Building a
movement
for good
Ecclesiastical
Annual Report
& Accounts
2018
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Contents
Section One About Us
Building a movement for good
Ecclesiastical at a glance
Our businesses
Section Two Strategic Report
Chairman’s Statement
A trusted business
Chief Executive’s Report
Transforming lives
Global trends in financial services
Our business model and strategy
Strategy in action
Key Performance Indicators
Financial Performance Report
Risk Management Report
Principal risks
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
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3
Section One
About Us
Building a movement for good
Ecclesiastical at a glance
Our businesses
4
6
10
Section OneEcclesiastical Annual Report & Accounts 2018Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Section One
About Us – Building a movement for good
4
Ecclesiastical Annual Report & Accounts 2018
5
Our strongly held values, together with
deep expertise in our chosen markets,
give us a competitive edge. And have
helped us deliver robust financial returns
which in turn help change people’s lives
for the better. 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.
Being good to do good.
That’s what shapes the way we
do business.
Owned by a charity, we’re a
commercial business with a purely
charitable purpose. This sets us apart
from others. We’re not afraid to stand
up for our communities and what they
believe in. Even if that means doing
things differently from everyone else.
Ecclesiastical exists to contribute
to the greater good of society.
We do this by managing a successful,
ethically run portfolio of businesses.
By giving a significant proportion of
our profits to our owner, Allchurches
Trust, which donates independently
to good causes. By making our own
considerable donations. And by helping
our customers and partners address
the issues that matter to them.
Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Section One
About Us – Ecclesiastical at a glance
6
Ecclesiastical Annual Report & Accounts 2018
7
Ecclesiastical
at a glance
Who we are
No.1
insurer for charitable
giving in the UK
4th largest corporate donor in the UK*
*Directory of Social Change UK Guide
to Company Giving 2017-18
£64m
We’ve donated £64m to charity since 2016*
*Cumulative total
110%
of pre-tax profit to
good causes
thanks to strong capital position
£0.59bn
Net assets
(in current and previous year)
£2.7bn
Funds under
management
(in current and previous year)
131
years’ experience
Established in 1887
to provide fire protection
to Anglican churches
Three time
award winners
at the Post Claims Awards
2018 for excellence in
customer care
What we do
Main insurer
for the UK’s
Grade 1 listed
buildings
Leading
multi-faith
insurer
Insuring synagogues and
mosques in all our territories
Since the 1880s
Ecclesiastical has been
providing specialist insurance
and risk management support
to its customers
Award winning
ethical investment
Moneyfacts ‘Best Ethical Investment Provider’
for tenth successive year (2009 to 2018)
Leading
insurer for
the Anglican
church
in all our territories
Insurer of
independent
schools for
55+ years
Gold standard
home insurance
47,000+
Awarded 1st place Gold Ribbon
by Fairer Finance as most trusted
provider of UK home insurance
charities and not for profit
organisations insured in the
UK alone
Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information About Us – Ecclesiastical at a glance
8
9
Trusted to do the right thing
A different kind of business
94%
99%
to
UK overall customer satisfaction
across all the sectors we measure
CII Chartered Status
Ecclesiastical UK & Ireland and
Lycetts have been awarded Corporate
Chartered status by the Chartered
Insurance Institute*
*A corporate Chartered title is a commitment
to an overall standard of excellence and
professionalism, and evidence of commitment
to customers, partners and employees.
Making a difference
Gold Standard
for Payroll Giving
We match 100% of what
our employees give to charity
£18.8m
given to charity in 2018
(£27.5m in previous year)
£17m to our charitable owner and
£1.8m Ecclesiastical Group giving
98%
of our UK customers
satisfied with how their
claim is handled
98% in UK
100% Ireland
90%
of key brokers satisfied
with our service
Recognised by UK brokers as the
best insurer in the charity, commercial
heritage, education and faith sectors*
*Independent survey by FWD
Nearly £100,000
Closer to You grants
for brokers to give
to charities close to
their hearts
60%+
of our
employees
volunteer
Overseas giving
Overseas community
grant giving to
Australia and Canada
AUS$250,000 to Australia
CAN$250,000 to Canada
6,000
charities
nominated for
our 12 Days of
Giving campaign
78%
renewable
Our electricity is
sourced from 100%
renewable sources
Founding
signatory of
the Women in
Finance Charter
Leading the way in
Health and Safety
First insurer to register
commitment to Health
and Safety Executive (HSE)
‘Helping Great Britain Work
Well’ strategy
Best for developing
young people
Canada recognised as
Top 100 Employer for Young
people for the seventh
consecutive year
86%+ve
of staff say ‘I am proud
to work for this company’
(+5% on Financial
Services benchmark)
(2017: 88%)
Living
Wage
accredited
A UK Living Wage employer
Our financial performance
£15.4m
profit before tax (£82.2m in
previous year)
£29.2m
underwriting result
(£27.1m previous year)
86.4%
combined operating ratio,
improved by 0.5pp
Section OneEcclesiastical Annual Report & Accounts 2018Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Section One
About Us – Our businesses
10
Ecclesiastical Annual Report & Accounts 2018
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) / 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)
Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Ecclesiastical UK
Using technology to meet the needs of our customers
For over 130 years, our surveyors have helped to
protect the nation’s heritage through their expert
advice and guidance. Today, we’re proud to have one
of the strongest in-house risk management teams
in the insurance industry, boasting an unrivalled
expertise in surveying and valuing the many varied
properties we insure. To ensure that we remain at the
cutting edge of risk management, we’re constantly
looking for ways to use technology to improve the
service we provide to our customers.
One of our latest ventures is using drones to enhance the specialist advice
we provide.*
As the UK’s leading insurer of Grade 1 listed buildings, we know better
than anyone the unique access and maintenance challenges presented by
heritage structures.
Using drones to capture detailed aerial imagery of otherwise inaccessible parts
of the structure provides us with invaluable data and insights about the state of
the building. We then work in partnership with our customers to review the data,
assess the risks and provide specialist advice to mitigate them.
So far we’ve successfully trialled drones at some of the nation’s most important
buildings including Blenheim Palace and Worcester Cathedral, as well as
schools and churches across the country.
The technology has huge benefits for our customers and the data gathered also
enables us to create 3D building models from which we can more accurately
calculate reinstatement or restoration values with more certainty, reducing the
risk of underinsurance.
“Blenheim Palace has been a customer of Ecclesiastical for a number of years
and we were delighted to help trial this new technology. The images captured
by the drone were incredibly detailed and provided a unique perspective
on this magnificent building, showing us parts of the structure that are
usually inaccessible. I believe this technology will help to transform the way
Ecclesiastical helps its clients to manage their risks.”
Richard Bowden
Historic Buildings and Conservation Surveyor
Blenheim Palace
*Filming with a drone is not permitted onsite without prior consent and approval of the necessary
insurance and licence documents.
Building a movement for good
Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Section Two
Strategic Report
Chairman’s Statement
A trusted business
Chief Executive’s Report
Transforming lives
Global trends in financial services
Our business model and strategy
Strategy in action
Key Performance Indicators
Financial Performance Report
Risk Management Report
Principal risks
Corporate Responsibility Report
Strategic Report approval
16
22
24
30
34
40
44
50
54
62
68
78
88
Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Section Two
Strategic Report – Chairman’s Statement
16
Ecclesiastical Annual Report & Accounts 2018
17
Chairman’s
Statement
In 2018 the Group
delivered another
strong set of
underwriting results,*
underpinned by its
pursuit of sustainable,
profitable growth over
the longer term.
A strong underwriting performance
Performance remained robust, with underwriting
profit of £29.2m (2017: £27.1m) and GWP growth
across all our territories. Pre-tax profits of
£15.4m (2017: £82.2m) were lower than in recent
years, reflecting the effect of short-term stock
market fluctuations on our investment portfolio.
Nonetheless, these results and our underlying
financial strength enabled us to make donations
of £17.0m to our charitable owner and £1.8m
to the causes we support directly.
* Alternative performance measure, refer to note 35
Putting customers first
I have been privileged to be a member of
the Ecclesiastical Board since 2007. As I
step down after two years as its chair, I have
been reflecting on the differences that drew
me to Ecclesiastical 11 years ago, and which
remain intrinsic to the Group today.
We are a specialist financial services group
with a portfolio of insurance, investment
management, broking and advisory
businesses that are quite different from each
other. Yet all these businesses are united by
a common purpose – they put the customer
at the centre of everything they do.
I believe that our aim of being the most
expert, trusted and ethical provider in
our specialist markets has seen us take
customer care to a very different level. In an
increasingly commoditised world, we still
take the time to understand their particular
issues and needs, as befits a true specialist.
Thanks to that understanding, we provide
products, services and advice that are right
for them. And when they are in difficulty, we
respond with exceptional levels of service
and care.
I mentioned last year how struck I have been
by the positive and affectionate feedback we
receive from those who know us. It speaks
to the emphasis we place on understanding
and looking after our communities, both
through our work and our charitable support.
Energy and pace
The Ecclesiastical Group has been through
a significant period of change during my tenure.
In the last five years in particular, an ambitious
change programme has been central to the
Group’s turnaround and consistent financial
performance. In that time, we have seen
a strengthening of our core insurance
business and ongoing development of
all the companies in our portfolio.
As a result, we have delivered on one
ambitious target of giving £50m to good
causes and we are well on the way to
reaching our current goal of giving £100m
by the end of 2020.
I applaud the energy
of leadership that
has taken our Group
forward with such
pace, by harnessing its
distinctive strengths –
a deep understanding
of customers’ needs,
true specialism in our
chosen sectors and
the unique charitable
purpose that sets
us apart.
Governance
In 2018 we reached a major milestone,
securing approval from the Prudential
Regulation Authority for our internal model
to meet the Solvency II regulations for
insurance firms. In doing so, we have
provided our Board and management team
with important tools to improve the Group’s
risk management framework, measure
performance and ensure that its decisions
contribute to our capital strength.
Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Strategic Report – Chairman’s Statement
18
19
In support of our established diversity policy,
2018 saw us publish our second gender
pay gap report, which shows a falling pay
gap due to a higher proportion of senior
roles being filled by women. We also
published our progress against the Women
in Finance Charter; two years since signing
up to its goals, we were pleased to report
that women now make up 29.9% of our
senior management roles compared with
23.3% in 2017.
Looking to the future
As you would expect, I wish the Group the
most successful of futures. But what does
that actually mean? For me, the Group’s
future success lies in continuing to do
what we do well – creating competitive
advantage from our deep understanding of
customers’ needs, our position as a trusted
specialist and our responsible approach to
doing business.
The Group’s success also lies in taking
what we do well to a bigger audience,
so that a broader group of customers
and partners can benefit from the unique
products and services we offer.
With motivated teams across the Group
and a robust change programme that has
already delivered so much, I know that this
future is entirely possible.
John Hylands
Chairman
Board developments
During the year two non-executive directors,
Denise Wilson and Anthony Latham, retired
from the Board after eight and ten years’
service respectively. I would like to express
my particular thanks to them, for the valuable
expertise they brought to the Group during
a period of considerable change.
In January 2019 it was announced that with
effect from 19 March 2019, I will step down
as chairman and David Henderson, who has
been on the Board since 2016, will take my
place. Also during the year Ian Campbell
left the Group after four years as our Group
Chief Financial Officer. We thank Ian for his
service to the Group and wish him well in
his future career.
The Ecclesiastical Board is strong and
diverse, with an unflagging commitment to
the Group and its future. It says much about
Ecclesiastical that it is able to attract Board
members of their calibre, given the relatively
small scale of the Group. The skills of my
fellow directors are exceptional and I would
like to thank them all for their insight and
support over the past year.
Our people
This also holds true for our employees.
Over the years I have been continually
impressed by the exceptional ability of our
people. Above all, I have been inspired by
their propensity to go above and beyond the
call of duty as a matter of course, whether
caring for their customers, improving
business performance or supporting good
causes. This, I believe, speaks to the culture
that is fostered by our charitable purpose.
I will miss many things when I leave
Ecclesiastical, but it is these good and
talented people whom I will miss most.
On behalf of the Board, I would like to thank
and congratulate them for the successes of
2018 and wish them well as they forge an
exciting future for the Group.
‘I believe that our aim
of being the most expert,
trusted and ethical provider
in our specialist markets has
seen us take customer care
to a very different level. In an
increasingly commoditised
world, we still take the time
to understand their particular
issues and needs, as befits
a true specialist.’
Section TwoEcclesiastical Annual Report & Accounts 2018Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Ecclesiastical UK
The Scout Association
The Scout Association is the most famous youth
organisation in the world and the largest volunteer-led
movement for young people in the UK. Every week
thousands of young people take part in life-enriching
activities at the association’s adventure centres
across the UK, including Gilwell Park, famous
throughout the world for its Scouting heritage,
beautiful setting and stunning range of activities.
Ecclesiastical has a long history of insuring Scout troops and in 2018 we
secured the Scout Association’s business for the first time thanks to the hard
work of our sales and underwriting team in building a relationship with the
Scout Association’s own broker, Unity Insurance Services.
Unity were impressed we carried out a pre-cover survey at Gilwell Park to gain
a complete understanding of the risk, and that we were able to tailor a solution
through Ansvar for elements of the association’s employers’ liability cover.
This commitment to understanding and meeting the association’s needs, coupled
with our specialist expertise, were the deciding factors in winning the business.
As a company whose purpose is to contribute to the greater good of society,
we are proud to be the insurer for the Scout Association’s adventure centres
and offices, helping to protect these important places and ensuring they can
be enjoyed by young people for generations to come.
“I was impressed with the way Ecclesiastical took time to understand us as an
organisation and how they tailored their quotation to fit around us. The overall
package was not only competitive but the wider scope of cover meant a far
slicker offering and less of a burden on us administratively. We feel reassured
that our buildings are now insured for the correct values.”
Mark Hislop
Commercial Director
The Scout Association
“The team at Ecclesiastical were easy to deal with, thinking outside of the
box to offer broader and wider cover which was highly relevant to our client,
and had not been raised by the previous insurer. Ecclesiastical’s specialist
knowledge in understanding the risks associated with listed property and
the underwriting interpretation of this knowledge is reassuring. All in all,
the tailored solution for The Scout Association made it straightforward for
us to recommend Ecclesiastical as the insurer of choice.”
Faizul Ali
Account Executive
Unity Insurance Services
Building a movement for good
Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Section Two
Strategic Report – A trusted business
22
Ecclesiastical Annual Report & Accounts 2018
23
A trusted business
In 2018 we again received many external awards for the way we do business
Our UKGI business won
Customer Care Solution
of the Year
at the Insurance Times Claims
Excellence Awards
Top employer
for Young People
Canada was awarded
Top Employer for Young
People status for the
7th consecutive year
Best Ethical
Investment Provider
EdenTree won Moneyfacts Best Ethical
Investment Provider award for the 10th
year running
Our UKGI business
won three awards at
the Insurance Post
Claims Awards
EdenTree was successful at the
Charity Times Awards and took
away the Boutique Investment
Management award
SEIB won
Personal
Lines
Broker of
the year
at the British
Claims Awards
At the Insurance Age
UK Broker Awards
2018, Cliverton won
Schemes Broker
of the Year
EdenTree wins
Best ESG Fund
Management
Group (Specialist)
at the Investment Week Sustainable
& ESG Investment Awards 2018
A U T U M N 2 0 1 8
GOLD RIBBON
CUSTOMER EXPERIENCE
Home insurance
Our UK Home insurance
product was once again
placed top of the Fairer
Finance tables – awarded
twice a year, this is the
8th time running we have
achieved this accolade,
we also remained top
for customer trust and
customer happiness
SEIB’s marketing team won
Young Marketer /
PR Employee of the Year
at the Insurance post Insurance
Marketing and PR Awards
Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Strategic Report – Chief Executive’s Report
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Chief Executive’s
Report
Our profits are
channelled towards
funding good
charitable causes.
Here for good
Ecclesiastical exists for just one purpose
– to contribute to the greater good of society.
That makes us a very different kind of financial
services group. Because our profits go to good
causes. Because we put customers’ needs first.
And because we stand up for what we believe
in – even if that means doing things differently
from everyone else.
Owned by a charity, our profits are
channelled towards funding thousands of
good charitable causes a year. Whether
these are charities that transform the lives
of homeless people, the unwell or those
suffering from addiction, parish churches
that have become community hubs in areas
of great deprivation, or organisations that
provide young people with the resources to
stay safe and well in today’s complex world,
they share a common goal – to help and
protect the most vulnerable in our society.
Our charitable purpose has also shaped
the way we do business for over 130 years.
Unlike others in our sector, we are driven
by more than the need to satisfy short-term
shareholder demands.
Our goal is to
build a sustainable,
values-driven business
over the longer
term, while putting
customers’ needs first
– especially in times
of need or change.
This has seen us
develop extraordinary
levels of customer
understanding
and care.
Trusted by our
communities
This approach has built deep trust within the
communities we serve, as evidenced by the
roll call of awards and accolades highlighted
on previous pages. We are trusted to
protect and preserve communities, cultures
and heritage worldwide, by insuring palaces
and castles, World Heritage sites and
opera houses, schools and activity centres,
churches, temples and other treasured
properties. And our advisory, broking and
investment businesses are trusted to
provide award-winning services that have
the customer’s interests at heart.
Giving to our communities
Our results and our underlying financial
strength enabled us to make donations of
£18.8m during the year, to our charitable
owner and to the causes we support
directly. We have now given £64m of the
£100m by the end of 2020 target we set
ourselves in April 2016.
Based on the latest rankings, Ecclesiastical
is the fourth largest corporate donor in the
UK and the top-ranking insurance sector
donor – indeed, the only insurer in the top
ten. This is a considerable achievement
of which we are very proud, particularly
as by any measure of size or scale we are
significantly smaller than any of the other top
ten ranked businesses.
A resilient business
In 2018 we achieved a fifth year of sound
financial performance, underpinned by our
focus on delivering sustainable, profitable
long-term growth. I am pleased to report
that in 2018 we continued to deliver against
our charitable purpose, with a pre-tax profit
of £15.4m (2017: £82.2m) and GWP
growth of 4.1% to £357.0m. This result
includes excellent underwriting profits of
£29.2m (2017: £27.1m), investment income
of £35.3m (2017: £36.5m) and fair value
losses of £31.3m (2017: gains of £35.8m).
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Our strong solvency ratio and long-term
perspective enable us to hold a relatively
high proportion of higher risk investment
assets, designed to deliver strong returns
over the longer term. Market downturns
towards the end of the year, prompted by
persistent concerns over Brexit, global trade
and slowing economic growth, impacted our
investment returns following two exceptionally
positive years. However, our long-term stance
is unmoved and the market downturn has
presented some exceptional equity
investment opportunities.
We reaped the benefit of holding a diverse
portfolio of companies during the year,
not least in the insurance business where the
impact of adverse weather in Canada was
offset by benign conditions elsewhere.
The UK and Ireland business achieved GWP
growth of 4.8%, with particularly strong
contributions from the Real Estate and Art
& Private Client sectors in the UK and the
Education sector in Ireland.
A strong underwriting profit of £29.4m (2017:
£32.7m) benefited from significant prior year
releases and a low level of weather claims.
We took the difficult decision to close our
UK defined benefit pension scheme to future
accrual from 30 June 2019, due to escalating
scheme costs and the growing exposure
to investment risk required to maintain the
scheme. Having monitored and consulted on
the scheme’s shape and potential long-term
risks over several years, we did not undertake
this lightly, knowing how important pension
benefits are to our colleagues. Following
extensive consultation, new arrangements
were agreed with our union and the scheme
Trustees on behalf of our members.
During the year we prepared for Brexit,
identifying potential risks and putting in
place steps to mitigate them. In Ireland these
preparations included working closely with
the Central Bank of Ireland on our application
for Third Country Branch status, for which we
have been granted authorisation in principle.
The Canadian and Australian insurance
businesses delivered GWP growth of 7.6%
and 5.5% respectively in local currency.
Canada’s underwriting loss of £2.6m was
driven by a range of adverse weather events
and a modest increase in casualty reserves, and
Australia’s £1.4m underwriting profit benefited
from lower claims and increased rate strength.
EdenTree, our pioneering investment
management business, delivered strong growth
in net inflows,* particularly to its Higher Income
Fund. Funds under management remained at
£2.7bn, with gross inflows totalling £392m
broadly offset by market falls. There was
continued investment in the year in technology
and systems to deliver its future growth plans
and, as a result, profits decreased to £0.9m
(2017: £1.7m).
In the broking and advisory sector, SEIB’s
profits were marginally decreased from the
previous year at £2.4m (2017: £2.5m).
The business grew organically and also
acquired books of business from Equicover
and Equestrian World Services that
complement its existing equine offer.
Today, we are
a successful,
ethically-run group of
specialist businesses
that have evolved in
anticipation of our
customers’ changing
needs, often to
the extent that we
revolutionise industry
practice.
* Alternative performance measure, refer to note 35
to the financial statements for further explanation.
in our existing markets through organic
and inorganic growth, and develop new,
specialist market segments.
Investment in our technology infrastructure
progresses, with the introduction of a new
core operating system for the UK and
Ireland insurance business underway.
This will streamline processes for our staff
and provide a more agile and responsive
service for our customers and brokers.
Work commenced in 2018 on a new
accounting system for EdenTree and
during the year we installed a new platform
on which to build Group websites,
reinvigorating our digital presence.
During 2019, the UK’s Independent Inquiry
into Child Sexual Abuse will conclude its
investigations into institutional abuse in
England and Wales. We will provide the
Inquiry with information and insight as it
requires and will continue to champion
transparency and fairness in the insurance
sector, for the benefit of abuse survivors.
We will also maintain a prudent reserving
strategy for potential abuse claims for the
benefit of survivors.
The pace of progress that I have
described would not be possible without
the excellence and dedication of our
specialist teams worldwide. We remain
committed to investing in the development
of their expertise and knowledge, so that
they are equipped to meet and surpass
our customers’ expectations in a
changing world.
Innovating for good
Our investment management business
EdenTree, for example, introduced
pioneering ethical funds to the UK market,
while our UK insurance business has taken
the lead in creating greater transparency
around the handling of abuse claims.
We are also renowned for efforts we make
to help insurance customers manage their
risks, so that ideally, they never have to make
a claim. During 2018, we trialled a number
of technologies across our jurisdictions,
including infra-red cameras to help detect
electrical hot spots and leak detection
devices. We also trialled drones as risk
management tools in the UK, following their
successful use in our Australian subsidiary.
In collaboration with the Royal Institute of
Chartered Surveyors, we provided customers
and brokers with a unique Heritage Index that
allows accurate reinstatement valuation of
heritage properties. We also provided new
advice on preventing accidental slips and
trips (with the Health and Safety Laboratory)
and started developing a new proposition to
address cyber bullying in schools, ready for
testing in 2019.
As with other activities that set us apart,
understanding of our customers’ worlds and
the drive to put their needs first underpins
this investment in loss prevention innovation.
An exciting future
While we expect continued uncertainty
in investment markets and insurance
markets to remain highly competitive, our
consistently strong financial performance
allows us to both withstand short-term
uncertainties and invest in our future, laying
the foundations for further sustainable and
profitable growth.
The second phase of our ambitious change
programme, which supports our latest
target of giving £100m to good causes, is
well underway. This will see us sustain and
build on the distinctive position we occupy
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Building a movement
for good
Global studies tell us that people want
companies to do the right thing.
2018 saw a telling development in this
trend, with members of the public looking
increasingly to business to take an active
role in addressing societal issues. We heard
that 62% of global consumers wanted
companies to stand up for the issues they
are passionate about,1 while in the UK nine
out of ten people said businesses should
take a stance on the issues that are
important to them.2
Across the Ecclesiastical Group such
behaviour is in our DNA.
We are proud to have
worked alongside the
communities we serve
for decades, helping to
champion the issues
that matter to them.
In 2018 alone we campaigned with the UK
charity sector for the abolition of Insurance
Premium Tax on struggling charities; we urged
the UK government to reduce VAT on repairs
and approved alterations to listed buildings;
and our funeral planning business, in the
wider Group, led calls for the introduction
of regulation in the face of escalating poor
practice in its sector.
More broadly, we continued to sponsor
young craftspeople in a bid to reverse the
decline of traditional skills in our heritage
sectors and also supported research to
address new issues facing our estates and
farming communities.
As a values-driven business, we also believe
it is important to champion good practice in
the financial services sector.
In 2018, we felt we needed to challenge
one of the world’s biggest insurers as it
considered cancelling its preference shares
at par, to the potential detriment of many
shareholders. That was not an easy decision
for our Board to make, because speaking
out when others remain silent is hard to do.
But we knew it was the right thing to do.
We are always looking for ways to extend
the reach of our giving. Increasingly, we are
doing this by putting the giving directly into
the hands of the communities we serve,
so they can support the causes that mean
the most to them.
As people look to business to take a
stand on society’s most important issues,
we are extending the reach of our giving
and campaigning to create a network of
organisations that, together, become a
Movement for Good. A group of people
and organisations that, together, can help
change the world. For, as Archbishop
Desmond Tutu put it:
“Do your little bit of
good where you are.
It’s those little bits of
good put together that
overwhelm the world.”
Because I believe that together,
we are creating something very special
– a Movement for Good that touches and
transforms lives in our villages, in our
towns, in our communities, in this country
and abroad.
Together, we are capable of more than you
can imagine.
Mark Hews
Group Chief Executive
1 Accenture Strategy: Global Consumer Pulse
Research 2018
2 CBI: Everyone’s Business research Sept 2018
Thank you for
transforming lives
It is just over five years since I became chief
executive of the Ecclesiastical Group.
In that time we have reached our first goal
of giving £50m to charity – a goal that
caused colleagues to gasp aloud when
I revealed it. And since then we have given
an extraordinary £64m.
Since 2016, and together with our owner,
we have given donations to over 5,000
charities worldwide.
Each of these charities has a moving story
to tell of the impact our giving can have.
That is why we have captured on the
following pages details from just a few
of how our support is helping to change
people’s lives. I hope their stories bring
to life the breadth and significance of that
support and remind us that for each one of
them, there are at least 300 more.
On their behalf, I would
like to thank you
Thank you to our customers, brokers and
business partners for entrusting us with
your business and allowing us to help you
champion the causes you care about.
Thank you to our exceptional employees
for always going the extra mile for our
customers and partners. And thank you all
for your tireless fundraising, volunteering
and nomination of good causes that provide
a helping hand to those who need it most.
To those of you who are reading about
Ecclesiastical for the first time, I invite
you to join us, whether as a colleague,
customer or business partner, and
experience for yourself how it is possible
to do business differently.
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Ecclesiastical Annual Report & Accounts 2018
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Transforming lives
We’ve given £64m to over 5,000 good causes since 2016. And we know this
support is changing lives.
VOCAL
Supporting
and empowering
over 9,000
unpaid carers in
Edinburgh and
Midlothian.
The donation from Ecclesiastical will
go towards vital counselling – paying
for 50 carers to receive a counselling
session. Your support will make a real
difference to these carers.
St Martin-in-the-Fields
This donation will go towards
our Nazareth Community
retreat weekend.
Allowing those who are refugees or
asylum seekers or have no income to
join a weekend of reflection, prayer and
spiritual growth. This money will also
help towards essential
transport costs.
Beccles Lido
A community scheme set
up to save an open air
swimming pool, toddler and
paddling pools, following
years of neglect.
Ecclesiastical’s donation has played
a huge part in securing a further
£300,000 in larger grants towards
our £500,000 target.
Flat Friends UK
Ecclesiastical’s
generous donation
will go towards
producing a
booklet, available
in breast units
across the
country, to help
support women
facing decisions
about having
a mastectomy
without immediate
reconstruction.
The Wales
Millennium Centre
Will give 30 vulnerable
young people a place on
their Radio Platform
training programme.
The training programme gives young
people the chance to be heard, and to
have a safe place to learn and grow.
Home-Start
Arun, Worthing
and Adur supports
parents and families
going through
difficult times.
Ecclesiastical’s donation will support
Home-Start’s work in the local
community and make sure they can
continue to help as many people as
possible over the next year.
The Wave Project
Our award-winning
intervention uses
local surfers as
volunteers to work
one-to-one with
young people.
Studies show that surf therapy helps
to reduce anxiety and stress levels in
young people. We’re excited to be
part of such an amazing movement
and that you have partnered with us
by making this donation.
Education for
Madagascar
Aiming to prevent
and relieve poverty
for children in
the south of
Madagascar.
Ecclesiastical’s donation will help
fund a free health centre for children
from the village of Ambohibe,
Madagascar. This will offer weekly
health and nutrition checks, clothing,
sports activities and cooking classes,
providing a healthy lunch for each
young person.
The Friends of The
Milestone School
We intend to put this
donation towards a
wheelchair accessible
roundabout for the
playground.
Many children will benefit from this.
We would like to thank everyone who
voted for us and Ecclesiastical for
their wonderful campaign.
Seashell Trust
Providing specialist
education and care to
children and young people
with complex learning and
communication difficulties.
The donation from Ecclesiastical
will be used to fit out a new sensory
room in Seashell Trust’s School
Facility. The room will help ensure that
its 50 students lead and enjoy better
lives through the development of their
impaired senses.
Acorn Village
Offering high-quality care
and accommodation
to adults with learning
disabilities.
Ensuring our activities continue to be
available to enhance the lives of adults
with learning disabilities is thanks to
companies like Ecclesiastical who truly
make the difference.
Angel Wishes
Supporting children
in Northern Ireland
fighting cancer.
Thank you so much for your generosity
and support this year. You can be
assured it will be helping children
throughout Northern Ireland smile.
Royal United Hospitals
This donation will make a real
difference in improving outcomes
for cancer patients.
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Ansvar UK
Rising from the flood
The Roald Dahl Museum and Story Centre
celebrates the life and work of the children’s
author Roald Dahl. Set in his former home in Great
Missenden, it’s a place that inspires creativity and
encourages children to discover a love for reading.
In May 2018 disaster struck when torrential rains
poured down a slope and into the exhibition area
of the museum. The Story Centre and several of the
bathroom areas were flooded forcing the museum
to close its doors.
Ansvar UK was onsite the next day with loss adjusters to assess the damage
and reassure the museum that all costs were fully insured. The clean-up
operation began immediately but the extent of the damage meant that the
repairs would take several months. This was a huge blow for the museum.
As a popular destination for school trips and families, being closed
throughout the summer meant a significant impact on the museum’s income.
Fortunately the museum had selected business interruption cover, alongside the
cover for the damage caused by the flood. This meant that the loss of income
caused by the closure was covered. Ansvar worked closely with the museum
and its broker Stuart & Co. to help it back on its feet. As well as funding the
repairs to the fabric of the building, our insurer hired a PR consultant to promote
the reopening of the museum.
Thanks to Ansvar’s support, the museum reopened its doors in time for autumn
half-term, and once more became a place of joy and wonder for Roald Dahl fans
young and old.
“We really appreciated Ansvar’s support in the wake of the flood. Going beyond
just repairing the fabric of the building, they were very understanding about our
concerns with cash flow and supported us with interim payments while our claim
was being worked out. We were delighted to get additional funding to bring in
a PR consultant to help promote our relaunch.”
Steve Gardam
Museum Director
The Roald Dahl and Story Centre
Building a movement for good
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Ecclesiastical Annual Report & Accounts 2018
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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 (page 44).
Trend
Our perspective
Trend
Our perspective
Low trust in financial
services
The financial services sector is slowly rebuilding its reputation following the financial crisis of
2008-9, when trust fell to record lows. Ten years on, global trust in financial services remains
significantly lower than the most trusted global business sectors of automotive, education,
manufacturing and technology, with only the media and government scoring lower on the
Edelman Trust Barometer. Although financial services saw a small uplift in trust in 2018, it must
focus on creating trust with its stakeholders. There is a clear opportunity for ethical and trusted
businesses that 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 financial services businesses. As shown in Strategy
in action (page 44) our businesses are recognised for their ethical and trusted ethos: our UK
insurance business has been recognised as the consumer’s most trusted provider for the
eighth consecutive time; and EdenTree, our investment management business, has a market-
leading reputation as both an ethical investment provider and as an ethical investor.
Geopolitical
landscape
Uncertainty and volatility remains the order of the day in the geopolitical landscape. There is
significant turbulence across the world, with the threat of trade wars, tensions in the Middle
East, disintegrating relationships with Russia, Japanese nervousness over the power of China,
and turmoil arising from dissatisfaction with political leaders.
The European Union is facing a potential crisis with the populist and centre right parties
seeking to reformulate its historical values away from liberal democracy. These tensions are
compounded by continuing uncertainty over the UK’s exit from the European Union which is
due to take effect from the end of March 2019.
There is potential for unexpected leadership changes – both in many of the world’s leading
economies and in some of the more troubled countries such as Venezuela which has the
world’s largest reserves of oil. Populist politics could lead to deadlock or the unwinding of
reform as populists seek to win votes rather than create stability. This uncertainty has led to
lower levels of investment, particularly in Europe and the United States. All our businesses
continue to monitor the global landscape to understand the potential impact of uncertainty.
Climate change
Changing
demographics
and social trends;
increased customer
expectations
The world’s climate has changed over the past decade, with average temperatures
continuing to rise. This is expected to lead to less predictable and more extreme weather
events, such as hurricanes, severe freezes, floods, extreme heatwaves and droughts.
Rising urbanisation is placing pressure on natural defences, leaving increasing numbers
of people vulnerable to rising sea levels. These factors are likely to result in a greater
concentration of insurance losses and will require changes in the way risk is evaluated and
managed. Our insurance businesses are investigating and trialling a number of innovative tools
to prevent losses from occurring, as shown in Strategy in action (page 44).
The UN Intergovernmental Panel on Climate Change (IPCC) has warned that global warming
must be kept to a maximum of 1.5C within 12 years. Meeting this ambitious 1.5C target could
also prevent the eradication of corals and suppress the changes in the Arctic which is seeing
more pronounced changes than elsewhere. The world is running out of time, but there are
positive signs with increased activity from businesses to manage climate change action and an
uplift in renewable energy use. As a socially responsible investor, EdenTree has commissioned
carbon risk footprints for our equity funds. All our funds have portfolio carbon footprints below
the required thresholds.
Over the past decade, social profiles have changed 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 and longer participation in the workforce,
alongside higher levels of migration, 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.
Alongside Ecclesiastical’s roots in the Anglican Church, our faith customers span a broad
spectrum of faith risks including sacred places of worship for Muslims, Hindus and Jews.
Customers and business partners are demanding more from businesses. There is a growing
appetite for businesses to do good for society. Expectations have also risen as customers
expect greater personalisation through tailored propositions that meet their specific needs.
As trusted providers, our businesses continue to attract and retain prestigious customers
across our territories, as shown in Strategy in action (page 44).
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Trend
Our perspective
Trend
Our perspective
Regulation
Regulators continue to focus on capital strength, transparency and governance.
Culture, conduct and compliance are critical elements of strong governance and are expected
to remain a key regulatory focus in all markets. In 2018, there were several significant new
regulatory requirements: in the EU these included the Markets in Financial Instruments Directive
(MiFID II), General Data Protection Regulation (GDPR), the Insurance Distribution Directive (IDD),
the Senior Managers and Certification Regime (SM&CR) and the fifth Anti-Money
Laundering Directive.
It is expected that regulatory focus and scrutiny will now shift towards firms demonstrating the
successful embedding of recent regulatory requirements. Some regulatory fine-tuning may be
needed, before the next major wave of regulations is implemented in the early 2020s (including
IFRS17 (International Financial Reporting Standard) which is specific to insurance companies).
In Australia, the Royal Commission into Misconduct in the Banking, Superannuation and
Financial Services Industry heard evidence during 2018 and has now published its final report.
This proposes significant change to the regulation and enforcement of conduct in all financial
services, which is likely to have far reaching consequences for business models, distribution and
governance requirements.
It is essential for businesses to focus on their customers’ needs to ensure a successful response
to regulatory requirements. Financial services organisations need to continue investment in their
businesses, processes, systems and culture to support their efforts to meet customers’ evolving
needs. With the shift towards digital distribution, businesses must respond to the rising importance
of the use and security of data, and to not put vulnerable customers at risk and ensure that they
can access and gain value from financial products and services. As shown in Strategy in action
(page 44), all our businesses consider the impact of the updated regulatory environment as part of
their day-to-day activity, addressing these requirements as appropriate.
The UK’s exit from the European Union (Brexit) will have a significant impact on insurance and
investment management businesses. We have prepared for all potential outcomes arising from
Brexit. The Group has one business based in the EU27, its Ireland Branch. We have applied to the
Central Bank of Ireland for approval of this business as a Third Country Branch and have received
authorisation in principle, to substitute for the current passporting of UK authorisation.
We have also made contingency plans for the transfer of data between the UK and the branch in
the event of a ‘no-deal’ Brexit. Appropriate action has been taken so that our businesses continue
to operate in a lawful manner, while continuing to support our clients and business partners,
in either an orderly transition or a more abrupt Brexit. These actions will safeguard our ability
to trade in the Republic of Ireland after Brexit; if we are unable to do so, this will result in lost
premiums of 14 million Euros.
Developments in
technology, data
and analytics
The digital economy is growing with many businesses seeking opportunities to create
competitive advantage with their digital experience. While the financial services sector has been
offering online services since the late 1990s, today’s insurers are moving towards digitalisation
as a way of working and not just a route to market. Digital is a key enabler for innovation,
helping to increase speed to market for new products, improve efficiency and provide superior
customer service.
Developments in technology and data can provide a deeper understanding of customer
behaviour and risk assessment. This is a key enabler for innovation, and as data becomes more
accessible, it will drive business decisions, underpin pricing models and proposition design,
leading to better customer experiences and enhanced risk selection. Additionally, businesses
continue to invest in underlying systems and technology to increase their operational efficiency
and agility.
Artificial intelligence (AI) and robotics will continue to have an impact on the insurance value
chain, particularly in underwriting, pricing and risk management. Predictive analytics deliver
deeper insights on properties at higher risk of theft or changes in environmental and physical
conditions (such as water leakage). In 2018, Ecclesiastical invested in innovative technology
including drones, thermography and water leak devices as shown in Strategy in Action
(page 44).
The challenges posed by disruptive innovation and new technology should be considered.
