
8
8
Non-Executive Directors
Director since
Meetings eligible
to attend
Meetings
attended
John Hylands (Chairman)
Tim Carroll
David Henderson
Anthony Latham
Andrew McIntyre
Chris Moulder
Caroline Taylor
Christine Wilson
Denise Wilson
Edward Creasy
September 2007
April 2013
April 2016
March 2008
April 2017
September 2017
September 2014
June 2012
December 2010
February 2016
8
8
8
8
6
3
8
8
8
2
8
8
7
8
6
3
8
7
8
2
During 2017, the Board made decisions
on the following business issues and
routine matters:
Strategic matters
Group Chief Executive’s Report
Group Chief Financial Officer’s Report
Financial performance and statements
Charitable donations and gift aid
Performance, strategic and business plans
for Group businesses
Views from the Shareholder
Strategic Reviews of Ireland, Canada and
Edentree Investment Management Limited
Equity Hedging
Routine matters
Board’s annual objectives
Risk management, appetite, and registers
Dividends
Setting and reviewing budgets
Committee reports and recommendations
Director Conflicts of Interests
Operational matters
Review of General Insurance business
Internal Model
Solvency II
Group reinsurance arrangements
Customer Excellence
Health and Safety
Employee Engagement
Underwriting and pricing
Group Technical Provisions
Claims experience and management
Projects and other matters
Change Programme
GI Systems and IT Project
Property Review
Governance and regulatory matters
Board composition
Board Evaluation results and action plan
Governance Framework and Board Charter
Capital requirements, solvency position
and ORSA
Corporate Responsibility
Relationship with the regulator
Determining NEDs’ fees for
recommendation at a general meeting
Relationship with shareholder
Ecclesiastical Insurance Group plc owns
the entire issued Ordinary share capital
of Ecclesiastical Insurance Office plc.
Ecclesiastical Insurance Group plc in turn is
wholly owned by Allchurches Trust Limited
with whom the Board has an open and
constructive relationship. The Chairman
ensures that the views of Allchurches Trust
Limited are communicated to the Board
as a whole following regular meetings with
Sir Philip Mawer (Chairman of Allchurches
Trust Limited). In addition, Tim Carroll and
Denise Wilson have been appointed as
‘Common Directors’ of both companies
which enables Allchurches Trust Limited
to effectively communicate its views and
expectations to the Board. In turn,
the Common Directors are able to support
the directors of Allchurches Trust Limited 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
14 March 2018
Internal controls
The Board is ultimately responsible for the
systems of risk management and internal
control maintained by the Group and reviews
their appropriateness and effectiveness
annually. The Board views the management
of risk as a key accountability and is the
responsibility of all management and believes
that, for the period in question, the 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 on page 57.
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.
Ecclesiastical Annual Report & Accounts 2017Section Three
Governance – Group Finance and Investment Committee Report
118/119
Group Finance
and Investment
Committee Report
Chairman’s introduction
I am pleased to present the Group Finance and Investment Committee
Report describing the work undertaken by the Committee during the
past year.
Membership
The members of the Group Finance and Investment Committee and their attendance during
the year are shown below:
Committee member
Member since
Meetings eligible to attend Meetings attended
Tim Carroll (Chairman)
Ian Campbell
Caroline Taylor
David Henderson
August 2013
March 2016
March 2016
June 2016
4
4
4
4
4
4
4
4
Committee meetings
The Committee comprised the directors
shown in the table above who were
appointed by the Board.
The Committee held four scheduled
meetings during the year. The Committee’s
key responsibility is to ensure that, within
designated financial limits, the management
of the Group’s financial assets, including its
investment portfolio, is properly governed,
controlled and performing as expected.
The Committee also reviews and advises
on any major financial decisions including
acquisitions and disposals on behalf of
the Board.
In addition to its remit above,
the Committee also undertook a review
of the Group’s investment strategy which
encompassed consideration of asset
liability matching, liquidity, risk versus return,
capital and business outlook, considered
the tax strategy and capital and treasury
management, reviewed the early warning
indicators for market risk and a capital
replenishment plan. In addition, following
the Board Evaluation undertaken in the year,
the Committee also reviewed the role and
remit of the Committee. The outcome of the
review will be considered at its meeting in
March 2018 and recommendations will be
made to the Board.
By order of the Board
Tim Carroll
Chairman of the Group Finance
and Investment Committee
14 March 2018
Ecclesiastical Annual Report & Accounts 2017Section Three
Group Nominations
Committee Report
Chairman’s introduction
I am pleased to present the Group Nominations Committee’s Report which
includes the Temporary Nominations Committee established during the
year. This report gives detailed information on the reason for establishing a
Temporary Nominations Committee and how both Committees performed
during the year.
120/121
Membership
The members of the Group Nominations Committee and their attendance at meetings during
the year until it was disbanded on 15 June 2017 are shown below:
Committee member
Member since
Meetings eligible Meetings
attended
to attend
Edward Creasy (Chairman)
John Hylands
Christine Wilson
Denise Wilson
March 2016
May 2013
March 2016
June 2016
1
1
1
1
1
1
1
1
The members of the Temporary Nominations Committee and their attendance at meetings
during the year, following its formation on 15 June 2017, are shown below:
Committee member
Member since
John Hylands (Chairman)
Mark Hews
Sir Philip Mawer
June 2017
June 2017
June 2017
Meetings eligible Meetings
attended
to attend
4
4
4
4
4
4
In March 2017, Edward Creasy resigned as
Chairman. John Hylands, Deputy Chairman
and Senior Independent Director, agreed
to act as Chairman while a Chairman for
the longer term was recruited. This resulted
in the role of Senior Independent Director
becoming vacant.
In the first half of 2017, the Board also
undertook a Board Evaluation. The Board
Evaluator recommended to the Board
that the current Group Nominations
Committee be disbanded and a Temporary
Nominations Committee be established to
lead a refresh of the Board. The Temporary
Nominations Committee comprised the
Chairman (John Hylands), the Group Chief
Executive (Mark Hews) and the Chairman of
the Parent Company, Allchurches Trust (Sir
Philip Mawer). The Temporary Nominations
Committee was constituted by the Board
on 15 June 2017 and was disbanded on
11 December 2017.
Group Nominations
Committee meetings
The Group Nominations Committee
comprised the directors shown in the table
above who were appointed by the Board.
The Committee held one scheduled meeting
during the year which was attended by the
Group Chief Executive. The Committee’s
key responsibility 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. At its meeting held in
February 2017, the Committee considered
the Board’s performance against the
objectives for 2016, set Board objectives
for 2017, considered succession planning
for the Board and oversaw the appointment
of Andrew McIntyre as the new Chairman of
the Group Audit Committee.
Temporary Nominations
Committee
The Temporary Nominations Committee
comprised the members shown in the table
above who were appointed by the Board.
The Committee held four meetings during
the year.
The remit of the Committee, agreed by the
Board, was to implement the actions arising
from the External Board Evaluation relating
to Board succession planning being:
• a ‘refresh’ of the Board;
• the appointment of a Senior Independent
Director;
• the appointment of a new Group Risk
Committee Chairman;
• reviewing the composition of all
Committees; and
• the appointment of a new EIO
Board Chairman
Ecclesiastical Annual Report & Accounts 2017Governance – Group Nominations Committee ReportSection Three
122/123
Nominations Committee would complete
its remit in December and disband,
and that the Group Nominations Committee
would be reformed in 2018. It was agreed
that the members of the newly formed
Group Nominations Committee would be
The Very Revd Christine Wilson (in the
Chair), Tim Carroll, David Henderson and
John Hylands.
Subject to regulatory approval,
David Henderson will succeed Denise
Wilson as Chairman of the Group
Remuneration Committee when she
relinquished her chairmanship of that
Committee in March 2018. In addition,
it was agreed at the Board meeting in
February 2018 to appoint Caroline Taylor
as a member of the Group Audit Committee
and The Very Revd Christine Wilson to the
Group Remuneration Committee.
Appointment of a new EIO
Board Chairman
Following the recommendation of the
external Board Evaluator, the Temporary
Nominations Committee agreed that the
process to appoint a successor to John
Hylands as Chairman should be led by
the Senior Independent Director once
settled in her new role. The Board Evaluator
recommended that a new Chairman should
be appointed from within the existing
Board and that the Board member had
served on the Board for at least a year
to enable them to absorb the culture, the
history and the workings of the Board.
This recommendation was considered by
the Committee and, although accepted
in principle, it was agreed that an
external benchmarking exercise would
be undertaken in parallel to considering
internal candidates. The appointment will
be progressed during the Spring of 2018.
All newly appointed directors have to
receive regulatory approval in accordance
with the Senior Insurance Managers
Regime (SIMR).
NED appointment letters
All NEDs are provided with a letter
of appointment on acceptance of the
appointment, which includes the terms
and conditions of their role. The letters
of appointment were reviewed in light of
the recommendations made by the Board
Evaluation and are available on request
from the Group Company Secretary.
Board diversity
Ecclesiastical recognises the benefits of
having a diverse Board. It is committed
to improving diversity on the Board in the
broadest sense and acknowledges that
diversity both improves performance of the
Board and strengthens the business.
The Board has taken steps over the last
few years to increase the degree of gender
diversity on the Board. Since the Board
Diversity Policy was launched in June 2012,
the representation of women on the Board
has increased from 20% to 33% with four
female members in a current membership
of 12. This meets the Hampton-Alexander
2020 target (FTSE 350) for female Board
representation. The Board, via the Group
Nominations Committee, will consider
the progression of women to key roles
including Chair, Senior Independent
Director and executive directors as part of
its regular review of succession planning.
As demonstrated in the Board Diversity
table, the Company has a balanced and
diverse Board. All Board appointments
are made on merit, in the context of the
diversity of skills, experience, background
and gender required to be effective. The
Board will take opportunity, as and when
appropriate, to further improve diversity in
the wider sense and from all backgrounds
as part of its Board recruitment practice.
Apart from the commitment to maintain a
33% female representation on the Board,
the Board has not set any further targets.
The Board Evaluator recommended that
a refresh of the Board was undertaken to
obtain potential chairmen for the future.
The refresh would also include the appointment
of a new Senior Independent Director and
focus on a successor for the Chairman of the
Group Risk Committee who would retire during
2018. It was agreed that the title of Deputy
Chairman would be discarded.
Refresh of the Board
The Temporary Nominations Committee
agreed that the refresh should be
undertaken without increasing the size of
the Board. The Committee undertook a
comprehensive review of the existing skills
on the Board identifying gaps and reviewed
the length of tenure of each director on
the Board. The Committee consulted with
each director to, inter alia, canvas views
on candidates for the Senior Independent
Director, and to consider each director’s
own expectation of future service.
Following the consultation exercise,
the letter of appointment for each director
was revised and the succession plans
were updated. In addition, the Committee
consulted widely on potential names of
candidates who could join the Board as
part of the refresh. This included possible
candidates to become a common director
with Allchurches Trust Limited.
It was agreed that Ms Denise Wilson would
stand down from the Board in August
2018 having served almost eight years.
In addition, Anthony Latham was due to
retire at the AGM in 2018 having served for
longer than nine years and John Hylands,
who had also served for longer than nine
years, would resign once a Chairman for
the longer term was recruited.
Appointment of the Senior
Independent Director
After consultation with the Board and
consideration of a number of candidates,
the Committee recommended that The Very
Revd Christine Wilson be appointed as the
Senior Independent Director. The Board
considered the recommendation at its
meeting in August 2017 and unanimously
supported the proposal subject to
regulatory approval. Regulatory approval
was received on 1 November 2017
(which became the date of appointment).
Appointment of a new Group Risk
Committee Chairman
During the latter part of 2016, the Group
Nominations Committee had identified
that a successor needed to be sought for
Anthony Latham who was due to retire from
the Board at the AGM in 2018.
In early 2017, an external search consultants,
Heidrick and Struggles International (which
had no other connection to the Group
and which is a signatory to the Voluntary
Code of Conduct on gender diversity and
best practice) was engaged to support the
selection process for the successor to the
Chairman of the Group Risk Committee.
The initial candidate list was reduced to a
shortlist for consideration by the Temporary
Nominations Committee. After a series
of interviews and further due diligence, a
preferred candidate emerged. All members
of the Group Risk Committee and other
members of the Board met with the
preferred candidate and provided feedback.
In addition, discussions were held with
Allchurches Trust Limited. The Board
unanimously approved the appointment
of Chris Moulder as a Non-Executive
Director on 27 September 2017. Subject
to regulatory approval, Chris Moulder will
succeed Anthony Latham as Chairman of
the Group Risk Committee when he retires
from the Board.
Reviewing the composition of
all Committees
The Temporary Nominations Committee
considered the size and composition of the
Board Committees. A number of proposals
were made to the Board at its meetings in
November 2017 and February 2018 which
were agreed. At the November Board
meeting it was noted that the Temporary
Ecclesiastical Annual Report & Accounts 2017Governance – Group Nominations Committee ReportSection Three
The Board also recognises the importance
of improving diversity in the wider sense
(including gender balance) at senior levels
within the organisation and is actively
reviewing diversity across the Group.
The Company was a founding signatory
to the Women in Finance Charter and
has appointed an executive director, Ian
Campbell, as a senior executive responsible
for diversity. During the year, the Company
reported publicly on progress made against
the initiative. Further information is provided
in the Corporate Responsibility Report.
The Board Diversity Policy will be reviewed
during 2018 following the publication of the
revised UK Corporate Governance Code.
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 Company Secretariat.
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 UK Corporate Governance
Code; Board minutes for the current and
past year; the Governance Framework
(including Expectations of SBUs and Board
Charter), Board dates and contact details.
After appointment, a two-day induction
programme is provided where presentations
are given by Company Secretariat, 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 meet individually
with the Chairman of Allchurches Trust
Limited, the Group Chairman, the Senior
Independent Director, 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 2017, a number of training sessions took
place which covered Internal Model,
Cyber Security and regulatory matters.
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
At the end of 2016, the Committee led
an external evaluation of the Board and
Committees, assisted by the Company
Secretariat. An external Board Evaluation
provider, BP&E Global Limited, which is
not connected with the Group, conducted
this evaluation. All Board and Committee
members were required to complete a
bespoke assessment. The outcome of the
evaluations was considered by the Board
in May 2017. The main recommendations
arising from the Board Evaluation related
to the Board Succession planning as
described in detail in this report. In addition,
the Board Evaluation recommended that
the purpose of the Group Finance and
Investment Committee be reviewed (see the
Group Finance and Investment Committee
report for further detail) and the format,
timeliness and presentation of information
124/125
presented to the Board be revised with
better use of executive summaries.
All recommendations were completed by
the date of this report.
It is the Board’s policy for its evaluations to
be facilitated every two years. The Board
have agreed that the next external evaluation
would be postponed until 2019 once the
new Chairman has been in role for a year.
All directors receive an annual appraisal
from the Chairman. The Chairman is
appraised by the Board, in his absence,
led by the Senior Independent Director.
Re-election of directors
In line with the UK Corporate Governance
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 Group Nominations 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 2017.
Independence is reviewed as part of each
director’s annual appraisal, considered
by the Committee, and agreed by the
Board annually. In 2017, two NEDs, John
Hylands and Anthony Latham have served
for more than nine years on the Board, and
Denise Wilson has served for more than
six years. In addition, two directors, Tim
Carroll and Denise Wilson are directors of
Allchurches Trust Limited. 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.
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 2017, the NEDs
continued to be effective and fulfilled their
time commitment as stated in their letters
of appointment. Anthony Latham will retire
at the AGM. Chris Moulder and Andrew
McIntyre will be recommended for election
at the forthcoming AGM. All other NEDs at
the date of this report are recommended for
re-election at the AGM.
By order of the Board
Christine Wilson
Chairman of Group Nominations
Committee
14 March 2018
Ecclesiastical Annual Report & Accounts 2017Governance – Group Nominations Committee ReportSection Three
Governance – Group Risk Committee Report
126/127
Group Risk
Committee Report
Chairman’s introduction
I am pleased to present the Group Risk Committee’s Report describing
the work undertaken 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 57.
Membership
The members of the Group Risk Committee and their attendance at meetings during the
year are shown below:
Committee member
Member since
Meetings eligible
to attend
Meetings
attended
Anthony Latham (Chairman)
S. Jacinta Whyte
Tim Carroll
John Hylands*
Andrew McIntyre**
Chris Moulder***
June 2010
February 2014
August 2013
September 2010
August 2017
September 2017
10
10
10
9
3
2
10
10
10
8
2
1
* John Hylands stepped down from the Committee on 3 October 2017.
** Andrew McIntyre was appointed to the Committee with effect from 22 August 2017.
*** Chris Moulder was appointed to the Committee with effect from 27 September 2017.
During the year, the Committee also
received regular reports from Group
Compliance including compliance breaches,
financial crime, business continuity,
information security, the regulatory outlook
and the Money Laundering Reporting
Officer’s Report. In addition to its duties the
Committee also considered reports on the
output of an internet resilience review of
EdenTree Investment Management Limited,
a Social Engineering (Phishing) Test,
considered the implementation of General
Data Protection Regulations and undertook
a review of the Group’s Policy framework.
The Group Chief Risk Officer reports to
the Committee and has direct access to
the Committee Chairman and the NEDs.
The Committee ensures that it meets with
the Group Chief Risk Officer at least once
a year without the Executive Directors
present. The Director of Group Compliance
also reports to the Committee regularly.
By order of the Board
Anthony Latham
Chairman of the Group Risk Committee
14 March 2018
Committee meetings
The Group Risk Committee comprised the
directors shown in the table above who
were appointed by the Board.
The Committee held ten meetings during
the year which were attended by the Group
Chief Risk Officer. The number of meetings
had increased significantly compared
with 2016 due to the preparations for the
Internal Model application. The Committee’s
key responsibility is to assist the Board
in monitoring the appropriateness and
effectiveness of the Group’s risk strategy,
appetite and profile, risk management culture,
own risk self-assessment, and Enterprise
Risk Management Framework. In addition,
the Committee oversees compliance
monitoring across the Group, including
prudential risk, business continuity,
customer and conduct risk, financial crime,
cyber risk and reputational risk.
A key focus of the Committee’s work this
year has been to oversee preparations for
the Internal Model application submitted to
the PRA in October 2017. This has included
monitoring the development, governance,
methodology and integration of the internal
model, the validation cycle, the internal
model application itself and post submission
feedback. The Committee has also reviewed
capital requirements across the Group
and material outsourcing risks.
Ecclesiastical Annual Report & Accounts 2017Section Three
Governance – Group Audit Committee Report
128/129
Group Audit
Committee Report
Chairman’s overview
This is my first report as Chair of the Group Audit Committee and I am pleased to
report that during 2017 the Committee continued to focus its work on the Group’s
financial reporting, internal and external audit arrangements and the effectiveness
of the Group’s systems of internal financial controls and the management of
financial risks. This year Chris Moulder and I joined the Committee. John Hylands,
who had chaired this Committee since 2009, stepped down from the Committee
in April 2017 following his appointment as the Group’s Chairman.
Accurate and informative financial reporting
and an effective control environment are
of critical importance to the Board and the
Group’s stakeholders and the Committee
has continued to play a key role within
the governance framework to support
the Board in these areas. We have had
another busy year carrying out our principal
responsibilities which are set out in this
report. One of the year’s highlights included
our work in respect of the first full annual
submissions under the Solvency II regime.
Once again the Committee has
considered the processes underpinning
the production and approval of this year’s
Annual Report. From an accounting and
reporting perspective, the significant issues
considered in detail by the Committee are
set out on pages 132 to 133.
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 remain 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 64 to
71. 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.
Looking ahead, we will be overseeing the
preparations for and the implementation
of some significant accounting standards,
particularly IFRS 17 “Insurance Contracts”,
together with IFRS 9 “Financial
Instruments”, IFRS 15 “Revenue from
contracts with customers” and IFRS 16
“Leases”. These are described further
in note 1 to the financial statements
on pages 181 to 182.
Andrew McIntyre
Chairman of the Group Audit Committee
Membership
The Committee members have been selected with the aim of providing the wide range of
financial and commercial expertise necessary to fulfil the Committee’s duties. As required
by the Code, the Board considers that Andrew McIntyre has recent and relevant financial
experience and accounting competence and that the Committee as a whole is appropriately
competent in the sectors within which the Group operates.
The Committee members and their attendance at meetings during the year are shown below:
Committee member
Member since
Meetings eligible
to attend
Meetings
attended
Andrew McIntyre (Chairman)* April 2017
John Hylands**
Tim Carroll
Anthony Latham
Chris Moulder***
Denise Wilson
March 2008
April 2013
December 2008
September 2017
August 2011
5
2
7
7
1
7
5
2
6
5
1
7
* Andrew McIntyre was appointed to the Committee as Chairman with effect from 4 April 2017.
** John Hylands was Chairman and a member of the Committee until 4 April 2017.
*** Chris Moulder was appointed to the Committee with effect from 27 September 2017.
Ecclesiastical Annual Report & Accounts 2017Section Three
Governance – Group Audit Committee Report
130/131
Committee meetings
During the year, the Committee had seven
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, the
Group’s external auditor, is invited to attend
meetings, and during 2017 they attended
six of the seven 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 controls and
the management of financial risks.
A summary of the main activities of the
Committee during the year is set out below:
Auditor appointment,
independence and
non-audit services
The Committee has primary responsibility
for overseeing the relationship with,
and performance of, the external auditor.
This includes making the recommendation on
the appointment, reappointment and removal
of the external auditor, assessing their
independence on an ongoing basis
and for agreeing the audit fee.
Deloitte was initially appointed as the
Group’s external auditor in 1998 and was
re-appointed in 2015 following a formal
tender process. The external audit is led by
the Deloitte audit partner Paul Stephenson
who has held the role for the Group for
three years. The Company confirms that
it complied with the provisions of the
Competition and Markets Authority’s Order
for the financial year under review.
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.
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 2017 audit and
presented it for review by the Committee at
its November meeting. The plan described
the proposed scope of the work and the
approach to be taken, and also proposed 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.
For the year ended 31 December 2017,
the Group was charged £487,000 (ex VAT)
by Deloitte LLP and its associates for audit
services. The fees for other assurance services
required by legislation and/or regulation
amounted to £212,000, making total fees
from Deloitte of £699,000. 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 209.
External audit
effectiveness
An annual review of the Auditor was
undertaken through the completion of
questionnaires by senior management,
business unit leaders and those members
of staff most involved in the external
audit process. Following review of the
questionnaires and the Committee’s own
assessment of external audit process
the Committee concluded that Deloitte
continued to perform effectively and has
recommended to the Board that Deloitte LLP
be reappointed under the current external
audit contract and the Directors will be
proposing the reappointment of Deloitte LLP
at the annual general meeting in June 2018.
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 and annual regulatory reporting
under Solvency II 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 and regulatory
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.
In respect of these annual financial statements
the Committee paid particular attention to the
significant judgements set out below,
the going concern and viability statements,
review of the corporate governance
disclosures and monitoring of the external
audit process. The Committee also reviewed
the disclosures regarding the Group’s
alternative performance measures (APMs).
The Committee reviewed and challenged
the Group’s annual regulatory submissions
under Solvency II in the second quarter
of the year. We managed a co-ordinated
approach across our Board committees,
with the Group Risk Committee monitoring
the construction of the partial internal
model which was submitted for regulatory
approval in October 2017. The Group Audit
Committee focused on the new reporting
requirements of the publicly filed SFCR and
QRTs and privately filed RSR.
The significant areas of focus considered
by the Committee in relation to the 2017
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 57, and also note 2 to the financial
statements on page 188.
Ecclesiastical Annual Report & Accounts 2017Section Three
Governance – Group Audit Committee Report
132/133
Matter considered
Action
Matter considered
Action
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.
Life insurance reserves
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 Committee considered detailed reports provided by the Group’s Reserving
Actuary on the adequacy of the Group’s general insurance reserves at both the half
year and the full year and discussed and challenged management across a wide
range of assumptions and key judgements.
This is a major area of audit focus and Deloitte also provided detailed reporting on
these matters to the Committee.
There was continued 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 years’ reserves recommended by
management, taking into account the Group Reserving Actuary’s assessment of the
sufficiency of these reserves. The Committee challenged management on whether
the proposed releases were reasonable including areas where events not in data
could affect the future outcome of the reserves to ensure the reserves remained
appropriately prudent.
The Committee continues to maintain a focus on the longer term reserves relating to
asbestos and PSA claims and reviewed actual claims experience against expectations
throughout the year. The Committee noted and supported Management’s decision to
hold an additional margin in respect of future PSA claims as the IICSA review continues
and additional reserves for Public Liability Asbestos as an emerging risk area.
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 Committee considered a report from the Chief Actuary of Ecclesiastical Life
Limited (“ELL”) which set out his recommendations for the basis and methodology to
apply for:
• the valuation of policy liabilities for inclusion in the report and accounts for ELL at
31 December 2017, and
• the calculation of technical provisions in accordance with Solvency II regulations at
31 December 2017.
The Committee noted that no material changes in methodology were proposed, for
either the accounts or Solvency II reporting basis, from those used for the valuations
at 31 December 2016.
