Ecclesiastical Insurance Office plc
Annual Report and Accounts 2023
Registration number: 00024869
Ecclesiastical Insurance Office plc
Table of Contents
Page
Contents
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Directors and Company Information
Strategic Report
Governance
Independent Auditors’ Report
Consolidated Statement of Profit or Loss
Consolidated and Parent Statements of Comprehensive Income
Consolidated and Parent Statements of Changes in Equity
Consolidated and Parent Statements of Financial Position
Consolidated and Parent Statements of Cash Flows
Notes to the Financial Statements
Ecclesiastical Insurance Office plc
Directors and Company Information
Directors
*R. D. C. Henderson FCA Chair
*R. Bajaj MA
*F. X. Boisseau MSc
D. P. Cockrem, MA, FCA Group Chief Financial Officer
M. C. J. Hews BSc (Hons), FIA Group Chief Executive
*Sir S. M. J. Lamport GCVO, DL
*N. P. Maidment MA, FCII
*C. J. G. Moulder MA, FCA Senior Independent Director
S. J. Whyte MC Inst. M, ACII Deputy Group Chief Executive
*A. Winther BA
Company Secretary
Mrs R. J. Hall FCG
Independent Auditors
Registered and Head Office
PricewaterhouseCoopers LLP
2 Glass Wharf
Temple Quay
Bristol
BS2 0FR
United Kingdom
Benefact House
2000 Pioneer Avenue
Gloucester Business Park
Brockworth
Gloucester
GL3 4AW
United Kingdom
Company Registration Number
00024869
Registrar
Computershare Investor Services plc
The Pavilions
Bristol
BS13 8AE
*Non-Executive Director
11 Ecclesiastical Insurance Office plc
Strategic Report
The directors present their strategic report for the year ended 31 December 2023 for the Ecclesiastical Insurance Office plc, together with its subsidiaries
the Ecclesiastical Group, also the Group.
Group Chief Executive’s Review
It has been said that there are two key dates in your life. “The date you were born, and the date you find out why”.
Here at Ecclesiastical Insurance, we are crystal clear on our “why”. We aim to be a beacon of hope for our communities. The Ecclesiastical Insurance Group
is part of Benefact Group. Owned by a charity, Benefact Group is a family of financial services businesses with an inspiring purpose to contribute to the
greater good of society. We believe commercial success and social good can sit side by side to transform lives and communities. Guided by this purpose,
we are driven to profitably grow the business, so that we may give even more to good causes.
2023 was another challenging year for so many. The world faced a myriad of challenges from rising global tensions, escalating climate concerns and
ongoing economic hardship. In these difficult, uncertain times, when it is easy for optimism to be drowned beneath a deluge of negative news, it is even
more important that businesses do the right thing and positively contribute to society.
Grow more to give more
Despite challenging conditions, we delivered a strong performance in 2023 and we are on track to double our contribution, which will allow us to give
even more to good causes. As a Group, we reported a profit before tax of £44.8m which compares well with the overall Group loss before tax of £15.6m
reported for the prior year.
In General Insurance, we reported an underwriting profit of £24.5m, despite our biggest single loss in the UK with the devastating fire at St Mark’s Church
in London. This result has benefited from strong growth and lower-than-expected claims in the latter part of the year. Gross written premiums (GWP) rose
by over 10% to £615.0m. This is thanks to strong retention across our territories and record new business in the UK as we launched into the Leisure sector.
Our combined operating ratio rose to 92.6% due to headwinds from prior year claims.
Delivering for our customers
Our charitable purpose drives our values, culture, ethics and ethos and inspires us to make a real difference for our brokers, customers, and communities.
This was reflected in multiple award wins in 2023, which recognised our businesses as trusted specialists in their markets.
Ecclesiastical UK was named Specialist Insurance Company of the Year at the British Insurance Awards and retained its top spot in the Fairer Finance
Home Insurance league table and remains the UK’s most trusted home insurance provider. Ecclesiastical Canada was named as P&C Insurance Company
of the Year, as well as one of Greater Toronto’s Top Employers.
Our insurance customers tell us that our expert service and our compassion makes us stand out in the industry. For a third year, independent research
consultancy, Gracechurch, put Ecclesiastical UK ahead of all other UK insurers for claims service. The Net Promoter Score, which measures how likely a
customer is to recommend a company’s products and services, for Ecclesiastical puts us ahead of many well-known and respected brands.
We wouldn’t be able to deliver these results without the hard work of all our teams across the whole Benefact Group. We delivered so much together in
2023 and I would like to thank our colleagues for their efforts last year.
Helping to transform lives
In 2023, thanks to the support of our customers, brokers, business partners and colleagues, Benefact Group reached the milestone of giving more than
£200m to good causes since 2014. This level of giving means that Benefact Group is the third largest corporate donor to charity in the UK, and we are on
track to achieve our ambition of giving £250m by the end of 2025.
Our ultimate charitable parent company, Benefact Trust, is one of the biggest grant-making charities in the UK, and the Board approved a donation of £21m
to them in respect of the Group’s 2023 performance, of which £13m was paid in year and the remaining £8m to be paid in due course, to support its work
providing transformative funding to charities both in the UK and abroad. We thank them for their outstanding work.
The impact of our giving is brought home to me every time I meet one of our beneficiaries and see the change we’re making to lives. On a recent trip to
Canada, I visited a youth homeless charity called Covenant House, where 16-24 year olds had no place to call home, no regular meals, no warmth or
feeling of safety. They had no one that loved or cared for them – other than the remarkable staff at this amazing charity. On this visit I heard words from
their director that will stay with me forever. She told us that, “because of your donation, you have undoubtedly saved someone's life today". Her words
left no room for doubt, and her emotions mirrored the enormity of this impact.
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Strategic Report
Covenant House is just one of over 10,000 charities supported by us as Benefact Group across the world. Thank you to everyone that does business with
us. I hope you realise the impact you have – not just transforming lives but saving lives.
Building a world class team
Our ambition is to build a world-class team and I’m delighted that we continue to achieve market-leading employee engagement scores in our
independently run B-heard surveys. I’m proud that Ecclesiastical UK was recognised as a world-class employer and during 2023, was named by Best
Companies as “UK Insurance’s Number 1 Company to Work For” in their independent league tables.
This shows we’re making good progress, and we remain focused and committed to building an inclusive culture where each and every colleague feels
valued, respected and treated fairly. In short, we aim to provide life changing careers that change lives.
Looking ahead
After a strong 2023, we move into 2024 with renewed ambition and drive to grow the business so we can give even more to good causes. We will continue
to invest in our capabilities so that we can strengthen our position as a trusted specialist in our markets, and drive forward our growth plans, through new
segments, new methods of distribution and greater efficiency.
We’ve set stretching targets for our General Insurance teams to achieve profitable gross written premium growth across our territories. It’s an exciting
year for Ansvar Insurance, which has moved into new offices in Brighton, and we will be reinvigorating the brand.
Join our movement for good
Everything we do at Ecclesiastical Insurance is aimed at helping those in society who need us most. Our giving has helped transform thousands of lives
and communities, and the impact of our work inspires us to do even more in the future.
On behalf of the Board and thousands of our beneficiaries, we say a heartfelt, sincere “thank you” to all our customers, business partners and dedicated
colleagues for their exceptional support.
As we build momentum for our movement for good, I invite anyone reading this, whether as a potential colleague, customer or business partner, to come
and join us and experience a different way of doing business. Together, with your support, we can grow our giving and transform lives for the better.
Principal risks and uncertainties
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
Underwriting risk
The risk of failure to price insurance
products adequately and failure to
establish appropriate underwriting
disciplines. The premium charged must
be appropriate for the nature of the
cover provided and the risk presented
to the Group. Disciplined underwriting is
vital to ensure that only business within
the Company’s risk appetite and desired
niches is written.
Change from last year
There have not been material changes to this risk
during the year.
Key mitigants
• A robust pricing process is in place
• The underwriting licencing process has been
refreshed
• A documented underwriting strategy and risk
appetite is in place together with standards and
guidance and monitored by SBUs
• This is supported by formally documented
authority levels for all underwriters which must
be adhered to. Local checking procedures ensure
compliance
• 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
• A portfolio management framework is in place
to ensure clear understanding and allow
targeted actions to be taken
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Strategic Report
Risk detail
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.
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.
Key mitigants
• Claims development and reserving levels are
closely monitored by the Group Reserving team
• For statutory and financial reporting purposes,
uncertainty 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 Chief Actuary
following review by the GI Reserving Executive
Meeting.
• An independent review is also conducted by the
Group Investments Life and Actuarial Risk
Director with reporting to the Board.
• Modelling and exposure is undertaken to
understand the risk profile and inform the
purchase of reinsurance
• There is a comprehensive reinsurance
programme in place to protect against extreme
events. All placements are reviewed and
approved by the Group Reinsurance Board
• Exposure monitoring is undertaken on a regular
basis
• A GI Catastrophe Risk Meeting provides
oversight and sign off of reinsurance modelling
and exposure management across the Group
• The Group Risk Appetite specifies the
reinsurance purchase levels and retention levels
for such events.
• Local risk appetite limits have been established
to manage concentrations of risk and these are
monitored by SBUs
• We take a long-term view of reinsurance
relationships to deliver sustainable capacity
• A well-diversified panel of reinsurers is
maintained for each element of the programme
• A GI Reinsurance Executive Meeting approves
all strategic reinsurance decisions
Change from last year
This risk is not considered to have changed
materially during the year. A rise in numbers of
Physical and sexual abuse claims in the UK business
over the past year has led to an increase in reserves.
There have been no material changes to this risk,
however a single extreme event did occur in the
year, with a catastrophic church fire. We continue to
monitor our aggregations and exposures to such
events and ensure careful management utilising
appropriate protections.
The level of this risk has remained broadly similar
since last year, when the environment became more
challenging, initially from the Pandemic, and then
into global catastrophic events and continued
economic volatility. This has continued to tighten the
criteria and capacity in certain areas. We continue to
take a long-term approach to our reinsurance
relationships.
Other financial risks
The risk that proceeds from financial assets are not sufficient to fund the obligations arising from insurance contracts.
Change from last year
Risk detail
Overall the market risk profile has not materially
Market and investment risk
changed and we remain invested for the long term.
The risk of adverse movements in net
We continue to monitor market conditions and the
asset values arising from a change in
socio-political environment.
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.
Key mitigants
• An investment strategy is in place which is
reviewed at least 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 Oversight Meeting is
in place and provides oversight and challenge of
these risks and the agreed actions. There is a
formalised escalation process to the Group
Management Board and F&I in place
• There are risk appetite metrics in place which
are agreed by the Board and include limits on
asset / liability matching and the management of
investment assets
• Derivative instruments are used to hedge
elements of market risk, notably currency. Their
use is monitored to ensure effective
The Group’s balance sheet is also
exposed to market risk within the
defined benefit pension fund.
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Strategic Report
Risk detail
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.
Key mitigants
management of risk
• There is tracking of risk metrics to provide early
warning indicators of changes in the market
environment
The Pension Scheme Trustee Board has an
Investment Committee that oversees the market
risks in the pension fund. The company, as
employer sponsor of the fund maintains regular
communication with this committee.
Further information on this risk is given in note 4
to the financial statements on page 75.
• Strict ratings criteria are in place for the
reinsurers that we contract with and a GI
Reinsurance Security Executive Meeting
approves all of our reinsurance partners
• Group Reinsurance monitors the market to
identify changes in the credit standing of
reinsurers
• There are risk appetite limits in place in respect
of reinsurance counterparties which are agreed
by the Board
• Strong credit control processes are in place to
manage broker and policyholder exposures
Change from last year
The level of this risk has remained broadly similar to
the previous year where we were cognisant to the
continuing challenges of the current cost of living
crisis.
There have been no material changes to this risk
since last year.
Further information on this risk is given in note 4
to the financial statements on page 75.
• The Group holds a high proportion of assets in
readily realisable investments to ensure it could
respond to such a scenario
• Maintains cash balances that are spread over
several banks
• Arrangements within its 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.
Climate change
The financial risks arising through
climate change.
The key impacts for the Company are
physical risks (event driven or longer
term shifts), the transition risks of
moving towards a lower carbon
economy and liability risks associated
with the potential for litigation arising
from an inadequate response.
Operational risk
The risk of loss arising from inadequate or failed internal processes, people and systems, or from external events
Risk detail
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.
Key mitigants
• A defined IT strategy is in place
• 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 tested according to risk
appetite
• Catastrophe risk is managed through
reinsurance models
• The Group considers flood risk and other
weather-related risk factors in insurance risk
selection
• There is an ESG overlay on the investment
strategy
• The Group actively manages exposures and is
up to date on market development
Whilst there is now more awareness of the
challenges faced as a result of climate change, there
have been no material changes to this risk since last
year. A programme of work continues to fully
analyse the impact on the Group and to develop
appropriate risk management responses.
Change from last year
This level of risk remains stable, as the Group
continues to invest in IT infrastructure to maintain
and improve future stability
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Strategic Report
Risk detail
Cyber risk
The risk of criminal or unauthorised use
of electronic information, either
belonging to the Group or its
stakeholders for example customers,
employees etc. cyber security threats
from malicious parties continue to
increase 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 three themes, support
and protect, innovate and grow and
transform and thrive. These include 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 disruption to business as
usual, or delays to planned benefits.
Operational resilience
The risk that the Group does not
prevent, respond to, recover and learn
from operational disruptions.
The Group provides a wide range of
services to a diverse customer base and
has a reputation for delivering excellent
service. Therefore, we seek to minimise
the potential for any such disruption
that would impact on the service
provided to our customers.
Data management and governance
The risk that the confidentiality,
integrity and/or availability of data held
across the Group is compromised, or
data is misused. The Group holds
significant amounts of customer and
financial data and there could be
significant implications if this is
compromised or is found to be
inaccurate.
Key mitigants
• 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
• There is an ongoing information security
training and awareness programme
• The Group has a clearly articulated strategic
programme, identifying areas of priority across
the Group
• Ensures that there is adequate resourcing for
change projects using internal and external skills
where appropriate
• A Change Board and change governance
processes are in place and operate on an
ongoing basis
• The Group Management Board undertakes
close monitoring and oversight of the delivery of
the strategic initiatives and key Group change
programmes
• A recovery and resilience framework is in place
aligned to the delivery of customer services
• Recovery exercises including IT systems are
regularly performed across the company with
actions identified addressed within an agreed
timescale
• All suppliers are subject to ongoing due
diligence
• There is ongoing maintenance and monitoring
of our systems and infrastructure in order to
prevent and detect issues
• A Group Data Governance Committee is in place
• Group data governance and Group data
management and information security policies
are in place
• A Group data optimisation programme is in
place which is responsible for ensuring the
delivery of the data strategy and all aspects
relating to the governance, management, use
and control of the Group’s data in line with
regulatory requirements
Change from last year
Cyber risk remains a constantly evolving threat, with
malicious threat attackers continuing to seek to
exploit businesses. Employee awareness and
vigilance is therefore highly important at this time,
which is continuing to be proactively managed.
The level of this risk has not materially changed.
There continues to be a significant volume of change
within the business, which is monitored closely,
relating to both IT systems and to meet the ever-
changing regulatory landscape.
Appropriate strengthening of expertise has
continued in the year to reflect and meet this volume
of change.
Operational resilience continues to have been
successfully tested during the year, with the
continued need to meet the needs of our customers.
Focus continues from the prior year on meeting the
enhanced regulatory requirements around
resilience.
Enhancements continue to be made to the
governance, management, use and control of data, in
order to meet the evolving requirements. It continues
to be monitored and managed within the context of
major change programmes.
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
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.
Key mitigants
• Undertakes 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
Change from last year
There continues to be a significant volume of
regulatory change. We remain focused on the
management of regulatory change and therefore the
overall risk level is unchanged.
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Strategic Report
Key mitigants
• There is ongoing colleagues 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
Risk detail
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.
Customers are placed at the centre of
the business, aiming to treat them fairly
and ethically, while safeguarding the
interests of all other key stakeholders.
Reputational risk
The risk that our actions lead to reputational damage in the eyes of customers, brokers or other key stakeholders
Risk detail
Brand and reputation risk
The Group aims to be the most trusted
specialist insurer and as a consequence
this brings with it high expectations
from all of our stakeholders, be they
consumers, regulators or the wider
industry.
Key mitigants
• There is ongoing training of core customer
facing colleagues to ensure high skill levels in
handling sensitive claims
• Adopts a values led approach to ensure
customer-centric outcomes
• There is a dedicated marketing and PR function
responsible for the implementation of the
marketing and communication strategy
• Ongoing monitoring of various media is in place
to ensure appropriate responses
Change from last year
The Group remains committed to placing customers
at the centre of our practices and decision making,
demonstrated by our wide-ranging industry awards
and customer satisfaction scores. Overall the level of
this risk is unchanged from the prior year, with the
main focus on meeting the Consumer Duty
requirements.
Change from last year
Maintaining a positive reputation is critical to the
Group’s vision of being the most trusted and ethical
specialist financial services group.
Risks to our brand and reputation are inherently high
in an increasingly interconnected environment, with
the risks of external threats such as cyber security
attacks, and viral campaigns through social media
always present.
The external environment continues to drive a high
inherent probability of reputational issues across all
financial services companies. We continued to focus
on serving our customers and ensuring fair
treatment and clear communication, and are proud of
the volume of Industry Awards we continue to win
Whilst we aim to consistently meet and
where possible exceed these
expectations, increasing consumer
awareness and increased regulatory
scrutiny across the sector exposes the
Group to an increased risk of
reputational damage should we fail to
meet them, for example as a
consequence of poor business practices
and behaviours
Responsible business
The Ecclesiastical Insurance Office Group is part of the wider Benefact Group. A Responsible Business Report containing a summary of positive social and
environmental impact is in the Benefact Group Annual Report and Accounts which is published on www.benfactgroup.com. It covers social impact including
approach to diversity, equity and inclusion, colleague wellbeing and charitable giving. It also summarises climate impact and is supported by a separate
report featuring disclosures in line with the Taskforce on Climate-related Financial Disclosures (TCFD), which is published on the Company’s website. A
separate report enables the Benefact Group to explain climate-related disclosures in much more detail for the benefit of an increasing range of interested
stakeholders.
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Ecclesiastical Insurance Office plc
Strategic Report
The following table provides details of the carbon associated with the direct operation of businesses that are part of the Ecclesiastical Insurance Office
Group, in line with the Streamlined Energy and Carbon Reporting (SECR) requirements.
Emissions source
2023
UK
Non-Uk
Total
UK
Non-UK
Total
2022
Scope 1 & 2
tCO₂/ employee
Scope 1 & 2
tCO₂/
employee
Scope 1: fuel, fluorinated gas losses and fuel
combustion in offices and company fleet
Scope 2: electricity and cooling in premises
(location based)1
Scope 2: Scope 2: electricity and cooling in
premises (market based)2
Scope 3: business travel3, waste, water use
Total CO2e (location based electricity)
142
7
149
696
84
780
97
75
172
439
678
568
650
1,007
1,328*
143
584
82
734
0.56*
959
23
92
92
217
332
166
676
174
951
1,291*
0.61*
tCO₂e is tonnes of CO₂ and equivalent gases.
* Scopes 1, 2 (market based) and scope 3
1 The average emissions intensity of grids on which energy consumption occurs (using mostly grid-average emission factor data)
2 Emissions based on how an organization buys its energy
3 Air, rail, bus, taxi, ferry, car rental and grey fleet
In 2023, total energy use is 4,153,784 kWh of which 3,962,931 kWh is UK and 190,853 kWh is non-UK based. In 2022, total energy use was 4,139,168
kWh, of which 3,775,241 kWh was UK and 363,927 kWh was non-UK based.
The Group’s s operational footprint comprises:
•
•
•
Scope 1 emissions (fluorinated gas losses and fuel combustion in premises and company vehicles)
Scope 2 emissions (premises electricity and cooling)
Scope 3 emissions (business travel, waste, water and commuting).
Methodology
These emissions are measured and reported according to GHG protocols, to Streamlined Energy and Carbon Reporting (SECR) standards. The Group has
reported on all emission sources required under the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report)
Regulations 2018. Its GHG reporting year runs from September 2022 to August 2023. The emissions reporting boundary is defined as all entities and
facilities either owned by or under operational control of the Benefact Group. That is, emissions relating to the Group’s premises and associated travel by
employees based at those premises. Its data represents 90% of our Group by headcount. We strive to continue improving the coverage and quality of data
which informs our report. Scopes 1, 2 and 3 emissions have been calculated using UK government greenhouse gas reporting emission factors (Department
for Environment, Food and Rural Affairs), and independently verified according to ISO – 14064-3:2019 Specifications with Guidance for the Validation and
Verification of Greenhouse Gas Statements.
Colleagues
In 2023 the Benefact brand celebrated its one-year anniversary. The brand continues to be a powerful way to unite colleagues across a specialist group
of financial services businesses focused on growth and sustainable success in service of generating profits to give to good causes.
Engagement and wellbeing
A healthy and engaged global team of colleagues is the cornerstone of the Group’s success, so a range of support continued to be a high priority in 2023.
The now well-established ‘healthy working check-in’ ensured feedback was gathered from colleagues now working flexibly at home, in other work
settings and in fantastic offices the Group continues to invest in. 71% percent of colleagues said they felt healthy or very healthy at work and 75% said
they knew what mental health resources are available to them, and of those that had used them 80% said they met their needs.
A new private medical offering for menopause, fertility, men’s health and neurodiversity support was launched alongside a new ‘Smart Health’ app
enabling direct access to private GP appointments. A formal network of mental health first aiders was also publicised to give trusted colleagues to connect
with.
Independent assessment of engagement levels was benchmarked through the B-Heard survey provided by Best Companies. With almost 2,000
responses the survey is now a well-established way to listen and celebrate. The Group overall continues to sustain a two-star ‘outstanding’ rating, plus
the UK and overseas businesses who have been responding to the survey since its inception improved by an impressive margin to achieve three-star
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Strategic Report
‘world class’ status. Team members celebrated this achievement at an awards event in London at which the Group was also recognised as one of the Top
50 best large companies to work for.
Diversity, equity and inclusion
The Group continues to be committed to diversity, equity and inclusion. In 2023 a group-wide inclusion network was established which now has over 30
members. The group is supporting specialist groups focusing on areas including LGBTQ+, women and colleagues from ethnically diverse backgrounds.
Communications and meetings throughout the year covered topics including Diwali, neurodiversity, motor neurone disease, Black History Month, PRIDE
and men’s health.
A number of key events brought people together, notably a women in leadership event hosted at the Benefact Group head office in Gloucester. It welcomed
80 attendees from local businesses and the community, featured a panel discussion and raised several thousand pounds for local charity The Nelson
Trust who work with vulnerable women.
Plans for 2024 include a women in leadership programme, a full review of attraction and recruitment practices and an inclusive leadership training
programme for all people leaders.
Our business model and strategy
Ecclesiastical Insurance is part of the Benefact Group, which is a diverse family of specialist financial services businesses, driven by a shared ambition to
do right by our customers, clients and business partners, and united by a common purpose to give all available profits to charity and good causes. This
sets the Ecclesiastical Group apart from others in the financial services sector. We exist to contribute to the greater good of society. We do this by managing
a successful, ethically run portfolio of businesses and by using the profits that these businesses generate to help good causes through independent grants
from our ultimate charitable owner (Benefact Trust) or via our own considerable donations. We're committed to doing the right thing for our customers
and to delivering growing donations to our owner so they can continue with their good work, helping to improve people's lives.
The Group’s overarching strategy brings alignment and strategic focus across the entire Group. Whether in specialist insurance, asset management,
broking or advisory, every business in the Benefact family is a specialist in their respective field, built on genuine insight and ethics. Together we offer
products and services that help protect in the present, pre-empt the possible and invest in a healthier financial future.
Non-Financial and sustainability information statement
The Non-Financial Reporting requirements contained in sections 414CA and 414CB of the Companies Act 2006 are addressed below. Non-financial and
Environmental, Social and Governance (ESG) information is integrated across the Strategic Report, in particular in the responsible business section
starting on page 7.
Disclosure
Section
Pages
Non-financial and sustainability
information
Business model
Our business model and information
on how we do business differently
Key performance indicators (KPIs) Our KPIs set out how we are doing
Principal risks
against our strategic goal
Our key risks and their management Strategic Report – Principal risks
Environmental, social matters,
colleagues, human rights,
financial crime and corruption
Statements of our policy and
practice in these areas
and uncertainties
Strategic Report - Primarily within
the responsible business section
and below.
Strategic Report – Our business
model and strategy
Strategic Report – Key performance
indicators
9
13
3
7
Our key policies / statements of intent
We have a range of policies and guidance in place to support the key outcomes for our stakeholders. These also ensure consistent governance on
environmental matters, our employees, social matters, human rights and anti-bribery and corruption.
Environmental matters
•
•
•
•
Climate risk has strong governance and oversight and is subject to effective and robust controls.
The Group is committed to running the business in a sustainable way to tackle climate change and encourage others to do more.
Performance is assessed against voluntary ClimateWise reporting which is aligned to Taskforce on Climate-related Financial Disclosures (TFCD)
reporting and independently audited.
The Group aims to reduce its direct impact on the environment and seeks to use renewable sources of energy.
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•
Other information on environmental matters is included within the responsible business section of the Strategic Report on page 7 and in a
separate TCFD report published on our website.
Colleagues
•
•
•
The Group’s Code of Conduct policy is centred on ‘Doing the right thing’ and sets the standards of conduct and behaviour expected from
employees.
The Board aims to ensure it is comprised of persons who are fit and proper to direct the business. The Board’s diversity policy sets out the
approach to diversity in the leadership population.
Other information on our commitments to supporting diversity and development is included in the ‘engagement and wellbeing’ section of the
responsible business section on page 7. Also included within the Corporate Governance Report on page 23 is information about the composition
and diversity of the Board.
Social matters
•
•
The Group was founded over 130 years ago with a charitable purpose and this remains what motivates us today. We believe business has a
social responsibility and should give more to support charities and communities. More information about how we support our communities can
be found in the responsible business section on page 7. The Group does not make political donations.
The Group’s tax strategy supports our group strategy and the ethical way we do business. We are committed to managing all aspects of tax
transparently and in accordance with current legislation. We work to achieve the spirit of legislation and not just the letter of the law in each
tax jurisdiction. Our tax strategy is available on the Company’s website.
Human rights, anti-bribery and anti-corruption
•
•
•
•
The Board is committed to operating with honesty and integrity in all of our business activities and promoting an anti-bribery and corruption
culture across the Group.
The Group has established and upholds good practices regarding human rights, anti-corruption and anti-bribery through a range of measures
including robust risk management, employee Code of Conduct and employee training on topics such as data protection and vulnerable
customers.
The Group complies with relevant legislation concerning supply chain – the Modern Slavery Act 2015 and the Payment Practices and
Performance regulations – to drive good practice and transparency.