Technology-led disruptors (known as InsurTech in the insurance sector) can have competitive
advantage due to their agility and lack of legacy issues. These businesses are innovative, but
have not yet gained a strong foothold in the sector. Insurers that have tried to mimic these
agile startups have often struggled to scale their ideas into the business. It is anticipated that
insurers may move beyond collaborative partnerships and seek to integrate InsurTech into their
businesses.
The World Economic Forum’s Global Risks Report identifies cyber-attacks as a top five global
risk. Cyber is an ongoing business risk with the potential to have far-reaching implications: with
rising global dependency on technology, cyber security is of paramount importance. There are
concerns over the risks that cyber-attacks present to governments, businesses and individuals
and the potential use of AI in these attacks. As shown in Strategy in action (page 44), we are
working to raise awareness of this risk.
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EdenTree
Innovation in responsible investing
EdenTree has been at the forefront of ethical
investing for over 30 years. When the Amity UK
Fund was launched in 1988, it was revolutionary
in the marketplace. Very few investors were interested
in ethical funds, but EdenTree had a clear vision to
change the market for the better. It was one of the first
funds to use a negative screen, excluding companies
that did not meet our social or ethical standards.
Thirty years on, responsible investing has been embraced by the industry,
and EdenTree continues to be a pioneer in its field. EdenTree believes that
strong results can be achieved by investing responsibly, and its philosophy
of ‘profits with principles’ has helped deliver long-term benefits for investors
and the companies it invests in.
2018 also marked a number of other milestones for EdenTree. Sue Round,
one of the longest-serving and most successful female fund managers
in the City, celebrated 30 years of managing the Amity UK Fund, having
joined the business in 1984. Last year also saw the tenth anniversary
of the relaunched Amity Funds and the publication of the 30th Amity
Insight report, which continues to provide market-leading insight on
the most significant issues of our time.
“At EdenTree we have a proud 30 year track record of delivering long-term
results. When we initially launched the Amity UK Fund, it was revolutionary
in the market place, but we had a clear philosophy and ambition to effect
positive change.
“Increasingly, the investment community has begun to consider not only the
financial value of what they are investing in, but also the wider consequences
of investing in firms that do not behave in a responsible manner.
“Instead of trading shares, we as shareholders need to invest in companies for
the long term. Thirty years ago we knew investors needed to be good stewards
of capital, and now the market is taking this concept seriously.”
Sue Round
Director of Investments
EdenTree Investment Management
Building a movement for good
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Ecclesiastical Annual Report & Accounts 2018
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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
Deliver growing
financial returns
to our owner
Provide products
and services that
our customers
value and trust
Contribute to society’s
greater good
Develop
deep specialist
understanding
and expertise
Strive to be the
most trusted and
ethical financial
services group
Build enduring
relationships,
based on trust
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 2018Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Section Two
Strategic Report – Our business model and strategy
42
42
43
Section Two
Strategic Report
Strategy in action
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 shareholders and
demonstrating that a distinctly ethical, specialist financial services group can
succeed in competitive markets.
Section TwoEcclesiastical Annual Report & Accounts 2018Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Section Two
Strategic Report – Strategy in action
44
44
Ecclesiastical Annual Report & Accounts 2018
45
45
Strategy in action
Our strategic goal is:
Most trusted specialist insurer
To be the most trusted and ethical specialist financial services group,
giving £100m to charity by the end of 2020
We achieve
this by being
Our business has made considerable progress towards this target:
during 2018, £18.8m was donated to good causes and the total now stands at
£64m. This achievement has been made possible through the endeavours of all
our businesses across the Ecclesiastical Insurance Group, which are focused on
meeting the needs of their customers and business partners.
This charitable purpose underpins our business strategy. In 2018, Ecclesiastical
continued to be recognised as a leading UK corporate donor. Our business is
the number one insurer for corporate giving and has 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 while investing in
our businesses and delivering value to our customers.
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
Focused on relationships
– building strong, lasting relationships
with brokers, with a focus on trilateral
relationships between brokers,
customers and ourselves
Strategy in action
• Attracted and retained prestigious
• Retained Chartered Insurer Status for our
customers across all our segments in all
our territories
UK and Ireland businesses
• Our UK business was recognised for its
superior claims handling
• Obtained approval for our internal capital
model from the Prudential Regulation
Authority (PRA) in July 2018
• Developed several new products
and enhanced our risk management
propositions
• Invested in technology and innovation to
support the ambitions of the business and
to create added value for our customers
• Established Ansvar Risk Management
Services Limited in Australia, offering
integrated risk management, valuation
and drone data capture services
• Progressed regulatory enhancements in
readiness for the General Data Protection
Regulation (GDPR), the Insurance
Distribution Directive (IDD) and the Senior
Managers and Certification Regime
(SM&CR)
• Showcased Ecclesiastical’s proposition
to brokers through a series of reputation
building campaigns
• Invested in innovative technology including
thermography, water leak devices and
nanotechnology to help customers to
take proactive and preventative measures
against potential losses
• Approved the business case for the
adoption of a new policy administration
platform for the UK and Ireland
• Continued to have constructive
engagement with the Independent Inquiry
into Child Sexual Abuse (IICSA)
• Invested in people capabilities including
the launch of our People Leaders Academy
to enhance leadership and succession
management and established a second
cohort for the Group’s leadership
development programme
Section TwoEcclesiastical Annual Report & Accounts 2018Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Strategic Report – Strategy in action
46
47
Most trusted specialist insurer
Best ethical investment provider
Responded to the SM&CR, redefining and
restructuring how our UK insurance business
is governed and controlled, and ensuring that
all staff have a thorough understanding of
the high standards of conduct expected
Provided enhanced support to UK parish
customers through the deployment of Church
Insurance Consultants and the Little Deeds,
Big Difference, highlighting grassroots
activity in local churches
Created Id8, a programme for schools
combining innovative thinking,
technology and insurance at the British
Insurance Brokers Association (BIBA)’s
inaugural Hackathon
Highlights
Recognised externally for our expertise
and ethical approach, reflecting customer
satisfaction of 98% (UK) and broker
satisfaction of 90% (UK)
Recognised by Fairer Finance as the
consumer’s most trusted provider for the
eighth consecutive time
Our UK Claims team won four awards:
• Customer Care Solutions of the Year at the
Insurance Times Claims Excellence Awards;
• The Training Award at the Insurance Post
Claims Awards;
• The Customer Care (Individual) Award at
the Insurance Post Claims Awards; and
• The Achievement Award at the Insurance
Post Claims Awards
One of Canada’s Top 100 Employers
for Young People for the seventh
consecutive year
Developed new products for Real Estate,
Household, Art & Private Client (UK) and
Education (Ireland) and launched a range of
online tools including e-learning (Australia)
and an event liability portal (Canada)
Collaborated with the Royal Institute of
Chartered Surveyors to create the exclusive
Heritage Index for buildings with traditional
construction such as stone masonry or slate
Voted the best insurer in the charity,
commercial heritage and education sectors
by brokers for the 12th consecutive year
and recognised by UK brokers as the best
insurer in the faith sector (in independent
surveys by FWD)
Successfully executed regulatory
enhancements including day one GDPR
requirements (to comply with both the rights
and expectations of our customers and other
stakeholders), and the IDD (with higher
standards of product governance and clearer
responsibilities for their distribution)
We achieve this by
Promoting socially responsible
investment
– we have an industry-leading reputation
for our socially responsible investment funds
and investment thought leadership
Delivering long-term performance
– we use a consistent proven approach
to 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
Creating a platform for growth
– we are upgrading our IT capabilities to
create a platform for growth and increase
processing efficiency
Refining our service
– we are enhancing our services to
keep pace with the evolving needs of
our customers
Strategy in action
• Recognised for responsible and sustainable
investment with our excellent track record
over three decades
• Reinforced our thought leadership position
in responsible investment with acclaimed
research and expert briefings
• Won multiple awards for our ethical approach
and consideration of environmental, social
and governance factors
• Continued to invest in strengthening our
capabilities including investing in our back-
office systems and key recruitment
• Delivered process changes (with enhanced
client reporting) to meet MiFID II rules
• Engaged across the responsible investment
landscape including membership of
Institutional Investors Group on Climate
Change (IIGCC), BBFAW (Business
Benchmark on Farm Animal Welfare) and
The 30% Club (to broaden the pipeline of
women at all levels)
Highlights
Celebrated 30 years since the first Amity
Fund was launched in 1988
Won the Charity Times Award for Boutique
Investment Manager
Won the Moneyfacts Best Ethical Investment
Provider Award for the 10th consecutive year
Awarded Best ESG Fund Management
Group (Specialist) by Investment Week
Achieved the highest score of A+ for
Strategy & Governance in the UN Principles
of Responsible Investment assessment,
(with A for Listed Equity and Fixed Income)
Obtained our sixth accreditation under the
SRI European Transparency Code in 2018
and remained a Tier I Signatory under the
UK Stewardship Council disclosure
Published our commended Amity Insights
research (including The Waste Problem and
Hungry Planet Revisited) and issued eight
Expert Briefings on responsible investment
topics from gender diversity to sand mining
Through our charitable fund, supported
young people’s social education and provided
counselling to vulnerable women
Section TwoEcclesiastical Annual Report & Accounts 2018Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information
Strategic Report – Strategy in action
48
49
Section Two
Strategic Report
Key Performance Indicators
Financial
Non-financial
50
52
Most trusted specialist adviser
We achieve this by
Providing excellent service
– building long-term sustainable relationships
with our customers and their insurers
Strengthening our proposition
– deepening our expertise further in our
chosen markets, cementing our position
as market leaders in these areas
Strategy in action
• A multiple award-winning year for the
broking businesses
• Deepened position in the equine market,
acquired both Equestrian World Insurance
Services and the equine side of insurance
intermediary Equicover Ltd
• Collaborated with the British Horse Society
and the Animal Health Trust to support
campaigns to improve the general welfare
of horses and riders
Highlights
Won the British Claims Award for Personal
Lines Broker of The Year
Won the Insurance Post Award for Young
Marketer/PR Employee of the Year
Worked closely with associations and
sub-broking partners to create new and
enhanced schemes to provide greater benefit
to customers
Created bespoke risk management guides
for specialist trades, in collaboration with
insurer partners
EFAS provided financial education seminars
in a variety of dioceses
Building our business
– delivering growth by developing new
offerings and schemes which complement
our existing niche markets
Working more closely together
– developing closer operational links across
the Group to offer solutions that meet our
customers’ needs
• Established the SEIB Giving community
fund to support small and medium-sized
charities
• Ecclesiastical Financial Advisory
Services continued to meet the key
financial concerns of clergy and church-
related people
• Campaigned to improve the regulation of
the funeral plan industry, including positive
engagement with Her Majesty’s Treasury
and the Funeral Planning Authority
Over 200 small and medium-sized charities
were nominated for SEIB Giving. SEIB
customers chose The British Horse Society
to receive the first grant of £50,000
Worked to raise awareness and support for
equine diseases such as strangles
(a respiratory infection) and grass sickness
Received external plaudits for EPSL which
were supported by 90% of funeral directors
who are extremely or very satisfied with
EPSL*
EPSL* launched a Royal London branded
funeral plan in partnership with Royal
London Group
*part of Ecclesiastical Insurance Group (EIG)
Section TwoEcclesiastical Annual Report & Accounts 2018Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Section Two
Strategic Report – Key Performance Indicators
50
Ecclesiastical Annual Report & Accounts 2018
51
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 fifth consecutive year of stable underwriting
financial results1 has enabled us
to continue our targeted level of charitable
giving, with £18.8m of donations paid to good
causes in 2018.
This includes grants of £17.0m to our charitable
owner Allchurches Trust. This takes the total
amount of giving towards our £100m target
up to £64m.
Ecclesiastical’s capital position under Solvency
II has strengthened in 2018. Our capital
cover improved during the year as the SCR
decreased following the approval of our
internal model, which provides a more accurate
calculation of our unique risk exposure. The
SCR for 2017 and prior was calculated using
the standard formula.
The figures for 2018 are based on the
information provided to the Board as part
of their ongoing management of the business
and are unaudited.
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.
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 -
25.2
24.7
20.6
27.5
18.8
’14
’15
’16
’17
’18
Solvency II capital cover
(unaudited)
167
300
198 199 269
285
292
278
288
256
(%)
- 250%
- 200%
- 150%
- 100%
- 50%
- 0 %
’14
’15
’16+
’17+
’18
SCR
Excess own funds
Capital cover
+ 2016 and 2017 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 before
deduction of tax.
Total profit decreased to £15.4m in 2018,
driven by lower total investment returns in
line with the volatility seen in equity markets
in 2018.
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
2018 can be found in the
Group Remuneration Report
on page 124. Our short-
term target is to generate
sufficient profit to enable
us to meet our targets for
charitable donations.
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
2018 can be found in the
Group Remuneration Report
on page 124. Our target
over the longer term is to
achieve a 95% COR.
There was continued growth in profit from
the Insurance division and our Investment
Management and Broking and Advisory
divisions continued to contribute positive
performance to the Group result.
More information on underwriting performance
is given below.
See the Financial Performance Report on page
54 for more details.
The COR has improved for a seventh
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 2018 the ratio continued to outperform
our longer-term target, supported by prior year
releases due to favourable developments in
our liability claims. Our claims reserves remain
prudent and we would anticipate a more
normalised COR in the future as the run-off
of the liability business we exited in 2012
and 2013 works through.
For a breakdown of how COR is calculated,
see note 35 on page 232.
See the Financial Performance Report on page
54 for more details.
(£m)
100 -
80 -
60 -
40 -
20 -
0 -
(%)
80 -
85 -
90 -
95 -
100 -
105 -
82
62
48
54
15
’14
’15
’16
’17
’18
PBT
Underwriting profit
86
87
90
92
96
’14
’15
’16
’17
’18
1 Alternative performance measure, refer to note 35 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 35 for further explanation.
Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Section Two
Strategic Report
Financial Performance Report
Section Two
Strategic Report – Key Performance Indicators
52
Measure
Performance
Our NER increased in 2018 to 55% with
a 3% increase in net earned premium,
partially offsetting a 5% increase in net
expenses. Our programme of strategic
investment in technology, innovation and
in our people has continued in 2018 along
with an increase in expenses from our overseas
businesses on translation into sterling.
In 2018 we incurred one off costs in relation
to the announced closure to future accrual
of the UK defined benefit pension scheme
and the recent Lloyd’s Bank court ruling on
Guaranteed Minimum Pension equalisation.
For a breakdown of how NER is calculated,
see note 35 on page 232.
In 2018, factors such as rising US central bank
interest rates, a sharp slowdown in eurozone
business confidence, weaker Chinese growth,
rising geopolitical concerns and the ongoing
trade conflict between the US and China all
contributed to a volatile year with a significant
market downturn during the final quarter.
For the second consecutive year we saw record
gross inflows from all sources, which in 2018
totalled £392m. Total net inflows were the
highest level in our history at £181m, with
a significant contribution from an institutional
mandate win. This represents a continuation
of our return to our targeted level of net inflows.
(%)
100 -
80 -
60 -
40 -
20 -
0 -
(£m)
200 -
150 -
100 -
50 -
0 -
-50 -
46
51
54
55
40
’14
’15
’16
’17
’18
181
121
98
15
-28
’14
’15
’16
’17
’18
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.
Net inflows1
(investment
management)
Net inflows are the
difference between the
funds invested and the
funds withdrawn during
the period by 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 35 to the financial statements for further explanation.
Non-Financial
We place equal importance on financial and non-financial key performance indicators. Details
of the non-financial performance indicators can be found within our Strategy in action section
starting on page 44 and our Corporate Responsibility Report starting on page 78.
Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Section Two
Strategic Report – Financial Performance Report
54
Ecclesiastical Annual Report & Accounts 2018
55
Financial
Performance Report
We delivered a pre-tax profit of £15.4m in 2018
(2017: £82.2m). Our underwriting profit remained
strong at £29.2m, (2017: £27.1m) although
investment market conditions were challenging
and resulted in fair value losses of £31.3m
(2017: gain of £35.8m).
There has been continued growth in our
underwriting results over the last five years
as we have successfully delivered against
our redefined strategy. We remain a trusted
partner to our brokers and customers, and
this is reflected in our high retention and
satisfaction levels. Investment returns were
impacted by unrealised investment losses
due to external market turbulence, including
the impact of the uncertainty around Brexit.
We manage the business by taking a long-
term view of risk, and our approach to capital
management means that we are able to
withstand short-term volatility. In particular,
our investment approach carries a level of
risk, but enables us to take advantage of
the opportunities to deliver higher investment
returns over the long term from investing
in equities, than from investing in lower risk,
lower returning fixed income investments.
The Group remains well capitalised and
received approval for our Internal Model
in 2018, which was a significant milestone.
The Internal Model enables us to continue to
understand and quantify our risk profile and
to optimise the use of capital in the future.
In order to ensure that the Group delivers
sustainable profitable growth, we continue
to make strategic investments in technology,
property, people and processes. We took
the difficult decision to close the UK
defined benefit pension scheme to future
accrual from 30 June 2019, which will
enable the scheme to reduce the level
of risk over time and secure the payment
of future benefits to members.
We made charitable grants of £18.8m
(2017: £27.5m) for the year as part of our
commitment towards the £100m target by
2020 and have seen the positive impact that
this charitable giving makes to people’s lives.
General insurance
Our underwriting performance1 for the year
was a profit of £29.2m (2017: £27.1m
profit), resulting in a Group COR1 of 86.4%
(2017: 86.9%). Our fifth consecutive year
of improvement in underwriting profits has
been aided by the favourable development
of prior year claims on the Group’s liability
business. Additionally in the UK there has
been good current year experience on the
liability and property accounts which helped
to offset the impact of a series of weather
events in our Canadian business.
United Kingdom
and Ireland
In the UK and Ireland underwriting profits
decreased to £29.4m (2017: £32.7m profit)
giving a COR of 80.2% (2017: 77.1%).
This represents another good performance
with a favourable result on the liability
account and a solid outturn on the property
book. It is not a level of underwriting
performance on the liability account
we expect to persist in the future.
The underwriting result on the property
account was behind last year, impacted
by adverse weather in the first half
of the year with the Beast from the
East and Storm Emma combined with
an increase in subsidence claims following
the exceptionally dry summer. Despite these
events the current year loss ratios are in line
with expectations and the result benefited
from a distribution from our pooled terrorism
reinsurance arrangements of £1.0m
(2017: £1.9m).
The underwriting result from the liability
account continues to perform favourably.
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 unprofitable business we exited in
2012 and 2013 combined with the prudent
approach to reserving have improved
the overall result in the last three years.
In 2018, GWP has grown by 5% to £242m,
(2017: £231m). The trading conditions
across the year were consistently very
competitive with the market remaining
sensitive to changes in price. Despite this
we have seen high retention levels across
our UK and Ireland business demonstrating
the strength of our proposition and reputation
for exceptional service. Our Real Estate
and Art & Private Client business delivered
growth of 14% and 22% respectively as
we successfully build on our investment in
innovation and product development. GWP
in respect of our Faith business remained
in line with prior year reflecting a good result
in a highly competitive market.
1 Alternative performance measure, refer to note 35 to the financial statements for further explanation.
Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Strategic Report – Financial Performance Report
56
57
We expect the market to continue to be
fiercely competitive. The capacity in the
market and moves by generalist insurers
into our core specialist risks will maintain
the pressure on our GWP growth ambition.
Our strategy over the medium term looks
to deliver moderate GWP growth, while
maintaining our strong underwriting discipline
and our philosophy to seek profit over growth.
We will continue to deepen our specialist
capabilities through investment in technology
and innovation, and to provide appealing
customer propositions and excellent service.
reinsurance programme, severely impacted
the result. Performance in the second half of
the year was stronger, reflecting the benefit
of rating action and a return to more normal
weather experience.
Other insurance
operations
General insurance profits benefited from
favourable releases of prior year reserves
from our businesses in run-off, resulting in an
overall profit of £1.0m (2017: £0.9m profit).
Ansvar Australia
Our Australian business reported an
underwriting profit of AUD$2.5m giving
a COR of 93.7% (2017: AUD$1.2m
profit, COR of 96.9%). The liability account
performed well and includes the benefit
of favourable development of prior year
claims reserves. The property account
incurred losses but improved over the prior
year, driven by the more benign natural
catastrophe experience in 2018.
GWP grew by 5% in local currency
to AUD$101.6m (2017: AUD$96.3m).
The 2018 growth in GWP was driven
by the property book while GWP for liability
remained constant. Property GWP increased
by 9% with good levels of renewal rate more
than offsetting the run-off of a proportion
of the property book at the end of 2017.
Canada
Our Canadian business continued its
track record of delivering premium growth,
reporting an 8% increase in the branch’s
contribution towards Group GWP
at CAD$93.5m (2017: CAD$86.9m).
The territory reported an overall underwriting
loss of CAD$4.5m giving a COR of 106.5%
(2017: CAD$12.1m loss, COR of 118.5%).
The severe winter weather at the beginning
of 2018 and the occurrence of four weather
related mini-catastrophes which were not
significant enough to trigger the catastrophe
Investments
Following the strong market returns of the
previous two years, 2018 saw a return
to volatility in UK and worldwide stock
markets which over the course of the year
pushed market prices down, notably in
the fourth quarter of the year. Income from
financial assets remained relatively stable
at £27.0m (2017: £29.0m) with the low rate
environment continuing to depress overall
yields. As a result of the investment market
downturn at the end of 2018 the fair value of
financial instruments decreased by £35.5m
(2017: increase of £30.3m). There has been
some recovery in the markets in early 2019
but uncertainty remains over the outcomes
of key issues such as global trade and Brexit.
Overall investment returns for the year were
£4.0m (2017: £72.3m).
The small and mid-cap bias in our UK equity
portfolio had a negative impact in 2018
as the FTSE small-cap and FTSE 250
mid-cap indices lagged the FTSE 100
large-cap index and FTSE AllShare overall
by 4%. Our allocation to lower volatility
direct property investments was the largest
positive contributor to total net investment
returns over the period. On a relative basis
our property investments delivered a return
of 5.2% compared with the broader
Investment Property Databank (IPD)
All Properties Index return of 7.4%.
A strong return on industrial properties
was offset by the retail property sector where
our allocation is greater than the benchmark.
The Group’s bond investment portfolio has
a higher weighting of shorter duration bonds
and corporate bonds than the FTSE
Conventional Gilts Allstock Index.
Overall, this has resulted in underperformance
against the main index this year. An upward
movement in yields led to an increase in the
discount rate applied to long-tail general
insurance liabilities. The change in discount
rate on those liabilities resulted in a £4.4m
profit being recognised within investment
returns (2017: £1.4m loss).
The investment result includes a £1.6m
return, net of discounting (2017: £2.8m)
on assets held to support our long-term
insurance liabilities. The net return more than
offsets a £0.1m decrease (2017: £2.4m
increase) in long-term insurance claims
liabilities which benefited from a favourable
development in future costs described below.
Investment management
The Group’s investment management
business, EdenTree, continued to develop
its presence in the Charity and Institutional
markets. Net inflows to funds of £181m
(2017: £121m net inflow) were the best
in EdenTree’s history, with institutional
business boosted by further mandate wins
from a European global bank.
The weakness in global equity market
returns in 2018 has broadly offset the
net fund inflows in the period, therefore
total funds under management remain
at £2.7bn (2017: £2.7bn).
Fee income has grown 8% to £12.6m
(2017: £11.7m). Overheads have
increased by 15% in the year mainly
due to continued investment in technology
and systems to deliver the future growth
plans of the business and support MiFID II
reporting requirements. As a result pre-tax
profits in the period decreased to £0.9m
(2017: £1.7m).
Long-term insurance
The life business insurance result for
2018 was a profit of £1.5m (2017: £0.4m).
Ecclesiastical Life Limited (ELL) is closed
to new business and the main contributor
to the increased profit in the year is due to
the favourable development in reserves held
for future costs, following the removal of the
Solvency II audit requirement going forward.
Broking and advisory
The broking and advisory business
comprises our insurance broker and
financial advisory businesses, South
Essex Insurance Brokers Limited (SEIB),
Ecclesiastical Financial Advisory Services
Limited (EFAS) and in 2018 Ansvar Risk
Management Services (ARMS).
SEIB reported a marginal decrease
in profit before tax to £2.4m (2017: £2.5m).
EFAS reported a small loss of £0.2m
in the year (2017: £0.2m loss) and ARMS
reported a loss of £0.2m.
Overall, our broking and advisory
business had modest growth in income
and maintained profit, reporting a pre-tax
profit of £2.0m (2017: £2.3m profit).
The Group takes a long-term view in its
approach to managing and investing in
the business and as such is focused on
delivering sustainable profitability with
steady, measured growth. As we look
forward to 2020, we continue to focus
on our vision to be the most trusted
and ethical financial services group and
remain optimistic about the opportunities
to continue to evolve our business and
contribute to the greater good of society.
Denise Cockrem
Group Chief Financial Officer
Section TwoEcclesiastical Annual Report & Accounts 2018Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Ansvar Australia
Helping the aged care sector manage its risks
Ansvar Australia is using its expert knowledge
to guide customers in the aged care market through
a period of significant change and uncertainty.
Aged care providers are currently participating
in the Royal Commission into Aged Care Quality
and Safety. The Royal Commission was launched as
a result of rising concerns about failings of care and
a system that is no longer fit for purpose. It comes
at a time when the market is already dealing with
significant complexity and disruption, including the
introduction of new regulation, increasing care needs
and financial pressures.
In response to these challenging circumstances, Ansvar Australia recognised
that to meet the needs of our customers we would have to provide a response
that goes beyond insurable risk transfer. We have taken a lead in helping
organisations understand what the Royal Commission means for their
governance, risk management and insurance, and helping them to make
improvements.
As experts in the sector, the Ansvar team uses a range of resources and
tools to help organisations to respond to this complexity including enterprise
risk management consultancy support such as risk maturity assessments,
risk improvement planning and strategic workshops.
Ansvar’s risk consultants have been touring the country to present at aged
care forums, partnering with brokers and discussing the importance of risk
management with their clients. In 2018 they reached more than 320 brokers
and continue to support the market through this turbulent time.
“I have worked with Ansvar over the past eight years to provide insurance
for our clients. More recently, I have worked closely with their risk management
team to give our clients a greater understanding of not just insurance,
but how they can improve how they manage their risk in the daily running of
their business.
“Ansvar excel in their chosen fields of insurance and this is why I chose to
partner with them, particularly in the risk management space.”
Sophie Laube
Client Manager
Aon
Building a movement for good
Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Section Two
Strategic Report – Financial Performance Report
60
Section Two
Strategic Report
Risk Management Report
Principal risks
62
68
‘The Group takes a long-term
view in its approach to managing
and investing in the business and
as such is focused on delivering
sustainable profitability with
steady, measured growth.’
Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Section Two
Strategic Report – Risk Management Report
62
Ecclesiastical Annual Report & Accounts 2018
63
Risk Management
Report
Introduction
Strong governance is fundamental to what we do and drives the ongoing
embedding of our enterprise-wide risk management framework. This provides
the tools, guidance, policies, standards and defined responsibilities 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.
Risk
strategy
Risk appetite
Risk policies and standards
Internal model
Stress and
scenario
testing
ORSA
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Values and culture
People, systems and processes
Governance
The risk management framework
is integrated into the culture of the Group
and is owned by the Board. Responsibility
for implementation and oversight is
delegated via the Group Chief Executive
to the Group Risk Function, led by the
Group Chief Risk Officer.
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.
Key to the successful operation of the
internal control framework is the deployment
of a strong Three Lines of Defence Model
whereby:
• 1st Line (Business Management)
is responsible for strategy execution,
performance and identification and
management of risks and application
of appropriate controls;
• 2nd Line (Reporting, Oversight and
Guidance) is responsible for assisting
the CRO and Board to formulate risk
appetite, establish minimum standards,
develop appropriate reporting, oversight
and challenge of risk profiles and risk
management activities within each of the
business units. This includes Executive Risk
Management Committees and is subject
to oversight and challenge by the GRC
• 3rd Line (Assurance) provides
independent and objective assurance
of the effectiveness of the Group’s systems
of internal control. This activity principally
comprises the Internal Audit function which
is subject to oversight and challenge
by the Group Audit Committee.
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
(GRC) 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
Executive Risk Committees.
Clarity of responsibility and accountability
for the management of risk is the cornerstone
of any effective Risk Management Framework
and successful business. Ecclesiastical has
clearly defined the accountabilities, roles
and responsibilities of all key stakeholders
in implementing and maintaining its Risk
Management Framework. These are
defined, documented and implemented
through the terms of reference (TORs)
of board sub committees, management
and executive forums, position descriptions
and functional charters.
The Group’s Risk Management
Framework itself is part of a wider
Internal Control Framework.
Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information
Strategic Report – Risk Management Report
64
65
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.
Risk environment
The risk environment is monitored on an
ongoing basis and key areas of concern
escalated to the Group Risk Committee.
The Group 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.
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.
The Own Risk and Solvency Assessment
(ORSA) process is carried out at least
once a year and is a key part of the business
management and governance structure.
This integrates the risk management,
business planning and capital management
activities and ensures that risk, capital and
solvency considerations are built into the
development and monitoring of the Group’s
business strategy and plans and all key
decision making.
During 2018 the Group received regulatory
approval for the use of our Internal Model as
the basis for the calculation of our regulatory
capital requirement.
The uncertainty around the outcome of
Brexit carries risks for all UK-based firms.
The main risk facing the Group is the loss
of its ability to carry out business in the
Republic of Ireland using the freedom
to provide services currently afforded by
the United Kingdom’s membership of
the EU. This risk is being mitigated by
the submission of an application for the
Ireland branch to become regulated by the
Central Bank of Ireland as a Third Country
branch after Brexit. The Group has no
other material business elsewhere in the
EU. The uncertainty created by Brexit has
the potential to result in adverse economic
conditions and impact the Group’s
investments and our customers. We have
not identified any further material risks to our
business as a result of Brexit although we
continue to monitor the situation closely.
During 2018 we have continued to take
a high level of market risk to give the potential
for investment growth. Our investment
strategy has been refreshed, though there
has not been a material change to our asset
mix. A programme of de-risking interest
rate and inflation risk in the defined benefit
pension scheme was completed during the
year and the company took the decision
following consultation with members to
cease accrual in the scheme for future
service after June 2019 which will enable
further decreases to the risk associated
with the scheme.
Within the insurance market firms continue
to enhance their analytical skills and deepen
their portfolio knowledge. Therefore, high
quality technical underwriting standards,
pricing and portfolio management abilities
are increasingly important to ensure
business written and retained is profitable.
Our strategy is to achieve controlled and
profitable growth within our defined niches.
The potential for adverse development
of long-tail liability claims, particularly
in respect of PSA claims, remains
a risk that we continue to actively
manage. The Independent Inquiry into
Child Sexual Abuse in the UK is continuing
and we continue to monitor this and
developments in the other territories
in which we operate to determine the
potential impact on these claims.
Competitor activity is an ever present risk
across all our business operations and
chosen niches that could threaten our ability
to grow or even lead to a decline in scale
with resultant adverse financial impact.
There has been significant regulatory
change during 2018; the most material
being the implementation of GDPR,
IDD, MiFID II and SMCR. Management
of continued change in the regulatory
environment will remain a focus for
us in light of uncertainty in the direction
of regulation following Brexit.
Worldwide, cyber risk remains a constantly
evolving threat with potential for a significant
event involving loss of customer data
that could result in significant operational
disruption and an impact on our service
to customers as well as sizeable regulatory
fines and reputational damage. Regulations
such as GDPR and a greater societal
focus on the importance of security
and appropriate use of individuals’ data
also increase the prominence of data
management risks for all companies.
Maintaining a positive reputation is critical
to our vision of being the most trusted
and ethical specialist financial services
group. Our reputation could potentially
be damaged as a result of a range of factors
including poor business practices and
behaviours. High standards of conduct
are a core part of the Group’s brand, values
and culture and there is an ongoing focus
on ensuring this is maintained.
Section TwoEcclesiastical Annual Report & Accounts 2018Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information SEIB
Supporting funeral directors through a period of change
Insurance broker SEIB is a recognised leader in the
field of funeral directors’ insurance. With over 50 years’
experience in the market, SEIB is recommended by
the biggest body within the industry – the National
Association of Funeral Directors (NAFD) – as the
preferred insurance provider for funeral directors
and ancillary trades.
In April 2017, as a forerunner to introducing regulation for funeral directors in
Scotland, the Scottish Government appointed an independent Inspector of
Funeral Directors following recommendations on how this might benefit the
industry, along with recognising the importance of introducing, promoting and
maintaining standards of practice.
Once rolled out in Scotland, it is expected that regulation will make its way to the
rest of the UK, and many traditional funeral directors are in the dark about how
this will affect their businesses.
As a trusted supplier to the NAFD, SEIB has stepped in during 2018 to provide
expert guidance and advice to the body and its members, as UK funeral directing
moves towards becoming a regulated industry. Coming from a sector that is
accustomed to working in a regulated environment, SEIB is well placed to help
support this beneficial change.
Covers that were not previously seen as a necessity will with regulation become
vital in ensuring that funeral directors have comprehensive protection for their
business and reputation.
SEIB continues to develop and expand the cover offered by its bespoke Funeral
Directors’ Business Insurance Scheme, ensuring that it remains relevant to the
changing needs of this specialist client group both today and in the future.
Building a movement for good
Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Section Two
Strategic Report – Principal risks
68
Ecclesiastical Annual Report & Accounts 2018
69
Principal risks
There is an ongoing risk assessment process which has identified the current principal risks for the Group as follows:
Insurance risk
The risk that arises from the fluctuation in the timing, frequency and severity of insured events
relative to the expectations of the firm at the time of underwriting.
Risk detail
Key mitigants
Change from last year*
Risk detail
Key mitigants
Change from last year*
• A documented underwriting strategy and risk appetite
is in place and monitored by SBUs
• This is supported by formally documented authority
levels for all underwriters which must be adhered to.
Local checking procedures ensure adherence
• Monitoring of rate strength compared with technical rate
is undertaken on a regular basis within SBUs
• There are ongoing targeted underwriting training
programmes in place
• Claims development and reserving levels are closely
monitored by the Group Reserving team
• 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
This risk has not changed
materially during the year.
This risk has not changed
materially during the year.
Underwriting risk
The risk of failure to
price insurance products
adequately and failure
to establish appropriate
underwriting disciplines.
The premium charged
must reflect the cover
provided and the risk
presented to the Group.
Reserving risk
Reserving risk is the risk
of actual claims payments
exceeding the amounts
we are holding in reserves.
This arises primarily
from our long-tail liability
business. Failure to interpret
emerging experience or fully
understand the risks written
could result in the Group
holding insufficient reserves
to meet our obligations.
• There is a comprehensive reinsurance programme in place
to protect against extreme events. All placements are
reviewed and approved by the Group Reinsurance Board
• Modelling is undertaken to understand the risk profile and
the impact of reinsurance protections
• A Catastrophe Risk Management Group provides oversight
and sign off of reinsurance modelling
• Local risk appetite limits have been established to manage
concentrations of risk and these are monitored by SBUs
There have been no material
changes to this risk since
last year but this risk has
been specified separately
on the Group Risk Profile for
completeness. We continue
to monitor our aggregations
and exposures to such
events and purchase the
appropriate protections.
• We take a long-term view of reinsurance relationships
to deliver sustainable capacity
• A well-diversified panel of reinsurers is maintained for each
The level of this risk has
remained broadly similar
since last year.
element of the programme
• A Group Reinsurance Board is in place which approves all
strategic reinsurance decisions
Catastrophe risk
The risk of large scale
extreme events giving
rise to significant insured
losses. Through our
general insurance
business we are exposed
to significant natural
catastrophes in the
territories in which we
do business.
Reinsurance risk
The risk of failing to access
and manage reinsurance
capacity at a reasonable
price. Reinsurance is
a central component
of our business model,
enabling us to insure
a portfolio of large risks
in proportion to our
capital base.
Link to viability statement – risk included in stress and scenario analysis
*change arrows reflect movement in underlying risks
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Strategic Report – Principal risks
70
71
Other financial risks
The risk that proceeds from financial assets are not sufficient to fund the obligations arising
from insurance contracts.
Risk detail
Key mitigants
Change from last year*
Risk detail
Key mitigants
Change from last year*
There has been significant
volatility in the investment
markets in the last year
and the outlook remains
uncertain with global trade
and Brexit concerns.
We have de-risked elements
of the defined benefit
pension scheme.
Overall the market risk
profile is not materially
changed and we remain
invested for the long term.
The level of this risk is
unchanged from last year.
• An investment strategy is in place which is reviewed
annually and signed off by the Finance and Investment
Committee (F&I). This includes consideration of the Group’s
liabilities and capital requirements
• A Market and Investment Risk Committee is in place and
provides oversight and challenge of these risks and the
agreed actions. There is a formalised escalation process
to Group Management Board (GMB) and F&I in place
• There are risk appetite metrics in place which are agreed
by the Board and include limits on exposures and
counterparties
• Derivative instruments are used to hedge elements
of market risk, notably equity and currency. Their use
is monitored to ensure effective management of risk
• There is tracking of risk metrics to provide early warning
indicators of changes in the market environment
Further information on this risk is given in note 4
to the financial statements on page 185.
• Strict ratings criteria are in place for the reinsurers that
we contract with and a Reinsurance Security Committee
approves all of our reinsurance partners
• Group Reinsurance monitors the market to identify changes
in the credit standing of reinsurers
• Strong credit control processes are in place to manage
broker and policyholder exposures
Further information on this risk is given in note 4 to the
financial statements on page 185.
Market and
investment 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.
This principally arises from
investments held by the
Group. We actively take
such risks to seek enhanced
returns on these investments.
The Group’s balance sheet
is also exposed to market
risk within the defined
benefit pension fund.
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.
The principal exposure
to credit risk arises from
reinsurance, which is central
to our business model. Other
elements are our investment
in debt securities, cash
deposits and amounts owed
to us by intermediaries and
policyholders.
• We hold a high proportion of our assets in readily realisable
investments to ensure we could respond to such a scenario
• We maintain cash balances that are spread over several
There have been no material
changes to this risk since
last year.
banks
• We have arrangements within our reinsurance contracts for
reinsurers to pay recoverables on claims in advance of the
claim settlement
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. We may
need to pay significant
amounts of claims at short
notice if there is a natural
catastrophe or other large
event in order to deliver
on our promise to our
customers.