The Committee reviewed the work done by the Chief Actuary to assess whether the
methodology remained appropriate, with a particular focus on mortality assumptions,
interest and inflation rate assumptions and the assumptions used for valuing future
expense cash-flows.
Following its review, and after consideration of Deloitte’s report, the Committee
was satisfied that the assumptions proposed were appropriate and overall the
judgements made in respect of the reserves were reasonable.
Carrying value of goodwill
This is an area of focus for the
Committee given the materiality of
the Group’s goodwill balances (£23m
as at 31 December 2017) and the
inherent subjectivity in impairment
testing.
The judgements in relation to goodwill
impairment continue to relate primarily
to the assumptions underlying the
calculation of the value in use of
the business, being the achievability
of the business plans and the
macroeconomic and related modelling
assumptions underlying the valuation
process.
Valuation of defined benefit
pension scheme liability
Although the Group’s main defined
benefit scheme is 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.
Judgement is applied in determining
the extent to which a surplus in the
Group’s main defined benefit scheme
can be recognised as an asset.
The Committee received detailed reporting from management and challenged the
appropriateness of the assumptions made, including:
• the consistent application of management’s methodology;
• the achievability of the business plans;
• assumptions in relation to long-term growth in the businesses at the end of the
plan period; and
• discount rates.
This remains an area of audit focus and Deloitte provided detailed reporting on these
matters to the Committee.
The Committee paid particular attention to management’s proposal to reduce both the
discount rate and long-term growth assumption used in the calculation. The drivers
behind the change in discount rate and evidence to support the revised assumptions
were provided by Management for the Committee to consider.
After its reviews, the Committee agreed with management’s revised assumptions and
the conclusion that no impairment was required for any of the businesses under review.
During 2017, the Committee received reports from management on the proposed
approach to the valuation of the pension schemes. As the pension schemes are
sensitive to changes in key assumptions, management completed an assessment
as to the appropriateness of the assumptions used, taking advice from independent
actuarial specialists and including where appropriate, benchmark data, and reported
its findings to the Committee.
A Triennial valuation of the Group’s main defined benefit pension scheme was due as at
31 December 2016 which progressed during the year and concluded in February 2018.
The Trustees made some changes to assumptions compared with the previous valuation
and Management has considered whether this had any impact on the IAS 19 valuation.
Following this review, management concluded no change in approach was required, apart
from updating assumptions to reflect economic market conditions at 31 December 2017.
Following consideration, particularly on the proposal to adopt the 2016 CMI projection
model prepared by the Continuous Mortality Investigation Bureau to allow for future
improvements in mortality as the Trustees had done in their latest valuation, the
Committee concluded that the assumptions proposed were appropriate and in line
with normal market practice.
After careful consideration of the requirements of International Financial Reporting
Interpretations Committee 14 (IFRIC 14), the Committee concluded that recognition
of the full surplus in the Group’s main defined benefit scheme was appropriate.
The impact of updating assumptions to reflect those in force at the balance sheet
date on the valuation at 31 December 2017 are explained in note 17 to the financial
statements on page 214.
Ecclesiastical Annual Report & Accounts 2017Section Three
Governance – Group Audit Committee Report
134/135
Fair, balanced
and understandable
The Board requested that the Committee
confirm whether the annual report and
accounts taken as a whole were fair,
balanced and understandable and whether
it provided the necessary information for
shareholders and other stakeholders to
assess the Group’s performance, business
model and strategy. The Committee
recommended that the Board make this
statement which is on page 112.
In making this recommendation the
Committee reviewed and provided
feedback on early drafts of the Annual
Report highlighting any areas where we
believed further clarity was required in the
final version. When forming its opinion,
the Committee reflected on information it
had received and its discussions throughout
the year as well as our own knowledge of
the business and its performance.
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 114.
In reviewing the effectiveness of the system
of internal control and risk management
during 2017, 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. GIA operate a
co-sourcing arrangement in the UK and
Ireland where specialist resource is
required to supplement existing resources.
In addition, GIA oversees and monitors the
outsourced internal audit arrangements in
Australia and Canada.
The Committee has oversight responsibility
for GIA and is satisfied that GIA has the
appropriate resources. 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.
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. In accordance
with the International Professional Practice
Framework for Internal Audit an independent
and objective external assessment of the
internal audit function will be performed in
2019. The Chair of the Audit Committee
will oversee and approve the appointment
process for the independent assessor.
Whistleblowing
The Committee is responsible for reviewing
the Group’s whistleblowing procedures
and receives regular updates. One issue
was raised during the year and was
resolved satisfactorily.
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 is 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.
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.
It monitors 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
Andrew McIntyre
Chairman of the Group Audit Committee
14 March 2018
Ecclesiastical Annual Report & Accounts 2017Section Three
Governance – Group Remuneration Report
136/137
Group Remuneration
Report
Group Remuneration Committee Chair’s statement
As Chair of the Group Remuneration Committee, I am pleased to introduce
the Group Remuneration Report for the year ending 31 December 2017
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 2017; major
decisions taken by the Committee during
the year; and changes made to directors’
remuneration. The Directors’ Remuneration
Policy on pages 139 to 152 sets out the
Group’s policy in relation to the structure
and elements of pay for our directors.
The Annual Report on Remuneration
on pages 152 to 161 describes how
the Group’s remuneration policies have
been implemented in 2017, providing
retrospective disclosures on directors’
remuneration for 2017 and setting out how
the Policy will be implemented in 2018.
Review of performance
and incentive outcomes
As described in the Strategic Report
starting on page 15, the Group has
delivered increased profits for the third
successive year at £82.2m, (2016:
£62.5m), underpinned by strong investment
returns, GWP growth of 11% to £343m
and good underwriting profit. Underwriting
profit increased to £27.1m (2016: £20.1m),
resulting in a Group combined operating
ratio of 86.9% (2016: 89.8%).
Given the Group’s strong performance over
the year, the Committee is satisfied that (i)
the annual bonus awards of 99% (Group
Chief Executive), 94% (Deputy Group Chief
Executive) and 88% (Group Chief Financial
Officer) of the maximum potential value and
(ii) the 75% vesting of the long-term incentive
plan (LTIP) granted in 2015, are reflective of
performance and appropriate.
To ensure that the financial results achieved
over the one-year and three-year periods
applicable to the executive directors’ annual
bonus and LTIP outcomes have been
achieved within the risk appetite limits set
for the Group, the Committee considers
risk management across the Group as part
of its deliberations on remuneration.
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 out-turns have
been achieved within the Group’s risk
appetite. I am pleased to report that
following this review for the period ending
31 December 2017, no adjustments were
considered necessary to the 2017 annual
bonus or the 2015-2017 LTIP.
Key Committee activities
during the year
During the year, the Committee undertook
a review of the Group’s Remuneration
Policy and determined that it remains
effective and continues to drive the
sustained and long-term performance of
the Group. The Committee determined that
the remuneration packages of the three
executive directors were appropriately
aligned with the Group’s strategic
objectives, reflective of the experience and
track record of the executive directors and
comparative benchmarking.
The Committee reviewed the remuneration
packages of one new, and one existing,
head of its strategic business units,
taking account of all relevant factors.
The Committee continued to oversee the
development of remuneration policy and
incentive scheme design across the wider
Group, further aligning reward policies
across all Group entities with the Group’s
strategic objectives and financial targets.
In particular, revised incentive arrangements
were reviewed and approved for Lycetts
Holdings Ltd (Lycetts) (part of the EIG
Group) and Ecclesiastical Canada.
Ecclesiastical Annual Report & Accounts 2017Section Three
Section Three
Governance – Group Remuneration Report
138/139
During 2017 the Group published its
gender pay gap, underlining the Group’s
commitment to diversity and gender
balance at every level in the business
and to ensure that all employees,
both men and women, have a fair and
equal pay opportunity. The Group’s 2017
mean gender pay gap was 30.7% and
is largely driven by the higher proportion
of men in senior roles, and the higher
proportion of women in more junior roles.
The Group aims to achieve greater gender
balance at all levels, including enabling
the appointment of more women to senior
roles in the Group. As described in the
Corporate Responsibility Report starting on
page 73, the Group is pursuing a range of
initiatives to encourage diversity as part of
its commitment to the Women in
Finance Charter.
The regulatory and corporate governance
environment in which the Group operates
continued to evolve. During 2017,
the Committee considered the implications
of the Markets in Financial Instruments
Directive and the SYSC 19F Remuneration
Code on remuneration policy.
The Board also reviewed fees for
Non-Executive Directors (NEDs),
including the Chairman and Deputy
Chairman/SID, during 2017, in line with its
two-year review cycle. The increases (set
out on page 161) 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, 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
14 March 2018
Committee member
Appointed to the Committee
Denise Wilson (Chair)
Caroline Taylor
David Henderson
December 2011
November 2014
September 2016
Meetings eligible
to attend
Meetings
attended
5
5
5
5
5
5
Group 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 (GMB),
Material Risk Takers 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.
During 2017, 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 above.
All members are independent NEDs
and have the necessary experience
and expertise to meet the Committee’s
responsibilities. The Very Revd Christine
Wilson was appointed to the Committee
on 6 February 2018.
Advisers to the Committee
During the year, the Committee received
external advice from Aon Hewitt,
New Bridge Street (NBS) in relation to
the review of the Group’s Remuneration
Policy; the determination of appropriate
remuneration packages for executive
directors, members of the GMB and
heads of strategic business units; and
remuneration market trends and regulation.
NBS additionally provided advice to the
Board in relation to the review of NED fees.
NBS has no other advisory function within
the Group. The Committee also had access
to benchmarking reports from Willis Towers
Watson and McLagan, each of which also
provides data to support the determination
of pay and conditions throughout the Group.
Fees paid to NBS during 2017 for
professional advice to the Committee
were £68,000 (2016: £112,000).
The Committee is satisfied that the
advice received during 2017 from NBS
was impartial, as NBS is a signatory to
the voluntary code of conduct of the
Remuneration Consultants Group.
Where appropriate, the Committee received
input from the Chairman, Chairman Group
Risk Committee, Chairman Group Audit
Committee, Group Chief Executive,
Group HR Director, Director of Group
Finance, CRO, Director of Group Internal
Audit and Group Reward Manager.
Such input, however, never relates to their
own remuneration.
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 2018.
The 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.
Ecclesiastical Annual Report & Accounts 2017
Section Three
Governance – Group Remuneration Report
140/141
• Ecclesiastical is committed to ensuring
that all employees, both men and women,
have a fair and equal pay opportunity.
• 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
The Committee has established the
remuneration elements set out in this report
in line with the Group’s Remuneration
Policy principles described above.
Fixed annual elements including salary,
pension and benefits, are set in order to
recognise the responsibility and experience
of the Group’s executive directors and
to ensure current and future market
competitiveness. The annual and long-term
incentives are set in order to incentivise
and reward the Group’s executive directors
for making the Group successful on a
sustainable basis.
As such, the performance measures in
the annual bonus and LTIP will reflect
and support the Group’s underlying
strategic goals and risk appetite and
may be comprised of both financial
and non-financial targets.
• Reward payments will be performance-
related, reflecting individual and
business performance, including
both what has been delivered and
the way in which such deliveries have
been 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 contribution to reward provided
by long-term incentives for more
senior employees.
Ecclesiastical Annual Report & Accounts 2017
Section Three
Governance – Group Remuneration Report
142/143
Future policy table (executive directors)
The following table provides a summary of the key components of the remuneration package
for the executive directors.
How the element supports
the Group’s strategic
objectives
Salary
To provide a core reward at
the level needed to attract
and retain the required level
of talent.
Benefits
To provide a market-
competitive reward package
and promote the wellbeing
of employees.
Pension
To aid retention and provide
a market competitive
provision for post-retirement
income.
Group annual
bonus scheme
To incentivise the executive
directors to achieve key
financial and strategic
goals and targets for the
financial year.
Deferral provides
further alignment with
shareholders’ interests
and promotes retention.
Operation of the element
Maximum potential value and payment
at threshold
Performance measures used,
weighting and time period applicable
Change from 2017
Salaries are paid in 12 equal monthly instalments during the
year. Salaries are reviewed annually with changes taking
effect from 1 April each year.
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 the Group’s Canadian branch.
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.
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.
Any bonus earned in excess of 75% of an individual’s
maximum bonus opportunity is deferred over a period of
three years.
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.
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
with the overall objective of promoting the
wellbeing of employees. The costs are those
relating to providing the benefit.
The level of pension contribution takes into
account the seniority of the role and pension
benefits offered by comparable organisations for
comparable roles.
The employer contribution rate to the UK Defined
Contribution Scheme is 15% of basic salary.
The employer contribution rate to the Canadian
EIO plc Defined Contribution Pension plan is
12% of basic salary.
Maximum opportunity of 100% of salary of which
50% is payable for a target level of performance.
Group and individual performance
None
Not applicable
None
Not applicable
None
None
The Group annual bonus is subject to
a range of challenging metrics linked
to key strategic priorities. For 2018,
these are:
• Ecclesiastical Insurance Group (EIG)
PBT (including fair value investment
gains/losses)
• Group COR
• Strategic targets
• Customers and conduct targets
• Personal performance targets
Ecclesiastical Annual Report & Accounts 2017
Governance – Group Remuneration Report
144/145
Future policy table (executive directors) continued
How the element supports
our strategic objectives
Operation of the element
Group LTIP
To focus the executives
and incentivise the
achievement of the Group’s
long-term objectives; to
align the executive directors’
interests with those of
shareholders and to promote
attraction and retention of
talented individuals.
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.
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 including on the extent to which
the schemes meet the Group’s risk appetite.
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 may be
detrimental to its interests. The Committee
will keep this under review, meanwhile
targets will 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.
Remuneration Committee discretion,
malus and clawback provisions
The Committee has discretion to reduce
any annual bonus and LTIP prior to award
in certain circumstances, including (but not
limited to): (i) issues regarding the Group’s
underlying financial strength and position;
(ii) an actual or potential regulatory censure;
(iii) if the Group is in material breach of its
risk policies (including conduct risk) and/
or its values/ethics; and (iv) a material
diminution in the regard by which the Group
is held by its customer base as a result of
executive mismanagement.
Bonus already paid or deferred,
LTIP already vested and any unvested LTIP
are subject to malus/clawback in certain
circumstances, including (but not limited
to): (i) misstatement 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 in
respect of clawback from the date of bonus
payment and LTIP vesting.
Maximum potential value and payment
at threshold
Performance measures used,
weighting and time period applicable
Change from 2017
Under the rules of the LTIP, awards can be
made of up to 150% of salary in the case
of the Group Chief Executive and of up to
100% of salary in the case of the Deputy
Group Chief Executive and Group Chief
Financial Officer.
At on-target performance, a target
opportunity of 50% of the award applies.
Threshold business performance results in
vesting of no more than 20% of the award.
The Group LTIP plans granted in respect of
2016-2018 and 2017-2019 will continue to
vest under the previously applicable policy.
The Group LTIP is subject to a range of
challenging conditions linked to key strategic
priorities. For 2018 awards relating to
the performance period 2018-2020, 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 targets.
There is a 36-month performance period
from the date of grant.
Weighting of Strategic
Targets reduced to 15%
(from 20%) weighting of
Customer and Conduct
reduced to 10% (from
20%). Weighting of
all financial measures
increased to 25%
(from 20%).
Changes to the Policy from that
operating in 2017
The weighting of financial and non-financial
performance conditions within the LTIP will
be revised in the 2018 LTIP award relating
to performance period 2018-2020,
in order to increase the overall weighting
on financial performance conditions relative
to non-financial performance conditions.
The weighting of Strategic Targets is
reduced to 15% (from 20%) and that of
Customer and Conduct reduced to 10%
(from 20%). The weighting of Group EIG
PBT (excluding fair value investment gains
and losses); Group EIG PBT (including
fair value investment gains and losses)
and Group COR is increased to 25% in
each case (from 20%). This change to the
Group’s Remuneration Policy will be made
in 2018 and is reflected in the Future Policy
table above.
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 on page
147. 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 and the individual regulatory
requirements applying thereto.
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 rewards, through a higher annual
bonus opportunity and participation in 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 shareholders.
Ecclesiastical Annual Report & Accounts 2017Section Three
Governance – Group Remuneration Report
146/147
Remuneration scenario charts
The remuneration scenario charts
below illustrate what each executive
director could earn in respect of the
policy for 2018, 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.
Notes to the charts:
• Fixed pay is base salary for 2018 plus
the value of pension and benefits.
• Base salary is the aggregate of the
salary applicable at 1 January 2018 for
January to March 2018 and the salary
applicable at 1 April 2018 for April to
December 2018.
• The value of pension is calculated as
described in the Future Policy table.
The value of pensions for the Group
Chief Executive and the Group Chief
Financial Officer is the sum of projected
2018 pension contributions to the UK
Defined Contribution Scheme and,
to the extent applicable in 2018,
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 2017,
which can be found on page 153.
Mark Hews: Effect of the application of this policy in financial year 2018
Minimum
100%
Total £522k
On-Target
Maximum
48%
32%
21%
31%
Total £1,078k
28%
40%
Total £1,634k
Approach to recruitment remuneration
Ecclesiastical is a specialist financial
services group competing for talent across
a variety of markets.
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.
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 Group.
Where it is thought necessary to
compensate for an individual’s awards
resulting 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
of events, reflect the commercial value
of the award foregone (and the vesting
Element of remuneration
Maximum percentage of salary
Salary
Annual bonus
LTIP
-
100%
150% – Group Chief Executive
100% – Deputy Group Chief Executive
and Group Chief Financial Officer
15% UK Defined Contribution Scheme
12% Canadian EIO plc Defined Contribution
Pension Plan
S. Jacinta Whyte: Effect of the application of this policy in financial year 2018
Pension contribution/allowance
Minimum
100%
Total £443k
On-Target
Maximum
54%
37%
23% 23%
Total £816k
32%
31%
Total £1,189k
Ian Campbell: Effect of the application of this policy in financial year 2018
Minimum
100%
Total £363k
On-Target
Maximum
55%
38%
23% 22%
Total £662k
32%
31%
Total £961k
Fixed Pay
Annual Variable
LTIP
Ecclesiastical Annual Report & Accounts 2017Section Three
Governance – Group Remuneration Report
148/149
Service contracts and policy on payment for loss of office
Service contracts and policy on payment for loss of office continued
Standard provision
Policy
Details
Standard provision
Policy
Details
Notice periods in executive
directors’ service contracts
Payment in lieu of notice
Severance payment for
Deputy Group Chief
Executive
Twelve months by the Group
or executive director for the
Group Chief Executive and
six months by the Group
or executive director for
the Deputy Group Chief
Executive and Group Chief
Financial Officer.
The Group may decide if it
wishes to make a payment
in lieu of notice of an
amount prescribed under
the contract, comprising of
salary (and in the case of
the Group Chief Executive,
benefits) for the balance
of the notice period,
excluding bonus and
accrued holiday entitlement.
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.
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.
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, with the
option to be paid in monthly
instalments over the balance
of the notice period.
The executive’s entitlement
arises in the case of any
termination by the Group
for ‘No Cause’ as defined
and represents the sum of
£516k 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 £152k.
Mitigation
Treatment of annual bonus
on termination or change of
control under plan rules
Treatment of long-term
incentive awards 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 is to be made
unless the executive is
employed on the 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.
All awards lapse except for
‘good leavers’ as defined in
the plan rules (e.g. death,
ill health, redundancy,
retirement) and other
reasons at the discretion of
the Committee.
If there is a change of
control event, then an early
payment can be made at the
discretion of the Committee.
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.
Ecclesiastical Annual Report & Accounts 2017Section Three
Governance – Group Remuneration Report
150/151
Service contracts and policy on payment for loss of office continued
Standard provision
Policy
Details
Exercise of discretion
Discretion is intended to be
relied upon only in certain
circumstances as set out on
page 144.
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.
NEDs’ fees policy
How the element supports
the Group’s strategic
objectives
To attract NEDs who have
a range of experience
and skills to oversee the
implementation of the
Group’s Strategy.
Other matters
Non-Executive Directors
The Group’s policy is to
honour commitments
made under 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.
Each NED is appointed for
an initial three-year term,
and is subject to re-election
by the shareholder at the
first AGM following their
appointment. In addition,
the Board has agreed that all
directors (including NEDs)
will be subject to annual
re-election by the
shareholder at each AGM.
NEDs are entitled to receive
a pro-rata proportion of their
fees that they have accrued
up to the date of termination
of their contract.
Performance measures
used, weighting and time
period applicable
NEDs are not eligible
to participate in any
performance-related
arrangements.
Operation of the element
Maximum potential value
and payment at threshold
Current fee levels are
shown in the section on
implementation of policy.
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.
NEDs take no part in the
discussion relating to their
own 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.
Ecclesiastical Annual Report & Accounts 2017Section Three
Governance – Group Remuneration Report
152/153
Annual Report
on Remuneration
This section of the Directors’ Remuneration
Report sets out how the above
Remuneration Policy was implemented
in 2017 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 on the following page shows a
single total figure of remuneration received
in respect of qualifying services for the
2017 financial year for each executive
director, together with comparative figures
for 2016. Aggregate executive directors’
emoluments are shown on page 160.
Details of NEDs’ fees are set out in a
separate table on page 159.
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 and
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.
Although the Committee does not
consult directly with employees on
remuneration policy for executive directors,
it reviews proposals in the context of the
remuneration arrangements for the wider
employee population.
Statement of consideration
of shareholder views
The Committee, through the Board,
consults with the shareholder on any
changes to this policy in order to
understand expectations with regard to
executive directors’ remuneration and any
changes in the shareholder’s views.
Executive
Directors
Fixed pay
(£000)
Variable pay
(£000)
Pension
(£000)
Total remuneration
(£000)
Salary
Benefits1
Annual bonus2
LTIP3
Pension benefit5
Total
2017
2016
2017
2016
2017
2017
2016
2017
2016
Mark Hews
S. Jacinta
Whyte6
Ian
Campbell
429
363
393
347
289
267
Total
1,081
1,007
15
22
23
60
14
23
27
64
2016
385
3447
437
345
276
244
5274
117
260
236
188
64
55
558
38
51
528
36
2017
1,212
1,029
2016
1,370
883
798
630
1,042
965
708
708
148
139
3,039
2,883
1 Benefits include items such as a car allowance and private medical insurance which are valued at their taxable value. They also include travel and
accommodation benefits, valued at their grossed up tax and NI value. Provision of benefits during 2017 was in line with the previous year and the Directors’
Remuneration Policy, and no exceptional benefits were paid.
2 In line with the deferral policy, annual bonus earned in excess of 75% of the maximum bonus opportunity is deferred over a period of three years. In 2017 the
value of executive directors’ annual bonuses that were deferred is: £107k (Group Chief Executive); £69k (Deputy Group Chief Executive) and £38k (Group
Chief Financial Officer).
3 LTIP represents the amount payable in respect of the three-year LTIP performance period 2015-2017 for 2017 and 2014-2016 for 2016, together, in 2016
only, with the amounts payable in respect of the Group Chief Executive’s three-year incentive plan (2016: £198k) and the Deputy Group Chief Executive’s
3-year incentive plan (2016: £38k). All executive directors hold unvested LTIP awards in accordance with the rules of the LTIP plan.
4 The Group Chief Executive received a transitional payment of £32k to facilitate the transition from the previously applicable remuneration structure to that
applicable from 2017.
5 The Group Chief Executive and Group Chief Financial Officer received a cash allowance in lieu of pension during 2017, in line with company policy that a
cash allowance of 15% of salary (net of NI contributions) can be paid to UK-based executive directors where continued company contributions would result in
a breach of the HMRC annual and/or lifetime allowance.
6 An average 2017 exchange rate of 1.6850 Canadian dollars to 1 GBP have been used in respect of both 2017 and 2016.
7 The Deputy Group Chief Executive received an award of £29k in respect of the incentive plan approved for July to December 2016 in relation to the
transition of the leadership of the UK and General Insurance transformation programme and of UK General Insurance to the Managing Director of UK General
Insurance.
8 Contributions to the Canadian pension plan that are above the Canadian Revenue Agency’s prescribed limit are paid into a SERP. These contributions for the
Deputy Group Chief Executive are included in the figures shown.
Mark Hews is a NED for MAPFRE RE and was appointed to their Board in December 2013. The fee of £31k that
Mark Hews earns in respect of this role is paid directly to the Group by MAPFRE RE and is not received by Mark Hews.
Ecclesiastical Annual Report & Accounts 2017Section Three
Governance – Group Remuneration Report
154/155
Additional requirements in respect
of the single total figure table
Annual bonus outcomes for 2017 (audited)
The annual bonuses payable to executive
directors in respect of 2017 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 2017, 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%); and 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 out-turn for each
executive director is the product of the
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 2017 were:
Performance condition
Group EIG PBT
Group COR
Strategic Targets
Customer and Conduct
Threshold
(0.5x)
£13.9m
97.9%
50%
80%
Target
(1.0x)
£34.1m
92.9%
75%
90%
Maximum
(1.5x)
£62.0m
89.9%
100%
100%
Weighting
30%
40%
15%
15%
The results relating to the Group annual bonus for the financial year 2017, and the resultant
aggregate Group performance multiplier, are shown below.