The ‘socially positive’ section of our responsible business section contains more information including our commitment to putting customers
and partners at the heart of everything we do, focusing on good governance, service and support.
Section 172 Statement
The directors confirm that during 2023 and to the date of this Report, they have acted to promote the success of the Company for the benefit of its
members as a whole and considered the matters as set out in section 172(1)(a) to (f) of the Companies Act 2006. This section describes how the directors
have had regard to those matters when performing their duties.
Our approach to the long term success of the Company
The directors recognise that the long-term success of the Company, and therefore our ability to continue to help people, charities and good causes is
dependent on having regard to the interests of its stakeholders at its heart. In order to achieve our strategic ambitions the Board understands how
important it is to listen and and respond to the needs of our stakeholders.
As a global financial services Group driven by the ambition of transforming lives and communities, we are continually striving to do the right thing at all
times. However there are occasions where the needs of different stakeholder groups may not always be aligned. On these occasions, the Board attempts
to balance the conflicting interests and impacts of our stakeholders in their decision-making.
Our stakeholders
Customers
The Board considers that customers should be at the heart of everything
we do, putting their needs first, treating them fairly and ethically and
ensuring any actions or decisions demonstrate our passion for customers
and make us first choice for customers both today and in the future.
Colleagues
The Board recognises that colleagues are the Company’s greatest asset
given their specialist skills and knowledge and propensity to go above and
beyond.
What matters to them?
- Customer experience
- Fair pricing
- Specialist expertise and guidance
What matters to them?
- Culture and purpose
- Fair pay and reward
- Flexible working practices
- Making a positive impact on society
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- Products which represent fair value and are clear and easy to
understand
- Health and wellbeing
- A diverse, equitable and inclusive workplace
- Training, development and progression
Communities
The Board is committed to doing business differently and building a
movement for good across society, transforming lives and communities.
-
Shareholder and investors
The Board understands the need to maintain a close and open relationship with
shareholders and
investors characterised by transparency and mutual
understanding.
What matters to them?
- Charitable giving
- Health and safety
- Employment, economic and societal contribution
- Environmental impact of operations
What matters to them?
- Financial performance and returns
- Strategy and business model
- Environmental, social and governance (ESG) performance
- Reputation
- Strong leadership
Suppliers (including brokers)
The Board recognises the importance of the role that suppliers play in
ensuring a reliable service is delivered to customers and the need to
have a strong working relationship.
Regulators
The Board recognises the importance of open and honest dialogue with
regulators (including those in the UK, Australia, Canada and the Republic of
Ireland) and is committed to complying with applicable legislation and
regulation in order to maintain standards of business conduct.
What matters to them?
- Collaborative approach
- Open terms of business
- Fair payment terms
- Responsible supply chain
- Communication
What matters to them?
- Outcomes for customers
- Operational and financial resilience
- Openness and transparency
- Compliance with legislation and regulation
Stakeholder Engagement
Below is an overview of our approach to stakeholder engagement and outcomes.
Key stakeholders
Methods of engagement and outcomes
Customers
During the year, the Board received updates on customer matters via the Group Chief Executive’s Report and business
updates. The Board and the Group Remuneration Committee takes account of customer experience through regular reviews of
key measures such as Net Promoter scores and customer satisfaction.
The Consumer Duty continued to be a key area of focus for the Board throughout 2023.
The Group also has regular engagement with customers including conducting listening exercises, surveys, holding focus or
consultative groups, monitoring customer complaints and satisfaction data. Key outcomes are shared with the Board. Our
commitment to customers and clients is demonstrated by the tailored Customer Promises that have been developed for our
businesses, the awards that we have won and independent research.
Colleagues
Members of the management team and subject matter experts are invited to Board and Committee meetings to present on
items and input into discussion. During the year, the Group Chief People Officer provided an update on the Group People
Strategy. Directors visit subsidiaries, businesses and project teams to gain a good understanding of colleagues’ views.
In order to engage, involve and inform colleagues, a range of methods as set out below are used:
- Sir Stephen Lamport as the designated non-executive director for employee engagement is briefed on associated survey
results and findings are reported to the Board. He also met with colleagues where discussion focused on the importance of
the Group’s culture and purpose.
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Key stakeholders
Methods of engagement and outcomes
- A variety of communication channels including intranet, all colleague emails (including weekly news, results, achievements
and changes), briefings, conferences and publishing of financial reports and feedback and discussion is adopted (including
to make colleagues aware of financial and economic factors affecting the performance of the Company);
- Colleague engagement surveys adopting the B-Heard Survey provided by an external partner, Best Companies.
- During the year colleagues undertake training to support the accessibility and understanding of our whistleblowing policy,
procedure and approach to ensure they feel safe to speak up and challenge when needed;
- Direct engagement and consultation through colleague representative forums including the Group’s recognised Union and
Employee Working Groups such as the DEI working Group;
- ‘Town Hall’ meetings are hosted virtually by senior management where colleagues can ask questions and provide
feedback.
- A performance-related bonus scheme is operated, which directly links individual objectives and business performance to
encourage employees to participate in the overall financial success of the Company and the Benefact Group; and
- A range of training, development and volunteering activities are available to colleagues, including technical courses,
mentoring, coaching and community opportunities.
Suppliers (including
brokers)
Directors do not usually directly interact with our suppliers, however they receive reports and updates from management
allowing them to oversee associated relationships and to keep up to date on
developments.
The Board supported by the Group Risk Committee has overseen the implementation of an enhanced approach to managing
outsourcing and third parties including Group Procurement’s associated action plan which was aligned to regulatory
requirements.
Awareness sessions were also provided to colleagues managing suppliers’ relationships on their responsibilities under the
Outsourcing Policy including consideration of associated regulatory requirements.
During the year, the Board approved the refreshed Modern Slavery Statement.
Regulators
The Board (via its Committees) receives regular reports detailing the Group’s regulatory interactions. Regular reports are also
received on the evolving legal and regulatory landscape incorporating a detailed impact and progress assessment.
Shareholder and
investors
Benefact Group plc owns the entire issued Ordinary share capital of Ecclesiastical Insurance Office plc. The directors of the
Boards of both companies are identical. Benefact Group plc in turn is wholly owned by Benefact Trust Limited with whom the
Board has an open and constructive relationship.
Protocols for the exchange of information between Benefact Trust Limited and Benefact 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’ (a director who is a member of the Boards of Benefact Trust Limited, Benefact Group plc and
Ecclesiastical Insurance Office plc) who is expected to attend every Board meeting.
The common directors present a summary of highlights from Benefact Trust Limited Board meetings to the directors. There is
also engagement between respective Board and Committee Chairs and the Group Chief Executive Officer. Regular dialogue
takes place on Benefact Trust Limited’s expectations of the Group, strategy for the development of the business and grants
from the Group. This ensures the views of Benefact Trust Limited are communicated to the Board as a whole. In turn, the
Common directors are able to support the Directors of Benefact 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 interest
between the two companies are managed is in place.
Communities
We are owned by a charity and have a unique purpose to contribute to the greater good of society therefore all our available
profits are donated to good causes. We are part of the Benefact Group which is the third largest corporate donor to charity in
the UK.
During the year, the Board has received regular updates on our charitable giving and areas of focus. In addition, directors have
also had the opportunity to visit beneficiaries to see first-hand their work which has enabled a better understanding of needs.
The Board approved a donation of £21m to Benefact Trust Limited (BTL) to support its funding of charities in respect of the
Group’s 2023 performance. £13m was paid in year and the remaining £8m will be paid in due course,.
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Consideration of environmental and climate change matters.
During the year, the Board received regular updates on the Climate Strategy and was pleased that the first significant milestone of net zero for direct
impact (scope 1 and 2) was achieved during the year.
Stakeholder engagement in decision making
The Board adopts a range of approaches to engage with stakeholders and recognises that the importance of a stakeholder group may differ depending
on the matter being considered. Given the nature of the business, the Board sometimes engages directly with stakeholders and also understands that it
may be more appropriate for engagement to be undertaken at an operational level.
The Board considers a variety of information to understand the impact of the Company’s operations and the interests and views of key stakeholders. A
one-year rolling plan of business for discussion is agreed annually to ensure that the Board is focused on the right issues at the right time and sufficient
time is allowed for appropriate consideration and debate. Information is provided to directors in papers in advance of each meeting. Colleagues from the
business are invited to attend meetings to provide insight into key matters and developments. At each Board meeting, the directors discuss strategic and
business matters, financial, operational and governance issues and other relevant issues that arise. In addition, the Chair of each Committee provides a
verbal report to the Board on proceedings of those meetings including areas of discussion and any recommendations. Because of this, the Board has an
appreciation of engagement with stakeholders and other relevant matters, which enables the directors to comply with their legal duties.
Below is an example of a decision made by the Board:
Approval of donations to Benefact Trust Limited
The Board have approved three donations of £7m, £6m and £8m respectively to Benefact Trust Limited, of which £13m was paid in the year and the
remaining £8m will be paid in due course. When determining whether it was appropriate to make such a distribution, the Board considered advice from
the Group Chief Financial Officer and impact on stakeholders. A key area for the Board’s deliberation is the Company’s capital position and the affordability
of donations based on a range of stressed circumstances.
Key performance indicators
The Group considers its key performance indicators to be profit or loss before tax, regulatory capital, gross written premiums, net earned premiums and
combined operating ratio. In addition to information included within this Strategic Report, details about the Group’s regulatory capital and combined
operating ratio can be found in notes 4 and 36 to the financial statements.
Mark Hews
Group Chief Executive
21 March 2024
Financial performance
The Group reported a profit before tax for 2023 of £44.8m (2022: £15.6m loss). The increase on the prior year was materially driven by the net investment
result of £57.5m (2022: £63.4m loss) which reflects the improved market conditions towards the end of the year. There has been good momentum in
income across the Group’s core businesses and costs have continued to be managed tightly, despite the ongoing inflationary pressures.
The Group’s insurance service result of £70.7m (2022: £65.6m) was strong despite the impact from a significant fire claim at the start of the year and
adverse development of prior year casualty liability and weather related claims. Gross written premium increased by over 10% to £615.0m (2022: £558.5m)
as a result of new business and rate improvements. The Group recognised a net insurance financial loss of £19.5m (2022: £47.9m gain).
The Group’s strong credit ratings with both Moody’s and AM Best were reaffirmed during the year and our Solvency II regulatory capital position remains
well above both regulatory requirements and our internal risk appetite.
Executing our strategy
Ecclesiastical is part of the Benefact Group. Within the wider Benefact Group, we made a number of changes to the legal entity structure to better align
our businesses to the way in which we manage and achieve our growth ambitions across our specialist insurance, broking and advisory and asset
management divisions. These changes have organised the Benefact Group into its three divisions, to support its strategic objectives and is providing a
clearer approach to how the Benefact Group and its businesses operate and are governed.
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As a result, on 3 January 2023 two wholly-owned subsidiaries, EdenTree Investment Management Limited and Ecclesiastical Financial Advisory Services
Limited were disposed of to an undertaking of the Benefact Group. Their results for the previous year are reported in discontinued operations and assets
and liabilities are classified as held for distribution.
During the year, the Group advanced a further £14.1m to the Benefact Group increasing this related party loan to £135.1m, which has been primarily used
to fund acquisitions within the Benefact Group as it executes its growth ambitions.
General insurance
The Group’s underwriting businesses have performed well across territories, resulting in a Group Combined Operating Ratio (COR) of 92.6% (2022 89.6%).
We have delivered growth in insurance revenue, with this increasing by 9.5% to £586.5m (2022: £534.9m) reflecting both increased new business and
rate strengthening and an insurance service result of £70.7m (2022: £65.6m). Underwriting has been impacted by larger than expected prior year liability
claims in the UK, as well as a major fire claim in January 2023.
Our strategy to focus on profitable growth opportunities has continued to deliver, with sustained growth in premiums and the successful launch into the
Leisure sector as part of plans to move into adjacent sectors. The strong growth in insurance revenue reflects targeted rate increases as well as strong
retention and excellent service delivered to brokers and customers. Our programme of investment has continued, particularly across our technology
platforms and with our colleagues. Our investments in these platforms are an important part of supporting the growth of our business and meeting our
customers’ needs for the long term.
The Group uses a number of financial performance measures when managing and monitoring the performance of the general and life insurance
businesses. These include gross written premium underwriting result and the investment return.
United Kingdom and Ireland
In the UK and Ireland, underwriting profits fell to £16.4m (2022: £23.6m) resulting in a COR of 92.1% (2022: 87.1%) driven by a deterioration in prior year
casualty claims. Gross written premium grew by 15.9% to £399.7m (2022: £344.8m). Current year performance was slightly above expectations despite
the devasting fire which destroyed St Mark’s church in London at the start of 2023. Storms Babet and Ciaran affected many of our customers but our
support and the impact on profits was in line with expectations.
Many of our core segments grew by more than 20% including Heritage, Schemes, and Real Estate. The new Leisure product launch has been a success
and is a good example of how we are using our specialist knowledge to grow into adjacent segments. Pricing remained robust in many of our core areas
although there are early signs of increased competitiveness in some markets. Gross written premium in respect of our Faith business remained in line with
prior year, in real terms, reflecting a good result in this market, as we continue to focus on providing service to this sector.
Our strategy over the medium term is to continue to deliver growth, while maintaining our strong underwriting discipline to increase the profit contribution
to the Group. Our specialisms will continue to deepen through investment in people, technology and innovation together with the propositions, specialism
and excellent service that our customers and broker partners value.
Ansvar Australia
Our Australian business reported an underwriting loss of AUD $9.6m resulting in a COR of 113.4% (2022: AUD $0.1m profit, COR of 99.0%). Premium grew
by 8.1% in local currency to AUD $192.2m (2022: AUD $177.8m) driven by strong rate increases and higher new business growth and retention rates
compared to prior year, partly offset by lower actual expiring premium.
The earn through of rate increases and continued de-risking of the portfolio has favourably impacted the result of the underlying business. Prior year
strengthening in the public liability portfolio has outweighed the favourable impact of lower catastrophe claims in the year and is the main driver behind
the underwriting loss for the year. The level of historic physical and sexual abuse (PSA) claims being notified continues to be in line with expectations.
Canada
Our Canadian business continued its track record of premium growth, albeit at a lower pace than prior years, reporting gross written premium of
CAD$179.4m (2022: CAD$175.4m), supported by strong rate increases and new business of nearly $7.8m. The premium growth of 2.3% was achieved
despite increased competition in some business segments.
Canada reported an excellent underwriting profit of CAD$25.0m resulting in a COR of 80.4% (2022: CAD$14.3m profit, COR of 88.1%). The liability book
experienced favourable development on prior year claims.
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Investments
The Group’s net investment result for the year was £57.5m (2022: £63.4m loss), principally from fair value gains towards the later part of the year as
markets improved. The Group remains committed to its long-term investment philosophy and is well-diversified and relatively defensively positioned.
Investment income of £42.9m (2022: £30.7m) was strong, while fair value gains on financial instruments of £19.6m (2022: £72.9m losses) reflect the
improved market conditions seen in particular during the last quarter of the year. We recognised fair value losses of £6.6m (2022: £21.2m losses) on our
investment properties, driven by a continued fall in the value of industrial sector capital values in the portfolio.
Sustainability and ESG consideration gained more prominence, influencing investor preferences, and have continued to shape our approach to responsible
investing. Our responsible and sustainable investment policy plays an important part in how we invest responsibly, and the organisation remains
committed to aligning our investments with ESG principles, recognising its significance in the contemporary investment landscape.
In an era marked by growing environmental concerns, responsible business practices have become imperative, and our strategy includes a focus on
responsible investment and encompasses action to respond to climate risk and operations, investing in ways that support the transition to a low-carbon
economy. The Group continues to focus on a range of Net Zero targets – including committing to Net Zero for all emissions across the entire Group by
2040. More information on the Group’s approach to responsible investment including actions we take to mitigate the risks of transitioning to a low carbon
economy can be found in our Responsible Business Report within the Benefact Group Annual Report and Accounts.
Long-term business
Our life business, Ecclesiastical Life, provides a product backing policies sold by the wider Group’s pre-paid funeral plan business as well as legacy book
of life insurance business which remains closed to new business. Profit before tax was £1.2m for the year (2022: £0.1m loss), driven by investment returns
due to the improvement in markets in the later part of the year. Assets and liabilities in relation to the life insurance business remain well matched.
Outlook
The continued high cost of living pressures have been challenging for many in 2023 but with further evidence of easing inflationary pressures, this is
expected to allow a move towards less restrictive monetary policies in the countries the Group operates within. We expect market conditions will continue
to bring change and geo-political uncertainty but this will bring opportunities to help our customers and clients to navigate these challenges. While these
global uncertainties persist, the Group continues to take a long-term view of risk, and the underlying resilience of our businesses means we will continue
to grow sustainably and invest for the future.
The Board approved a donation of £21m in respect of the Group’s 2023 performance, of which £13m was paid in year and the remaining £8m to be paid in
due course, surpassing £200m cumulatively given to charitable causes since 2014, as the Benefact Group looks to achieve its ambition of giving £250m
by the end of 2025.
Denise Cockrem
Group Chief Financial Officer
Note: The Group adopted IFRS 17 Insurance Contracts that became effective from 1 January 2023. Unless otherwise stated, comparatives figures for prior
periods are restated on an IFRS 17 basis. Further details of the impact of the adoption of IFRS 17 are included in note 37 to the financial statements.
Strategic Report
Approved and authorised for issue by the Board of Directors and signed on its behalf by
Mark Hews
Group Chief Executive
21 March 2024
1515 Ecclesiastical Insurance Office plc
Governance
Board of Directors
David Henderson
Chair, 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 a Senior Adviser to the Bank until 2019. He holds several external
Non-Executive Directorships.
Mark Hews
Group Chief Executive
Mark Hews was appointed Group Chief Executive in May 2013 and was previously Group Chief Financial Officer. He was appointed to the Board in June
2009 and appointed to the Board of MAPFRE RE in December 2013. He also 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.
Denise Cockrem
Group Chief Financial Officer
Denise Cockrem was appointed Group Chief Financial Officer in December 2018 and joined the Board in September 2019. Denise is a Chartered Accountant
with significant industry experience, predominantly in financial services. She spent her early career in corporate finance and banking roles for EY, Barclays,
RBS and Direct Line. She then joined RSA as Group Financial Controller, spending nine years with them in various roles culminating in UK & Western
Europe Finance Director. Denise most recently held the position of Chief Financial Officer at Good Energy Group plc, an AIM-listed renewable energy
company who provide 100% renewable electricity and carbon neutral gas. In July 2022 Denise was appointed as a Non-Executive Director of ITM Power
plc, an AIM-listed company which designs and manufactures hydrogen energy solutions to enhance the use of renewable energy. She was also a Trustee
of MacIntyre Academy Trust, which provides special schools and specialist alternative provision for children and young people until February 2023.
Denise was also Non-Executive Director of the Skipton Building Society from 2015 to 2021.
S. Jacinta Whyte
Deputy Group Chief Executive
Jacinta Whyte was appointed Deputy Group Chief Executive and joined the Board in July 2013 with responsibility for the Group’s General Insurance
business globally. She was also appointed to the Ansvar Australia Board during 2013. Jacinta joined Ecclesiastical in 2003 as the General Manager and
Chief Agent of the Group’s Canadian business, a role that 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.
Chris Moulder
Senior Independent Non-Executive Director
Chris Moulder was appointed to the Board in September 2017. Chris is also a Director of the Insurance Board of Lloyds Banking Group and Tokio Marine
Kiln. He was also a Director of the Company’s ultimate parent, Benefact Trust until July 2023. 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.
Rita Bajaj
Independent Non-Executive Director
Rita was appointed to the Board in July 2021. She is a Chair, Senior Independent Director, Non-Executive Director and Board member with over 30 years’
broad investment markets experience on a number of financial services firms. Previously, she held senior investment positions at Global and UK Asset
Managers in the UK & US, was EMEA CAO at a US custody bank and is a former FCA regulator.
Currently, Rita is the Audit, Risk & Compliance Chair and Senior Independent Director of Fidelity International Life Limited and the Chair of Threadneedle
Investment Services Limited. She holds a non-executive directorship for Wesleyan Assurance and is a board member for the London Pension Fund
Authority. In addition, Rita is an Independent Member for Hargreaves Lansdown’s workplace SIPP IGC committee. She is also Non-Executive Director of
EdenTree Holdings Limited and EdenTree Asset Management Limited.
1616 Ecclesiastical Insurance Office plc
Governance
Francois-Xavier Boisseau
Independent Non-Executive Director
Francois-Xavier Boisseau was appointed to the Board in March 2019. In addition Francois-Xavier is a Non-Executive Director of the Company’s
ultimate parent Benefact Trust Limited, Benefact Broking and Advisory Holdings Limited and the Chair of IQUW Syndicate Managing Agency Ltd.
Francois-Xavier has more than 30 years’ experience working in the insurance industry, 25 years in the UK. He was CEO of Insurance Ageas (UK) until
December 2018. Prior to that Francois-Xavier was CEO of Groupama and CEO of GUK Broking Services as well as being Non-Executive Chairman of
Lark, Bollington and Carole Nash.
Sir Stephen Lamport
Independent Non-Executive Director
Sir Stephen was appointed to the Board in March 2020. He is the Vice Lord-Lieutenant of Surrey and a Senior Adviser at Sanctuary Counsel. He was
a Director of Benefact Trust until 5 March 2024 and is Vice-President of the Community Foundation for Surrey; Painshill Park Trust Chair; Chair of
the British Red Cross UK Solidarity Fund Committee; and is the Deputy High Bailiff of Westminster Abbey. He co-authored with Douglas Hurd a political
novel, ‘The Palace of Enchantments’.
He has now retired as a Court member of the St Katharine’s Foundation. Sir Stephen was the Receiver General of Westminster Abbey from 2008 to 2018,
and previously a Group Director of the Royal Bank of Scotland for five years. He was Deputy Private Secretary to The Prince of Wales from 1993,
and Private Secretary and Treasurer from 1996 to 2002. From 1994 to 2002 he was a member of HM Diplomatic Service, with overseas postings in New
York, Tehran and Rome.
He was appointed KCVO in 2002, and GCVO in 2018.
Neil Maidment
Independent Non-Executive Director
Neil Maidment was appointed to the Board in January 2020. Neil is an Independent Non-Executive Director at Lloyd’s of London and a member of
the Council of Christ’s Hospital. He has over 35 years’ experience in the insurance market. He was previously a Director of Beazley plc and was
Chief Underwriting Officer of the company and Active Underwriter of its Lloyd’s syndicates from 2008 to 2018. He was Chairman of the Lloyd’s
Market Association from 2016 to 2018 and served as an elected working member of the Council of Lloyd’s during the same period.
Angus Winther
Independent Non-Executive Director
Angus Winther was appointed to the Board in March 2019. Angus co-founded Lexicon Partners, a London-based investment banking advisory firm,
where he specialised in advising clients in the insurance and financial services sectors. He was closely involved in Lexicon Partners’ leadership until
it was acquired by Evercore in 2011 and served as a Senior Adviser at Evercore until October 2016. He is currently Chair of Apollo Syndicate Management
Limited, a Lloyd’s managing agent and was previously a Non-Executive Director of Hiscox Syndicates Limited and Trinity Exploration & Production plc.
Angus is also Churchwarden of Holy Trinity Brompton, Vice Chair of the Church Revitalisation Trust and a trustee of St Mellitus College Trust, St Paul’s
Theological Centre, and the Church Renewal Trust.
Andrew McIntyre retired from the Board on 22 June 2023.
1717 Ecclesiastical Insurance Office plc
Governance
Board composition as at 21 March 2024
Balance of Non-Executive Directors and Executive Directors
Non-Executive Directors: Executive Directors
7:3
8:3
Gender Balance
Male: Female
7:3
8:3
2023
2022
Ethnicity
White British or other White (including minority-white groups)
Mixed/Multiple Ethnic Groups
Asian/Asian British
Black/African/Caribbean/Black British
Other ethnic group, including Arab
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
46-55
56-65
65+
9
0
1
0
0
1
4
2
0
8
1
1
0
0
2
4
4
10
0
1
0
0
3
4
1
0
9
1
1
0
0
3
4
4
1818 Ecclesiastical Insurance Office plc
Governance
Directors’ Report
The directors present their report and the audited consolidated financial statements for the year ending 31 December 2023.
Information incorporated by reference
The Directors’ Report required under Companies Act 2006 comprises this report and other disclosures contained in the Strategic Report, Governance
section and Notes to the consolidated financial statements is incorporated by reference and includes the following information:
Information
Business model
Corporate Governance Statement
Financial instruments
Important events since 31 December 2023
Future developments
Research and development
Employee engagement and involvement
Stakeholder engagement
Greenhouse gas emissions and energy consumption
Going Concern and Viability Statement
Diversity and inclusion
The Section 172 Statement
Principal risks and uncertainties
Reported in
Strategic Report
Corporate Governance Report
Note 4
Derivative financial instruments and hedging
accounting policy
Strategic Report
Strategic Report
Strategic Report
Strategic Report
Strategic Report
Strategic Report
Directors’ Report
Strategic Report
Strategic Report
Strategic Report
Note 3
Page(s)
Page 9
Page 23
Page 75
Page 66
Page 21
Page 3
Page 3
Page 11
Page 11
Page 8
Page 21
Page 9
Page 10
Page 3
Page 72
Company status and branches
Ecclesiastical Insurance Office plc is incorporated and domiciled in England and Wales (registration number 00024869). The registered office of the
Company is Benefact House, 2000 Pioneer Avenue, Gloucester Business Park, Brockworth, Gloucester, GL3 4AW, United Kingdom. The Company has
branches in Canada and Ireland.
Principal activities
The Group operates principally as a provider of general insurance. Details of the subsidiary undertakings of the Company are shown in note 34 to the
financial statements.
Ownership and share capital
At the date of this report, the entire issued Ordinary share capital of the Company was owned by Benefact Group plc. In addition, 4.35% of the issued
8.625% non-cumulative irredeemable preference shares of £1 each (‘Preference shares’) are owned by Benefact Group plc. In turn, the entire issued
ordinary share capital of Benefact Group plc was owned by Benefact Trust Limited, the ultimate parent of the Group.
Directors and their interests
The directors of the Company during the year and up to the date of this report are set out on pages 16 to 17 alongside the biographies of those directors
currently serving on the Board.
As set out in the Notice of Meeting, all directors who have served since the last AGM will be proposed for re-election except for Denise Cockrem, who will
be retiring from the Board at the end of June. All directors seeking re-election were subject to a formal and rigorous performance evaluation, further
details of which can be found in the Group Nominations Committee Report. Details of directors’ service contracts are set out in the Directors’ Remuneration
Report of Benefact Group plc.
Neither the directors nor their connected persons held any beneficial interest in any ordinary shares of the Company during the year ended 31 December
2023 and to the date of this report.