Operational risk
The risk of loss arising from inadequate or failed internal processes, people and systems,
or from external events
Risk detail
Key mitigants
• Systems monitoring is in place together with regular
systems and data backups
• A strategic systems programme is underway to deliver
improved systems, processes and data
• Business recovery plans are in place for all critical systems
and are regularly tested according to risk appetite
Systems risk
The risk of inadequate,
ageing or unsupported
systems and infrastructure
and system failure
preventing processing
efficiency. Systems are
critical to enable us to
provide excellent service to
our customers.
Change from last year*
The strategic systems
programmes have made
significant progress
during 2018. The scale
and complexity of these
programmes bring a
degree of change risk
which we need to manage
appropriately. Although
reduced, we continue to
carry a number of risks
which have been mitigated
through effective tactical
approaches during 2018.
Link to viability statement – risk included in stress and scenario analysis
*change arrows reflect movement in underlying risks
Section TwoEcclesiastical Annual Report & Accounts 2018Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Strategic Report – Principal risks
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73
Risk detail
Key mitigants
Change from last year*
• A number of security measures are deployed to ensure
protected system access
• Security reviews and assessments are performed on
an ongoing basis
• There is ongoing maintenance and monitoring of our
systems and infrastructure in order to prevent and detect
cyber security attacks
The threats to our business
continue to evolve. The
controls in place to protect
the business are subject to
ongoing review and update.
Overall the level of risk
is unchanged but we
acknowledge the need
for vigilance and strong
security measures.
• We ensure that there is adequate resourcing for change
projects using internal and external skills where appropriate
• A Group Development Director is in place with responsibility
for overseeing the delivery of all strategic initiatives
• A Change Board and change governance processes have
been established and are operated on an ongoing basis
• The GMB undertakes close monitoring and oversight
of the delivery of the strategic initiatives and key Group
change programmes
The level of this risk has
not materially changed.
There is a significant
volume of change within the
business which will continue
to be monitored closely.
Cyber risk
The risk of criminal or
unauthorised use of
electronic information, either
belonging to the Group or its
stakeholders e.g. customers,
employees etc. Cyber security
threats from malicious parties
are increasing in both number
and sophistication across all
industries.
Change risk
The risk of failing to manage
the change needed to
transform the business.
A number of strategic
initiatives are underway
under six themes, including
a transformation of our core
system and key processes,
which will deliver significant
change for the company over
the next few years. There
are a number of material
risks associated with major
transformation, not only on
the risks to project delivery
itself, but the potential
impacts on business as usual.
Regulatory and conduct risk
The risk of regulatory sanction, operational disruption or reputational damage from
non-compliance with legal and regulatory requirements or the risk that Ecclesiastical’s
behaviour may result in poor outcomes for the customer.
Risk detail
Key mitigants
• We undertake close monitoring of regulatory developments
and use dedicated project teams supported by in-house and
external legal experts to ensure appropriate actions
to achieve compliance
• An ongoing compliance monitoring programme is in place
across all our SBUs
• Regular reporting to the Board of regulatory compliance
issues and key developments is undertaken
• Ongoing staff training to ensure that customer outcomes
are fully considered in all business decisions
• Customer charters have been implemented in all SBUs
• Conduct Risk Reporting to relevant governing bodies is
undertaken on a regular basis
• Customer and conduct measures are used to assess
remuneration
• A Customer First Steering Group is in place comprising
representatives from across the Group
Regulatory risk
The risk of regulatory
sanction, operational
disruption or reputational
damage from non-
compliance with legal and
regulatory requirements.
We operate in a highly
regulated environment which
is experiencing a period
of significant change.
Conduct risk
The risk of unfair outcomes
arising from the Group’s
conduct in the relationship
with customers, or in
performing our duties and
obligations to our customers.
We place customers at
the centre of the business,
aiming to treat them
fairly and ethically, while
safeguarding the interests
of all other key stakeholders.
Change from last year*
There has been significant
regulatory change during
2018. We remain focused
on the management of
regulatory change and
therefore the overall
risk level is unchanged.
The level of this risk is
unchanged from 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 2018Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Section Two
Strategic Report
Corporate Responsibility Report
2018 highlights
Overview
Our workplace
Our community
Our environment
Our marketplace
78
80
82
83
84
85
Strategic Report – Principal risks
74
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.
We have considered the risks presented
by Brexit and at this stage do not perceive
any material risk to the Group’s viability.
The assessment of the Group’s prospects
by the directors covers the three years to
2021 and is underpinned by management’s
2019-2021 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 68 to 73. 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
Increase in attritional claims
Principal risks
Underwriting risk
1 in 50 year deterioration in PSA reserves
Reserving risk
10% reduction in GWP year on year
Underwriting risk
CAT windstorm combined with reinsurer default
Catastrophe and credit risk
1 in 20 investment market event
Market and investment risk
10% increase in annual operating expenses
Operational risk
Combined 1 in 20 and CAT windstorm
Market and investment risk, and catastrophe risk
Sustained economic downturn
Market and investment risk
Scenario testing found that the combined
1 in 20 and CAT windstorm scenario puts
most strain on capital but does not result in
a direct breach of regulatory requirements.
A range of plausible mitigating actions has
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, 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 grants 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 strong capital
position, the strong risk management
framework in place and the Group’s
resilience to a 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 TwoSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Ecclesiastical Ireland
A leader in the education sector
2018 saw Ecclesiastical Ireland reinforce its leading
position in the education sector. The business saw
strong growth and won and retained a number
of prestigious education clients.
Among the clients that chose to insure with us for the first time was Cistercian
College Roscrea, a Catholic boarding school for boys located within the
grounds of Mount St. Joseph Abbey in County Offaly. Founded by Cistercian
monks in 1905, Cistercian College Roscrea is one of only two monastic schools
in Ireland.
The school decided to move its business to Ecclesiastical after its bursar
attended a presentation by our underwriting team. He was so impressed by
the depth of knowledge in the team, not just in the education sector, but also our
expertise in insuring heritage buildings, that he asked his broker to get a quote
from Ecclesiastical.
Another of the organisations to move its business to us was Griffith College,
Ireland’s largest independent further education institution. Established in 1974,
Griffith College has 7,000 students at locations in Dublin, Cork and Limerick and
enjoys a growing national and international reputation for student success.
After narrowly missing out on winning the college’s business the previous
year, we continued to develop our relationship with its broker and ultimately
demonstrated that our expertise in the sector made us the perfect partner
for the college.
“From the initial presentation to discussing our needs and arranging a pre-quote
survey, I was impressed with the expertise and professionalism of the
Ecclesiastical team. Their in-depth knowledge of the education and heritage
sectors makes them the perfect partner for Cistercian College Roscrea.”
John Hanamy
Finance Director
Cistercian College
Building a movement for good
Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Section Two
Strategic Report – Corporate Responsibility Report
78
Ecclesiastical Annual Report & Accounts 2018
79
Corporate Responsibility Report
2018 highlights
Our workplace
Our environment
29.9%
of senior management roles
globally filled by women
(2017: 23.3%)
86%+ve
of staff say ‘I am proud
to work for this company’
(+5% on Financial Services
benchmark) (2017: 88%)
78%
electricity from renewable
sources (2017: 73%)
Carbon
footprint
All but one of EdenTree
funds better than benchmark
CO2
89%+ve
‘In my opinion my company
is committed to customer
satisfaction’ (2017: 91%)
80%
of all our managers received
mental health and wellbeing
training in just one week
Our community
£18.8m
total charitable giving
(2017: £27.5m)
94,000
nominations for 6,000 charities during
our #12days of Giving programme
Our marketplace
30%
increase
in recycled waste
1,118 tonnes
total carbon emissions,
Scopes 1-3
(2017: 1,076 tonnes*)
*2017 excludes our Ansvar UK business.
The footprint comparable to 2017’s
reporting is broadly unchanged.
69%
of suppliers paid within 30
days, published as part of
the Payment Practices and
Performances Reporting
10th year
running
as Best Ethical
Investment Provider
60%
of employees took
up volunteering time
(2017: 60%)
90%
of employees
engaged in giving
(2017: 90%)
Three wins
at the Insurance Post
Claims Awards for training,
customer care and
contribution to the industry
Fairer Finance
Gold Standard
for the 8th year running
10
Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Strategic Report – Corporate Responsibility Report
80
81
‘Building a movement for good
is about demonstrating we are
a different kind of business,
doing the right thing in every
aspect of what we do. We’re proud
to report on our performance and
achievements in a wide range
of responsible business areas.’
In 2018 we joined ClimateWise,
the industry’s voluntary commitment
to tackling climate change.
We use a materiality approach to drive
our strategy. In 2018 we refreshed our
approach through an internal review process
and an external stakeholder roundtable.
Key issues we have identified include
climate change, cyber security, charitable
giving, diversity and governance.
Read more about our governance of CR,
assessment of the external environment
and materiality assessment in our full CR
Report on our website.
Overview
CR at Ecclesiastical has an established
structure and governance which includes
Board visibility and responsibility for
overarching strategy; a senior-level
Steering Group providing leadership;
and local business ownership of activity.
Independent assessment and accreditation
is an important aspect of maintaining
and raising standards. We continue
to hold standards including Living
Wage, Business In The Community’s
CommunityMark, Women in Finance
and the Fairer Finance Gold Ribbon.
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.
Gender by level
Group Management Board
Senior Leader
Manager
Team Member
Total
Gender pay gap
Fixed pay gap mean/median
Bonus pay gap mean/median
Ethnicity
White
1257
Male
3
76
241
379
701
Female
4
33
163
620
820
Total
7
109
404
999
1521
2018
2017
30.6%/23.5%
55.8%/36.5%
30.7%/25.0%
53.5%/33.1%
Prefer not to say
185
BME
79
Total
1521
Section TwoEcclesiastical Annual Report & Accounts 2018Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information
Strategic Report – Corporate Responsibility Report
82
83
Our workplace
Our community
We foster an open and responsible culture which means
supporting our employees, developing talent at all levels,
encouraging diversity and providing a positive and
engaging working environment.
Our approach to leadership and culture
was strengthened throughout 2018 with
the rollout of core cultural elements and
a second cohort of leaders from all parts
of our Group embarking on a leadership
development programme. We also provided
appropriate training for senior colleagues
to implement the Senior Managers and
Certification Regime.
We also continued to uphold Living Wage
status. Ecclesiastical Canada was included
in Canada’s Top 100 Employers for Young
People for the seventh consecutive year.
Lycetts worked with educational charity
Learning for Life which supports young
people with a range of learning difficulties
by providing work experience for one of
their students.
A higher proportion of our more senior roles
are being filled by women which resulted
in a falling pay gap. Two years since signing
up to the Women in Finance Charter,
women now make up 29.9% of our senior
management roles globally, increased from
23.3% in 2017.
In 2018 we launched our General
Insurance Academy to provide a structured
development framework for roles in our
general insurance business. We delivered
over 800 Bitesize training sessions, retained
our Chartered Insurer status and achieved
Chartered Insurance Broker status for all
of the divisions in our broker Lycetts.
Following an independent external mental
health and wellbeing review in the UK we
introduced self-referral counselling to our
private healthcare scheme and 80% of our
managers attended workshops to reflect
and discuss mental health in just one week.
Our ambition is to give even more to good causes,
on our path to give £100m by 2020. In 2018 our total
charitable giving was £18.8m and our direct giving from
the Ecclesiastical Group was £1.8m. We rank fourth in
the Directory of Social Change’s UK Guide to Company
Giving and we are the number one insurer.
Allchurches Trust, our charitable owner,
gave a record £16.9m in grants in 2018
to over 1,100 good causes across the
UK and Ireland, from churches running
projects to support people experiencing
homelessness to charities tackling
loneliness in their local area. Under the
auspices of Allchurches Trust our Australian
and Canadian businesses also gave to their
communities through grants programmes.
We successfully sustained high levels
of engagement with our giving – over
90% of our people participated in our
employee giving initiative MyGiving and all
of our eligible Select Brokers supported
our programme which distributed nearly
£100,000 for the second year.
Our giving achieved significantly greater
reach in 2018 – whether it was through
recognising church volunteers or by
attracting more than 90,000 nominations
for our £1,000 #12days donations
to 120 charities. Dedicated partnerships
made a targeted difference. With our
support children’s charity Coram reached
450,000 children at over 2,000 schools.
We also established a new three-year
partnership with The Prince’s Foundation,
funding their craft skills programme.
Our Irish business supported partners
in a number of ways including sleeping
rough in support of Focus Ireland’s ‘Shine
a Light on Homelessness’ campaign.
Section TwoEcclesiastical Annual Report & Accounts 2018Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Strategic Report – Corporate Responsibility Report
84
85
Our environment
Our marketplace
We run our business in a responsible and sustainable
way and in 2018 we included more parts of our Group
in our carbon footprint reporting. All companies submitted
environmental data and we will continue to work with
them to find ways to minimise their impact.
We put customers at the heart of everything we do
and this was recognised by a number of awards detailed
elsewhere in this report. They included recognition for
claims excellence, training, customer care, contribution
to the industry and customer trust and happiness.
Also in 2018 the Group re-joined
ClimateWise, the insurance industry’s
voluntary initiative to tackle climate change.
Some of the activities we included in our
report were trialling smart water detectors
to reduce flood damage, continuing to
promote resilient reinstatement to our
customers, our ‘carbon aware’ investment
management approach and independently
verifying our carbon footprint.
We continued to reduce the impact of our
UK fleet – the average fleet emission rate
was 101g/km. The recycling programme
at our head office was fully established
and increased the volume of waste we
sent for recycling by 30%. We provided
all employees across our Group with a
reusable hot drinks cup and even printed
our first Impact Report on recycled coffee
cups which were destined for landfill.
EdenTree, our ethical investment
management business, continued to
benchmark the carbon footprint of its fund
range. Comparing the results of respective
benchmarks highlights the carbon-aware
approach we take to our portfolios.
Proactive initiatives underpin our ambition
to do more for our customers. For example
we launched the first Heritage Index to track
the cost of materials and labour associated
specifically with buildings of a traditional
construction to reduce the risk of
underinsurance. The Australian business
is leading the way for our Group in the use
of drone technology. In the UK we held our
first Charity Advisory Panel – welcoming
leading thinkers in the sector to share their
perspectives on current issues.
Our brokers and ethical investment
management businesses received a number
of accolades with EdenTree notably winning
Best Ethical Investment Provider at the
Moneyfacts Investment Life & Pensions
awards for the tenth year in a row.
Governance and employee training
and development underpin our belief
in good practices relating to human rights,
anti-corruption and anti-bribery risks.
We trained our people on the General
Data Protection Regulation and asked
our employees to re-state their commitment
to our Code of Conduct. We completed
our annual Modern Slavery Act declaration
and submitted our response to the Payment
Practices and Performance Reporting for the
first time.
Section TwoEcclesiastical Annual Report & Accounts 2018Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Ecclesiastical Canada
Protecting people
Founded in 1887 to protect church buildings from
the risks of fire, Ecclesiastical has been an expert
in the faith sector ever since. The risks facing the
sector have changed significantly over the past 131
years and Ecclesiastical’s risk management guidance
has evolved to meet the needs of our customers.
A key example is how Ecclesiastical Canada has been working closely
with customers to help them develop appropriate safeguarding policies
and procedures to protect the vulnerable in our communities. In collaboration
with the Archdiocese of Saint Boniface, Winnipeg, Manitoba, the Canadian
team has created an online learning module that ensures safeguarding policies
and procedures are being implemented at parish level. Drawing on our own
expertise and working alongside a specialist online training provider we
developed and launched the safeguarding module in October 2018.
Now all priests, Diocesan staff and safe church coordinators in each parish from
across the Archdiocese have enrolled on the course. The online platform allows
the Diocesan Safe Church Coordinator to see immediately who has taken
the training and who has not. The system will also automatically remind those
individuals who have yet to complete the online learning module to do so.
There is now huge customer demand for the module and Ecclesiastical is in the
process of rolling the training out to numerous Roman Catholic and Anglican
Dioceses across Canada.
“The e-learning module developed in partnership with Ecclesiastical Insurance
fulfils an unmet need that most dioceses in Canada have had for many years.
Our Church has a duty and an obligation to provide the safest environment
possible for all of its parishioners and this programme will make our churches,
schools and various activities safer.”
Richard Fréchette
Diocesan Financial Administrator
Archdiocese of Saint Boniface
Building a movement for good
Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Section Two
Strategic Report – Strategic Report approval
88
Ecclesiastical Annual Report & Accounts 2018
89
Strategic Report approval
The Strategic Report, outlined on pages 24 to 87, 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
19 March 2019
‘Our goal is to build
a sustainable, values-driven
business over the longer term,
while putting customers’ needs
first – especially in times of
need or change. This has seen
us develop extraordinary levels
of customer understanding
and care.’
Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Section Three
Governance
Board of Directors
Directors’ Report
Corporate Governance
Independent Auditor’s Report
92
96
102
150
Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Section Three
Governance – Board of Directors
92
Ecclesiastical Annual Report & Accounts 2018
93
Board of Directors
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 Senior Independent
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) (e)
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 is a member of The University
of Lincoln Court. She has also
been chair of a number of charities.
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 in the UK and Ireland.
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 Adviser to the Bank.
He holds several external
Non-Executive Directorships.
Mark Hews (a)
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 and 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
(formerly Bacon and Woodrow)
as a consultant and actuary.
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 where he chairs
the Audit, Risk and Compliance
Committee, and an independent
Non-Executive Director of Lloyds
Bank Corporate Markets plc,
where he also chairs the Audit
Committee. He is an Independent
Non-Executive Director of National
Bank of Greece S.A. and chairs
its Audit Committee. Previously,
Andrew was for 24 years a partner
in EY, and was for nine years
Chairman of the Board of Southern
Housing Group, one of the largest
housing associations in the UK.
Key to membership
of Group Board Committees
(a) Group Finance and Investment
(b) Group Nominations
(c) Group Risk
(d) Group Audit
(e) Group Remuneration
Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Governance – Board of Directors
94
95
Board diversity
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 +
2018
2017
7:2
9:3
6:3
8: 4
3
2
1
1
7
1
1
0
0
1
6
2
3
3
2
1
10
1
1
0
0
2
7
3
Chris Moulder (c) (d) (e)
Independent Non-Executive
Director
Chris Moulder was appointed
to the Board in September 2017.
Chris retired in 2017 after five
years at the Bank of England
as Director of General Insurance
at the Prudential Regulation
Authority. Prior to this he had
spent 26 years with KPMG as
a partner in its Financial Sector
practice. He is also a Director
of the Insurance Board of Lloyds
Banking Group and of Tokio
Marine Kiln.
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 Floors Castle Outdoor Events
and Brewin Dolphin Holdings plc.
S. Jacinta Whyte (c)
Deputy Group Chief Executive,
Managing Director UK
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.
Key to membership
of Group Board Committees
(a) Group Finance and Investment
(b) Group Nominations
(c) Group Risk
(d) Group Audit
(e) Group Remuneration
Section ThreeEcclesiastical Annual Report & Accounts 2018Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information
Section Three
Governance – Directors’ Report
96
Ecclesiastical Annual Report & Accounts 2018
97
Directors’
Report
retire at the Board meeting on 19 March
2019, all directors who have served since
the last annual general meeting (AGM) will be
proposed for re-election at the forthcoming
AGM. Mr Boisseau and Mr Winther 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 and directors of any associated
company. 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 2018.
There has been no change in this position
since the end of the financial year and the
date of this report.
Principal activities
The Group operates principally as a provider
of general insurance in addition to offering a
range of financial services, with offices in the
UK, Ireland, Canada, and Australia. A list of
the Company’s subsidiary undertakings are
given in note 33 to the financial statements
on page 230 and details of international
branches are shown on page 239.
Ownership
At the date of this report, the entire issued
Ordinary share capital of the Company and
3.16% of the issued 8.625% Non-Cumulative
Irredeemable Preference Shares of £1each
(‘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 pages 92 to 94.
Anthony Latham and Denise Wilson
resigned as NEDs on 14 June 2018 and
21 August 2018 respectively. Ian Campbell
resigned as Group Chief Financial Officer
and a director on 31 August 2018.
John Hylands will resign as a director
and Chairman at the conclusion of the
Board Meeting on 19 March 2019.
David Henderson will succeed John
Hylands as Chairman.
Mr Boisseau and Mr Winther will be
appointed as NEDs at the conclusion
of the Board Meeting on 19 March 2019.
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 John Hylands who will
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 2018. 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.
Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Governance – Directors’ Report
98
99
The following directors of the Company, and their connected persons, held Preference
shares in the capital of the Company at 31 December 2018:
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 (2017: £9,181,000).
The directors do not recommend a final
dividend on the Ordinary shares (2017: £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 £18.8 million (2017: £27.5 million).
During the last 10 years, a total of
£165.0 million (2017: £154.0 million)
has been provided by Group companies
for church and charitable purposes.
It is the Company’s policy not to make
political donations.
Financial instruments
Information about the use of financial
instruments by the Group is given in
note 23 to the financial statements.
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 62.
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
54 and Risk Management section of the
Strategic Report starting on page 62
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 £799.0m, 92% of which are liquid
(2017: financial investments of £859.7m,
93% liquid), cash and cash equivalents
of £109.4m and no borrowings (2017:
cash and cash equivalents of £93.8m
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 116.
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 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.
Section ThreeEcclesiastical Annual Report & Accounts 2018Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information
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
102
106
108
114
116
124
Governance – Directors’ Report
100
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
19 March 2019
Mark Hews
Group Chief Executive
19 March 2019
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 ThreeSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Section Three
Governance – Corporate Governance
102
Ecclesiastical Annual Report & Accounts 2018
103
Corporate
Governance
The Board of directors is committed to applying the highest standards of corporate
governance and believes 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 2018, 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 2018, the Board held five
scheduled meetings, an ad hoc meeting
and a strategy day. In addition, the Board
participated in regular training sessions.
John Hylands met with the NEDs without
the Executive Directors present on a number
of occasions throughout the year.
All directors receive papers and minutes
for all meetings, unless restricted due 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 2018,
no director had any such concerns.
A reporting framework of business is
approved annually by the Board to ensure
that the Board is focused on the right issues
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 106; the Group
Nominations Committee Report on page
108; the Group Risk Committee Report
on page 114; the Group Audit Committee
Report on page 116; and the Group
Remuneration Report on page 124.
The Terms of Reference (ToRs) for all five
Board Committees can be obtained from
either the Company’s registered office
address or the website.
Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information
Governance – Corporate Governance
104
105
Below is a record of the directors’ attendance for the Board meetings (including the strategy
days) during 2018:
Board attendance table
Executive Directors
Director since
Meetings eligible
to attend
Meetings
attended
Mark Hews
S. Jacinta Whyte
Ian Campbell
June 200 9
July 2013
April 2014
7
7
4
7
6
4
Non-Executive Directors
Director since
Meetings eligible
to attend
Meetings
attended
John Hylands (Chairman)
Tim Carroll
David Henderson
Andrew McIntyre
Chris Moulder
Caroline Taylor
Christine Wilson
Anthony Latham
Denise Wilson
September 2007
April 2013
April 2016
April 2017
September 2017
September 2014
June 2012
March 2008
December 2010
7
7
7
7
7
7
7
3
4
7
7
6
6
7
7
7
3
4
During 2018, 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 Lycetts and SEIB
Insurance Brokers, EdenTree Investment
Management Limited and Canada
Irish Branch – Brexit
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
Group succession
Review of General Insurance business
(Ansvar Australia)
Internal Model
Group reinsurance arrangements
Customer Excellence / Customer First
Initiative
Health and Safety
Employee Engagement
Underwriting and pricing
Directors’ and Officers’ Liability Insurance
Group Technical Provisions
Projects and other matters
GI Systems and IT Project
Property Review
MAPFRE RE Investment
Governance and regulatory matters
Board and Committee composition
Board Evaluation results and action plan
Governance Framework and Board Charter
Board Diversity Policy
Capital requirements, solvency position
and ORSA
Relationship with the regulator
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 62.
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
are 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.
in turn is wholly owned by Allchurches
Trust Limited with which the Board has
an open and constructive relationship.
Protocols for the exchange of information
between Allchurches Trust Limited and
Ecclesiastical Insurance Group plc and its
subsidiaries (including Ecclesiastical Insurance
Office plc) are in place and cover performance,
operations and financial position.
There is at least one ‘Common Director’
(i.e. a Director who is a member of the Boards
of Allchurches Trust Limited, Ecclesiastical
Insurance Group plc and Ecclesiastical
Insurance Office plc) who is expected
to attend every Board Meeting. Tim Carroll
and Denise Wilson (who resigned from both
companies on 21 August 2018) were appointed
as ‘Common Directors’. She will be succeeded
as a Common Director by Chris Moulder on
8 May 2019. The Common Directors present
a summary of highlights from Allchurches Trust
Limited Board meetings to the Directors.
Both the Chairman and Group Chief Executive
Officer regularly meet with Sir Philip Mawer
the Chairman of Allchurches Trust Limited.
Moreover regular dialogue takes place
on Allchurches Trust Limited’s expectations
of the Group, strategy for the development
of business and the grant from the group.
This ensures that the views of Allchurches
Trust Limited are communicated to the Board
as a whole 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.
Relationship with shareholder
Ecclesiastical Insurance Group plc owns
the entire issued Ordinary share capital
of Ecclesiastical Insurance Office plc.
Ecclesiastical Insurance Group plc
By order of the Board.
Mrs. R. J. Hall
Group Company Secretary
19 March 2019
Section ThreeEcclesiastical Annual Report & Accounts 2018Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information
Section Three
Governance – Group Finance and Investment Committee Report
106
Ecclesiastical Annual Report & Accounts 2018
107
Group Finance
and Investment
Committee Report
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
Mark Hews**
August 2013
March 2016
March 2016
June 2016
August 2018
6
3
6
6
3
6
3
6
5
3
* Ian Campbell was a member of the Committee until 31 August 2018
** Mark Hews was appointed to the Committee with effect from 31 August 2018
During the year, the Committee reviewed
the Group’s business plan investment
assumptions; an ethical and responsible
approach for the Group’s property portfolio;
and the overall investment strategy.
The latter included consideration of
equity derivatives; and the approach
and classification of listed infrastructure
and renewable funds. The Committee
also considered the outlook for financial
markets and the likely impact of the UK’s
withdrawal from the European Union
on the Group’s Investment Portfolio.
In addition, the Committee undertook
a review of its own performance and
set objectives.
By order of the Board.
Tim Carroll
Chairman of the Group Finance
and Investment Committee
19 March 2019
Committee meetings
The Committee comprised the directors
shown in the table above who were
appointed by the Board.
The Committee held four scheduled and
two ad hoc 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 2016, an external evaluation of the
Board and its Committees was undertaken.
The results of the evaluation recommended
a review of the Committee’s purpose.
The Committee therefore undertook
a review of its role and remit, making
recommendations to the Board,
which were approved in June 2018.
These included relinquishing responsibility
for reviewing the Group’s strategies and
policy relating to tax, treasury and capital
management to appropriate committees
within the Group.
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. Ian Campbell stepped down from
the Committee in August 2018 following his
resignation from the Group. Mark Hews joined
the Committee in his place.
Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information
Section Three
Governance – Group Nominations Committee Report
108
Ecclesiastical Annual Report & Accounts 2018
109
Group Nominations
Committee Report
Membership
The members of the Group Nominations Committee and their attendance at meetings during
the year are shown below:
Committee member
Member since
Meetings eligible
to attend
Meetings
attended
Christine Wilson
Tim Carroll
David Henderson
John Hylands
March 2016
January 2018
January 2018
May 2013
3
3
3
3
3
3
3
3
Group Nominations
Committee meetings
The Committee comprised the directors
shown in the table above who were
appointed by the Board.
The Committee held three scheduled
meetings during the year, which were
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 2018, the Committee considered
the Board’s performance against the
objectives for 2017, set Board objectives
for 2018, considered succession planning
for the Board and its Committees, oversaw
the appointment of a new Chairman to the
Board and undertook the recruitment of two
further Non-Executive Directors (NEDs).
Refresh of the Board
The Board Evaluation undertaken in 2017
had recommended that a refresh of the
Board was undertaken to obtain potential
Chairmen for the future. The refresh
commenced in 2017 and continued
during 2018. As part of this refresh,
Anthony Latham retired at the AGM
in June having served for nine years
and Denise Wilson stood down from
the Board in August 2018 having served
almost eight years. John Hylands, who has
also served for longer than nine years,
will resign as Chairman at the conclusion
of the March Board Meeting.
Appointment of the Chairman
The SID led the recruitment for a new
Chairman supported by an Appointments
Panel, which comprised Chris Moulder,
Caroline Taylor and Sir Laurie Magnus,
a Director of the Parent Company.
The External Board Evaluator had
recommended that the 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.
Although this recommendation was
accepted in principle by the Committee,
it was agreed that an external benchmarking
exercise would be undertaken in parallel
to considering internal candidates.
The external benchmarking exercise was
undertaken by Spencer Stuart & Associates
Ltd (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).
After consideration of a number
of candidates and with the benefit of
the results of the benchmarking exercise,
the Appointments Panel recommended
to the Group Nominations Committee that
David Henderson, who has been a director
since April 2016, be recommended
to the Board as Chairman elect, subject
to regulatory approval.
Chairman’s introduction
I am pleased to present the Group Nominations
Committee’s Report describing the work we have
carried out during the past year. This report gives
more detailed information on how we performed
our duties in 2018.
Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information
Governance – Group Nominations Committee Report
110
111
This was agreed by the Committee
(excluding Mr Hylands, the existing Chairman)
and, subsequently, by the Board. Regulatory
approval was received on 24 December
2018. The appointment will take effect from
19 March 2019 at the conclusion of the
Board Meeting scheduled for that day.
David Henderson has spent his career in
the financial services industry and brings
robust leadership, integrity and expertise
consistent with the Group’s culture and
values. He is currently a Senior Adviser to
Kleinwort Benson Private Bank Ltd. He was
independent on appointment as Chairman.
Appointment of NEDs
An Appointments Panel comprising Christine
Wilson, Tim Carroll, David Henderson
and Mark Hews was formed to commence the
recruitment of two additional NEDs,
one from an insurance and broking
background, and the other, from an investment
or corporate finance background. Spencer
Stuart assisted the Appointments Panel with
the recruitment. Following an external search
and a series of interviews, two preferred
candidates were identified
and recommended to the Group Nominations
Committee. After consideration, the Group
Nominations Committee recommended the
appointment of the two candidates to the
Board at its meeting on 5 February 2019.
Mr Boisseau and Mr Winther will be appointed
as NEDs at the conclusion of the Board
Meeting to be held on 19 March 2019.
Composition of Committees
Following an exercise undertaken
in 2017, Chris Moulder was appointed
as Chairman of the Group Risk Committee
on 1 June 2018 to succeed Anthony Latham.
In addition, David Henderson
was appointed as Chairman of the Group
Remuneration Committee on 23 April
2018 to succeed Denise Wilson.
Following his appointment as Chairman
of the Board, a NED will be appointed
as Chairman of the Group Remuneration
Committee. All of these changes received
regulatory approval.
Succession Planning
The Board via the Group Nominations
Committee formally reviewed the Group’s
Board and Leadership succession plan
(including subsidiary Board composition)
which is undertaken on an annual basis.
In respect of each leadership role, emergency,
short-term and long-term succession plans
are considered and challenged by the Board
to ensure that appropriate skills are in place
to support the Group’s 2020 vision.
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 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’s objective by 2020, is to meet
the targets set out in the Hampton-Alexander
Review being 33% of women on boards.
As at 18 March 2019, the Board had
appointed three female members in a current
membership of nine, which meets the 2020
targets. In addition, following a review
of the Board Diversity Policy during the
year, the Board has agreed to have regard
to the Parker Review looking across the
wider Group’s Boards of Directors by 2020.
This target has been met. The Board via the
Group Nominations Committee will consider
the progression of women to key roles
including Chair, SID and executive
directors as part of its regular review
of succession planning.
Ecclesiastical aspires to having a Board that
is diverse and encourages external search
firms to identify and present candidates from
all backgrounds, and with diverse skills and
personal qualities. 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 overall requirements for Board
diversity in terms of the skills, experience,
background, gender and ethnic diversity
required for the Board to be effective.
The Board will take the opportunity, as
and when appropriate, to further improve
diversity in the wider sense and from
all backgrounds as part of its Board
recruitment practice.
The Board has also committed to meeting
the targets set out in the Hampton-Alexander
Review being to extend the 33% women
on boards target to leadership teams
in the FTSE 250 by 2020. At 18 March
2019, female representation on the Group
Management Board stands at 57%.
The Company was a founding signatory
to the Women in Finance Charter and
has appointed Denise Cockrem 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.
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 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 SID
and each of the executive directors.
The third stage of the induction is
participation in the Board’s CPD programme.
Training
Throughout the year, directors participate
in the continuing professional development
(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 2018, a number of training sessions
took place which covered Internal Model,
Senior Manager’s Certification Regime,
Investments and the world economy.
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
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 reasonable period.
Section ThreeEcclesiastical Annual Report & Accounts 2018Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Governance – Group Nominations Committee Report
112
113
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. The outcome of the
evaluations was considered by the Board
and all recommendations were completed
during 2017.
All directors receive an annual appraisal
from the Chairman. The Chairman is
appraised by the Board, in his absence,
led by the SID.
Re-election of directors
In line with the 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 Annual Report and Accounts.
The Board believes that all the NEDs
were independent throughout 2018.
Independence is reviewed as part of each
director’s annual appraisal, considered by
the Committee, and agreed by the Board
annually. In 2018 one NED, John Hylands,
has served for more than nine years on
the Board and will retire in March 2019
and Christine Wilson has served for more
than six years. In addition, one director,
Tim Carroll is a director 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.
NEDs’ commitments
The Committee evaluates the time NEDs
spend on the Company’s business annually
and is satisfied that, in 2018, the NEDs
continued to be effective and fulfilled their
time commitment as stated in their letters
of appointment. Accordingly, all NEDs
at the date of this report are recommended
for re-election at the AGM.
By order of the Board.
Dean Wilson
Chairman of Group
Nominations Committee
19 March 2019
‘The Board has also committed
to meeting the targets set out
in the ‘Hampton-Alexander
Review’ being to extend the
33% women on boards target
to leadership teams in the
FTSE 250 by 2020. At 18 March
2019, female representation on
the Group Management Board
stands at 57%.’
Section ThreeEcclesiastical Annual Report & Accounts 2018Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Section Three
Governance – Group Risk Committee Report
114
Ecclesiastical Annual Report & Accounts 2018
115
Group Risk
Committee Report
Chairman’s introduction
I am pleased to present this report, my first as
Group Risk Committee Chair, 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 62. Anthony
Latham, who had chaired the Committee since 2010,
stepped down from the Committee in June 2018.
Mark Bennett was appointed Group Chief Actuary
in January 2018 and Debra Weekes succeeded John
Schofield as Group Chief Risk Officer in July 2018.
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)** June 2010
S. Jacinta Whyte
Tim Carroll
Andrew McIntyre
Chris Moulder*
February 2014
August 2013
August 2017
September 2017
3
5
5
5
5
3
5
5
5
5
Chris Moulder was appointed as Chairman of the Group Risk Committee on 1 June 2018 to succeed Anthony Latham.
*
** Anthony Latham stepped down from the Committee on 14 June 2018.
Committee meetings
The Group Risk Committee comprised
the directors shown in the table above
who were appointed by the Board.
The Committee held five meetings
during the year which were attended
by the Group Chairman, Group Chief
Risk Officer, Group Chief Financial
Officer, Group Chief Actuary and
Director of Group Compliance.
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;
and risk management culture and framework.
In addition, the Committee oversees the
material risks of the Group. The Committee
is also responsible for reviewing Group
capital management and Internal Model
scope, governance and validation.
A focus of the Committee’s work this
year has been to ensure the successful
Regulatory approval of the Internal Model
(achieved in July) and the subsequent
transition of the Model into business
as usual. This has included monitoring
the ongoing development, governance,
methodology and calibration of the
Internal Model; overseeing the validation
cycle; agreeing Management Actions and
reviewing the Profit and Loss Attribution.
The Committee continues to review the
Group’s ongoing capital and solvency
requirements and other key Model uses.
During 2018, the Committee supported
the Group Chief Risk Officer’s proposals
to undertake a review of the Board’s risk
appetite reviewing those reserved for the
Board and delegating the remainder to the
Group Management Board. This work will
conclude in 2019.
Additionally, during the year, the
Committee has overseen the Own
Risk and Solvency Assessment and
Control Risk Self-Assessment processes
and monitored material outsourcing risks.
The Committee has received regular reports
on compliance monitoring and breaches,
fraud and financial crime, business continuity,
cyber security, information security
and the Money Laundering Reporting
Officer’s Report. In addition, the Committee
oversaw projects to implement the
General Data Protection Regulations
(GDPR), the Insurance Distribution Directive
and the Senior Managers’ Certification
Regime across the Group.
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 annually.
The Director of Group Compliance also
reports to the Committee regularly and
meets with the Committee at least once
a year.
By order of the Board.
Chris Moulder
Chairman of the Group Risk Committee
19 March 2019
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Ecclesiastical Annual Report & Accounts 2018
117
Group Audit
Committee Report
Caroline Taylor joined the Committee
in February 2018. Anthony Latham
and Denise Wilson stepped down from
the Committee in June and August 2018
respectively. Denise Cockrem replaced Ian
Campbell as Group Chief Financial Officer.
John Schofield stepped down as Director
of Group Internal Audit in December 2018
having replaced Graham Searle in July 2018.
Dan O’Loughlin was appointed Acting Group
Chief Internal Auditor in January 2019.
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.
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 120 to 121.
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 68 to 73. 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.
In 2018, we have overseen the
implementation of two significant accounting
standards, IFRS 9 ‘Financial Instruments’,
for parts of the Group, and IFRS 15 ‘Revenue
from contracts with customers’. We have
also overseen the preparations for IFRS 16
‘Leases’ and have concluded we are set up
for a smooth implementation of this standard
in 2019. Looking ahead, we will be overseeing
the project team that is preparing for IFRS
17 ‘Insurance Contracts’, which is described
further in note 1 to the financial statements.