Performance condition
Result
Multiplier
Weighting
Group EIG PBT1
Group COR
Strategic Targets
Customer and Conduct
£84.5m
86.9%
92.5%
92%
1.5
1.5
1.4
1.1
30%
40%
15%
15%
Aggregate Group performance multiplier
Weighted
multiplier
0.6
0.5
0.2
0.2
1.42
The Strategic Targets performance condition measures delivery of the Group’s change
programme. The agreed priorities for 2017 continued the strategic programme of change
launched in 2016, in support of the Group’s strategic goal to be the most trusted and
ethical specialist financial services group, giving £100m to charity by the end of 2020.
As set out in more detail in the Strategy in action report on pages 37 to 42, the Group
has continued to deliver the key elements of its strategy whilst investing in its businesses,
including through new products, propositions and upgrades to technology infrastructure.
In line with the Group’s commitment to delivering exceptional customer service and the
highest standards of conduct, the Customer and Conduct performance condition measures
delivery against the high standards set across a range of customer and conduct metrics and
across all Group businesses. The Group delivered an out-turn of 92% against the customer
and conduct metrics for 2017.
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 three years, in cash. All annual bonus outcomes are subject to
malus and clawback as set out on page 144.
LTIP outcomes in 2017 (audited)
The LTIP amount included in the single total figure of remuneration is the cash award
resulting from the Group LTIP grant in 2015 for the period 2015-2017. Vesting was
dependent on performance over the three financial years ending on 31 December 2017
and continued service until March 2018.
The 2015-2017 Group LTIP is subject to the five performance conditions: Group COR
(20%); Group EIG PBT (excluding fair value investment gains and losses) (20%); Group
EIG PBT (including fair value investment gains and losses) (20%); delivery of Group
strategic initiatives in line with the Group’s strategic plan (20%); and Customer and
Conduct performance (20%). Results in respect of each performance condition are
assessed against the required performance levels set at threshold, target and maximum
as shown below.
Performance
condition
Threshold –
20% vesting
Target –
50% vesting
Maximum –
100% vesting
Actual
Vesting
(% of
maximum for
performance
condition)
Group COR
Group PBT
(excluding fair
value investment
gains and losses)1
Group PBT
(including fair
value investment
gains and losses)1
Strategic Targets
Customer and
Conduct
Total
99.5%
£109m
94.5%
£146m
92.0%
£167m
89.9%
£137m
100%
42%
£99m
£179m
£207m
£203m
93%
50%
80%
75%
90%
100%
100%
87.8%
93.0%
76%
65%
75.2%
1 Audited to EIO Group level
1 Audited to EIO Group level
Ecclesiastical Annual Report & Accounts 2017Section Three
Governance – Group Remuneration Report
156/157
The Group LTIP outcome that vests in respect of each executive director in respect of
2015-2017 is shown below.
Mark Hews
S. Jacinta Whyte1
Ian Campbell
LTIP grant
% of salary
100%
100%
100%
£000
276
244
188
Total LTIP vesting
% of maximum
75%
75%
75%
1 An average 2017 exchange rate of 1.6850 Canadian dollars to 1 GBP has been used in respect of 2017.
Scheme interests awarded during 2017 (audited)
During 2017, awards comprising of a cash sum were granted under the 2017-2019
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 2020, to the extent that the
applicable performance targets are met. The vesting date for these awards is the date on
which the Group’s 2019 results are announced, anticipated to be during March 2020.
Executive
director
Award date
Face value
of award at
grant £000s
Maximum
cash sum
subject to
the award
(% base
salary)
Cash award
if threshold
performance
achieved
(% base
salary)
End of the
period over
which the
performance
targets have
to be fulfilled
Performance
measures2
2017-2019 Group LTIP
Mark Hews
14 Jun
2017
150%
593
20%
31 December
2019
S. Jacinta
Whyte1
14 Jun
2017
100%
349
20%
31 December
2019
Ian Campbell
14 Jun
2017
100%
269
20%
31 December
2019
• Group COR 20%
• Group EIG PBT
(excluding fair
value investment
gains/losses) 20%
• Group EIG PBT
(including fair
value investment
gains/losses) 20%
• Strategic targets
20%
• Customers and
conduct targets
20%
1 An average 2017 exchange rate of 1.6850 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 2016 to 2017) 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
% change
Average UK-based employees1
% change
Salary2
Taxable benefits3
Annual bonus2
9.1%
0%
13.6%
3.9%
0%
3.1%
1 UK-based employees of Ecclesiastical Insurance Office plc; excluding employees in SEIB.
2 The Group Chief Executive’s three-year incentive plan ceased at the end of 2016. The remuneration package,
including the salary, for the Group Chief Executive was re-shaped for 2017 to reflect progress and to incentivise the
Group’s longer-term strategic requirements. The adjustment made to the Group Chief Executive’s salary in 2017
underlies both the year-on-year percentage change in salary and annual bonus shown.
3 Based on contractual P11D taxable benefits for the tax year ending 5 April in the relevant year.
Relative importance of spend on pay
The table below sets out for 2017 and 2016, the actual costs of employee remuneration;
grants paid to Allchurches Trust Limited; and dividends paid to Preference shareholders.
PBT in each year is provided for context.
Remuneration paid to all Group employees
Gross charitable grants to the ultimate parent company,
Allchurches Trust Limited
2017
£000
77,778
26,000
2016
£000
70,780
24,000
% change
9.9%1
8.3%
Non-Cumulative Irredeemable Preference share dividend
9,181
9,181
Nil
PBT
82,196
62,452
31.6%
1 The increase in staff remuneration costs in 2017 reflects the higher number of employees, salary inflation and the
exchange impact of translating remuneration costs from overseas entities into sterling. See note 12 to the financial
statements on page 210.
Ecclesiastical Annual Report & Accounts 2017Section Three
Governance – Group Remuneration Report
158/159
Group Chief Executive pay for performance comparison
As Ecclesiastical does not have equity shares traded on a regulated market, total equity
shareholder funds growth over time as reported each year (plus the grant to Allchurches
Trust Limited) have been used in the performance graph compared with the FTSE 100.
Total equity excludes Preference shareholders’ capital since this is not attributable to
Allchurches Trust Limited.
(£)
250 -
200 -
150 -
100 -
50 -
0 -
Ecclesiastical Insurance Office plc 9 year to 2017
TSR performance against the FTSE 100
Dec ’08
Dec ’09
Dec ’10 Dec ’11 Dec ’12 Dec ’13 Dec ’14 Dec ’15 Dec ’16
Dec ’17
FTSE 100 Total Return
Ecclesiastical Total Shareholder Return
The table below shows the single figure of total remuneration for the incumbent, Mark Hews,
and prior Group Chief Executive, Michael Tripp, for the nine years to 31 December 2017.
Financial year ending 31 December
Financial
year
Group Chief
Executive1
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
remuneration
(single figure)
£000
Annual bonus
received
(% of maximum)
Long-term
incentive vesting
(% of maximum)
Mark Hews
N/A
N/A
N/A
N/A
569
907
1,089
1,370
1,212
Michael
Tripp
516
430
416
390
330
162
N/A
N/A
N/A
Mark Hews
N/A
N/A
N/A
N/A
45%
78%
88%
97%
99%
Michael
Tripp2
88%
23%
0%
0%
N/A
N/A
N/A
N/A
N/A
Mark Hews3
N/A
N/A
N/A
N/A
4%
60%
70%
88%
75%
Michael
Tripp4
27%
27%
34%
0%
4%
47%
N/A
N/A
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 The LTIP vesting relevant to Mark Hews represents the amount vesting in respect of the three-year LTIP performance period 2012-2014
for 2014; 2013-2015 for 2015 and 2014-2016 for 2016, together with the amounts vesting in respect of the Group Chief Executive’s
three-year incentive plan in 2014, 2015 and 2016 respectively. The Group Chief Executive’s three-year incentive plan concluded at the
end of 2016. LTIP vesting in 2017 represents the amount vesting in respect of the three-year LTIP performance period 2015-2017 (only),
under the revised LTIP structure introduced at the 2015-2017 LTIP grant.
4 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 110.
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.
Directors’ service agreements
Mark Hews has a service contract which
provides for a notice period of 12 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 NED has a service
contract.
Payments for loss of office (audited)
No termination payments were made to
executive directors in 2017.
Early vesting of LTIP award
There is no early vesting of the executive
directors’ LTIP.
The Board believes that it is appropriate
that the level of fees paid to NEDs should
reflect equivalent fees paid by organisations
of similar size and complexity and that this
will enable the Group to attract NEDs of
the calibre required to help the Group to
implement its future strategy.
NED fees were reviewed by the Board
in November 2017 with increased fees
becoming effective from 1 January 2018.
The fees set out below are commensurate
with the demands and responsibilities of the
NED roles, are in line with those fees paid
at similar-sized companies and will ensure
that the Group will continue to be able to
attract NEDs with the range of experience
and skill levels required.
Non-Executive Directors
Fees (£000) 2017
Fees (£000) 2016
John Hylands1
The Very Revd Christine Wilson2
Anthony Latham3
David Henderson4
Denise Wilson
Tim Carroll
Caroline Taylor
Andrew McIntyre5
Edward Creasy6
Chris Moulder7
Will Samuel8
David Christie9
Total
110
-
80
65
60
58
50
44
71
13
-
-
552
64
-
80
49
60
58
50
-
116
-
14
14
505
1 John Hylands was appointed as Chairman on 31 March 2017.
2 The Very Revd Christine Wilson was appointed as Senior Independent Director on 1 November 2017. No fee has been paid in 2017 to
Christine Wilson as she waived her right to a fee. The Group chose to donate £27.5k to charity in 2017 (£50k in 2016).
3 Anthony Latham received an additional fee of £20k during 2016 and 2017 for significant additional work as Chairman of the Group Risk
Committee in relation to Solvency II and IMAP.
4 David Henderson received an additional fee of £10k in 2016 and an additional fee of £15k in 2017 for services as a NED to EdenTree
Investment Management Limited.
5 Andrew McIntyre was appointed as a NED on 4 April 2017.
6 Edward Creasy retired as Chairman of the Group and from the Board on 31 March 2017. His single total figure of remuneration for 2017
included £31k of fees and an ex-gratia fee of £40k in respect of his service to the Company, initially as Chairman of Lycetts and then the
wider Ecclesiastical Group.
7 Chris Moulder was appointed as a NED on 27 September 2017.
8 Will Samuel retired as Chairman of the Group and from the Board on 16 March 2016.
9 David Christie resigned from the Board on 16 March 2016.
Ecclesiastical Annual Report & Accounts 2017Section Three
Governance – Group Remuneration Report
160/161
Total aggregate emoluments of directors
The total aggregate remuneration of the directors in respect of qualifying services during
2017 was £2,695k (2016: £2,541k). After inclusion of amounts receivable under long-term
incentive schemes and pension benefits, the total aggregate emoluments of the directors
was £3,551k (2016: £3,388k).
EdenTree
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 2018
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 2018 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 2018.
Name
Mark Hews
S. Jacinta Whyte1
Ian Campbell
Salary
(£000)
Salary
(£000)
Percentage
increase
1 April 2018
1 April 2017
452
378
303
440
368
295
2.75%
2.75%
2.75%
1 An average 2017 exchange rate of 1.6850 Canadian dollars to 1 GBP has been used.
Annual bonus for 2018
The annual bonus performance conditions and targets have been set in accordance with
the Directors’ Remuneration Policy above, on the same basis as 2017.
As in 2017, the annual bonuses payable to executive directors in respect of 2018 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 2018, 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 out-turn 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 in 2018 is unchanged at 100%
of salary.
Annual bonuses in respect of 2018 will be subject to deferral, over a period of three years, of
any bonus earned in excess of 75% of an executive director’s maximum bonus opportunity.
LTIP for 2018-2020
The 2018-2020 LTIP performance conditions and targets have been set in accordance with
the Directors’ Remuneration Policy above.
The 2018-2020 Group LTIP will be subject to the following performance conditions (which
are unchanged from 2017 except in relation to the weighting of performance conditions):
Group EIG PBT (excluding fair value investment gains and losses) (25%); Group EIG PBT
(including fair value investment gains and losses) (25%); Group COR (25%); delivery of
Group strategic initiatives in line with the Group’s strategic plan (15%); and Customer and
Conduct performance (10%). Awards under the 2018-2020 Group LTIP will be up to 150%
of salary in the case of the Group Chief Executive and of up to 100% of salary in the case of
the Deputy Group Chief Executive and Group Chief Financial Officer.
Fees (Non-Executive Directors)
The following fee structure will apply from 1 January 2018.
All-inclusive fee for the Group Chairman
All-inclusive fee for the Deputy Chairman/SID
Basic fee for a NED (including Committee Membership)
Fee for NED of separate regulated or legal entity
Fee for chairing the Group Audit Committee
Fee for chairing the Group Remuneration Committee
Fee for chairing the Group Risk Committee
Fee for chairing the Group Finance and Investment Committee
Fee for chairing the Group Nominations Committee1
Fees (£000)
132.5
65
52.5
15
12
12
12
10
10
1 The fee for chairing the Group Nominations Committee is included within the all-inclusive fee for the Deputy
Chairman/SID for 2018.
Ecclesiastical Annual Report & Accounts 2017Section Three
Governance – Independent Auditor’s Report
162/163
Independent
Auditor’s Report
Report on the audit
of the financial
statements
Opinion
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 2017 and of the group’s profit
for the year then ended;
• the group financial statements have
been properly prepared in accordance
with International Financial Reporting
Standards (IFRSs) as adopted by the
European Union;
• the parent company financial statements
have been properly prepared in
accordance with IFRSs as adopted by
the European Union and as applied in
accordance with the provisions of the
Companies Act 2006; and
• the financial statements have been
prepared in accordance with the
requirements of the Companies Act
2006 and, as regards the group
financial statements, Article 4 of the
IAS Regulation.
We have audited the financial statements
of Ecclesiastical Insurance Office plc
(the ‘parent company’) and its subsidiaries
(together the ‘group’) which comprise:
• the Consolidated Statement of Profit or
Loss;
• the Consolidated and Parent Statement
of Comprehensive Income;
• the Consolidated and Parent Statements
of Changes in Equity
• the Consolidated and Parent Statement
of Financial Position;
• the Consolidated and Parent Statement
of Cash Flows; and
• the Notes to the Financial Statements
1 to 33.
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.
Basis for opinion
We conducted our audit in accordance
with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards
are further described in the auditor’s
responsibilities for the audit of the financial
statements section of our report.
We are independent of the group and the
parent company in accordance with the
ethical requirements that are relevant to
our audit of the financial statements in the
UK, including the FRC’s Ethical Standard
as applied to listed public interest entities,
and we have fulfilled our other ethical
responsibilities in accordance with these
requirements. We confirm that the non-audit
services prohibited by the FRC’s Ethical
Standard were not provided to the group
or the parent company.
We believe that the audit evidence we have
obtained is sufficient and appropriate to
provide a basis for our opinion.
Summary of our audit approach
Key audit matters
Materiality
Scoping
The key audit matters that
we identified in the current
year were:
• General insurance
reserves
• Life insurance reserves
• Carrying value of goodwill
• Valuation of the defined
benefit pension obligation
and recognition of a net
surplus
Within this report, any
new key audit matters are
identified with and any
key audit matters which are
the same as the prior year
identified with
.
The materiality that we
used for the group financial
statements was £5.7m
which was determined on
the basis of 1% of total
shareholders’ equity.
As in the prior year, our
group audit included the
audit of subsidiary entities
in the United Kingdom and
in Australia, as well as the
parent company’s overseas
branches in Canada and
the Republic of Ireland. All
trading components of the
group were included in the
scope for statutory audits.
Subsidiary and parent
company audits for trading
companies were executed
at levels of materiality
applicable to each individual
entity, in the range from
£0.03k to £5m.
Significant changes
in our approach
• In the current year, the
recognition of the defined
benefit pension surplus
under IAS 19 and IFRIC
14 is included in our key
audit matter related to
pensions.
In the prior year the
group’s defined benefit
scheme was in a net
deficit position, therefore
this aspect of the key
audit matter was not
applicable in 2016.
• The medical expense
inflation assumption used
in the valuation of the
private medical insurance
(‘PMI’) scheme which we
commented on in our
2016 auditor’s report is no
longer considered to be a
key audit matter.
• During 2017,
we reassessed the key
audit matter identified in
the prior year in relation
to revenue recognition.
As a result, we concluded
that this was no longer
considered a key audit
matter in the current year
and have consequently
not included this in our
auditor’s report.
Ecclesiastical Annual Report & Accounts 2017Section Three
Governance – Independent Auditor’s Report
164/165
The medical expense inflation assumption
used in the valuation of the PMI scheme is
no longer considered to be a key audit matter
as the group and parent company financial
statements are not materially sensitive to
this estimate and management follows
independent third party expert’s advice in
this matter.
During 2017, we reassessed the key audit
matter identified in the prior year in relation
to revenue recognition. As a result,
we concluded that due to the predictability
of the balance, the high volume / low value
nature of the transactions, the largely
automated processing of insurance premiums
and the low complexity of accounting for
gross written and earned premiums, this was
no longer considered a key audit matter in
the current year. Consequently we have not
included a revenue recognition key audit
matter in our auditor’s report.
Conclusions relating to going concern
We are required by ISAs (UK) to report in
respect of the following matters where:
• the directors’ use of the going concern
basis of accounting in preparation of the
financial statements is not appropriate; or
• the directors have not disclosed in the
financial statements any identified material
uncertainties that may cast significant
doubt about the group’s or the parent
company’s ability to continue to adopt the
going concern basis of accounting for a
period of at least twelve months from the
date when the financial statements are
authorised for issue.
We have nothing to report in respect
of these matters.
Key audit matters
Key audit matters are those matters that,
in our professional judgement, were of most
significance in our audit of the financial
statements of the current period and include
the most significant assessed risks of
material misstatement (whether or not due
to fraud) that we identified. These matters
included those which had the greatest effect
on: the overall audit strategy, the allocation
of resources in the audit; and directing the
efforts of the engagement team.
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.
In the current year, the recognition of the
defined benefit pension surplus under IAS
19 and IFRIC 14 is part of the key audit
matter identified in relation to the pension
valuation due to the impact on the group’s
financial position, the judgements involved
in the recognition of the net surplus and the
complexity of the accounting standards.
In the prior year the group’s defined benefit
scheme was in a net deficit position, therefore
this aspect of the key audit matter was not
applicable in 2016.
General insurance reserves
Key audit matter description
How the scope of our audit responded to the key audit matter
Key observations
Overall we consider
that the methodology
applied and significant
assumptions used by
management in the
2017 general insurance
reserving process are
reasonable and consistent
with the prior year.
We critically reviewed management’s general insurance
reserving papers as presented to the Group Audit
Committee in February 2018.
We challenged the key estimates within the calculation of
the UK PSA and asbestos reserves by working with our
general insurance actuarial experts, to specifically assess
the movements from prior year reserves, material changes
in model, methodology and assumptions used as well as the
impact of claims experience in the year.
Key assumptions such as claims frequency, severity,
inflation and discounting, as well as methodologies applied
in projecting claim amounts were challenged with the
assistance of our general insurance experts, taking into
account market trends and claims development patterns.
We also applied our wider industry knowledge, taking into
account factors specific to the group’s PSA and
asbestos portfolio.
Management implemented some refinements to the
asbestos model in 2017. Our general insurance experts
critically assessed whether those changes were reasonable,
based on their experience and considering the specific
circumstances of the group’s exposure.
We also evaluated the design and implementation of key
internal controls governing the actuarial assumption
setting process.
Accuracy and completeness of data used in reserving
was tested adopting a controls reliance approach by
testing design and implementation as well as operating
effectiveness of key controls over the reserving data
reconciliation process and data flow, supported by direct
testing of key claims data extracted from the policy
administration systems.
We reconciled the output of the actuarial reserving process
to the general ledger.
The general insurance reserves
remain the largest single area
of judgement within the group’s
financial statements. Gross
provisions for outstanding
claims and incurred but not
reported claims amount to
£509m (2016: £541m), as set
out in note 26 to the financial
statements. The accounting
policy and critical accounting
estimates and judgements
are set out in notes 1 and 2
respectively, with insurance risk
being discussed in note 3. Due
to the high level of judgements
and estimates involved, we
have identified this key audit
matter as a fraud risk to our
financial statement audit.
We have pinpointed our
key audit matter to certain
assumptions used in the
valuation models of UK
liability reserves for physical
and sexual abuse (‘PSA’) and
asbestos claims, as referred to
by the Group Audit Committee
in their report on page 128.
Management judgement and
estimates, including in respect
of actuarial assumptions, are
required when setting these
technical reserves. The value
of these long-tailed technical
reserves is sensitive to the
movement in discount rates
which can be volatile as a result
of uncertain market conditions.
Future inflation, claims
frequency and claims severity
have a material impact on the
valuation of these portfolios. In
particular claims frequency is
difficult to predict for both PSA
and asbestos cases.
Ecclesiastical Annual Report & Accounts 2017Section Three
Governance – Independent Auditor’s Report
166/167
Life insurance reserves
Carrying value of goodwill
Key audit matter description
How the scope of our audit responded to the key audit matter
Key observations
Key audit matter description
How the scope of our audit responded to the key audit matter
Key observations
We critically reviewed management’s life reserving papers as
presented to the Group Audit Committee in February 2018.
We challenged the key judgements within the calculation of
the life insurance reserves by working with our life insurance
actuarial experts, to specifically assess the movements from
prior year reserves and material changes in methodology
and assumptions applied.
Overall we are satisfied
that the assumptions used
in the 2017 valuation
are reasonable and have
been set consistently with
prior years’ models and
methodologies.
The key assumptions of valuation rate of interest,
mortality rates and expenses assumptions were assessed
for consistency and benchmarked by our experts using our
wider industry knowledge and taking into account any factors
specific to the group’s funeral plan book.
We also evaluated the design and implementation of key
internal controls governing the actuarial models, assumption
setting process and data flows.
We performed direct testing of the completeness and
accuracy of key underlying data used in the reserving process,
in particular policy holder data, fixed and variable expense
data as well as data in relation to the assets backing the life
insurance reserves.
We reconciled the output of the actuarial reserving process to
the general ledger.
The life book comprises
prepaid funeral plan
business and continues to
be closed to new business,
however the group retains
long term exposure in
respect of funeral plan life
insurance business written
in the past. In arriving at the
technical provision there are
a number of key actuarial
assumptions applied:
• Valuation rate of interest
used to discount the
cash flows;
• Mortality rates; and
• Expense assumptions.
Given the nature of these
assumptions, these are
subject to significant
management estimates,
and due to the size of the
balance (2017: £88.1m,
2016: £91.9m), as set out
in note 26 to the financial
statements, could materially
affect the financial statements
if incorrectly or inconsistently
determined or applied. The
accounting policy and critical
accounting estimates and
judgements are set out in
notes 1 and 2 respectively,
with insurance risk being
discussed in note 3.
Due to the high level of
judgements and estimates
involved, we have identified
this key audit matter as a
fraud risk to our financial
statement audit. The Group
Audit Committee refer to this
key audit risk in their report
on page 128.
The assessment of
impairment of goodwill
resulting from business
acquisitions requires
significant management
estimate to be applied in
determining the estimated
future cash flows, short- and
long-term growth rates and
the associated discount rate.
These future cash flows
and growth rates are based
on estimates and therefore
inherently uncertain.
Additional judgement is
required in determining the
appropriate rate at which to
discount the projected future
cash flows in order to arrive
at their net present value.
We pinpointed the key
area of audit focus to the
discount rate and short-term
growth rate applied.
The group’s goodwill assets
amount to £23.5m (2016:
£23.5m).
The only material goodwill is
held in respect of the group’s
broker business, South Essex
Insurance Holdings Limited
(‘SEIH’), as set out in note 15
to the financial statements.
The accounting policy and
critical accounting estimates
and judgements are set out in
notes 1 and 2 respectively.
Due to the high level of
judgements and estimates
involved, we have identified
this key audit matter as a
fraud risk to our financial
statement audit.
We critically reviewed management’s goodwill impairment
review paper as presented to the Group Audit Committee in
February 2018.
We assessed SEIH’s cash flow forecast against actual results
and challenged short-term growth rates based on historical
and current year performance.
Overall we found the
assumptions applied
by management to be
within acceptable ranges.
We did not identify any
impairment to the SEIH
goodwill balance.
We benchmarked the perpetual growth rate applied to the
long-term cash flows against market predictions for the
UK economy.
In assessing the reasonableness of the discount rate, we have
challenged the inputs that management uses in its model,
working with our internal valuation experts. With their input,
we independently calculated a discount rate range which
we would consider appropriate and we compared this with
management’s selected rate.