1919 Ecclesiastical Insurance Office plc
Governance
The interests of the directors and their connected persons in the preference shares in the capital of the Company as at 31 December 2023 and to the date
of this report are shown below:
Director
Mark Hews
Denise Cockrem
Nature of interest
Connected person
Connected person
Non-Cumulative
Number
of
Preference Shares held
75,342
32,020
Irredeemable
The Board has a documented process in place in respect of conflicts.
No contract of significance existed during or at the end of the financial year in which a director was or is materially interested.
Indemnities and insurance
In accordance with the Company’s Articles and to the extent permitted by law the Company indemnifies each of its directors and directors of any associated
company against certain liabilities that may be incurred because of their positions. In addition, the Company maintains directors’ and officers’ liability
insurance. Neither our indemnity nor the insurance provides cover in the event that a director is proven to have acted dishonestly or fraudulently.
Employees
The Group is committed to nurturing a culture and work environment in which all colleagues can fulfil their potential. Our Equality and Diversity Standard
and Guidance sets our expectations for an open and inclusive workplace and we place the care and wellbeing of all our colleagues at the heart of our
employment policies.
Throughout the employee lifecycle from recruitment onwards, we carefully consider adjustments to our processes and practices and look for solutions
to remove barriers for those colleagues with disabilities.
When needed, we engage with third-party and occupational health specialists who provide us with expert advice and ensure we are offering the best
support we can. Through our adjusted work approach we provide an environment in which colleagues with additional needs can fully participate in all
opportunities provided by the Group from continued employment to training, job moves and promotions. We offer a range of support for colleagues to
help them maintain a healthy work and home life including; flexible working practices, virtual GP service, employee assistance programme, flu vaccinations
and eye tests as well as a wide variety of flexible benefits such as dental care and critical illness insurance.
Information on employee engagement and well-being is provided in the responsible business section.
Dividends
Dividends paid on the preference shares were £9,181,000 (2022: £9,181,000).
The directors do not recommend a final dividend on the ordinary shares (2022: £nil). No interim dividends were paid in 2023 and 2022 except the interim
dividend in specie made on 3 January 2023 in relation to the entire issued share capital of EdenTree Investment Management Limited of £4,651,000 and
Ecclesiastical Financial Advisory Services Limited of £572,000.
Going concern
The financial performance and principal risks and uncertainties section of the Strategic Report starting on page 3 provide a review of the Group’s business
activities and disclose the Group’s principal risks and uncertainties, including exposures to insurance, financial, operational and strategic risk.
The Group has considerable financial resources: financial investments of £941.8m, 82% of which are liquid (2022: financial investments of £870.7m, 84%
liquid) and cash and cash equivalents of £112.1m (2022: £104.7m) to withstand economic pressures. Liquid financial investments consist of listed equities
and open-ended investment companies, government bonds and listed debt.
The Group has a strong risk management framework and solvency position, is well placed to withstand significant market disruption and has proved
resilient to stress testing. The Group has considered its capital position, liquidity and expected performance. The Group and its businesses have sufficient
levels of cash and other liquid resources and has expectations it can meet its cash commitments over its planning horizon. The Group and its businesses
expect to continue to meet regulatory requirements.
Despite economic pressures and challenges, given the Group’s operations, robust capital strength, liquidity and in conjunction with forecast projections
and stress testing, the directors have a reasonable expectation that the Group has adequate resources and is well placed to manage its 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.
2020 Ecclesiastical Insurance Office plc
Governance
Longer-term viability statement
The directors have assessed the prospects of the Group in accordance with Provision 31 of the 2018 UK Corporate Governance Code. Although the
prospects and business plans of the Group are considered over a longer period, the assessment by the directors covers three years. In making its
assessment the directors considered:
•
•
•
•
The Group’s current position and prospects, risk appetite, and the potential impact of the principal risks and how these are managed;
The Group’s long-term business plans and strategy, and the costs associated with its delivery;
The Group’s current capital, liquidity and solvency position and projections; and
The political, economic and regulatory environment, including uncertainties on the geopolitical outlook and potential for a prolonged recession.
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. In
determining this assessment period, consideration has been given to the nature of the Group and its businesses, its stage of development, strategy and
business model. 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 directors will continue to monitor
and consider the suitability of this period.
The Group uses varying stress scenarios with reference to the principal risks, which are documented on pages 3 to 7. Scenarios are designed to be severe,
but plausible, and assess the impact of certain events on the Group’s profitability and capital strength. Reverse stress testing is also used to assess what
could make the Group’s business model unviable. The outcome of testing was discussed by the Board during the year and consideration was given to the
current environment on the Group’s viability.
Among the considerations and scenarios were further investment market volatility, claims experience and business deterioration.
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.
Analysis confirms that the Group has sufficient capital resources to cover its capital requirements and is operationally resilient.
The directors have also considered the Group’s ability to service its preference shares, subordinated liabilities and the expectations of its ultimate charitable
owner, Benefact Trust Limited. 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, Benefact Trust Limited and when determining the appropriate level of grants, 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 the variety of adverse
circumstances as demonstrated in the results of the stress testing and potential mitigating actions, the directors confirm that they have a reasonable
expectation that the Group will continue in operation and be able to meet its liabilities over the three year period of the viability assessment.
Political donations
No political donations were made in the year (2022: £nil). The Group policy is that no political donations be made or expenditure incurred.
Important events since 31 December 2023
There have been no significant events or transactions since 31 December 2023.
External auditor
Having reviewed the effectiveness of the External Auditor, the Group Audit Committee recommended the reappointment of PricewaterhouseCoopers
LLP to the Board. Further details are disclosed in the Group Audit Committee Report.
The Group Audit Committee reviews the appointment of the auditor, including the auditor’s effectiveness and independence, and recommends the
auditor’s reappointment and remuneration to the Board.
In accordance with Section 489 of the Companies Act 2006, a resolution proposing that PricewaterhouseCoopers LLP be reappointed as auditor of
the Group will be put to the forthcoming AGM.
Disclosure of information to the 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.
2121 Ecclesiastical Insurance Office plc
Governance
Having made enquiries of fellow directors and the Group’ 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.
Annual General Meeting
A copy of the Notice for the 2024 AGM is available on Ecclesiastical’s website.
Directors' responsibilities statement
The directors are responsible for preparing the 2023 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 have prepared the financial
statements in accordance with UK-Adopted International Accounting Standards (UKIAS). Under company law, directors must not approve the financial
statements unless they are satisfied that they give a true and fair view of the state of the affairs of the Company and of the profit or loss of the Company
for that period. In preparing the financial statements, the directors are required to:
select suitable accounting policies and then apply them consistently;
state whether applicable UKIAS have been followed, subject to any material departures disclosed and explained in the financial statements;
make judgements and accounting estimates that are reasonable and prudent; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The directors 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 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.
Directors’ confirmations
The directors consider that the 2023 Annual Report and accounts, taken as a whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group’s and Company’s position and performance, business model and strategy. Each of the directors, whose
names and functions are listed on pages 16 and 17 confirm that, to the best of their knowledge:
the Group and Company financial statements, which have been prepared in accordance with UK-adopted international accounting standards, give
a true and fair view of the assets, liabilities and financial position of the Group and Company, and of the profit of the Group; and
the Strategic Report includes a fair review of the development and performance of the business and the position of the Group and Company,
together with a description of the principal risks and uncertainties that it faces.
Approved and authorised for issue by the Board of Directors and signed on its behalf by
David Henderson
Chair
21 March 2024
Mark Hews
Group Chief Executive
21 March 2024
2222 Ecclesiastical Insurance Office plc
Governance
Corporate Governance Report
Introduction from the Chair
Dear Stakeholder
I am delighted to introduce the Corporate Governance Report. I firmly believe that good corporate governance is essential in assisting us to deliver our
ambitions and to continue supporting our stakeholders.
Our approach to governance
As a Board, we are committed to applying the highest standards of corporate governance and believe that the affairs of the Company should be conducted
in accordance with best business practice. Consequently, although the Company does not have shares with a premium listing on the London Stock
Exchange we have chosen to voluntarily comply with the Principles and Provisions of the 2018 UK Corporate Governance Code (the Code) where possible.
A copy of the Code can be found on the FRC’s website. I am pleased to report that, we are fully compliant with the principles and provisions of good
governance contained in the Code with the following exceptions:
Provision
4: When 20 per cent or more of votes have been cast against the board
recommendation for a resolution, the company should explain, when
announcing voting results, what actions it intends to take to consult
shareholders in order to understand the reasons behind the result.
10. The board should identify in the annual report each Non-Executive
director it considers to be independent. Circumstances which are likely
to impair, or could appear to impair, a non-executive director’s
independence include, but are not limited to, whether a director:
−
holds cross-directorships or has significant links with other
directors through involvement in other companies or bodies;
Where any of these or other relevant circumstances apply, and the
board nonetheless considers that the non-executive director is
independent, a clear explanation should be provided.
Current Status / Explanation
Given Benefact Group plc owns the entire issued Ordinary share capital of the
Company, there is no need to comply with the provisions relating to outcomes
from shareholder votes
All Non-Executive Directors are Non-Executive Directors of the Company’s
immediate parent, Benefact Group plc. Francois Boisseau is also Non-Executive
Director of the Company’s ultimate parent. As explained in the Group
Nominations Committee Report the Board believes, all Non-Executive Directors
are independent in character and judgement. A key area of focus for the Group
Nominations Committee during 2024 will be the separation of the Board of the
Company and its immediate parent following the Group re-structure.
36: Remuneration schemes should promote long-term shareholdings
long-term
by executive directors that support alignment with
shareholder interests.
Given the Company does not have listed equity shares we are unable to comply
with the shareholding requirements for Executive Directors.
Areas of Board and Committee focus
During the year the focus was on the challenges arising from the backdrop of uncertainty and challenging economic conditions. We looked to demonstrate
our resilience and commitment to our stakeholders as detailed below. We have also overseen the delivery of the Company’s business plan and strategic
initiatives and a range of other matters as detailed in the Board activities below.
In the year ahead, we will look to make our Board more independent from our immediate parent following the re-structure of the Benefact Group. We will
also continue to focus on our growth ambitions including implementing solutions for our strategic systems.
AGM and re-election of directors
This year our AGM will be taking place on 25 June 2024. A copy of the Notice for the AGM is available www.ecclesiastical.com.
In accordance with the Code and as set out in the Notice of Meeting, all directors who have served since the last AGM will be proposed for re-election
(except for Denise Cockrem). I can confirm that all directors seeking re-election were subject to a formal and rigorous performance evaluation. Further
details can be found in the Group Nominations Report.
David Henderson
Chair
21 March 2024
2323 Ecclesiastical Insurance Office plc
Governance
Board leadership and Company Purpose
Role of the Board
The Board is responsible to the Group’s shareholders for the long-term success of the Group, its purpose, values, strategy, culture 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.
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.
It is the Board’s policy to record any unresolved concerns about the running of the Company and any proposed action in the Board minutes. During 2023,
no Director had any such concerns.
Purpose, values and strategy
The Group’s purpose is to contribute to the greater good of society. In particular, the Group strives to improve the lives of customers, beneficiaries and
society as a whole. This is achieved by managing a portfolio of businesses that operates on the highest ethical principles. It seeks to diversify and bring
an ethical dimension to more aspects of society; and all of its businesses need to set a high bar, putting its customers first and setting an example to
others.
As a unique company, with a unique purpose, we know that our success is not just about what we do, it’s how we do it that makes the real difference. The
way that we work is based upon our Group values. They underpin our vision, ambition and strategy and they are the common thread that binds our family
of businesses together.
Please also see the Strategic Report for more details.
Culture
The Board is responsible for setting the right values and culture within the Group and ensuring the fair treatment of customers. During 2023 a simplified
and refreshed set of values were launched which inform the culture across the Group, as described below:
Collaborating
We’re a family of diverse businesses united by our culture of inclusion and our commitment to the value, energy and fun of
working together.
Ambitious
Our growth is empowered by our ability to be confident, bold and agile. We activity listen, learn and innovate whilst
maintaining a consistent focus on delivering the highest standards for our customers and clients.
Responsible
We stake our reputation on integrity, ethical principles and commitment to building a responsible and sustainable legacy.
Expert
We nurture our colleagues with opportunities for growth, trusting each other’s specialist expertise, knowledge and
experience to deliver the best outcomes for our customers, clients and beneficiaries.
Supporting
Our purpose is at the heart of everything we do, bringing us together to build a movement for good.
Every colleague contributes to building and sustaining our culture through the way we behave with each other, our business partners, clients, customers
and communities.
Our values are embedded across the Group’s employee lifecycle, from recruitment through to performance management, our behaviour model, personal
development and communications. The culture of the Group is monitored and assessed through the employee survey results and individually through
the assessment of performance which also informs reward outcomes.
Board activities in 2023
The key activities considered by the Board and links to stakeholders during the year are set out below.
Stakeholders for this purpose are defined as 1 customers; 2 colleagues; 3 communities; 4 shareholders and investors; 5 suppliers (including brokers);
6 regulators and governments; and 7 the environment.
Strategy and Performance
CEO’s Report 1,2,3,4,5,6,7
The CEO led discussions on general
business performance, key strategic
initiatives
Benefact Trust updates 4
Received regular reports from the
Shareholder
Business updates 1,2,4,5,6
Received business and performance updates from
business areas including Australia, Canada, Ireland
2424 Ecclesiastical Insurance Office plc
Governance
Strategic Reviews
At each meeting, the Board had focused discussion on matters of strategic significance to evaluate progress, provide insight and where necessary take
appropriate action as shown below:
UK General Insurance 1,2
Early themes were considered
Insurance Systems1
Discussed and challenged the approach to
the combined policy administration,
reinsurance and claims platform
Climate change 1,3,7
•
Received regular sustainability champion
updates
ClimateWise Reporting update
Approved the Responsible & Sustainable
Investment Policy
•
•
•
Capital, costs and budget 4
•
Agreed the Group Corporate Strategy
and Business Plans 2024-26
Agreed to increase the loan from EIO to
Benefact Group plc
•
Cashflow and dividends 4
•
Considered the dividends to be paid to the
holders of the 8.625% Non-Cumulative
Shares of £1.
Considered making a distribution in the form
of a grant to the Company’s ultimate parent
Benefact Trust Limited
Group reinsurance arrangements 1, 4, 6
Received an update on the renewal season
including market conditions and reinsurance
arrangements put in place
General Insurance underwriting 1, 4, 6
Received reports from the Chief Underwriting Officer
on the performance and health of the general
insurance underwriting portfolios
Board succession and diversity 3, 4. 6
•
Board effectiveness 1, 3, 4. 5, 6
•
Considered outcomes from the External
Board Evaluation
Approved objectives for 2023 and
monitored progress during the year
Approved changes to its Committees’
terms of reference
•
•
Governance, legal and regulatory 1,2,3,4,5,6,7
•
Approved the resolutions to be put to the
Shareholder at the AGM
Considered directors’ Conflicts of Interest
Considered operational resilience and the
recovery plan
Considered the corporate re-structure and the
approach to streamlining governance
•
•
•
Colleagues, culture and values
Culture 2
•
Considered updates on
people, engagement and
performance
Reviewed the annual Health
and Safety Report
Global people strategy 2
Considered the Group’s
aspirations to be the best
employer
Consumer Duty 1
•
Received regular reports on
changes in philosophy due to
Consumer Duty Regulations
Charitable purpose 2
Considered regular updates on the
charitable purpose and mission
(including consideration of the
grant policy in Canada and
Australia)
Risk management
Group ORSA
Approved the Own Risk and Solvency
Assessment
Effectiveness of Internal Controls
Supported by the Group Audit Committee
reviewed the internal controls in place across
the Group and determined their effectiveness
Group Risk Appetite
Approved the Group risk appetite
Financial
CFO’s Report 4
The CFO led discussions on financial
performance across the Group including
rating agency considerations and IFRS 17, the
new accounting standard
Results and regulatory disclosures 1,2,4,5,6
•
Reviewed and approved the Annual
Report and Accounts and the half and
full year results announcements
Reviewed and approved the Solvency
and Financial Condition Report (SFCR)
Approved the Tax Strategy
Reviewed the going concern assessment
and viability statement
•
•
•
Governance, legal and regulatory
On recommendation from the Group
Nominations Committee, assessed the
independence of the Non-Executive
Directors
Approved the changes to Committee
composition
Approved the refreshed Board Diversity
Policy
•
•
•
2525 Ecclesiastical Insurance Office plc
Governance
Continuous professional development, training and site visits
Board CPD Sessions
During the year the Board received dedicated sessions on reinsurance
and credit risk, Consumer Duty, the internal model and climate change.
Site visits
In 2023, directors resumed site visits to enable them to deepen their
knowledge and understanding of the Group. Sites visited during the year
included Australia; Canada and Ireland.
Whistleblowing
The Board (via the Group Audit Committee) is responsible for reviewing the Group’s Whistleblowing Policy and Procedures and receives regular updates
from the Chair of that Committee. More information is contained within the Group Audit Committee Report.
Conflicts of interest
A Register of Directors’ conflicts 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 who 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.
In addition, the Board oversees the procedure for managing actual and potential conflicts of interest in the trading relationship with brokers and the general
insurance business. It is underpinned by the desire to put the customer interest at the forefront of their dealings and seek to deliver the best customer
outcome.
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 2023
no director had any such concerns.
Division of responsibilities
There is a division of responsibilities between non-executive and executive roles to ensure appropriate oversight and accountability. These roles and
responsibilities are clearly defined, set out in writing, and reviewed by the Board. The roles of the Chair and Group Chief Executive are undertaken by
separate individuals as set out in the Governance Structure Chart. In addition, the Board has designated Non-Executive Directors as champions for
workforce engagement, climate change and Consumer Duty.
David Henderson met with the Non-Executive Directors without the Executive Directors present on a number of occasions throughout the year. Mark
Hews regularly meets with the Group Management Board to attend to the operational management of the Group. Any matters of significance are
communicated to Directors outside of the Board meeting schedule.
2626 Ecclesiastical Insurance Office plc
Governance
Governance Structure
Documents available at www.ecclesiastical.com
•
•
•
Articles of Association
Matters Reserved to the Board
Committee Terms of Reference
The Board
The Board’s role is to provide entrepreneurial leadership of the Group within a framework of prudent and effective controls which enables the risks
which the Group faces to be assessed and managed. The Board sets the Group's high level strategic aims, ensures that the necessary financial and
human resources are in place for it to meet its objectives and reviews management performance. The Board sets the Group's values and standards and
ensures that its obligations to its customers, its shareholders and other stakeholders are understood and met.
Chair, David Henderson
The Chair is responsible for the active leadership
of the Board, ensuring its effectiveness in all
aspects of its role. The Chair is pivotal in creating
the conditions for overall board and individual
director effectiveness, setting clear expectations
concerning the style and tone of board
discussions, ensuring the Board has effective
decision-making processes and applies sufficient
challenge to major proposals.
Non-executive Directors, Rita Bajaj, Francois-
Xavier Boisseau, Sir Stephen Lamport, Neil
Maidment, Angus Winther
Non-Executive Directors have a responsibility to
uphold high standards of integrity and probity
including acting as both internal and external
ambassadors of the Company. As part of their role
as members of a unitary board, Non-Executive
Directors should constructively challenge and
help develop proposals on strategy.
Senior Independent Director, Chris Moulder
The Senior Independent Director supports
and acts as a sounding board for the Chair
and is responsible for overseeing the
governance practices of the Company and
leading the directors in their appraisal of the
Chair. Along with the Chair, the Senior
Independent Director is the primary contact
for the shareholder and they meet regularly
with the shareholder to share and
understand views.
The Board delegates certain matters to its five principal committees, which reports to the Board after each meeting
Group Audit Committee
Oversees financial, climate,
non-financial and regulatory
reporting processes; internal
controls; whistleblowing
arrangements; tax strategy
and policies; internal audit
function; and manages the
relationship with the external
Auditor.
Group Finance and Investment
Committee
Oversees the management of
certain of the Company’s
financial assets (including its
investment portfolio) to ensure
it is properly governed,
controlled and performing as
expected within agreed risk
parameters. It also reviews and
advises on any major financial
decisions on behalf of the Board
Group Risk Committee
Oversees the Risk
Management Framework
including risk appetite
and tolerance; the risk
and compliance
functions; and
reviews prudential risk
(including overseeing the
capital model), conduct
risk and climate change
risk.
Group Chief Executive, Mark Hews
Group Nominations
Committee
Ensures that there is an
appropriate balance of
skills, knowledge and
experience on the
Board, its committees
and within the Group’s
subsidiary companies.
Group Remuneration
Committee
Determines the Group’s
Remuneration Policy and
ensures there is
alignment between
performance and reward.
The Board delegates the execution of the Company’s strategy and day-to-day management of the business to the Chief Executive, assisted by
members of the Group Management Board (GMB).
Deputy Group Chief Executive, Jacinta Whyte
The Deputy Group Chief Executive is
accountable to the Group Chief Executive for
leading the general insurance businesses.
Group Chief Financial Officer, Denise
Cockrem
The Group Chief Financial Officer is
accountable to the Group Chief Executive for
the financial management of the Group and
for ensuring that it complies with its
statutory and regulatory reporting
requirements.
Group Company Secretary, Rachael Hall
The Company Secretary is responsible for
compliance with board procedures, advising the
Board on all governance matters, supporting the
Chair and helping the Board and its Committees to
function efficiently. All Directors have access to
the advice of the Company Secretary.
Attendance at meetings
Directors are expected to attend all Board meetings and strategy days as well as Committee meetings where they are members. However, it is
recognised that sometimes this may not be possible in exceptional circumstances. Where this is the case, directors receive the papers and provide
comments to the relevant meeting.
In 2023, the Board held five scheduled meetings and a strategy day. In addition, the Board participated in regular training sessions. Below is a record of
the Directors’ attendance for Board and Committee meetings during 2023:
2727 Ecclesiastical Insurance Office plc
Governance
Director since
Board
Meetings
attended
/eligible to
attend
Executive Directors
Mark Hews
Jun 2009
S. Jacinta Whyte
Denise Cockrem
July 2013
September 2019
Non-Executive Directors
David Henderson
Rita Bajaj1
Francois-Xavier Boisseau2
Sir Stephen Lamport
Neil Maidment
Chris Moulder 3
Angus Winther4
Andrew McIntyre5
April 2016
July 2021
March 2019
March 2020
January 2020
September 2017
March 2019
April 2017
6/6
6/6
6/6
6/6
6/6
6/6
6/6
6/6
6/6
6/6
3/3
Group Audit
Committee
Group Finance &
Investment
Committee
Group
Nominations
Committee
Group
Remuneration
Committee
Group Risk
Committee
-
-
-
-
10/10
-
10/10
9/10
-
6/6
-
-
-
5/5
5/5
4/5
-
-
-
5/5
-
-
-
-
3/3
-
-
-
-
3/3
3/3
-
-
-
-
5/5
-
-
5/5
5/5
-
4/5
-
-
-
-
-
1/1
6/6
6/6
6/6
5/6
-
3/4
1 Rita Bajaj was appointed to the Group Risk Committee on 26 September 2023
2 Francois-Xavier Boisseau was unable to attend a Group Finance and Investment Committee meeting due to a prior commitment arranged before the meeting was confirmed.
3 Chris Moulder was unable to attend a Group Audit Committee and Group Risk Committee meeting due to prior commitments arranged before the meeting was confirmed.
4 Angus Winther was unable to attend a Group Remuneration Committee meeting due to personal commitment.
5 Andrew McIntyre retired from the Board on 22 June 2023. He was unable to attend a Group Risk Committee meeting due to a professional engagement arranged before the
meeting was confirmed.
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.
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 the assessment of the effectiveness of the processes and controls in place to manage
and mitigate these risks.
The Group’s internal control framework is vital in setting the tone for the Group and in creating a high degree of control consciousness in all employees.
A Code of Conduct and a Code of Ethics are embedded into the culture of the Group and is accessible to all staff via the intranet.
Assurance on the adequacy and effectiveness of internal control systems is obtained through management reviews, control self-assessment and internal
audits.
Systems of internal control are designed to manage rather than eliminate the risk of failure to achieve business objectives, and can provide reasonable,
but not absolute assurance as to the prevention and detection of financial misstatements, errors, fraud or violation of law or regulations. Further
information on internal controls is set out in the Group Audit Committee Report.
By order of the Board
Rachael Hall,
Group Company Secretary
21 March 2024
2828 Ecclesiastical Insurance Office plc
Governance
Nominations Committee Report
Committee member
Member since
Meetings attended
Chris Moulder
November 2019
David Henderson
January 2018
Angus Winther
May 2021
3/3
3/3
3/3
Dear Stakeholder
I am pleased to present the Group Nominations Committee’s Report for the year-ending 31 December 2023. During the year, we reviewed the skills,
experience and diversity on the Board, its Committees and subsidiaries and led the process for the appointment of a new Non-Executive Director which
will be finalised in 2024. In addition, I was also appointed as Group Audit Committee Chair and Neil Maidment succeeded me as the Group Risk Committee
Chair. In 2024, we will be focusing on making the Boards of EIO and Benefact Group plc more independent following the re-structure of the Group.
Chris Moulder, Group Nominations Committee’s Chair
21 March 2024
Composition of the Board and Senior Management
The Committee considered the composition of the Board and its Committees. This included consideration of skills, knowledge, experience, length of tenure,
independence, and diversity in the context of the Group’s long term strategic priorities.
The Committee was conscious that improvements were required in relation to the diversity of the Board and its committees particularly in terms of female
representation which it has actively tried to address. In line with the expectations of the FCA, the Committee has also committed to making this a
consideration when recruiting new directors.
Board Diversity
Ecclesiastical recognises the benefits of having a diverse Board and is committed to improving diversity on the Board. It believes that diversity both
strengthens the Board and business performance. The Board will take opportunities, as and when appropriate, to further improve diversity in its broadest
sense (including ethnicity, skills, regional and industry experience, background, age, gender and other distinctions) as part of its recruitment practice.
However, the Board believes the approach to diversity and inclusion should not be a ‘tick box exercise’ but an opportunity to continue to build a cohesive
and robust leadership. Ultimately all appointments should be made on merit with directors able to bring a range of thoughts and opinions to avoid
‘Groupthink’.
As reported last year, the Board’s Diversity Policy includes objectives which align with the diversity and inclusion targets set out in the Listing Rules.
Statement on Board Diversity
Although the Board is pleased that we have met two of the three diversity targets, we are disappointed that we have been unable to achieve one of the
objectives as set out below:
Board Diversity Objective
At least 40% of the Board are women.
Implementation and progress
30% of the Board are women. The Board recognises the need for a
fully diverse, equitable and inclusive Board. During the recruitment
process for a new Group Audit Committee Chair, the Board sought
to appoint a woman, but we were not able to attract a suitable
candidate. The Committee regularly reviews the composition of the
Board, its Committees and Senior Management. Women who
possess the required skills and experience will be prioritised in any
future Board related appointment.