The Committee seeks to ensure that the
identification and management of significant
risks is embedded across all areas of the
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 members of the Group Audit Committee and their attendance at meetings during the
year are shown below:
Committee member
Member since
Meetings eligible
to attend
Meetings
attended
Andrew McIntyre (Chairman)
Tim Carroll
Anthony Latham*
Chris Moulder
Caroline Taylor
Denise Wilson**
April 2017
April 2013
December 2008
September 2017
February 2018
August 2011
6
6
4
6
6
5
* Anthony Latham was a member of the Committee until 14 June 2018.
** Denise Wilson was a member of the Committee until 21 August 2018.
6
6
2
6
6
3
Chairman’s overview
I am pleased to present the Group Audit
Committee Report describing the work undertaken
by the Committee over the past year, during which
the Committee continued to focus its work on the
Group’s financial reporting, internal and external
audit arrangements, the effectiveness of the
Group’s systems of internal financial controls
and the management of financial risks.
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119
Committee meetings
The Committee comprised the directors
shown in the table above who were appointed
by the Board. The Committee held six
scheduled meetings during the year.
In addition to the members of the Committee,
the Chairman of the Board, the Group Chief
Executive, the Group Chief Financial Officer,
the Deputy Group Chief Executive 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 2018 they
attended all six of the meetings held.
The Committee meets with the Director
of GIA on an annual basis, without
management present, 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 regulatory reports;
• reviewing tax strategy and policies;
• 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.
During 2018, following the outcome of
a review of the role and remit of the Group
Finance and Investment Committee, the Board
delegated responsibility for reviewing Group
tax strategy and policy to the Committee.
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 four years.
The Committee plans to commence an
audit tender process in 2019 to take
effect for the financial year ending 31
December 2020. 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 2018
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 which are described on page
156. 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 2018,
the Group was charged £556,000 (ex VAT)
by Deloitte for audit services. The fees
for other assurance services required by
legislation and/or regulation amounted to
£132,000, making total fees from Deloitte
of £688,000. There were no non-audit
services provided by Deloitte during the
year. More detail can be found in note
12 to the financial statements on page 202.
External audit
effectiveness
The Committee assesses external
auditor effectiveness annually against
a number of criteria including, but not
limited to, accessibility and knowledgeability
of audit team members, the efficiency
of the audit process including the
effectiveness of the audit plan, and the
quality of improvements recommended.
Questionnaires are completed 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
be reappointed under the current external
audit contract and the directors will be
proposing the reappointment of Deloitte
at the AGM in June 2019.
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;
• 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 reviewed and challenged
the Group’s annual regulatory submissions
under Solvency II in the second quarter
of the year. The Group Audit Committee
focused on the 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 2018
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 62, and also note 2 to the financial
statements on page 179.
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121
Matter considered
Action
Matter considered
Action
General insurance
reserves
The estimation of the
ultimate liability arising
from claims under general
business insurance
contracts is a critical
accounting estimate.
There is uncertainty
as to the total number
of claims 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
and that 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 investigations develop.
Following all of our reviews and discussions, the Committee’s opinion was that the reserving
process and outcomes were robust and well managed and that the overall reserves set were
reasonable as disclosed in notes 9 and 28 of the financial statements.
The Committee considered a report from the Chief Actuary of Ecclesiastical Life Limited (‘ELL’)
which set out 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 2018, and
• the calculation of technical provisions in accordance with Solvency II regulations
at 31 December 2018.
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 2017.
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. The assumptions used for valuing future expense cash-flows
were considered, including a reduction in future costs following the removal of the Solvency II
audit requirement.
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. The assumptions are disclosed
in note 28(b) of the financial statements.
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 2018)
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 defined
benefit scheme is in surplus,
the liabilities of the scheme
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
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.
The Committee noted that Deloitte reduced the audit risk from significant to higher for this matter
in 2018, but it remains an area of audit focus.
The Committee paid particular attention to management’s proposals to define the associated
Cash Generating Units (CGUs) at a more granular level, and to reduce the discount rate used
in the calculation. Detailed support for these assumptions was provided by management.
The Committee considered the proposal and provided robust challenge to the assumptions,
notably the evidence to support the reduction in the discount rate from the prior year.
After its reviews, the Committee concluded that the assumptions were reasonable and that
no impairment was required for any of the businesses under review.
Goodwill is disclosed in note 17 of the financial statements.
During 2018, the Committee received reports from management on the proposed approach to the
valuation of the pension scheme. As the pension scheme is sensitive to changes in key assumptions,
management completed an assessment as to the appropriateness of the assumptions used, taking
advice from independent actuarial experts and including where appropriate, benchmark data, and
reported its findings to the Committee. Following this review, management concluded that in addition to
updating assumptions to reflect economic market conditions at 31 December 2018, the salary inflation
assumption be reduced based on historical salary increases. Following consideration, the Committee
concluded that the assumptions proposed were appropriate and in line with normal market practice.
During 2018, management kept the Committee appraised of developments in the High Court ruling
relating to Guaranteed Minimum Pensions (GMP) equalisation of the Lloyds Bank PLC pension
scheme. This ruling has implications for the EIO section of the Group’s defined benefit scheme
which was previously contracted out. Management, in conjunction with independent actuarial experts,
estimated the impact of the ruling on the scheme liabilities at 31 December 2018. Having reviewed the
timing of the ruling and noting the independence of the actuary’s valuation, the considered opinion of
the Committee concluded that it was appropriate to recognise this cost in 2018 at the value proposed.
Management reported its approach to determining the amount of surplus recognisable in the scheme
at the year-end date, taking into account the impact of the announcement to close the scheme
to future accrual from 30 June 2019 and the independent legal opinion that the EIO Section does
not have an unconditional right to a refund of surplus. The Committee considered the legal advice
and the calculation of the asset ceiling and, 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 2018 are explained in note 19 to the financial statements on page 208.
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123
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 on page 100.
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 102.
In reviewing the effectiveness of the system
of internal control and risk management
during 2018, 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 audit activity
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 position of
Director of GIA became vacant during the
year, the committee considered options for
filling the vacancy and resolved to appoint
Dan O’Loughlin as Acting Group Chief
Internal Auditor in the interim. 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
was undertaken in 2018. The function was
assessed to be compliant with the Standards
and Financial Services Code.
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.
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. For 2019,
we intend to commission an independent and
objective assessment of the whistleblowing
policy and the underlying process.
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.
AQR inspection
of external audit
The FRC’s Audit Quality Review (AQR)
team selected the audit of the 2017
Ecclesiastical Insurance Office plc Group
financial statements to review as part
of their annual inspection of audit firms.
The review focused on identifying areas where
improvements are required, rather
than highlighting areas performed to or
above the expected level. The Chairman of
the Group Audit Committee held discussions
with the AQR team as part of the process.
The review is in its final stages, and the AQR
team has confirmed no significant areas for
improvement have been identified. The Group
Audit Committee is satisfied that the review
did not identify any matters which might have
a bearing on the audit appointment.
By order of the Board.
During the year, the Group’s approach
to whistleblowing was refreshed and set
out in a new Standard and Guidance
Andrew McIntyre
Chairman of the Group Audit Committee
19 March 2019
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Strategic Report – Group Remuneration Report
124
Ecclesiastical Annual Report & Accounts 2018
125
Group Remuneration
Report
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 2018; major decisions
taken by the Committee during the year;
and changes made to directors’ remuneration.
The Directors’ Remuneration Policy on page
128 sets out the Group’s policy in relation
to the structure and elements of pay for
our directors. The Annual Report on
Remuneration on page 140 describes how
the Group’s remuneration policies have been
implemented in 2018, providing retrospective
disclosures on directors’ remuneration for
2018 and setting out how the Policy will
be implemented in 2019.
Review of performance
and incentive outcomes
As described in the Strategic Report
starting on page 15, the Group has delivered
a fifth year of sound financial performance.
Underlying performance remained robust,
with underwriting profit of £29.2m
(2017: £27.1m) and GWP growth across
all our territories. Pre-tax profits of £15.4m
(2018: £82.2m) were lower than in recent
years, reflecting the effect of short-term
stock market fluctuations on the Group’s
investment portfolio.
Given the Group’s performance over the
year, the Committee is satisfied that (i) the
annual bonus awards of 84% (Group Chief
Executive) and 82% (Deputy Group Chief
Executive) of the maximum potential value
and (ii) the 88% vesting of the long-term
incentive plan (LTIP) granted in 2016, 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 outturns have been
achieved within the Group’s risk appetite.
I am pleased to report that following this review
for the period ending 31 December 2018,
the Committee did not consider the application
of discretion necessary in respect of the 2018
annual bonus or the 2016-2018 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 two 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 Group Chief Financial Officer resigned
and left the board on 31 August 2018.
As a result of his resignation the Group
Chief Financial Officer was not entitled
to receive a bonus in respect of 2018
and outstanding LTIP awards lapsed on
his departure, in line with company policy.
The Committee reviewed the remuneration
packages of six Material Risk Takers (MRTs)
over the year, 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 EdenTree
Investment Management.
Group Remuneration Committee Chairman’s
statement
This is my first Report as Chairman of the Group
Remuneration Committee, and I am pleased to
introduce the Group Remuneration Report for
2018 and to highlight some of the key aspects
of the Committee’s work during the year. This year
the Very Reverend Christine Wilson and Chris
Moulder joined the Committee and Denise Wilson,
who chaired the Committee since February 2013,
stepped down from the Committee in March 2018.
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During 2018 the Group published its
gender pay gap, underlining the Group’s
commitment to diversity and gender balance
at every level in the business and ensuring
that all employees, both men and women,
have a fair and equal pay opportunity.
The Group’s gender pay gap is largely
driven by the higher proportion of men in
senior roles, and the higher proportion of
women in more junior roles. We are pleased
to see that the actions we are taking have
resulted in a higher proportion of women
filling roles in the highest pay quartile
in 2018 compared with 2017. This has
contributed to our median gender pay gap
reducing to 23.5% from 25.0% over the
same period. The Group is pursuing a range
of initiatives, as part of its commitment to the
Women in Finance Charter, to encourage
greater gender balance at all levels,
including enabling the appointment of
more women to senior roles in the Group.
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.
David Henderson
Chairman of the Group Remuneration
Committee
19 March 2019
Committee member
Member since
Meetings eligible
to attend
Meetings
attended
Denise Wilson1 (Chair until March 2018)
December 2011
David Henderson2 (Chair from April 2018) September 2016
November 2 014
Caroline Taylor
The Very Reverend Christine Wilson3
February 2018
Chris Moulder4
June 2018
2
4
4
3
1
2
4
3
2
1
1 Denise Wilson relinquished the chairmanship and membership of the Committee with effect from 14 March 2018.
2 David Henderson was appointed Chairman of the Committee on 23 April 2018.
3 The Very Reverend Christine Wilson was appointed to the Committee on 6 February 2018. Dean Wilson did not attend
one meeting due to a prior commitment as the meeting dates were set before she joined the Committee. Dean Wilson
had previously been a member of the Committee from April 2013 to September 2016.
4 Chris Moulder was appointed to the Committee on 14 June 2018.
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 2018, the Committee held four
meetings in total. 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.
Advisers to the Committee
During the year, the Committee received
external advice from Aon 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. Aon also act
in the capacity of Actuary to EIO Trustees
Ltd in respect of the Group’s defined
benefit pension scheme. 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 Aon during 2018 for
professional advice to the Committee were
£54,808 (2017: £68,000). The Committee
is satisfied that the advice received during
2018 from Aon was impartial, as Aon 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, Group Chief Executive,
Group HR Director, Director of Group
Finance, CRO and Group Reward Manager.
Such input, however, never relates to their
own remuneration.
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129
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 2019. 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.
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 are comprised
of both financial and non-financial targets.
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 is committed to ensuring
that all employees, both men and women,
have a fair and equal pay opportunity.
• Reward payments will be performance-
• The Group will strive to adhere
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
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.
‘The Directors’
Remuneration Policy is
aligned to delivery of
the Group’s strategic
objectives and establishes
a set of principles which
underpin the Group’s
reward structures for all
Group employees.’
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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
Operation of the element
Maximum potential value and payment
at threshold
Performance measures used,
weighting and time period applicable
Change from 2018
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.
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, income protection 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 and accidental
death and dismemberment 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.
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.
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.
Group and individual performance
None
Not applicable
None
The level of pension contribution is set at a level
taking into account pension benefits offered by
comparable organisations for comparable roles and
benefits offered to the wider employee population.
Not applicable
The employer contribution rate to the UK Defined
Contribution Scheme for new Executive Directors
is 12% of basic salary.
The employer contribution rate to the Canadian
EIO plc Defined Contribution Pension plan
is 12% of basic salary.
Employer contribution
rate to the UK Defined
Contribution Scheme for
new Executive Directors
reduced to 12% (from
15%).
Maximum opportunity of 100% of salary
of which 50% is payable for a target level
of performance.
Customer and conduct
threshold increased to
85%.
The Group annual bonus is subject to
a range of challenging metrics linked to
key strategic priorities. For 2019, these are:
• Ecclesiastical Insurance Group (EIG)
PBT (including fair value investment
gains/losses)
• Group COR
• Strategic targets
• Customer and conduct targets
• Personal performance targets
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Future policy table (executive directors) continued
How the element supports the
Group’s 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 operate
within 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 2018
Customer and conduct
threshold increased
to 85%.
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.
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 2017-2019 and 2018-
2020 will continue to vest under the previously
applicable policy.
Due to the Group’s ownership structure,
in particular that its ultimate parent company
is a charity, it is not possible to deliver variable
remuneration in the form of shares. Cash awards
under the Group Annual Bonus and Group
LTIP arrangements are not subject to a post
vesting holding period.
Changes to the Policy from that
operating in 2018
The employer contribution rate to the
UK Defined Contribution pension scheme
will reduce for new Executive Directors to
12% of basic salary (from 15%), bringing
contribution rates in line with pension benefits
offered to the wider employee population.
The threshold target for customer and conduct
within the Group annual bonus scheme and
Group LTIP will be increased from 80% to 85%.
Remuneration arrangements
elsewhere in the Group
The Group’s approach to executive director
and wider employee remuneration is based on
The Group LTIP is subject to a range
of challenging conditions linked to key
strategic priorities. For 2019 awards
relating to the performance period
2019-2021, 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
• Customer and conduct targets.
There is a 36-month performance
period from the date of grant.
the common set of principles set out in
the Group’s Remuneration Policy on page
135. 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.
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Remuneration scenario charts
Notes to the charts:
The remuneration scenario charts below
illustrate what each executive director could
earn in respect of the policy for 2019,
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.
• Fixed pay is base salary for 2019 plus
the value of pension and benefits.
• Base salary is the aggregate of the salary
applicable at 1 January 2019 for January
to March 2019 and the salary applicable
at 1 April 2019 for April to December 2019.
• The value of pension is calculated as
described in the Future Policy table.
• The value of benefits in-kind is taken from
the single figure table for 2018, which can
be found on page 141.
• The Group operates a cash LTIP scheme
for the reasons set out above. No share
price appreciation has therefore been
included in the remuneration scenario charts.
Mark Hews: Effect of the application of this policy in financial year 2019
Minimum
100%
Total £534k
On-Target
Maximum
48%
32%
21%
31%
Total £1,105k
28%
40%
Total £1,676k
‘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 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.
Approach to recruitment remuneration
Ecclesiastical is a specialist financial services
group competing for talent across a variety
of markets.
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
Element of remuneration
Maximum percentage of salary
Salary
Annual bonus
LTIP
-
100%
150% – Group Chief Executive
100% – Deputy Group Chief Executive
12% 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 2019
Pension contribution/allowance
Minimum
100%
Total £443k
On-Target
Maximum
54%
37%
23% 23%
Total £817k
32%
31%
Total £1,190k
Fixed Pay
Annual Variable
LTIP
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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.
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
as Deputy Group Chief
Executive 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,
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
£503k 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 £148k.
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 contract which
allows for payment in
instalments over the balance
of the notice period.
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.
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.
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.
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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 132.
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 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 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.
Operation of the element
Maximum potential value and
payment at threshold
Performance measures used,
weighting and time period
applicable
Current fee levels are
shown in the section on
implementation of policy.
NEDs are not eligible
to participate in any
performance-related
arrangements.
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.
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141
Annual Report
on Remuneration*
This section of the Directors’
Remuneration Report sets out how
the above Remuneration Policy was
implemented in 2018 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
2018 financial year for each executive
director, together with comparative figures
for 2017. Aggregate executive directors’
emoluments are shown on page 148.
Details of NEDs’ fees are set out in
a separate table on page 147.
*The information in the previous part of the Directors’
Remuneration Report is not subject to audit and is only
subject to audit from this point onwards where stated
in the section header.
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
Director
Fixed pay
(£000)
Variable pay
(£000)
Salary
Benefits1
Annual bonus2
LTIP3
Pension
(£000)
Pension
benefit4
Total
remuneration
(£000)
Total
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
Mark Hews
S. Jacinta Whyte5
Ian Campbell7
449
367
200
429
354
289
Total
1,016
1,072
14
22
18
54
15
22
23
60
380
301
0
437
337
260
339
292
0
681
1,034
631
276
238
188
702
58
576
26
55
546
38
1,240
1,212
1,039
1,005
244
798
141
147
2,523
3,015
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 2018 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 2018
the value of executive directors’ annual bonuses that were deferred is: £41k (Group Chief Executive) and £24k (Deputy Group Chief Executive).
3 LTIP represents the amount payable in respect of the three-year LTIP performance period 2016-2018 for 2018 and 2015-2017 for 2017. The Group
operates a cash LTIP scheme, therefore no part of the award was attributable to share price appreciation. All executive directors hold unvested LTIP awards
in accordance with the rules of the LTIP plan.
4 The Group Chief Executive received a cash allowance in lieu of pension during 2017 and 2018, 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.
5 An average 2018 exchange rate of 1.7264 Canadian dollars to 1 GBP has been used in respect of both 2018 and 2017.
6 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.
7 Ian Campbell resigned from the Board on 31 August 2018.
Mark Hews is a NED for MAPFRE RE and was appointed to their Board in December 2013. The fee of £30k
(2017: £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.
Section ThreeEcclesiastical Annual Report & Accounts 2018Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information
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143
Additional requirements in respect
of the single total figure table
Annual bonus outcomes for 2018 (audited)
The annual bonuses payable to executive
directors in respect of 2018 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 2018, these were Group COR (40%);
Group EIG PBT (including fair value
investment gains and losses) (30%);
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 outturn 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 2018 were:
Performance condition
Group COR
Group EIG PBT
Strategic Targets
Customer and Conduct
Threshold
(0.5x)
99.6%
£9.4m
50%
80%
Target
(1.0x)
94.6%
£31.1m
75%
90%
Maximum
(1.5x)
89.9%
£65.6m
100%
100%
Weighting
40%
30%
15%
15%
The results relating to the Group annual bonus for the financial year 2018, and the resultant aggregate
Group performance multiplier, are shown below.
Performance condition
Result
Multiplier
Weighting
Group COR
Group EIG PBT1
Strategic Targets
Customer and Conduct
86.4%
£16.4m
91.8%
97.0%
1.5
0.7
1.3
1.4
40%
30%
15%
15%
Aggregate Group performance multiplier
Weighted
multiplier
0.6
0.2
0.2
0.2
1.20
The Strategic Targets performance condition measures delivery of the Group’s change programme.
The agreed priorities for 2018 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 43 to 48, the Group has continued to deliver the key elements of its strategy whilst
investing in its businesses, enabling it to sustain and build on the distinctive position it occupies
in its markets. Considerable progress has been made on the second phase of the Group’s change
programme, resulting in an outturn of 91.8% being achieved against the strategic targets measure
for 2018.
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 outturn of 97.0% against the customer and conduct metrics
for 2018 reflecting the Group’s strong customer and conduct culture and effective systems of control.
Targets in respect of customer satisfaction; claims service; complaints handling; data security;
regulatory feedback; compliance with the Group’s risk appetite and timely resolution of internal audit
and compliance findings were met by all businesses. The Group’s rolling programme of product
reviews was achieved by the majority of businesses.
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 132.
LTIP outcomes in 2018 (audited)
The LTIP amount included in the single total figure of remuneration is the cash award resulting from
the Group LTIP grant in 2016 for the period 2016-2018. Vesting was dependent on performance
over the three financial years ending on 31 December 2018 and continued service until March 2019.
The 2016-2018 Group LTIP is subject to the five performance conditions: Group COR (20%); Group
EIG PBT (excluding fair value investment gains/losses) (20%); Group EIG PBT (including fair value
investment gains/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/losses)1
Group PBT
(including fair
value investment
gains/losses)1
Strategic Targets
Customer and
Conduct
Total
98.7%
£84m
93.7%
£123m
91.7%
£145m
87.6%
£141m
100%
91%
£79m
£136m
£165m
£163m
96%
50%
80%
75%
90%
100%
100%
90.8%
94.0%
82%
70%
87.8%
1 Audited to EIO Group level
1 Audited to EIO Group level
Section ThreeEcclesiastical Annual Report & Accounts 2018Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information
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145
The Group LTIP outcome that vests in respect of each executive director in respect of
2016-2018 is shown below.
Mark Hews
S. Jacinta Whyte1
Ian Campbell2
LTIP grant
% of salary
100%
100%
100%
Total LTIP vesting
% of maximum
87.8%
87.8%
0%
£000
339
292
0
1 An average 2018 exchange rate of 1.7264 Canadian dollars to 1 GBP has been used in respect of 2018.
2 Ian Campbell resigned from the Board on 31 August 2018.
Scheme interests awarded during 2018 (audited)
During 2018, awards comprising of a cash sum were granted under the 2018-2020 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 2021, to the extent that the applicable
performance targets are met. The vesting date for these awards is the date on which
the Group’s 2020 results are announced, anticipated to be during March 2021.
Executive
director
Award
date
Maximum
cash sum
subject to
the award
(% base
salary)
Face value
of award
at grant
£000s
Cash award
if threshold
performance
achieved
(% base
salary)
End of the
period over
which the
performance
targets have
to be fulfilled
Performance
measures3
2018-2020 Group LTIP
Mark Hews
13 Jun
2018
150%
660
20%
31 December
2020
S. Jacinta
Whyte1
13 Jun
2018
100%
359
20%
31 December
2020
Ian
Campbell2
13 Jun
2018
100%
295
20%
31 December
2020
• Group COR
25%
• Group
EIG PBT
(excluding
fair value
investment
gains/losses)
25%
• Group EIG
PBT (including
fair value
investment
gains/losses)
25%
• Strategic
targets 15%
• Customers
and conduct
targets 10%
1 An average 2018 exchange rate of 1.7264 Canadian dollars to 1 GBP has been used.
2 Ian Campbell resigned from the Board on 31 August 2018.
3 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 2017 to 2018) 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 bonus
4.7%
0%
(13.2)%
4.4%
0%
(12.0)%
1 UK-based employees of Ecclesiastical Insurance Office plc; excluding employees in SEIB; matched sample basis.
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 April 2017 underlies the year-on-year percentage change in salary 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 2018 and 2017, 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
2018
£000
2017
£000
% change
84,335
77,778
17,000
26,000
8%1
(35)%
Non-Cumulative Irredeemable Preference share dividend
9,181
9,181
Nil
PBT
15,371
82,196
(81)%
1 The increase in staff remuneration costs in 2018 reflects the higher number of employees, salary inflation and
a one-off contribution to pension costs following the announcement to close the defined benefit pension plan
to future accrual on 30 June 2019. See note 13 to the financial statements on page 203.
Section ThreeEcclesiastical Annual Report & Accounts 2018Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information
i
l
g
n
d
o
h
0
0
1
£
l
a
c
i
t
e
h
t
o
p
y
h
f
o
l
e
u
a
V
Strategic Report – Group Remuneration Report
146
147
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 All-Share. Total equity excludes
Preference shareholders’ capital since this is not attributable to Allchurches Trust Limited.
Ecclesiastical Insurance Office plc 10 year to 2018
TSR performance against the FTSE All-Share
250 -
200 -
150 -
100 -
50 -
0 -
Dec
’08
Dec
’09
Dec
’10
Dec
’11
Dec
’12
Dec
’13
Dec
’14
Dec
’15
Dec
’16
Dec
’17
Dec
’18
FTSE Allshare 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 ten years to 31 December 2018.
Financial
year
Group Chief
Executive1
2009 2010 2011 2012 2013 2014 2015 2016 2017
2018
Financial year ending 31 December
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
1,240
Michael Tripp
516
430
416
390
330
162
N/A
N/A
N/A
N/A
Mark Hews
N/A
N/A N/A N/A
45% 78% 88% 97% 99% 84%
Michael Tripp2
88% 23% 0%
0% N/A
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% 88%
Michael Tripp4
27% 27% 34% 0%
4% 47% N/A
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 and 2018 represent the amounts vesting in respect of the three-year LTIP performance period
2015-2017 for 2017 and 2016-2018 for 2018.
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
96. Due to the Group’s ownership structure,
in particular that its ultimate parent company
is a charity, it is not possible to deliver variable
remuneration in the form of shares. Directors’
shareholdings are not subject to post-
employment shareholding requirements.
Early vesting of LTIP award
There is no early vesting of the executive
directors’ LTIP.
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 has
a service contract which provides 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 2018. As noted
elsewhere in the report, Ian Campbell
resigned and left the board on 31 August
2018. As a result of his resignation he was
not entitled to receive a bonus in respect
of 2018 and outstanding LTIP awards
lapsed on his departure. He worked his
notice period to 31 August 2018 and
no payments in lieu of notice were made,
with the exception of a payment of
£15,155 in respect of untaken holiday.
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 last 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) 2018
Fees (£000) 2017
John Hylands1
The Very Revd Christine Wilson2
Tim Carroll
David Henderson3
Andrew McIntyre4
Chris Moulder5
Caroline Taylor
Edward Creasy6
Anthony Latham7
Denise Wilson8
Total
133
-
63
68
65
60
53
-
29
41
510
110
-
58
65
44
13
50
71
80
60
552
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 2018
to Christine Wilson as she waived her right to a fee. The Group chose to donate £65k to charity in 2018 (£27.5k in 2017).
3 David Henderson received an additional fee of £15k in 2017 and 2018 for services as a NED to EdenTree Investment Management Limited.
David Henderson waived his additional fee as Chairman of the Group Remuneration Committee.
4 Andrew McIntyre was appointed as a NED and Chairman of the Group Audit Committee on 4 April 2017.
5 Chris Moulder was appointed as a NED on 27 September 2017 and became Chairman of the Group Risk Committee on 1 June 2018.
6 Edward Creasy resigned 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 Anthony Latham retired from the Board on 14 June 2018. Mr Latham received an additional fee of £20k during 2017 for significant additional
work as Chairman of the Group Risk Committee in relation to Solvency II and IMAP.
8 Denise Wilson resigned from the Board on 21 August 2018.
Section ThreeEcclesiastical Annual Report & Accounts 2018Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information
Strategic Report – Group Remuneration Report
148
149
Total aggregate emoluments of directors
The total aggregate remuneration of the directors in respect of qualifying services during
2018 was £2,261k (2017: £2,718k). After inclusion of amounts receivable under long-term
incentive schemes and pension benefits, the total aggregate emoluments of the directors
was £3,033k (2017: £3,567k).
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 2019
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 2019 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 2019.
Name
Mark Hews
S. Jacinta Whyte1
Salary
(£000)
Salary
(£000)
Percentage
increase
1 April 2019
1 April 2018
463
378
452
369
2.5%
2.5%
1 An average 2018 exchange rate of 1.7264 Canadian dollars to 1 GBP has been used.
Annual bonus for 2019
The annual bonus performance conditions and targets have been set in accordance
with the Directors’ Remuneration Policy above, on the same basis as 2018.
As in 2018, the annual bonuses payable to executive directors in respect of 2019 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 2019, these will continue to be Group COR (40%); Group EIG PBT (including fair value
investment gains and losses) (30%); delivery of Group strategic initiatives in line with the
Group’s strategic plan (15%); and Customer and Conduct performance (15%). The overall
bonus outturn for each executive director 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 2019 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 2019-2021
The 2019-2021 LTIP performance conditions and targets have been set in accordance
with the Directors’ Remuneration Policy above.
The 2019-2021 Group LTIP will be subject to the following performance conditions
(which are unchanged from 2018): 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 2019-2021
Group LTIP will be up to 150% of salary in the case of the Group Chief Executive and up to
100% of salary in the case of the Deputy Group Chief Executive.
Fees (Non-Executive Directors)
The following fee structure will apply from 1 January 2019.
All-inclusive fee for the Group Chairman
All-inclusive fee for the Senior Independent Director
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 SID for 2019.
By order of the Board
David Henderson
Chairman of the Group Remuneration Committee
19 March 2019
Section ThreeEcclesiastical Annual Report & Accounts 2018Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Section Three
Strategic Report – Independent Auditor’s Report
150
Ecclesiastical Annual Report & Accounts 2018
151
Independent
Auditor’s Report
Report on the audit
of the financial statements
Opinion
In our opinion:
• the financial statements of Ecclesiastical
Insurance Office plc (the ‘Parent Company’)
and its subsidiaries (the ‘Group’) give
a true and fair view of the state of the
Group’s and of the parent company’s
affairs as at 31 December 2018 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
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 35 excluding the capital adequacy
disclosures in Note 4.i calculated in
accordance with the Solvency II regime
which are marked as unaudited.
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 Financial Reporting
Council’s (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 materiality that we
used for the Group financial
statements was £11.6m
which was determined
on the basis of 2% 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,
Northern Ireland and
the Republic of Ireland.
The key audit matters that
we identified in the current
year were:
• general insurance
reserves;
• life insurance reserves; and
• 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
.
Significant changes
in our approach
During 2018, we reassessed
the key audit matter identified
in the prior year in relation to
the carrying value of goodwill
arising on the Group’s
statement of financial
position from the acquisition
of South Essex Insurance
Brokers Limited. 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.
Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Strategic Report – Independent Auditor’s Report
152
153
or in aggregation, and considering the
headroom in the goodwill impairment
calculation these would need to move
by an unreasonable amount or margin
to materially impact on the carrying value.
Therefore, this was no longer considered
a key audit matter in the current year and
consequently we have not included a key
audit matter in respect of the carrying value
of goodwill 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.
During 2018, we reassessed the key audit
matter identified in the prior year in relation
to the carrying value of goodwill arising on
the Group’s statement of financial position
from the acquisition of South Essex
Insurance Brokers Limited. We concluded
that management’s impairment model
was not materially sensitive to the various
assumptions and inputs, either in isolation
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 2018 general insurance
IBNR 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 2019.
We challenged the key estimates within the calculation
of the UK PSA and asbestos IBNR reserves by working
with our general insurance actuarial specialists, 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 specialists, 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 portfolios.
Uncertainty and management margins applied to these
classes of business individually, and in total, were challenged
with the assistance of our general insurance specialists,
considering current legal, market and industry developments,
as well as consistency of application.
Management implemented refinements to their UK PSA
model in 2018. Our general insurance specialists critically
assessed whether those refinements were reasonable,
based on their experience and considering the specific
circumstances of the group’s exposure.
We evaluated the design and implementation of key internal
controls governing the actuarial assumption setting process.
We have performed direct testing over the underlying claims
and premiums data extracted from the policy administration
system, as well as testing the design and implementation
and operating effectiveness of relevant reconciliation
controls over this data from input to output of the
reserving modelling software
We reconciled the output of the actuarial reserving process
to the general ledger and the financial statements.
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 (‘IBNR’) claims
amount to £457m (2017:
£509m), as set out in note
28 to the financial statements.
The accounting policies 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
IBNR reserves for physical
and sexual abuse (‘PSA’) and
asbestos claims, as referred to
by the Group Audit Committee
in their report on page 120.
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.
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Life insurance reserves
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
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 2019.
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 2018 valuation
are reasonable and have
been set consistently with
prior year’s models and
methodologies.
The key assumptions (‘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 relevant
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 life 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 and the financial statements.
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.
Due to the inherently
uncertain nature of these
assumptions, they are subject
to significant management
estimates and, due to the
size of the balance (2018:
£81.9m, 2017: £88.1m)
as set out in note 28 to
the financial statements,
could materially affect the
financial statements
if incorrectly or inconsistently
determined or applied.
The accounting policies
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
judgement and estimates
involved, we have identified
this key audit matter as a
fraud risk to our financial
statement audit. The Group
Audit Committee refers to this
key audit matter in their report
on page 120.
We critically reviewed management’s defined benefit pension
valuation papers as presented to the Group Audit Committee
in November 2018 and February 2019.
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 2018 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 in 2018. 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 obligation are within
the acceptable ranges at
31 December 2018
and have been derived
consistently with the
prior year.
The assumptions used
as a whole, including
non-key audit matters
such as the rate for
improvement in longevity,
whilst individually and
overall within acceptable
ranges, lie towards the
slightly prudent end
of these ranges as at
31 December 2018.
The net surplus is below the
IAS 19 and IFRIC 14 asset
ceiling at 31 December
2018 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 2018, 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 Group recognises a net
pension surplus of £16.1m
(2017: net pension surplus
of £20.0m) for the SRBF
defined benefit pension
scheme, as set out in note 19
to the financial statements.
The accounting policies and
critical accounting estimates
and judgements are set out
in notes 1 and 2 respectively.
The valuation of the Group’s
defined benefit pension
scheme obligation and
recognition of the net
surplus are discussed by
the Group Audit Committee
in their report on page 121.
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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
£11.6m (2017: £5.7m)
£9.8m (2017: £5.0m)
Basis for determining
materiality
2% of EIO Group total
shareholders’ equity
(2017: 1% total shareholders’
equity). 1% of EIO plc’s total
shareholders’ equity
2% of EIO plc’s total
shareholders’ equity
(2017: 1% total
shareholders’ equity)
Rationale for the
benchmark applied
We have used total shareholders’ equity as a benchmark for our
materiality to reflect the Group’s strategic ambition to deliver longer-term
value and to 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, taking into account
the unusual ownership structure of the Group, with the ultimate parent
company being a UK registered charity.
The factor applied to the benchmark is a matter of professional
judgement. During 2018, we carried out a detailed assessment which
included considerations of the engagement risk and controls environment,
past experience of corrected and uncorrected misstatements as well as
benchmarking to other published independent auditor’s reports for the
insurance industry. Having presented our assessment to the Group Audit
Committee in our 2018 audit planning paper, we concluded to increase
the factor applied to shareholders’ equity from 1% to 2%.
We agreed with the Group Audit Committee that we would report to the committee all audit
differences in excess of £579k (2017: £283k), 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 £586m
Group materiality £11.6m
Component
materiality range
£10.4m to £3.9m
Audit Committee reporting
threshold £0.6m
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.
team visits each of the locations where the
Group audit scope is focused at least once
every three years. Our most recent visits
to the overseas components in Australia
and Canada both took place in 2017.
The Group Audit Engagement Partner
is also the Audit Partner for the group’s
UK-based components and subsidiaries.
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, Australia and Canada,
as well as the UK insurance broker and
investment management subsidiaries,
tailoring our procedures depending on
the financial significance of the components
to the Group.
All financially significant components
of the Group were subject to full scope
audit procedures, which were executed
to the lower of Group component materiality
ranging from £3.9m to £10.4m, or their
respective statutory materiality.
The Group audit team follows a programme
of planned visits that has been designed
so that a senior member of the Group audit
During the 2018 audit, we included
the component audit teams in our team
briefings, discussed their risk assessments,
and reviewed key documentation of the
findings from their work. Regular conference
calls are held with overseas component
audit teams, including the Component Audit
Partners and the Group Audit Partner.
At Group level we 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
5%
95%
9%
91%
2%
98%
Shareholders’ equity
Group materiality
Full audit scope
Group analytical procedures
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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.
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.
Details of the extent to which the audit
was considered capable of detecting
irregularities, including fraud are set
out below.
A further description of our responsibilities
for the audit of the financial statements
is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities.
This description forms part of our
auditor’s report.
Extent to which the audit
was considered capable
of detecting irregularities,
including fraud
We identify and assess the risks of material
misstatement of the financial statements,
whether due to fraud or error, and then
design and perform audit procedures
responsive to those risks, including
obtaining audit evidence that is sufficient
and appropriate to provide a basis for
our opinion.
Identifying and assessing potential risks
related to irregularities
In identifying and assessing risks of material
misstatement in respect of irregularities,
including fraud and non-compliance with
laws and regulations, our procedures
included the following:
• enquiring of management, Group Internal
Audit and the Group Audit Committee,
including obtaining and reviewing
supporting documentation, concerning the
group’s policies and procedures relating to:
– identifying, evaluating and complying
with laws and regulations and whether
they were aware of any instances of
non-compliance;
– detecting and responding to the
risks of fraud and whether they have
knowledge of any actual, suspected
or alleged fraud;
– the internal controls established to
mitigate risks related to fraud or non-
compliance with laws and regulations;
– discussing among the engagement
team, including significant component
audit teams, and involving relevant
internal specialists (including tax,
IT and general insurance actuaries)
and experts (including valuations,
pensions, financial instrument
consultants and life insurance actuaries)
regarding how and where fraud might
occur in the financial statements and
any potential indicators of fraud. As part
of this discussion, we identified potential
for fraud in the following areas:
– General insurance reserves; and
– Life insurance reserves.
• obtaining an understanding of the legal
and regulatory framework that the group
operates in, focusing on those laws
and regulations that had a direct effect
on the financial statements or that had
a fundamental effect on the operations
of the group. The key laws and regulations
we considered in this context included
the UK Companies Act and relevant
tax legislation. In addition, compliance
with terms of the group’s regulatory
solvency requirements as governed by
the Prudential Regulation Authority (‘PRA’)
were fundamental to the group’s ability
to continue as a going concern.
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161
We also communicated relevant identified
laws and regulations and potential fraud
risks to all engagement team members
including internal specialists and significant
component audit teams, and remained
alert to any indications of fraud or non-
compliance with laws and regulations
throughout the audit.
Audit response to risks identified
As a result of performing the above,
we identified general insurance reserves
and life insurance reserves as key audit
matters. The key audit matter section
of our report explains the matters in more
detail and also describes the specific
procedures we performed in response
to those key audit matters.