We tested the mathematical accuracy of management’s
calculations and performed sensitivity analysis on the
headroom of the recoverable amount over the carrying
value of the SEIH business, using a reasonable range of
assumptions.
We also evaluated the design and implementation of key
controls around the impairment review process.
Ecclesiastical Annual Report & Accounts 2017Section Three
Governance – Independent Auditor’s Report
168/169
Valuation of the defined benefit pension obligation
and recognition of a net surplus
Key audit matter description
How the scope of our audit responded to the key audit matter
Key observations
We critically reviewed management’s defined benefit
pension valuation paper as presented to the Group Audit
Committee in February 2018.
Overall we consider the
net pension surplus to be
appropriately valued.
We assessed the key assumptions used by the group,
working with our pension actuarial experts, against those
adopted by other companies observed in the market at
31 December 2017 in order to determine whether they
are within acceptable ranges. This benchmarking exercise
included the discount rate and inflation rates applied by
management in the valuation process.
We tested the completeness and accuracy of key underlying
data used by the group’s pension actuaries, including
benefits and contributions paid in the year.
We also evaluated the design and implementation of key
internal controls governing the assumption setting process
for the valuation of the group’s defined benefit
scheme obligation.
To test the recognition of the net surplus, we have reviewed
relevant sections of the Trust Deed and Rules as well as
legal advice obtained by management. We have engaged
our pension actuarial experts to assess the recognised
surplus against the asset ceiling resulting from IAS 19
and IFRIC 14.
The discount rate and
inflation rate assumptions
used in the valuation
of the defined benefit
pension scheme liability
are within the acceptable
ranges at 31 December
2017 and have been
derived consistently with
the prior year.
The net surplus is below
the IAS 19 and IFRIC
14 asset ceiling at 31
December 2017 and
therefore recognised
appropriately.
The group’s Staff Retirement
Benefit Fund (SRBF) is
a defined benefit pension
scheme for which the
valuation of the scheme
obligations requires significant
assumptions and judgements
to be made. We identified the
discount rate and inflation rate
assumptions as our key areas
of audit focus for the valuation
of the pension scheme.
At the end of 2017, the SRBF
scheme is in a net surplus.
The judgements involved in
applying the asset ceiling
(the limit on the amount that
can be recognised as a net
surplus) under IAS 19 and
IFRIC 14 require significant
management judgement in the
interpretation of the scheme’s
Trust Deed and Rules.
Therefore the recognition and
valuation of the net surplus is
a key audit matter.
The valuation of the group’s
defined benefit pension
scheme obligation and
recognition of the net surplus
is discussed by the Group
Audit Committee in their
report on page 128.
The group recognises a net
pension surplus of £20m
(2016: net pension deficit of
£20m) for the SRBF defined
benefit pension scheme,
as set out in note 17 to the
financial statements. The
accounting policy and critical
accounting estimates and
judgements are set out in
notes 1 and 2 respectively.
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.
Based on our professional judgement, we determined materiality for the financial statements
as a whole as follows:
Group financial statements
Parent company
financial statements
Materiality
£5.7m (2016: £5.1m)
£5.0m (2016: £4.3m)
Basis for determining
materiality
1% of EIO group total
shareholders’ equity (2016: 1%
total shareholders’ equity), capped
in relation to the parent’s (EIG
Group) materiality.
1% of EIO plc’s total
shareholders’ equity
(2016: 1% total
shareholders’ equity).
Rationale for the
benchmark applied
We have used total shareholders’ equity as a base for our
materiality to reflect the group’s strategic ambition to deliver
longer-term value and support charitable giving. By using total
shareholders’ equity as a basis, our judgement on materiality
is in line with the focus and risk profile of both, the group
and parent company.
We agreed with the Group Audit Committee that we would report to the committee all audit
differences in excess of £283k (2016: £254k) for the group, as well as differences below
that threshold that, in our view, warranted reporting on qualitative grounds. We also report
to the Group Audit Committee on disclosure matters that we identified when assessing the
overall presentation of the financial statements.
Shareholders equity
£593m
Shareholders equity
Group materiality
Group materiality
£5.7m
Upper range of
component materiality
£5.0m
Audit Committee
reporting threshold
£0.283m
Ecclesiastical Annual Report & Accounts 2017Section Three
Governance – Independent Auditor’s Report
170/171
An overview of the scope
of our audit
Our group audit was scoped by obtaining
an understanding of the group and its
environment, including group-wide controls,
and assessing the risks of material
misstatement at the group level.
Based on that assessment, we focused
our group audit scope primarily on the audit
work for the general and life insurance
businesses in the UK, Ireland, Australia
and Canada as well as the UK insurance
broker and investment manager subsidiaries.
All significant trading 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
£0.03k to £5m.
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 is focused at
least once every three years. We included
the component audit teams in our team
briefings, discussed their risk assessments,
and reviewed key documentation of the
findings from their work.
This year, the Group Senior Manager
visited the component audit team of the
parent company’s Canadian branch,
whilst last year the Group Engagement
Partner visited the Australian subsidiary,
Ansvar Insurance Limited. The Group
Engagement Partner is also the Audit
Partner for the group’s significant
UK-based components and subsidiaries.
At group 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.
Revenue
Profit before tax
Net assets
13%
11%
1%
7%
87%
89%
92%
Full audit scope
Specified audit procedures
Group analytical procedures
Responsibilities
of directors
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, and
for such internal control as the directors
determine is necessary to enable the
preparation of financial statements that
are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the
directors are responsible for assessing the
group’s and the parent company’s ability to
continue as a going concern, disclosing as
applicable, matters related to going concern
and using the going concern basis of
accounting unless the directors either intend
to liquidate the group or the parent company
or to cease operations, or have no realistic
alternative but to do so.
Other information
The directors are responsible for the other
information. The other information comprises
the information included in the annual report,
other than the financial statements and our
auditor’s report thereon.
Our opinion on the financial statements
does not cover the other information and,
except to the extent otherwise explicitly
stated in our report, we do not express any
form of assurance conclusion thereon.
In connection with our audit of the
financial statements, our responsibility is
to read the other information and, in doing
so, consider whether the other information
is materially inconsistent with the financial
statements or our knowledge obtained in
the audit or otherwise appears to be
materially misstated.
If we identify such material inconsistencies
or apparent material misstatements,
we are required to determine whether there
is a material misstatement in the financial
statements or a material misstatement of
the other information. If, based on the work
we have performed, we conclude that
there is a material misstatement of this
other information, we are required to report
that fact.
We have nothing to report in respect
of these matters.
Ecclesiastical Annual Report & Accounts 2017Section Three
Governance – Independent Auditor’s Report
172/173
Auditor’s responsibilities
for the audit of the
financial statements
Our objectives are to obtain reasonable
assurance about whether the financial
statements as a whole are free from
material misstatement, whether due to
fraud or error, and to issue an auditor’s
report that includes our opinion.
Reasonable assurance is a high level of
assurance, but is not a guarantee that
an audit conducted in accordance with
ISAs (UK) will always detect a material
misstatement when it exists.
Misstatements can arise from fraud or
error and are considered material if,
individually or in the aggregate, they could
reasonably be expected to influence the
economic decisions of users taken on the
basis of these financial statements.
A further description of our responsibilities
for the audit of the financial statements
is located on the Financial Reporting
Council’s website at: www.frc.org.uk/
auditorsresponsibilities. This description
forms part of our auditor’s report.
Use of our report
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
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.
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 or the
part of the directors’ remuneration report
to be audited is not in agreement with the
accounting records and returns.
We have nothing to report in respect
of these matters.
Other matters
Auditor tenure
Following the recommendation of the Group
Audit Committee, we were appointed by the
group’s Board of Directors on 01 November
1998 to audit the financial statements for
the year ended 31 December 1998 and
subsequent financial periods. The period of
total uninterrupted engagement including
previous renewals and reappointments of
the firm is 20 years, covering the years
ending 31 December 1998 to
31 December 2017.
Consistency of the audit report with
the additional report to the Group
Audit Committee
Our audit opinion is consistent with the
additional report to the Group Audit
Committee we are required to provide in
accordance with ISAs (UK).
Paul Stephenson BA FCA
(Senior statutory auditor)
for and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
14 March 2018
Report on other legal and
regulatory requirements
Opinions on other matters
prescribed by the Companies
Act 2006
In our opinion the part of the directors’
remuneration report to be audited has been
properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work
undertaken in the course of the audit:
• 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; and
• the strategic report and the directors’
report have been prepared in accordance
with applicable legal requirements.
In the light of the knowledge and
understanding of the group and of the
parent company and their environment
obtained in the course of the audit, we have
not identified any material misstatements in
the strategic report or the directors’ report.
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.
Ecclesiastical Annual Report & Accounts 2017Section Three
174/175
Section Four
Financial Statements
Consolidated statement of profit or loss
Consolidated and parent statement of comprehensive income
Consolidated and parent statement of changes in equity
Consolidated and parent statement of financial position
Consolidated and parent statement of cash flows
Notes to the financial statements
176
177
178
179
180
181
Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection Four
176/177
Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection FourNet other comprehensive income36,19536,524(11,953)(20,853)Total comprehensive income attributable to equity holders of the Parent 104,33795,59741,75933,3256,426Attributable tax(73)(103)(223)(19)(860)(531)15,326Gains on net investment hedges258556062,067113(Losses)/gains on currency translation differences25(1,642)(1,034)13,4826,332(27,279)Items that may be reclassified subsequently to profit or loss:Attributable tax(7,553)(7,553)5,4665,46637,05537,055(27,279)Actuarial gains/(losses) on retirement benefit plans1744,60844,608(32,745)(32,745)Items that will not be reclassified to profit or loss:Other comprehensive incomeProfit for the year68,14259,07353,71254,178£000£000£000£000GroupParentGroupParentNotes20172016Consolidated and parent statement of comprehensive incomefor the year ended 31 December 2017Profit for the year (attributable to equity holders of the Parent)1068,14253,712Profit before tax582,19662,452Tax expense13(14,054)(8,740)Operating profit82,29262,549Finance costs(96)(97)Other operating and administrative expenses(107,143)(94,097)Total operating expenses(260,013)(243,634)Reinsurance recoveries832,19651,164Fees, commissions and other acquisition costs9(65,153)(61,318)ExpensesClaims and change in insurance liabilities8(119,913)(139,383)Net investment return772,29454,410Total revenue342,305306,183Fee and commission income 60,86453,730Other operating income1,935843Net change in provision for unearned premiums6(6,318)1,103Net earned premiums207,212197,200Outward reinsurance premiums6(129,387)(114,041)RevenueGross written premiums5, 6342,917310,138£000£000Notes20172016Consolidated statement of profit or lossfor the year ended 31 December 2017
178/179
Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection FourThe equalisation reserve was previously required by law and maintained in compliance with the insurance companies' regulations and INSPRU prudential sourcebook for insurers. Solvency II replaced these rules with effect from 1 January 2016 and does not require an equalisation reserve to be held. The reserve was transferred to retained earnings on 1 January 2016.The revaluation reserve represents cumulative net fair value gains on owner-occupied property. Further details of the translation and hedging reserve are included in note 25.299,673433,849At 31 December 2016120,4774,632 -5018,566(218)Reserve transfers - -(24,957) - -24,957 - - - - - -(218)4,8004,800Group tax relief in excess of standard rate Tax relief on charitable grant - - - - -(9,181)(9,181)Gross charitable grant - - - - -(24,000)(24,000)Dividends - - - - -(27,284)(20,853)Total comprehensive income - - -56,42626,89433,325Other net income/(expense) - - -56,426276,421429,123Profit for the year - - - - -54,17854,178At 1 January 2016120,4774,63224,9574962,140365,474499,096At 31 December 2017120,4774,632 -4788,035(174)Reserve transfers - - -(29) -29 - - - - - -(174)5,0055,005Group tax relief in excess of standard rate Tax relief on charitable grant - - - - -(9,181)(9,181)Gross charitable grant - - - - -(26,000)(26,000)Dividends - - - - -37,04936,524Total comprehensive income - - -6(531)96,12295,597Other net income/(expense) - - -6(531)433,849Profit for the year - - - - -59,07359,073At 1 January 2017120,4774,632 -5018,566299,673Parent371,194518,312At 31 December 2016120,4774,632 -50121,508Reserve transfers - -(24,957) - -24,957 -4,8004,800Tax relief on charitable grant - - - - -(9,181)(9,181)Gross charitable grant - - - - -(24,000)(24,000)Dividends - - - - -(27,284)(11,953)Total comprehensive income - - -515,32626,42841,759Other net income/(expense) - - -515,326348,190504,934Profit for the year - - - - -53,71253,712At 1 January 2016120,4774,63224,9574966,182446,238592,473At 31 December 2017120,4774,632 -47820,648Reserve transfers - - -(29) -29 -5,0055,005Tax relief on charitable grant - - - - -(9,181)(9,181)Gross charitable grant - - - - -(26,000)(26,000)Dividends - - - - -37,04936,195Total comprehensive income - - -6(860)105,191104,337Other net income/(expense) - - -6(860)518,312Profit for the year - - - - -68,14268,142At 1 January 2017120,4774,632 -50121,508371,194TotalGroup£000£000£000£000£000£000£000RetainedcapitalpremiumreservereservereserveearningsTranslationShareShareEqualisationRevaluationand hedgingConsolidated and parent statement of changes in equityfor the year ended 31 December 2017John HylandsMark HewsChairmanGroup Chief ExecutiveThe financial statements of Ecclesiastical Insurance Office plc, registered number 24869, on pages 176 to 238 were approved and authorised for issue by the Board of Directors on 14 March 2018 and signed on its behalf by:Total shareholders' equity and liabilities1,505,2961,172,4861,460,0291,141,792Total liabilities912,823673,390941,717707,943Other liabilities2966,86339,31160,89638,489Deferred income17,70414,09015,72612,873Current tax liabilities2,4911,6664,0003,817Deferred tax liabilities2838,37537,16428,84827,801Retirement benefit obligations1710,93210,93211,91311,913Pension liabilities17 - -20,46420,464Provisions for other liabilities275,5995,5125,4015,324Finance lease obligations1,6111,6111,4171,417Insurance contract liabilities26769,248563,104793,052585,845LiabilitiesTotal shareholders' equity592,473499,096518,312433,849Retained earnings and other reserves467,364373,987393,203308,740Share premium account4,6324,6324,6324,632Share capital24120,477120,477120,477120,477EquityTotal assets1,505,2961,172,4861,460,0291,141,792Cash and cash equivalents2393,76751,39989,49459,743Other assets22150,082115,107141,011103,711Current tax recoverable89651,400794Reinsurers' share of contract liabilities26159,208110,125165,932119,960Financial investments20859,686686,499866,517694,696Investment property19152,238152,238125,284125,284Property, plant and equipment188,7727,8218,6987,735Pension assets1720,03620,036144144Deferred tax assets281,721 -2,185 -Deferred acquisition costs1631,26725,62830,70525,672Goodwill and other intangible assets1528,4303,56828,6594,053AssetsParent£000£000£000£000GroupParentGroupNotes20172016Consolidated and parent statement of financial positionat 31 December 2017
180/181
Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection FourCash and cash equivalents at end of year2393,76751,39989,49459,743Exchange (losses)/gains on cash and cash equivalents(766)(459)6,3214,117Cash and cash equivalents at beginning of year89,49459,743108,72075,058Net increase/(decrease) in cash and cash equivalents5,039(7,885)(25,547)(19,432)Net cash used by financing activities(35,495)(35,713)(33,555)(33,795)Charitable grant paid to ultimate parent undertaking(26,000)(26,000)(24,000)(24,000)Dividends paid to Company's shareholders(9,181)(9,181)(9,181)(9,181)Payment of group tax relief in excess of standard rate -(218)(6)(246)Payment of finance lease liabilities(314)(314)(368)(368)Cash flows from financing activitiesNet cash used by investing activities(2,721)(2,031)(2,506)(2,199)Purchases of intangible assets(1,002)(505)(237)(237)Proceeds from the sale of property, plant and equipment3763464545Purchases of property, plant and equipment(2,095)(1,872)(2,314)(2,007)Cash flows from investing activitiesNet cash from operating activities43,25529,85910,51416,562Tax paid(6,832)(6,247)(4,722)(1,921)Interest paid(96)(96)(97)(93)Interest received18,80912,43020,83414,232Dividends received11,75413,1798,17512,691Sale of financial instruments and investment property169,426141,054219,445177,200Purchases of financial instruments and investment property(153,522)(128,068)(203,932)(166,815)Cash generated/(used) by operations3,716(2,393)(29,189)(18,732)Net increase in other liabilities4383931,4431,586Net increase/(decrease) in operating liabilities8,8342,665(2,036)(3,340)Net increase in other assets(11,992)(14,040)(10,987)(5,403)Net (increase)/decrease in deferred acquisition costs(762)(75)(124)351Net decrease in reinsurers' share of contract liabilities5,7769,57815,21813,423Net decrease in insurance contract liabilities(21,363)(21,923)(33,430)(37,331)Changes in operating assets and liabilities:Adjustment for pension funding3,0693,069792792Finance costs96969793(23,520)Dividend and interest income(28,230)(23,242)(31,488)(29,690)Net fair value gains on financial instruments and investment property(37,664)(32,436)(34,229)Amortisation and impairment of intangible assets1,1599181,3291,036(Profit)/loss on disposal of property, plant and equipment(18)(15)2618Revaluation of property, plant and equipment - -(25) -Depreciation of property, plant and equipment2,1771,9701,7731,594Adjustments for:Profit before tax82,19670,64962,45261,659GroupParent£000£000£000£000Notes20172016GroupParentConsolidated and parent statement of cash flowsfor the year ended 31 December 2017IFRS 15, Revenue from Contracts with CustomersEstablishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers.The Standard is not expected to have a material impact on the amount and timing of revenue recognised. Revenue from insurance contacts, which consist of insurance premiums and fee and commission income on reinsurance contracts, are not within the scope of the standard. Investment management fees are based on the value of funds under management and under IFRS 15 will continue to be recognised over time, matching the pattern of benefit received by customers. Within our broking business, commission and fees generated from insurance placements will continue to be recognised on policy inception date, in line with existing accounting policies.Annual periods beginning on or after 1 January 2018.IFRS 9, Financial InstrumentsProvides a new model for the classification and measurement of financial instruments, a single, forward-looking ‘expected loss’ impairment model and a reformed approach to hedge accounting.It is expected that equity instruments will continue to be measured at fair value through profit or loss. There is a possibility that the measurement of certain debt instruments will change to amortised cost or fair value through other comprehensive income. No changes are expected from the more principles-based hedge accounting requirements. The group is elible for, and expects to apply the deferral approach, which gives a temporary exemption from applying IFRS 9 until the effective date of 'IFRS 17, Insurance contracts'. The company is currently assessing the impact of the additional disclosures required under the deferral approach.Annual periods beginning on or after 1 January 2018. Although can be deferred until 2021 for insurers.Standard Key requirementsExpected impact on financial statementsEffective dateThe 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.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 StandardsItems 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 Group’s functional and presentation currency.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.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 £859.7m, 93% of which are liquid (2016: financial investments of £866.5m, 94% liquid), cash and cash equivalents of £93.8m and no borrowings (2016: cash and cash equivalents of £89.5m and no borrowings). Liquid financial investments consist of listed equities and open-ended investment companies, government bonds and listed debt. The Group also has a strong risk management framework and solvency position, and has proved resilient to stress testing. As a consequence, the directors have a reasonable expectation that the Group is well placed to manage its business risks successfully and continue in operational existence for at least twelve months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.Basis of preparationThe Group’s consolidated and Parent's financial statements have been prepared using the following accounting policies, which are in accordance with IFRS applicable at 31 December 2017 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 instruments.1 Accounting policiesEcclesiastical 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 International Financial Reporting Standards (IFRS) financial statements of the Group and Parent are set out below.Notes to the financial statements
182/183
Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection FourThe 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 amount of 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.In the Parent statement of financial position subsidiaries are accounted for within financial investments at cost less impairment, in accordance with International Accounting Standard (IAS) 27, Separate Financial Statements.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.Basis of consolidationSubsidiariesOperating profit or lossOperating profit or loss is stated before finance costs.Use of estimatesThe 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. Those estimates which have the most material impact on the financial statements are disclosed in note 2.The other Standards in issue but not yet effective are not expected to materially impact the Group.IFRS 17, Insurance ContractsRequires insurance liabilities to be measured at a current fulfillment value and provides a more uniform measurement and presentation approach for all insurance contracts. These requirements are designed to achieve the goal of a consistent, principle-based accounting for insurance contracts.IFRS 17 is a comprehensive new accounting standard for insurance contracts covering recognition and measurement, presentation and disclosure. The standard was issued in May 2017 as replacement for IFRS 4 Insurance Contracts and the impact of the standard on the financial statements is still being assessed. The group's long-term business is expected to be the most affected by the new standard. The company expects to be able to use the simplified premium allocation approach to the majority of its general business insurance contracts, which applies mainly to short-duration contracts.Applicable to annual reporting periods beginning on or after 1 January 2021 (subject to EU endorsement).IFRS 16, LeasesProvides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the term is 12 months or less or the underlying asset has a low value. Operating leases are in place for the majority of the Group’s offices, and the Group is currently assessing the full impact of IFRS 16. The changes will result in a lease obligation, similar in magnitude to that disclosed in note 30, being recognised on the group and parent balance sheet along with a corresponding 'right-to-use' asset. There is not expected to be a significant impact on profit or loss. Though, it is expected that profile of operating lease costs in the profit and loss will change with higher charges in earlier years, reducing over the expected term of the lease, reflecting the financing component of the lease obligation.Annual periods beginning on or after 1 January 2019.Standard Key requirementsExpected impact on financial statementsEffective dateNotes to the financial statements1 Accounting policies (continued)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.Net investment returnNet investment return consists of dividends, interest and rents receivable for the year, realised gains and losses, unrealised gains and losses on financial investments 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.Other operating incomeOther operating income consists of the return of surplus reserves from a government-backed reinsurance scheme and, in the prior year only, income arising from a lease transfer.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.Fee and commission income consists primarily of reinsurance commissions and reinsurance profit commissions. It also includes 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. As with general insurance premiums, reinsurance commissions are accounted for in the period in which the risk commences. Those proportions of reinsurance commissions written in a year which relate to periods of risk extending beyond the end of the year, are carried forward as deferred income. Reinsurance profit commissions are recognised at the point in time when the amount of commission can be accurately estimated. Income generated from insurance placements is recognised at the inception date of the cover.Insurance contract premiums are recognised as income when receivable, at which date the liabilities arising from them are also recognised.Fee and commission incomePremiums written include adjustments to premiums written in prior periods and estimates for pipeline premiums and are shown net of insurance premium taxes.Life businessPremiums 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 ("pipeline premiums") 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.Premium incomeGeneral insurance businessBoth 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 Group's long-term business contracts are referred to as non-profit contracts in the financial statements.Product classificationContracts 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 life business contracts are classified as insurance contracts.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.Foreign currency translationThe 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, along with the corresponding movement on net investment hedges, and are recognised in the statement of profit or loss as part of the gain or loss on sale.Investment vehiclesInvestment vehicles such as mutual funds are consolidated when the Group has a controlling interest.Notes to the financial statements1 Accounting policies (continued)