At least one of the senior positions on the Board (defined as
Chair, Chief Executive, Senior Independent Director and
Chief Financial Officer) is held by a women.
The Deputy Chief Executive Officer and Group Chief Financial Officer
are women.
At least one director is from a minority ethnic background.
One member of the Board is from an ethnic minority background.
2929 Ecclesiastical Insurance Office plc
Governance
Numerical information on representation on the Board a is set out in the Board Diversity Schedule.
Directors’ Length of Service
The Committee monitors the length of tenure of all directors as shown in the table on Board diversity.
Director’s Independence and time commitments
The Board believes that all the Non-Executive Directors were independent throughout 2023. Independence is reviewed as part of each director’s annual
appraisal, considered by the Committee and agreed by the Board annually. The Committee has considered the circumstances and relationships of all Non-
Executive Directors and, following rigorous review, the Committee confirmed to the Board that all Non-Executive Directors remained independent in
character and judgement. No individual participated in the discussions relating to their own independence.
All Non-Executive Directors are directors of the Company’s immediate parent, Benefact Group plc. Francois Boisseau is also a director on the Boards of
Benefact Trust Limited and the Company (‘common directors’). Chris Moulder and Sir Stephen Lamport were also common directors until 6 July 2023 and
5 March 2024 respectively when they stepped down from the Board of Benefact Trust Limited. The common directorship model is regarded as good
practice with a charity that owns a trading subsidiary and these common directors enable the Trust to gain a thorough understanding of its subsidiary
company’s performance and the strategic issues it faces, and for the subsidiary to understand the expectations of its parent company. A joint Company
and Benefact Trust Limited Nominations Committee Meeting is held annually, amongst other things to consider the appointment of common directors.
The Committee evaluates the time non-executive directors spend on the Company’s business annually and is satisfied that, in 2023, the Non-Executive
Directors continued to be effective and fulfilled their time commitment as stated in their letters of appointment.
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.
Succession Planning and Talent Development
The composition of the Board and Senior Management is informed by plans for orderly, rigorous and a phased approach to succession and to reflect the
Group’s strategic ambitions, opportunities and challenges faced.
In respect of each leadership role, emergency, short-term and long-term succession plans are considered and challenged by the Committee to ensure
that appropriate skills are in place to support the Group’s strategy and ensure a diverse pipeline of talent is in place. This is supported by a robust skills
analysis which is conducted for all directors annually. During 2023, the assessment demonstrated that all directors had the required skills, expertise and
knowledge the Board believes are necessary to drive the Group forward.
In support of the Group’s strategy to build a world class team, the Committee reviewed the talent, succession, and leadership activities across the Group.
Board Appointments
The appointment process is set out below:
Appointment Process
An Appointments Panel comprising Chris Moulder, David Henderson, and Rachael Hall was formed for the recruitment of a new Non-Executive Director
with extensive senior experience in the financial services sector or the civil service. A Position Specification for the role based on objective criteria and
having regard to the outcome of the Board skills analysis was developed.
Following a tender process involving three Search Agencies, Sapphire Partners (which had no other connection to the Group) was engaged to support
the recruitment process.
Having due regard to the Board’s diversity and inclusion ambitions, the skills and competences outlined in the specification, and the Group’s ethics, culture
and values, Sapphire Partners drew up a list of potential candidates. This long-list was reduced to a short list by the Appointments Panel and interviews
were held in March 2024. Information on the conclusion of this process will be provided in next year’s Committee Report.
Chairs of the Group Audit Committee and the Group Risk Committee
During the year, we continued to search for a long-term successor to Andrew McIntyre who stepped down as the Chair of the Audit Committee and a
member of the Board on 22 June 2023. As the Board is challenged from a female diversity perspective, the Nominations Committee had hoped that the
3030 Ecclesiastical Insurance Office plc
Governance
successful candidate would be a women. After an extensive market search and much deliberation by the Nominations Committee, it was agreed to suspend
the search and appoint Chris Moulder as Group Audit Committee Chair until his term comes to an end in 2026. Chris Moulder stepped down as Chair of
the Group Risk Committee and was succeeded by Neil Maidment.
Group Chief Financial Officer
Denise Cockrem will retire from her role as an Executive Director and Group Chief Financial Officer on 30 June 2024. The search for a new Group Chief
Financial Officer has commenced and an update will be provided in next year’s Annual Report.
Induction and Training
All Directors undertake a formal, comprehensive and tailored induction upon joining the Board. This includes sessions with key SMEs across the Group.
In addition, the annual training schedule of the Board is developed in consultation with the Committee, the GMB and key SMEs around the Group before
being approved by the Board. It is dynamic and can change to reflect the needs of the Board. Any Director may request further training to support their
individual or collective needs. Throughout the year, the Board received training on reinsurance/credit risk, Consumer Duty, Internal Model, and Task Force
on Climate-Related Financial Disclosures (TCFD)/Climate Change.
The Group Company Secretary maintains annual Continuing Professional Development (CPD) records for all directors, which the Chair reviews as part of
their annual appraisal.
Board Evaluation and Performance
All Directors receive an annual appraisal from the Chair. The Chair is appraised by the Board, in his absence led by the Senior Independent Director.
As explained in last’s year’s Committee report Stephenson Executive Search conducted the external Board Evaluation in late 2022 and early 2023. It had
no connection to the Group or its directors beyond Tim Stephenson, Stephenson Executive Search’s Chair supporting David Henderson in relation to Non-
Executive Director assignments. The Board was content that Mr Stephenson provided an independent view on the performance of the Board, its
committees and individual directors. Mr Stephenson observed Board and Committee meetings and conducted a series of interviews with each director,
the Group Company Secretary, the Group Chief Actuary and the Group Chief Risk and Compliance Officer. The outcome of the evaluation was considered
by the Board in March 2023. The main recommendations arising from the Board Evaluation related to the Board Succession planning as described earlier
in in this report.
3131 Ecclesiastical Insurance Office plc
Governance
Group Risk Committee Report
Neil Maidment
Committee member
Member since
Neil Maidment (Chair) 1
March 2020
Rita Bajaj 2
September 2023
Francois-Xavier Boisseau
April 2019
Sir Stephen Lamport
November 2020
Chris Moulder 3
September 2017
Andrew McIntyre 4
August 2017
Meetings
attended/eligible to
attend
6/6
1/1
6/6
6/6
5/6
3/4
1 Neil Maidment was appointed as the Committee Chair on 22 June 2023.
2 Rita Bajaj joined the Committee on 26 September 2023
3 Chris Moulder stepped down as Committee Chair on 22 June 2023. Chris was unable to attend a meeting due to professional
commitments arranged before the meetings were confirmed
4 Andrew McIntyre was a member of the Committee until 22 June 2023 when he left the Board. Andrew was unable to attend a
meeting due to a professional engagement arranged before the meeting was confirmed
Dear Stakeholder
I am pleased to present this report, my first as Chair of the Group Risk Committee, describing the work undertaken by the Committee during the past year.
I would like to take the opportunity to thank Chris Moulder for leading the Committee over the last five years and his continuing support as a member of
the Committee. I would also like to thank Andrew McIntyre, who stepped down from the Committee during the year, for his valued contribution. We also
welcomed Rita Bajaj as a member of the Committee in September 2023.
Throughout 2023, the Committee monitored the Group’s risk management framework, management of capital, operational resilience and the material
risks facing the Group, paying close attention to impacts from the internal and external environments. The Committee also reviewed the Internal Model
scope, use, governance and validation.
Neil Maidment, Group Risk Committee’s Chair
21 March 2024
The Committee’s key roles are to oversee the Group’s risk management framework (including risk appetite and tolerance) and the Group’s risk and compliance
functions; review conduct and prudential risk (including overseeing the Internal Model); and consider the Group’s exposure in managing financial risks to Climate
Change.
The Group has voluntarily chosen to include this report in addition to the disclosures in the principal risks section. The latter sets out the Group’s principal risks and
uncertainties. The Committee has reviewed these in detail and is comfortable that the business has addressed them appropriately within its ongoing operating
model and strategic priorities.
Meetings were attended by the Group Chair, Deputy Group Chief Executive, Group Chief Risk and Compliance Officer, Group Chief Financial Officer, Group
Underwriting Director, Group Chief Actuary and Group Chief Internal Auditor.
Areas of focus during 2023
During 2023, the Committee continued to monitor the Group’s ongoing operational and financial resilience and its capital and solvency positions, receiving
updates from management particularly in light of direct and indirect impacts from the external environment. These impacts included adverse weather
events in territories in which the Group operates; volatility in global investment markets; inflationary pressures; and cyber risk.
The Committee also monitored the ongoing development, governance, methodology and calibration of the Internal Model; overseeing independent
validation; reviewing profit and loss attribution; and recommending Model changes and management actions to the Board.
3232 Ecclesiastical Insurance Office plc
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During the year, the Committee commenced a review of the Group’s Risk Management Framework Operating Model. The Committee also reviewed an
independent report on catastrophe risk management and the Actuarial Function’s opinions on reinsurance, underwriting and pricing. The Committee also
heard updates from projects to develop the Group’s outsourcing and third-party risk management model and implement new computer systems.
Additionally, the Committee received reports on risk and compliance monitoring; underwriting and insurance risk; market and investment risk; reinsurance;
outsourcing and supplier risk; business continuity; operational resilience; climate change; cyber risk; and the implementation of the Consumer Duty
requirements. The Committee reviewed the Group’s risk appetite, Group Authorities Framework and Own Risk and Solvency Assessment, recommending
them to the Board; oversaw the risk and compliance monitoring and assurance plans; and received the Money Laundering Reporting Officer’s Report.
The Group Chief Risk and Compliance Officer reports to the Committee and has direct access to the Committee Chair and the Non-Executive Directors. The
Committee ensures that it meets with the Group Chief Risk and Compliance Officer at least annually without other management present.
3333 Ecclesiastical Insurance Office plc
Governance
Group Audit Committee Report
Committee member
Member since
Meetings attended
Chris Moulder (Chair) 1
September 2017
Francois-Xavier Boisseau
March 2019
Neil Maidment
Andrew McIntyre 2
March 2020
August 2017
9/10
10/10
10/10
6/6
1 Chris Moulder was appointed as the Committee Chair on 22 June 2023. Chris was unable to attend a meeting due to professional
commitments arranged before the meetings were confirmed
2 Andrew McIntyre was the Chair and a member of the Committee until 22 June 2023 when he left the Board.
Chris Moulder
Dear Stakeholder
I am pleased to present my report as Chair of the Group Audit Committee on the work of the Committee for the year ended 31 December 2023. I would like to
thank Andrew McIntyre who stepped down from the Committee during the year for his valued contribution. Throughout another busy year, the Committee has
continued to play a key role on behalf of the Board to challenge and monitor the integrity of the Group’s financial and regulatory reporting and oversee its
financial controls. In addition, the Committee oversees and challenges the work undertaken in internal and external audit arrangements, the internal control
environment and the processes for compliance with laws, regulation and ethical codes of practice.
The Committee has scrutinised the Group’s financial reporting, ensuring the Annual Report and Accounts are prepared using appropriate judgements and are a
fair reflection of the Group’s performance and position. The significant accounting and reporting issues considered in detail by the Committee are set out in this
report. The new insurance accounting standard IFRS 17 became effective for the Group from January 2023 and continued to be an important part of the
Committee’s agenda. The Committee diligently ensured that internal controls were robust, providing stakeholders with confidence in the accuracy and reliability
of financial information.
The Committee continues to monitor external factors to ensure reporting and controls take into consideration, and respond to, emerging developments and
external risks. During the year, this has included consideration of the proposed reforms to the UK’s corporate governance and audit regimes and the impact of
the higher cost of living on our customers and colleagues.
The role of the Committee in the Group’s governance framework is vital, providing independent challenge and oversight across financial reporting and internal
control procedures. The Committee ensures the interests of our shareholders are protected by providing independent scrutiny and challenge to ensure the Group
always presents a true and fair view of its performance, with a focus on the accuracy, integrity and communication of its financial reporting. The Committee also
examines the Group’s control environment and strategies for risk management , providing assurance these are managed appropriately. We remain satisfied that
the business has maintained a robust risk management and internal controls culture, supported by strong overall governance processes.
Chris Moulder
Chair of the Group Audit Committee
21 March 2024
Members of the Committee
Committee members are Non-Executive Directors and bring a wide range of financial, risk, control and commercial expertise, with a particular depth of experience
in the insurance sector that are necessary to fulfil the Committee’s duties. The Committee is also then able to challenge and scrutinise management’s work. The
Board considers that the Committee has recent and relevant financial experience and accounting competence and that the Committee as a whole is appropriately
competent in the sectors in which the Group operates.
Committee meetings
In addition to the members of the Committee, regular attendees of Committees included the Chair of the Board, Group Chief Executive Officer, Deputy Group Chief
Executive, Group Chief Financial Officer, Group Chief Internal Auditor and representatives of the Group’s external auditors. Other subject matter experts are invited
to attend certain meetings in order to provide insight into key issues and developments.
3434 Ecclesiastical Insurance Office plc
Governance
During the year, PricewaterhouseCoopers (PwC) attended nine of the Committee’s meetings. During the year, the Committee met privately with the Group’s
external auditors without management present.
The Committee’s key responsibilities and activities include:
•
•
•
•
•
•
•
•
scrutinising the financial statements and reviewing accounting policies and significant judgements and estimates;
reviewing the contract of the content of financial reporting and advising the Board whether, taken as a whole, they are fair, balanced and understandable;
reviewing the going concern basis of preparation of the financial statements and statements on viability for recommending to the Board;
reviewing climate and non-financial metrics reporting;
reviewing tax strategy and policies;
reviewing the Group’s whistleblowing arrangements;
overseeing 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.
When the Committee discharges its responsibilities these are extended to include Ecclesiastical Insurance Office plc’s immediate parent Benefact Group plc and
matters related to its own subsidiary undertakings and interests.
A summary of the main activities of the Committee during the year is set out below:
Auditor appointment and tenure, 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.
PwC has acted as the Group’s external statutory auditor following appointment at the Annual General Meeting in June 2020. The Group’s policy for auditor
rotation follows regulatory requirements and PwC will be required to be rotated after no more than 20 years, and an audit tender held after no more than
10 years. Sue Morling of PwC became the Group’s senior statutory auditor for the financial year 2020 after PwC’s appointment. Her term as senior
statutory auditor is due to conclude upon the completion of the 2024 audit.
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 purpose of the policy is to safeguard the independence and objectivity of the
external auditor and to comply with the ethical standards of the Financial Reporting Council (FRC).
The Committee oversees the plan for the external audit to ensure it is comprehensive, risk-based and cost-effective. 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 46. In order to focus the
audit work on the right areas, the auditors identify particular risk issues based on various factors, including their knowledge of the business and operating
environment and discussions with management.
For the year ended 31 December 2023, the Group was charged £2,494,000 (ex VAT) by PwC for audit services. Non-audit fees for audit-related assurance
services required by legislation and/or regulation amounted to £156,000, making total fees from PwC of £2,650,000. There were no other non-audit
services provided by PwC during the financial year. Audit fees for 2023 include amounts related to the implementation of IFRS 17 Insurance Contracts in
the year. More detail can be found in note 11 to the financial statements.
External audit effectiveness
The Committee assesses the effectiveness of the external auditor annually against several 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.
The Committee reviewed a report based on input from senior management, business unit leaders and those most involved in the external audit process,
regarding the PwC 2022 statutory audit and audit-related assurance services. The Committee recognised the strengths of the external auditor and that
duties were performed independently and effectively.
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;
3535 Ecclesiastical Insurance Office plc
Governance
•
•
•
•
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, including a review of
the corporate governance disclosures, monitoring of the external audit process and statements about going concern and viability. The Committee
concluded that it remained appropriate to prepare the financial statements on a going concern basis and recommended the viability statement to the Board
for approval.
The Committee reviewed and challenged the Group’s annual regulatory submissions under Solvency II. The Committee focused on the reporting
requirements of the publicly filed Solvency and Financial Capital Report (SFCR) and Quantitative Reporting Templates (QRTs) and privately filed Regular
Supervisory Report (RSR) Annual Update.
The significant areas of focus considered by the Committee in relation to 2023, and how these were addressed, are outlined below. These were discussed
and agreed with management during the course of the year, and also discussed with the auditors.
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 Head of Group Reserving 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 the auditor also provided detailed reporting on these matters to the
Committee.
Key areas of focus for the Committee during 2023 have been the Group latent claim reserves, Australia general
liability reserves, claims inflation, weather events impacting Group companies, premium allocation approach
eligibility and the risk adjustment.
Following their reviews and discussions, the Committee’s opinion was that the reserving process and outcomes
were robust, applied consistently, were well managed and that the overall reserves set were reasonable as
disclosed in note 26 of the financial statements.
The Committee was satisfied that management have carried out a thorough review of the drivers of uncertainty
and have arrived at an appropriate recommendation for the level of booked reserves including the risk
adjustment.
The Committee considered a report from the Chief Actuary of Ecclesiastical Life Limited (ELL) (the Group’s life
business) which set out recommendations for the basis and methodology to apply for:
•
•
valuation of policy liabilities for inclusion in the report and accounts for ELL at 31 December 2023, and
the calculation of technical provisions in accordance with Solvency II regulations at 31 December 2023.
The main areas of judgement reviewed by the Committee were the estimated future cash flows and the discount
rate applied to future cash flows. The Committee also challenged the assumptions regarding mortality rates and
future attributable expenses which impact the estimated future cashflows.
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.
Following its review, and after consideration of PwC’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 26 of the financial statements.
Pension scheme accounting
The Group’s liabilities of the
During 2023, 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
3636 Ecclesiastical Insurance Office plc
Governance
scheme are material in
comparison to the Group’s net
asset 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.
Valuation of intangible assets
The valuation and impairment
reviews carried out over
intangible assets, particularly
software, is an area of focus for
the Committee given the Group’s
investment in technology and the
materiality of the balance.
Valuation of unlisted equity
This is an area of focus for the
Committee given the materiality
and the subjectivity in deriving fair
value.
The judgements and estimates
used to determine the value of the
Group’s interest in unlisted equity
follow industry recognised fair
value model techniques and the
principles of IFRS 13 Fair Value
Measurement. Judgements and
estimates include the selection of
the most appropriate valuation
approach, the set of comparable
companies, choice of valuation
multiples and the setting of an
illiquidity discount.
and including, where appropriate, benchmark data, and reported its findings to the Committee. Improvements in
the pension actuary’s models increased the accuracy, and also dynamically captured changes in the scheme’s
liability profile.
Following the review, management concluded the future improvements in mortality table will be updated to the
CMI 2022 table. It was deemed that mortality rates in 2022 could be indicative of future mortality to some extent
and that a default weighting of 25% should be applied to 2022 mortality data in the CMI 2022 table.
It was concluded that the salary assumptions remained consistent with long-term expectations. The best estimate
multipliers for the post-retirement mortality tables were revised following input from the Scheme Actuary.
Following consideration, the Committee concluded that the assumptions proposed were appropriate and
consistent with approach known by Committee members to be taking place and considered in practice.
The impact of updating assumptions to reflect those in force at the balance sheet date on the valuation at 31
December 2023 is explained in note 17 to the financial statements.
The Group’s significant investment in technology, together with fast-moving technology development and
change, increases the importance of a detailed assessment of the value of assets and the implications of further
investment. The Committee considered management’s work to test and review the value of assets and any
consequent impairments or changes to useful lives. The Committee concurred with management’s conclusions
that, after impairments, carrying values were appropriate.
The Committee received information from management on Group’s unlisted equity investments and the model
used to determine fair value of these investments. The Committee paid particular attention to the application of
industry recognised valuation techniques and areas of the portfolio more susceptible to valuation uncertainty.
When considering management’s assessment of the fair value of unlisted equities, the Committee considered the
fair value model and inputs used. Particular consideration was given to the judgements included within the model
that management used to determine a valuation. This included the discount applied for illiquidity, the quantity and
suitability of comparable companies used within the model and specific adjustments made to respond to market
expectations of the valuation of fixed income securities held by comparable companies.
The Committee concluded that the number of reinsurers in the comparator group remained appropriate and that
it was appropriate to continue make specific adjustments that deal with specific market expectations.
The illiquidity adjustment represents a reasonable estimate of the lower value a market participant would place
on the asset compared to highly liquid assets traded on a public and active market. After consideration, the
adjustment was increased during 2023 as a result of another shareholder selling their shares.
Following consideration, the Committee concluded that the assumptions proposed were appropriate.
The Committee is constituted as a committee of the Board of Directors of both Ecclesiastical Insurance Office plc and its immediate parent, Benefact Group
plc. As a result, the Committee will also consider matters that are specific to the Group, Benefact Group plc and therefore items that are not included within
Ecclesiastical Insurance Office plc’s financial statements within this Annual Report and Accounts. The Committee considered a number of accounting
judgements and reporting matters in the preparation of Benefact Group’s financial results in a manner consistent with that set out within this report. This
included the carrying value of goodwill and both the valuation of other intangibles and accounting treatment of a material acquisition in the Benefact Group’s
broking and advisory division.
Implementation of IFRS 17 Insurance Contracts
In 2023, the Group Audit Committee played a pivotal role in overseeing the successful implementation of IFRS 17, the new standard for insurance contracts
issued by the International Accounting Standards Board (IASB), effective for the Group from 1 January 2023. Recognising the importance of this accounting
change on financial reporting, the Committee engaged with management and external auditors. The Committee’s efforts were focused on ensuring a
seamless transition, the appropriate application of the standard into the Group’s accounting policies, a thorough assessment of data systems, actuarial
methodologies and financial processes. This included consideration of key judgements involved in the implementation, including the level of aggregation
and risk adjustment. The Committee actively monitored the progress of the implementation project, providing valuable insights to mitigate potential risks and
enhance the accuracy of financial statements.
3737 Ecclesiastical Insurance Office plc
Governance
Climate change risk and related disclosures
During the year the Committee continued to strengthen its understanding of the developments of disclosures regarding climate change and its impacts. This
included the Committee receiving training from external and internal experts. The Committee discussed with management the continued development of the
Group’s disclosures regarding climate change risks and impacts which are included principally within the Annual Report and Accounts of the Benefact Group
plc. The Committee’s review paid particular attention to the transparency of disclosure and alignment to Task Force on Climate-Related Financial Disclosures
along with the challenges in working towards net-zero. As the Benefact Group and the Group develops its response to the risks and impacts of climate
change the Committee expects to consider management’s evaluation of the potential impact on the financial statements and the evolution of disclosure.
Fair, balanced and understandable
The Committee considered whether in its opinion, the 2023 Annual Report and Accounts were fair, balanced and understandable and provided the
information necessary for shareholders to assess the Group’s position and performance, business model and strategy. The Committee has reviewed and
provided feedback on early drafts of the Annual Report and Accounts, highlighting any areas where further clarity was required in the final version.
The Committee was provided with comprehensive verification of all the information and facts in the Annual Report and Accounts. When forming its opinion,
the Committee reflected on information it had received and discussions throughout the year as well as its knowledge of the business and its performance.
When forming its opinion, in particular, the Committee considered:
Is the report fair?
-
-
-
Does the financial reporting reflect the key messages within narrative statements?
Is the story complete and is there any sensitive material that has been omitted that should have been included?
Does the Group that is portrayed in the Annual Report and Accounts reflect the Group discussed by the Committee and the Board?
Is the report balanced?
-
-
Are the key areas of judgement included within any narrative reporting and significant matters discussed within this Committee report consistent
with the disclosures within the financial statements?
Are the significant and higher risk areas identified within the Annual Report and Accounts also those risks identified and reported by PwC.
Is the report understandable?
-
-
-
Does the reporting focus on the more significant items and not become obscured with immaterial detail?
Are the important messages highlighted up front?
Does the report use clear and concise language and provide simple explanations of topics?
The Committee was satisfied that the disclosures in the Annual Report and Accounts, taken as a whole, are fair, balanced and understandable and
represented the results and business performance for the year ended 31 December 2023.
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 section of this Annual Report and
Accounts.
In reviewing the effectiveness of the system of internal control and risk management during 2023, 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 Group Chief Internal Auditor;
met with the Group Chief Internal Auditor 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 Group Chief Internal Auditor 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;
3838 Ecclesiastical Insurance Office plc
Governance
•
•
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 co-sourcing arrangements the UK,
Ireland and Canada where specialist resource is required to supplement existing Group resources. In addition, GIA oversees and monitors the outsourced
internal audit arrangements in Australia.
The Committee has oversight responsibility for GIA and is satisfied that GIA has appropriate resources. The Group Chief Internal Auditor is accountable to
the Committee Chair, reports administratively to the Group Chief Financial Officer and has access to the Group Chief Executive and the Chair of the Board.
The function also has an extensive stakeholder management programme across the whole of the Group.
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. Throughout the year, GIA submitted quarterly reports to
the Committee summarising findings from audit activity undertaken and the responses and action plans agreed with management. During the year, the
Committee monitored progress of the most significant management action plans to ensure that these were completed in a timely manner and to a
satisfactory standard.
Whistleblowing
During the year, the Committee continued to perform regular oversight of the Group’s whistleblowing arrangements, which are the responsibility of the
Board and overseen by Group HR. Actions have focussed on ensuring an environment in which whistleblowing is well understood, openly communicated
and that a positive culture for raising concerns is promoted across the Benefact Group.
The Group has an established annual whistleblowing activity cycle encompassing training, communication and monitoring. Online training modules for all
colleagues and managers in both whistleblowing and code of conduct increase and maintain awareness and emphasise an open and positive culture.
Individual attestation and quarterly reporting ensure the continued close monitoring of whistleblowing activity and understanding across the Group. These
annual actions are reinforced by regular colleague communications and awareness raising activities. The Group’s whistleblowing procedures, polices and
guides are also reviewed and updated annually to ensure that, in line with best practice, they are accessible, easily understood and are aimed to encourage
and give confidence to potential whistleblowers.
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.
The year ahead
The Committee remains vigilant in its commitment to fostering a culture of excellence in financial governance. Its forward-looking approach includes
proactively addressing potential challenges such as emerging accounting standards, technological advancements, and global economic shifts. In the
upcoming year, the Committee will intensify efforts to enhance the effectiveness of risk management processes, ensuring alignment with organisational
objectives, staying well-informed of industry best practices to meet the demands of an ever-evolving business landscape. The Committee will continue to
collaborate closely with management and stakeholders, fostering transparency, accountability, and resilience in the face of dynamic market conditions.
The focus on innovation, adaptability, and the highest standards of financial stewardship will be key in the pursuit of sustained corporate integrity.