In addition to the above, our procedures
to respond to risks identified included
the following:
• reviewing the financial statement
disclosures and testing to supporting
documentation to assess compliance
with relevant laws and regulations
discussed above;
• enquiring of management, the Group
Audit Committee and in-house legal
counsel concerning actual and potential
litigation and claims;
• performing analytical procedures
to identify any unusual or unexpected
relationships that may indicate risks
of material misstatement due to fraud;
• reading minutes of meetings of those
charged with governance, reviewing
Group Internal Audit reports and reviewing
correspondence with HMRC, the FCA
and the PRA;
• engaging actuarial specialists and experts
to assess the assumptions, methodology
and judgement used in calculating the
general and life insurance reserves and
the pension obligation, as well as the
compliance of these calculations with
relevant regulation; and
• in addressing the risk of fraud through
management override of controls, testing
the appropriateness of journal entries
and other adjustments; assessing
whether the judgements made in making
accounting estimates are indicative
of a potential bias; and evaluating
the business rationale of any significant
transactions that are unusual or outside
the normal course of business.
Other matters
Auditor tenure
Following the recommendation of the Group
Audit Committee, we were appointed by the
Group’s Board of Directors on 1 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 21 years, covering the years ended
31 December 1998 to 31 December 2018.
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).
Use of this 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.
Paul Stephenson BA FCA
(Senior statutory auditor)
for and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
19 March 2019
Report on other legal and
regulatory requirements
Opinions on other matters prescribed
by 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 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.
Directors’ remuneration
Under the Companies Act 2006 we are
also required to report if in our opinion
certain disclosures of directors’
remuneration have not been made.
We have nothing to report in respect
of these matters.
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162
163
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
164
165
166
167
168
169
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Section Four
Financial Statements
164
164
Ecclesiastical Annual Report & Accounts 2018
165
165
Consolidated statement of profit or loss
for the year ended 31 December 2018
Consolidated and parent statement of comprehensive income
for the year ended 31 December 2018
Notes
2018
2017
Revenue
Gross written premiums
Outward reinsurance premiums
Net change in provision for unearned premiums
Net earned premiums
Fee and commission income
Other operating income
Net investment return
Total revenue
Expenses
Claims and change in insurance liabilities
Reinsurance recoveries
Fees, commissions and other acquisition costs
Other operating and administrative expenses
Total operating expenses
Operating profit
Finance costs
Profit before tax
Tax expense
Profit for the year (attributable to equity holders of the Parent)
Notes
5, 6
6
6
7
8
9
9
10
5
14
11
2018
£000
2017
£000
356,971
(137,640)
(5,241)
214,090
62,996
1,039
3,994
282,119
(111,873)
26,188
(66,346)
(114,388)
(266,419)
15,700
(329)
15,371
(958)
14,413
342,917
(129,387)
(6,318)
207,212
60,864
1,935
72,294
342,305
(119,913)
32,196
(65,153)
(107,143)
(260,013)
82,292
(96)
82,196
(14,054)
68,142
Profit for the year
Other comprehensive income
Items that will not be reclassified to profit or loss:
Fair value gains on property
Actuarial gains on retirement benefit plans
Attributable tax
19
Items that may be reclassified subsequently to profit or loss:
Losses on currency translation differences
Gains on net investment hedges
Attributable tax
27
27
27
Net other comprehensive income
Total comprehensive income attributable to equity holders of the
Parent
Group
£000
14,413
Parent
£000
15,662
105
4,288
(747)
3,646
(3,082)
1,692
(187)
(1,577)
2,069
105
4,288
(747)
3,646
(833)
453
(77)
(457)
Group
£000
68,142
-
44,608
(7,553)
37,055
(1,642)
855
(73)
(860)
3,189
36,195
16,482
18,851
104,337
Parent
£000
59,073
-
44,608
(7,553)
37,055
(1,034)
606
(103)
(531)
36,524
95,597
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Consolidated and parent statement of changes in equity
for the year ended 31 December 2018
Consolidated and parent statement of financial position
at 31 December 2018
166
167
Group
Notes
15
15
15
15
15
15
At 1 January 2018
Profit for the year
Other net income/(expense)
Total comprehensive income
Dividends
Gross charitable grant
Tax relief on charitable grant
At 31 December 2018
At 1 January 2017
Profit for the year
Other net income/(expense)
Total comprehensive income
Dividends
Gross charitable grant
Tax relief on charitable grant
Reserve transfers
At 31 December 2017
Parent
At 1 January 2018
Profit for the year
Other net income/(expense)
Total comprehensive income
Dividends
Gross charitable grant
Tax relief on charitable grant
Group tax relief in excess
of standard rate
At 31 December 2018
At 1 January 2017
Profit for the year
Other net income/(expense)
Total comprehensive income
Dividends
Gross charitable grant
Tax relief on charitable grant
Group tax relief in excess
of standard rate
Reserve transfers
At 31 December 2017
Share
capital
£000
120,477
-
-
-
-
-
-
120,477
120,477
-
-
-
-
-
-
-
120,477
120,477
-
-
-
-
-
-
-
120,477
120,477
-
-
-
-
-
-
-
-
120,477
Share
premium
£000
Revaluation
reserve
£000
Translation
and hedging
reserve
£000
Retained
earnings
£000
4,632
-
-
-
-
-
-
4,632
4,632
-
-
-
-
-
-
-
4,632
4,632
-
-
-
-
-
-
-
4,632
4,632
-
-
-
-
-
-
-
-
4,632
478
-
87
87
-
-
-
565
501
-
6
6
-
-
-
(29)
478
478
-
87
87
-
-
-
-
565
501
-
6
6
-
-
-
-
(29)
478
20,648
-
(1,577)
(1,577)
-
-
-
19,071
21,508
-
(860)
(860)
-
-
-
-
20,648
8,035
-
(457)
(457)
-
-
-
-
7,578
8,566
-
(531)
(531)
-
-
-
-
-
8,035
446,238
14,413
3,559
17,972
(9,181)
(17,000)
3,230
441,259
371,194
68,142
37,049
105,191
(9,181)
(26,000)
5,005
29
446,238
365,474
15,662
3,559
19,221
(9,181)
(17,000)
3,230
(149)
361,595
299,673
59,073
37,049
96,122
(9,181)
(26,000)
5,005
(174)
29
365,474
Total
£000
592,473
14,413
2,069
16,482
(9,181)
(17,000)
3,230
586,004
518,312
68,142
36,195
104,337
(9,181)
(26,000)
5,005
-
592,473
499,096
15,662
3,189
18,851
(9,181)
(17,000)
3,230
(149)
494,847
433,849
59,073
36,524
95,597
(9,181)
(26,000)
5,005
(174)
-
499,096
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 27.
Assets
Goodwill and other intangible assets
Deferred acquisition costs
Deferred tax assets
Pension assets
Property, plant and equipment
Investment property
Financial investments
Reinsurers' share of contract liabilities
Current tax recoverable
Other assets
Cash and cash equivalents
Total assets
Equity
Share capital
Share premium account
Retained earnings and other reserves
Total shareholders' equity
Liabilities
Insurance contract liabilities
Finance lease obligations
Provisions for other liabilities
Retirement benefit obligations
Deferred tax liabilities
Current tax liabilities
Deferred income
Other liabilities
Total liabilities
Notes
2018
Group
£000
Parent
£000
2017
Group
£000
Parent
£000
17
18
30
19
20
21
22
28
24
25
26
28
29
19
30
31
31
30,064
33,907
1,749
16,131
8,391
152,182
798,974
140,346
59
153,630
109,417
1,444,850
120,477
4,632
460,895
586,004
720,049
1,379
5,216
5,813
31,665
2,905
19,900
71,919
858,846
4,849
27,812
-
16,131
7,372
152,182
636,688
100,238
10
116,328
72,775
1,134,385
120,477
4,632
369,738
494,847
531,439
1,379
5,059
5,813
31,070
2,243
15,280
47,255
639,538
28,430
31,267
1,721
20,036
8,772
152,238
859,686
159,208
89
150,082
93,767
1,505,296
120,477
4,632
467,364
592,473
769,248
1,611
5,599
10,932
38,375
2,491
17,704
66,863
912,823
3,568
25,628
-
20,036
7,821
152,238
686,499
110,125
65
115,107
51,399
1,172,486
120,477
4,632
373,987
499,096
563,104
1,611
5,512
10,932
37,164
1,666
14,090
39,311
673,390
Total shareholders' equity and liabilities
1,444,850
1,134,385
1,505,296
1,172,486
The financial statements of Ecclesiastical Insurance Office plc, registered number 24869, on pages 164 to 233 were approved and
authorised for issue by the Board of Directors on 19 March 2019 and signed on its behalf by:
John Hylands
Chairman
Mark Hews
Group Chief Executive
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Consolidated and parent statement of cash flows
for the year ended 31 December 2018
Notes to the financial statements
168
169
Notes
2018
2017
Profit before tax
Adjustments for:
Depreciation of property, plant and equipment
Revaluation of property, plant and equipment
Profit on disposal of property, plant and equipment
Amortisation and impairment of intangible assets
Net fair value losses/(gains) on financial instruments and
investment property
Dividend and interest income
Finance costs
Adjustment for pension funding
Changes in operating assets and liabilities:
Net decrease in insurance contract liabilities
Net decrease in reinsurers' share of contract liabilities
Net increase in deferred acquisition costs
Net increase in other assets
Net increase in operating liabilities
Net (decrease)/increase in other liabilities
Cash generated/(used) by operations
Purchases of financial instruments and investment property
Sale of financial instruments and investment property
Dividends received
Interest received
Tax paid
Net cash from operating activities
Cash flows from investing activities
Purchases of property, plant and equipment
Proceeds from the sale of property, plant and equipment
Purchases of intangible assets
Acquisition of business, net of cash acquired
Acquisition of shares issued by subsidiary
Net cash used by investing activities
Cash flows from financing activities
Interest paid
Payment of finance lease liabilities
Payment of group tax relief in excess of standard rate
Dividends paid to Company's shareholders
Charitable grant paid to ultimate parent undertaking
Net cash used by financing activities
16
22
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Exchange losses on cash and cash equivalents
Cash and cash equivalents at end of year
25
Group
£000
15,371
2,437
(85)
(3)
949
35,506
(27,107)
329
2,931
(42,161)
16,431
(3,078)
(5,388)
5,838
(286)
1,684
(125,739)
149,562
9,790
17,347
(4,998)
47,646
(1,822)
55
(2,371)
(225)
-
(4,363)
(329)
(346)
-
(9,181)
(17,000)
(26,856)
16,427
93,767
(777)
109,417
Parent
£000
15,762
2,212
(60)
-
699
29,557
(24,307)
329
2,931
(29,729)
9,514
(2,364)
(1,763)
6,950
(309)
9,422
(96,461)
118,173
13,146
11,153
(3,140)
52,293
(1,538)
43
(2,060)
-
(274)
(3,829)
(329)
(346)
(174)
(9,181)
(17,000)
(27,030)
21,434
51,399
(58)
72,775
Group
£000
82,196
2,177
-
(18)
1,159
(37,664)
(28,230)
96
3,069
(21,363)
5,776
(762)
(11,992)
8,834
438
3,716
(153,522)
169,426
11,754
18,809
(6,832)
43,351
(2,095)
376
(1,002)
-
-
(2,721)
(96)
(314)
-
(9,181)
(26,000)
(35,591)
5,039
89,494
(766)
93,767
Parent
£000
70,649
1,970
-
(15)
918
(32,436)
(23,242)
96
3,069
(21,923)
9,578
(75)
(14,040)
2,665
393
(2,393)
(128,068)
141,054
13,179
12,430
(6,247)
29,955
(1,872)
346
(505)
-
-
(2,031)
(96)
(314)
(218)
(9,181)
(26,000)
(35,809)
(7,885)
59,743
(459)
51,399
1 Accounting policies
Ecclesiastical Insurance Office plc (hereafter referred to as the ‘Company’, or ‘Parent’), a public limited company incorporated and domiciled
in England, together with its subsidiaries (collectively, the ‘Group’) operates principally as a provider of general insurance and in addition
offers a range of financial services, with offices in the UK & Ireland, Australia and Canada. The principal accounting policies adopted in
preparing the International Financial Reporting Standards (IFRS) financial statements of the Group and Parent are set out below.
Basis of preparation
The 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 2018 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.
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 £799.0m, 92% of which are liquid (2017: financial investments of £859.7m,
93% liquid), cash and cash equivalents of £109.4m and no borrowings (2017: cash and cash equivalents of £93.8m 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.
In accordance with IFRS 4, Insurance Contracts, on adoption of IFRS the Group applied existing accounting practices for insurance and
participating investment contracts, modified as appropriate to comply with the IFRS framework and applicable standards, introducing
changes only where they provide more reliable and relevant information.
Items included in the financial statements of each of the Group’s entities are measured in the currency of the primary economic
environment in which that entity operates (the 'functional currency'). The consolidated financial statements are stated in sterling, which is
the Group’s functional and presentation currency.
As permitted by Section 408 of the Companies Act 2006, a separate profit and loss account for the Company is not presented.
New and revised Standards
In the current year the Group has adopted the following Standards and Amendments:
- IFRS 15, Revenue from Contracts with Customers
- IFRS 4 (Revised), Insurance Contracts
The Group and Parent adopted IFRS 15 Revenue from Contracts with Customers with effect from 1 January 2018. IFRS 15 introduced a
five-step approach to revenue recognition and established 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.
IFRS 15 has been applied using the modified approach, applied retrospectively only to contracts that were not completed contracts at 1
January 2018. Under the modified approach, the cumulative effect of initially applying IFRS 15 is recognised as an adjustment to opening
reserves. The adoption of IFRS 15 did not have a material impact on the Group's or Parent's financial statements and consequently no
adjustment has been made to opening reserves. Minor amendments have been made to the Group's accounting policies as shown below,
which had no impact on the amounts recognised in the financial statements at 1 January 2018 or 31 December 2018:
-
-
Income generated from insurance placements through the Group's insurance broking activities was previously recognised at the
inception date of the cover. Under IFRS 15 it is recognised at the point at which the performance obligation is satisfied, being the
inception date of the cover, or, where this income is variable, the point at which it is reasonably certain that no significant reversal of the
amount recognised would occur.
Fees charged for investment management services were previously recognised when the services were provided. Under IFRS 15, as the
fees are variable, they are recognised over time as the services are provided, and once it is reasonably certain that no significant reversal
of the amount recognised would occur.
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information 170
171
Notes to the financial statements
1 Accounting policies (continued)
Notes to the financial statements
1 Accounting policies (continued)
The current year financial statements are impacted by the adoption of IFRS 15, as well as by the impact of other changes made by the
Group during the year, including the recognition of an provision for the clawback of commission income and presentational changes. The
impact is as follows:
Impact on statement of profit or loss
Fee and commission income
IFRS 15 - Deferral of revenue attributable to performance obligations satisfied over time, not previously deferred
Provision for clawback of commission income
Reclassification of income previously offset against administrative expenses
Administrative expenses
Reclassification of income previously offset against administrative expenses
IFRS 15 - Release of expense creditor in respect of performance obligations satisfied over time
Decrease in income tax expense
Decrease in the profit for the year
2018
£000
(112)
(94)
129
(77)
(129)
65
(64)
27
(114)
The amendment to IFRS 4 which permits an insurer to take a temporary exemption from applying the requirements of IFRS 9, Financial
Instruments, became applicable to the Group and Parent in the year. The Group qualifies for the temporary exemption, which is available
until annual periods beginning on or after 1 January 2021, since at 31 December 2015 greater than 90% of its liabilities were within the
scope of IFRS 4. The Parent qualifies for the temporary exemption since at 31 December 2015 greater than 80% of its liabilities were
within the scope of IFRS 4 and it does not engage in significant activities unconnected with insurance. Other liabilities of the Parent include
employment benefit and tax liabilities which arise solely because the Parent insures, or fulfils obligations arising from insurance contracts.
There has been no significant change to the Group or Parent's operations since 31 December 2015 and as a result, the Group and Parent
continue to apply IAS 39, Financial Instruments.
Additional disclosures as a result of the amendments to IFRS 4 are included in note 4(a)(ii). Credit risk concentrations are disclosed in note
4(d)(i).
IFRS 17,
Insurance
Contracts
Requires insurance liabilities to be
measured at a current fulfilment
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. Amendments to IFRS 17 were tentatively
proposed by the IASB in January 2019, the outcome of
which is being monitored.
Applicable to annual
reporting periods
beginning on or after
1 January 2021
(subject to EU
endorsement).
A one-year deferral
has tentatively been
proposed by the
IASB subject to due
process.
The other Standards in issue but not yet effective are not expected to materially impact the Group.
Use of estimates
The preparation of financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and
liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements. Although these estimates are based
on management’s best knowledge of current events and actions, actual results ultimately may differ from those estimates. Those estimates
which have the most material impact on the financial statements are disclosed in note 2.
Operating profit or loss
Operating profit or loss is stated before finance costs.
Basis of consolidation
Subsidiaries
Subsidiaries are those entities over which the Company, directly or indirectly, has control, with control being achieved when the Company
has power over the investee, is exposed to variable return from its involvement with the investee and has the ability to use its power to
affect its returns. The results and cash flows relating to subsidiaries acquired or disposed of in the year are included in the consolidated
statement of profit or loss, and the consolidated statement of cash flows, from the date of acquisition or up to the date of disposal. All inter-
company transactions, balances and profits are eliminated.
Certain entities within the Group do not qualify for the temporary exemption from the requirements of IFRS 9. Further information
detailing the adoption of IFRS 9 is disclosed in the statutory financial statements of these entities.
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.
The other Standards adopted in the year are either outside the scope of Group transactions or do not significantly impact the Group.
The following Standards were in issue but not yet effective and have not been applied in these financial statements.
Standard
Key requirements
Expected impact on financial statements
Effective date
IFRS 9,
Financial
Instruments
IFRS 16,
Leases
Provides 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 eligible for, and has
applied the deferral approach, which gives a temporary exemption
from applying IFRS 9 until the effective date of 'IFRS 17,
Insurance contracts'.
Annual periods beginning
on or after 1 January
2018. Although can be
deferred until 2021 for
insurers. A further one-
year deferral for insurers
has tentatively been
proposed subject to due
process.
Provides 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.
The Group's leasing arrangements have been reviewed in light of
the new lease accounting rules in IFRS 16. As at 31 December
2018, the Group has non-cancellable operating lease
commitments of £19.6m. The Group expects to recognise a right-
of-use asset of approximately £11.7m on 1 January 2019, lease
liabilities of £12.4m (after adjustments for prepaid lease
payments recognised at 31 December 2018). There is not
expected to be a significant impact on profit after tax; however, it
is expected that operating expenses will decrease, and finance
costs increase by approximately £0.6m.
Annual periods beginning
on or after 1 January
2019.
The Group uses the acquisition method of accounting to account for business combinations. The cost of an acquisition is measured as the
fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the acquisition date. Identifiable assets
acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the
acquisition date. Non-controlling interests are measured either at fair value or at a proportionate share of the identifiable net assets of the
acquiree. Goodwill is measured as the excess of the aggregate of the consideration transferred, the fair value of contingent consideration,
the 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.
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Notes to the financial statements
1 Accounting policies (continued)
Notes to the financial statements
1 Accounting policies (continued)
172
173
Investment vehicles
Investment vehicles such as mutual funds are consolidated when the Group has a controlling interest.
Foreign currency translation
The assets and liabilities of foreign operations are translated from their functional currencies into the Group's presentation currency using
year-end exchange rates, and their income and expenses using average exchange rates for the year. Exchange differences arising from
the translation of the net investment in foreign operations are taken to the currency translation reserve within equity. On disposal of a
foreign operation, such exchange differences are transferred out of this reserve, 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.
Foreign currency transactions are translated into the functional currency using exchange rates prevailing at the date of the transactions.
Exchange gains and losses resulting from the settlement of such transactions, and from the translation of monetary assets and liabilities
denominated in foreign currencies, are recognised through profit or loss.
Product classification
Contracts under which the Group accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the
policyholder or other beneficiary if a specified uncertain future event (the insured event) adversely affects the policyholder are classified as
insurance contracts. Contracts that do not transfer significant insurance risk are classified as investment or service contracts. All of the
Group's life business contracts are classified as insurance contracts.
Both insurance and investment contracts may contain a discretionary participating feature, which is defined as a contractual right to receive
additional benefits as a supplement to guaranteed benefits. The Group does not have any such participating contracts (referred to as with-
profit contracts). The Group's long-term business contracts are referred to as non-profit contracts in the financial statements.
Premium income
General insurance business
Premiums are shown gross of commission paid to intermediaries and accounted for in the period in which the risk commences. Estimates
are included for premiums not notified by the year end ("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.
Premiums written include adjustments to premiums written in prior periods and estimates for pipeline premiums and are shown net of
insurance premium taxes.
Life business
Insurance contract premiums are recognised as income when receivable, at which date the liabilities arising from them are also recognised.
Fee and commission income
Fee and commission income consists primarily of reinsurance commissions and reinsurance profit commissions which are accounted for in
accordance with IFRS 4 Insurance contracts. 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 which are accounted
for in accordance with IFRS 15 Revenue from contracts with customers.
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 the Group's insurance broking activities is recognised at the point at which the performance obligation is satisfied,
being the inception date of the insurance cover, or, where this income is variable, the point at which it is reasonably certain that no
significant reversal of the amount recognised would occur. An estimate is made for the amount of fees and commission that may be
clawed back as a result of policy cancellations or amendments in relation to performance obligations satisfied in the year. This is deducted
from fee and commission income and recognised in provisions. Where commission or fees are received in advance of the inception date of
cover, deferred income is recognised. Receivables are recognised in other debtors on inception date of cover in respect of fees or
commissions that the Group has an unconditional right to receive.
Fees charged for investment management services are variable based on funds under management and are recognised over time as the
services are provided, once it is reasonably certain that no significant reversal of the amount recognised would occur. Fees charged for
investment management services for institutional and retail fund management are also recognised on this basis.
Other operating income
Other operating income consists of the return of surplus reserves from a government-backed reinsurance scheme. It is recognised when
the distribution is declared.
Net investment return
Net 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.
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.
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.
Claims
General insurance claims incurred include all losses occurring during the year, whether reported or not, related handling costs, a reduction
for the value of salvage and other recoveries, and any adjustments to claims outstanding from previous years.
Claims handling costs include all internal and external costs incurred in connection with the negotiation and settlement of claims.
Life business claims and death claims are accounted for when notified.
Insurance contract liabilities
General insurance provisions
(i) Outstanding claims provisions
General insurance outstanding claims provisions are based on the estimated ultimate cost of all claims incurred but not settled at the year-
end date, whether reported or not, together with related claims handling costs. Significant delays are experienced in the notification and
settlement of certain types of general insurance claims, particularly in respect of liability business, the ultimate cost of which cannot be
known with certainty at the year-end date. An estimate is made representing the best estimate plus a risk margin within a range of possible
outcomes. Designated insurance liabilities are remeasured to reflect current market interest rates.
(ii) Provision for unearned premiums
The proportion of written premiums, gross of commission payable to intermediaries, attributable to subsequent periods is deferred as a
provision for unearned premiums. The change in this provision is taken to profit or loss in order that revenue is recognised over the period
of risk.
(iii) Liability adequacy
At each reporting date, the Group reviews its unexpired risks and carries out a liability adequacy test for any overall excess of expected
claims and deferred acquisition costs over unearned premiums, using the current estimates of future cash flows under its contracts.
Unexpired risks are assessed separately for each class of business.
Surpluses and deficits are offset where business classes are considered to be managed together and a provision is held for any net deficit.
Life business provisions
Under 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.
Reinsurance
The Group assumes and cedes reinsurance in the normal course of business, with retention limits varying by line of business. Premiums on
reinsurance assumed are recognised as revenue in the same manner as direct business. Outwards reinsurance premiums are accounted
for in the same accounting period as the related premiums for the direct or inwards reinsurance business being reinsured. Estimates are
included for premiums not notified by the year end and provision is made for the anticipated lapse of renewals not yet confirmed. The
proportion of premiums ceded in a year which relates to periods of risk extending beyond the current year is carried forward as unearned.
The Group does not reinsure its life business.
Reinsurance assets primarily include balances due from both insurance and reinsurance companies for ceded insurance liabilities.
Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provisions or the settled claims
associated with the reinsured policies and in accordance with the relevant reinsurance contract.
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Notes to the financial statements
1 Accounting policies (continued)
Notes to the financial statements
1 Accounting policies (continued)
174
175
Intangible assets
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the identifiable assets and liabilities
acquired at the date of acquisition. Goodwill on acquisitions prior to 1 January 2004 (the date of transition to IFRS) is carried at book value
(original cost less amortisation) on that date, less any subsequent impairment. Where it is considered more relevant, the Group uses the
option to measure goodwill initially at fair value, less any subsequent impairment.
Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Goodwill is allocated to cash-generating
units for the purpose of impairment testing. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to
the entity sold.
Computer software
Computer software is carried at historical cost less accumulated amortisation and 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 assets
Other 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.
Property, plant and equipment
Owner-occupied properties are stated at open market value and movements are taken to the revaluation reserve within equity, net of
deferred tax. When such properties are sold, the accumulated revaluation surpluses are transferred from this reserve to retained earnings.
Where the market value of an individual property is below original cost, any revaluation movement arising during the year is recognised
within net investment return in the statement of profit or loss. Valuations are carried out at least every three years by external qualified
surveyors. All other items classed as property, plant and equipment within the statement of financial position are carried at historical cost
less accumulated depreciation and impairment.
Land 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:
Computer equipment
Motor vehicles
Fixtures, fittings and office equipment
3 - 5 years straight line
4 years straight line or 27% reducing balance
3 - 10 years or length of lease straight line
Where the carrying amount of an item carried at historical cost less accumulated depreciation is greater than its estimated recoverable
amount, it is written down to its recoverable amount by way of an impairment charge to profit or loss.
Repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.
Investment property
Investment property comprises land and buildings which are held for long-term rental yields. It is carried at fair value with changes in fair
value recognised in the statement of profit or loss within net investment return. Investment property is valued annually by external qualified
surveyors at open market value.
Financial instruments
IAS 39, Financial Instruments: Recognition and Measurement requires the classification of certain financial assets and liabilities into
separate categories for which the accounting requirements differ.
The classification depends on the nature and purpose of the financial assets and liabilities, and is determined at the time of initial
recognition. Financial instruments are initially measured at fair value. Their subsequent measurement depends on their classification:
-
-
Financial instruments designated as 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.
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).
Offset of financial assets and financial liabilities
Financial assets and liabilities are offset, and the net amount reported in the statement of financial position, when there is a legally
enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the
liability simultaneously.
Financial investments
The Group accounts for financial assets under IAS 39 and 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.
(a) Financial assets at fair value through profit or loss
Financial investments are classified into this category if they are managed, and their performance evaluated, on a fair value basis.
Purchases and sales of these investments are recognised on the trade date, which is the date that the Group commits to purchase or sell
the assets, at their fair value adjusted for transaction costs. Financial investments within this category are classified as held for trading if
they are derivatives that are not accounted for as a net investment hedge or are acquired principally for the purpose of selling in the near
term.
The fair values of investments are based on quoted bid prices. Where there is no active market, fair value is established using a valuation
technique based on observable market data where available.
Derivative financial instruments and hedging
Derivative financial instruments include foreign exchange contracts and other financial instruments that derive their value from underlying
equity instruments.
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.
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.
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.
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Notes to the financial statements
1 Accounting policies (continued)
Notes to the financial statements
1 Accounting policies (continued)
176
177
(b) Financial assets at fair value through other comprehensive income
Derivative instruments for hedging of net investments in foreign operations
On 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.
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.
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.
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.
(c) Loans and receivables
Loans 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.
Deferred acquisition costs
General insurance business
For general insurance business, a proportion of commission and other acquisition costs relating to unearned premiums is carried forward
as deferred acquisition costs or, with regard to reinsurance outwards, as deferred income. Deferred acquisition costs are amortised over
the period in which the related revenues are earned. The reinsurers’ share of deferred acquisition costs is amortised in the same manner as
the underlying asset.
Life business
For 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.
Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original
maturities of three months or less and bank overdrafts.
Insurance broking debtors and creditors
Where the Group acts as an agent in placing the insurable risks of clients with insurers, debtors arising from such transactions are not
included in the Group's assets. When the Group receives cash in respect of resultant premiums or claims, a corresponding liability is
established in other creditors in favour of the insurer or client. Where the Group provides premium finance facilities to clients, amounts due
are included in other debtors, with the amount owing for onward transmission included in other creditors.
Leases
Leases, where a significant portion of the risks and rewards of ownership is retained by the lessor, are classified as operating leases.
Payments made as lessees under operating leases are charged to profit or loss on a straight-line basis over the period of the lease. Rental
income received as a lessor under operating leases is credited to profit or loss on a straight-line basis over the period of the lease. Lease
incentives are recognised on a straight-line basis over the period of the lease.
Leases, where a significant portion of the risks and rewards of ownership is transferred to the Group, are classified as finance leases.
Assets obtained under finance lease contracts are capitalised as property, plant and equipment and are depreciated over the period of the
lease. Obligations under such agreements are included within liabilities net of finance charges allocated to future periods. The interest
element of the lease payments is charged to profit or loss over the period of the lease. Assets held under finance leases are not significant
to these financial statements.
Provisions and contingent liabilities
Provisions are recognised when the Group has a present legal or constructive obligation, as a result of past events, and it is probable that
an outflow of resources, embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the
obligation can be made. Where the Group expects a provision to be reimbursed, the reimbursement is recognised as a separate asset, but
only when it is virtually certain that the reimbursement will be received.
The Group recognises a provision for onerous contracts when the expected benefits to be derived from a contract are less than the
unavoidable costs of meeting the obligations under the contract.
Contingent liabilities are disclosed if there is a possible future obligation as a result of a past event, or if there is a present obligation but
either an outflow of resources is not probable or the amount cannot be reliably estimated.
Employee benefits
Pension obligations
The Group operates a number of defined benefit and defined contribution plans, the assets of which are held in separate trustee-
administered funds.
For defined benefit plans, the pension costs are assessed using the projected unit credit method. Under this method, the cost of providing
pensions is charged to profit or loss so as to spread the regular cost over the service lives of employees. 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.
In accordance with IAS 19, Employee Benefits, current and past service costs, gains and losses on curtailments and settlements and net
interest expense or income (calculated by applying a discount rate to the net defined benefit liability or asset) are recognised through profit
or loss. Actuarial gains or losses are recognised in full in the period in which they occur in other comprehensive income.
Contributions in respect of defined contribution plans are recognised as a charge to profit or loss as incurred.
Other post-employment obligations
Some Group companies provide post-employment medical benefits to their retirees. The expected costs of these benefits are accrued over
the period of employment using an accounting methodology similar to that for defined benefit pension plans. 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.
Other benefits
Employee entitlements to annual leave and long service leave are recognised when they accrue to employees. A provision is made for the
estimated liability for annual leave and long service leave as a result of services rendered by employees up to the year-end date.
Taxation
Income tax comprises current and deferred tax. Income tax is recognised in the statement of profit or loss except to the extent that it
relates to items recognised in other comprehensive income, in which case it is recognised in the statement of comprehensive income.
Current tax is the expected tax payable on the taxable result for the period, after any adjustment in respect of prior periods.
Deferred tax is provided in full on temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes. Deferred tax is measured using tax rates expected to apply when the related deferred
tax asset is realised, or the deferred tax liability is settled, based on tax rates and laws which have been enacted or substantively enacted at
the year-end date.
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary
differences can be utilised.
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Notes to the financial statements
1 Accounting policies (continued)
Notes to the financial statements
178
179
Appropriations
Dividends
Dividends on Ordinary shares are recognised in equity in the period in which they are declared and, for the final dividend, approved by
shareholders. Dividends on Non-Cumulative Irredeemable Preference shares are recognised in the period in which they are declared and
appropriately approved.
Charitable grant to ultimate parent undertaking
Payments are made via Gift Aid to the ultimate parent company, Allchurches Trust Limited, a registered charity. The Group does not regard
these payments as being expenses of the business and, as such, recognises them net of tax in equity in the period in which they are
approved.
Use 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 35 provides details of how these key
performance indicators reconcile to the results reported under IFRS.
2 Critical accounting estimates and judgements in applying accounting
policies
The Group makes estimates and judgements that affect the reported amounts of assets and liabilities. Estimates and judgements are
regularly reviewed and based on historical experience and other factors, including expectations of future events that are believed to be
reasonable under the circumstances.
(a) Critical judgements in applying the Group’s accounting policies
The 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:
Pension and other post-employment benefits
The Group's pension and other post-employment 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 19.
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 securities
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).
Goodwill impairment
Goodwill is allocated to a cash-generating unit (CGU) and assessed annually for impairment. The CGU is defined in accordance with the
IAS 36. Judgement is required when assessing which assets and liabilities form part of the CGU, particularly in assessing the level of cash
which is determined using the projected working capital requirements of that CGU.
(b) Key sources of estimation uncertainty
In 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.
There is uncertainty as to the economic effect that Brexit will have in both the short and long term. The key estimates and assumptions set
out below include variables which may be impacted (either positively or negatively) by Brexit. These include but are not limited to discount
rate, inflation, long-term economic growth rate and investment market returns. Given the range of possible outcomes of Brexit,
management have not altered any key estimates or assumptions for a specific Brexit scenario.
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Notes to the financial statements
2 Critical accounting estimates and judgements in applying accounting policies (continued)
Notes to the financial statements
2 Critical accounting estimates and judgements in applying accounting policies (continued)
180
181
Unlisted equity securities
The 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).
Carrying value of goodwill
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 17.
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 ultimate liability arising from claims made under general business insurance contracts
The estimation of the ultimate liability arising from claims made under general business insurance contracts is a critical accounting
estimate. There is uncertainty as to the total number of claims made on each 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:
whether a claim event has occurred or not and how much it will ultimately settle for;
-
- variability in the speed with which claims are notified and in the time taken to settle them, especially complex cases resolved through the
courts;
changes in the business portfolio affecting factors such as the number of claims and their typical settlement costs, which may differ
significantly from past patterns;
new types of claim, including latent claims, which arise from time to time;
changes in legislation and court attitudes to compensation, 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
whether all such reinsurances will remain in force over the long term.
-
-
-
-
-
The uncertainties surrounding the estimates of claims payments for the various classes of business are discussed further in note 3, and
where discount rates have been applied these are disclosed in note 28(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 28(a).
Future benefit payments arising from life insurance contracts
The determination of the liabilities under life insurance contracts is dependent on estimates made by the Group.
Estimates are made as to the expected number of deaths for each of the years in which the Group is exposed to risk. The Group bases
these estimates on standard industry and national mortality tables, 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.
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 28(b)(iii).
Pension and other post-employment benefits
The cost of these benefits and the present value of the pension and other post-employment benefit liabilities depend on factors that are
determined on an actuarial basis using a number of assumptions. The assumptions used in determining the charge to profit or loss for
these benefits include the discount rate and, in the case of the post-employment medical benefits, expected medical expense inflation. Any
changes in these assumptions will impact profit or loss and may affect planned funding of the pension plans.
The 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 19. 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.
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 19.
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Notes to the financial statements
Notes to the financial statements
3 Insurance risk (continued)
182
183
3 Insurance risk
Through its general and life insurance operations, the Group is exposed to a number of risks, as summarised in the Risk Management
section of the Strategic Report. The risk under any one insurance contract is the possibility that the insured event occurs and the
uncertainty of the amount and timing of the resulting claim. Factors such as the business and product mix, the external environment
including market competition and reinsurance capacity all may vary from year to year, along with the actual frequency, severity and ultimate
cost of claims and benefits. This subjects the Group to underwriting and pricing risk (the risk of failing to ensure disciplined risk selection
and to obtain the appropriate premium), claims reserving risk (the risk of actual claims payments exceeding the amount we are holding in
reserves) and reinsurance risk (the risk of failing to access and manage reinsurance capacity at a reasonable price).
(a) Risk mitigation
Statistics demonstrate that the larger and more diversified the portfolio of insurance contracts, the smaller the relative variability in the
expected outcome will be. The Group’s underwriting strategy is designed to ensure that the underwritten risks are well diversified in terms
of type and amount of risk and geographical spread. In all operations pricing controls are in place, underpinned by sound statistical analysis,
market expertise and appropriate external consultant advice. Gross and net underwriting exposure is protected through the use of a
comprehensive programme of reinsurance using both proportional and non-proportional reinsurance, supported by proactive claims
handling. The overall reinsurance structure is regularly reviewed and modelled to ensure that it remains optimum to the Group's needs. The
optimum reinsurance structure provides the Group with sustainable, long-term capacity to support its specialist business strategy, with
effective balance sheet and profit and loss protection at a reasonable cost.
Catastrophe protection is purchased following an extensive annual modelling exercise of gross and net (of proportional reinsurance)
exposures. In conjunction with reinsurance brokers the Group utilises the full range of proprietary catastrophe models and continues to
develop bespoke modelling options that better reflect the specialist nature of the portfolio. Reinsurance is purchased in line with the
Group's risk appetite.
(b) Concentrations of risk
The core business of the Group is general insurance, with the principal classes of business written being property and liability. The
miscellaneous financial loss class of business covers personal accident, fidelity guarantee and loss of money, income and licence. The
other class of business includes cover of legal expenses and also a small portfolio of motor policies, but this has been in run off in the
United Kingdom since November 2012. The Group's whole-of-life insurance policies support funeral planning products.