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Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection FourOffset of financial assets and financial liabilitiesFinancial 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.-All other financial assets and liabilities are measured at amortised cost, using the effective interest method (except for short-term receivables and payables when the recognition of interest would be immaterial).-Financial instruments designated as fair value through profit or loss, those held for trading, and hedge accounted derivatives under IFRIC 16 are subsequently carried at fair value. To the extent to which they are effective, changes to the fair value of hedging instruments are recognised in other comprehensive income, with all other fair value changes recognised through profit or loss in the period in which they arise.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 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. Investment propertyInvestment 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.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.Fixtures, fittings and office equipment3 - 10 years or length of lease straight lineComputer equipment3 - 5 years straight lineMotor vehicles4 years straight line or 27% reducing balanceLand is not depreciated. No depreciation is provided on owner-occupied properties since such depreciation would be immaterial. Depreciation is calculated to write down the cost of other assets to their residual values over their estimated useful lives as follows: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 and impairment.Property, plant and equipmentOwner-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. Computer softwareComputer software is carried at historical cost less accumulated amortisation and impairment, and amortised over a useful life of between three and ten years, using the straight-line method. The amortisation and impairment charge for the period is included in the statement of profit or loss within other operating and administrative expenses.Other intangible assetsOther intangible assets consist of acquired brand, customer and distribution relationships, and are carried at cost at acquisition less accumulated amortisation and impairment after acquisition. Amortisation is on a straight-line basis over the weighted average estimated useful life of intangible assets acquired. The amortisation and impairment charge for the period is included in the statement of profit or loss within other operating and administrative expenses.Notes to the financial statements1 Accounting policies (continued)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.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.Intangible assetsGoodwillReinsurance 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.ReinsuranceThe 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 life business.Life business provisionsUnder current IFRS requirements, insurance contract liabilities are measured using accounting policies consistent with those adopted previously. The life business provision is held in respect of funeral plans and determined using methods and assumptions approved by the directors based on advice from the Chief Actuary. Surpluses and deficits are offset where business classes are considered to be managed together and a provision is held for any net deficit.(iii) Liability adequacyAt 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.(ii) Provision for unearned premiumsThe 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.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.Insurance contract liabilities General insurance provisions(i) Outstanding claims provisionsLife business claims and death claims are accounted for when notified. 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.The impact of discount rate changes on insurance contract liabilities is also presented within net investment return in order to match with the corresponding movements of assets backing the liabilities.ClaimsNotes to the financial statements1 Accounting policies (continued)
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Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection FourDeferred acquisition costsGeneral insurance businessFor 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.(c) Loans and receivablesLoans and receivables, comprising loans and cash held on deposit for more than three months, are carried at amortised cost using the effective interest method. Loans are recognised when cash is advanced to borrowers. To the extent that a loan or receivable is uncollectable, it is written off as impaired. Subsequent recoveries are credited to profit or loss.Gains and losses on the hedging instrument relating to the effective portion of the hedge accumulated in the foreign currency translation reserve are reclassified to profit or loss on disposal of the related investment.Gains and losses on the hedging instrument, relating to the effective portion of the net investment hedge, are recognised in other comprehensive income and accumulated in the hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, and is included in net investment return.Hedge accounting is used for derivatives designated in this way, provided certain criteria are met. At the inception of the transaction, the Group documents the relationship between the hedging instrument and the hedged item, as well as the risk management objective and the strategy for undertaking the hedge transaction. The Group also documents its assessment of whether the hedge is expected to be, and has been, highly effective in offsetting the risk in the hedged item, both at inception and on an ongoing basis.(b) Financial assets at fair value through other comprehensive incomeDerivative instruments for hedging of net investments in foreign operationsOn the date a foreign exchange contract is entered into, the Group designates certain contracts as a hedge of a net investment in a foreign operation (net investment hedge) and hedges the forward foreign currency rate.Certain 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. Their fair value gains and losses are recognised immediately in net investment return. The fair value gains and losses for derivatives which are hedge accounted in line with IFRIC 16 are recognised in other comprehensive income.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.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 the method for recognising changes in the fair value depending on whether they are designated as hedges of net investments in foreign operations. All derivatives are carried as assets when the fair values are positive and as liabilities when the fair values are negative.Derivative financial instruments and hedgingDerivative financial instruments include foreign exchange contracts and other financial instruments that derive their value from underlying equity instruments. 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.(a) Financial assets at fair value through profit or lossFinancial 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 that are not accounted for as a net investment hedge or are acquired principally for the purpose of selling in the near term.Financial investmentsThe Group classifies its financial investments as either financial assets at fair value through profit or loss (designated as such or held for trading), as financial assets at fair value through other comprehensive income or as loans and receivables. Notes to the financial statements1 Accounting policies (continued)Contributions in respect of defined contribution plans are recognised as a charge to profit or loss as incurred.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. 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. 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 of economic benefits available in the form of refunds from the plan or reductions in future employer contributions to the plan. Independent actuarial valuations are carried out at the end of each reporting period.Pension obligationsThe Group operates a number of defined benefit and defined contribution plans, the assets of which are held in separate trustee-administered funds.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 benefitsThe 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.Provisions and contingent liabilitiesProvisions 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.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.LeasesLeases, 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.Insurance broking debtors and creditorsWhere 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.Cash and cash equivalentsCash 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.Life businessFor life 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.Notes to the financial statements1 Accounting policies (continued)
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Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection FourUse of Alternative Performance Measures (APM)As detailed in the Strategic Report, the Group uses certain key performance indicators which, although not defined under IFRS, provide useful information and aim to enhance understanding of the Group's performance. The key performance indicators should be considered complementary to, rather than a substitute for, financial measures defined under IFRS. Note 33 provides details of how these key performance indicators reconcile to the results reported under IFRS.Charitable grant to ultimate parent undertakingPayments 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.DividendsDividends 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 Non-Cumulative Irredeemable Preference shares are recognised in the period in which they are declared and appropriately approved.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.AppropriationsDeferred 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.Current tax is the expected tax payable on the taxable result for the period, after any adjustment in respect of prior periods. TaxationIncome 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.Other benefitsEmployee 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.Other post-employment obligationsSome 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. Interest expense (calculated by applying a discount rate to the net obligations) is recognised through profit or loss. Actuarial gains and losses are recognised immediately in other comprehensive income. Independent qualified actuaries value these obligations annually.Notes to the financial statements1 Accounting policies (continued)- whether all such reinsurances will remain in force over the long term.The uncertainties surrounding the estimates of claims payments for the various classes of business are discussed further in note 3, and where discount rates have been applied these are disclosed in note 26(a). General business insurance liabilities include a margin for risk and uncertainty in addition to the best estimates for future claims. The sensitivity of profit or loss to changes in the ultimate settlement cost of claims reserves is presented in note 26(a).- changes in legislation and court attitudes to compensation, including the discount rate applied in assessing lump sums, 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- 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; - 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;The ultimate liability arising from claims made under general business insurance contractsThe 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 business class, the amounts that such claims will be settled for and the timing of any such payments. There are various sources of estimation uncertainty as to how much the Group will ultimately pay with respect to such contracts. Such uncertainty includes:(b) Key sources of estimation uncertaintyIn applying the Group’s accounting policies various transactions and balances are valued using estimates or assumptions. All estimates are based on management’s knowledge of current facts and circumstances, assumptions based on that knowledge and their predictions of future events and actions. The following items are considered key estimates and assumptions which, if actual results differ from those predicted, may have significant impact on the following year’s financial statements:The value of unlisted equity securities, where there is no active market and therefore no observable market price, are classified as level 3 financial assets. This requires the Group to make judgements in respect of the most appropriate valuation technique to apply. Further details, including the amounts recognised within the financial statements which are impacted by these judgements are shown in note 4(b).The Group also applies judgement in determining the extent to which a surplus in a defined benefit plan can be recognised in the statement of financial position. Judgement is required in determining the maximum future economic benefit available in the form of a refund or as a reduction in future contributions in accordance with International Financial Interpretations Committee Interpretation 14 (IFRIC 14).Unlisted equity securitiesPension and other post-employment benefitsThe Group's pension and other post employement benefit obligations are discounted at a rate set by reference to market yields at the end of the reporting period on 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. Judgement is required when setting the criteria for bonds to be included in the population from which the yield curve is derived. The most significant criteria considered for the selection of bonds includes the nature and quality of the corporate bonds and the identification of outliers which are excluded. Further details are disclosed in note 17.(a) Critical judgements in applying the Group’s accounting policiesThe following are the critical judgements, apart from those involving estimations which are dealt with separately below, that the directors have made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements:2 Critical accounting estimates and judgements in applying accounting policiesThe 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. Notes to the financial statements
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Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection FourCarrying value of tax liabilitiesCalculating 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 investments held prior to 2002. Gains on these assets are only recognised for tax purposes when sold. 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. The amounts recognised in the financial statements that are affected by these estimates are disclosed in note 28.Goodwill is tested annually for impairment as detailed in the Group’s accounting policies. In order to calculate the value in use under this policy, the Group is required to make an estimation of the future cash flows expected to arise from the business unit, an appropriate long-term growth rate to apply to the cash flows and a suitable discount rate to calculate the present value. Further details on these estimates and sensitivities of the carrying value of goodwill to these estimates are provided in note 15.Carrying value of GoodwillUnlisted equity securitiesThe valuation of unlisted equity securities requires estimates to be made for the price-to-book ratio, illiquidity discount and credit rating discount. Further details, including the sensitivity of the valuation to these inputs, are shown in note 4(b).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 information including the sensitivity of pension and post-employment medical benefit scheme liabilities to changes in the key assumptions is disclosed in note 17.The effect of movements in the actuarial assumptions during the year, including discount rate, mortality, inflation, salary and medical expense inflation assumptions, on the pension and other post-employment liabilities are recognised in other comprehensive income. An explanation of the actuarial gains recognised in the current year is included in note 17. 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.Pension and other post-employment benefitsThe 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.Estimates are also made as to future investment returns arising from the assets backing life 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 life insurance contracts. The sensitivity of profit or loss to changes in the assumptions is presented in note 26(b)(iii).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, adjusted to reflect recent historical mortality experience of the Group's portfolio, with allowance also being made for expected future mortality improvements where prudent. The estimated mortality rates are used to determine forecast benefit payments net of forecast premium receipts.Future benefit payments arising from life insurance contractsThe determination of the liabilities under life insurance contracts is dependent on estimates made by the Group.Notes to the financial statements2 Critical accounting estimates and judgements in applying accounting policies (continued)Net113,07165,1749,826473 -188,54439,864TotalGross199,42368,53315,6912,494 -286,14151,580Net24,80115,063 - - - -148,680CanadaGross35,39916,181 - - - -234,561Net88,27050,1119,826473United Kingdom and IrelandGross164,02452,35215,6912,494TerritoryParent213,530342,917Net117,42683,60311,0661,40728 -39,864TotalGross232,53189,94416,9773,43728 -51,580Net24,80115,063 - -934 -24,959CanadaGross35,39916,181 - -Net4,35618,4291,240AustraliaGross33,22521,4111,286943 -56,865Net88,26950,1119,82647328148,707United Kingdom and IrelandGross163,90752,35215,6912,49428234,472Territory£000£000OtherFuneral plansTotalGroup£000£000£000£000PropertyLiabilitylossfinancialMiscellaneous2017General insuranceLife insuranceBelow is a table summarising written premiums for the financial year, before and after reinsurance, by territory and by class of business:(b) Concentrations of riskThe core business of the Group is general insurance, with the principal classes of business written being property and liability. The miscellaneous financial loss class of business covers personal accident, fidelity guarantee and loss of money, income and licence. The other class of business includes cover of legal expenses and also a small portfolio of motor policies, but this has been in run off in the United Kingdom since November 2012. The Group's whole-of-life insurance policies support funeral planning products.Catastrophe protection is purchased following an extensive annual modelling exercise of gross and net (of proportional reinsurance) exposures. In conjunction with reinsurance brokers the Group utilises the full range of proprietary catastrophe models and continues to develop bespoke modelling options that better reflect the specialist nature of the portfolio. Reinsurance is purchased in line with the Group's risk appetite.Statistics demonstrate that the larger and more diversified the portfolio of insurance contracts, the smaller the relative variability in the expected outcome will be. The Group’s underwriting strategy is designed to ensure that the underwritten risks are well diversified in terms of type and amount of risk and geographical spread. In all operations pricing controls are in place, underpinned by sound statistical analysis, market expertise and appropriate external consultant advice. Gross and net underwriting exposure is protected through the use of a comprehensive programme of reinsurance using both proportional and non-proportional reinsurance, supported by proactive claims handling. The overall reinsurance structure is regularly reviewed and modelled to ensure that it remains optimum to the Group's needs. The optimum reinsurance structure provides the Group with sustainable, long-term capacity to support its specialist business strategy, with effective balance sheet and profit and loss protection at a reasonable cost. (a) Risk mitigation3 Insurance riskThrough its general and life insurance operations, the Group is exposed to a number of risks, as summarised in the Risk Management section of the Strategic Report. The risk under any one insurance contract is the possibility that the insured event occurs and the uncertainty of the amount and timing of the resulting claim. Factors such as the business and product mix, the external environment including market competition and reinsurance capacity all may vary from year to year, along with the actual frequency, severity and ultimate cost of claims and benefits. This subjects the Group to underwriting and pricing risk (the risk of failing to ensure disciplined risk selection and to obtain the appropriate premium), claims reserving risk (the risk of actual claims payments exceeding the amount we are holding in reserves) and reinsurance risk (the risk of failing to access and manage reinsurance capacity at a reasonable price).Notes to the financial statements
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Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection FourClaims 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.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 cost of claims. Individual large claims are more likely to arise from fire, storm or flood damage. The greatest likelihood of an aggregation of claims arises from earthquake, weather or fire events.The number of claims made can be affected in particular 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.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 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.Property classesProperty cover mainly compensates the policyholder for damage suffered to their property or for the value of property lost. Property insurance may also include cover for pecuniary loss through the inability to use damaged insured commercial properties.(c) General insurance risks9,040550 -176,5882,546 -268,269Net105,90061,098 - -34,442TotalGross187,26064,46314,000 -45,470Net21,05713,385 -CanadaGross31,15914,311 - -9,040550 -142,1462,546 -222,799Net84,84347,713United Kingdom and IrelandGross156,10150,15214,000TerritoryParent1,36777196,09777310,138Net108,99175,55710,105TotalGross210,35481,23215,1053,370 - - -34,442 - -45,470Net21,05713,385817 -19,432CanadaGross31,15914,311 - -41,810Net3,09114,4591,065AustraliaGross23,11216,7691,1058249,04055077142,2232,54677222,858Net84,84347,713United Kingdom and IrelandGross156,08350,15214,000Territory£000£000Funeral plansTotalGroup£000£000£000£000PropertyLiabilitylossOtherfinancialMiscellaneous2016General insuranceLife insuranceNotes to the financial statements3 Insurance risk (continued)Uncertainty in the estimation of the timing of future claims arises from the unpredictability of long-term changes in overall levels of mortality. The Group bases these estimates on standard industry and national mortality tables and its own experience. The most significant factors that could alter the expected mortality rates profile are epidemics, widespread changes in lifestyle and continued improvement in medical science and social conditions. The primary risk on these contracts is the level of future investment returns on the assets backing the liabilities over the life of the policyholders. The interest rate and inflation risk within this has been largely mitigated by holding index-linked assets of a similar term to the expected liabilities profile. The main residual risk is the spread risk attached to corporate bonds held to match the liabilities. The small mortality risk is retained by the Group.(d) Life insurance risksThe Group provides whole-of-life insurance policies to support funeral planning products, for most of which the future benefits are linked to inflation and backed by index-linked assets. Although assets are well matched to liabilities, there is a risk that returns on assets held to back liabilities are insufficient to meet future claims payments, particularly if the timing of claims is different from that assumed. This is not one of the Group's principal risks and new policies are no longer being written in the life fund, with only minimal premiums now being received each year.Note 26 presents the development of the estimate of ultimate claim cost for public and employers' liability claims occurring in a given year. This gives an indication of the accuracy of the estimation technique for incurred claims.Provisions for latent claimsThe 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.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.Late notification of possible claims necessitates the holding of provisions for incurred claims that may only emerge some years into the future. In particular, the effect of inflation over such a long period can be considerable and is uncertain. A lack of comparable past experience may make it difficult to quantify the number of claims and, for certain types of claims, the amounts for which they will ultimately settle. The legal and legislative framework continues to evolve, which has a consequent impact on the uncertainty as to the length of the claims settlement process and the ultimate settlement amounts.The severity of bodily injury claims can be influenced particularly by the value of loss of earnings and the future cost of care. The settlement value of claims arising under public and employers' liability is particularly difficult to predict. There is often uncertainty as to the extent and type of injury, whether any payments will be made and, if they are, the amount and timing of the payments, including the discount rate applied for assessing lump sums. Key factors driving the high levels of uncertainty include the late notification of possible claim events and the legal process.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, legal costs and the potential for periodic payment awards.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.Liability classesThe 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).Notes to the financial statements3 Insurance risk (continued)
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Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection Four* Financial liabilities are held at amortised cost.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.(543)(31,734)(339,265)433,849 - -(385,812)(385,812)Total629,7744,928170,576113(543)(31,734)(6,212)(38,489)Net other - - - - - - -59,743Other liabilities - - - - - -2,694103,711Cash and cash equivalents - -59,743 - - -50,065694,696Other assets - -101,017 -Financial investments629,7744,9289,816113At 31 December 2016 -(32,828)(268,057)499,096 - -(314,598)(314,598)Total622,5603,425173,422574 -(32,828)(6,483)(39,311)Net other - - - - - - -51,399Other liabilities - - - - - -2,959115,107Cash and cash equivalents - -51,399 - - -50,065686,499Other assets - -112,148 -Financial investments622,5603,4259,875574At 31 December 2017Parent(543)(52,423)(522,522)518,312 - -(517,814)(517,814)Total851,6572,974237,1022,067(543)(52,423)(7,930)(60,896)Net other - - - - - - -89,494Other liabilities - - - - - -3,222141,011Cash and cash equivalents - -89,494 - - - -866,517Other assets - -137,789 -Financial investments851,6572,9749,8192,067At 31 December 2016 -(58,633)(448,762)592,473 - -(444,199)(444,199)Total845,8112,611250,0581,388 -(58,633)(8,230)(66,863)Net other - - - - - - -93,767Other liabilities - - - - - -3,667150,082Cash and cash equivalents - -93,767 - - - -859,686Other assets - -146,415 -Financial investments845,8112,6119,8761,388At 31 December 2017£000£000£000and liabilitiesTotal£000£000£000£000£000Other assetsGroupat fair valuetradingreceivablesderivativestradingliabilities*DesignatedHeld forLoans andaccountedHeld forFinancialHedgeFinancial assetsFinancial liabilities (a) Categories of financial instrumentsThere has been no change from the prior period in the nature of the financial risks to which the Group is exposed. Brexit has continued to result in greater uncertainty in relation to the economic risks to which the Group is exposed, including equity price volatility, movements in exchange rates and long-term UK growth prospects. The Group's management and measurement of financial risks is informed by either stochastic modelling or stress testing techniques.4 Financial risk and capital managementThe 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.Notes to the financial statementsTotal financial assets at fair value813,9997,18435,515856,698 Derivatives -2,067 -2,067Financial investmentsFinancial assets at fair value through other comprehensive income 813,9995,11735,515854,631 Derivatives -2,974 -2,974 Debt securities551,5391,876139553,554 Equity securities262,46026735,376298,103Financial investmentsFinancial assets at fair value through profit or lossAt 31 December 2016Total financial assets at fair value801,8295,57742,404849,810 Derivatives -1,388 -1,388Financial investmentsFinancial assets at fair value through other comprehensive income 801,8294,18942,404848,422 Derivatives -2,611 -2,611 Debt securities515,2771,340125516,742 Equity securities286,55223842,279329,069Financial investmentsFinancial assets at fair value through profit or lossAt 31 December 2017£000£000£000£000GroupLevel 1Level 2Level 3TotalAnalysis of fair value measurement basesFair value measurement at theend of the reporting period based onThere have been no transfers between investment categories in the current year.Level 3: fair values measured using inputs for the asset or liability that are not based on observable market data (unobservable inputs). This category includes unlisted debt and equities, including investments in venture capital, and suspended securities. Where a look-through valuation approach is applied, underlying net asset values are sourced from the investee, translated into the Group's functional currency and adjusted to reflect illiquidity where appropriate, with the fair values disclosed being directly sensitive to this input.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.(b) Fair value hierarchyThe 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:Notes to the financial statements4 Financial risk and capital management (continued)
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Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection Fourheld at the end of the reporting period4,158(48)4,110Closing balance35,37613935,515Total gains/(losses) for the period included in profit or loss for assetsTotal gains/(losses) recognised in profit or loss4,158(48)4,110At 31 December 2016Opening balance31,21818731,405Total gains for the period included in profit or loss for assetsheld at the end of the reporting period6,89716,898Disposal proceeds(1,100)(15)(1,115)Closing balance42,27912542,404Total gains recognised in profit or loss8,00318,004At 31 December 2017Opening balance35,37613935,515GroupsecuritiessecuritiesTotal£000£000£000EquityDebtFinancial assets at fair valuethrough profit and lossFair value measurements in level 3 for both the Group and Parent consist of financial assets, analysed as follows:The derivative liabilities of the Group and Parent in the prior year were measured at fair value through profit or loss and categorised as level 2 (see note 21).Fair value measurements based on level 3Total financial assets at fair value592,5546,74735,514634,815 Derivatives -113 -113Financial investmentsFinancial assets at fair value through other comprehensive income 592,5546,63435,514634,702 Derivatives -4,928 -4,928 Debt securities360,4981,439139362,076 Equity securities232,05626735,375267,698Financial investmentsFinancial assets at fair value through profit or lossAt 31 December 2016Total financial assets at fair value578,9955,16242,402626,559 Derivatives -574 -574Financial investments578,9954,58842,402625,985Financial assets at fair value through other comprehensive income Derivatives -3,425 -3,425 Debt securities329,116925125330,166 Equity securities249,87923842,277292,394Financial investmentsFinancial assets at fair value through profit or lossAt 31 December 2017£000£000£000£000ParentLevel 1Level 2Level 3TotalFair value measurement at theend of the reporting period based onNotes to the financial statements4 Financial risk and capital management (continued)The decrease in value during the year is primarily the result of a decrease in underlying net assets.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. 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 increase in value during the year is primarily the result of an increase in the price-to-book ratio and a weakening of sterling against the Euro, partially offset by an increase in the illiquidity discount.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 +/-£5m (2016: +/-£4m).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 Group's derivative contracts are not traded in active markets. Foreign currency forward contracts are valued using observable forward exchange rates corresponding to the maturity of the contract and the contract forward rate. Over-the-counter equity or index options and futures are valued by reference to observable index prices. These financial assets are valued using third-party pricing information that is regularly reviewed and internally calibrated based on management's knowledge of the markets. Where material, these valuations are reviewed by the Group Audit Committee.Non-exchange-traded derivative contracts (level 2)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)Alltheabovegainsorlossesincludedinprofitorlossfortheperiod(forboththeGroupandParent)arepresentedinnetinvestmentreturnwithin the statement of profit or loss. held at the end of the reporting period4,158(48)4,110Closing balance35,37513935,514Total gains/(losses) for the period included in profit or loss for assetsTotal gains/(losses) recognised in profit or loss4,158(48)4,110At 31 December 2016Opening balance31,21718731,404held at the end of the reporting period6,89716,898Closing balance42,27712542,402Total gains for the period included in profit or loss for assetsDisposal proceeds(1,100)(15)(1,115)Total gains recognised in profit or loss8,00218,003At 31 December 2017Opening balance35,37513935,514ParentsecuritiessecuritiesTotal£000£000£000through profit and lossEquityDebtFinancial assets at fair valueNotes to the financial statements4 Financial risk and capital management (continued)