3939 Ecclesiastical Insurance Office plc
Governance
Remuneration Committee Report
Remuneration Review
Remuneration Committee Chair’s statement
As Chair of the Remuneration Committee (the Committee), I am pleased to introduce the Remuneration Review for 2023 and to highlight some of the key
aspects of the Committee’s work during the year. The Committee’s principal aim remains to ensure that all colleagues are rewarded fairly according to
their contribution to the success of the Group and the quality of their individual performance, keeping carefully in mind the relationship between reward,
recruitment and retention.
This review sets out an overview of remuneration at EIO which is aligned with that at Benefact Group. The full Group Directors’ Remuneration Report is
available in the Benefact Group Annual Report.
Remuneration principles
To ensure these continue to drive the Group’s strategy and to achieve long-term success by the delivery of the expected level of grant to the Group’s
shareholder and owner Benefact Trust Limited, remuneration continues to be underpinned by the following principles: fair reward; simplification of the
Group’s incentive arrangements; compliance with evolving regulatory and corporate governance requirements; linking pay and performance; alignment
of incentive designs with the Group’s strategy and shareholder expectations; and consideration of the reputational impact of any changes.
2023 performance and incentive outcomes
The financial results for EIO are set out in the CEO’s report. 2023 continued, however, to be a challenging year for customers, brokers, business partners
and colleagues alike. The Committee note with thanks the efforts of all our colleagues in continuing to deliver what matters most to the business:
supporting our customers by providing excellent customer service, maximising its grant to the shareholder, and delivering on the next chapter in our
strategy and continued ambition for the future.
During the year EIO also provided additional support to employees in the context of the cost-of-living crisis. This included a one-off award based on grade
to ensure that support was targeted to those who needed it most.
The annual bonus and long-term incentive plan outcomes in the year reflected the wider Group performance. The Committee considered that the annual
bonus outcomes were a fair reflection of the overall performance achieved by both the Group and the individuals. Having considered all the relevant
factors, the Committee determined that a discretionary adjustment to the Broking and Advisory: Turnover metric be applied to achieve the threshold for
this element, given actual performance was so close to the threshold level. No discretion was applied to the long -term incentive plan. Further details of
performance against the targets set for 2023 are disclosed in the Benefact Group plc 2023 Directors’ Remuneration Report.
In line with the Committee’s established practice, the Committee, supported by the Group Chief Risk and Compliance Officer, considered risk management
outcomes across the Group as part of its deliberations, including how these had impacted individual performance assessments where relevant. Following
this review, the Committee did not consider further risk adjustment of the awards was necessary.
The Committee is of the view that the remuneration policy operated as intended during the year and that the overarching remuneration framework is
appropriate taking into account both internal and external factors.
Key Committee activities during the year
Salaries for executive directors were increased taking into account of salary increases across the wider employee population.
During the year the Committee undertook a comprehensive review of the remuneration packages of the Executive Directors to ensure that they are aligned
with the Group’s strategic objectives and reflect both the experience and track record of the Executive Directors. Following this review the Committee has
determined to increase the maximum incentive opportunities for the Executive Directors to ensure that the total remuneration package is competitive and
to ensure that we continue to award appropriately for performance. Any payment under incentives will continue to be subject to stretching performance
targets. Further detail on the incentive opportunity increases is disclosed in the Benefact Group plc 2023 Directors’ Remuneration Report.
In addition, the Committee has reviewed the performance measures to ensure that they continue to be aligned to the Group’s strategy and has made some
minor adjustments to the measures and weightings for 2024, including simplifying the number of sub-measures in the Greater Good measure in the annual
bonus scheme.
The Committee considered the Chair’s fees as part of the regular review of NEDs’ fees. David Henderson took no part in the discussions on his fees, nor
the NEDs in discussion of theirs.
4040 Ecclesiastical Insurance Office plc
Governance
Gender pay gap report
The Group’s gender pay report for 2023 showed our median gender pay gap remained unchanged at 19.1% for EIO. The wider Group median pay gap has
slightly increased at 25.7%. The Group continues to be committed to promoting inclusion and diversity through our business and to ensuring that all
employees have a fair and equal pay opportunity appropriate to their role.
Conclusion
I value the continued support and counsel of our charitable owner and ultimate shareholder, Benefact Trust Limited, and reaffirm our responsibility to
drive sustained and improved performance over the long-term through our remuneration strategy, policy and principles.
Sir Stephen Lamport
Chair of the Group Remuneration Committee
21 March 2024
Committee member
Member since
Meetings attended
Sir Stephen Lamport (Chair)
June 2020
David Henderson
September 2016
Neil Maidment
Angus Winther
March 2020
April 2019
5/5
5/5
5/5
4/5
Angus Winther was unable to attend a Group Remuneration Committee meeting due to a bereavement.
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.
All members are independent Non-Executive Directors (NED) and have the necessary experience and expertise to meet the Committee’s responsibilities.
There was cross-membership of the Group Risk Committee and the Committee to promote alignment of the Group’s Risks and Remuneration Policies and
consideration of Risk management and outcomes in setting reward.
Advisers to the Committee
During the year, the Committee received external advice from Deloitte in relation to the strategic review of remuneration including simplification of bonus
schemes and the approach to benchmarking; remuneration packages for Executive Directors, members of the GMB and heads of strategic business units;
and remuneration market trends and regulation. The Committee also had access to benchmarking reports from Willis Towers Watson and McLagan, which
provided additional data to support the determination of pay and conditions throughout the Group.
Fees for professional advice to the Committee paid to Deloitte were £115,650 (2022: £81,375). The Committee is satisfied that the advice it received during
2023 from Deloitte was impartial.
To assist its work, during the year the Committee received input from the Group Chief Executive, Group Chief Financial Officer, Group Chief People Officer,
Group HR Director, Group Chief Actuary, Group Chief Risk and Compliance Officer and Group Reward Director. Such input, however, did not relate to their
own remuneration.
Remuneration Policy summary
The full Benefact Group Directors’ Remuneration Policy can be found in the 2021 Directors’ Remuneration Report which sets out the key features of the
remuneration policy and how it will be implemented, as well as a full description of the principles which underpin the Group’s reward structure, including
detail on how the Committee has addressed the principles in the UK Corporate Governance Code of: i) clarity; ii) simplicity; iii) risk; iv) predictability; v)
proportionality; and vi) alignment to culture.
4141 Ecclesiastical Insurance Office plc
Governance
The remuneration structure for the Executive Directors comprises of:
-
-
Fixed annual elements including salary, pension contribution that is aligned with the wider employer population, and benefits. These are set in
order to recognise the responsibility and experience of the Executive Directors and to ensure current market competitiveness.
Variable incentive elements including an annual bonus, with one-third of the total bonus deferred over three years, and a long-term incentive
plan. These are set in order to incentivise and reward the Executive Directors for making the Group successful on a sustainable basis. Both the
annual bonus and long-term incentive plan are subject to a balanced scorecard of financial and non-financial measures aligned to our strategy.
Annual Report on Remuneration
This section of the Directors’ Remuneration Report sets out how the above Remuneration Policy was implemented in 2023 and the resulting payments
the highest paid director received, and the aggregate remuneration paid to all directors. The financial information contained in this review has been audited
where indicated.
Highest paid Director
The table below shows a single total figure of remuneration received in respect of qualifying services for the 2023 financial year for the highest paid
director, together with comparative figures for 2022. The remuneration disclosures for the other Board Directors are set out in full in the Benefact Group
plc 2023 Directors’ Remuneration Report. The disclosure in this review is not specific to time allocated within EIO as remuneration relates to Group-wide
accountability.
Fixed remuneration
£000
Variable remuneration
£000
Total
remuneration
£000
Salary
Benefits1
Pension benefit2
Total
Annual
bonus3
Long Term
Incentive Plan
(LTIP)4
Total
Total
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
517
493
14
14
54
53
585
560
356
391
362
245
718
636
1,303
1,196
1 Benefits include car allowance and private medical insurance which are valued at the taxable value. Provision of benefits during 2023 was in line with
the Directors’ Remuneration Policy.
2 The highest paid director received a cash allowance in lieu of pension of 12% from 1 April 2022 (15% to 1 April 2022).
3 In line with the deferral policy, for annual bonus earned, one-third of the total bonus is deferred over a period of three years. The value of 2023 annual
bonus that is deferred is set out in the Benefact Group plc 2023 Directors’ Remuneration Report.
4 LTIP represents the amount payable in respect of the three-year LTIP performance period 2021-2023 for 2023 and 2020-2022 for 2022, as disclosed
in the 2022 Directors’ Remuneration Report. The Group operates a cash LTIP scheme, therefore no part of the award was attributable to share price
appreciation. The director holds unvested LTIP awards in accordance with the rules of the LTIP plan.
Annual bonus outcomes for 2023
The annual bonus outturns were determined taking into account both Benefact Group and individual performance and is set out in full in the Benefact
Group plc 2023 Directors’ Remuneration Report.
LTIP outcomes in 2023 (audited)
The LTIP amount included in the single total figure of remuneration is the cash award resulting from the Group LTIP grant for the period 2021-2023.
Vesting was dependent on performance over the three financial years ending on 31 December 2023 is set out in full in the Benefact Group plc 2023
Directors’ Remuneration Report.
Wider stakeholder engagement
The Group consults with its recognised Union, Unite, regarding remuneration for employees within relevant UK businesses. Additionally, employees can
provide feedback via the Group’s employee engagement survey and to their managers or HR. The Group Chief People Officer attends the Committee
meetings and advises the Committee on HR strategy, including the effectiveness of the Group’s remuneration policies and how they are viewed by
employees.
4242 Ecclesiastical Insurance Office plc
Independent auditors’ report to the members of Ecclesiastical Insurance
Office plc
Report on the audit of the financial statements
Opinion
In our opinion, Ecclesiastical Insurance Office plc’s group financial statements and company financial statements (the “financial statements”):
•
•
give a true and fair view of the state of the group’s and of the company’s affairs as at 31 December 2023 and of the group’s profit and the
group’s and company’s cash flows for the year then ended;
have been properly prepared in accordance with UK-adopted International Accounting Standards as applied in accordance with the
provisions of the Companies Act 2006; and
have been prepared in accordance with the requirements of the Companies Act 2006.
•
We have audited the financial statements, included within the Annual Report and Financial Statements, which comprise: Consolidated and Parent
Statements of Financial Position as at 31 December 2023; Consolidated Statement of Profit or Loss, Consolidated and Parent Statements of
Comprehensive Income, Consolidated and Parent Statements of Cash Flows and Consolidated and Parent Statements of Changes in Equity for the year
then ended; and the notes to the financial statements, comprising material accounting policy information and other explanatory information.
Our opinion is consistent with our reporting to the Group Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under ISAs (UK)
are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK,
which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided.
Other than those disclosed in Note 11, we have provided no non-audit services to the company or its controlled undertakings in the period under audit.
Our audit approach
Context
The company is a UK headquartered general insurer. The majority of business is written in the UK however it also has branches in Ireland and Canada and
subsidiaries in Australia. In previous periods, the Group headed by Ecclesiastical Insurance Office plc had included subsidiaries that carried out general
insurance, life insurance, investment management and financial advisory and broking business. As a result of a group restructure, the Ecclesiastical
Insurance Office Group now consists of subsidiaries that carry out general insurance and life insurance only.
Overview
Audit scope
•
We have scoped the audit based on the financially significant components and material account balances within the group, which are described
below.
Key audit matters
•
•
Assumptions used in calculating Physical and Sexual Abuse “PSA” reserves (Group and Parent)
The transition to IFRS 17 required a number of judgements and assumptions to be made, the most important being the appropriateness of the
Premium Allocation Approach "PAA" to certain contracts and the methodology and assumptions used in the calculation of the risk adjustment
(Group and Parent)
Materiality
•
•
•
Overall group materiality: £11,300,000 (2022: £10,000,000) based on 1.8% of net assets.
Overall company materiality: £10,700,000 (2022: £9,500,000) based on 1.8% of net assets (capped at 95% of overall Group materiality).
Performance materiality: £8,500,000 (2022: £7,500,000) (group) and £8,100,000 (2022: £7,125,000) (company).
4343 Ecclesiastical Insurance Office plc
Independent auditors’ report to the members of Ecclesiastical Insurance
Office plc
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the 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) identified by the auditors, including
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, and any comments we make on the results of our procedures thereon, 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.
This is not a complete list of all risks identified by our audit.
The transition to IFRS 17 required a number of judgements and assumptions to be made, the most important being the appropriateness of the Premium
Allocation Approach “PAA” to certain contracts and the methodology and assumptions used in the calculation of the risk adjustment (Group and Parent)
is a new key audit matter this year. Otherwise, the key audit matters below are consistent with last year.
Key audit matter
How our audit addressed the key audit matter
Assumptions used in calculating Physical and Sexual Abuse “PSA” reserves
(group and parent) (group and parent)
As disclosed in the Group Audit Committee Report and notes 2, 3 and 26.
The valuation of the general insurance liability for incurred claims is a
complex process
is a significant
area of management judgement within the financial statements of the
group and parent company.
inherent uncertainty and
involving
We engaged our actuarial specialists and with their involvement, we
have performed the following procedures in relation to the fulfilment
cash flows:
The uncertainty around claims frequency, claims severity, discount rate,
future
inflation and risk adjustment require significant management
judgement and estimation in calculating the overall insurance contract
liabilities.
Inspected the Reserving Committee control which reviews, challenges
and approves the assumptions used within the calculation of the
fulfilment cash flows;
We consider the area of significant judgement to be specific to assumptions
used in calculating the fulfilment cash flows for PSA exposures, specifically
in relation to the probability weighted best estimate of the liability for incurred
claims.
Challenged the assumptions used by management
including
evaluation of historic claim numbers, average claims cost, future
inflation, as well as the specific uncertainties included within the risk
adjustment;
Specifically, the assumptions requiring significant judgement and estimation
are claims frequency, claim severity, the discount rate, future inflation, and
specific uncertainty margins included within the risk adjustment.
Evaluated reasonable alternative assumptions by performing
independent sensitivity analysis and assessing the impact on the
value of fulfilment cash flows calculated;
We have assessed the appropriateness of the resulting liability for
incurred claims based on the assumptions selected.
Based on the work performed and evidence obtained, we consider the
assumptions used in the calculation of the PSA fulfilment cash flows
to be appropriate.
The transition to IFRS 17 required a number of judgements and assumptions to
be made, the most important being the appropriateness of the Premium
Allocation Approach "PAA" to certain contracts and the methodology and
assumptions used in the calculation of the risk adjustment. (Group and Parent)
As disclosed in the Group Audit Committee Report and notes 1, 2 and 26, The
group and company adopted IFRS 17 for insurance contracts as at 1 January
2023. This has led to changes in the valuation of insurance contract
liabilities, recognition of insurance revenue and expenses and presentation
of the financial statements.
We have engaged our actuarial specialists and with their
involvement, we have performed the following procedures to
address the risks identified;
PAA eligibility
We determined that elements of the transition to IFRS 17,comprised a key
audit matter due to the complexity of the new standard and the nature of the
judgements and estimation techniques involved. The elements were the
eligibility of the premium allocation approach and the methodology and
assumptions used in the calculation of the risk adjustment.
Performed detailed testing over a sample of underlying insurance
contracts to assess the contract boundaries;
4444 Ecclesiastical Insurance Office plc
Independent auditors’ report to the members of Ecclesiastical Insurance
Office plc
PAA eligibility
The majority of the company's policies have a coverage period of one year
or less and are therefore automatically eligible to apply PAA. For policies
with a coverage period greater than 12 months, judgement is required to
determine whether there would be a material difference in applying the PAA
or the General Measurement Model (“GMM”) which requires a number of
judgments and assumptions:
●
●
●
●
●
The assessment of the contract boundaries of underlying
contracts;
The calculation of a GMM liability for remaining coverage;
Claims assumptions used in the base scenario;
Reasonable expected scenarios; and
Evaluation of differences between PAA and GMM calculated
liabilities.
Risk Adjustment
IFRS 17 requires a Risk Adjustment to be recognised which represents the
company’s view of compensation for non-financial risk. The calculation of
the Risk Adjustment is subjective and an area of judgement particularly in
the case of the company which has classes of non-life liabilities that are
settled over a long period of time.
Independently recalculated the GMM liability for remaining
coverage;
Tested the appropriateness of the assumptions including loss ratios,
payment patterns and discount rate, in the base scenario by
evaluating historic experience and reconciling to approved forecasts;
Assessed the appropriateness of management’s reasonably
expected scenarios based on historic experience and evaluation of
wider market conditions; and
Evaluated management’s conclusions in respect of the materiality of
differences between GMM and PAA.
Risk Adjustment
Engaged our actuarial specialists and with their involvement, we
have performed the following procedures to address the risks
identified in relation to the risk adjustment;
Evaluated management’s approach to the risk adjustment and it’s
compliance with the requirements of IFRS 17;
Assessed the appropriateness of the methodology and assumptions
used to derive the risk adjustment and testing of the derivation of the
risk adjustment, including the appropriateness of allowance for
diversification between lines of business and additional uncertainty
margins.
Assessed the sufficiency of risk adjustment disclosures included
within the financial statements.
Based on the work performed and evidence obtained, we consider
the application of PAA eligibility and assumptions used in calculation
of risk adjustment to be appropriate.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking
into account the structure of the group and the company, the accounting processes and controls, and the industry in which they operate.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking
into account the structure of the group and the parent company, the accounting processes and controls, and the industry in which they operate. The group
operates a general insurance business in the United Kingdom, Republic of Ireland, Canada and Australia and a life insurance business. The group also
includes certain non-insurance entities within the United Kingdom and Australia which are smaller and do not form part of our in-scope components. We
consider the general insurance business in the United Kingdom and the consolidation adjustments to be financially significant reporting components and
have performed a full scope audit of these components. The general insurance business in the Republic of Ireland, Canada and Australia as well as the
life insurance business were noted to include specific large balances which have then been brought into the scope of our audit.
The impact of climate risk on our audit
As part of our audit we made enquiries of management to understand the process that has been adopted to assess the extent of the potential impact of
climate risk on the Group’s and Parent's financial statements and to support disclosures made. We remained alert when performing our audit procedures
4545 Ecclesiastical Insurance Office plc
Independent auditors’ report to the members of Ecclesiastical Insurance
Office plc
for any indicators of the impact of climate risk, including in our testing of the valuation of investment assets and the valuation of insurance liabilities which
have been identified as areas of higher risk of impact. We also considered the consistency of the disclosures in relation to climate change between the
Annual Report and the financial statements based on the knowledge obtained from our audit. Our conclusions were that the impact of climate change
does not give rise to a Key Audit Matter for the Group and it did not impact our risk assessment for any material Financial Statement line item or disclosure.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with
qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial
statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a
whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall
materiality
How we
determined it
Rationale for
benchmark
applied
Financial statements - group
£11,300,000 (2022: £10,000,000).
Financial statements - company
£10,700,000 (2022: £9,500,000).
1.8% of net assets
1.8% of net assets (capped at 95% of overall group materiality)
The engagement team concluded that a net assets benchmark is the
most appropriate when setting an overall materiality on the 2023
audit engagement. In our view, we consider net assets to be the
appropriate benchmark as it best aligns with the underlying interest
of the stakeholders. The quantum of materiality was determined by
considering the various benchmarks available to us as auditors, our
experience of auditing other insurance groups and the business
performance during 2023.
In line with overall group materiality, the engagement team
concluded that a net assets benchmark
is the most
appropriate when setting an overall materiality. This is capped
at 95% of overall group materiality to allow for potential
aggregation risk.
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range of materiality
allocated across components was between £2.0 million and £10.3 million. Certain components were audited to a local statutory audit materiality that was
also less than our overall group materiality.
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements
exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and extent of our testing of
account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance materiality was 75% (2022: 75%) of
overall materiality, amounting to £8,500,000 (2022: £7,500,000) for the group financial statements and £8,100,000 (2022: £7,125,000) for the company
financial statements.
In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment and aggregation risk and
the effectiveness of controls - and concluded that an amount in the middle of our normal range was appropriate.
We agreed with the Group Audit Committee that we would report to them misstatements identified during our audit above £565,000 (group audit) (2022:
£500,000) and £540,000 (company audit) (2022: £475,000) as well as misstatements below those amounts that, in our view, warranted reporting
for qualitative reasons.
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the group's and the company’s ability to continue to adopt the going concern basis of accounting included:
•
•
•
•
Obtained and reviewed management’s going concern assessment which included the board approved income statement, balance sheet, cash
flow and solvency forecasts along with stressed and downside scenarios;
Considered the forward looking assumptions and assessed the reasonableness of these based on recent historic performance;
Considered information obtained during the course of the audit and publicly available market information to identify any evidence that would
contradict management’s assessment; and
Considered our own independent alternative downside scenarios and whether these could impact the going concern assessment.
4646 Ecclesiastical Insurance Office plc
Independent auditors’ report to the members of Ecclesiastical Insurance
Office plc
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively,
may cast significant doubt on the group's and the company’s ability to continue as a going concern for a period of at least twelve months from when the
financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial
statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the group's and the company's ability to
continue as a going concern.
In relation to the directors’ reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention to
in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis
of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The
directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do
not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance 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 an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material
misstatement of 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 based on these responsibilities.
With respect to the Strategic report and Directors' Report, we also considered whether the disclosures required by the UK Companies Act 2006 have been
included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters as described
below.
Strategic report and Directors' Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Directors' Report for the year
ended 31 December 2023 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the group and company and their environment obtained in the course of the audit, we did not identify any
material misstatements in the Strategic report and Directors' Report.
Corporate governance statement
ISAs (UK) require us to review the directors’ statements in relation to going concern, longer-term viability and that part of the corporate governance
statement relating to the company’s compliance with the provisions of the UK Corporate Governance Code, which the Listing Rules of the Financial Conduct
Authority specify for review by auditors of premium listed companies. Our additional responsibilities with respect to the corporate governance statement
as other information are described in the Reporting on other information section of this report.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance statement is
materially consistent with the financial statements and our knowledge obtained during the audit, and we have nothing material to add or draw attention
to in relation to:
•
•
•
The directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks;
The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging risks and an
explanation of how these are being managed or mitigated;
The directors’ statement in the financial statements about whether they considered it appropriate to adopt the going concern basis of accounting
in preparing them, and their identification of any material uncertainties to the group’s and company’s ability to continue to do so over a period
of at least twelve months from the date of approval of the financial statements;
4747 Ecclesiastical Insurance Office plc
Independent auditors’ report to the members of Ecclesiastical Insurance
Office plc
•
•
The directors’ explanation as to their assessment of the group's and company’s prospects, the period this assessment covers and why the
period is appropriate; and
The directors’ statement as to whether they have a reasonable expectation that the company will be able to continue in operation and meet its
liabilities as they fall due over the period of its assessment, including any related disclosures drawing attention to any necessary qualifications
or assumptions.
Our review of the directors’ statement regarding the longer-term viability of the group and company was substantially less in scope than an audit and
only consisted of making inquiries and considering the directors’ process supporting their statement; checking that the statement is in alignment with the
relevant provisions of the UK Corporate Governance Code; and considering whether the statement is consistent with the financial statements and our
knowledge and understanding of the group and company and their environment obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance
statement is materially consistent with the financial statements and our knowledge obtained during the audit:
•
•
•
The directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and provides the
information necessary for the members to assess the group’s and company's position, performance, business model and strategy;
The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems; and
The section of the Annual Report describing the work of the Group Audit Committee.
We have nothing to report in respect of our responsibility to report when the directors’ statement relating to the company’s compliance with the Code
does not properly disclose a departure from a relevant provision of the Code specified under the Listing Rules for review by the auditors.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Directors' responsibilities statement, the directors are responsible for the preparation of the financial statements in
accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such
internal control as they 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 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 company or to cease operations, or have no realistic alternative but to do so.
Auditors’ 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 auditors’ 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.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities,
outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of
detecting irregularities, including fraud, is detailed below.
Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with laws and regulations related
to breaches of UK regulation, such as those governed by the Prudential Regulation Authority and the Financial Conduct Authority, and we considered
the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a
direct impact on the financial statements such as the Companies Act 2006. We evaluated management’s incentives and opportunities for fraudulent
manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to posting
inappropriate journal entries to manipulate the financial statements, such as those impacting revenue and expenses, as well as management bias in
accounting estimates, in particular the valuation of specific general insurance contract liabilities including Physical and Sexual Abuse ("PSA") reserves.
The group engagement team shared this risk assessment with the component auditors so that they could include appropriate audit procedures in
response to such risks in their work. Audit procedures performed by the group engagement team and/or component auditors included:
•
Procedures to audit the appropriateness of key areas of transition to IFRS 17, specifically the PAA eligibility assessment and the methodology
and assumptions used in the calculation of the risk adjustment.
Enquired of Group functions including compliance, risk and internal audit and consideration of known or suspected instances of non-compliance
with laws and regulation and fraud;
•
4848 Ecclesiastical Insurance Office plc
Independent auditors’ report to the members of Ecclesiastical Insurance
Office plc
•
•
•
•
•
Read key correspondence with the Prudential Regulation Authority and the Financial Conduct Authority in relation to compliance with laws and
regulations;
Reviewed relevant meeting minutes including those of the Group Board, Group Audit Committee and Group Risk Committee;
Procedures related to the valuation of specific general insurance contract liabilities such as PSA reserves described in the related key audit
matter;
Risk based target testing of journal entries, in particular any journal entries which include characteristics which were identified as potentially
being indicative of a fraudulent journal; and
Procedures to incorporate unpredictability around the nature, timing or extent of our testing.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with laws and
regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a material
misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example,
forgery or intentional misrepresentations, or through collusion.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques. However, it
typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to target particular items
for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion about the population
from which the sample is selected.
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 auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of Part 16 of the
Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other
person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
•
•
•
•
we have not obtained all the information and explanations we require for our audit; or
adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from branches
not visited by us; or
certain disclosures of directors’ remuneration specified by law are not made; or
the company financial statements are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Group Audit Committee, we were appointed by the members on 18 June 2020 to audit the financial statements for
the year ended 31 December 2020 and subsequent financial periods. The period of total uninterrupted engagement is 4 years, covering the years ended
31 December 2020 to 31 December 2023.
Sue Morling (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Bristol
21 March 2024
4949 Consolidated statement of profit or loss
for the year ended 31 December 2023
Insurance revenue
Insurance service expenses
Insurance service result before reinsurance contracts held
Net expense from reinsurance contracts
Insurance service result
Net insurance financial result
Net investment result
Other operating expenses
Other finance costs
Profit/(loss) before tax
Tax (expense)/credit
Profit/(loss) for the year from continuing operations
Net profit attributable to discontinued operations
Profit for the year
*The comparative financial statements have been restated as detailed in note 37.