Below is a table summarising written premiums for the financial year, before and after reinsurance, by territory and by class of business:
2018
Group
Territory
United Kingdom and Ireland
Australia
Canada
Total
Parent
Territory
United Kingdom and Ireland
Canada
Total
General insurance
Life insurance
Property
£000
Liability
£000
Miscellaneous
financial
loss
£000
Other
£000
Funeral plans
£000
Total
£000
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Gross
Net
172,191
92,337
34,681
3,550
36,560
25,854
243,432
121,741
172,233
92,337
36,559
25,852
208,792
118,189
53,949
51,490
20,141
17,289
17,598
16,246
91,688
85,025
53,949
51,490
17,598
16,246
71,547
67,736
16,922
10,657
1,115
1,073
-
-
18,037
11,730
16,922
10,657
-
-
16,922
10,657
2,784
645
1,009
169
-
-
3,793
814
2,784
645
-
-
2,784
645
21
21
-
-
-
-
21
21
-
-
-
-
-
-
245,867
155,150
56,946
22,081
54,158
42,100
356,971
219,331
245,888
155,129
54,157
42,098
300,045
197,227
2017
Group
Territory
United Kingdom and Ireland
Australia
Canada
Total
Parent
Territory
United Kingdom and Ireland
Canada
Total
General insurance
Life insurance
Property
£000
Liability
£000
Miscellaneous
financial
loss
£000
Other
£000
Funeral plans
£000
Total
£000
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Gross
Net
163,907
88,269
33,225
4,356
35,399
24,801
232,531
117,426
164,024
88,270
35,399
24,801
199,423
113,071
52,352
50,111
21,411
18,429
16,181
15,063
89,944
83,603
52,352
50,111
16,181
15,063
68,533
65,174
15,691
9,826
1,286
1,240
-
-
16,977
11,066
15,691
9,826
-
-
15,691
9,826
2,494
473
943
934
-
-
3,437
1,407
2,494
473
-
-
2,494
473
28
28
-
-
-
-
28
28
-
-
-
-
-
-
234,472
148,707
56,865
24,959
51,580
39,864
342,917
213,530
234,561
148,680
51,580
39,864
286,141
188,544
(c) General insurance risks
Property classes
Property cover mainly compensates the policyholder for damage suffered to their property or for the value of property lost. Property
insurance may also include cover for pecuniary loss through the inability to use damaged insured commercial properties.
For property insurance contracts, there can be variability in the nature, number and size of claims made in each period.
The nature of claims may include fire, business interruption, weather damage, escape of water, explosion (after fire), riot and malicious
damage, subsidence, accidental damage and theft. Subsidence claims are particularly difficult to predict because the damage is often not
apparent for some time. The ultimate settlements can be small or large with a risk of a settled claim being reopened at a later date.
The number of claims made can be affected in particular by weather events, changes in climate, economic environment, and crime rates.
Climate change may give rise to more frequent and extreme weather events, such as river flooding, hurricanes and drought, and their
consequences, for example, subsidence claims. If a weather event happens near the end of the financial year, the uncertainty about
ultimate claims cost in the financial statements is much higher because there is insufficient time for adequate data to be received to
assess the final cost of claims.
Individual claims can vary in amount since the risks insured are diverse in both size and nature. The cost of repairing property varies
according to the extent of damage, cost of materials and labour charges.
Contracts are underwritten on a reinstatement basis or repair and restoration basis as appropriate. Costs of rebuilding properties, of
replacement or indemnity for contents and time taken to bring business operations back to pre-loss levels for business interruption are the
key factors that influence the cost of claims. Individual large claims are more likely to arise from fire, storm or flood damage. The greatest
likelihood of an aggregation of claims arises from earthquake, weather or major spreading fire events.
Claims payment, on average, occurs within a year of the event that gives rise to the claim. However, there is variability around this average
with larger claims typically taking longer to settle and business interruption claims taking much longer depending on the length of the
indemnity period involved.
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Notes to the financial statements
3 Insurance risk (continued)
Notes to the financial statements
184
185
Liability classes
The main exposures are in respect of liability insurance contracts which protect policyholders from the liability to compensate injured
employees (employers' liability) and third parties (public liability).
Claims that may arise from the liability portfolios include damage to property, physical injury, disease and psychological trauma. The Group
has a different exposure profile to most other commercial lines insurance companies as it has lower exposure to industrial risks. Therefore,
claims for industrial diseases are less common for the Group than injury claims such as slips, trips and back injuries.
The frequency and severity of claims arising on liability insurance contracts, including the liability element of motor contracts, can be
affected by several factors. Most significant are the increasing level of awards for damages suffered, legal costs and the potential for
periodic payment awards.
The severity of bodily injury claims can be influenced particularly by the value of loss of earnings and the future cost of care. The settlement
value of claims arising under public and employers' liability is particularly difficult to predict. There is often uncertainty as to the extent and
type of injury, whether any payments will be made and, if they are, the amount and timing of the payments, including the discount rate
applied for assessing lump sums. Key factors driving the high levels of uncertainty include the late notification of possible claim events and
the legal process.
Late notification of possible claims necessitates the holding of provisions for incurred claims that may only emerge some years into the
future. In particular, the effect of inflation over such a long period can be considerable and is uncertain. A lack of comparable past
experience may make it difficult to quantify the number of claims and, for certain types of claims, the amounts for which they will ultimately
settle. The legal and legislative framework continues to evolve, which has a consequent impact on the uncertainty as to the length of the
claims settlement process and the ultimate settlement amounts.
Claims payment, on average, occurs about three to four years after the event that gives rise to the claim. However, there is significant
variability around this average.
Provisions for latent claims
The public and employers’ liability classes can give rise to very late reported claims, which are often referred to as latent claims. These can
vary in nature and are difficult to predict. They typically emerge slowly over many years, during which time there can be particular
uncertainty as to the number of future potential claims and their cost. The Group has reflected this uncertainty and believes that it holds
adequate reserves for latent claims that may result from exposure periods up to the reporting date.
Note 28 presents the development of the estimate of ultimate claim cost for public and employers' liability claims occurring in a given year.
This gives an indication of the accuracy of the estimation technique for incurred claims.
(d) Life insurance risks
The Group provides whole-of-life insurance policies to support funeral planning products, for most of which the future benefits are linked to
inflation and backed by index-linked assets. 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.
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.
4 Financial risk and capital management
The Group is exposed to financial risk through its financial assets, financial liabilities, reinsurance assets and insurance liabilities. In
particular, the key financial risk is that the proceeds from its financial assets are not sufficient to fund the obligations arising from its
insurance contracts. The most important components of financial risk are interest rate risk, credit risk, currency risk and equity price risk.
There has been no change from the prior period in the nature of the financial risks to which the Group is exposed. 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.
(a) Categories of financial instruments
(i) Classification applying IAS 39
Group
At 31 December 2018
Financial investments
Other assets
Cash and cash equivalents
Other liabilities
Net other
Total
At 31 December 2017
Financial investments
Other assets
Cash and cash equivalents
Other liabilities
Net other
Total
Parent
At 31 December 2018
Financial investments
Other assets
Cash and cash equivalents
Other liabilities
Net other
Total
At 31 December 2017
Financial investments
Other assets
Cash and cash equivalents
Other liabilities
Net other
Total
Financial assets
Financial liabilities
Designated Held for
at fair value
trading
£000
£000
Loans and
receivables
£000
Hedge
accounted
derivatives
£000
Held for
trading
£000
Financial
Other assets
liabilities* and liabilities
£000
£000
Total
£000
782,976
-
-
-
-
782,976
845,811
-
-
-
-
845,811
570,353
-
-
-
-
570,353
622,560
-
-
-
-
622,560
5,331
-
-
-
-
5,331
2,611
-
-
-
-
2,611
5,823
-
-
-
-
5,823
3,425
-
-
-
-
3,425
9,930
149,119
109,417
-
-
268,466
9,862
145,568
93,767
-
-
249,197
9,928
112,569
72,775
-
-
195,272
9,861
111,301
51,399
-
-
172,561
737
-
-
-
-
737
1,388
-
-
-
-
1,388
245
-
-
-
-
245
574
-
-
-
-
574
-
-
-
(2,306)
-
(2,306)
-
-
-
-
-
-
-
-
-
(2,306)
-
(2,306)
-
-
-
-
-
-
-
-
-
(60,969)
-
(60,969)
-
-
-
(58,633)
-
(58,633)
-
-
-
(37,994)
-
(37,994)
-
-
-
(32,828)
-
(32,828)
-
4,511
-
(8,644)
(404,098)
(408,231)
798,974
153,630
109,417
(71,919)
(404,098)
586,004
14
4,514
-
(8,230)
(444,199)
(447,901)
859,686
150,082
93,767
(66,863)
(444,199)
592,473
50,339
3,759
-
(6,955)
(283,689)
(236,546)
636,688
116,328
72,775
(47,255)
(283,689)
494,847
50,079
3,806
-
(6,483)
(314,598)
(267,196)
686,499
115,107
51,399
(39,311)
(314,598)
499,096
* 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.
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information 186
187
Notes to the financial statements
4 Financial risk and capital management (continued)
(ii) Categories of financial assets applying IFRS 9
The Group classifies and measures financial instruments using IAS 39 as disclosed in the accounting policies. The table below sets out
the fair value of financial assets as at the balance sheet date and the change in fair value during the year, based on the classification and
measurement requirements that would result from adopting IFRS 9.
Financial assets which have contractual cash flows that are solely payments of principal and interest on the principal outstanding (SPPI)
would be measured at amortised cost, other than those which are held for trading or whose performance is evaluated on a fair value basis.
All other financial assets would be measured at fair value.
Fair value as at 1 January 2018
Change in fair value during the year
Fair value as at 31 December 2018
SPPI financial
assets
measured at
amortised cost
£000
249,197
19,269
268,466
Other financial
assets
measured at fair
value
£000
849,810
(60,766)
789,044
Total financial
assets
£000
1,099,007
(41,497)
1,057,510
The directors consider that the carrying value of those financial assets not carried at fair value in the financial statements approximates to
their fair value.
Notes to the financial statements
4 Financial risk and capital management (continued)
(b) Fair value hierarchy
The fair value measurement basis used to value those financial assets and financial liabilities held at fair value is categorised into a fair
value hierarchy as follows:
Level 1: fair values measured using quoted bid prices (unadjusted) in active markets for identical assets or liabilities. This category includes
listed equities in active markets, listed debt securities in active markets and exchange-traded derivatives.
Level 2: fair values measured using inputs other than quoted prices included within level 1 that are observable for the asset or liability,
either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes listed debt or equity securities in a market that is
not active and derivatives that are not exchange-traded.
Level 3: fair values measured using inputs for the asset or liability that are not based on observable market data (unobservable inputs). This
category includes unlisted debt and equities, including investments in venture capital, and suspended securities. Where a look-through
valuation approach is applied, underlying net asset values are sourced from the investee, translated into the Group's functional currency
and adjusted to reflect illiquidity where appropriate, with the fair values disclosed being directly sensitive to this input.
There have been no transfers between investment categories in the current year.
Analysis of fair value measurement bases
Group
At 31 December 2018
Financial assets at fair value through profit or loss
Financial investments
Equity securities
Debt securities
Derivatives
Financial assets at fair value through other comprehensive
income
Financial investments
Derivatives
Total financial assets at fair value
At 31 December 2017
Financial assets at fair value through profit or loss
Financial investments
Equity securities
Debt securities
Derivatives
Financial assets at fair value through other comprehensive
income
Financial investments
Derivatives
Total financial assets at fair value
Fair value measurement at the
end of the reporting period based on
Level 1
£000
Level 2
£000
Level 3
£000
Total
£000
241,115
495,348
-
736,463
246
1,233
5,331
6,810
44,773
261
-
45,034
286,134
496,842
5,331
788,307
-
736,463
737
7,547
-
45,034
737
789,044
286,552
515,277
-
801,829
238
1,340
2,611
4,189
42,279
125
-
42,404
329,069
516,742
2,611
848,422
-
801,829
1,388
5,577
-
42,404
1,388
849,810
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Notes to the financial statements
4 Financial risk and capital management (continued)
Notes to the financial statements
4 Financial risk and capital management (continued)
188
189
Parent
At 31 December 2018
Financial assets at fair value through profit or loss
Financial investments
Equity securities
Debt securities
Derivatives
Financial assets at fair value through other comprehensive
income
Financial investments
Derivatives
Total financial assets at fair value
At 31 December 2017
Financial assets at fair value through profit or loss
Financial investments
Equity securities
Debt securities
Derivatives
Financial assets at fair value through other comprehensive
income
Financial investments
Derivatives
Total financial assets at fair value
Fair value measurement at the
end of the reporting period based on
Level 1
£000
Level 2
£000
Level 3
£000
Total
£000
209,834
314,389
-
524,223
246
852
5,823
6,921
44,771
261
-
45,032
254,851
315,502
5,823
576,176
-
524,223
245
7,166
-
45,032
245
576,421
249,879
329,116
-
578,995
238
925
3,425
4,588
42,277
125
-
42,402
292,394
330,166
3,425
625,985
-
578,995
574
5,162
-
42,402
574
626,559
The derivative liabilities of the Group and Parent in the current year were measured at fair value through profit or loss and categorised as
level 2 (see note 23).
Fair value measurements based on level 3
Fair value measurements in level 3 for both the Group and Parent consist of financial assets, analysed as follows:
Group
At 31 December 2018
Opening balance
Total gains recognised in profit or loss
Transfers
Disposal proceeds
Closing balance
Total gains for the period included in profit or loss for assets
held at the end of the reporting period
At 31 December 2017
Opening balance
Total gains recognised in profit or loss
Disposal proceeds
Closing balance
Total gains for the period included in profit or loss for assets
held at the end of the reporting period
Financial assets at fair value
through profit and loss
Equity
securities
£000
Debt
securities
£000
42,279
2,628
(134)
-
44,773
125
5
134
(3)
261
Total
£000
42,404
2,633
-
(3)
45,034
2,656
5
2,661
35,376
8,003
(1,100)
42,279
139
1
(15)
125
35,515
8,004
(1,115)
42,404
6,897
1
6,898
Parent
At 31 December 2018
Opening balance
Total gains recognised in profit or loss
Transfers
Disposal proceeds
Closing balance
Total gains for the period included in profit or loss for assets
held at the end of the reporting period
At 31 December 2017
Opening balance
Total gains recognised in profit or loss
Disposal proceeds
Closing balance
Total gains for the period included in profit or loss for assets
held at the end of the reporting period
Financial assets at fair value
through profit and loss
Equity
securities
£000
Debt
securities
£000
42,277
2,628
(134)
-
44,771
125
5
134
(3)
261
Total
£000
42,402
2,633
-
(3)
45,032
2,656
5
2,661
35,375
8,002
(1,100)
42,277
139
1
(15)
125
35,514
8,003
(1,115)
42,402
6,897
1
6,898
All the above gains or losses included in profit or loss for the period (for both the Group and Parent) are presented in net investment return
within the statement of profit or loss.
The valuation techniques used for instruments categorised in levels 2 and 3 are described below.
Listed debt and equity securities not in active market (level 2)
These financial assets are valued using third-party pricing information that is regularly reviewed and internally calibrated based on
management's knowledge of the markets. Where material, these valuations are reviewed by the Group Audit Committee.
Non-exchange-traded derivative contracts (level 2)
The Group's derivative contracts are not traded in active markets. Foreign currency forward contracts are valued using observable forward
exchange rates corresponding to the maturity of the contract and the contract forward rate. Over-the-counter equity or index options and
futures are valued by reference to observable index prices.
Unlisted equity securities (level 3)
These financial assets are valued using observable net asset data, adjusted for unobservable inputs including comparable price-to-book
ratios based on similar listed companies, and management's consideration of constituents as to what exit price might be obtainable. Where
material, these valuations are reviewed by the Group Audit Committee.
The valuation is most sensitive to the level of underlying net assets, the Euro exchange rate, the price-to-book ratio chosen, an illiquidity
discount and a credit rating discount applied to the valuation to account for the risks associated with holding the asset. If the price-to-book
ratio, illiquidity discount and credit rating discount applied changes by +/-10%, the value of unlisted equity securities could move by +/-£5m
(2017: +/-£5m).
The increase in value during the year is primarily the result of an increase in the price-to-book ratio.
Unlisted debt (level 3)
Unlisted debt is valued using an adjusted net asset method whereby management uses a look-through approach to the underlying assets
supporting the loan, discounted using observable market interest rates of similar loans with similar risk, and allowing for unobservable future
transaction costs. Where material, these valuations are reviewed by the Group Audit Committee.
The valuation is most sensitive to the level of underlying net assets, but it is also sensitive to the interest rate used for discounting and the
projected date of disposal of the asset, with the exit costs sensitive to an expected return on capital of any purchaser and estimated
transaction costs. Reasonably likely changes in unobservable inputs used in the valuation would not have a significant impact on
shareholders' equity or the net result.
The increase in value during the year is primarily the result of a liability management exercise which restructured an investment from an
equity holding to a debt holding.
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Notes to the financial statements
4 Financial risk and capital management (continued)
Notes to the financial statements
4 Financial risk and capital management (continued)
190
191
(c) Interest rate risk
The Group’s exposure to interest rate risk arises primarily from movements on financial investments that are measured at fair value and
have fixed interest rates, which represent a significant proportion of the Group’s assets, and from those insurance liabilities for which
discounting is applied at a market interest rate. The Group's investment strategy is set in order to control the impact of interest rate risk on
anticipated cash flows and asset and liability values. The fair value of the Group's investment portfolio of fixed income securities reduces as
market interest rates rise as does the present value of discounted insurance liabilities, and vice versa.
Interest rate risk concentration is reduced by adopting asset-liability duration matching principles where appropriate. Excluding assets held
to back the life business, the average duration of the Group’s fixed income portfolio is two years (2017: two years), reflecting the relatively
short-term average duration of its general insurance liabilities. The mean term of discounted general insurance liabilities is disclosed in
note 28(a)(iv).
For the Group’s life business, consisting of policies to support funeral planning products, benefits payable to policyholders are independent
of the returns generated by interest-bearing assets. Therefore, the interest rate risk on the invested assets supporting these liabilities is
borne by the Group. This risk is mitigated by purchasing fixed interest investments with durations that match the profile of the liabilities. For
funeral plan policies, benefits are linked to the Retail Prices Index (RPI). Assets backing these liabilities are also linked to the RPI, and
include index-linked gilts and corporate bonds. For practical purposes it is not possible to exactly match the durations due to the uncertain
profile of liabilities (e.g. mortality risk) and the availability of suitable assets, therefore some interest rate risk will persist. The Group
monitors its exposure by comparing projected cash flows for these assets and liabilities and making appropriate adjustments to its
investment portfolio.
The table below summarises the maturities of life business assets and liabilities that are exposed to interest rate risk.
Group life business
At 31 December 2018
Assets
Debt securities
Cash and cash equivalents
Liabilities (discounted)
Life business provision
At 31 December 2017
Assets
Debt securities
Cash and cash equivalents
Liabilities (discounted)
Life business provision
Within
1 year
£000
4,380
4,527
8,907
Maturity
Between
1 & 5 years
£000
After
5 years
£000
Total
£000
26,428
-
26,428
67,630
-
67,630
98,438
4,527
102,965
5,728
19,988
56,248
81,964
5,266
5,192
10,458
21,638
-
21,638
73,231
-
73,231
100,135
5,192
105,327
6,031
21,147
60,963
88,141
Group financial investments with variable interest rates, including cash and cash equivalents, and insurance instalment receivables are
subject to cash flow interest rate risk. This risk is not significant to the Group.
(d) Credit risk
The Group has exposure to credit risk, which is the risk of non-payment of their obligations by counterparties and financial markets
borrowers. Areas where the Group is exposed to credit risk are:
-
-
-
-
counterparty default on loans and debt securities;
reinsurers’ share of insurance liabilities (excluding provision for unearned premiums) and amounts due from reinsurers in respect of
claims already paid;
deposits held with banks; and
amounts due from insurance intermediaries and policyholders.
The Group is exposed to minimal credit risk in relation to all other financial assets.
The carrying amount of financial and reinsurance assets represents the Group's maximum exposure to credit risk. The Group structures the
levels of credit risk it accepts by placing limits on its exposure to a single counterparty. Limits on the level of credit risk are regularly
reviewed. Where available the Group also manages its exposure to credit risk in relation to credit risk ratings. Investment grade financial
assets are classified within the range of AAA to BBB ratings, where AAA is the highest possible rating. Financial assets which fall outside
this range are classified as sub-investment grade. ‘Not rated’ assets capture assets not rated by external ratings agencies.
The debt securities portfolio consists of a range of mainly fixed interest instruments including government securities, local authority
issues, corporate loans and bonds, overseas bonds, preference shares and other interest-bearing securities. Limits are imposed on the
credit ratings of the corporate bond portfolio and exposures regularly monitored. Group investments in unlisted securities represent less
than 1% of this category in the current and prior year.
The Group’s exposure to counterparty default on debt securities is spread across a variety of geographical and economic territories, as
follows:
2018
Group
£000
317,137
82,901
72,301
24,503
496,842
Parent
£000
218,698
-
72,301
24,503
315,502
UK
Australia
Canada
Europe
Total
2017
Group
£000
331,787
86,440
74,143
24,372
516,742
Parent
£000
231,651
-
74,143
24,372
330,166
UK
Australia
Canada
Europe
Total
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.
Group cash balances are regularly reviewed to identify the quality of the counterparty bank and to monitor and limit concentrations of risk.
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Notes to the financial statements
4 Financial risk and capital management (continued)
Notes to the financial statements
4 Financial risk and capital management (continued)
192
193
The table below summaries the principal ways in which the Group assesses its exposure to credit risk by category of financial asset.
Debt securities
Reinsurance debtors
Cash
Amounts due from insurance intermediaries
Amounts due from policy holders
Other debtors
Current external credit ratings
Current external credit ratings
Current external credit ratings
Internal credit risk rating
Past due status
Past due status
A detailed breakdown of the Group’s current debt securities, reinsurance debtors and cash credit exposure based on S&P or equivalent
rating is presented below.
Group
AAA
AA
A
BBB
Below BBB
Not rated
Parent
AAA
AA
A
BBB
Below BBB
Not rated
Debt securities
£000
126,227
142,426
115,026
91,471
12,197
9,495
496,842
Debt securities
£000
90,548
72,006
77,011
61,317
7,197
7,423
315,502
2018
Reinsurance
debtors
£000
-
2,788
8,058
3
-
763
11,612
2018
Reinsurance
debtors
£000
-
1,704
2,658
3
-
763
5,128
Cash*
£000
-
23,316
55,090
40,826
91
7
119,330
Debt securities
£000
122,829
144,613
141,312
88,483
10,354
9,151
516,742
Cash*
Debt securities
£000
-
10,682
50,599
21,310
91
7
82,689
£000
89,479
74,098
98,388
53,587
6,396
8,218
330,166
2017
Reinsurance
debtors
£000
-
6,144
6,953
-
7
1,378
14,482
2017
Reinsurance
debtors
£000
-
4,303
5,721
-
7
597
10,628
Cash*
£000
-
26,926
36,551
40,053
90
7
103,627
Cash*
£000
-
9,557
31,392
20,213
90
7
61,259
*Cash includes amounts held on deposit classified within financial investments and disclosed in note 22. Cash balances which are not rated relate to cash
amounts in hand.
The Group's credit risk policy details prescriptive methods for the collection of premiums and control of intermediary and policyholder
debtor balances. The level and age of debtor balances are regularly assessed via monthly credit management reports. These reports are
scrutinised to assess exposure by geographical region and counterparty of aged or outstanding balances. Any such balances are likely to
be major international brokers that are in turn monitored via credit reference agencies and considered to pose minimal risk of default. The
Group has no material concentration of credit risk in respect of amounts due from insurance intermediaries and policyholders due to the
well-diversified spread of such debtors.
An external agency is used to rate agents, brokers and intermediaries on a scale of 0 to 100. A database of their ratings is maintained and
updated daily. These ratings are adapted to internal credit ratings based on the Group's credit rating matrix, which rates the agency from
very high risk to very low risk.
A breakdown of the Group’s current amounts due from insurance intermediaries split by credit quality is shown below. All balances are
shown gross of impairment losses.
Group
Very low risk
Low risk
Moderate risk
High risk
Very high risk
Not rated
2018
£000
21,094
1,724
223
46
132
23,959
47,178
2017
£000
18,414
1,297
169
25
144
24,362
44,411
A breakdown of the Parent’s current amounts due from insurance intermediaries split by credit quality is shown below. All balances are
shown gross of impairment losses.
Parent
Very low risk
Low risk
Moderate risk
High risk
Very high risk
Not rated
2018
£000
21,094
1,724
223
46
132
7,618
30,837
2017
£000
18,414
1,297
169
25
144
8,389
28,438
The Group manages its credit risk at business unit level. All business units are required to implement credit risk management processes
and ensure detailed reporting and monitoring of their exposures. Credit management processes differ across business units and as result
the Group is unable to rate all intermediary balances in the same categories. Those which cannot be categorised are included as not rated.
The level and age of policyholder debtor balances are regularly assessed via monthly credit management reports. Credit risk ascribed to
amounts due from contract holders and other debtors is based on the age of outstanding balances. The following table provides the past
due status of outstanding contract holder balances. All balances are shown gross of impairment losses.
Group
2018
2017
Current
Past due 1-30 days
Past due 31-90 days
Past due 91-120 days
Past due 120+ days
Parent
Current
Past due 1-30 days
Past due 31-90 days
Past due 91-120 days
Past due 120+ days
Contract
holders
£000
36,342
347
18
1
-
36,708
Other debtors*
Contract holders
Other debtors
£000
21,135
3
3
9
-
21,150
£000
33,400
411
37
-
3
33,851
£000
23,286
8
-
15
23,309
2018
2017
Contract
holders Other debtors
Contract holders
Other debtors
£000
36,003
347
18
1
-
36,369
£000
3,070
-
-
-
-
3,070
£000
33,138
411
37
-
3
33,589
£000
4,013
-
-
-
-
4,013
*Other debtors includes accrued income but excludes non-financial assets and amounts due to related parties
No amounts due to related parties are past due.
For financial assets meeting the SPPI test that do not have a low credit rating, the carrying amount disclosed above is an approximation of
their fair value.
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Notes to the financial statements
4 Financial risk and capital management (continued)
Notes to the financial statements
4 Financial risk and capital management (continued)
194
195
(e) Equity price risk
The Group is exposed to equity price risk because of financial investments held by the Group which are stated at fair value through profit or
loss. The Group mitigates this risk by holding a diversified portfolio across geographical regions and market sectors, and through the use of
derivative contracts from time to time which would limit losses in the event of a fall in equity markets.
The concentration of equity price risk by geographical listing, before the mitigating effect of derivatives, to which the Group and Parent are
exposed is as follows:
2018
Group
£000
241,116
44,821
197
286,134
Parent
£000
209,833
44,821
197
254,851
UK
Europe
Hong Kong
Total
2017
Group
£000
286,715
42,168
186
329,069
Parent
£000
250,040
42,168
186
292,394
UK
Europe
Hong Kong
Total
(f) Currency risk
The Group operates internationally and its main exposures to foreign exchange risk are noted below. The Group's foreign operations
generally invest in assets and purchase reinsurance denominated in the same currencies as their insurance liabilities, which mitigates the
foreign currency exchange rate risk for these operations. As a result, foreign exchange risk arises from recognised assets and liabilities
denominated in other currencies and net investments in foreign operations. The Group mitigates this risk through the use of derivatives
when considered necessary.
The Group exposure to foreign currency risk within the investment portfolios arises from purchased investments that are denominated in
currencies other than sterling.
The Group's foreign operations create two sources of foreign currency risk:
-
the operating results of the Group's foreign branches and subsidiaries in the Group financial statements are translated at the average
exchange rates prevailing during the period; and
-
the equity investment in foreign branches and subsidiaries is translated into sterling using the exchange rate at the year-end date.
The 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 22.
The largest currency exposures, before the mitigating effect of derivatives, with reference to net assets/liabilities are shown below,
representing effective diversification of resources.
2018
Group
£000
47,838
42,538
31,024
1,043
1,004
Parent
£000
3,388
42,538
31,024
1,043
1,004
Aus $
Euro
Can $
NZ $
USD $
2017
Group
£000
48,745
38,100
31,584
285
1,247
Parent
£000
2,122
38,100
31,584
285
1,247
Aus $
Euro
Can $
NZ $
USD $
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 22.
(g) Liquidity risk
Liquidity risk is the risk that funds may not be available to pay obligations when due. The Group is exposed to daily calls on its available
cash resources mainly from claims arising from insurance contracts. An estimate of the timing of the net cash outflows resulting from
insurance contracts is provided in note 28. The Group has robust processes in place to manage liquidity risk and has available cash
balances, other readily marketable assets and access to funding in case of exceptional need. This is not considered to be a significant risk
to the Group.
Non-derivative financial liabilities consist of finance leases, which are not material to the Group, and other liabilities for which a maturity
analysis is included in note 31.
(h) Market risk sensitivity analysis
The sensitivity of profit and other equity reserves to movements on market risk variables (comprising interest rate, currency and equity price
risk), each considered in isolation and before the mitigating effect of derivatives, is shown in the table below. This table does not include
the impact of variables on retirement benefit schemes. Financial risk sensitivities for retirement benefit schemes are disclosed separately in
note 19.
Group
Variable
Interest rate risk
Currency risk
Equity price risk
Parent
Variable
Interest rate risk
Currency risk
Equity price risk
Change in
variable
-100 basis points
+100 basis points
-10%
+10%
+/-10%
Change in
variable
-100 basis points
+100 basis points
-10%
+10%
+/-10%
Potential increase/
(decrease) in profit
2018
£000
(4,730)
2,799
4,772
(3,904)
23,177
2017
£000
(6,391)
3,202
4,021
(3,290)
26,572
Potential increase/
(decrease) in profit
2018
£000
(3,558)
2,154
4,772
(3,904)
20,643
2017
£000
(5,710)
3,311
4,021
(3,290)
23,611
Potential increase/
(decrease) in
other equity reserves
2018
£000
-
(3)
7,613
(6,229)
-
2017
£000
(6)
2
8,017
(6,559)
-
Potential increase/
(decrease) in
other equity reserves
2018
£000
(6)
4
2,674
(2,188)
-
2017
£000
(2)
(3)
2,836
(2,321)
-
The following assumptions have been made in preparing the above sensitivity analysis:
-
-
-
-
the value of fixed income investments will vary inversely with changes in interest rates, and all territories experience the same
interest rate movement;
currency gains and losses will arise from a change in the value of sterling against all other currencies moving in parallel;
equity prices will move by the same percentage across all territories; and
change in profit is stated net of tax at the standard rate applicable in each of the Group's territories.
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information 196
197
Notes to the financial statements
4 Financial risk and capital management (continued)
(i) Capital management
The Group's primary objectives when managing capital are to:
-
-
comply with the regulators' capital requirements of the markets in which the Group operates; and
safeguard the Group's ability to continue to meet stakeholders' expectations in accordance with its corporate mission, vision and
values.
The Group is subject to insurance solvency regulations in all the territories in which it issues insurance and investment contracts, and
capital is managed and evaluated on the basis of both regulatory and economic capital, at a Group and Parent entity level.
In the UK, the Group and its UK regulated entities are required to comply with rules issued by the Financial Conduct Authority (FCA) and
the Prudential Regulation Authority (PRA).
Capital is assessed at both individual regulated entity and Group level. The PRA expects a firm, at all times, to hold Solvency II Own Funds
in excess of its calculated Solvency Capital Requirement (SCR). Group solvency is assessed at the level of Ecclesiastical Insurance Office
Plc (EIO)’s parent, 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.
Previously, both EIO and EIG used the standard formula to calculate the SCR. During the year, approval from the PRA was received to use
its internal capital model to determine the SCR for EIO and EIG. Subsequently, EIO’s SCR is now calculated using a full internal model and
EIG’s SCR calculated using a partial internal model. Ecclesiastical Life Limited (ELL) continues to adopt the standard formula approach in
determining its SCR.
The current year figures in the table below are unaudited and based on the latest information provided to management. The prior year
figures in the table below are the final audited figures as disclosed in the Company’s SFCRs, available on the Group’s website. These differ
from the figures reported last year as they were estimated based on information available to management at the time the accounts were
signed.
EIO’s Solvency II Own Funds will be subject to a separate independent audit, as part of the Group's process for Solvency II reporting to the
PRA. EIO’s SCR is not subject to audit as it is calculated using an internal model which has been approved for use by the PRA. ELL’s
figures are not subject to an independent audit due to the Company falling below the threshold calculation detailed in the PRA policy
statement PS25/18 (Solvency II: External audit of the public disclosure requirement). The Group's regulated entities, EIO and ELL, expect
to meet the deadline for submission to the PRA of 18 April 2019 and their respective SFCRs will be made available on the Group's website
shortly thereafter. EIG is also expected to meet its deadline for submission to the PRA of 3 June 2019, with its SFCR also being made
available on the Group’s website shortly after.
2018
(unaudited)
Ecclesiastical
Insurance
Office plc
Parent
£000
Ecclesiastical
Life Limited
£000
543,970
(256,095)
287,875
212%
52,583
(15,776)
36,807
333%
2017
(audited)
Ecclesiastical
Insurance
Office plc
Parent
£000
561,478
(292,351)
269,127
192%
Ecclesiastical
Life Limited
£000
51,944
(18,260)
33,684
284%
Solvency II Own Funds
Solvency Capital Requirement
Own Funds in excess of Solvency Capital Requirement
Solvency II Capital Cover
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.
Notes to the financial statements
5 Segment information
(a) Operating segments
The Group segments its business activities on the basis of differences in the products and services offered and, for general insurance, the
underwriting territory. Expenses relating to Group management activities are included within 'Corporate costs'. This reflects the
management and internal Group reporting structure.
The activities of each operating segment are described below.
- General business
United Kingdom and Ireland
The Group's principal general insurance business operation is in the UK, where it operates under the Ecclesiastical and Ansvar
brands. The Group also operates an Ecclesiastical branch in the Republic of Ireland underwriting general business across the whole
of Ireland.
Australia
The Group has a wholly-owned subsidiary in Australia underwriting general insurance business under the Ansvar brand.
Canada
The Group operates a general insurance Ecclesiastical branch in Canada.
Other insurance operations
This includes the Group's internal reinsurance function, adverse development cover sold to ACS (NZ) Limited and operations that
are in run-off or not reportable due to their immateriality.
- Investment management
The Group provides investment management services both internally and to third parties through EdenTree Investment
Management Limited.
- Broking and Advisory
The Group provides insurance broking through South Essex Insurance Brokers Limited, financial advisory services through
Ecclesiastical Financial Advisory Services Limited and risk advisory services through Ansvar Risk Management Services Pty Limited
which operates in Australia.
- Life business
Ecclesiastical Life Limited provides long-term insurance policies to support funeral planning products. It is closed to new business.
- Corporate costs
This includes costs associated with Group management activities.
Inter-segment and inter-territory transfers or transactions are entered into under normal commercial terms and conditions that would also
be available to unrelated third parties.
The accounting policies of the operating segments are the same as the Group's accounting policies described in note 1, with the exception
of the investment management and broking and advisory segments. These segments do not qualify for the temporary exemption from IFRS
9 available to insurers and as a result have adopted IFRS 9 in the current year. Consequently, their accounting policies for financial
instruments may differ, but all other accounting policies are the same as the Group.
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Notes to the financial statements
5 Segment information (continued)
Notes to the financial statements
5 Segment information (continued)
198
199
Segment revenue
The Group uses gross written premiums as the measure for turnover of the general and life insurance business segments. Turnover of the
non-insurance segments comprises fees and commissions earned in relation to services provided by the Group to third parties. Segment
revenues do not include net investment return or general business fee and commission income, which are reported within revenue in the
consolidated statement of profit or loss.
Revenue is attributed to the geographical region in which the customer is based.
Gross
written
premiums
£000
2018
Non-
insurance
services
£000
242,339
56,946
54,158
3,507
356,950
21
-
-
356,971
-
-
-
-
-
-
12,601
9,049
21,650
Total
£000
242,339
56,946
54,158
3,507
356,950
21
12,601
9,049
378,621
Gross
written
premiums
£000
231,257
56,865
51,580
3,187
342,889
28
-
-
342,917
2017
Non-
insurance
services
£000
-
-
-
-
-
-
11,685
8,628
20,313
Total
£000
231,257
56,865
51,580
3,187
342,889
28
11,685
8,628
363,230
General business
United Kingdom and Ireland
Australia
Canada
Other insurance operations
Total
Life business
Investment management
Broking and Advisory
Group revenue
Group revenues are not materially concentrated on any single external customer.
Segment result
General business segment results comprise the insurance underwriting profit or loss, investment activities and other expenses of each
underwriting territory. The Group uses the industry standard net combined operating ratio (COR) as a measure of underwriting efficiency.
The COR expresses the total of net claims costs, commission and underwriting expenses as a percentage of net earned premiums. 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 35.
The life business segment result comprises the profit or loss on insurance contracts (including return on assets backing liabilities in the
long-term fund), shareholder investment return and other expenses.
All other segment results consist of the profit or loss before tax measured in accordance with IFRS.
2018
General business
United Kingdom and Ireland
Australia
Canada
Other insurance operations
Life business
Investment management
Broking and Advisory
Corporate costs
Profit/(loss) before tax
Combined
operating
ratio
80.2%
93.7%
106.5%
86.4%
Insurance
£000
Investments
£000
29,426
1,400
(2,599)
963
29,190
1,642
-
-
-
30,832
(1,836)
2,073
1,655
-
1,892
(3,181)
-
-
-
(1,289)
Other
£000
(252)
(77)
-
-
(329)
-
941
2,045
(16,829)
(14,172)
Total
£000
27,338
3,396
(944)
963
30,753
(1,539)
941
2,045
(16,829)
15,371
2017
General business
United Kingdom and Ireland
Australia
Canada
Other insurance operations
Life business
Investment management
Broking and Advisory
Corporate costs
Profit/(loss) before tax
Combined
operating
ratio
77.1%
96.9%
118.5%
86.9%
Insurance
£000
Investments
£000
32,692
685
(7,165)
854
27,066
374
-
-
-
27,440
55,454
3,932
1,122
-
60,508
5,127
-
-
-
65,635
Other
£000
(23)
(77)
4
-
(96)
-
1,717
2,283
(14,783)
(10,879)
Total
£000
88,123
4,540
(6,039)
854
87,478
5,501
1,717
2,283
(14,783)
82,196
(b) Geographical information
Gross written premiums from external customers and non-current assets, as attributed to individual countries in which the Group operates,
are as follows:
United Kingdom and Ireland
Australia
Canada
2018
2017
Gross
written
premiums
£000
245,867
56,946
54,158
356,971
Non-current
assets
£000
218,119
1,279
4,018
223,416
Gross
written
premiums
£000
234,472
56,865
51,580
342,917
Non-current
assets
£000
217,143
1,351
3,650
222,144
Gross written premiums are allocated based on the country in which the insurance contracts are issued. Non-current assets exclude rights
arising under insurance contracts, deferred tax assets, pension assets and financial instruments and are allocated based on where the
assets are located.