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Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection FourGroup financial investments with variable interest rates, including cash and cash equivalents, and insurance instalment receivables are subject to cash flow interest rate risk. This risk is not significant to the Group.Life business provision6,18921,81263,89991,900Liabilities (discounted)12,05420,57877,580110,212Cash and cash equivalents2,695 - -2,695Debt securities9,35920,57877,580107,517AssetsAt 31 December 2016Life business provision6,03121,14760,96388,141Liabilities (discounted)10,45821,63873,231105,327Cash and cash equivalents5,192 - -5,192Debt securities5,26621,63873,231100,135AssetsAt 31 December 2017£000£000£000£000Group life business1 year1 & 5 years5 yearsTotalWithinBetweenAfterMaturityThe table below summarises the maturities of life business assets and liabilities that are exposed to interest rate risk.For the Group’s life business, consisting of policies to support funeral planning products, benefits payable to policyholders are independent of the returns generated by interest-bearing assets. Therefore, the interest rate risk on the invested assets supporting these liabilities is borne by the Group. This risk is mitigated by purchasing fixed interest investments with durations that match the profile of the liabilities. For funeral plan policies, benefits are linked to the Retail Prices Index (RPI). Assets backing these liabilities are also linked to the RPI, and include index-linked gilts and corporate bonds. For practical purposes it is not possible to exactly match the durations due to the uncertain profile of liabilities (e.g. mortality risk) and the availability of suitable assets, therefore some interest rate risk will persist. The Group monitors its exposure by comparing projected cash flows for these assets and liabilities and making appropriate adjustments to its investment portfolio.Interest rate risk concentration is reduced by adopting asset-liability duration matching principles where appropriate. Excluding assets held to back the life business, the average duration of the Group’s fixed income portfolio is two years (2016: 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 26(a)(iv).(c) Interest rate riskThe Group’s exposure to interest rate risk arises primarily from movements on financial investments that are measured at fair value and have fixed interest rates, which represent a significant proportion of the Group’s assets, and from those insurance liabilities for which discounting is applied at a market interest rate. The Group's investment strategy is set in order to control the impact of interest rate risk on anticipated cash flows and asset and liability values. The fair value of the Group's investment portfolio of fixed income securities reduces as market interest rates rise as does the present value of discounted insurance liabilities, and vice versa.Notes to the financial statements4 Financial risk and capital management (continued)The debt securities portfolio consists of a range of mainly fixed interest instruments including government securities, local authority issues, corporate loans and bonds, overseas bonds, preference shares and other interest-bearing securities. Limits are imposed on the credit ratings of the corporate bond portfolio and exposures regularly monitored. Group investments in unlisted securities represent less than 1% of this category in the current and prior year.*Cash includes amounts held on deposit classified within financial investments and disclosed in note 20. Cash balances which are not rated relate to cash amounts in hand. Group cash balances are regularly reviewed to identify the quality of the counterparty bank and to monitor and limit concentrations of risk.330,16661,259362,07669,545Not rated8,21876,6427Below BBB6,396909,784 -BBB53,58720,21357,20224,011A98,38831,392101,65338,589AA74,0989,557105,6256,938AAA89,479 -81,170 -£000£000£000£000At 31 December 2017At 31 December 2016Debt securitiesCash*Debt securitiesCash*Parent516,742103,627553,55499,296Not rated9,151710,1598Below BBB10,3549013,569 -BBB88,48340,05383,11338,818A141,31236,551142,25147,239AA144,61326,926189,32413,231AAA122,829 -115,138 -£000£000£000£000At 31 December 2017At 31 December 2016Debt securitiesCash*Debt securitiesCash*GroupA detailed breakdown of the Group’s current debt securities and cash credit exposure by credit quality is shown below.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. The Group also manages its exposure to credit risk in relation to credit risk ratings. Investment grade financial assets are classified within the range of AAA to BBB ratings, where AAA is the highest possible rating. Financial assets which fall outside this range are classified as sub-investment grade. ‘Not rated’ assets capture assets not rated by external ratings agencies.- amounts due from insurance intermediaries and policyholders.- reinsurers’ share of insurance liabilities (excluding provision for unearned premiums) and amounts due from reinsurers in respect of claims already paid; and- deposits held with banks;- counterparty default on loans and debt securities;(d) Credit riskThe 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:Notes to the financial statements4 Financial risk and capital management (continued)
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Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection Four298,103267,698Total329,069292,394TotalOther - -Other2052053,085US - -US1,5851,58535,37235,372Hong Kong186186Canada3,085Europe42,16842,168EuropeUK286,715250,040UK257,856227,451£000GroupParent£000£000£000GroupParent20172016The 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:(e) Equity price riskThe 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 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.There has been no significant change in the recoverability of the Group’s reinsurance balances during the year with all reinsurers on the 2017 reinsurance programme having a minimum rating of 'A-' from Standard & Poor’s or an equivalent rating from a similar agency at the time of purchase.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. 362,076Total516,742330,166Total553,55423,25672,353Europe24,37224,372Europe23,256 -Canada74,14374,143Canada72,353266,467Australia86,440 -Australia83,961UK331,787231,651UK373,984£000Parent£000£000£0002016GroupParentGroup2017The Group’s exposure to counterparty default on debt securities is spread across a variety of geographical and economic territories, as follows:Notes to the financial statements4 Financial risk and capital management (continued)The figures in the table above, for the current and prior years, do not include currency risk that the Group and Parent are exposed to on a ‘look through’ basis in respect of collective investment schemes denominated in Sterling. The Group and Parent enter into derivatives to hedge currency exposure, including exposures on a ‘look through’ basis. The open derivatives held by the Group and Parent at the year end to hedge currency exposure are detailed in note 21.USD $329329Japanese Yen603603NZ $285285Euro32,77032,770USD $1,2471,247Can $38,59238,592Can $31,58431,584Aus $48,6653,519Euro38,10038,100Aus $48,7452,122£000£000GroupParent£000£000GroupParent20172016The largest currency exposures, before the mitigating effect of derivatives, with reference to net assets/liabilities are shown below, representing effective diversification of resources.The Group has designated certain derivatives as a hedge of its net investments in Canada and Australia, which have Canadian and Australian dollars respectively as their functional currency. The forward foreign currency risk arising on translation of these foreign operations is hedged by the derivatives which are detailed in note 21.- the equity investment in foreign branches and subsidiaries is translated into sterling using the exchange rate at the year-end date.The Group's foreign operations create two sources of foreign currency risk:- theoperatingresultsoftheGroup'sforeignbranchesandsubsidiariesintheGroupfinancialstatementsaretranslatedattheaverageexchange rates prevailing during the period; andThe Group exposure to foreign currency risk within the investment portfolios arises from purchased investments that are denominated in currencies other than sterling.(g) Currency riskThe 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.Non-derivative financial liabilities consist of finance leases, which are not material to the Group, and other liabilities for which a maturity analysis is included in note 29.(f) Liquidity riskLiquidity risk is the risk that funds may not be available to pay obligations when due. The Group is exposed to daily calls on its available cash resources mainly from claims arising from insurance contracts. An estimate of the timing of the net cash outflows resulting from insurance contracts is provided in note 26. The Group has robust processes in place to manage liquidity risk and has available cash balances, other readily marketable assets and access to funding in case of exceptional need. This is not considered to be a significant risk to the Group.Notes to the financial statements4 Financial risk and capital management (continued)
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Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection FourThe regulated entities of the Group have adopted the Solvency II standard formula approach to determine their respective solvency capital requirements (SCR). The Group is working with the PRA to gain approval of a full internal model for EIO Parent in the near future.Economic capital is the Group’s own internal view of the level of capital required, and this measure is an integral part of the Own Risk and Solvency Assessment Report (ORSA) which is a private, internal forward-looking assessment of own risk, as required as part of the Solvency II regime. Risk appetite is set such that the target level of economic capital is always higher than the regulatory SCR.Solvency II Capital Cover197%278%171%281%Own Funds in excess of Solvency Capital Requirement279,44033,289198,79128,569Solvency Capital Requirement(286,915)(18,657)(278,154)(15,805)Solvency II Own Funds566,35551,946476,94544,374£000£000£000£000ParentLife LimitedParentLife LimitedOffice plcEcclesiasticalOffice plcEcclesiasticalInsuranceInsurance (unaudited)(audited)EcclesiasticalEcclesiastical20172016The current year figures in the table below are unaudited and based on the latest information provided to management. These figures will be subject to a separate independent audit, as part of the Group's process for Solvency II reporting to the PRA. Final audited figures will be made publically available in the SFCR. The Group's regulated entities, Ecclesiastical Insurance Office Plc and Ecclesiastical Life Limited, expect to meet the deadline for submission to the PRA of 4 May 2018 and their respective SFCRs will be made available on the Group's website shortly thereafter.In the UK, the Group and its UK regulated entities are required to comply with rules issued by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). Capital is assessed at both individual regulated entity and group level. The PRA expects a firm, at all times, to hold Solvency II Own Funds in excess of its calculated Solvency Capital Requirement (SCR). Group solvency is assessed at the level of EIO’s parent, Ecclesiastical lnsurance Group (EIG). Consequently, there is no directly comparable solvency measure for EIO group. Both quarterly and annual quantitative returns are submitted to the PRA, in addition to an annual narrative report, the Solvency and Financial Condition Report (SFCR) which is also published on the company website. A further report, the Regular Supervisory Report (RSR) is periodically submitted to the PRA.The Group is subject to insurance solvency regulations in all the territories in which it issues insurance and investment contracts, and capital is managed and evaluated on the basis of both regulatory and economic capital, at a group and parent entity level.-safeguard the Group's ability to continue to meet stakeholders' expectations in accordance with its corporate mission, vision and values.-comply with the regulators' capital requirements of the markets in which the Group operates; and(i) Capital managementThe Group's primary objectives when managing capital are to:Notes to the financial statements4 Financial risk and capital management (continued)-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.-currency gains and losses will arise from a change in the value of sterling against all other currencies moving in parallel;-the value of fixed income investments will vary inversely with changes in interest rates, and all territories experience the same interest rate movement;The following assumptions have been made in preparing the above sensitivity analysis:(2,321)(2,812)Equity price risk+/-10%23,61121,416 - -+10%(3,290)(3,203)Currency risk-10%4,0213,9152,8363,43798+100 basis points3,3114,696(3)(107)Interest rate risk-100 basis points(5,710)(7,706)(2)2016variable£000£000£000£000VariableChange in201720162017(decrease) in profitother equity reservesParentPotential increase/(decrease) inPotential increase/Equity price risk+/-10%26,57223,848 - -8,453+10%(3,290)(3,203)(6,559)(6,916)2(139)Currency risk-10%4,0213,9158,017+100 basis points3,2024,464Interest rate risk-100 basis points(6,391)(8,335)(6)122£000£000variable£000£000VariableChange in2017201620172016(decrease) in profitother equity reservesGroupPotential increase/(decrease) inPotential increase/(h) Market risk sensitivity analysisThe sensitivity of profit and other equity reserves to movements on market risk variables (comprising interest rate, currency and equity price risk), each considered in isolation and before the mitigating effect of derivatives, is shown in the table below. This table does not include the impact of variables on retirement benefit schemes. Financial risk sensitivities for retirement benefit schemes are disclosed separately in note 17.Notes to the financial statements4 Financial risk and capital management (continued)
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Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection FourThe accounting policies of the operating segments are the same as the Group's accounting policies described in note 1.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.- Corporate costsThis includes costs associated with Group management activities.Ecclesiastical Life Limited provides long-term insurance policies to support funeral planning products. It is closed to new business.- Life businessThe Group provides insurance broking through South Essex Insurance Brokers Limited and financial advisory services through Ecclesiastical Financial Advisory Services Limited. - Broking and AdvisoryThe Group provides investment management services both internally and to third parties through EdenTree Investment Management Limited.- Investment managementThis 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.Other insurance operationsCanadaThe Group operates a general insurance Ecclesiastical branch in Canada.The Group has a wholly-owned subsidiary in Australia underwriting general insurance business under the Ansvar brand.AustraliaThe 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.- General businessUnited Kingdom and IrelandThe activities of each operating segment are described below.5 Segment information(a) Operating segmentsThe 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. Notes to the financial statementsProfit/(loss) before tax27,44065,635(10,879)82,196Corporate costs - -(14,783)(14,783)Broking and Advisory - -2,2832,283Investment management - -1,7171,717Life business3745,127 -5,50186.9%27,06660,508(96)87,478 Other insurance operations854 - -854 Canada118.5%(7,165)1,1224(6,039) Australia96.9%6853,932(77)4,540 United Kingdom and Ireland77.1%32,69255,454(23)88,123General businessTotalratio£000£000£000£000operatingInsuranceInvestmentsOther2017CombinedAll other segment results consist of the profit or loss before tax measured in accordance with IFRS.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. Segment resultGeneral business segment results comprise the insurance underwriting profit or loss, investment activities and other expenses of each underwriting territory. The Group uses the industry standard net combined operating ratio (COR) as a measure of underwriting efficiency. The COR expresses the total of net claims costs, commission and underwriting expenses as a percentage of net earned premiums. Further details on the underwriting profit or loss and COR, which are alternative performance measures that are not defined under IFRS, are detailed in note 33.Group revenues are not materially concentrated on any single external customer.328,907Group revenue 342,91720,313363,230310,13818,76910,227Broking and Advisory -8,6288,628 -8,5428,542Investment management -11,68511,685 -10,227310,061Life business28 -2877 -77Total342,889 -342,889310,061 -45,470 Other insurance operations3,187 -3,1872,439 -2,439 Canada51,580 -51,58045,470 -220,342 Australia56,865 -56,86541,810 -41,810 United Kingdom and Ireland231,257 -231,257220,342 -General businessTotal£000£000£000£000£000£000insurancepremiumsservicesTotalpremiumsservicesGrossNon-writteninsurancewritten20172016GrossNon-Segment revenueThe 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. Notes to the financial statements5 Segment information (continued)
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Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection FourGross 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.342,917222,144310,138189,337Canada51,5803,65045,4703,789Australia56,8651,35141,8101,445United Kingdom and Ireland234,472217,143222,858184,103£000£000£000£000premiumsassetspremiumsassetswrittenNon-currentwrittenNon-current20172016GrossGrossGross written premiums from external customers and non-current assets, as attributed to individual countries in which the Group operates, are as follows:(b) Geographical informationProfit/(loss) before tax19,42349,549(6,520)62,452Corporate costs - -(10,134)(10,134)Broking and Advisory - -2,1202,120Investment management - -1,5871,587Life business(652)3,950 -3,29889.8%20,07545,599(93)65,581 Other insurance operations(291) - -(291) Canada110.3%(3,447)751(2)(2,698) Australia106.7%(1,202)2,392(80)1,110 United Kingdom and Ireland82.5%25,01542,456(11)67,460General businessTotalratio£000£000£000£000operatingInsuranceInvestmentsOther2016CombinedNotes to the financial statements5 Segment information (continued)Included within fair value movements on financial instruments at fair value through profit or loss are £7,778,000 (2016: £681,000) losses in respect of derivative instruments. Included within cash and cash equivalents income are exchange gains of £338,000 (2016: £2,913,000).Impact of discount rate change on insurance contract liabilities(1,839)(18,612)Net investment return72,29454,410Fair value movements on financial instruments at fair value through profit or loss30,25035,345Fair value movements on investment property7,414(1,116)- rental income7,4926,368Investment income36,46938,793- other income received1,2511,257Other income- cash and cash equivalents income, net of exchange movements1,0403,819- debt income16,41017,682Income from financial assets not at fair value through profit or lossIncome from financial assets at fair value through profit or loss- equity income10,2769,667£000£000201720167 Net investment returnChange in the net provision for unearned premiums1,103 -1,103Earned premiums, net of reinsurance197,12377197,200Change in the gross provision for unearned premiums2,926 -2,926Change in the provision for unearned premiums, reinsurers' share(1,823) -(1,823)Outward reinsurance premiums(114,041) -(114,041)Net written premiums196,02077196,097For the year ended 31 December 2016Gross written premiums310,06177310,138Earned premiums, net of reinsurance207,18428207,212Change in the provision for unearned premiums, reinsurers' share6,051 -6,051Change in the net provision for unearned premiums(6,318) -(6,318)Change in the gross provision for unearned premiums(12,369) -(12,369)Net written premiums213,50228213,530Gross written premiums342,88928342,917Outward reinsurance premiums(129,387) -(129,387)For the year ended 31 December 2017£000£000£000businessbusinessTotalGeneralLife6 Net insurance premium revenueNotes to the financial statements
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Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection FourFees, commissions and other acquisition costs65,15361,318Change in deferred acquisition costs(762)(124)Other acquisition costs13,38915,000Fees paid16109Commission paid52,51046,333£000£000201720169 Fees, commissions and other acquisition costsClaims and change in insurance liabilities, net of reinsurance86,5261,69388,219Reinsurers' share of change in the provision for claims13,743 -13,743Reinsurance recoveries(51,164) -(51,164)Reinsurers' share of claims paid(64,907) -(64,907)Claims and change in insurance liabilities137,6901,693139,383Gross change in the provision for claims(47,073)(84)(47,157)Gross change in life business provision -(4,477)(4,477)For the year ended 31 December 2016Gross claims paid184,7636,254191,017Claims and change in insurance liabilities, net of reinsurance85,7142,00387,717Reinsurers' share of change in the provision for claims11,480 -11,480Reinsurance recoveries(32,196) -(32,196)Reinsurers' share of claims paid(43,676) -(43,676)Claims and change in insurance liabilities117,9102,003119,913Gross change in the provision for claims(30,807) -(30,807)Gross change in life business provision -(4,155)(4,155)For the year ended 31 December 2017Gross claims paid148,7176,158154,875£000£000£000businessbusinessTotalGeneralLife8 Claims and change in insurance liabilities and reinsurance recoveriesNotes to the financial statementsThe Company's policy on the use of the auditor for non-audit services is detailed in the Group Audit Committee Report in the Corporate Governance section of this report. Amounts disclosed are net of services taxes, where applicable. Audit-related assurance services include Prudential Regulatory Authority and other regulatory audit work. Total auditor's remuneration699684- The audit of associated pension schemes1817Fees payable to the Company's auditor in respect of associated pension schemes - Other assurance services -7Total non-audit fees212233- Audit-related assurance services212226- The audit of the Company's subsidiaries140121Total audit fees469434Fees payable to the Company’s auditor and its associates for other services:Fees payable to the Company's auditor and its associates for the audit of the Company's annual accounts 329313£000£0002017201611 Auditor's remunerationEmployee benefits expense including termination benefits, net of recharges76,73070,745Operating lease rentals3,4403,528Amortisation of intangible assets1,1331,252(Increase)/decrease in fair value of investment property(7,414)1,116Depreciation of property, plant and equipment2,1771,773(Profit)/loss on disposal of property, plant and equipment(18)26Profit for the year has been arrived at after (crediting)/chargingNet foreign exchange gains(338)(2,913)20172016£000£00010 Profit for the yearNotes to the financial statements
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Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection FourThe prior year has been restated to include employee benefits of full time equivalent employees whose employement contracts are with companies within the Group but whose costs are charged to other related undertakings as defined in note 32.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.The Group and Parent amounts above include £1,182,000 (2016: £708,000) in relation to employee benefits recharged to related undertakings of the Group.The above Group figures do not include termination benefits of £198,000 (2016: £729,000), and the above Parent figures do not include termination benefits of £198,0000 (2016: £681,000), of which £65,000 (2016: £56,000) was recharged to related undertakings of the Group.77,77866,09570,78060,309Other post-employment benefits307307346346Pension costs - defined benefit plans4,6084,6082,7262,726Pension costs - defined contribution plans3,3842,7503,0632,432Social security costs5,9545,5315,6275,244Wages and salaries63,52552,89959,01649,561£000£000£000£00020172016GroupParentGroupParentRestatedAverage 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. -823164798154Canada73 - -71 -United Kingdom and Ireland750164727154No.businessOtherNo.No.No.No.No.businessbusinessOtherbusinessGeneralLifeGeneralLife2017Parent2016 -90811578851142Canada73 - -71 -142Australia85 - -87 - -United Kingdom and Ireland75011577271OtherNo.No.No.No.No.No.LifebusinessbusinessOtherbusinessbusinessGroup20172016GeneralLifeGeneralRestated12 Employee informationThe average monthly number of full-time equivalent employees of the Group and Parent, including executive directors, during the year by geographical location was:Notes to the financial statementsTax relief on charitable grants of £5,005,000 (2016: £4,800,000) has been taken directly to equity.Total tax charged/(credited) to other comprehensive income7,626(5,243)Actuarial movements on retirement benefit plans7,559(5,461)Fair value movements on hedge derivatives10319Deferred tax (credited)/charged on:Fair value movements on property(6)(5)Fair value movements on hedge derivatives(30)204Current tax charged on:20172016£000£000(b) Tax charged/(credited) to other comprehensive incomeA change in the UK standard rate of corporation tax from 20% to 19% became effective from 1 April 2017. Where appropriate, current tax has been provided at a blended rate of 19.25% for the current year and at a rate of 20.00% for the prior year. A further reduction in the rate of corporation tax to 17% will become effective from April 2020. Deferred tax has been provided at an average rate of 18.0% (2016: 17.9%).Adjustments to tax charge in respect of prior periods51373Total tax expense14,0548,740(Utilisation)/generation of tax losses for which no deferred tax asset has been recognised(336)62Impact of reduction in deferred tax rate -(1,370)Non-taxable income(2,479)(2,642)Life insurance and other tax paid at non-standard rates316(377)Factors affecting charge for the year:Expenses not deductible for tax purposes217504Tax calculated at the UK blended standard rate of tax of 19.25% (2016: 20.00%)15,82312,490Profit before tax82,19662,45220172016£000£000Tax 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: Total tax expense14,0548,740- reduction in tax rate -(1,370)- prior year adjustments(44) -Deferred tax- temporary differences2,3761,223Current tax- current year11,1658,814- prior year adjustments55773£000£00020172016(a) Tax charged/(credited) to the statement of profit or loss13 Tax expenseNotes to the financial statements