Notes
5, 6
7
8
9
13
15
10
2023
£000
586,484
(408,584)
177,900
(107,174)
70,726
(19,540)
57,469
(60,751)
(3,151)
44,753
(8,018)
36,735
719
37,454
Restated*
2022
£000
534,894
(444,472)
90,422
(24,775)
65,647
47,862
(63,439)
(63,196)
(2,456)
(15,582)
4,673
(10,909)
13,696
2,787
5050 Consolidated and parent statements of comprehensive income
for the year ended 31 December 2023
Profit for the year
Other comprehensive income/(expense)
Items that will not be reclassified to profit or loss:
Fair value gains on property
Actuarial gains/(losses) on retirement benefit plans
Attributable tax
Items that may be reclassified subsequently to profit or loss:
(Losses)/gains on currency translation differences
Gains/(losses) on net investment hedges
Attributable tax
Net other comprehensive income/(expense)
Total comprehensive income/(expense)
Notes
2023
Restated*
2022
Group
£000
37,454
850
5,103
(1,492)
4,461
(4,024)
4,860
(688)
148
4,609
42,063
Parent
£000
36,365
850
5,103
(1,492)
4,461
(912)
1,353
(338)
103
4,564
40,929
Group
£000
2,787
-
(10,171)
2,543
(7,628)
5,642
(4,514)
825
1,953
(5,675)
(2,888)
Parent
£000
16,380
-
(10,171)
2,543
(7,628)
2,649
(1,938)
485
1,196
(6,432)
9,948
17
25
25
25
*The comparative financial statements have been restated as detailed in note 37.
5151 Consolidated and parent statements of changes in equity
for the year ended 31 December 2023
Group
Notes
14
14
14
14
14
14
14
At 31 December 2022 (as restated*)
Adjustment on initial application of IFRS 9
At 1 January 2023
Profit for the year
Other net income
Total comprehensive income
Dividends on ordinary shares
Dividends on preference shares
Gross charitable grant
Tax relief on charitable grant
Group tax relief in excess of standard rate
At 31 December 2023
At 31 December 2021 (as reported)
Adjustment on initial application of IFRS 17
At 1 January 2022 (as restated*)
Profit for the year
Other net expense
Total comprehensive income/(expense)
Dividends on preference shares
Gross charitable grant
Tax relief on charitable grant
Reserve transfers
At 31 December 2022 (as restated*)
Parent
At 31 December 2022 (as restated*)
Adjustment on initial application of IFRS 9
At 1 January 2023
Profit for the year
Other net income
Total comprehensive income
Dividends on ordinary shares
Dividends on preference shares
Gross charitable grant
Tax relief on charitable grant
Group tax relief in excess of standard rate
At 31 December 2023
At 31 December 2021 (as reported)
Adjustment on initial application of IFRS 17
At 1 January 2022 (as restated*)
Profit for the year
Other net expense
Total comprehensive income
Dividends on preference shares
Gross charitable grant
Tax relief on charitable grant
Group tax relief in excess of standard
Reserve transfers
At 31 December 2022 (as restated*)
Share
capital
£000
120,477
-
120,477
-
-
-
-
-
-
-
-
120,477
120,477
-
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
4,632
-
4,632
-
-
-
-
-
-
-
-
4,632
4,632
-
4,632
-
-
-
-
-
-
-
4,632
4,632
-
4,632
-
-
-
-
-
-
-
-
4,632
4,632
-
4,632
-
-
-
-
-
-
-
-
4,632
222
-
222
-
635
635
-
-
-
-
-
857
268
-
268
-
-
-
-
-
-
(46)
222
223
-
223
-
634
634
-
-
-
-
-
857
269
-
269
-
-
-
-
-
-
-
(46)
223
19,556
-
19,556
-
148
148
-
-
-
-
-
19,704
17,603
-
17,603
-
1,953
1,953
-
-
-
-
19,556
8,232
-
8,232
-
103
103
-
-
-
-
-
8,335
7,036
-
7,036
-
1,196
1,196
-
-
-
-
-
8,232
Retained
earnings
£000
466,991
(1,395)
465,596
37,454
3,826
41,280
(5,223)
(9,181)
(13,000)
3,837
(63)
483,246
491,981
5,186
497,167
2,787
(7,628)
(4,841)
(9,181)
(20,000)
3,800
46
466,991
409,740
(552)
409,188
36,365
3,827
40,192
(5,223)
(9,181)
(13,000)
3,837
(63)
425,750
420,088
6,340
426,428
16,380
(7,628)
8,752
(9,181)
(20,000)
3,800
(105)
46
409,740
Total
£000
611,878
(1,395)
610,483
37,454
4,609
42,063
(5,223)
(9,181)
(13,000)
3,837
(63)
628,916
634,961
5,186
640,147
2,787
(5,675)
(2,888)
(9,181)
(20,000)
3,800
-
611,878
543,304
(552)
542,752
36,365
4,564
40,929
(5,223)
(9,181)
(13,000)
3,837
(63)
560,051
552,502
6,340
558,842
16,380
(6,432)
9,948
(9,181)
(20,000)
3,800
(105)
-
543,304
*The comparative financial statements have been restated as detailed in note 37.
The revaluation reserve represents cumulative net fair value gains on owner-occupied property. Further details of the translation and hedging
reserve are included in note 25.
5252 Consolidated and parent statements of financial position
at 31 December 2023
Assets
Cash and cash equivalents
Financial investments
Current tax recoverable
Reinsurance contract assets
Investment property
Pension assets
Property, plant and equipment
Goodwill and other intangible assets
Deferred tax assets
Other assets
Assets classified as held for distribution
Total assets
Equity
Share capital
Share premium account
Retained earnings and other reserves
Total shareholders' equity
Liabilities
Insurance contract liabilities
Investment contract liabilities
Current tax liabilities
Lease obligations
Retirement benefit obligations
Subordinated liabilities
Provisions for other liabilities
Deferred tax liabilities
Other liabilities
Liabilities classified as held for distribution
Total liabilities
Notes
31 December 2023
Group
£000
Parent
£000
Restated*
31 December 2022
Group
£000
Parent
£000
Restated*
1 January 2022
Group
£000
Parent
£000
23
20
26
19
17
18
16
28
22
15
24
26
31
32
17
30
27
28
29
15
112,082
941,755
5,181
220,108
130,813
19,788
34,183
25,866
8,483
165,104
-
1,663,363
120,477
4,632
503,807
628,916
781,842
95,886
2,931
21,687
4,801
25,853
6,330
37,838
57,279
-
1,034,447
83,436
658,601
5,181
154,770
130,813
19,788
31,570
23,769
229
160,631
-
1,268,788
120,477
4,632
434,942
560,051
569,833
-
2,931
19,551
4,801
25,853
6,177
36,671
42,920
-
708,737
104,664
870,749
4,212
240,124
140,846
15,338
31,405
30,255
9,938
148,349
14,999
1,610,879
120,477
4,632
486,769
611,878
789,546
58,479
308
19,062
4,960
25,818
5,961
37,027
47,345
10,495
999,001
66,569
636,637
4,212
146,423
140,846
15,338
30,906
28,158
520
141,322
3,722
1,214,653
120,477
4,632
418,195
543,304
538,747
-
228
18,712
4,960
25,818
5,870
36,209
40,805
-
671,349
94,736
883,770
5
202,767
163,355
28,304
33,477
29,598
8,857
89,788
62,483
1,597,140
120,477
4,632
515,038
640,147
769,727
15,519
819
21,440
7,058
24,433
6,143
50,024
39,750
22,080
956,993
48,437
678,494
5
131,935
162,822
28,304
32,771
27,501
-
90,468
28,612
1,229,349
120,477
4,632
433,733
558,842
529,281
-
819
20,806
7,058
24,433
6,068
47,699
34,343
-
670,507
Total shareholders' equity and liabilities
1,663,363
1,268,788
1,610,879
1,214,653
1,597,140
1,229,349
*The comparative financial statements have been restated as detailed in note 37.
No statement of profit or loss is presented for Ecclesiastical Insurance Office plc as permitted by Section 408 of the Companies Act 2006. The
profit after tax of the parent company for the period was £36,365,000 (2022: profit of £16,380,000).
The financial statements of Ecclesiastical Insurance Office plc, registered number 24869, on pages 50 to 144 were approved and authorised for
issue by the Board of Directors on 21 March 2024 and signed on its behalf by:
David Henderson
Chair
Mark Hews
Group Chief Executive
5353 Consolidated and parent statements of cash flows
for the year ended 31 December 2023
Notes
2023
Restated*
2022
Profit/(loss) before tax from continuing operations
Profit before tax from discontinued operations
Adjustments for:
Depreciation of property, plant and equipment
Revaluation of property, plant and equipment
Loss/(profit) on disposal of property, plant and equipment
Amortisation and impairment of intangible assets
Movement in expected credit loss provision
Impairment of shares in subsidiary undertakings
Profit on disposal of subsidiary
Net fair value (gains)/losses on financial instruments and investment
property
Dividend and interest income
Finance costs
Other adjustments for non-cash items
Changes in operating assets and liabilities:
Net decrease/(increase) in reinsurance contract assets
Net increase in investment contract liabilities
Net increase in insurance contract liabilities
Net increase in other assets
Net 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/(used by) 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
Disposal of subsidiary, net of cash disposed
Net cash (used by)/from investing activities
Cash flows from financing activities
Interest paid
Payment of lease liabilities
Change in interest in subsidiary
Dividends paid to Company's shareholders
Charitable grant paid to ultimate parent undertaking
Net cash used by financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year (as reported)
Cash classified as held for distribution
Exchange (losses)/gains on cash and cash equivalents
Cash and cash equivalents at end of year
23
*The comparative financial statements have been restated as detailed in note 37.
Group
£000
44,753
719
5,879
(35)
2
5,583
(1,255)
-
(718)
(12,928)
(35,077)
3,151
1,560
13,974
37,407
6,430
(16,857)
11,615
64,203
(202,338)
147,364
10,452
23,618
(2,705)
40,594
(2,358)
296
(1,245)
-
(3,307)
(2,491)
(3,128)
-
(9,181)
(13,000)
(27,800)
9,487
104,664
-
(2,069)
112,082
Parent
£000
41,903
1,501
5,288
(35)
3
5,583
(552)
-
(1,501)
(7,728)
(27,709)
3,079
1,560
(9,601)
-
35,512
(19,001)
3,426
31,728
(127,968)
119,627
9,526
17,354
(2,546)
47,721
(1,331)
-
(1,245)
-
(2,576)
(2,419)
(2,935)
-
(9,181)
(13,000)
(27,535)
17,610
66,569
-
(743)
83,436
Group
£000
(15,582)
14,115
6,261
-
(9)
3,558
-
-
(14,293)
94,121
(22,906)
2,528
695
(32,053)
42,961
4,879
(57,512)
1,491
28,254
(208,588)
156,110
7,177
17,022
(6,487)
(6,512)
(3,234)
28
(3,900)
36,355
29,249
(2,528)
(3,267)
-
(9,181)
(15,000)
(29,976)
(7,239)
114,036
(5,177)
3,044
104,664
Parent
£000
12,687
-
5,373
-
-
3,351
-
(161)
(20,146)
66,658
(20,075)
2,456
695
(12,851)
-
2,861
(51,810)
3,050
(7,912)
(109,878)
115,561
10,795
10,732
(6,330)
12,968
(2,934)
-
(3,900)
45,197
38,363
(2,456)
(2,605)
(5,157)
(9,181)
(15,000)
(34,399)
16,932
48,437
-
1,200
66,569
5454 Notes to the financial statements
1 Accounting policies
Ecclesiastical Insurance Office plc (hereafter referred to as the ‘Company’, or ‘Parent’), a public limited company incorporated and domiciled in
England and Wales, 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 Company is limited by shares. The material
accounting policies adopted in preparing the UK adopted 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 UK adopted IAS applicable at 31 December 2023, and in accordance with requirements of the Companies Act 2006. The policies have been
applied consistently to all years unless otherwise stated. The financial statements have been prepared on the historical cost basis, except for
certain financial assets, financial liabilites and derivatives measured at fair value through profit and loss (FVTPL), and the revaluation of properties
and certain derivatives measured at fair value through other comprehensive income (FVOCI).
As stated in the Directors' Report, the directors consider that it is appropriate to continue to adopt the going concern basis in preparing the financial
statements.
Items included in the financial statements of each of the Group’s entities are measured in the currency of the primary economic environment in
which that entity operates (the 'functional currency'). The consolidated financial statements are stated in sterling, which is the Company's
functional currency and the Group’s presentational 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
A number of amendments and improvements to accounting standards have been issued by the International Accounting Standards Board (IASB),
and endorsed by the UK, with an effective date of on or after 1 January 2023, and are therefore applicable for the 31 December 2023 financial
statements. None had a significant impact on the Group.
IFRS 9 Financial Instruments and IFRS 17 Insurance Contracts have been adopted in the year.
IFRS 9 introduces a new model for the classification and measurement of financial instruments, a single, forward-looking ‘expected credit loss’
impairment model and a reformed approach to hedge accounting.
IFRS 17 is a comprehensive new accounting standard for insurance contracts covering recognition and measurement, presentation and disclosure.
Key relevant concepts for the Group are:
- Expected profits (represented by the contractual service margin, “CSM”) are explicitly spread over the lifetime of the contract in a formulaic
manner matched to the provision of current and future coverage, rather than for example embedded within ongoing releases from a prudent
reserving basis.
- Expected losses (arising on onerous contracts) are recognised up front and as and when identified.
The effects of adopting IFRS 9 and IFRS 17 are disclosed in note 37.
Amendments to 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.
5555 Notes to the financial statements
1 Accounting policies (continued)
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, up to the date of disposal, and are included within discontinued operations where
appropriate. All inter-company transactions, balances and cash flows are eliminated, with the exception of those between continuing and
discontinued operations.
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 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.
Discontinued operations and operations held for sale or distribution
Assets and liabilities for a disposal group which are held for sale outside the Group or distribution within the Group are reported as assets or
liabilities held for sale or distribution and shown separately in the consolidated statement of financial position and carried at the lower of their
carrying amount and fair value less estimated selling costs. Discontinued operations comprise activities either disposed of or classified as held for
sale or distribution. The results of discontinued operations and profit or loss on disposal of discontinued operations are presented separately in the
consolidated statement of profit or loss. Comparatives are restated where applicable.
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 written up to April 2013 are classified as insurance contracts and those written from August 2021 are classified as investment
contracts. The closed book of business (insurance contracts) relates to funeral plan business directly written by Ecclesiastical Life Limited (ELL)
backed by a Whole of Life policy, which is administered by Ecclesiastical Planning Services Limited (EPSL). This was closed to new business in
2013. EPSL is a subsidiary undertaking of the Benefact Group. New business (investment contracts) written from August 2021 creates unit trust
backed life policies to secure the pre-paid funeral plans written by EPSL and a third party provider.
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.
5656 Notes to the financial statements
1 Accounting policies (continued)
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.
Insurance contract liabilities
The Group adopted IFRS 17 Insurance Contracts on 1 January 2023. IFRS 17 provides a comprehensive and consistent approach to accounting for
insurance contracts. It replaces IFRS 4 Insurance Contracts, which was issued in 2005 and was largely based on grandfathering of previous local
accounting policies. The application of IFRS 17 impacts the measurement and presentation of insurance contracts and reinsurance contracts.
Contracts under which the Group accepts significant insurance risk are classified as insurance contracts. Insurance risk is transferred when the
Group agrees to compensate a policyholder should an adverse specified uncertain future event occur. Contracts held by the Group under which it
transfers significant insurance risk related to underlying insurance contracts are classified as reinsurance contracts held. Insurance and
reinsurance contracts held also expose the Group to financial risk.
Insurance contracts issued and reinsurance contracts held may be initiated by the Group, or they may be acquired in a business combination or in a
transfer of contracts that do not form a business. All references in these accounting policies to ‘insurance contracts’ and ‘reinsurance contracts’
held include contracts issued, initiated, or acquired by the Group, unless otherwise stated.
Under IFRS 17 the presentation of insurance revenue and insurance service expenses in the consolidated statement of profit or loss is based on the
concept of insurance service provided during the period.
Accounting policy changes resulting from the adoption of IFRS 17 for the General Insurance business have been applied using a full retrospective
approach. Under the full retrospective approach, on 1 January 2022 the Group has identified, recognised and measured each group of insurance
contracts as if IFRS 17 requirements had always applied and derecognised previously reported balances that would not have existed if IFRS 17 had
always been applied. These implicitly include some deferred acquisition costs for insurance contracts, insurance receivables and payables, and
provisions for levies that are attributable to existing insurance contracts. Under IFRS 17, they are included in the measurement of insurance
contracts issued and reinsurance contracts held.
The Group is required to use the full retrospective approach for transition from IFRS 4 to IFRS 17 where it is practicable to do so. Where it is
impracticable to do so, IFRS 17 permits the use of a modified retrospective approach or a fair value approach. For the Group’s life insurance
business, it has been concluded that applying the full retrospective approach is impracticable and that the fair value approach is the most
appropriate method to apply on transition. The fair value approach uses the fair value of a group of insurance contracts (determined by applying
the requirements of IFRS 13 Fair Value Measurement) and the fulfilment cash flows at the date of transition to calculate the unearned profit or loss
at the transition date. The choice between applying the modified retrospective approach and the fair value approach impacts the amount of
unearned profit or loss recognised at the transition date and future profitability.
Comparative figures in the financial statements have been restated to reflect the impact of adoption of IFRS 17.
Insurance contract liabilities are measured as the sum of the liability for incurred claims (LIC) and liability for remaining coverage (LFRC). The LIC
represents the obligation to pay valid claims for insured events that have occurred, which may also include events that have already occurred but
have not been reported to the Group. The LFRC represents the Group’s liability for insured events that have not yet occurred under the insurance
contract. Under IFRS 17, insurance revenue in each reporting period represents the change in the LFRC that relates to services for which the Group
expects to receive consideration.
(a) General insurance and reinsurance contracts
(i) Classification
The Group issues general insurance products to both individuals and businesses. The Group offers general insurance products in a number of
sectors.
The Group does not offer any product with direct participating features.
5757 Notes to the financial statements
1 Accounting policies (continued)
(ii) Separating components
The Group assesses its insurance and reinsurance products to determine whether they contain distinct components which must be accounted for
under another IFRS instead of under IFRS 17. After separating any distinct components, the Group applies IFRS 17 to all remaining components of
the host insurance contract. The Group’s insurance and reinsurance contracts do not include any components that require separation.
Once the consideration of distinct components has been determined, the Group assesses whether the contract should be separated into several
insurance components that, in substance, should be treated as separate contracts. To determine whether a single legal contract does not reflect
the substance of the transaction and its insurance components should be recognised and measured separately instead, the Group considers
whether there is an interdependency between the different risks covered, whether components can lapse independently of each other and
whether the components can be priced and sold separately. The Group's insurance and reinsurance contracts do not include any separate
insurance components that should be treated as separate contracts.
(iii) Level of aggregation
Insurance and reinsurance contracts are aggregated into portfolios and split into annual cohorts and profitability groups for measurement and
presentational purposes. The portfolios are comprised of contracts with similar risks which are managed together. Judgement is applied when
determining portfolios and includes drivers such as geography, lines of business (where these are separate components) and legal entities within
the Group.
Each annual cohort of business recognised within the portfolio is further divided into groups based on the expected profitability, determined at
initial recognition and assessed using actuarial valuation models applied to lower level sets of contracts. As a minimum the following groupings are
separated:
- Onerous contracts;
- Contracts that have no significant possibility of becoming onerous (based on the probability that changes to assumptions result in contracts
becoming onerous); and
- Any remaining contracts.
Contracts are considered onerous if the fulfilment cashflows allocated to that group of contracts in total are a net outflow. Where the Premium
Allocation Approach (see section (vi)) is applied, the Group uses an IFRS 17 permitted simplification that assumes that no contracts in a portfolio are
onerous at initial recognition unless facts and circumstances indicate otherwise. The Group has developed methodology that identifies facts and
circumstances that indicate whether a set of contracts is onerous, which is primarily based on internal management budgeting information.
(iv) Recognition and derecognition
An insurance contract issued by the Group is recognised from the earliest of:
- The date the Group is exposed to risk which is ordinarily the beginning of the coverage period (i.e. the period during which the Group provides
services in respect of any premiums within the contract boundary of the contract);
- The date the first premium payment from the policyholder becomes due or, if there is no contractual due date, when it is received from the
policyholder; or
- The date when facts and circumstances indicate the contract is onerous.
When a contract is recognised, it is added to an existing group of contracts. However, if the contract does not qualify for inclusion in an existing
group, it forms a new group to which future similar contracts are added. Groups of contracts are established on initial recognition and their
composition is not revised once all contracts have been added to the group.
The Group derecognises insurance contracts when:
- The rights and obligations relating to the contract are extinguished (i.e. discharged, cancelled or expired); or
- The contract is modified such that the modification results in a change in the measurement model or the applicable standard for measuring a
component of the contract, substantially changes the contract boundary, or requires the modified contract to be included in a different group. In
such cases, the Group derecognises the initial contract and recognises a new contract based on the modified terms.
When a modification is not treated as a derecognition, the Group recognises amounts paid or received for the modification with the contract as an
adjustment to the relevant LRC.
(v) Contract boundaries
The Group uses the concept of contract boundary to determine what cash flows should be considered in the measurement of groups of insurance
contracts. The measurement of a group of contracts includes all the future cash flows within the boundary of each contract in the group,
determined as:
5858 Notes to the financial statements
1 Accounting policies (continued)
Insurance contracts
Cash flows are within the boundary of an insurance contract if they arise from substantive rights and obligations that exist during the reporting
period in which the Group can compel the policyholder to pay the premiums, or in which the Group has a substantive obligation to provide the
policyholder with services. A substantive obligation to provide services ends when:
- The Group has the practical ability to reassess the risks of the policyholder and, as a result, can set a price or level of benefits that fully reflects
those risks; or
- The Group has the practical ability to reassess the risks of the portfolio that contains the contract and can set a price or level of benefits that
fully reflects the risks of that portfolio, and the pricing of the premiums up to the reassessment date does not consider risks that relate to
periods after the reassessment date.
The contract boundary is reassessed at each reporting date to include the effect of changes in circumstances on the Group’s substantive rights and
obligations and, therefore, may change over time.
Reinsurance contracts
Cash flows are within the contract boundary if they arise from substantive rights and obligations that exist during the reporting period in which the
Group is compelled to pay amounts to the reinsurer or has a substantive right to receive services from the reinsurer.
A substantive right to receive services from the reinsurer ends when the Group is no longer compelled to pay amounts to the reinsurer and if the
reinsurer:
- has the practical ability to reassess the risks transferred to it and can set a price or level of benefits that fully reflects those reassessed risks; or
- has a substantive right to terminate the coverage.
The contract boundary is reassessed at each reporting date to include the effect of changes in circumstances on the Group’s substantive rights and
obligations and, therefore, may change over time.
(vi) Measurement model – Premium Allocation Approach (PAA)
The Group applies the PAA when measuring the liability for remaining coverage of groups of insurance and reinsurance contracts when the
following criteria are met at inception:
Insurance contracts:
- The coverage period of each contract in the group is one year or less; or
- Where the coverage period of a group of contracts is longer than one year, it is reasonably expected that the measurement of the liability for
remaining coverage for the group containing those contracts under PAA does not differ materially from the measurement that would be
recognised by applying the General Measurement Model (GMM) (see section (b)(iv)).
Reinsurance contracts held:
- The coverage period of each contract in the group is one year or less; or
-
The Group reasonably expects that the resulting measurement of the asset for remaining coverage under the PAA would not differ materially
from the result of applying the GMM.
The vast majority of the Group’s non-life business has a duration of one year or less and the PAA model is eligible automatically. Where the PAA
model is not automatically eligible, financial modelling is performed comparing the financial effects under the two models. Where the financials are
not expected to be materially different under the GMM and PAA, the relevant unit of account is treated as PAA eligible.
Initial recognition
On initial recognition of each group of contracts, the carrying amount of the LRC is measured as the premiums received less any insurance
acquisition cash flows allocated to the group at that date. For reinsurance contracts held, the measurement of the reinsurance contract held
includes all expected cash flows within the boundary of the reinsurance contract, including those cash flows related to recoveries from future
underlying insurance contracts that have not yet been issued by the Group, but are expected to be issued during the coverage period of the
reinsurance contract held.
Subsequent recognition
For insurance contracts issued, at each of the subsequent reporting dates, the LRC is:
- Increased by any premiums received and the amortisation of insurance acquisition cash flows recognised as expenses; and
- Decreased by the amount recognised as insurance revenue for services provided and any additional insurance acquisition cash flows allocated
after initial recognition.
For reinsurance contracts held, at each of the subsequent reporting dates, the Group applies the same accounting policies to measure a group of
reinsurance contracts held, adapted where necessary to reflect features that differ from those of insurance contracts.
5959 Notes to the financial statements
1 Accounting policies (continued)
To identify onerous contracts, the PAA facts and circumstances test uses the latest signed-off Corporate Strategic Plan, identifying sets of
contracts with a gross Combined Operating Ratio (COR) > 100% (including risk adjustment), when aligned to the relevant period being tested. Where
the Group recognises a loss on initial recognition of an onerous group of underlying insurance contracts, or when further onerous underlying
insurance contracts are added to a group, the Group establishes a loss-recovery component of the asset for remaining coverage for a group of
reinsurance contracts held representing the expected recovery of the losses.
A loss-recovery component is subsequently reduced to zero in line with reductions in the onerous group of underlying insurance contracts to
reflect that the loss-recovery component shall not exceed the portion of the carrying amount of the loss component of the onerous group of
underlying insurance contracts that the Group expects to recover from the group of reinsurance contracts held.
If at any time during the coverage period, facts and circumstances indicate that a group of contracts is onerous, then the Group recognises a loss
within insurance service expenses in the consolidated statement of profit or loss and increases the liability for remaining coverage to the extent
that the current estimates of the fulfilment cash flows that relate to remaining coverage exceed the carrying amount of the liability for remaining
coverage. Measurement of the loss component arising from the identification of onerous contracts is based on the future expected profitability
calculation attributed to the annual cohort(s) which are indicated to be loss making.
The Group recognises the LIC of a group of insurance contracts at the discounted amount of the future cash flows relating to claims incurred but
not yet settled and attributable expenses.
Discount rates are applied to reflect the time value of money and characteristics of the liability cash flows and contracts (including liquidity).
The change in the LIC due to the effects of the time value of money and financial risk is recognised within the net insurance financial result in the
consolidated statement of profit or loss.
The Group recognises the loss arising from onerous contracts as part of the insurance service expense in the statement of comprehensive income.
If there are no changes in expectations in subsequent periods, the release of the loss component is recognised as an adjustment to insurance
service expenses in the consolidated statement of profit or loss in line with the pattern of earned premium.
(vii) Risk adjustment
The risk adjustment reflects the compensation required by the Group for bearing uncertainty about the insurance cash flows that arise from non-
financial risks. The Group uses a combination of techniques to measure the risk adjustment, aligning to latest risk appetite approach.