6 Net insurance premium revenue
For the year ended 31 December 2018
Gross written premiums
Outward reinsurance premiums
Net written premiums
Change in the gross provision for unearned premiums
Change in the provision for unearned premiums, reinsurers' share
Change in the net provision for unearned premiums
Earned premiums, net of reinsurance
For the year ended 31 December 2017
Gross written premiums
Outward reinsurance premiums
Net written premiums
Change in the gross provision for unearned premiums
Change in the provision for unearned premiums, reinsurers' share
Change in the net provision for unearned premiums
Earned premiums, net of reinsurance
General
business
£000
Life
business
£000
356,950
(137,640)
219,310
(11,005)
5,764
(5,241)
214,069
342,889
(129,387)
213,502
(12,369)
6,051
(6,318)
207,184
21
-
21
-
-
-
21
28
-
28
-
-
-
28
Total
£000
356,971
(137,640)
219,331
(11,005)
5,764
(5,241)
214,090
342,917
(129,387)
213,530
(12,369)
6,051
(6,318)
207,212
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Notes to the financial statements
Notes to the financial statements
200
201
7 Fee and commission income
9 Claims and change in insurance liabilities and reinsurance recoveries
During the year, the Group recognised £41,116,000 (2017: £40,451,000) fee and commission income in accordance with IFRS 4
InsuranceContracts and £21,880,000 (2017: £20,413,000) in accordance with IFRS 15 Revenuefromcontractswithcustomers. Fee
and commission income from contracts with customers was recognised as follows:
General
business
£000
Life
business
£000
For the year ended 31 December 2018
General business
Investment management
Broking and advisory
For the year ended 31 December 2017
General business
Investment management
Broking and advisory
8 Net investment return
Income from financial assets at fair value through profit or loss
- equity income
- debt income
Income from financial assets not at fair value through profit or loss
- cash and cash equivalents income, net of exchange movements
- other income received
Other income
- rental income
Investment income
Fair value movements on financial instruments at fair value through profit or loss
Fair value movements on investment property
Fair value movements on property, plant and equipment
Impact of discount rate change on insurance contract liabilities
Net investment return
Recognised at
a point in time
£000
230
101
8,715
9,046
100
117
8,338
8,555
Recognised
over time
£000
-
12,500
334
12,834
-
11,568
290
11,858
2018
£000
9,794
15,027
923
1,289
8,238
35,271
(35,450)
(56)
85
4,144
3,994
Total
£000
230
12,601
9,049
21,880
100
11,685
8,628
20,413
2017
£000
10,276
16,410
1,040
1,251
7,492
36,469
30,250
7,414
-
(1,839)
72,294
Included within cash and cash equivalents income are exchange gains of £84,000 (2017: £338,000).
Included within fair value movements on financial instruments at fair value through profit or loss are £325,000 (2017: £7,778,000) losses
in respect of derivative instruments.
For the year ended 31 December 2018
Gross claims paid
Gross change in the provision for claims
Gross change in life business provision
Claims and change in insurance liabilities
Reinsurers' share of claims paid
Reinsurers' share of change in the provision for claims
Reinsurance recoveries
Claims and change in insurance liabilities, net of reinsurance
For the year ended 31 December 2017
Gross claims paid
Gross change in the provision for claims
Gross change in life business provision
Claims and change in insurance liabilities
Reinsurers' share of claims paid
Reinsurers' share of change in the provision for claims
Reinsurance recoveries
Claims and change in insurance liabilities, net of reinsurance
155,137
(42,915)
-
112,222
(48,691)
22,503
(26,188)
86,034
148,717
(30,807)
-
117,910
(43,676)
11,480
(32,196)
85,714
10 Fees, commissions and other acquisition costs
Fees paid
Commission paid
Change in deferred acquisition costs
Other acquisition costs
Fees, commissions and other acquisition costs
6,111
-
(6,460)
(349)
-
-
-
(349)
6,158
-
(4,155)
2,003
-
-
-
2,003
2018
£000
15
55,551
(3,078)
13,858
66,346
Total
£000
161,248
(42,915)
(6,460)
111,873
(48,691)
22,503
(26,188)
85,685
154,875
(30,807)
(4,155)
119,913
(43,676)
11,480
(32,196)
87,717
2017
£000
16
52,510
(762)
13,389
65,153
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Notes to the financial statements
Notes to the financial statements
202
203
11 Profit for the year
Profit for the year has been arrived at after (crediting)/charging
Net foreign exchange gains
Depreciation of property, plant and equipment
Profit on disposal of property, plant and equipment
Amortisation of intangible assets
Decrease/(increase) in fair value of investment property
Employee benefits expense including termination benefits, net of recharges
Operating lease rentals
12 Auditor's remuneration
Fees payable to the Company's auditor and its associates for the audit of the
Company's annual accounts
Fees payable to the Company’s auditor and its associates for other services:
- The audit of the Company's subsidiaries
Total audit fees
- Audit-related assurance services
- Other assurance services
Total non-audit fees
Fees payable to the Company's auditor in respect of associated pension schemes
- The audit of associated pension schemes
Total auditor's remuneration
2018
£000
(84)
2,437
(3)
927
56
82,811
3,428
2017
£000
(338)
2,177
(18)
1,133
(7,414)
76,730
3,440
2018
£000
2017
£000
386
152
538
135
-
135
18
691
329
140
469
212
-
212
18
699
Amounts disclosed are net of services taxes, where applicable. Audit-related assurance services include Prudential Regulatory Authority
and other regulatory audit work.
Audit-related assurance services costs have decreased in 2018 from the prior year. ELL is no longer subject to an independent audit due
to the company falling below the threshold calculation detailed in the PRA policy statement PS25/18. EIO’s SCR and RM are not subject
to audit as they are both calculated using an internal model which has been approved for use by the PRA.
The 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.
13 Employee information
The average monthly number of full-time equivalent employees of the Group and Parent, including executive directors, during the year by
geographical location was:
Group
United Kingdom and Ireland
Australia
Canada
Parent
United Kingdom and Ireland
Canada
General
business
No.
771
96
77
944
General
business
No.
771
77
848
2018
Life
business
No.
1
-
-
1
2018
Life
business
No.
1
-
1
General
business
No.
750
85
73
908
General
business
No.
750
73
823
2017
Life
business
No.
1
-
-
1
2017
Life
business
No.
1
-
1
Other
No.
173
-
-
173
Other
No.
74
-
74
Average numbers of full-time equivalent employees have been quoted rather than average numbers of employees to give a better
reflection of the split between business areas, as some employees' work is divided between more than one business area.
Key management personnel
Wages and salaries
Social security costs
Pension costs - defined contribution plans
Other employees
Wages and salaries
Social security costs
Pension costs - defined contribution plans
Pension costs - defined benefit plans
Other post-employment benefits
Total staff costs
Staff costs recharged to related undertakings of the Group
Capitalised staff costs
2018
2017
Group
£000
4,208
481
235
4,924
62,888
5,821
5,491
4,952
259
84,335
(1,286)
(342)
82,707
Parent
£000
4,208
481
235
4,924
52,178
5,408
4,819
4,952
259
72,540
(7,153)
(342)
65,045
Group
£000
4,259
428
234
4,921
59,266
5,526
3,150
4,608
307
77,778
(1,181)
-
76,597
Other
No.
157
-
-
157
Other
No.
64
-
64
Parent
£000
4,259
428
234
4,921
48,640
5,103
2,516
4,608
307
66,095
(6,105)
-
59,990
The above Group figures do not include termination benefits of £129,000 (2017: £198,000), and the above Parent figures do not include
termination benefits of £66,000 (2017: £198,000), of which £25,000 (2017: £65,000) was recharged to related undertakings of the
Group.
The remuneration of the directors (including non-executive directors), is set out both individually and in aggregate within the Group
Remuneration Report in the Corporate Governance section of this report.
Defined contribution pension costs in the current year include a one-off company contribution of £2,017,000 (2017: £nil) that will be paid
into the plan during 2019 following closure of the defined benefit pension plan to future accrual, further details of which are included in
note 19.
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Notes to the financial statements
Notes to the financial statements
204
205
14 Tax expense
(a) Tax charged/(credited) to the statement of profit or loss
Current tax
Deferred tax
Total tax expense
- current year
- prior year adjustments
- temporary differences
- prior year adjustments
- reduction in tax rate
2018
£000
8,873
(292)
(7,623)
-
-
958
2017
£000
11,165
557
2,376
(44)
-
14,054
15 Appropriations
Amounts recognised as distributions to equity holders in the period:
Dividends
Non-Cumulative Irredeemable Preference share dividend (8.625 pence per share)
Charitable grants
Gross charitable grants to the ultimate parent company, Allchurches Trust Limited
Tax relief
Net appropriation for the year
2018
£000
2017
£000
9,181
9,181
17,000
(3,230)
13,770
26,000
(5,005)
20,995
Tax on the Group’s result before tax differs from the United Kingdom standard rate of corporation tax for the reasons set out in the
following reconciliation:
16 Acquisition of business
Profit before tax
Tax calculated at the UK standard rate of tax of 19% (2017: 19.25%)
Factors affecting charge for the year:
Expenses not deductible for tax purposes
Non-taxable income
Life insurance and other tax paid at non-standard rates
Utilisation of tax losses for which no deferred tax asset has been recognised
Adjustments to tax charge in respect of prior periods
Total tax expense
2018
£000
15,371
2,920
(112)
(1,538)
193
(213)
(292)
958
2017
£000
82,196
15,823
217
(2,479)
316
(336)
513
14,054
A 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 rate of 19% for the current year and at a blended rate of 19.25% 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 17% (2017: 18%).
(b) Tax charged/(credited) to other comprehensive income
Current tax charged on:
Fair value movements on hedge derivatives
Deferred tax (credited)/charged on:
Fair value movements on property
Actuarial movements on retirement benefit plans
Fair value movements on hedge derivatives
Total tax charged to other comprehensive income
Tax relief on charitable grants of £3,230,000 (2017: £5,005,000) has been taken directly to equity.
2018
£000
110
18
729
77
934
2017
£000
(30)
(6)
7,559
103
7,626
On 11 June 2018, South Essex Insurance Brokers Limited acquired certain assets of Equicover Limited and on 30 November 2018
acquired assets of Equestrian World Services from Greenwood Moreland Insurance Broker. Both acquisitions were in order to further
expand our equine insurance broking services.
The aggregate amounts recognised in respect of the identifiable assets of both acquisitions are set out in the table below.
Intangible assets
Total assets acquired
Satisfied by:
Cash
Contingent consideration agreement
Total consideration
£000
292
292
225
67
292
The net cash outflow arising on the acquisitions was £225,000.
The fair value of the identifiable intangible assets of £292,000 consists of the value of distributor relationships acquired.
The contingent consideration arrangement requires a cash payment to be made on 31 August 2019 and 31 August 2020. The amount
paid in each case is determined by the number of policies converted in the two consecutive annual 'earn-out' periods which end on 6 June
2020.
The fair value of contingent consideration at acquisition was £67,000 based on forecast sales for the two 'earn-out' periods. At that time
the potential future payment in respect of contingent consideration was between £nil and £90,000.
At the balance sheet date, the fair value of contingent consideration is £63,000 and the movement in the fair value, as shown in note 29,
has been credited to profit or loss in the year. Based on the actual policies converted in the period to 31 December 2018 the potential
future payment is between £63,000 and £90,000.
No material acquisition-related costs were incurred in relation to the transaction.
The acquisitions contributed £16,000 revenue and £14,000 to the Group's profit before tax between the dates of acquisition and the
balance sheet date.
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information
206
207
Notes to the financial statements
17 Goodwill and other intangible assets
Group
Cost
At 1 January 2018
Additions
Disposals
Exchange differences
At 31 December 2018
Accumulated impairment losses and amortisation
At 1 January 2018
Amortisation charge for the year
Impairment losses for the year
Disposals
Exchange differences
At 31 December 2018
Net book value at 31 December 2018
Cost
At 1 January 2017
Additions
Disposals
Exchange differences
At 31 December 2017
Accumulated impairment losses and amortisation
At 1 January 2017
Amortisation charge for the year
Impairment losses for the year
Disposals
Exchange differences
At 31 December 2017
Net book value at 31 December 2017
Goodwill
£000
Computer
software
£000
Other
intangible
assets
£000
23,779
-
-
-
23,779
306
-
22
-
-
328
23,451
23,779
-
-
-
23,779
280
-
26
-
-
306
23,473
21,214
2,371
(11)
(121)
23,453
16,941
797
-
(11)
(41)
17,686
5,767
20,310
1,002
-
(98)
21,214
15,964
1,003
-
-
(26)
16,941
4,273
5,084
292
-
-
5,376
4,400
130
-
-
-
4,530
846
5,084
-
-
-
5,084
4,270
130
-
-
-
4,400
684
Total
£000
50,077
2,663
(11)
(121)
52,608
21,647
927
22
(11)
(41)
22,544
30,064
49,173
1,002
-
(98)
50,077
20,514
1,133
26
-
(26)
21,647
28,430
£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.
Notes to the financial statements
17 Goodwill and other intangible assets (continued)
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% (2017: 1.6%) as being appropriate, based on medium-
term rates published in the OBR's November report. The pre-tax discount rate of 9.8% (2017: 10.3%) reflects the way that the market
would assess the specific risks associated with the estimated cash flows.
The aggregation of assets for identifying the cash-generating unit (‘CGU’) changed in 2018 to select only the assets which directly impact
the cash flow projections. In the prior year the CGU assets were based on the total shareholders’ equity of the entity containing the CGU.
The reason for the change in basis is to align the cash projections more accurately with the net assets which will produce them.
The recoverable amount of the investment in South Essex Insurance Holdings Limited exceeds its carrying amount by £8.4m (2017:
£4.4m). If the cumulative growth rate between 2019 and 2021 was 7.5% lower than assumed in management-approved business plans, or
the discount rate increased by 2.6%, 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.
Assumptions 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 (2017: one year).
Parent
Computer software
Cost
At 1 January
Additions
Disposals
Exchange differences
At 31 December
Amortisation
At 1 January
Charge for the year
Disposals
Exchange differences
At 31 December
Net book value at 31 December
18 Deferred acquisition costs
At 1 January
Increase in the period
Release in the period
Exchange differences
At 31 December
All balances are current.
2018
£000
19,567
2,060
(11)
(121)
21,495
15,999
699
(11)
(41)
16,646
4,849
2017
£000
19,160
505
-
(98)
19,567
15,107
918
-
(26)
15,999
3,568
2018
2017
Group
£000
31,267
34,041
(30,963)
(438)
33,907
Parent
£000
25,628
27,857
(25,493)
(180)
27,812
Group
£000
30,705
31,414
(30,652)
(200)
31,267
Parent
£000
25,672
25,654
(25,579)
(119)
25,628
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information 208
209
Notes to the financial statements
19 Retirement benefit schemes
Defined contribution pension plans
The Group operates a number of defined contribution pension plans, for which contributions by the Group are disclosed in note 13.
Defined benefit pension plans
The Group's main plan is a defined benefit plan operated by the Parent for UK employees, which includes two discrete sections, the EIO
Section and Ansvar Section. The plan closed to new entrants on 5 April 2006. 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.
On 26 September 2018, the Company commenced consulting members about its proposal for the future of the plan and the consultation
period subsequently closed on 26 November 2018. Following a review of member feedback, the Company announced on 18 December
2018 that it had made the decision to close the plan to future accrual on 30 June 2019. Active members in employment at 30 June 2019
will maintain certain enhanced benefits past the date the plan closes to future accrual, including benefits in relation to death in service and
ill health retirement. They will also retain the link to final salary whilst they remain employed by the Parent. As a result, there has been no
change to the defined benefit obligation as a result of the closure of the plan to future accrual and therefore no curtailment gain or loss
has been recognised at the year-end date. From 1 July 2019, active members in employment will join one of the Group’s defined
contribution plans.
The assets of the defined benefit 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. The contribution expected to be
paid by the Group up until the plan closes to future accrual on 30 June 2019 is £1.3m (2017: £2.8m to 31 December 2018).
Actuarial valuations were reviewed and updated by an actuary at 31 December 2018 for IAS 19 purposes. The announcement of closure
to future accrual from 30 June 2019 limits the maximum surplus that the Parent can recognise in respect of the EIO Section of the Fund
as it does not have an unconditional right to a refund of surplus. At 31 December 2018 the maximum surplus that could be recognised in
the EIO Section is greater than the IAS 19 surplus, therefore the surplus in this Section has been recognised in full in accordance with
International Financial Reporting Interpretations Committee 14 (IFRIC 14). The Parent has an unconditional right to a refund of surplus in
the Ansvar Section of the Fund which has been recognised in full in accordance with IFRIC 14.
In 2018 there was a High Court ruling relating to Guaranteed Minimum Pensions (GMP) equalisation of the Lloyds Bank pension scheme
which has implications for the EIO section of the Group’s defined benefit plan. The impact of the ruling has been estimated at £1.5m and is
included in the scheme liabilities. This is presented as a past service cost in the statement of profit and loss.
In the current year, actuarial gains arising from changes in financial assumptions of £27.0m (2017: actuarial losses of £21.0m) have been
recognised in the statement of other comprehensive income. These gains resulted from a 0.3% increase in the discount rate and a 0.4%
decrease in the discretionary pension increase assumption.
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. Experience adjustments arise from differences between actual and assumed experience. A
£3.6m experience loss arising from other experience adjustments has been recognised in the year (2017: £8.6m gain arising from
membership and other experience adjustments).
In the prior year the formal wind-up of the Ecclesiastical Insurance Office plc Pension & Life Assurance Scheme (EIOPLA), for which the
Parent was the sponsoring employer, 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. The £144,000 restriction in the surplus in the EIOPLA scheme was released through the statement of other
comprehensive income, and a loss of £144,000 was recognised in expenses representing the surplus not refunded to the Parent.
Notes to the financial statements
19 Retirement benefit schemes (continued)
The main plan typically exposes the Group to risks such as:
-
-
-
Investment risk: The Fund holds some of its investments in asset classes, such as equities, which have volatile market values and, while
these assets are expected to provide the best returns over the long term, any short-term volatility could cause additional funding to be
required if a deficit emerges. Derivative contracts are used from time to time, which would limit losses in the event of a fall in equity
markets.
Interest rate risk: 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.
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.
- 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.
- 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.
The Trustees set the investment objectives and strategy for the Fund based on independent advice and in consultation with the employer.
Key factors addressed in setting strategy include the Fund’s liability profile, funding level and strength of employer covenant. Their key
objectives are to ensure the Fund can meet members’ guaranteed benefits as they fall due, reduce the risk of assets failing to meet its
liabilities over the long term and manage the volatility of returns and overall funding level.
A blend of diversified growth assets (equities and property) and protection assets (bonds, gilts and cash) are deployed to balance the level
of risk to that required to provide, with confidence, a sufficient return and liquidity to continue to meet members' obligations as they fall due.
The Trustees have identified the key risks faced by the Fund in meeting this objective to be falls in interest rates and rising inflation.
In 2016 the Trustees established an LDI portfolio, structured to increase in value with decreases in interest rates and grow in line with
inflation expectations. By the beginning of 2018, growth in this portfolio was paused at a level estimated to have hedged 60% of the
interest rate and inflation rate risk of the guaranteed benefits of the Fund. 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, but not eliminated, volatility in the funding position.
The Trustees are currently considering the implications of closure to future accrual on investment strategy whilst monitoring the need for
further increases in the LDI hedge levels over time.
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information 210
211
Notes to the financial statements
19 Retirement benefit schemes (continued)
Group and Parent
The amounts recognised in the statement of financial position are determined as follows:
Present value of funded obligations
Fair value of plan assets
Restrictions on asset recognised
Net defined benefit pension scheme asset/(liability) in the statement of financial position
Movements in the net defined benefit pension scheme asset/(liability) recognised in the
statement of financial position are as follows:
At 1 January
Expense charged to profit or loss*
Amounts recognised in other comprehensive income
Contributions paid
Distribution of surplus
At 31 December
The amounts recognised through profit or loss are as follows:
Current service cost
Administration cost
Interest expense on liabilities
Interest income on plan assets
Past service cost
Total, included in employee benefits expense
The amounts recognised in the statement of other comprehensive income are as follows:
Return on plan assets, excluding interest income
Experience (losses)/gains on liabilities
Gains from changes in demographic assumptions
Gains/(losses) from changes in financial assumptions
Change in asset ceiling
Total included in other comprehensive income
* Charge to profit or loss includes £590,000 (2017: £591,000) in respect of member salary sacrifice contributions.
2018
£000
2017
£000
(325,738)
341,869
16,131
-
16,131
(343,143)
363,179
20,036
-
20,036
20,036
(5,542)
(974)
2,611
-
16,131
4,124
382
8,137
(8,649)
1,548
5,542
(24,354)
(3,601)
-
26,981
-
(974)
(20,320)
(5,199)
43,424
2,419
(288)
20,036
4,142
556
8,966
(8,465)
-
5,199
32,671
8,647
22,971
(21,009)
144
43,424
Notes to the financial statements
19 Retirement benefit schemes (continued)
The following is the analysis of the defined benefit pension balances for financial reporting purposes:
Group and Parent
Pension assets
Pension liabilities
The principal actuarial assumptions (expressed as weighted averages) were as follows:
Discount rate
Inflation (RPI)
Inflation (CPI)
Future salary increases
Future increase in pensions in deferment
Future average pension increases (linked to RPI)
Future average pension increases (linked to CPI)
2018
£000
16,131
-
16,131
2018
%
2.70
3.20
2.20
4.20
2.25
3.00
1.50
2017
£000
20,036
-
20,036
2017
%
2.40
3.20
2.20
4.45
2.20
3.00
1.75
Mortality rate
2018
2017
The average life expectancy in years of a pensioner retiring at age 65, at the year-end date, is as
follows:
Male
Female
The average life expectancy in years of a pensioner retiring at age 65, 20 years after the year-end date,
is as follows:
Male
Female
Plan assets are weighted as follows:
Cash and other*
Equity instruments
UK quoted
UK unquoted
Overseas quoted
Liability driven investments
Debt instruments
UK public sector quoted - fixed interest
UK non-public sector quoted - fixed interest
UK quoted - index-linked
Derivative financial instruments
Property
23.1
24.6
24.9
26.4
2018
£000
22,818
77,179
125
70,397
147,701
37,857
2,440
64,981
23,351
90,772
(1,981)
44,702
23.0
24.5
24.8
26.3
2017
£000
17,925
80,666
233
70,283
151,182
47,958
256
74,540
25,626
100,422
790
44,902
341,869
363,179
*Cash and other includes accrued income, prepayments and other debtors and creditors.
The actual return on plan assets was a loss of £15,705,000 (2017: a gain of £41,136,000).
The underlying assets of the LDIs are primarily UK government bonds and interest rate repurchase agreements at various rates and terms.
The 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.
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Notes to the financial statements
19 Retirement benefit schemes (continued)
Notes to the financial statements
19 Retirement benefit schemes (continued)
212
213
The movements in the fair value of plan assets and the present value of the defined benefit obligation over the year are as follows:
Plan assets
At 1 January
Interest income
Return on plan assets, excluding interest income
Pension benefits paid and payable
Contributions paid
Assets distributed
At 31 December
Defined benefit obligation
At 1 January
Current service cost
Administration cost
Past service cost
Interest cost
Pension benefits paid and payable
Experience losses/(gains) on liabilities
Gains from changes in demographic assumptions
(Gains)/losses from changes in financial assumptions
At 31 December
Asset ceiling
At 1 January
Change in asset ceiling
At 31 December
History of plan assets and liabilities
Present value of defined benefit obligations
Fair value of plan assets
Restrictions on asset recognised
Surplus/(deficit)
2018
£000
(325,738)
341,869
16,131
-
16,131
2017
£000
(343,143)
363,179
20,036
-
20,036
2016
£000
(349,570)
329,394
(20,176)
(144)
(20,320)
2018
£000
363,179
8,649
(24,354)
(8,216)
2,611
-
341,869
343,143
4,124
382
1,548
8,137
(8,216)
3,601
-
(26,981)
325,738
-
-
-
2015
£000
(276,562)
294,498
17,936
(7,283)
10,653
2017
£000
329,394
8,465
32,671
(9,482)
2,419
(288)
363,179
349,570
4,142
556
-
8,966
(9,482)
(8,647)
(22,971)
21,009
343,143
144
(144)
-
2014
£000
(277,459)
298,840
21,381
(563)
20,818
The weighted average duration of the defined benefit obligation at the end of the reporting period is 23 years (2017: 23 years).
Significant actuarial assumptions for the determination of the defined benefit obligation are discount rate, inflation, expected salary
increases and mortality. The sensitivity analysis below has been determined based on reasonably possible changes in the assumptions
occurring at the end of the reporting period assuming that all other assumptions are held constant.
Assumption
Change in assumption
Discount rate
Inflation
Salary increase
Life expectancy
Increase by 0.5%
Decrease by 0.5%
Increase by 0.5%
Decrease by 0.5%
Increase by 0.5%
Decrease by 0.5%
Increase by 1 year
Decrease by 1 year
Increase/(decrease)
in plan liabilities
2018
£000
2017
£000
(33,630)
39,390
25,270
(25,070)
4,960
(4,750)
12,780
(12,780)
(35,480)
41,550
26,620
(26,410)
5,170
(4,960)
13,500
(13,500)
Post-employment medical benefits
The Parent operates a post-employment medical benefit plan, for which it chooses to self-insure. The method of accounting, assumptions
and the frequency of valuation are similar to those used for the defined benefit pension plans.
The provision of the plan leads to a number of risks as follows:
-
Interest rate risk: The reserves are assessed using market rates of interest to discount the liabilities and are therefore subject to
volatility in the movement of the market rates of interest. A reduction in the market rate of interest would lead to an increase in the
reserves required to be held.
- Medical expense 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.
- 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.
- Spouse and widows' contributions: The self-insured benefit includes a potential liability for members who pay contributions in respect
of their spouse and for widows who pay contributions. There is the possibility that the contributions charged may not be sufficient to
cover the medical costs that fall due.
- Mortality risk: If members live longer than expected, the Company is exposed to the expense of medical claims for a longer period, with
increased likelihood of needing to pay claims.
The amounts recognised in the statement of financial position are determined as follows:
Group and Parent
Present value of unfunded obligations and net obligations in the statement of financial position
Movements in the net obligations recognised in the statement of financial position are as
follows:
At 1 January
Total expense charged to profit or loss
Net actuarial gains during the year, recognised in other comprehensive income
Benefits paid
At 31 December
The amounts recognised through profit or loss are as follows:
Interest cost
Total, included in employee benefits expense
2018
£000
5,813
10,932
259
(5,262)
(116)
5,813
259
259
2017
£000
10,932
11,913
307
(1,184)
(104)
10,932
307
307
The weighted average duration of the net obligations at the end of the reporting period has reduced to 13.5 years (2017: 18.5 years)
primarily due to demographic and assumption changes.
The main actuarial assumptions for the plan are a long-term increase in medical costs of 7.2% (2017: 9.2%) and a discount rate of 2.7%
(2017: 2.4%). An actuarial review of the assumptions used to measure the net obligation for post-employment medical benefits was
carried out during the current year. As a result of the review, the methodology for setting the medical cost inflation assumption was
revised, generating an actuarial gain of £1.8m. An experience gain of £3.3m has been recognised as a result of updating for actual
scheme experience. The sensitivity analysis below has been determined based on reasonably possible changes in the assumptions
occurring at the end of the accounting period assuming that all other assumptions are held constant.
Assumption
Change in assumption
Discount rate
Medical expense inflation
Life expectancy
Increase by 0.5%
Decrease by 0.5%
Increase by 1.0%
Decrease by 1.0%
Increase by 1 year
Decrease by 1 year
Increase/(decrease)
in plan liabilities
2018
£000
(360)
397
758
(642)
513
(469)
2017
£000
(923)
1,049
2,041
(1,634)
943
(845)
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information 214
215
Notes to the financial statements
20 Property, plant and equipment
Group
Cost or valuation
At 1 January 2018
Additions
Disposals
Revaluation
Exchange differences
At 31 December 2018
Depreciation
At 1 January 2018
Charge for the year
Disposals
Exchange differences
At 31 December 2018
Net book value at 31 December 2018
Cost or valuation
At 1 January 2017
Additions
Disposals
Exchange differences
At 31 December 2017
Depreciation
At 1 January 2017
Charge for the year
Disposals
Exchange differences
At 31 December 2017
Net book value at 31 December 2017
Land and
buildings
£000
Motor
vehicles
£000
Furniture,
fittings and
equipment
£000
Computer
equipment
£000
2,255
-
-
190
-
2,445
-
-
-
-
-
2,445
2,565
-
(310)
-
2,255
-
-
-
-
-
2,255
2,426
346
(545)
-
-
2,227
816
373
(346)
-
843
1,384
2,388
703
(665)
-
2,426
923
356
(463)
-
816
1,610
7,889
1,257
(62)
-
(26)
9,058
5,271
889
(62)
(16)
6,082
2,976
7,759
205
(73)
(2)
7,889
4,520
837
(73)
(13)
5,271
2,618
7,528
489
(77)
-
(26)
7,914
5,239
1,175
(68)
(18)
6,328
1,586
5,917
1,859
(233)
(15)
7,528
4,488
984
(223)
(10)
5,239
2,289
Total
£000
20,098
2,092
(684)
190
(52)
21,644
11,326
2,437
(476)
(34)
13,253
8,391
18,629
2,767
(1,281)
(17)
20,098
9,931
2,177
(759)
(23)
11,326
8,772
All properties were revalued at 31 December 2018. Valuations were carried out by Cluttons LLP, an independent professional firm of
chartered surveyors, using standard industry methodology to determine a fair market value. All properties are classified as level 3 assets.
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.
Notes to the financial statements
20 Property, plant and equipment (continued)
Parent
Cost or valuation
At 1 January 2018
Additions
Disposals
Revaluation
Exchange differences
At 31 December 2018
Depreciation
At 1 January 2018
Charge for the year
Disposals
Exchange differences
At 31 December 2018
Net book value at 31 December 2018
Cost or valuation
At 1 January 2017
Additions
Disposals
Exchange differences
At 31 December 2017
Depreciation
At 1 January 2017
Charge for the year
Disposals
Exchange differences
At 31 December 2017
Net book value at 31 December 2017
Land and
buildings
£000
Motor
vehicles
£000
Furniture,
fittings and
equipment
£000
Computer
equipment
£000
1,880
-
-
165
-
2,045
-
-
-
-
-
2,045
2,190
-
(310)
-
1,880
-
-
-
-
-
1,880
2,330
313
(508)
-
-
2,135
761
356
(318)
-
799
1,336
2,250
672
(592)
-
2,330
827
341
(407)
-
761
1,569
7,424
1,132
(62)
-
(24)
8,470
5,130
821
(62)
(15)
5,874
2,596
7,346
80
-
(2)
7,424
4,361
782
-
(13)
5,130
2,294
6,960
365
(77)
-
(11)
7,237
4,882
1,035
(68)
(7)
5,842
1,395
5,250
1,792
(71)
(11)
6,960
4,113
847
(71)
(7)
4,882
2,078
Total
£000
18,594
1,810
(647)
165
(35)
19,887
10,773
2,212
(448)
(22)
12,515
7,372
17,036
2,544
(973)
(13)
18,594
9,301
1,970
(478)
(20)
10,773
7,821
The Company’s properties were revalued at 31 December 2018. Valuations were carried out by Cluttons LLP, an independent
professional firm of chartered surveyors, using standard industry methodology to determine a fair market value. All properties are
classified as level 3 assets.
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 value of land and buildings on a historical cost basis is £2,044,000 (2017: £2,044,000).
The value of land and buildings on a historical cost basis is £2,444,000 (2017: £2,444,000).
Depreciation expense has been charged in other operating and administrative expenses.
Depreciation expense has been charged in other operating and administrative expenses.
Included within net book value of motor vehicles is £1,315,000 (2017: £1,543,000) in respect of assets held under finance leases.
Included within net book value of motor vehicles is £1,315,000 (2017: £1,543,000) in respect of assets held under finance leases.
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Notes to the financial statements
Notes to the financial statements
216
217
21 Investment property
Group and Parent
Fair value at 1 January
Additions - acquisitions
Fair value (losses)/gains recognised in profit or loss
Fair value at 31 December
2018
£000
152,238
-
(56)
152,182
2017
£000
125,284
19,540
7,414
152,238
The Group’s investment properties were last revalued at 31 December 2018 by Cluttons LLP, an independent professional 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.
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 £8,238,000 (2017: £7,492,000) and is included in net investment return.
Other operating and administrative expenses include £473,000 (2017: £802,000) relating to investment property, of which £38,000
(2017: £129,000) is in respect of properties not currently generating rental income.
22 Financial investments
Financial investments summarised by measurement category are as follows:
Financial investments at fair value through profit or loss
Equity securities
- listed
- unlisted
Debt securities
- government bonds
- listed
- unlisted
Derivative financial instruments
- forwards
- options
Financial investments at fair value through other
comprehensive income
Derivative financial instruments
- forwards
Total financial investments at fair value
Loans and receivables
Cash held on deposit
Other loans
Parent investments in subsidiary undertakings
Shares in subsidiary undertakings
Total financial investments
Current
Non-current
All investments in subsidiary undertakings are unlisted.
2018
Group
£000
Parent
£000
2017
Group
£000
Parent
£000
241,361
44,773
148,053
348,664
125
-
5,331
788,307
210,080
44,771
85,470
229,907
125
492
5,331
576,176
286,790
42,279
153,908
362,709
125
582
2,029
848,422
250,117
42,277
93,121
236,920
125
1,396
2,029
625,985
737
789,044
245
576,421
1,388
849,810
574
626,559
9,913
17
9,914
14
9,860
16
9,860
15
-
50,339
-
50,065
798,974
343,840
455,134
636,688
300,773
335,915
859,686
399,566
460,120
686,499
350,333
336,166
23 Derivative financial instruments
The Group utilises derivatives to mitigate equity price risk arising from investments held at fair value, foreign exchange risk arising from
investments denominated in foreign currencies, and foreign exchange risk arising from investments denominated in Sterling that contain
underlying foreign currency exposure. These 'non-hedge' derivatives either do not qualify for hedge accounting or the option to hedge
account has not been taken.
The Group has also formally designated certain derivatives as a hedge of its net investments in Australia and Canada. A gain of £1,692,000
(2017: gain of £855,000) in respect of these 'hedge' derivatives has been recognised in the hedging reserve within shareholders' equity, as
disclosed in note 27. 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.
Group
Non-hedge derivatives
Equity/Index contracts
Options
Foreign exchange contracts
Forwards (Euro)
Hedge derivatives
Foreign exchange contracts
Forwards (Australian dollar)
Forwards (Canadian dollar)
Contract/
notional
amount
£000
2018
Fair value
asset
£000
Fair value
liability
£000
2017
Contract/
notional
amount
£000
Fair value
asset
£000
63,077
5,331
-
114,578
2,029
87,514
-
2,306
93,991
582
57,264
27,157
235,012
492
245
6,068
-
-
2,306
46,934
34,123
289,626
814
574
3,999
Included with Equity/Index contracts are options with a contract/notional value of £22,493,000 (2017: £17,991,000), and fair value asset
of £2,348,000 (2017: £854,000), which expire in greater than one year. All other derivatives in the current and prior period expire within
one year.
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.
All contracts designated as hedging instruments were fully effective in the current and prior year.
The notional amounts above reflect the aggregate of individual derivative positions on a gross basis and so give an indication of the overall
scale of the derivative transactions. They do not reflect current market values of the open positions.
Derivative fair value assets are recognised within financial investments (note 22) and derivative fair value liabilities are recognised within
other liabilities (note 31).
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information 218
219
Notes to the financial statements
Notes to the financial statements
24 Other assets
26 Called up share capital
Receivables arising from insurance and reinsurance contracts
- due from contract holders
- due from agents, brokers and intermediaries
- due from reinsurers
Other receivables
- accrued interest and rent
- other prepayments and accrued income
- amounts owed by related parties
- debtors arising from broking activities
- other debtors
Current
Non-current
2018
2017
Group
£000
36,709
47,025
11,612
4,696
4,700
30,719
6,236
11,933
153,630
120,851
32,779
Parent
£000
36,369
30,770
5,128
3,546
3,901
35,311
-
1,303
116,328
81,363
34,965
Group
£000
33,851
44,245
14,482
4,922
3,852
29,704
6,201
12,825
150,082
117,378
32,704
Parent
£000
33,589
28,369
10,628
3,700
3,103
34,703
-
1,015
115,107
80,081
35,026
In the 2017 comparative column, a balance of £4,964,000 was reclassified from 'due from agents, brokers and intermediaries' to 'due from
contract holders' to better reflect the nature of the balance. This reclassification did not impact on the 2017 or 2018 balance sheet or any
other primary financial statements.
The Group has recognised a charge of £30,000 (2017: £27,000) in other operating and administrative expenses in the statement of profit
or loss for the impairment of its trade and other receivables during the year. The Parent has recognised a charge of £46,000 (2017: credit
of £48,000).
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.
Included within amounts owed by related parties of the Parent is £3,395,000 (2017: £3,551,000) pledged as collateral in respect of an
insurance liability.
Included within other receivables of the Group is £1,210,000 (2017: £1,230,000) classified as contract assets, and £1,095,000 (2017:
£1,017,000) classified as receivables in accordance with IFRS 15. Included within other receivables of the parent is £nil (2017: £nil)
classified as contract assets, and £nil (2017: £nil) classified as receivables in accordance with IFRS 15.
Movement in the allowance for doubtful debts
Balance at 1 January
Movement in the year
Balance at 31 December
2018
2017
Group
£000
188
(20)
168
Parent
£000
69
-
69
Group
£000
154
34
188
Parent
£000
106
(37)
69
Included within trade receivables of the Group is £3,828,000 (2017: £3,106,000) overdue but not impaired, of which £3,387,000 (2017:
£2,795,000) is not more than three months overdue at the reporting date. Included within trade receivables of the Parent is £1,975,000
(2017: £2,630,000) overdue but not impaired, of which £1,874,000 (2017: £2,318,000) is not more than three months overdue at the
reporting date.