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Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection FourAll balances are current.At 31 December31,26725,62830,70525,672Exchange differences (200)(119)2,1871,441Release in the period(30,652)(25,579)(29,632)(25,407)Increase in the period31,41425,65429,75625,056At 1 January30,70525,67228,39424,582£000£000£000£000GroupParentGroupParent2017201616 Deferred acquisition costsNet book value at 31 December 3,5684,053At 31 December 15,99915,107Exchange differences (26)148Disposals -(1,012)Charge for the year9181,036At 1 January 15,10714,935AmortisationAt 31 December 19,56719,160Exchange differences(98)794Disposals -(1,012)Additions505237At 1 January 19,16019,141Cost£000£00020172016ParentComputer softwareAssumptions used are consistent with historical experience within the business acquired and external sources of information.Other intangible assets consist of acquired brand, customer and distribution relationships, which have an overall remaining useful life of one year on a weighted average basis (2016: one year). The recoverable amount of the investment in South Essex Insurance Holdings Limited exceeds its carrying amount by £4.4m. If the cumulative growth rate between 2018 and 2020 was 5.8% lower than assumed in management-approved business plans, or the discount rate increased by 1.3%, then the recoverable amount would equal the carrying amount. For the investment in Lansdown Insurance Brokers Limited, the headroom above the carrying value is significant and reasonably possible changes to the key assumptions do not result in impairment. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. The calculations for all recoverable amounts use 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, usually sourced from the Office for Budget Responsibility (OBR). The Group selected a rate of 1.6% (2016: 1.9%) as being appropriate, based on medium-term rates published in the OBR's November report. The pre-tax discount rate of 10.3% (2016: 11.3%) reflects the way that the market would assess the specific risks associated with the estimated cash flows.Notes to the financial statements15 Goodwill and other intangible assets (continued)£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 current and prior period balance relates to the acquisition of Lansdown Insurance Brokers Limited during 2014.Net book value at 31 December 201623,4994,34681428,659At 31 December 201628015,9644,27020,514Exchange differences -150 -150Disposals -(1,012) -(1,012)Impairment losses for the year77 - -77Amortisation charge for the year -1,1221301,252At 1 January 201620315,7044,14020,047Accumulated impairment losses and amortisationAt 31 December 201623,77920,3105,08449,173Exchange differences -797 -797Disposals -(1,012) -(1,012)Additions -237 -237At 1 January 201623,77920,2885,08449,151CostNet book value at 31 December 201723,4734,27368428,430At 31 December 201730616,9414,40021,647Exchange differences -(26) -(26)Disposals - - - -Impairment losses for the year26 - -26Amortisation charge for the year -1,0031301,133At 1 January 201728015,9644,27020,514Accumulated impairment losses and amortisationAt 31 December 201723,77921,2145,08450,077Exchange differences -(98) -(98)Disposals - - - -Additions -1,002 -1,002At 1 January 201723,77920,3105,08449,173Cost£000£000£000£000GoodwillsoftwareassetsTotalComputerintangibleGroupOther15 Goodwill and other intangible assetsTax relief(5,005)(4,800)Net appropriation for the year20,99519,200Charitable grantsGross charitable grants to the ultimate parent company, Allchurches Trust Limited26,00024,000Non-Cumulative Irredeemable Preference share dividend (8.625 pence per share)9,1819,181Dividends£000£000Amounts recognised as distributions to equity holders in the period:2017201614 AppropriationsNotes to the financial statements
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Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection Four-Currency risk: The Fund holds some of its investments in foreign denominated assets. As scheme liabilities are denominated in sterling, short-term fluctuations in exchange rates could cause additional funding to be required if a deficit emerges. Currency derivative contracts are used from time to time, which would limit losses in the event of adverse movements in exchange rates.-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.-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. The Group's main plan holds LDIs to hedge part of the exposure of the scheme's liabilities to movements in inflation expectations.-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. The Group's main plan holds liability driven investments (LDIs) to hedge part of the exposure of the scheme's liabilities to movements in interest rates.-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.The main plan typically exposes the Group to risks such as:In line with common market practice, the defined benefit obligation at the end of the year is projected based on a roll forward of the liabilities in the previous triennial valuation. When membership experience differs to that expected based on a roll forward of liabilities, an actuarial gain or loss arises. The £8.6m experience gain recognised in the year includes membership and other experience adjustments (2016: £2.7m gain arising from other experience adjustments).Actuarial gains arising from changes in demographic assumptions and actual experience have offset the actuarial losses arising from changes in financial assumptions in the current year. In setting the demographic assumptions in the IAS 19 valuation reference is made to the assumptions used in the triennial valuation. In the current year the mortality assumptions in the IAS 19 valuation have been set using the Self-Administered Pension Schemes (SAPS) S2 all pensioners standard tables and the Continuous Mortality Investigation Bureau CMI 2016 table, reflecting the latest experience in trends in mortality. Changes in mortality and other demographic assumptions have resulted in a £23.0m actuarial gain during the year (2016: £nil).In the current year, actuarial losses arising from changes in financial assumptions of £21.0m (2016: actuarial losses of £68.2m) have been recognised in the statement of other comprehensive income. These losses resulted from a 0.2% decrease in the discount rate and a 0.9% increase in the discretionary pension increase assumption, partially offset by a 0.1% decrease in inflation. Actuarial valuations were reviewed and updated by an actuary at 31 December 2017 for IAS 19 purposes. In the current year, the IAS 19 surplus in the scheme has been recognised in full in accordance with International Financial Reporting Interpretations Committee 14 (IFRIC 14) on the basis of the maximum economic benefit available through a reduction in future contributions.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 2016. Following the triennial valuation, and in accordance with the plan's Statement of Funding Principles, a new schedule of contributions was agreed between the Trustee and the Parent, which will be in place until 31 March 2021. The contribution expected to be paid by the Group during the next financial year is £2.8m (2016: £2.5m).Defined benefit pension plansThe 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 plan is now closed to new entrants but remains open to future accrual. The terms of the plan for future service changed in August 2011 from a non-contributory final salary scheme to a contributory scheme in which benefits are based on career average revalued earnings. 17 Retirement benefit schemesDefined contribution pension plansThe Group operates a number of defined contribution pension plans, for which contributions by the Group are disclosed in note 12.Notes to the financial statements* Charge to profit or loss includes £591,000 (2016: £635,000) in respect of member salary sacrifice contributions.Total included in other comprehensive income43,424(30,180)Losses from changes in financial assumptions(21,009)(68,153)Change in asset ceiling1447,408Experience gains on liabilities8,6472,739Gains from changes in demographic assumptions22,971 -The amounts recognised in the statement of other comprehensive income are as follows:Return on plan assets, excluding interest income32,67127,826Total, included in employee benefits expense5,1993,361Interest expense on liabilities8,96610,655Interest income on plan assets (8,465)(11,105)Current service cost4,1423,376Administration cost556435The amounts recognised through profit or loss are as follows:Distribution of surplus(288) -At 31 December20,036(20,320)Amounts recognised in other comprehensive income43,424(30,180)Contributions paid 2,4192,568Expense charged to profit or loss*(5,199)(3,361)At 1 January(20,320)10,653Movements in the net defined benefit pension scheme asset/(liability) recognised in the statement of financial position are as follows: Restrictions on asset recognised -(144)Net defined benefit pension scheme asset/(liability) in the statement of financial position20,036(20,320)Fair value of plan assets 363,179329,39420,036(20,176)The amounts recognised in the statement of financial position are determined as follows:Present value of funded obligations (343,143)(349,570)Group and Parent20172016£000£000In the prior year, the surplus in the EIOPLA scheme recognised in the statement of financial position was restricted to £144,000 in line with the amount of surplus expected to be refunded to the Parent in accordance with IFRIC 14. In the current year, the £144,000 restriction in the asset ceiling has been released through the statement of other comprehensive income, and a loss of £144,000 has been recognised in expenses representing the surplus not refunded to the Parent.The Parent was also the sponsoring employer of the Ecclesiastical Insurance Office plc Pension & Life Assurance Scheme (EIOPLA). The defined benefit obligations of the scheme were discharged in December 2015. During the current year the formal wind-up of the EIOPLA scheme was completed with the remaining surplus in the scheme of £288,000 refunded. The surplus was distributed equally between the existing and previous sponsoring employers. The Parent, as existing sponsoring employer, received £144,000 on wind-up.In December 2016 the Trustees commenced incrementally building an LDI portfolio, structured to increase in value with decreases in interest rates and grow in line with inflation expectations. Gradually increasing the exposure of the Fund's assets to interest rates and inflation counter-balances exposure of the Fund's liabilities to these factors and has reduced volatility in the funding position. Monthly cash transfers have enabled the LDI portfolio to grow incrementally during 2017 to a point where 60% of the Fund's exposure to changes in interest rates and inflation had been hedged shortly after the year end.The Trustees set the investment objectives and strategy for the Fund based on independent advice and in consultation with the employer. A blend of diversified growth assets (equities and property) and protection assets (bonds and gilts) are deployed to balance the level of risk to that required to provide, with confidence, a sufficient return to continue to meet member's obligations as they fall due. The Trustees have identified the key risks to this objective to be falls in interest rates and rising inflation.Notes to the financial statements17 Retirement benefit schemes (continued)
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Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection FourThe fair value of unquoted securities is measured using inputs for the asset that are not based on observable market data. The fair value is estimated and approved by the Trustee based on the advice of investment managers. Property is valued annually by independent qualified surveyors using standard industry methodology to determine a fair market value. All other investments either have a quoted price in active markets or are valued based on observable market data.The underlying assets of the liability driven investments are primarily UK government bonds and interest rate repurchase agreements at various rates and terms.*Cash and other includes accrued income, prepayments and other debtors and creditors.The actual return on plan assets was a gain of £41,136,000 (2016: gain of £38,931,000).363,179329,394Property44,90242,121Derivative financial instruments7902,143 UK quoted - index-linked25,62638,812100,422105,852 UK public sector quoted - fixed interest256263 UK non-public sector quoted - fixed interest74,54066,777Debt instrumentsLiability driven investments47,9584,004 Overseas quoted70,28375,633151,182158,403 UK quoted80,66682,591 UK unquoted233179Equity instrumentsCash and other*17,92516,871Plan assets are weighted as follows:20172016£000£000Female26.328.0Male24.826.4The average life expectancy in years of a pensioner retiring at age 65, 20 years after the year end date, is as follows: Male23.024.1Female24.525.7The average life expectancy in years of a pensioner retiring at age 65, at the year end date, is as follows: Mortality rate20172016Future average pension increases (linked to CPI)1.751.15Future increase in pensions in deferment2.202.30Future average pension increases (linked to RPI)3.003.00Inflation (CPI)2.202.30Future salary increases 4.454.55Discount rate 2.402.60Inflation (RPI)3.203.30%%The principal actuarial assumptions (expressed as weighted averages) were as follows:20172016Pension liabilities -(20,464)20,036(20,320)Pension assets20,036144Group and Parent20172016£000£000The following is the analysis of the defined benefit pension balances for financial reporting purposes:Notes to the financial statements17 Retirement benefit schemes (continued)Decrease by 1 year(13,500)(9,790)Life expectancyIncrease by 1 year13,5009,460Decrease by 0.5%(4,960)(9,840)Salary increaseIncrease by 0.5%5,17010,660Decrease by 0.5%(26,410)(26,300)InflationIncrease by 0.5%26,62033,530Decrease by 0.5%41,55040,140Discount rateIncrease by 0.5%(35,480)(36,040)£000£000AssumptionChange in assumptionin plan liabilities20172016Increase/(decrease)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. The weighted average duration of the defined benefit obligation at the end of the reporting period is 23 years (2016: 23 years).Surplus/(deficit)20,036(20,320)10,65320,81832,288Restrictions on asset recognised -(144)(7,283)(563) -20,036(20,176)17,93621,38132,288Fair value of plan assets363,179329,394294,498298,840287,892Present value of defined benefit obligations(343,143)(349,570)(276,562)(277,459)(255,604)£000£000£000£000£000History of plan assets and liabilities20172016201520142013At 31 December -144Effect of interest on the asset ceiling -269Change in asset ceiling(144)(7,408)Asset ceilingAt 1 January1447,283At 31 December343,143349,570Gains from changes in demographic assumptions(22,971) -Losses from changes in financial assumptions21,00968,153Pension benefits paid and payable(9,482)(6,452)Experience gains on liabilities(8,647)(2,739)Interest cost8,96610,386Administration cost556284At 1 January349,570276,562Current service cost4,1423,376Defined benefit obligationAt 31 December363,179329,394Assets distributed(288) -Administration cost -(151)Pension benefits paid and payable(9,482)(6,452)Contributions paid2,4192,568Interest income8,46511,105Return on plan assets, excluding interest income32,67127,826Plan assetsAt 1 January329,394294,498£000£00020172016The movements in the fair value of plan assets and the present value of the defined benefit obligation over the year are as follows:Notes to the financial statements17 Retirement benefit schemes (continued)
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Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection FourDepreciation expense has been charged in other operating and administrative expenses.Included within net book value of motor vehicles is £1,543,000 (2016: £1,359,000) in respect of assets held under finance leases.The value of land and buildings on a historical cost basis is £2,444,000 (2016: £2,723,000).Movements in market values 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. There have been no transfers between investment categories in the current year.All properties were revalued at 31 December 2015, with the exception one property which was revalued at 31 December 2016. 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 3 assets.Net book value at 31 December 20162,5651,4653,2391,4298,698At 31 December 2016 -9234,5204,4889,931Exchange differences - -14683229Disposals -(421)(942)(769)(2,132)Charge for the year -3806917021,773At 1 January 2016 -9644,6254,47210,061DepreciationAt 31 December 20162,5652,3887,7595,91718,629Exchange differences - -231144375Revaluation25 - - -25Disposals -(653)(946)(773)(2,372)Additions -5221,5757392,836At 1 January 20162,5402,5196,8995,80717,765Cost or valuationNet book value at 31 December 20172,2551,6102,6182,2898,772At 31 December 2017 -8165,2715,23911,326Exchange differences - -(13)(10)(23)Disposals -(463)(73)(223)(759)Charge for the year -3568379842,177At 1 January 2017 -9234,5204,4889,931DepreciationAt 31 December 20172,2552,4267,8897,52820,098Exchange differences - -(2)(15)(17)Disposals(310)(665)(73)(233)(1,281)Additions -7032051,8592,767At 1 January 20172,5652,3887,7595,91718,629Cost or valuationTotal£000£000£000£000£000buildingsvehiclesequipmentequipmentLand andMotorfittings andComputerGroupFurniture,18 Property, plant and equipmentNotes to the financial statementsDecrease by 1 year(845)(921)Life expectancyIncrease by 1 year9431,028Decrease by 1.0%(1,634)(1,781)Medical expense inflationIncrease by 1.0%2,0412,224Decrease by 0.5%1,0491,143Discount rateIncrease by 0.5%(923)(1,006)£000£000AssumptionChange in assumptionin plan liabilities20172016Increase/(decrease)The main actuarial assumptions for the plan are a long-term increase in medical costs of 9.2% (2016: 9.3%) and a discount rate of 2.4% (2016: 2.6%). In the current year an actuarial gain of £1.4m has been recognised due to changes in demographic assumptions as explained in relation to the Group's main defined benefit pension plan. Actuarial losses of £0.2m have been recognised due to changes in financial assumptions in the year. 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. The weighted average duration of the net obligations at the end of the reporting period is 18.5 years (2016: 18.5 years).Interest cost 307346Total, included in employee benefits expense307346The amounts recognised through profit or loss are as follows:At 31 December10,93211,913Net actuarial (gains)/losses during the year, recognised in other comprehensive income(1,184)2,565Benefits paid (104)(191)At 1 January11,9139,193Total expense charged to profit or loss307346Movements in the net obligations recognised in the statement of financial position are as follows: Present value of unfunded obligations and net obligations in the statement of financial position10,93211,913£000£000Group and Parent20172016The amounts recognised in the statement of financial position are determined as follows:-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.-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. -Medical claims experience: 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.-Medical expense inflation risk: Future medical costs are influenced by a number of factors including economic trends and advances in medical technology and sciences. An increase in medical expense inflation would lead to an increase in the reserves required to be held.-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.The provision of the plan leads to a number of risks as follows:Post-employment medical benefitsThe 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. Notes to the financial statements17 Retirement benefit schemes (continued)
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Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection FourDepreciation expense has been charged in other operating and administrative expenses.Included within net book value of motor vehicles is £1,543,000 (2016: £1,359,000) in respect of assets held under finance leases.The value of land and buildings on a historical cost basis is £2,044,000 (2016: £2,323,000).Movements in market values 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. There have been no transfers between investment categories in the current year.The Company’s properties were revalued at 31 December 2015. 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 3 assets.Net book value at 31 December 20162,1901,4232,9851,1377,735At 31 December 2016 -8274,3614,1139,301Exchange differences - -14263205Disposals -(421)(885)(752)(2,058)Charge for the year -3656435861,594At 1 January 2016 -8834,4614,2169,560DepreciationAt 31 December 20162,1902,2507,3465,25017,036Exchange differences - -22293315Disposals -(653)(885)(752)(2,290)Additions -5221,3696382,529At 1 January 20162,1902,3816,6405,27116,482Cost or valuationNet book value at 31 December 20171,8801,5692,2942,0787,821At 31 December 2017 -7615,1304,88210,773Exchange differences - -(13)(7)(20)Disposals -(407) -(71)(478)Charge for the year -3417828471,970At 1 January 2017 -8274,3614,1139,301DepreciationAt 31 December 20171,8802,3307,4246,96018,594Exchange differences - -(2)(11)(13)Disposals(310)(592) -(71)(973)Additions -672801,7922,544At 1 January 20172,1902,2507,3465,25017,036Cost or valuation£000£000£000£000£000buildingsvehiclesequipmentequipmentTotalLand andMotorfittings andComputerParentFurniture,Notes to the financial statements18 Property, plant and equipment (continued)All investments in subsidiary undertakings are unlisted.Non-current460,120336,166474,481349,841Current399,566350,333392,036344,855Total financial investments859,686686,499866,517694,696Shares in subsidiary undertakings -50,065 -50,065Parent investments in subsidiary undertakingsOther loans16151714Cash held on deposit9,8609,8609,8029,802Loans and receivablesTotal financial investments at fair value849,810626,559856,698634,815- forwards1,3885742,067113Derivative financial instrumentsFinancial investments at fair value through other comprehensive income 848,422625,985854,631634,702- options2,0292,029 - -- forwards5821,3962,9744,928Derivative financial instruments- unlisted125125139139- listed362,709236,920374,188253,730- government bonds153,90893,121179,227108,207Debt securities- unlisted42,27942,27735,37635,375- listed286,790250,117262,727232,323Equity securitiesFinancial investments at fair value through profit or lossParent£000£000£000£00020172016GroupParentGroup20 Financial investmentsFinancial investments summarised by measurement category are as follows: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 £7,492,000 (2016: £6,368,000) and is included in net investment return. Other operating and administrative expenses include £802,000 (2016: £423,000) relating to investment property.The Group’s investment properties were last revalued at 31 December 2017 by Cluttons LLP, an external firm of chartered surveyors. Valuations were carried out using standard industry methodology to determine a fair market value. There has been no change in the valuation technique during the year. All properties are classified as level 3 assets. There have been no transfers between investment categories in the current year.Fair value at 31 December152,238125,284Fair value gains/(losses) recognised in profit or loss7,414(1,116)Disposals -(343)Additions - subsequent expenditure -142Additions - acquisitions19,54027,851Fair value at 1 January125,28498,750£000£000Group and Parent2017201619 Investment propertyNotes to the financial statements
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Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection FourAmounts pledged as collateral in respect of derivative contracts are disclosed in note 23.The notional amounts above reflect the aggregate of individual derivative positions on a gross basis and so give an indication of the overall scale of the derivative transactions. They do not reflect current market values of the open positions. Derivative fair value assets are recognised within financial investments (note 20) and derivative fair value liabilities are recognised within other liabilities (note 29). The derivative financial instruments of the Parent are the same as the Group, with the exception that the Australian dollar foreign exchange contract is classified as a non-hedge derivative. Included with Equity/Index contracts are options with a contract/notional value of £17,991,000, and fair value asset of £854,000, which expire in greater than one year. All other derivatives in the current and prior period expire within one year. 5,041543289,6263,999172,158 -Forwards (Canadian dollar)34,12357429,047113 -Forwards (Australian dollar)46,93481439,4431,954Foreign exchange contractsHedge derivativesForwards (Euro)93,99158278,5112,974 -Foreign exchange contracts543Options114,5782,029 - - -Futures - -25,157 -Equity/Index contractsNon-hedge derivatives£000£000£000£000£000Fair valueamountassetamountassetliabilitynotionalFair valuenotionalFair valueContract/Contract/Group20172016The Group has also formally designated certain derivatives as a hedge of its net investments in Australia and Canada. A gain of £855,000 (2016: gain of £2,067,000) in respect of these 'hedge' derivatives has been recognised in the hedging reserve within shareholders' equity, as disclosed in note 25. The Group has formally assessed and documented the effectiveness of derivatives that qualify for hedge accounting in accordance with IAS 39, Financial Instruments: Recognition and Measurement.21 Derivative financial instrumentsThe Group utilises derivatives to mitigate equity price risk arising from investments held at fair value, foreign exchange risk arising from investments denominated in foreign currencies, and foreign exchange risk arising from investments denominated in Sterling that contain underlying foreign currency exposure. These 'non-hedge' derivatives either do not qualify for hedge accounting or the option to hedge account has not been taken.Notes to the financial statementsIncluded within cash at bank and in hand are cash deposits of £758,000 (2016: £2,612,000) pledged as collateral by way of cash calls from reinsurers.Included within short-term bank deposits of the Group and Parent are cash deposits of £nil (2016: £1,956,000) pledged as collateral by way of cash margins on open derivative contracts and cash to cover derivative liabilities. 93,76751,39989,49459,743Short-term bank deposits 31,29320,82539,23928,436Cash at bank and in hand 62,47430,57450,25531,307£000£000£000£000GroupParentGroupParent2017201623 Cash and cash equivalentsIncluded within trade receivables of the Group is £3,106,000 (2016: £3,214,000) overdue but not impaired, of which £2,795,000 (2016: £2,972,000) is not more than three months overdue at the reporting date. Included within trade receivables of the Parent is £2,630,000 (2016: £2,617,000) overdue but not impaired, of which £2,318,000 (2016: £2,381,000) is not more than three months overdue at the reporting date.Balance at 31 December18869154106Movement in the year34(37)3 -Balance at 1 January154106151106£000£000£000£00020172016Movement in the allowance for doubtful debtsGroupParentGroupParentIncluded within amounts owed by related parties of the Parent is £3,551,000 (2016: £3,599,000) pledged as collateral in respect of an insurance liability.There has been no significant change in the recoverability of the Group's or Parent's trade receivables, for which no collateral is held. The directors consider that the amounts are recoverable at their carrying values, which are stated net of an allowance for doubtful debts for those debtors that are individually determined to be impaired.The Group has recognised a charge of £27,000 (2016: charge of £49,000) 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 £48,000 (2016: charge of £48,000).Non-current32,70435,02626,69629,071Current117,37880,081114,31574,640150,082115,107141,011103,711- other debtors19,0261,01519,3991,232- amounts owed by related parties 29,70434,70325,09229,737- other prepayments and accrued income3,8523,1034,8864,345- accrued interest and rent4,9223,7005,3704,146Other receivables- due from reinsurers14,48210,62815,6318,120- due from agents, brokers and intermediaries 49,20933,33345,05430,797- due from contract holders28,88728,62525,57925,334Receivables arising from insurance and reinsurance contracts£000£000£000£000GroupParentGroupParent2017201622 Other assetsNotes to the financial statements
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Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection FourThe Group adopts commonly used industry methods including those based on claims frequency and severity and benchmarking.(iii) Calculation of provisions for latent claims(ii) Calculation of uncertainty marginsTo 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. 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.Theselectionofresultsforeachaccidentyearandforeachportfoliodependsonanassessmentofthemostappropriatemethod.Sometimesacombinationoftechniquesisused.Theaverageweightedtermtopaymentiscalculatedseparatelybyclassofbusinessandis based on historical settlement patterns.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.(i) Reserving methodologyReserving 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.(a) General business insurance contractsNon-current49,19529,74471,14144,596Current110,01380,38194,79175,364Reinsurance assetsNon-current440,369299,192480,828324,863Current328,879263,912312,224260,982Gross insurance liabilitiesTotal net insurance liabilities610,040452,979627,120465,885Life business provision88,141 -91,900 -Unearned premiums 115,21599,182109,53595,769Claims outstanding406,684353,797425,685370,116NetTotal reinsurers’ share of insurance liabilities159,208110,125165,932119,960Unearned premiums 56,57342,52550,75338,877Claims outstanding102,63567,600115,17981,083Recoverable from reinsurersTotal gross insurance liabilities769,248563,104793,052585,845Life business provision88,141 -91,900 -Unearned premiums 171,788141,707160,288134,646Claims outstanding509,319421,397540,864451,199Gross£000£000£000£000GroupParentGroupParent2017201626 Insurance liabilities and reinsurance assetsNotes to the financial statementsThe translation reserve arises on consolidation of the Group's and Parent's foreign operations. The hedging reserve represents the cumulative amount of gains and losses on hedging instruments in respect of net investments in foreign operations. At 31 December 20168,472948,566Gains on net investment hedges -113113Attributable tax -(19)(19)At 1 January 20162,140 -2,140Gains on currency translation differences 6,332 -6,332At 31 December 20177,4385978,035Gains on net investment hedges -606606Attributable tax -(103)(103)At 1 January 20178,472948,566Losses on currency translation differences (1,034) -(1,034)ParentAt 31 December 201619,6641,84421,508Gains on net investment hedges -2,0672,067Attributable tax -(223)(223)At 1 January 20166,182 -6,182Gains on currency translation differences 13,482 -13,482Attributable tax -(73)(73)At 31 December 201718,0222,62620,648Losses on currency translation differences (1,642) -(1,642)Gains on net investment hedges -855855At 1 January 201719,6641,84421,508Group£000£000£000reservereserveTotalTranslationHedging25 Translation and hedging reserveHolders 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.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.8.625% Non-Cumulative Irredeemable Preference shares of £1 eachAt 1 January and 31 December106,450106,450At 1 January and 31 December350,678350,678Ordinary shares of 4p eachThe number of shares in issue are as follows:120,477120,477Ordinary shares of 4p each14,02714,0278.625% Non-Cumulative Irredeemable Preference shares of £1 each106,450106,450£000£00020172016fully paid Issued, allotted and 24 Called up share capitalNotes to the financial statements