Risk appetite is set net of reinsurance with the amount held for insurance contracts including the amount transferred to reinsurers. Under the PAA,
the risk adjustment is driven by claims reserving uncertainty, which the Group models using statistical techniques including bootstrapping,
supplemented where appropriate by scenario analysis, diversification between lines of business and backtesting of actual reserve development
experience. The Group appetite targets an overall confidence level at or above the 75th percentile. General operational risk not attributed to
insurance contracts is not within the scope of risks included.
The change in the risk adjustment for earned business is recognised within insurance service expenses in the consolidated statement of profit or
loss.
(viii) Insurance acquisition cash flows
Insurance acquisition cash flows are costs considered directly attributable to selling, underwriting or starting a portfolio of insurance contracts and
are presented within the liability for remaining coverage. Insurance acquisition cash flows include direct costs and indirect costs. The PAA provides
an option to expense insurance acquisition cash flows as incurred, however the Group has chosen not to apply this option. Insurance acquisition
cash flows are amortised over the coverage period of the group of insurance contracts which they relate to.
Under IFRS 17, insurance acquisition cash flows for insurance contracts, insurance receivables and payables, and provisions for levies that are
attributable to existing insurance contracts are included in the measurement of insurance contracts issued .
(ix) Insurance revenue
Under the premium allocation approach, insurance revenue for the period is the amount of expected premium receipts (excluding any investment
component and after adjustment to reflect the time value of money and the effect of financial risk, if applicable) allocated to the period for services
provided. The Group allocates the expected premium receipts to each period of insurance contract services, on the basis of the passage of time or,
if the expected pattern of release of risk during the coverage period differs significantly from the passage of time, on the basis of the expected
timing of incurred insurance service expenses. Changes to the basis of allocation are accounted for prospectively as a change in accounting
estimate.
6060 Notes to the financial statements
1 Accounting policies (continued)
(x) Insurance service expenses
Insurance service expenses include fulfilment and acquisition cash flows which are costs directly attributable to insurance contracts and comprise
both direct costs and the allocation of fixed and variable overheads. It is comprised of the following:
- Incurred claims and benefits excluding investment components;
- Other incurred discretionary attributable insurance service expenses;
- Amortisation of insurance acquisition cash flows;
- Changes that relate to past service (i.e. changes in the future cash flows relating to the LIC); and
- Changes that relate to future service (i.e. losses/reversals on onerous groups of contracts from changes in the loss components).
Amortisation of insurance acquisition cash flows is done on a straight-line basis and reflected in insurance service expenses in the same amount as
insurance acquisition cash flows recovery reflected within insurance revenue as described above. Other expenses not meeting the above
categories are included in other operating expenses in the consolidated statement of profit or loss.
(xi) Net income or expense from reinsurance contracts
Net income or expense from reinsurance contracts represents the insurance service result for groups of reinsurance contracts held and comprises
of the allocation of reinsurance premiums and other incurred directly attributable claims and expenses.
Reinsurance premium and expenses are recognised using the principles used to determine insurance revenue and expenses. The amount of
reinsurance expenses recognised in the reporting period depicts the transfer of received insurance contract services at an amount that reflects the
portion of ceding premiums that the Group expects to pay in exchange for those services.
The estimates of the present value of future cash flows of the reinsurance contracts held will reflect the risk of non-performance by the reinsurer
and the risk adjustment for reinsurance contracts held and is measured and recognised separately from insurance contracts issued.
In addition, the allocation of reinsurance premiums includes changes in the reinsurance assets arising from retroactive reinsurance contracts held
and voluntary reinstatement ceded premiums.
Reinsurance expenses reflect the allocation of reinsurance premiums paid or payable for receiving services in the period.
The Group treats reinsurance cash flows that are contingent on claims on the underlying contracts as part of the claims that are expected to be
recovered under the reinsurance contract held.
(xii) Net insurance financial result
Net insurance financial result comprises the change in the carrying amount of groups of insurance contracts issued and reinsurance contracts held
arising from the effect of the time value of money and changes in the time value of money and the effect of financial risk and changes in financial
risk.
(b) Life insurance
(i) Classification
The adoption of IFRS 17 did not change the classification of the Group’s life insurance business contracts.
(ii) Level of aggregation
The Group’s life insurance business comprises whole of life insurance contracts with similar risks which are managed together. These are
aggregated into a single portfolio of insurance contracts.
The portfolio of contracts is divided into groups based on the expected profitability, determined at initial recognition and assessed using actuarial
valuation models. As a minimum the following groupings are separated:
- Onerous contracts;
- Contracts that have no significant possibility of becoming onerous (based on the probability that changes to assumptions result in contracts
becoming onerous); and
- Any remaining contracts.
As the fair value approach has been applied on transition, the Group is not required to recognise separate cohorts for contracts issued more than
one year apart.
6161 Notes to the financial statements
1 Accounting policies (continued)
(iii) Contract boundary
The Group uses the concept of contract boundary to determine what cash flows should be considered in the measurement of insurance contracts.
The measurement of the contracts includes all the future cash flows within the boundary of each contract in the group.
Cash flows are within the boundary of an insurance contract if they arise from substantive rights and obligations that exist during the reporting
period in which the Group can compel the policyholder to pay the premiums, or in which the Group has a substantive obligation to provide the
policyholder with services. A substantive obligation to provide services ends when:
- The Group has the practical ability to reassess the risks of the policyholder and, as a result, can set a price or level of benefits that fully reflects
those risks; or
The Group has the practical ability to reassess the risks of the portfolio that contains the contract and can set a price or level of benefits that
-
fully reflects the risks of that portfolio, and the pricing of the premiums up to the reassessment date does not consider risks that relate to
periods after the reassessment date.
The Group has concluded that it has no practical ability to reassess the risks of its portfolio and set a price to reflect them after inception of the life
insurance contract. Therefore no contract boundary is assumed to exist before the expiry of the insurance contract.
(iv) Measurement Model – General Measurement Model (GMM)
The GMM is the default method used to measure insurance contracts under IFRS 17.
Initial recognition
On initial recognition, the carrying amount of the LRC is measured as the sum of discounted probability-weighted fulfilment cash flows within the
contract boundary, an explicit risk adjustment and a contractual service margin (CSM), representing the unearned profit of the contract to be
recognised as revenue over the coverage period. If the portfolio of contracts is expected to be onerous at inception, the loss is recognised
immediately within insurance service expenses in the statement of consolidated profit or loss and the CSM is set to zero.
Subsequent measurement
The carrying amount of the LRC is updated at each reporting date to reflect the re-measurement of the fulfilment cash flows to reflect estimates
based on current assumptions. The changes in fulfilment cash flows are reflected either in the insurance service result or by adjusting the CSM,
depending upon their nature. If the fulfilment cash flows exceed the CSM, the portfolio of contracts becomes onerous, and the loss is recognised
immediately within insurance service expenses in the statement of consolidated profit or loss.
The Group recognises the LIC of a group of insurance contracts at the discounted amount of the fulfilment cash flows relating to claims incurred
but not yet settled and attributable expenses.
(v) Risk adjustment
The risk adjustment reflects the compensation required by the Group for bearing uncertainty about the cash flows that arises from non-financial
risks. The Group uses the value at risk/confidence level approach, choosing a confidence level and deriving the risk adjustment directly from it. The
confidence level percentile input used by the Group to determine the risk adjustment is the 95th percentile calculated using a one-year Value-at-
Risk (VaR) measure. The risk adjustment is calculated at the entity level.
(vi) Insurance revenue
As the Group provides services under the group of insurance contracts, it reduces the LRC and recognises insurance revenue. The amount of
insurance revenue recognised in the reporting period depicts the transfer of promised services at an amount that reflects the portion of
consideration Group expected to be entitled to in exchange for those services. Insurance revenue comprises the following:
-
Amounts relating to the changes in the LRC:
- Insurance claims and expenses incurred in the period measured at amounts expected at the beginning of the period, excluding:
Insurance acquisition expenses;
- Amounts related to the loss component;
-
Repayments of investment components;
- Amounts of transaction-based taxes collected in a fiduciary capacity; and
-
Changes in the risk adjustment for non-financial risk, excluding;
- Changes included in insurance finance income or expenses;
- Changes that relate to future coverage (which adjust the CSM); and
- Amounts allocated to the loss component;
-
- Amounts of the CSM recognised in profit or loss for the services provided in the period; and
-
Experience adjustments arising from premiums received in the period that relate to past and current service and related cash flows such as
insurance acquisition cash flows and premium-based taxes.
6262 Notes to the financial statements
1 Accounting policies (continued)
The amount of CSM recognised in profit or loss in each period to reflect services provided is determined by considering, for each group of
contracts, coverage units that reflect the quantity of the benefits provided in each period and the expected coverage period. Coverage units are
reviewed and updated at each reporting date. The quantity of benefits provided is based on the level of maximum benefit provided under the
insurance contract and the coverage period is set as the probability-weighted average expected duration for the group of contracts.
(vii) Insurance service expenses
Insurance service expenses include fulfilment and acquisition cash flows which are costs directly attributable to insurance contracts and comprise
both direct costs and the allocation of fixed and variable overheads. It is comprised of the following:
- Incurred claims and benefits excluding investment components;
- Other incurred discretionary attributable insurance service expenses;
- Amortisation of insurance acquisition cash flows;
-
- Changes that relate to future service (i.e. losses/reversals on onerous groups of contracts from changes in the loss components).
Changes that relate to past service (i.e. changes in the future cash flows relating to the LIC); and
Amortisation of insurance acquisition cash flows is reflected in insurance service expenses in the same amount as insurance acquisition cash flows
recovery reflected within insurance revenue as described above. Other expenses not meeting the above categories are included in other operating
expenses in the consolidated statement of profit or loss.
(viii) Insurance acquisition cash flows
For life insurance contracts, acquisition costs comprise direct costs such as initial commission and the indirect costs of obtaining and processing
new business. As with general insurance business, those attributable are included in the measurement of insurance contracts issued and
reinsurance contracts held.
Investment contract liabilities
For products that have no significant insurance risk and therefore classified as investment contracts, the Group recognises a liability measured at
fair value. The fair value of these liabilities is estimated based on an arms-length transaction between willing market participants with consideration
given to the cost of the minimum repayment guarantee to the policyholders. The cost of the guarantee is determined using risk free rates of return,
with the associated volatility assumption and allowing for the costs of administration associated with this low risk investment strategy.
Intangible assets
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value 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. Amortisation and impairment charges incurred for the period are included in the statements of profit
or loss within other operating and administrative expenses.
Software costs that cannot be classified as intangible assets are charged to profit or loss during the period in which they are incurred.
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. Amortisation and impairment charges incurred for the period are included in the statement of profit or loss within other operating
and administrative expenses.
6363 Notes to the financial statements
1 Accounting policies (continued)
Property, plant and equipment
Owner-occupied properties are stated at fair 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 fair 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
Right-of-use assets
3 - 5 years straight line
4 years straight line
3 - 10 years or length of lease straight line
Over the term of the lease
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. Investment properties are derecognised when they have been disposed of. Where the Group disposes of a property, the
carrying value immediately prior to the sale is adjusted to the transaction price, and the adjustment is recorded in profit or loss within net
investment return.
Financial instruments
The Group adopted IFRS 9 Financial Instruments from 1 January 2023 replacing IAS 39 Financial Instruments . IFRS 9 incorporates new
classification and measurement requirements for financial assets and introduces a new impairment model based on expected credit loss which
replaces the IAS 39 incurred loss model. As permitted by IFRS 4, the Group deferred the application of IFRS 9 to align with the adoption of IFRS 17
from 1 January 2023.
In accordance with the transition requirements of IFRS 9, the comparative period is not restated and measurement differences arising on transition
are reported in opening retained earnings as at 1 January 2023.
The Group’s IFRS 9 accounting policies are described below:
(a) Classification and measurement
All financial assets under IFRS 9 are to be initially recognised at fair value, plus or minus (in the case of a financial asset not at FVTPL) transaction
costs that are directly attributable to the acquisition of the financial instrument. Classification and subsequent measurement of financial assets
depends on the Group’s business model for managing the financial assets and the contractual terms of the cash flows.
Debt instruments
There are three measurement categories into which the Group classifies its debt instruments:
- Amortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and
interest (SPPI) are measured at amortised cost. Interest income from these financial assets is included in ‘net investment result’ using the
effective interest rate method.
- Fair value through other comprehensive income (FVOCI): Assets that are held for collection of contractual cash flows and for selling the
financial assets, where the assets’ cash flows represent SPPI, are measured at FVOCI, except where an election is made to classify as FVTPL.
Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses, interest income and foreign
exchange gains and losses which are recognised in profit or loss. When the financial asset is derecognised, the cumulative gain or loss
previously recognised in OCI is reclassified from equity to profit or loss and recognised in ‘net investment result. Interest income from these
financial assets is included in ‘net investment result’ using the effective interest rate method.
6464 Notes to the financial statements
1 Accounting policies (continued)
- Fair value through profit or loss (FVTPL): Assets that do not meet the criteria for amortised cost or FVOCI are measured at FVTPL. In order to
eliminate or significantly reduce an accounting mismatch, an irrevocable election can be made (on an instrument-by-instrument basis) to
classify and measure debt instruments at FVTPL instead of amortised cost or FVOCI. A gain or loss on a debt investment that is measured at
FVTPL is recognised in profit or loss and presented net within ‘net investment result’.
Equity instruments
-
FVTPL: By default, the group classifies and measures equity investments at FVTPL. Changes in the fair value of equity instruments at FVTPL are
recognised in ‘net investment result’ in the consolidated statement of profit or loss.
-
FVOCI: An irrevocable election can be made (on an instrument-by-instrument basis) on the date of acquisition to classify and measure equity
instruments at FVOCI. Designation is not permitted if the equity instrument is held for trading. Where this election has been made, there is no
subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Dividends from such
investments continue to be recognised in profit or loss within ‘net investment result’ when the Group’s right to receive payments is established.
(b) Impairment
The Group recognises a forward-looking loss allowance for expected credit losses (ECL) on financial assets measured at amortised cost or FVOCI.
ECL is an unbiased, probability-weighted estimate of credit losses and considers all reasonable and supportable information. The impairment
methodology applied depends on whether there has been a significant increase in credit risk or default.
The Group elects to apply the simplified approach permitted by IFRS 9 and recognises lifetime ECL for trade receivables and lease receivables. The
ECL on these financial assets are estimated using a provision matrix based on the Group’s historical credit loss experience, adjusted for current and
forecast economic conditions.
For all other financial instruments, the Group recognises lifetime ECL when there has been a significant increase in credit risk since initial
recognition. If the credit risk on the financial instrument has not increased significantly since initial recognition, the Group measures the loss
allowance for that financial instrument at an amount equal to 12-month ECL. Lifetime ECL represents the expected losses that will result from all
possible default events over the expected life of a financial instrument. 12-month ECL represents the portion of lifetime ECL that is expected to
result from default events on a financial instrument that are possible within 12 months after the reporting date. A financial asset is written off to the
extent there is no reasonable expectation of recovery. Any subsequent recovery in excess of the financial asset’s written down value is credited to
profit or loss.
Impairment losses are presented within ‘net investment return’ in the consolidated statement of profit or loss.
The Group’s IAS 39 accounting policies are described below:
The Group accounts 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.
6565 Notes to the financial statements
1 Accounting policies (continued)
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 IFRS 9 are
recognised in other comprehensive income.
(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.
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.
Subordinated liabilities
Subordinated liabilities are recognised initially at fair value, being the issue proceeds net of premiums, discounts and transaction costs incurred. All
borrowings are subsequently measured at amortised cost using the effective interest rate method. The amortisation is recognised as an interest
expense using the effective interest rate method.
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.
Leases
Group as a lessee
Leases are recognised as a right-of-use asset and a corresponding lease liability at the date at which the lease asset is available for use by the
Group. Each lease payment is deducted from the lease liability. Finance costs are charged to the profit and loss over the lease period so as to
produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the
shorter of the asset’s useful life and the lease term on a straight-line basis.
Lease liabilities are determined using the net present value of the payments over the lease term with the rate used to discount payments reflecting
the rate implicit in the lease or, if it not readily determinable, the Group's incremental borrowing rate, and include:
- Fixed payments less any lease incentives receivable;
-
-
-
- Payments and penalties from terminating the lease, if the lease term reflects the lessee exercising that option.
Variable lease payments that are based on an index or rate;
Amounts expected to be payable by the lessee under residual value guarantees;
The exercise price of an option if the lessee is reasonably certain to exercise that option; and
6666 Notes to the financial statements
1 Accounting policies (continued)
Right-of-use assets are initially measured at cost and subsequently measured as cost less accumulated depreciation and comprises:
The amount of the initial measurement of lease liability;
Any lease payment made at or before the commencement date, less any lease incentives received;
-
-
- Any initial direct costs; and
- Restoration costs.
Right-of-use assets are presented within property, plant and equipment in the statement of financial position.
Payments associated with short-term leases are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases
with a lease term of 12 months or less.
Group as a lessor
The Group enters into lease agreements as a lessor with respect to some of its investment properties. The Group also sublets property no longer
occupied by the Group.
Leases for which the Group is a lessor are classified as finance or operating leases. Whenever the terms of the lease transfer substantially all the
risks and rewards of ownership to the lessee, the contract is classified as a finance lease. All other leases are classified as operating leases.
When the Group is an intermediate lessor, it accounts for the head lease and the sublease as two separate contracts. The sublease is classified as a
finance or operating lease by reference to the right-of-use asset arising from the head lease.
Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease.
Amounts due from lessees under finance leases are recognised as receivables at the amount of the Group’s net investment in the leases. Finance
lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in
respect of the leases.
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 defined benefit and defined contribution pension 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.
6767 Notes to the financial statements
1 Accounting policies (continued)
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 actuarial valuations are carried out at the end of each reporting period.
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.
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 donation to ultimate parent undertaking
Payments are made via Gift Aid to the ultimate parent company, Benefact Trust Limited, a registered charity. The Group does not regard these
payments as being expenses of the business and, as such, recognises these 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 36 provides details of how these key performance indicators reconcile
to the results reported under IFRS.
Accounting policies applicable to discontinued operations
Discontinued operations comprise of the Group’s broking and advisory and investment management businesses. Further details are included in
note 15 to the financial statements. The following accounting policies are applicable only to the results of discontinued operations or balances
related to the businesses sold in the year or held for sale or distribution.
6868 Notes to the financial statements
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. Management have considered the current economic environment in their estimates and judgements.
(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.
The Group also applies judgement in determining the extent to which a surplus in the defined benefit plan can be recognised in the statement of
financial position. In accordance with IAS 19, Employee benefits, the recognisable surplus is limited to the lower of the surplus in the plan and the
asset ceiling. The asset ceiling is the present value of future economic benefits available in the form of a refund or as a reduction in future
contributions. The Group applies judgement in determining the asset ceiling in accordance with IFRS 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).
Significant insurance risk
Whole-of-life policies issued by the Group where significant insurance risk has been accepted from a policyholder are accounted for as insurance
contracts. Whole-of-life policies where the Group has not accepted significant insurance risk from a policyholder are accounted for as financial
instruments. Contracts can have features of, or appear to have features of, an insurance contract and therefore judgement is required on whether
there is insurance risk and then whether that insurance risk is significant. Policies are considered to be insurance contracts where future benefits
are linked to inflation as there is uncertainty over the timing and amount of a resulting claim. Policies that provide a policyholder with a guarantee
to return the original premium have not transferred insurance risk and are considered financial instruments.
Level of aggregation
The Group separates insurance contracts into portfolios of similar risks that are managed together. For the non-life business the majority of the
Group’s insurance contracts represent a combination of component risks which are sold as an overall product and this unit has not been
unbundled because the combination is not solely for administrative or customer convenience. For contracts eligible for the PAA (materially all of
the non-life business), the primary indicator of the portfolios for gross business has been judged to be the geographic territory of the risk. The life
business represents a separate portfolio, as a single product line. Portfolios of insurance contacts are divided into profitability groups for
measurement purposes. Under the PAA model the default assumption is made that no groups are onerous unless facts and circumstances indicate
otherwise, which is determined through review for go-forward expected losses for groupings identified in the Group Corporate Strategic Plan.
Risk adjustment
A risk adjustment for non-financial risk is determined to reflect the compensation that the Group would require for bearing non-financial risk and its
degree of risk aversion. The risk adjustment for non-financial risk has been determined using a combination of confidence level techniques, and
scenarios, with the judgement made that the techniques previously used for quantifying reserve risk appetite and setting reserves explicitly above
the best estimate represent the most appropriate mechanism for quantifying compensation required.
6969 Notes to the financial statements
2 Critical accounting estimates and judgements in applying accounting policies (continued)
IFRS 17 transition
For the Group’s life business, the Group has used the fair value transition approach and not the fully retrospective approach (FRA). The Group
concluded the FRA was impracticable primarily due to the lack of certain data and certain assumptions and calculations would not be possible
without the use of hindsight.
The IFRS 17 Standard does not specify how the fair value of a group of contracts at the transition date should be calculated. IFRS 13 defines the fair
value as, “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date.” An approach based on Solvency II technical provisions has been used to leverage existing data and processes to calculate the
fair value. The fair value was calculated as a best estimate liability plus a cost of the capital that a market participant would be required to hold.
(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.
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 uncertainties surrounding the estimates of claims payments for the various classes of business are discussed further in note 3. General
business insurance liabilities include a risk adjustment in addition to the best estimates for future claims. The sensitivity of profit or loss to changes
in the ultimate settlement cost of claims reserves is presented in note 26.
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. The estimated mortality rates are used to determine forecast benefit payments net of forecast premium
receipts.
A discount rate curve is calculated on a bottom up basis. The risk free curve is based on the UK government bond yield curve. A liquidity premium
based on the return on a notional index of fixed interest assets, including gilts and corporate bonds, is added to the risk free curve. The liquidity
premium is adjusted for credit risk and differences in liquidity between the notional assets and the liabilities.
In addition, a risk adjustment for non-financial risks is then added to the best estimate liability calculated on the basis set out above. The sensitivity
of profit or loss to changes in the assumptions is presented in note 26(b)(iv).
7070 Notes to the financial statements
2 Critical accounting estimates and judgements in applying accounting policies (continued)
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. Any change in these assumptions may affect planned funding of the pension
plans.
The discount rate assumption is a component in determining the charge to profit or loss. The effect of movements in the actuarial assumptions
during the year, including discount rate, mortality, inflation, salary and medical expense inflation assumptions, on the pension and other post-
employment liabilities are recognised in other comprehensive income. An explanation of the actuarial gains recognised in the current year is
included in note 17.
The Group determines an appropriate discount rate at the end of each year, to be used to determine the present value of estimated future cash
outflows expected to be required to settle the pension and other post-employment benefit obligations.
The expected rate of medical expense inflation is determined by comparing the historical relationship of medical expense increases over a portfolio
of UK-based post-retirement medical plans with the rate of inflation, making an allowance for the size of the plan and actual medical expense
experience.
Other key assumptions for the pension and post-employment benefit costs and credits are based in part on current market conditions. Additional
information including the sensitivity of pension and post-employment medical benefit scheme liabilities to changes in the key assumptions is
disclosed in note 17.
Unlisted equity securities
The valuation of unlisted equity securities requires estimates to be made for the illiquidity discount and credit rating discount. Further details,
including the sensitivity of the valuation to these inputs, are shown in note 4(b).
Discount rates
IFRS 17 requires entities to determine discount rates that reflect the characteristics of the liabilities using either the ‘bottom up’ or ‘top down’
approach. The ‘top down’ approach involves using discount rate curves derived from a portfolio of reference assets adjusted to remove all
characteristics of the assets that are not present in insurance contracts, but not requiring to eliminate the illiquidity premium.
The Group selected to continue to apply its previous practice for non-life business of using the ‘bottom up’ approach which requires the use of risk-
free rate curves and adding the illiquidity premium. The Group derives illiquidity by reference to the illiquidity estimated to apply to a suitable
reference portfolio of assets with similar liquidity characteristics. The published yields on Government bonds in each territory are used as a
reference for risk-free rates. The characteristics of the Group’s general insurance contract claims liabilities are less liquid than those of its life
insurance contracts, because the life insurance contracts have surrender options.
7171 Notes to the financial statements
3 Insurance risk
Through its general and life insurance operations, the Group is exposed to a number of risks, as summarised in the Risk Management section of the
Strategic Report. The risk under any one insurance contract is the possibility that the insured event occurs and the uncertainty of the amount and
timing of the resulting claim. Factors such as the business and product mix, the external environment including market competition and reinsurance
capacity all may vary from year to year, along with the actual frequency, severity and ultimate cost of claims and benefits. This subjects the Group
to underwriting and pricing risk (the risk of failing to ensure disciplined risk selection and 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 optimal 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.
The table below summarises written premiums for the financial year, before and after reinsurance, by territory and by class of business. Further
details on the gross and net written premiums, which are alternative performance measures that are not defined under IFRS, are detailed in note
36.
2023
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
Whole of life
£000
Total
£000
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Gross
Net
297,481
137,933
57,703
9,182
73,958
48,247
429,142
195,362
297,481
137,933
73,958
48,247
371,439
186,180
79,966
75,916
43,194
37,275
32,979
29,512
156,139
142,703
79,966
75,916
32,979
29,512
112,945
105,428
24,668
11,816
1,337
1,313
-
-
26,005
13,129
24,668
11,816
-
-
24,668
11,816
3,287
64
434
82
-
-
3,721
146
5,904
2,618
-
-
5,904
2,618
(24)
(24)
-
-
-
-
(24)
(24)
-
-
-
-
-
-
405,378
225,705
102,668
47,852
106,937
77,759
614,983
351,316
408,019
228,283
106,937
77,759
514,956
306,042
7272 Notes to the financial statements
3 Insurance risk (continued)
2022
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
Whole of life
£000
Total
£000
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Gross
Net
255,418
119,847
55,266
5,886
73,779
47,335
384,463
173,068
255,418
119,847
73,779
47,335
329,197
167,182
71,575
68,128
42,978
36,037
34,982
31,914
149,535
136,079
71,575
68,128
34,982
31,914
106,557
100,042
20,006
10,259
918
868
-
-
20,924
11,127
20,006
10,259
-
-
20,006
10,259
3,086
100
536
101
-
-
3,622
201
5,833
2,847
-
-
5,833
2,847
7
7
-
-
-
-
7
7
-
-
-
-
-
-
350,092
198,341
99,698
42,892
108,761
79,249
558,551
320,482
352,832
201,081
108,761
79,249
461,593
280,330
(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 (business interruption).
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, weather damage, escape of water, explosion (after fire), riot and malicious damage, subsidence, accidental
damage, theft and earthquake. 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 fire spreading 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.
7373 Notes to the financial statements
3 Insurance risk (continued)
Liability classes
The main exposures are in respect of liability insurance contracts which protect policyholders from the liability to compensate injured employees
(employers' liability) and third parties (public liability).