25 Cash and cash equivalents
Cash at bank and in hand
Short-term bank deposits
2018
2017
Group
£000
67,373
42,044
109,417
Parent
£000
40,033
32,742
72,775
Group
£000
62,474
31,293
93,767
Parent
£000
30,574
20,825
51,399
Included within Group cash at bank and in hand are cash deposits of £4,090,000 (2017: £758,000), and included within Parent cash at
bank and in hand are deposits of £241,000 (£758,000) pledged as collateral by way of cash calls from reinsurers.
Ordinary shares of 4p each
8.625% Non-Cumulative Irredeemable Preference shares of £1 each
The number of shares in issue are as follows:
Ordinary shares of 4p each
At 1 January and 31 December
8.625% Non-Cumulative Irredeemable Preference shares of £1 each
At 1 January and 31 December
Issued, allotted and
fully paid
2018
£000
14,027
106,450
120,477
2017
£000
14,027
106,450
120,477
350,678
350,678
106,450
106,450
On winding up, the assets of the Company remaining after payment of its liabilities are to be applied to holders of the Non-Cumulative
Irredeemable Preference shares in repaying the nominal capital sum paid up on the shares and an amount equal to all arrears of accrued
and unpaid dividends up to the date of the commencement of the winding up. The residual interest in the assets of the Company after
deducting all liabilities belongs to the Ordinary shareholders.
Holders of the Non-Cumulative Irredeemable Preference shares are not entitled to receive notice of, or to attend, or vote at any general
meeting of the Company unless at the time of the notice convening such meeting, the dividend on such shares which is most recently
payable on such shares shall not have been paid in full, or where a resolution is proposed varying any of the rights of such shares, or for the
winding up of the Company.
27 Translation and hedging reserve
Group
At 1 January 2018
Losses on currency translation differences
Gains on net investment hedges
Attributable tax
At 31 December 2018
At 1 January 2017
Losses on currency translation differences
Gains on net investment hedges
Attributable tax
At 31 December 2017
Parent
At 1 January 2018
Losses on currency translation differences
Gains on net investment hedges
Attributable tax
At 31 December 2018
At 1 January 2017
Losses on currency translation differences
Gains on net investment hedges
Attributable tax
At 31 December 2017
Translation
reserve
£000
Hedging
reserve
£000
18,022
(3,082)
-
-
14,940
19,664
(1,642)
-
-
18,022
7,438
(833)
-
-
6,605
8,472
(1,034)
-
-
7,438
2,626
-
1,692
(187)
4,131
1,844
-
855
(73)
2,626
597
-
453
(77)
973
94
-
606
(103)
597
Total
£000
20,648
(3,082)
1,692
(187)
19,071
21,508
(1,642)
855
(73)
20,648
8,035
(833)
453
(77)
7,578
8,566
(1,034)
606
(103)
8,035
The 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.
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information 220
221
Notes to the financial statements
28 Insurance liabilities and reinsurance assets
Gross
Claims outstanding
Unearned premiums
Life business provision
Total gross insurance liabilities
Recoverable from reinsurers
Claims outstanding
Unearned premiums
Total reinsurers’ share of insurance liabilities
Net
Claims outstanding
Unearned premiums
Life business provision
Total net insurance liabilities
Gross insurance liabilities
Current
Non-current
Reinsurance assets
Current
Non-current
2018
Group
£000
457,319
180,766
81,964
720,049
78,731
61,615
140,346
378,588
119,151
81,964
579,703
Parent
£000
381,631
149,808
-
531,439
54,357
45,881
100,238
327,274
103,927
-
431,201
2017
Group
£000
509,319
171,788
88,141
769,248
102,635
56,573
159,208
406,684
115,215
88,141
610,040
Parent
£000
421,397
141,707
-
563,104
67,600
42,525
110,125
353,797
99,182
-
452,979
321,792
398,257
262,780
268,659
328,879
440,369
263,912
299,192
102,788
37,558
74,646
25,592
110,013
49,195
80,381
29,744
(a) General business insurance contracts
(i) Reserving methodology
Reserving for non-life insurance claims is a complex process and the Group adopts recognised actuarial methods and, where appropriate,
other calculations and statistical analysis. Actuarial methods used include the chain ladder, Bornhuetter-Ferguson and average cost
methods.
Chain ladder methods extrapolate paid amounts, incurred amounts (paid claims plus case estimates) and the number of claims or average
cost of claims, to ultimate claims based on the development of previous years. This method assumes that previous patterns are a
reasonable guide to future developments. Where this assumption is felt to be unreasonable, adjustments are made or other methods such
as Bornhuetter-Ferguson or average cost are used. The Bornhuetter-Ferguson method places more credibility on expected loss ratios for
the most recent loss years. For smaller portfolios the materiality of the business and data available may also shape the methods used in
reviewing reserve adequacy.
The selection of results for each accident year and for each portfolio depends on an assessment of the most appropriate method.
Sometimes a combination of techniques is used. The average weighted term to payment is calculated separately by class of business and
is based on historical settlement patterns.
(ii) Calculation of uncertainty margins
To reflect the uncertain nature of the outcome of the ultimate settlement cost of claims, an uncertainty margin is added to the best
estimate. The addition for uncertainty is assessed using actuarial methods including the Mack method and Bootstrapping techniques,
based on at least the 75th percentile confidence level for each portfolio. 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.
From time to time, the management may elect to select an additional margin to reflect short-term uncertainty driven by specific events that
are not in data. This approach generally results in a favourable release of provisions in the current financial year, arising from the settlement
of claims relating to previous financial years, as shown in part (c) of the note.
(iii) Calculation of provisions for latent claims
The Group adopts commonly used industry methods including those based on claims frequency and severity and benchmarking.
Notes to the financial statements
28 Insurance liabilities and reinsurance assets (continued)
(iv) Discounting
General insurance outstanding claims liabilities are undiscounted, except for designated long-tail classes of business for which discounted
provisions are held in the following territories:
Discount rate
Mean term of discounted
liabilities (years)
Geographical territory
2018
2017
2018
2017
UK and Ireland
Canada
Australia
1.8% to 3.0%
2.2% to 2.7%
2.3%
1.0% to 2.5%
1.9% to 2.6%
2.5%
17
15
5
16
11
4
Parent consists of UK, Ireland and Canada. Group also includes Australia.
The above rates of interest are based on government bond yields of the relevant currency and term at the reporting date. Adjustments are
made, where appropriate, to reflect portfolio assets held and to allow for future investment expenses. At the year end the undiscounted
gross outstanding claims liability was £505,147,000 for the Group (2017: £549,264,000), and £423,097,000 for the Parent (2017:
£455,306,000).
The impact of discount rate changes on the outstanding claims liability is presented within net investment return (note 8).
At 31 December 2018, it is estimated that a fall of 1% in the discount rates used would increase the Group's net outstanding claims
liabilities by £15,432,000 (2017: £15,683,000). Financial investments backing these liabilities are not hypothecated across general
insurance classes of business. The sensitivity of Group profit or loss and other equity reserves to interest rate risk, taking into account the
mitigating effect on asset values is provided in note 4(h).
(v) Assumptions
The Group follows a process of reviewing its reserves for outstanding claims on a regular basis. This involves an appraisal of each portfolio
with respect to ultimate claims liability for the recent exposure period as well as for earlier periods, together with a review of the factors
that have the most significant impact on the assumptions used to determine the reserving methodology. The work conducted on each
portfolio is subject to an internal peer review and management sign-off process.
The 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.
(vi) Changes in assumptions
There are no significant changes in assumptions.
(vii) Sensitivity of results
The ultimate amount of claims settlement is uncertain and the Group's aim is to reserve to at least the 75th percentile confidence level.
If final settlement of the outstanding 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:
Liability
Property
Motor
- UK
- Overseas
- UK
- Overseas
- UK
2018
2017
Gross
£000
19,900
10,800
7,200
4,100
200
Net
£000
18,800
9,100
4,200
2,100
200
Gross
£000
22,600
10,600
6,200
6,300
1,200
Net
£000
21,300
8,800
3,700
2,500
500
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Notes to the financial statements
28 Insurance liabilities and reinsurance assets (continued)
(viii) Claims development tables
The nature of liability classes of business is that claims may take a number of years to settle and before the final liability is known. The
tables below show the development of the undiscounted estimate of ultimate gross and net claims cost for these classes across all
territories.
Estimate of ultimate gross claims
Group
At end of year
One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
2009
£000
74,742
59,807
55,250
57,134
55,695
58,631
54,942
57,729
57,626
56,556
2010
£000
84,476
75,550
62,239
66,422
61,330
62,074
61,871
60,155
60,037
2011
£000
2012
£000
82,095 100,612
88,046
76,371
78,196
71,543
68,587
72,516
67,980
60,841
62,712
59,914
57,950
61,213
57,939
2013
£000
81,725
80,027
69,860
66,192
60,174
56,912
2014
£000
61,901
50,571
48,327
45,495
37,064
2015
£000
2016
£000
2017
£000
2018
£000
Total
£000
50,736
46,885
48,759
46,464
43,582
40,337
33,804
51,738
46,073
41,041
61,213
56,912
60,037
57,939
56,556
Current estimate
of ultimate
claims
Cumulative
payments to
date
Outstanding
liability
Effect of discounting
Present value
Discounted liability in respect of earlier years
Total discounted gross liability (for liability classes) included in insurance liabilities in the statement of financial position
41,041 46,885
(50,920)
(21,550)
(48,936)
(11,537)
(49,910)
(52,604)
(42,875)
(5,284)
(9,381)
14,037
15,514
33,804
37,064
10,293
7,620
7,433
8,029
48,759
(1,243)
22,267 31,660 41,601 47,516
500,210
(294,240)
205,970
(15,311)
190,659
116,948
307,607
Parent
At end of year
One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
2009
£000
60,810
46,660
43,853
49,444
47,970
47,482
45,534
45,718
45,894
45,156
2010
£000
69,230
60,202
50,834
53,390
50,526
51,031
48,499
47,523
48,082
2011
£000
66,864
63,770
62,587
60,653
52,985
50,355
49,127
48,927
2012
£000
84,511
77,629
69,580
63,068
56,225
51,872
50,791
2013
£000
71,798
60,950
54,792
50,492
43,910
42,289
2014
£000
52,350
40,153
39,015
37,158
31,530
2015
£000
2016
£000
2017
£000
2018
£000
Total
£000
37,981 34,210
32,541
33,353
29,538
32,992
34,769
31,941
30,129
27,287
42,289
50,791
48,927
45,156
48,082
Current estimate
of ultimate
claims
Cumulative
payments to
date
Outstanding
liability
Effect of discounting
Present value
Discounted liability in respect of earlier years
Total discounted gross liability (for liability classes) included in insurance liabilities in the statement of financial position
17,877 22,922
(30,998)
(42,784)
(39,388)
(41,368)
(43,129)
(18,812)
(6,616)
(9,410)
(3,429)
11,291
29,924
12,718
31,530
5,798
5,768
6,714
8,007
(699)
(236,633)
32,293
153,312
(11,119)
142,193
110,887
253,080
27,287 29,538 33,353 32,992
389,945
222
223
Notes to the financial statements
28 Insurance liabilities and reinsurance assets (continued)
Estimate of ultimate net claims
Group
At end of year
One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
2009
£000
64,476
53,700
50,805
50,168
50,062
49,879
48,960
52,254
52,330
51,684
2010
£000
73,218
64,796
57,758
59,353
55,975
57,012
57,050
55,778
55,827
2011
£000
75,302
72,336
68,057
66,822
60,314
59,521
57,641
57,591
2012
£000
88,247
79,272
73,735
69,837
65,872
60,800
59,338
2013
£000
76,729
66,475
60,075
55,710
51,482
49,196
2014
£000
59,633
47,690
47,428
41,494
35,164
2015
£000
2016
£000
2017
£000
2018
£000
Total
£000
47,402
41,631
37,740
42,739
40,397
37,740
32,297
45,920
41,706
44,053
55,827
49,196
51,684
59,338
57,591
Current estimate
of ultimate
claims
Cumulative
payments to
date
Outstanding
liability
Effect of discounting
Present value
Discounted liability in respect of earlier years
Total discounted net liability (for liability classes) included in insurance liabilities in the statement of financial position
(35,372)
(49,700)
(49,216)
(44,613)
(48,453)
(11,537)
(20,375)
(9,337)
(5,284)
14,789
13,824
10,122
35,164
7,374
7,891
7,071
20,760 28,403 36,422 42,810
(1,243)
(275,130)
189,466
(15,311)
174,155
108,762
282,917
32,297 37,740 41,706 44,053
464,596
Parent
At end of year
One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
2009
£000
51,226
39,841
40,198
43,879
44,064
43,640
41,966
42,761
43,002
42,635
2010
£000
57,135
49,060
48,250
51,827
49,171
49,598
47,783
46,951
47,519
2011
£000
59,011
59,873
59,997
59,352
52,850
50,189
49,029
48,858
2012
£000
74,361
69,805
65,297
61,795
55,686
51,766
50,762
2013
£000
67,690
57,538
51,828
47,942
43,568
42,126
2014
£000
50,025
38,944
38,215
34,393
30,252
2015
£000
2016
£000
2017
£000
2018
£000
Total
£000
33,122
31,041
29,494
26,981
31,981
35,882 33,134
30,906 30,965
28,199
47,519
42,126
50,762
42,635
48,858
Current estimate
of ultimate
claims
Cumulative
payments to
date
Outstanding
liability
Effect of discounting
Present value
Discounted liability in respect of earlier years
Total discounted net liability (for liability classes) included in insurance liabilities in the statement of financial position
17,571 21,627
(43,071)
(37,331)
(42,781)
(40,814)
(17,636)
(30,894)
(3,429)
(6,572)
(9,410)
12,616
30,252
11,232
27,536
5,787
7,981
6,705
5,304
(699)
(232,637)
31,282
147,641
(11,119)
136,522
102,635
239,157
26,981 28,199 30,965 31,981
380,278
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information 224
225
Notes to the financial statements
28 Insurance liabilities and reinsurance assets (continued)
(b) Life insurance contracts
(i) Assumptions
The most significant assumptions in determining life reserves are as follows:
Mortality
An 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.
Investment returns
Projected investment returns are based on actual yields for each asset class less an allowance for credit risk, where appropriate. The risk-
adjusted yields after allowance for investment expenses for the current valuation are as follows:
UK and overseas government bonds: non-linked
UK and overseas government bonds: index-linked
Corporate debt instruments: index-linked
2018
0.98%
-1.89%
-1.38%
2017
0.71%
-1.85%
-1.35%
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 inflation
Numbers of policies in force and both projected and actual expenses have been considered when setting the base renewal expense level.
The unit renewal expense assumption for this business is £2.40 per annum (2017: £3.20 per annum). Additionally, now the in-force policy
volumes are expected to fall, much of the expenses of the company have been reserved for in a separate exercise. A reserve for these
expenses is held at £5.4 million (2017: £6.5 million).
Expense inflation is set with reference to the index-linked UK government bond rates of return, and published figures for earnings inflation,
and is assumed to be 4.22% per annum (2017: 4.04%).
Tax
It has been assumed that tax legislation and rates applicable at 1 January 2019 will continue to apply. All in-force business is classed as
protection business and is expected to be taxed on a profits basis.
(ii) Changes in assumptions
Projected investment returns have been revised in line with the changes in the actual yields of the underlying assets. As a result, liabilities
have increased by £0.3 million (2017: £0.4 million increase).
The assumed future expenses of running the business have been revised based on expenses that are expected to be incurred by the
company. In particular, costs expected to be incurred to meet professional fees are expected to be lower than had previously been
assumed. The effect on insurance liabilities of the changes to renewal expense assumptions (described above) was a £1.1 million
decrease (2017: £0.49 million increase).
There has been no change in the mortality assumptions.
(iii) Sensitivity analysis
The 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.
Variable
Deterioration in annuitant mortality
Improvement in annuitant mortality
Increase in fixed interest/cash yields
Decrease in fixed interest/cash yields
Worsening of base renewal expense level
Improvement in base renewal expense level
Increase in expense inflation
Decrease in expense inflation
Change in
variable
Potential increase/
(decrease) in the result
2018
£000
900
(1,000)
200
(600)
(600)
600
(900)
700
2017
£000
900
(1,100)
(200)
-
(700)
700
(1,100)
900
+10%
-10%
+1% pa
-1% pa
+10%
-10%
+1% pa
-1% pa
Notes to the financial statements
28 Insurance liabilities and reinsurance assets (continued)
(c) Movements in insurance liabilities and reinsurance assets
Group
Claims outstanding
At 1 January 2018
Cash (paid)/received for claims settled in the year
Change in liabilities/reinsurance assets
- arising from current year claims
- arising from prior year claims
- change in discount rate
Exchange differences
At 31 December 2018
Provision for unearned premiums
At 1 January 2018
Increase in the period
Release in the period
Exchange differences
At 31 December 2018
Life business provision
At 1 January 2018
Effect of claims during the year
Changes in assumptions
Change in discount rate
Other movements
At 31 December 2018
Claims outstanding
At 1 January 2017
Cash (paid)/received for claims settled in the year
Change in liabilities/reinsurance assets
- arising from current year claims
- arising from prior year claims
- change in discount rate
Exchange differences
At 31 December 2017
Provision for unearned premiums
At 1 January 2017
Increase in the period
Release in the period
Exchange differences
At 31 December 2017
Life business provision
At 1 January 2017
Effect of claims during the year
Changes in assumptions
Change in discount rate
Other movements
At 31 December 2017
Gross
£000
Reinsurance
£000
Net
£000
509,319
(155,137)
(102,635)
48,691
406,684
(106,446)
175,127
(62,905)
(4,226)
(4,859)
457,319
171,788
181,373
(170,368)
(2,027)
180,766
88,141
(6,250)
(827)
283
617
81,964
540,864
(148,717)
172,308
(54,398)
1,278
(2,016)
509,319
160,288
172,518
(160,149)
(869)
171,788
91,900
(6,346)
585
396
1,606
88,141
(53,855)
27,667
(201)
1,602
(78,731)
(56,573)
(61,854)
56,090
722
(61,615)
-
-
-
-
-
-
(115,179)
43,676
(58,721)
26,525
165
899
(102,635)
(50,753)
(56,875)
50,824
231
(56,573)
-
-
-
-
-
-
121,272
(35,238)
(4,427)
(3,257)
378,588
115,215
119,519
(114,278)
(1,305)
119,151
88,141
(6,250)
(827)
283
617
81,964
425,685
(105,041)
113,587
(27,873)
1,443
(1,117)
406,684
109,535
115,643
(109,325)
(638)
115,215
91,900
(6,346)
585
396
1,606
88,141
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Notes to the financial statements
28 Insurance liabilities and reinsurance assets (continued)
Notes to the financial statements
226
227
Parent
Claims outstanding
At 1 January 2018
Cash (paid)/received for claims settled in the year
Change in liabilities/reinsurance assets
- arising from current year claims
- arising from prior year claims
- change in discount rate
Exchange differences
At 31 December 2018
Provision for unearned premiums
At 1 January 2018
Increase in the period
Release in the period
Exchange differences
At 31 December 2018
Claims outstanding
At 1 January 2017
Cash (paid)/received for claims settled in the year
Change in liabilities/reinsurance assets
- arising from current year claims
- arising from prior year claims
- change in discount rate
Exchange differences
At 31 December 2017
Provision for unearned premiums
At 1 January 2017
Increase in the period
Release in the period
Exchange differences
At 31 December 2017
Gross
£000
Reinsurance
£000
Net
£000
29 Provisions for other liabilities and contingent liabilities
421,397
(127,136)
142,769
(49,131)
(5,156)
(1,112)
381,631
141,707
149,959
(141,187)
(671)
149,808
451,199
(127,491)
130,199
(33,467)
1,793
(836)
421,397
134,646
141,789
(134,302)
(426)
141,707
(67,600)
30,240
(35,207)
18,014
-
196
(54,357)
(42,525)
(45,887)
42,462
69
(45,881)
(81,083)
34,240
(31,343)
10,168
-
418
(67,600)
(38,877)
(42,523)
38,852
23
(42,525)
353,797
(96,896)
107,562
(31,117)
(5,156)
(916)
327,274
99,182
104,072
(98,725)
(602)
103,927
370,116
(93,251)
98,856
(23,299)
1,793
(418)
353,797
95,769
99,266
(95,450)
(403)
99,182
Group
At 1 January 2018
Acquisitions
Additional provisions
Used during year
Not utilised
Exchange differences
At 31 December 2018
Current
Non-current
Parent
At 1 January 2018
Additional provisions
Used during year
Not utilised
At 31 December 2018
Current
Non-current
Regulatory
and legal
provisions
£000
Contingent
consideration
£000
Other
provisions
£000
3,929
-
3,569
(3,625)
(502)
-
3,371
2,873
498
3,929
3,569
(3,625)
(502)
3,371
2,873
498
-
67
-
-
(4)
-
63
36
27
-
-
-
-
-
-
-
1,670
-
115
-
-
(3)
1,782
7
1,775
1,583
105
-
-
1,688
-
1,688
Total
£000
5,599
67
3,684
(3,625)
(506)
(3)
5,216
2,916
2,300
5,512
3,674
(3,625)
(502)
5,059
2,873
2,186
Regulatory and legal provisions
The Group operates in the financial services industry and is subject to regulatory requirements in the normal course of business, including
contributing towards any levies raised on UK general and life business. The provisions reflect an assessment by the Group of its share of
the total potential levies.
In addition, from time to time the Group receives complaints from customers and, while the majority relate to cases where there has been
no customer detriment, we recognise that we have provided, and continue to provide, advice and services across a wide spectrum of
regulated activities. We therefore believe that it is prudent to hold a provision for the estimated costs of customer complaints relating to
services provided. The Group continues to reassess the ultimate level of complaints expected and the appropriateness of the provision,
which reflects the expected redress and associated administration costs that would be payable in relation to any complaints we may
uphold.
Regulatory and legal provisions
The provision for contingent consideration relates to the acquisition of certain assets of Equicover Limited as disclosed in note 16.
Other provisions
The provision for other costs relates to costs in respect of dilapidations.
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Notes to the financial statements
Notes to the financial statements
30 Deferred tax (continued)
228
229
30 Deferred tax
An analysis and reconciliation of the movement of the key components of the net deferred tax liability during the current and prior reporting
period is as follows:
Group
At 1 January 2017
Charged/(credited) to profit or loss
Charged to other comprehensive income
Exchange differences
At 31 December 2017
Credited to profit or loss
Charged to other comprehensive income
Exchange differences
At 31 December 2018
Parent
At 1 January 2017
Charged/(credited) to profit or loss
(Credited)/charged to other comprehensive income
Exchange differences
At 31 December 2017
Credited to profit or loss
Charged to other comprehensive income
Exchange differences
At 31 December 2018
Unrealised
gains on
investments
£000
Net
retirement
benefit
assets
£000
Equalisation
reserve
£000
Other
differences
£000
30,458
3,336
-
2
33,796
(6,244)
-
14
27,566
29,693
3,115
-
-
32,808
(5,534)
-
-
27,274
(5,505)
(507)
7,559
-
1,547
(523)
729
-
1,753
(5,503)
(507)
7,559
-
1,549
(523)
729
-
1,755
3,784
(790)
-
-
2,994
(790)
-
-
2,204
3,784
(790)
-
-
2,994
(790)
-
-
2,204
(2,074)
293
97
1
(1,683)
(66)
95
47
(1,607)
(173)
(95)
97
(16)
(187)
(53)
95
(18)
(163)
Total
£000
26,663
2,332
7,656
3
36,654
(7,623)
824
61
29,916
27,801
1,723
7,656
(16)
37,164
(6,900)
824
(18)
31,070
The 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.
Certain deferred tax assets and liabilities have been offset where the Group has a legally enforceable right to do so. The following is the
analysis of the deferred tax balances (after offset) for financial reporting purposes:
Deferred tax liabilities
Deferred tax assets
Current
Non-current
2018
2017
Group
£000
31,665
(1,749)
29,916
1,641
28,275
Parent
£000
31,070
-
31,070
3,390
27,680
Group
£000
38,375
(1,721)
36,654
(974)
37,628
Parent
£000
37,164
-
37,164
790
36,374
The Group has unused tax losses of £15,832,000 (2017: £16,952,000) 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 in respect of
these losses due to the unpredictability of future profit streams.
31 Other liabilities
Creditors arising out of direct insurance operations
Creditors arising out of reinsurance operations
Derivative liabilities
Creditors arising from broking activities
Other creditors
Amounts owed to related parties
Accruals
Current
Non-current
2018
2017
Group
£000
1,183
23,764
2,306
3,992
15,816
4
24,854
71,919
71,560
359
Parent
£000
416
15,351
2,306
-
9,738
54
19,390
47,255
47,255
-
Group
£000
1,693
20,662
-
4,733
16,318
7
23,450
66,863
66,533
330
Parent
£000
794
10,874
-
-
8,901
83
18,659
39,311
39,311
-
Derivative liabilities are in respect of equity futures contracts and are detailed in note 23.
Deferred income of the Group and Parent is a current liability in both the current and prior year.
32 Commitments
Capital commitments
At the year end, the Group and Parent had capital commitments of £8,712,000 relating to computer software (2017: £nil) and £1,207,000
relating to furniture, fittings and equipment (2017: £nil).
Operating lease commitments
Amounts receivable
The Group leases premises under non-cancellable operating lease agreements. The future aggregate minimum lease rentals receivable are
as follows:
Within 1 year
Between 1 & 5 years
After 5 years
2018
2017
Group
£000
8,000
25,914
32,478
66,392
Parent
£000
8,000
25,914
32,478
66,392
Group
£000
7,764
26,860
37,799
72,423
Parent
£000
7,764
26,860
37,799
72,423
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Notes to the financial statements
32 Commitments (continued)
Notes to the financial statements
230
231
Amounts payable
The Group leases premises and equipment under non-cancellable operating lease agreements. The future aggregate minimum lease
payments are as follows:
Within 1 year
Between 1 & 5 years
After 5 years
2018
2017
Group
£000
3,430
10,743
5,432
19,605
Parent
£000
2,715
8,929
4,587
16,231
Group
£000
3,605
11,368
3,010
17,983
Parent
£000
2,452
8,508
2,510
13,470
Operating lease rentals charged to profit or loss during the year
3,428
2,201
3,440
2,280
Total future minimum sublease payments expected to be received under
non-cancellable subleases
506
506
-
-
33 Related undertakings
Ultimate parent company and controlling party
The Company is a wholly-owned subsidiary of Ecclesiastical Insurance Group plc. Its ultimate parent and controlling company is
Allchurches Trust Limited. Both companies are incorporated and operate in the United Kingdom and copies of their financial statements
are available from the registered office as shown on page 236. 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.
Related undertakings
The Company's interest in related undertakings at 31 December 2018 is as follows:
Company
Subsidiary undertakings
Incorporated in the United Kingdom
Company
Registration Share
Number
Capital
Holding of shares by
Company Group Activity
Ecclesiastical Financial Advisory Services Limited *
Ecclesiastical Life Limited *
EdenTree Investment Management Limited *
E.I.O. Trustees Limited * ^
Ecclesiastical Group Healthcare Trustees Limited *
South Essex Insurance Brokers Limited *
South Essex Insurance Holdings Limited *
2046087
0243111
2519319
0941199
10988127
6317314
6317313
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Incorporated in Australia
Ansvar Insurance Limited **
Ansvar Risk Management Services Pty Limited**
Ansvar Insurance Services Pty Limited ** †
007216506 Ordinary
623695054 Ordinary
162612286 Ordinary
100%
100%
100%
100%
100%
-
100%
100%
100%
-
-
-
-
-
-
Independent financial advisory
Life insurance
Investment management
Trustee company
Trustee company
100% Insurance agents and brokers
-
-
-
Investment holding company
Insurance
Risk management services
100% Dormant company
Registered office: Beaufort House, Brunswick Road, Gloucester, GL1 1JZ, United Kingdom
*
** Registered office: Level 5, Southbank Boulevard, Melbourne, VIC 3006, Australia
^ Exempt from audit under s480 of the Companies Act 2006
† Exempt from audit
34 Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not
included in the Group analysis, but are included within the Parent analysis below.
Ecclesiastical Insurance Group plc is the Group and Parent's immediate parent company. Other related parties, of both Group and Parent,
include subsidiary undertakings of Ecclesiastical Insurance Group plc, the ultimate parent undertaking and the Group's pension plans.
2018
Group
Trading, investment and other income, including recharges, and amounts received
Trading, investment and other expenditure, including recharges, and amounts paid
Amounts owed by related parties
Amounts owed to related parties
Parent
Trading, investment and other income, including recharges, and amounts received
Trading, investment and other expenditure, including recharges, and amounts paid
Amounts owed by related parties
Amounts owed to related parties
2017 (restated)
Group
Trading, investment and other income, including recharges, and amounts received
Trading, investment and other expenditure, including recharges, and amounts paid
Amounts owed by related parties
Amounts owed to related parties
Parent
Trading, investment and other income, including recharges, and amounts received
Trading, investment and other expenditure, including recharges, and amounts paid
Amounts owed by related parties
Amounts owed to related parties
Ecclesiastical
Insurance
Group plc Subsidiaries
£000
£000
368
259
29,562
-
368
259
29,562
-
273
6,229
29,458
-
273
6,229
29,458
-
-
-
-
-
5,751
3,685
4,609
2,249
-
-
-
-
4,036
3,701
5,001
2,379
Other
related
parties
£000
1,736
2,033
1,157
61,276
498
872
1,140
1
1,683
2,930
246
64,923
434
809
244
1
During the year, the Company received premiums, commission and reinsurance recoveries via a related party insurance agency amounting
to £187,000 (2017: £1,919,000) and paid reinsurance protection, commission and claims amounting to £340,000 (2017: £2,148,000).
The prior year has been restated to better reflect balances and transactions with related parties.
Amounts owed to related parties by the Group and by the Parent include insurance liabilities which are included in note 28.
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.
The remuneration of the directors is disclosed in the Group Remuneration Report in the Corporate Governance section of this report. The
remuneration of the key management personnel of the Group is disclosed in note 13.
Charitable grants paid to the Group's ultimate Parent undertaking are disclosed in note 15. Contributions paid to and amounts received
from the Group's defined benefits schemes are disclosed in note 19.
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information
Notes to the financial statements
Notes to the financial statements
35 Reconciliation of Alternative Performance Measures (continued)
232
233
2017
Inv'mnt
return
Inv'mnt
mngt
Broking
and
Advisory
Corporate
costs
Total
£000
£000
£000
£000
£000
Insurance
General
£000
Life
£000
342,889
(129,387)
(6,318)
207,184
28
-
-
28
-
-
-
-
-
-
-
-
-
-
-
-
40,551
1,935
-
249,670
-
-
2,739
2,767
-
-
68,839
68,839
11,686
-
(41)
11,645
8,627
-
757
9,384
-
-
-
-
-
-
-
-
342,917
(129,387)
(6,318)
207,212
60,864
1,935
72,294
342,305
(117,910)
32,196
(64,619)
(72,271)
(222,604)
(2,003)
-
(16)
(374)
(2,393)
-
-
-
(3,204)
(3,204)
27,066
(96)
26,970
374
-
374
65,635
-
65,635
-
-
(982)
(8,946)
(9,928)
1,717
-
1,717
-
-
464
(7,565)
(7,101)
2,283
-
2,283
-
-
-
(14,783)
(14,783)
(119,913)
32,196
(65,153)
(107,143)
(260,013)
[5]
(14,783)
-
(14,783)
82,292
(96)
82,196
Group
Revenue
Gross written premiums
Outward reinsurance premiums
Net change in provision for unearned premiums
Net earned premiums
Fee and commission income
Other operating income
Net investment return
Total revenue
Expenses
Claims and change in insurance liabilities
Reinsurance recoveries
Fees, commissions and other acquisition costs
Other operating and administrative expenses
Total operating expenses
Operating profit
Finance costs
Profit before tax
Underwriting profit
Combined operating ratio
[1]
[2]
[3]
[4]
[6]
[6]
27,066
86.9%
Net expenses ( = [2] + [3] + [4] + [5] )
[7]
(111,122)
Net expense ratio
54%
35 Reconciliation of Alternative Performance Measures
The Group uses alternative performance measures (APM) in addition to the figures which are prepared in accordance with IFRS. The
financial measures included in our key performance indicators are set out on page 50: regulatory capital, combined operating ratio (COR),
net expense ratio (NER) and net inflows are APM. These measures are commonly used in the industries we operate in and we believe
provide useful information and enhance the understanding of our results.
Users of the accounts should be aware that similarly titled APM reported by other companies may be calculated differently. For that reason,
the comparability of APM across companies might be limited.
In line with the European Securities and Markets Authority guidelines, we provide a reconciliation of the COR and NER to its most directly
reconcilable line item in the financial statements. Regulatory capital and net inflows to funds managed by Ecclesiastical Insurance Office
plc's subsidiary, EdenTree Investment Management Limited, do not have an IFRS equivalent. Net inflows are the difference between the
funds invested (gross inflows) less funds withdrawn (redemptions) made during the year by third parties in a range of funds EdenTree
Investment Management Limited offers. Regulatory capital is covered in more detail in note 4(i).
Group
Revenue
Gross written premiums
Outward reinsurance premiums
Net change in provision for unearned premiums
Net earned premiums
Fee and commission income
Other operating income
Net investment return
Total revenue
Expenses
Claims and change in insurance liabilities
Reinsurance recoveries
Fees, commissions and other acquisition costs
Other operating and administrative expenses
Total operating expenses
Operating profit
Finance costs
Profit before tax
Underwriting profit
Combined operating ratio
[1]
[2]
[3]
[4]
[6]
2018
Inv'mnt
return
Inv'mnt
mngt
Broking
and
Advisory
Corporate
costs
Total
£000
£000
£000
£000
£000
Insurance
General
£000
Life
£000
356,950
(137,640)
(5,241)
214,069
21
-
-
21
-
-
-
-
-
-
-
-
-
-
-
-
41,346
1,039
-
256,454
-
-
1,573
1,594
-
-
1,600
1,600
12,601
-
13
12,614
9,049
-
808
9,857
-
-
-
-
-
-
-
-
356,971
(137,640)
(5,241)
214,090
62,996
1,039
3,994
282,119
(112,222)
26,188
(65,687)
(75,543)
(227,264)
349
-
(15)
(286)
48
29,190
(329)
28,861
1,642
-
1,642
-
-
-
(2,889)
(2,889)
(1,289)
-
(1,289)
-
-
(943)
(10,730)
(11,673)
941
-
941
-
-
299
(8,111)
(7,812)
2,045
-
2,045
-
-
-
(16,829)
(16,829)
(111,873)
26,188
(66,346)
(114,388)
(266,419)
[5]
(16,829)
-
(16,829)
15,700
(329)
15,371
[6]
29,190
86.4%
Net expenses ( = [2] + [3] + [4] + [5] )
[7]
(116,713)
Net expense ratio
55%
The underwriting profit of the Group is defined as the operating profit of the general insurance business.
The Group uses the industry standard net COR as a measure of underwriting efficiency. The COR expresses the total of net claims costs,
commission and underwriting expenses as a percentage of net earned premiums. It is calculated as ( [1] - [6] ) / [1] ).
The NER expresses total underwriting and corporate expenses as a proportion of net earned premiums. It is calculated as
- [7] / [1].
Section FourEcclesiastical Annual Report & Accounts 2018Financial StatementsSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information 234
235
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
236
238
239
240
241
242
Section FiveEcclesiastical Annual Report & Accounts 2018Other InformationSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Section Five
Other Information
236
236
Ecclesiastical Annual Report & Accounts 2018
237
237
Directors, executive management and company information
Directors, executive management and company information
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
T. J. Carroll BA, MBA, FCII
R. D. C. Henderson FCA
M. C. J. Hews BSc (Hons), FIA Group Chief Executive
A. J. McIntyre MA, ACA, FRCO
C. J. G Moulder MA, FCA
*
*
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. Cockrem, MA, FCA Group Chief Financial Officer
M. C. J. Hews BSc (Hons), FIA Group Chief Executive
N. M. Louth-Davies MA
D. R. Moore BA (Hons), MBA
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
Section FiveEcclesiastical Annual Report & Accounts 2018Other InformationSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information United Kingdom regional centres
United Kingdom business division and international branches
238
239
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:
R. Lane TD, BA, FCII, MCMI, MCGI
Ansvar House
31 St. Leonards Road
Eastbourne, East Sussex BN21 3UR
0345 60 20 999
S. J. Whyte MC Inst M, ACII
2200-100 Wellington St W, TD West Tower
P.O. Box 307
Toronto, Ontario M5K 1K2
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
2200-100 Wellington St W, TD West Tower
P.O. Box 307
Toronto, Ontario M5K 1K2
Ireland Branch
Managing Director:
Office:
D. G. Lane B.Comm (Hons), Certified Insurance Director
2nd Floor, Block F2
Eastpoint
Dublin 3, DO3 T6P8
Section FiveEcclesiastical Annual Report & Accounts 2018Other InformationSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information 240
241
Insurance subsidiaries and agencies
Notice of meeting
Ansvar Insurance Limited
Chief Executive Officer:
Head Office:
W. R. Hutcheon MBA, GAICD, Fellow ANZIIF (CIP)
Level 5
1 Southbank Boulevard
Southbank
Melbourne VIC 3006
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, 13th June 2019 at 12:35pm for the following purposes:
Ordinary business
Ecclesiastical Life Limited
Head Office:
Ecclesiastical Underwriting
Management Limited
South Essex Insurance
Brokers Limited
Office:
Director:
Office:
Tel:
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
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
To receive the Report of the Directors and Accounts for the year ended 31st December 2018 and the report of the
auditors thereon.
To re-elect Mr T. J. Carroll as a director.*
To re-elect Mr R. D. C. Henderson as a director.*
To re-elect Mr M. C. J. Hews as a director.*
To re-elect Mr A. J. McIntyre as a director.*
To re-elect Mr C. J. G. Moulder 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 elect Mr F. X. Boisseau as a director.
To elect Mr A. Winther 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
19th March 2019
* Brief biographies of the directors seeking re-election are shown on pages 92 to 94 of the 2018 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.
Section FiveEcclesiastical Annual Report & Accounts 2018Other InformationSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Notes
242
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Section FiveOther InformationSection OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information Annual Report & Accounts 2018
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.
Section OneAbout UsSection TwoStrategic ReportSection ThreeGovernanceSection FourFinancial StatementsSection FiveOther Information