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Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection Four121,796Total discounted gross liability (for liability classes) included in insurance liabilities in the statement of financial position278,444156,648Discounted liability in respect of earlier years(8,225)Present value29,42333,370164,873Effect of discountingOutstanding liability 4,2716,6136,7007,21610,74017,69724,92123,922(26,213)(12,237)(6,207)(3,118)(840)(240,017)Cumulative payments to date (28,255)(39,281)(40,823)(41,911)(41,132)37,15830,12932,54134,210404,890Current estimate of ultimate claims 32,52645,89447,52349,12751,87243,910Nine years later32,526Eight years later33,28545,894Seven years later33,03045,71847,523Six years later33,66745,53448,49949,127Five years later33,38447,48251,03150,35551,87256,22543,910Four years later34,51447,97050,52652,985Three years later37,66949,44453,39060,65363,06850,49237,15869,58054,79239,01530,12931,94132,541Two years later37,20443,85350,83462,587One year later43,34446,66060,20263,77077,62960,95040,15384,51171,79852,35034,76937,98134,210At end of year46,88260,81069,23066,864£000£000£000£000£000£000Parent£000£000£000£000£0002014201520162017Total200820092010201120122013Total discounted gross liability (for liability classes) included in insurance liabilities in the statement of financial position333,131Discounted liability in respect of earlier years126,323Present value206,808Effect of discounting(12,202)21,97631,08532,29440,73449,070219,010(5,339)(1,666)(299,405)Outstanding liability 4,7028,5147,9329,18613,517Cumulative payments to date (32,455)(49,112)(52,223)(48,764)(49,195)(38,198)(14,410)(8,043)60,17445,49540,33746,07350,736518,415Current estimate of ultimate claims 37,15757,62660,15557,95062,712Nine years later37,157Eight years later38,01457,626Seven years later37,28957,72960,155Six years later37,86454,94261,87157,95062,712Five years later37,54658,63162,07459,914Four years later40,43355,69561,33060,84167,98060,17472,51666,19245,49540,337Three years later44,65857,13466,42268,587Two years later47,64355,25062,23971,54378,19669,86048,32788,04680,02750,57143,58246,07346,46451,73850,736One year later53,55259,80775,55076,371At end of year56,42074,74284,47682,095100,61281,72561,901£000£000£000Group£000£000£000£000£000£000£000£00020132014201520162017Total20082009201020112012Estimate of ultimate gross claims(viii) Claims development tablesThe 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. Notes to the financial statements26 Insurance liabilities and reinsurance assets (continued)2,400Motor- UK1,2005001,500700- Overseas6,3002,5006,5008,600Property- UK6,2003,7007,1004,000- Overseas10,6008,80010,100Liability- UK22,60021,30024,70022,600Net£000£000£000£000GrossNetGross20172016The 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 the oustanding claims liability 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: There are no significant changes in assumptions.(vii) Sensitivity of results(vi) Changes in assumptionsThe most significant assumptions in determining the undiscounted general insurance reserves are the anticipated number and ultimate 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.(v) AssumptionsThe 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.At 31 December 2017, it is estimated that a fall of 1% in the discount rates used would increase the Group's net outstanding claims liabilities by £15,683,000 (2016: £17,482,000). 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.The impact of discount rate changes on the outstanding claims liability is presented within net investment return (note 7).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 liability was £549,264,000 for the Group (2016: £581,958,000), and £455,306,000 for the Parent (2016: £487,894,000).Parent consists of UK, Ireland and Canada. Group also includes Australia.Australia2.5%2.5%441.9% to 2.6%1.1% to 3.1%1114UK and Ireland1.0% to 2.5%0.7% to 2.7%1616CanadaGeographical territory2017201620172016Discount rateliabilities (years)Mean term of discounted(iv) DiscountingGeneral insurance outstanding claims liabilities are undiscounted, except for designated long-tail classes of business for which discounted provisions are held in the following territories: Notes to the financial statements26 Insurance liabilities and reinsurance assets (continued)
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Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection Four111,212Total discounted net liability (for liability classes) included in insurance liabilities in the statement of financial position260,479149,267Discounted liability in respect of earlier years(8,225)Present value27,78832,194157,492Effect of discountingOutstanding liability 4,2665,8316,6837,17510,63717,47022,16123,287(26,098)(12,232)(6,207)(3,118)(940)(237,272)Cumulative payments to date (28,255)(37,171)(40,268)(41,854)(41,129)34,39329,49430,90633,134394,764Current estimate of ultimate claims 32,52143,00246,95149,02951,76643,568Nine years later32,521Eight years later33,28343,002Seven years later33,02142,76146,951Six years later33,66641,96647,78349,029Five years later33,36643,64049,59850,18951,76655,68643,568Four years later34,45844,06449,17152,850Three years later34,98343,87951,82759,35261,79547,94234,39365,29751,82838,21529,49431,04130,906Two years later33,81440,19848,25059,997One year later38,27039,84149,06059,87369,80557,53838,94474,36167,69050,02533,12235,88233,134At end of year41,63151,22657,13559,011£000£000£000£000£000£000Parent£000£000£000£000£0002014201520162017Total200820092010201120122013115,403Total discounted net liability (for liability classes) included in insurance liabilities in the statement of financial position304,480189,077Discounted liability in respect of earlier years(12,002)Present value29,69736,29244,254201,079Effect of discounting(280,878)Outstanding liability 4,6867,6987,8729,09413,25621,14027,090(47,544)(30,342)(14,404)(8,043)(5,339)(1,666)37,74041,63145,920481,957Cumulative payments to date (32,455)(44,632)(47,906)(48,547)Current estimate of ultimate claims 37,14152,33055,77857,64160,80051,48241,494Nine years later37,141Eight years later37,99852,330Seven years later37,08952,25455,778Six years later37,60648,96057,05057,641Five years later37,20849,87957,01259,52160,80051,482Four years later39,23150,06255,97560,31465,872Three years later42,52450,16859,35366,82269,83755,71041,49460,07547,42837,74041,631Two years later44,49850,80557,75868,05773,735One year later48,43253,70064,79672,33679,27266,47547,69040,39776,72959,63342,73947,40245,920At end of year51,79664,47673,21875,30288,247£000£000£000£000£000£000£000201520162017TotalGroup£000£000£000£0002008200920102011201220132014Estimate of ultimate net claimsNotes to the financial statements26 Insurance liabilities and reinsurance assets (continued)Decrease in expense inflation-1% pa900900Improvement in base renewal expense level-10%700700Increase in expense inflation+1% pa(1,100)(1,100)Decrease in fixed interest/cash yields-1% pa-(200)Worsening of base renewal expense level+10%(700)(700)Improvement in annuitant mortality-10%(1,100)(1,100)Increase in fixed interest/cash yields+1% pa(200)(100)Deterioration in annuitant mortality+10%900900Variable£000£00020172016Change inPotential increase/variable(decrease) in the result(iii) Sensitivity analysisThe sensitivity of profit before tax to changes in the key assumptions used to calculate the life insurance liabilities is shown in the following table. No account has been taken of any correlation between the 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 increased by £0.4 million (2016: £10.9 million increase).Changes to unit renewal expense assumptions (described in (b)(i) above), was a £0.5 million increase (2016: £0.6m increase).It has been assumed that tax legislation and rates applicable at 1 January 2018 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 assumptionsExpense inflation is set with reference to the index-linked UK government bond rates of return, and published figures for earnings inflation, and is assumed to be 4.04% per annum (2016: 4.21%).TaxNumbers 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 £3.20 per annum (2016: £2.90 per annum). As expenses are not incurred proportionally to policy numbers and are more fixed in nature, a number of expenses are reserved for in a separate exercise. A reserve for these expenses is held at £6.5 million (2016: £6.1 million).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.Funeral plans renewal expense level and inflationCorporate debt instruments: index-linked-1.35%-1.29%UK and overseas government bonds: non-linked0.71%0.75%UK and overseas government bonds: index-linked-1.85%-1.83%20172016Investment returnsProjected 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:MortalityAn appropriate base table of standard mortality is chosen depending on the type of contract. For the only material line of business, the base tables used are English Life Tables number 16F and English Life Tables number 16M. Where prudent, an allowance is made for future mortality improvements based on trends identified in population data.(b) Life insurance contracts(i) AssumptionsThe most significant assumptions in determining life reserves are as follows:Notes to the financial statements26 Insurance liabilities and reinsurance assets (continued)
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Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection FourAt 31 December 201691,900 -91,900Change in discount rate10,955 -10,955Other movements 1,046 -1,046Effect of claims during the year(6,252) -(6,252)Changes in assumptions 729 -729Life business provisionAt 1 January 201685,422 -85,422Exchange differences 9,517(2,589)6,928At 31 December 2016160,288(50,753)109,535Increase in the period 156,245(49,673)106,572Release in the period(159,171)51,496(107,675)Provision for unearned premiumsAt 1 January 2016153,697(49,987)103,710Exchange differences 28,980(8,356)20,624At 31 December 2016540,864(115,179)425,685- arising from prior year claims(34,475)7,045(27,430)- change in discount rate 7,4701877,657Change in liabilities/reinsurance assets- arising from current year claims172,164(58,209)113,955At 1 January 2016551,571(120,753)430,818Cash (paid)/received for claims settled in the year (184,846)64,907(119,939)Claims outstandingAt 31 December 201788,141 -88,141Change in discount rate396 -396Other movements 1,606 -1,606Effect of claims during the year(6,346) -(6,346)Changes in assumptions 585 -585Life business provisionAt 1 January 201791,900 -91,900Exchange differences (869)231(638)At 31 December 2017171,788(56,573)115,215Increase in the period 172,518(56,875)115,643Release in the period(160,149)50,824(109,325)Provision for unearned premiumsAt 1 January 2017160,288(50,753)109,535Exchange differences (2,016)899(1,117)At 31 December 2017509,319(102,635)406,684- arising from prior year claims(54,398)26,525(27,873)- change in discount rate 1,2781651,443Change in liabilities/reinsurance assets- arising from current year claims172,308(58,721)113,587At 1 January 2017540,864(115,179)425,685Cash (paid)/received for claims settled in the year (148,717)43,676(105,041)Claims outstanding£000£000£000GroupGrossReinsuranceNet(c) Movements in insurance liabilities and reinsurance assetsNotes to the financial statements26 Insurance liabilities and reinsurance assets (continued)Exchange differences 5,605(694)4,911At 31 December 2016134,646(38,877)95,769Increase in the period 132,302(38,584)93,718Release in the period(136,543)40,169(96,374)Provision for unearned premiumsAt 1 January 2016133,282(39,768)93,514Exchange differences 14,450(2,809)11,641At 31 December 2016451,199(81,083)370,116- arising from prior year claims(30,709)8,369(22,340)- change in discount rate 7,226 -7,226Change in liabilities/reinsurance assets- arising from current year claims135,746(35,746)100,000At 1 January 2016472,542(90,646)381,896Cash (paid)/received for claims settled in the year (148,056)39,749(108,307)Claims outstandingAt 31 December 2017141,707(42,525)99,182Release in the period(134,302)38,852(95,450)Exchange differences (426)23(403)At 1 January 2017134,646(38,877)95,769Increase in the period 141,789(42,523)99,266At 31 December 2017421,397(67,600)353,797Provision for unearned premiums- change in discount rate 1,793 -1,793Exchange differences (836)418(418)- arising from current year claims130,199(31,343)98,856- arising from prior year claims(33,467)10,168(23,299)Cash (paid)/received for claims settled in the year (127,491)34,240(93,251)Change in liabilities/reinsurance assetsClaims outstandingAt 1 January 2017451,199(81,083)370,116£000£000£000ParentGrossReinsuranceNetNotes to the financial statements26 Insurance liabilities and reinsurance assets (continued)
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Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection FourOther provisionsThe provision for other costs relates to costs in respect of dilapidations and deferred consideration.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.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.Regulatory and legal provisionsCurrent 3,354 -3,354Non-current5751,5832,158At 31 December 20173,9291,5835,512Used during year(2,899)(28)(2,927)Not utilised -(12)(12)At 1 January 20173,7961,5285,324Additional provisions 3,032953,127ParentNon-current5751,6702,245Current 3,354 -3,354At 31 December 20173,9291,6705,599Not utilised -(12)(12)Exchange differences -(1)(1)Additional provisions 3,0321063,138Used during year(2,899)(28)(2,927)At 1 January 20173,7961,6055,401Group£000£000£000provisionsprovisionsTotaland legalOtherRegulatory27 Provisions for other liabilities and contingent liabilitiesNotes to the financial statementsThe equalisation reserve was previously required by law and maintained in compliance with insurance companies' regulations. Transfers to this reserve were deemed to be tax deductible under legislation that applied prior to 1 January 2016 and gave rise to deferred tax. With effect from the implementation date of Solvency II, 1 January 2016, these reserves become taxable over 6 years under the transition rules set out by HM Treasury.At 31 December 201732,8081,5492,994(187)37,164Exchange differences - - -(16)(16)Charged to other comprehensive income -7,559 -977,656Charged/(credited) to profit or loss3,115(507)(790)(95)1,723At 31 December 201629,693(5,503)3,784(173)27,801Exchange differences - - -133133- resulting from reduction in tax rate -182 -(5)177Charged/(credited) to other comprehensive income(Credited)/charged to other comprehensive income -(5,643) -19(5,624)- resulting from reduction in tax rate(1,290)(195)12569(1,291)(Credited)/charged to profit or lossCharged/(credited) to profit or loss1,624(115)(832)218895At 1 January 201629,3592684,491(607)33,511ParentAt 31 December 201733,7961,5472,994(1,683)36,654Exchange differences2 - -13Charged to other comprehensive income -7,559 -977,656Charged/(credited) to profit or loss3,336(507)(790)2932,332At 31 December 201630,458(5,505)3,784(2,074)26,663Exchange differences(19) - -(174)(193)- resulting from reduction in tax rate -182 -(5)177Charged/(credited) to other comprehensive income(Credited)/charged to other comprehensive income -(5,643) -19(5,624)- resulting from reduction in tax rate(1,372)(195)12572(1,370)(Credited)/charged to profit or lossCharged/(credited) to profit or loss1,816(115)(832)3541,223At 1 January 201630,0332664,491(2,340)32,450Group£000£000£000£000£000investmentsassetsreservedifferencesTotalgains onbenefitEqualisationOtherUnrealisedretirementNet28 Deferred taxAn 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:Notes to the financial statements
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Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection FourA 26% holding in the ordinary share capital of Regis Mutual Management Limited (Company No. 4194000), an insurance management company, was disposed of during the year and was included within financial investments in the prior year.^Exempt from audit under s480 of the Companies Act 2006†Exempt from audit*Registered office: Beaufort House, Brunswick Road, Gloucester, GL1 1JZ, United Kingdom**Registered office: Level 5, Southbank Boulevard, Melbourne, VIC 3006, AustraliaAnsvar Insurance Services Pty Limited ** †162612286Ordinary -100%Dormant companyAnsvar Insurance Limited **007216506Ordinary100% -InsuranceIncorporated in AustraliaSouth Essex Insurance Holdings Limited *6317313Ordinary100% -Investment holding companySouth Essex Insurance Brokers Limited *6317314Ordinary -100%Insurance agents and brokersEcclesiastical Group Healthcare Trustees Limited * ^10988127Ordinary100% -Trustee companyE.I.O. Trustees Limited * ^0941199Ordinary100% -Trustee companyEdenTree Investment Management Limited *2519319Ordinary100% -Investment managementEcclesiastical Life Limited *0243111Ordinary100% -Life insuranceEcclesiastical Financial Advisory Services Limited *2046087Ordinary100% -Independent financial advisoryIncorporated in the United KingdomSubsidiary undertakingsCompanyNumberCapitalCompanyGroupActivityRegistrationShareHolding of shares byCompanyRelated undertakingsThe Company's interest in related undertakings at 31 December 2017 is as follows:31 Related undertakingsUltimate parent company and controlling partyThe 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 the United Kingdom and copies of their financial statements are available from the registered office as shown on page 242. 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. Operating lease rentals charged to profit or loss during the year3,4402,2803,5282,43617,98313,47019,59015,214After 5 years3,0102,5104,4483,868Between 1 & 5 years11,3688,50811,7258,885Within 1 year3,6052,4523,4172,461Parent£000£000£000£00020172016GroupParentGroupAmounts payableThe Group leases premises and equipment under non-cancellable operating lease agreements. The future aggregate minimum lease payments are as follows:Notes to the financial statements30 Commitments (continued)72,42372,42366,69566,695After 5 years37,79937,79935,62035,620Between 1 & 5 years26,86026,86024,21824,218Within 1 year7,7647,7646,8576,857Parent£000£000£000£00020172016GroupParentGroupAmounts receivableThe Group leases premises under non-cancellable operating lease agreements. The future aggregate minimum lease rentals receivable are as follows:At the end of the current and prior year, the Group and Parent had no capital commitments.Operating lease commitments30 CommitmentsCapital commitmentsDerivative liabilities are in respect of equity futures contracts and are detailed in note 21.Non-current330 -334 -Current66,53339,31160,56238,48966,86339,31160,89638,489Accruals23,45018,65920,11816,442Amounts owed to related parties783 -77Other creditors21,0518,90120,0739,514Derivative liabilities - -543543Creditors arising out of reinsurance operations20,66210,87418,69811,189Creditors arising out of direct insurance operations1,6937941,464724£000£000£000£000GroupParentGroupParent2017201629 Other liabilitiesThe Group has unused tax losses of £16,952,000 (2016: £18,695,000) arising from life business and capital transactions, which are available for offset against future profits and can be carried forward indefinitely. No deferred tax asset has been recognised due to the unpredictability of future profit streams.Non-current37,62836,37428,09627,011Current(974)790(1,433)79036,65437,16426,66327,801Deferred tax assets(1,721) -(2,185) -Deferred tax liabilities38,37537,16428,84827,801Parent£000£000£000£00020172016GroupParentGroupCertain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances for financial reporting purposes: Notes to the financial statements28 Deferred tax (continued)
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Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection Four Charitable grants paid to the Group's ultimate parent undertaking are disclosed in note 14. Contributions paid to and amounts received from the Group's defined benefits schemes are disclosed in note 17.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.Amounts owed to related parties by the Group and by the Parent include insurance liabilities which are included in note 26.Transactions and services within the Group are made on commercial terms. With the exception of some insurance liabilities, 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.During the year, the Company received premiums, commission and reinsurance recoveries via a related party insurance agency amounting to £1,919,000 (2016: £1,031,000) and paid reinsurance protection, commission and claims amounting to £2,148,000 (2016: £902,000).The prior year has been restated to better reflect balances and transactions with related parties.Amounts owed to related parties -2,405 -Trading, investment and other expenditure, including recharges, and amounts paid4,0003,789887Amounts owed by related parties23,5044,6711,562ParentTrading, investment and other income, including recharges, and amounts received 3679,167431Amounts owed by related parties23,504 -1,588Amounts owed to related parties - -67,965Trading, investment and other income, including recharges, and amounts received 367 -1,538Trading, investment and other expenditure, including recharges, and amounts paid4,000 -9,9832016 (restated)GroupAmounts owed by related parties29,4585,001244Amounts owed to related parties -2,3791Trading, investment and other income, including recharges, and amounts received 3454,928470Trading, investment and other expenditure, including recharges, and amounts paid6,2293,701809ParentAmounts owed to related parties - -64,923Trading, investment and other expenditure, including recharges, and amounts paid6,229 -2,930Amounts owed by related parties29,458 -246GroupTrading, investment and other income, including recharges, and amounts received 345 -1,7192017parties£000£000£000Group plcSubsidiariesOtherInsurancerelatedEcclesiastical EcclesiasticalInsuranceGroupplcistheGroupandParent'simmediateparentcompany.Otherrelatedparties,ofbothGroupandParent,include subsidiary undertakings of Ecclesiastical Insurance Group plc, the ultimate parent undertaking and the Group's pension plans.32 Related party transactionsTransactions 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. Notes to the financial statements - [7] / [1].The Group uses the industry standard net combined operating ratio as a measure of underwriting efficiency. The COR expresses the total of net claims costs, commission and underwriting expenses as a percentage of net earned premiums. It is calculated as ( [1] - [6] ) / [1].The net expense ratio expresses total underwriting and corporate expenses as a proportion of net earned premiums. It is calculated asThe underwriting profit of the Group is defined as the operating profit of the general insurance business.Net expense ratio54%Net expenses ( = [2] + [3] + [4] + [5] ) [7](111,122)Combined operating ratio86.9%Underwriting profit[6]27,0661,7172,283(14,783)82,196 - - -(96)Profit before tax26,97037465,6351,7172,283(14,783)82,292Finance costs(96) - -Operating profit[6]27,06637465,635(7,101)(14,783)(260,013)Total operating expenses(222,604)(2,393)(3,204)(9,928)(8,946)(7,565)[5](14,783)(107,143)(982)464 -(65,153)Other operating and administrative expenses[4](72,271)(374)(3,204) - - -32,196Fees, commissions and other acquisition costs[3](64,619)(16) - - - -(119,913)Reinsurance recoveries32,196 - -Claims and change in insurance liabilities(117,910)(2,003) -Expenses9,384 -342,305757 -72,294Total revenue249,6702,76768,83911,645 - -1,935Net investment return -2,73968,839(41)8,627 -60,864Other operating income1,935 - - -Fee and commission income[2]40,551 - -11,686 - - -207,212 - - -(6,318)Net earned premiums[1]207,18428 - - - -(129,387)Net change in provision for unearned premiums(6,318) - - - - -342,917Outward reinsurance premiums(129,387) - -Gross written premiums342,88928 -Revenue£000£000£000£000£000£000£000AdvisorycostsTotalGeneralLifeandCorporateInsurancereturnmngtBrokingInv'mntInv'mnt2017In line with the European Securities and Markets Authority guidelines, we provide a reconciliation of the combined operating ratio and net expense ratio to its most directly reconcilable line item in the financial statements. Regulatory capital and net inflows to funds managed by Ecclesiastical Insurance Office plc's subsidiary, EdenTree Investment Management Limited, do not have an IFRS equivalent. Regulatory capital is covered in more detail in note 4(i).Users of the accounts should be aware that similarly titled APM reported by other companies may be calculated differently. For that reason, the comparability of APM across companies might be limited.33 Reconciliation of Alternative Performance MeasuresTheGroupusesalternativeperformancemeasures(APM)inadditiontothefigureswhicharepreparedinaccordancewithIFRS.Thefinancialmeasuresincludedinourkeyperformanceindicatorsaresetoutonpage44:regulatorycapital,combinedoperatingratio(COR),netexpenseratio(NER)andnetinflowsareAPM.Thesemeasuresarecommonlyusedintheindustriesweoperateinandwebelieveprovide useful information and enhance the understanding of our results. Notes to the financial statements
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Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection FourNet expense ratio51%Net expenses ( = [2] + [3] + [4] + [5] ) [7](101,500)Combined operating ratio89.8%Underwriting profit[6]20,0751,5872,120(10,134)62,452(4) - -(97)Profit before tax19,982(652)49,5491,5912,120(10,134)62,549Finance costs(93) - -Operating profit[6]20,075(652)49,549(7,123)(10,134)(243,634)Total operating expenses(212,852)(2,019)(2,816)(8,690)(7,782)(7,383)[5](10,134)(94,097)(908)260 -(61,318)Other operating and administrative expenses[4](65,674)(308)(2,816) - - -51,164Fees, commissions and other acquisition costs[3](60,653)(17) - - - -(139,383)Reinsurance recoveries51,164 - -Claims and change in insurance liabilities(137,689)(1,694) -Expenses9,243 -306,183701 -54,410Total revenue232,9271,36752,36510,281 - -843Net investment return -1,29052,365548,542 -53,730Other operating income843 - - -Fee and commission income[2]34,961 - -10,227 - - -197,200 - - -1,103Net earned premiums[1]197,12377 - - - -(114,041)Net change in provision for unearned premiums1,103 - - - - -310,138Outward reinsurance premiums(114,041) - -Gross written premiums310,06177 -Revenue£000£000£000£000£000£000£000AdvisorycostsTotalGeneralLifeandCorporateInsurancereturnmngtBrokingInv'mntInv'mnt2016Notes to the financial statements33 Reconciliation of Alternative Performance Measures (continued)
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Section Five
Other Information
Directors, executive management and company information
United Kingdom regional centres
United Kingdom business division and international branches
Insurance subsidiaries and agencies
Notice of meeting
Notes
242
244
245
246
247
248
Ecclesiastical Annual Report & Accounts 2017 Financial StatementsSection Four
Directors, executive management and company information
Directors, executive management and company information
242/243
Auditor
Registrar
Deloitte LLP
London
Computershare Investor Services plc
The Pavilions
Bridgwater Road
Bristol BS13 8AE
Directors
*
*
*
*
*
Group Management Board
J. F. Hylands FFA Chairman
I. G. Campbell BSc (Econ) (Hons), ACA Group Chief Financial Officer
T. J. Carroll BA, MBA, FCII
R. D. C. Henderson FCA
M. C. J. Hews BSc (Hons), FIA Group Chief Executive
A. P. Latham ACII
A. J. McIntyre MA, ACA, FRCO
*
*
* C. J. G Moulder FCA, MA, BA
*
C. H. Taylor BSc (Hons) Banking and International Finance
S. J. Whyte MC Inst. M, ACII Deputy Group Chief Executive
The Very Reverend C. L. Wilson Senior Independent Director
D. P. Wilson BA (Hons), FCII
I. G. Campbell BSc (Econ) (Hons), ACA Group Chief Financial Officer
R. Cox FCII, DMS
M. C. J. Hews BSc (Hons), FIA Group Chief Executive
N. M. Louth-Davies MA
D. R. Moore BA (Hons), MBA
J. Schofield CFIIA
C. M. Taplin BSc (Hons), MSc, MBA
A. J. Titchener LLB (Hons)
S. J. Whyte MC Inst. M, ACII Deputy Group Chief Executive
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
Burges Salmon LLP
Bristol
Charles Russell Speechlys LLP
London
DAC Beachcrofts LLP
Leeds and London
Gowling WLG (UK) LLP
London
Harrison Clark Rickerbys LLP
Cheltenham
Matheson
Dublin
McDowell Purcell Solicitors
Dublin
Pinsent Masons LLP
Birmingham
*
Non-Executive Directors
Ecclesiastical Annual Report & Accounts 2017Other InformationSection Five
United Kingdom regional centres
United Kingdom business division and international branches
244/245
Central and South West
Office:
London and South East
North
Tel:
Office:
Tel:
Office:
Tel:
12th Floor
Alpha Tower
Suffolk Street
Queensway
Birmingham B1 1TT
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
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:
Regional Vice President and
Vice President
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
K. Biermann BBA, CIP
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
N de Souza Jensen BA, CIP
Suite 1713, Three Bentall Centre
595 Burrard Street, Box 49096
Vancouver, British Columbia V7X 1G4
R. Jordan BBA, CRM, FCIP
20 Eglinton Avenue West, Suite 2200
P.O. Box 2004
Toronto, Ontario M4R 1K8
Ireland Branch
Managing Director:
Office:
D. G. Lane B.Comm (Hons), Certified Insurance Director
2nd Floor, Block F2
Eastpoint
Dublin 3, DO3 T6P8
Ecclesiastical Annual Report & Accounts 2017Other InformationSection Five
Insurance subsidiaries and agencies
Notice of meeting
246/247
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)
Level 5
1 Southbank Boulevard
Southbank
Melbourne VIC 3006
Beaufort House
Brunswick Road
Gloucester GL1 1JZ
Beaufort House
Brunswick Road
Gloucester GL1 1JZ
B. W. Fehler
South Essex House, North Road
South Ockendon
Essex RM15 5BE
01708 850000
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, 14th June 2018 at 12:35pm for the following purposes:
Ordinary business
1.
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14.
To receive the Report of the Directors and Accounts for the year ended 31st December 2017 and the report of the
auditors thereon.
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 Mrs C. H. Taylor as a director.*
To re-elect Mrs S. J. Whyte as a director.*
To re-elect The Very Revd C. L. Wilson as a director.*
To re-elect Ms D. P. Wilson as a director.*
To re-elect Mr D. Henderson as a director.*
11. To elect Mr A. McIntyre as a director.*
To elect Mr C. Moulder as a director.*
To consider the declaration of a dividend.
To re-appoint Deloitte LLP as auditors and authorise the directors to fix their remuneration.
By order of the Board
Mrs R. J. Hall, Secretary
14th March 2018
* Brief biographies of the directors seeking election or re-election are shown on pages x to x of the 2017 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.
Ecclesiastical Annual Report & Accounts 2017Other InformationSection Five
Notes
Design. Art Direction. Production.
fablecreative.co.uk
Annual Report & Accounts 2017
Ecclesiastical Insurance Office plc
Beaufort House
Brunswick Road
Gloucester
GL1 1JZ
www.ecclesiastical.com
Ecclesiastical Insurance Office plc (EIO) Reg. No.24869 is registered in England at Beaufort House, Brunswick Road, Gloucester, GL11JZ, UK
and is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.