Claims that may arise from the liability portfolios include damage to property, physical injury, disease and psychological trauma. The Group has a
different exposure profile to most other commercial lines insurance companies as it has lower exposure to industrial risks. Therefore, claims for
industrial diseases are less common for the Group than injury claims such as slips, trips and back injuries.
The frequency and severity of claims arising on liability insurance contracts 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 26 presents the development of the estimate of ultimate claim cost for public and employers' liability claims occurring in a given year. This
gives an indication of the accuracy of the estimation technique for incurred claims.
(d) Life insurance risks
The Group provides whole-of-life insurance policies to support funeral planning products, for most of which the future benefits are linked to
inflation and backed by index-linked assets. None of the risks arising from this business are amongst the Group's principal risks and no new policies
with insurance risk have been written in the life fund since 2013.
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 is
insufficient to meet future claims payments, particularly if the timing of claims is different from that assumed. 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.
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. This small mortality risk is retained by the Group. The Group holds a reserve to meet the costs of future expenses in running the life
business and administration of the policies. There is a risk that this is insufficient to meet the expenses incurred in future periods.
7474 Notes to the financial statements
4 Financial risk and capital management
The Group is exposed to financial risk through its financial assets, financial liabilities, reinsurance assets and insurance liabilities. In particular, the key
financial risk is that the proceeds from its financial assets are not sufficient to fund the obligations arising from its insurance contracts. The most important
components of financial risk are interest rate risk, credit risk, equity price risk and currency risk.
There has been no change from the prior period in the nature of the financial risks to which the Group is exposed. The continued conflict in Ukraine, Middle
East and the cost of living crisis means there is continued uncertainty in relation to the economic risks to which the Group is exposed. This includes 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) Categories applying IFRS 9
Financial assets
Financial liabilities
Designated
as fair value
through
profit or
loss
£000
Classified
as fair value
through
profit or
loss
£000
Amortised
cost
£000
Fair value
Fair value
through
through
other
profit or comprehensive
income
£000
loss
£000
Amortised
cost
£000
Other assets
and liabilities
£000
Group
At 31 December 2023
Financial investments
Other assets
Cash and cash equivalents
Lease obligations
Subordinated liabilities
Other liabilities
Inv't contract liabilities
Net other
Total
At 31 December 2022 (restated*)
Financial investments
Other assets
Cash and cash equivalents
Lease obligations
Subordinated liabilities
Other liabilities
Inv't contract liabilities
Net other
Total
Parent
At 31 December 2023
Financial investments
Other assets
Cash and cash equivalents
Lease obligations
Subordinated liabilities
Other liabilities
Net other
Total
At 31 December 2022 (restated*)
Financial investments
Other assets
Cash and cash equivalents
Lease obligations
Subordinated liabilities
Other liabilities
Net other
Total
940,897
-
-
-
-
-
-
-
940,897
869,880
-
-
-
-
-
-
-
869,880
615,036
-
-
-
-
-
-
615,036
593,061
-
-
-
-
-
-
593,061
824
-
-
-
-
-
-
-
824
755
-
-
-
-
-
-
-
755
824
-
-
-
-
-
-
824
755
-
-
-
-
-
-
755
34
156,385
112,082
-
-
-
-
-
268,501
114
140,246
104,664
-
-
-
-
-
245,024
34
154,483
83,436
-
-
-
-
237,953
114
136,277
66,569
-
-
-
-
202,960
-
-
-
-
-
-
(95,886)
-
(95,886)
-
-
-
-
-
(2,475)
(58,479)
-
(60,954)
-
-
-
-
-
(1,156)
-
(1,156)
-
-
-
-
-
(3,234)
-
(3,234)
-
-
-
-
-
(2,380)
-
-
(2,380)
-
-
-
-
-
(759)
-
-
(759)
-
-
-
-
-
(1,225)
-
(1,225)
-
-
-
-
-
-
-
-
-
-
-
(21,687)
(25,853)
(38,806)
-
-
(86,346)
-
-
-
(19,062)
(25,818)
(30,720)
-
-
(75,600)
-
-
-
(19,551)
(25,853)
(26,821)
-
(72,225)
-
-
-
(18,712)
(25,818)
(26,815)
-
(71,345)
-
8,719
-
-
-
(16,093)
-
(389,320)
(396,694)
-
8,103
-
-
-
(13,391)
-
(361,180)
(366,468)
42,707
6,148
-
-
-
(13,718)
(254,293)
(219,156)
42,707
5,045
-
-
-
(10,756)
(215,889)
(178,893)
Total
£000
941,755
165,104
112,082
(21,687)
(25,853)
(57,279)
(95,886)
(389,320)
628,916
870,749
148,349
104,664
(19,062)
(25,818)
(47,345)
(58,479)
(361,180)
611,878
658,601
160,631
83,436
(19,551)
(25,853)
(42,920)
(254,293)
560,051
636,637
141,322
66,569
(18,712)
(25,818)
(40,805)
(215,889)
543,304
*The comparative financial statements have been restated as detailed in note 37.
The carrying value of those financial assets and liabilities not carried at fair value in the financial statements is considered to approximate to their fair value.
7575 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 (as prices) or indirectly (derived from prices). This category includes listed debt or equity securities in a market that is not active and
derivatives that are not exchange-traded.
Level 3: fair values measured using inputs for the asset or liability that are not based on observable market data (unobservable inputs). This
category includes unlisted debt and equities, including investments in venture capital, and suspended securities. Where a look-through valuation
approach is applied, underlying net asset values are sourced from the investee, translated into the Group's functional currency and adjusted to
reflect illiquidity where appropriate, with the fair values disclosed being directly sensitive to this input.
Instruments move between fair value hierarchies primarily due to increases or decreases in market activity or changes to the significance of
unobservable inputs to valuation, and are recognised at the date of the event or change in circumstances which caused the transfer. During the
year there was a transfer from level 1 to level 2 due to a change in the observable inputs.
Analysis of fair value measurement bases
Group
At 31 December 2023
Financial assets at fair value through profit or loss
Financial investments
Equity securities
Debt securities
Structured notes
Derivatives
At 31 December 2022 (re-presented*)
Financial assets at fair value through profit or loss
Financial investments
Equity securities
Debt securities
Structured notes
Derivatives
Fair value measurement at the
end of the reporting period based on
Level 1
£000
Level 2
£000
Level 3
£000
250,106
516,844
-
-
766,950
234,035
492,682
-
-
726,717
-
2,079
94,970
824
97,873
-
1,299
56,138
755
58,192
76,898
-
-
-
76,898
85,726
-
-
-
85,726
Total
£000
327,004
518,923
94,970
824
941,721
319,761
493,981
56,138
755
870,635
* Prior year comparatives have been re-presented to reflect the current year disclosures for composition of OEICs. OEICs previously included in
equity securities but relating to bond OEICs have been re-presented in debt securities to better reflect the nature of the assets and requirements of
IFRS 7.
7676 Notes to the financial statements
4 Financial risk and capital management (continued)
Parent
At 31 December 2023
Financial assets at fair value through profit or loss
Financial investments
Equity securities
Debt securities
Derivatives
At 31 December 2022 (re-presented*)
Financial assets at fair value through profit or loss
Financial investments
Equity securities
Debt securities
Derivatives
Fair value measurement at the
end of the reporting period based on
Level 1
£000
Level 2
£000
Level 3
£000
Total
£000
237,033
300,117
-
537,150
222,043
284,413
-
506,456
-
988
824
1,812
-
1,025
755
1,780
76,898
-
-
76,898
313,931
301,105
824
615,860
85,580
-
-
85,580
307,623
285,438
755
593,816
* Prior year comparatives have been re-presented to reflect the current year disclosures for composition of OEICs. OEICs previously included in
equity securities but relating to bond OEICs have been re-presented in debt securities to better reflect the nature of the assets and requirements
of IFRS 7.
Gains and losses on derivative liabilities of the Group and Parent were recognised through other comprehensive income if they were hedge
accounted, otherwise were recognised at fair value through profit or loss. Derivative liabilities are categorised as level 2 (see note 21).
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 2023
Opening balance
Total losses recognised in profit or loss
Disposal proceeds
Closing balance
Total losses for the period included in profit or loss for assets
held at the end of the reporting period
At 31 December 2022
Opening balance
Total gains/(losses) recognised in profit or loss
Closing balance
Total gains/(losses) for the period included in profit or loss for assets
held at the end of the reporting period
Financial assets at fair value
through profit and loss
Equity
securities
£000
Debt
securities
£000
85,726
(8,780)
(48)
76,898
(8,780)
68,947
16,779
85,726
16,780
-
-
-
-
-
34
(34)
-
(34)
Total
£000
85,726
(8,780)
(48)
76,898
(8,780)
68,981
16,745
85,726
16,746
7777 Notes to the financial statements
4 Financial risk and capital management (continued)
Parent
At 31 December 2023
Opening balance
Total losses recognised in profit or loss
Disposal proceeds
Closing balance
Total losses for the period included in profit or loss for assets
held at the end of the reporting period
At 31 December 2022
Opening balance
Total gains/(losses) recognised in profit or loss
Closing balance
Total gains/(losses) for the period included in profit or loss for assets
held at the end of the reporting period
Financial assets at fair value
through profit and loss
Equity
securities
£000
Debt
securities
£000
85,580
(8,634)
(48)
76,898
(8,634)
68,800
16,780
85,580
16,781
-
-
-
-
-
33
(33)
-
(33)
Total
£000
85,580
(8,634)
(48)
76,898
(8,634)
68,833
16,747
85,580
16,748
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.
Non-exchange-traded derivative contracts (level 2)
The Group's derivative contracts are not traded in active markets. Foreign currency forward contracts are valued using observable forward
exchange rates corresponding to the maturity of the contract and the contract forward rate. Over-the-counter equity or index options and futures
are valued by reference to observable index prices.
Structured notes (level 2)
These financial assets are not traded on active markets. Their fair value is linked to an index that reflects the performance of an underlying basket
of observable securities, including derivatives, provided by an independent calculation agent.
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, normalised for performance measures where appropriate, and management's consideration of constituents as
to what exit price might be obtainable.
The valuation is sensitive to the level of underlying net assets, the Euro exchange rate, the price-to-tangible book ratio, an illiquidity discount and a
credit rating discount applied to the valuation to account for the risks associated with holding the asset. If the illiquidity discount or credit rating
discount applied changes by +/-10%, the value of unlisted equity securities could move by +/-£8m (2022: +/-£9m).
Unlisted debt (level 3)
Unlisted debt is valued using an adjusted net asset method whereby management uses a look-through approach to the underlying assets
supporting the loan, discounted using observable market interest rates of similar loans with similar risk, and allowing for unobservable future
transaction costs.
The valuation is most sensitive to the level of underlying net assets, but it is also sensitive to the interest rate used for discounting and the
projected date of disposal of the asset, with the exit costs sensitive to an expected return on capital of any purchaser and estimated transaction
costs. Reasonably likely changes in unobservable inputs used in the valuation would not have a significant impact on shareholders' equity or the
net result.
7878 Notes to the financial statements
4 Financial risk and capital management (continued)
(c) Interest rate risk
The Group’s exposure to interest rate risk arises primarily from movements on financial investments that are measured at fair value and have fixed
interest rates, which represent a significant proportion of the Group’s assets, subordinated debt which has a fixed interest rate until 2030, and from
insurance liabilities discounted 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 three years (2022: three years), reflecting the relatively short-term
average duration of its general insurance liabilities. The mean term of discounted general insurance liabilities is disclosed in note 26(a)(viii).
For the Group’s life insurance 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 insurance 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 (for example 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 insurance business assets and liabilities that are exposed to interest rate risk.
Group life business
At 31 December 2023
Assets
Debt securities
Cash and cash equivalents
Liabilities (discounted)
Life insurance contract liabilities for remaining coverage
At 31 December 2022 (re-presented*)
Assets
Debt securities
Cash and cash equivalents
Liabilities (discounted)
Life insurance contract liabilities for remaining coverage
Within
1 year
£000
Maturity
Between
1 and 5 years
£000
After
5 years
£000
Total
£000
14,004
8,727
22,731
21,312
-
21,312
49,879
-
49,879
85,195
8,727
93,922
5,870
18,408
31,751
56,029
14,827
11,854
26,681
22,815
-
22,815
45,678
-
45,678
83,320
11,854
95,174
5,339
17,322
36,602
59,263
* Prior year comparatives have been re-presented to reflect the current year disclosures for composition of OEICs. OEICs previously included in
equity securities but relating to bond OEICs have been re-presented in debt securities to better reflect the nature of the assets and requirements of
IFRS 7.
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.
7979 Notes to the financial statements
4 Financial risk and capital management (continued)
(d) Credit risk
The Group has exposure to credit risk, which is the risk of non-payment of their obligations by counterparties and financial markets borrowers.
Areas where the Group is exposed to credit risk are:
-
-
-
-
Counterparty default on loans and debt securities;
Deposits held with banks;
Reinsurers’ share of insurance liabilities (excluding provision for unearned premiums) and amounts due from reinsurers in respect of
claims already paid; 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 following table provides information regarding the credit risk exposure of financial assets with external credit ratings from Standard & Poors or
an equivalent rating from a similar agency. This includes financial assets that meet the definition of 'solely payments of principal and interest'
(SPPI), as detailed in note 4(a)(ii).
Group
At 31 December 2023
AAA
AA
A
BBB
Below BBB
Not rated
At 31 December 2022 (re-presented*)
AAA
AA
A
BBB
Below BBB
Not rated
Cash
and cash
equivalents¹
£000
SPPI
Reinsurance
debtors
£000
Non-SPPI
Debt
securities
£000
Total SPPI
£000
-
72,191
25,423
14,464
-
4
112,082
-
42,616
18,114
43,930
-
4
104,664
-
5,902
17,435
-
-
3,500
26,837
-
3,608
10,653
-
-
3,866
18,127
-
78,093
42,858
14,464
-
3,504
138,919
-
46,224
28,767
43,930
-
3,870
122,791
207,068
152,744
88,810
52,646
8,567
9,088
518,923
189,721
124,057
102,779
62,049
6,878
8,497
493,981
¹ Cash includes amounts held on deposit classified within financial investments and disclosed in note 20. Cash balances which are not rated
relate to cash amounts in hand.
* Prior year comparatives have been re-presented to reflect the current year disclosures for composition of OEICs. OEICs previously included in
equity securities but relating to bond OEICs have been re-presented in debt securities to better reflect the nature of the assets and requirements
of IFRS 7.
8080 Notes to the financial statements
4 Financial risk and capital management (continued)
Parent
At 31 December 2023
AAA
AA
A
BBB
Below BBB
Not rated
At 31 December 2022 (re-presented*)
AAA
AA
A
BBB
Below BBB
Not rated
Cash
and cash
equivalents1
£000
SPPI
Reinsurance
debtors
£000
Non-SPPI
Debt
securities
£000
Total SPPI
£000
-
52,605
18,247
12,580
-
4
83,436
-
16,605
7,328
42,632
-
4
66,569
-
3,244
6,728
-
-
3,801
13,773
-
2,961
5,710
-
-
3,615
12,286
-
55,849
24,975
12,580
-
3,805
97,209
-
19,566
13,038
42,632
-
3,619
78,855
120,520
65,633
70,736
31,467
5,117
7,632
301,105
102,552
49,080
83,694
38,866
4,171
7,075
285,438
1 Cash includes amounts held on deposit classified within financial investments and disclosed in note 20. Cash balances which are not rated
relate to cash amounts in hand.
* Prior year comparatives have been re-presented to reflect the current year disclosures for composition of OEICs. OEICs previously
included in equity securities but relating to bond OEICs have been re-presented in debt securities to better reflect the nature of the assets
and requirements of IFRS 7.
For financial assets meeting the SPPI test that do not have low credit risk, the carrying amount disclosed above is an approximation of their fair
value.
Group cash balances are regularly reviewed to identify the quality of the counterparty bank and to monitor and limit concentrations of risk.
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 0% of this category in the
current year and less than 1% prior year.
The Group’s exposure to counterparty default on debt securities is spread across a variety of geographical and economic territories, as follows:
2023
2022 (re-presented*)
Group
£000
209,369
147,364
132,622
29,568
518,923
Parent
£000
124,173
147,364
-
29,568
301,105
UK
Canada
Australia
Europe
Total
Group
£000
211,011
131,232
125,225
26,513
493,981
Parent
£000
127,693
131,232
-
26,513
285,438
UK
Canada
Australia
Europe
Total
* Prior year comparatives have been re-presented to reflect the current year disclosures for composition of OEICs. OEICs previously
included in equity securities but relating to bond OEICs have been re-presented in debt securities to better reflect the nature of the assets
and requirements of IFRS 7.
81 Notes to the financial statements
4 Financial risk and capital management (continued)
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 Group Reinsurance Security Committee also monitors the balances outstanding from reinsurers and
maintains an approved list of reinsurers.
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.
The table below provides an analysis of the gross carrying amounts of groups of insurance debtors and groups of reinsurance debtors by past due
status:
Insurance debtors
Current
0 to 30 days
30 days to 90 days
More than 90 days
Reinsurance debtors
Current
0 to 30 days
30 days to 90 days
More than 90 days
2023
£000
2022
£000
134,790
17,262
6,629
10,068
168,749
20,845
1,271
1,637
3,084
26,837
125,532
12,860
9,068
1,980
149,440
7,721
1,388
6,824
2,194
18,127
Amounts arising from expected credit losses on financial assets are as follows:
Balance at 1 January
Movement in the year
Balance at 31 December
2023
Group
£000
1,899
(1,607)
292
Parent
£000
1,057
(904)
153
2022
Group
£000
Parent
£000
-
-
-
-
-
-
8282 Notes to the financial statements
4 Financial risk and capital management (continued)
(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:
2023
2022 (re-presented*)
Group
£000
236,335
76,898
13,771
327,004
Parent
£000
223,262
76,898
13,771
313,931
UK
Europe
US
Total
Group
£000
234,361
85,400
-
319,761
Parent
£000
222,223
85,400
-
307,623
UK
Europe
US
Total
* Prior year comparatives have been re-presented to reflect the current year disclosures for composition of OEICs. OEICs previously included in
equity securities but relating to bond OEICs have been re-presented in debt securities to better reflect the nature of the assets and requirements of
IFRS 7.
(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 forward foreign currency risk arising on translation of these foreign operations is hedged by the derivatives which are detailed in note 21. 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 largest currency exposures, before the mitigating effect of derivatives, with reference to net assets/liabilities are shown below, representing
effective diversification of resources.
2023
Group
£000
67,554
61,784
39,752
11,189
185
Parent
£000
67,554
4,988
39,752
11,189
185
Can $
Aus $
Euro
USD $
HKD $
2022
Group
£000
57,710
61,768
25,287
2,653
15
Parent
£000
57,710
4,091
25,287
2,653
15
Can $
Aus $
Euro
USD $
HKD $
The figures in the table above, for the current and prior years, do not include currency risk that the Group and Parent are exposed to on a ‘look
through’ basis in respect of collective investment schemes denominated in sterling. The Group and Parent enter into derivatives to hedge currency
exposure, including exposures on a ‘look through’ basis. The open derivatives held by the Group and Parent at the year end to hedge currency
exposure are detailed in note 21.
8383 Notes to the financial statements
4 Financial risk and capital management (continued)
(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 26. The Group has robust processes in place to manage liquidity risk and has available cash balances, other readily
marketable assets and access to funding in case of exceptional need. This is not considered to be a significant risk to the Group.
Non-derivative financial liabilities consist of lease liabilities, for which a maturity analysis is included in note 32, and other liabilities for which a
maturity analysis is included in note 29, and subordinated debt for which a maturity analysis is included in note 30.
(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 17.
Group
Variable
Interest rate risk
Currency risk
Equity price risk
Parent
Variable
Interest rate risk
Currency risk
Equity price risk
Potential increase/
(decrease) in profit
Re-presented*
2022
£000
(3,618)
4,786
2,154
(1,763)
25,901
2023
£000
814
906
2,956
(2,418)
24,525
Potential increase/
(decrease) in profit
Re-presented*
2022
£000
(2,936)
4,218
2,154
(1,763)
24,917
2023
£000
(3,079)
4,303
2,956
(2,418)
23,545
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
other equity reserves
2023
£000
(4)
3
16,070
(13,148)
-
2022
£000
(8)
7
13,123
(10,737)
-
Potential increase/
(decrease) in
other equity reserves
2023
£000
(5)
5
9,759
(7,985)
-
2022
£000
4
(4)
6,715
(5,494)
-
* Prior year comparatives have been re-presented to reflect the current year disclosures for composition of OEICs. OEICs previously included in
equity securities but relating to bond OEICs have been re-presented in debt securities to better reflect the nature of the assets and requirements of
IFRS 7.
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.
8484 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).
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, Benefact Group plc. Consequently, there is no directly comparable
solvency measure for EIO group. 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's website. A further report, the Regular Supervisory Report (RSR) is
periodically submitted to the PRA.
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.
The Group's regulated entities, EIO and ELL, expect to meet the deadline for submission to the PRA of 6 April 2023 and their respective SFCRs will
be made available on the Group's website shortly thereafter. Benefact Group is also expected to meet its deadline for submission to the PRA of 20
May 2023, with its SFCR also being made available on the Group’s website shortly after.
2023
2022
Ecclesiastical
Insurance
Office plc
Parent
£000
Ecclesiastical
Life Limited
£000
Ecclesiastical
Insurance
Office plc
Parent
£000
Ecclesiastical
Life Limited
£000
Solvency II Own Funds (unaudited)
639,158
59,813
630,058
54,172
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.
8585 Notes to the financial statements
5 Segment information
(a) Operating segments
The Group’s primary operating segments are based on geography and are engaged in providing general insurance and life insurance services. The
Group also considers investments a separate reporting segment, also based on geography. Expenses relating to Group management activities are
included within 'Corporate costs'. The Group’s life insurance business is carried out within the United Kingdom.
The Group’s chief operating decision maker is considered to be the Group Management Board whose members include the company’s executive
directors.
The activities of each operating segment are described below.
- General business
United Kingdom and Ireland
The Group's principal general insurance business operation is in the UK, where it operates under the Ecclesiastical and Ansvar brands.
The Group also operates an Ecclesiastical branch in the Republic of Ireland underwriting general business across the whole of Ireland.
Australia
The Group has a wholly-owned subsidiary in Australia underwriting general insurance business under the Ansvar brand.
Canada
The Group operates a general insurance Ecclesiastical branch in Canada.
Other insurance operations
This includes the Group's internal reinsurance function, adverse development cover and operations that are in run-off or not reportable
due to their immateriality.
- Life business
Ecclesiastical Life Limited provides long-term policies to support funeral planning products. The business reopened to new investment
business in 2021 but it is closed to new insurance business.
Inter-segment and inter-territory transfers or transactions are entered into under normal commercial terms and conditions that would also be
available to unrelated third parties.
(b) Segment performance
The Group uses the following key measures to assess the performance of its operating segments:
- Gross written premium
- Underwriting result
- Investment return
Gross written premium is the measure used in internal reporting for turnover of the general and life insurance business segments. The
underwriting result is used as a measure of profitability of the insurance business segments. The investment return is used as a profitability
measure of the Group’s investments. Gross written premium and underwriting result are attributed to the geographical region in which the
customer is based.
The Group also uses the industry standard net combined operating ratio (COR) as a measure of underwriting efficiency. The COR expresses the
total of net claims costs, commission and underwriting expenses as a percentage of net earned premiums. Further details on the gross written
premiums, underwriting profit or loss and COR, which are alternative performance measures, are detailed in note 36.
The life business segment result comprises the profit or loss on insurance contracts (including return on assets backing liabilities in the long-term
fund), investment return comprising profit or loss on funeral plan investment business and shareholder investment return, and other expenses.
All other segment results consist of the profit or loss before tax measured in accordance with IFRS.
8686 Notes to the financial statements
5 Segment information (continued)
Segment gross written premiums
General business
United Kingdom and Ireland
Australia
Canada
Other insurance operations
Total
Life business
Group revenue
Group revenues are not materially concentrated on any single external customer.
Segment results
2023
General business
United Kingdom and Ireland
Australia
Canada
Other insurance operations
Life business
Corporate costs
Profit/(loss) before tax
2022 (as restated)*
General business
United Kingdom and Ireland
Australia
Canada
Other insurance operations
Life business
Corporate costs
Profit/(loss) before tax
Combined
operating
ratio
92.1%
113.4%
80.4%
92.6%
Combined
operating
ratio
87.1%
99.0%
88.1%
89.6%
Insurance
£000
Investments
£000
16,371
(5,120)
14,924
(1,655)
24,520
1,240
-
25,760
30,751
6,031
6,500
(1,027)
42,255
3,881
-
46,136
Insurance
£000
Investments
£000
23,618
409
8,886
(1,395)
31,518
49
-
31,567
(13,301)
1,441
(764)
648
(11,976)
(7,191)
-
(19,167)
*The comparative financial statements have been restated as detailed in note 37.
2023
£000
399,716
102,668
106,937
5,686
615,007
(24)
614,983
Other
£000
(2,640)
(377)
(134)
87
(3,064)
-
(24,079)
(27,143)
Other
£000
(1,962)
(131)
(146)
-
(2,239)
-
(25,743)
(27,982)
2022
£000
344,788
99,698
108,761
5,297
558,544
7
558,551
Total
£000
44,482
534
21,290
(2,595)
63,711
5,121
(24,079)
44,753
Total
£000
8,355
1,719
7,976
(747)
17,303
(7,142)
(25,743)
(15,582)
8787 Notes to the financial statements
5 Segment information (continued)
(c) 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
2023
2022
Gross
written
premiums
£000
405,378
102,668
106,937
614,983
Non-current
assets
£000
320,026
5,869
5,401
331,296
Gross
written
premiums
£000
350,092
99,698
108,761
558,551
Non-current
assets
£000
317,338
3,052
5,601
325,991
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 Insurance revenue
For the year ended 31 December 2023
Contracts not measured under PAA
Amounts relating to the changes in the LRC
Expected incurred claims and other expenses after loss component allocation
Change in the risk adjustment for non-financial risk for the risk expired after loss component
CSM recognised in profit or loss for the services provided
Contracts measured under PAA
Total insurance revenue
For the year ended 31 December 2022
Contracts not measured under PAA
Amounts relating to the changes in the LRC
Expected incurred claims and other expenses after loss component allocation
Change in the risk adjustment for non-financial risk for the risk expired after loss component
CSM recognised in profit or loss for the services provided
Contracts measured under PAA
Total insurance revenue
General
business
£000
Life
business
£000
-
-
-
-
5,772
20
717
6,509
Total
£000
5,772
20
717
6,509
579,975
579,975
-
579,975
6,509
586,484
-
25
-
25
528,558
528,583
5,646
123
542
6,311
-
6,311
5,646
148
542
6,336
528,558
534,894
8888 Notes to the financial statements
7 Insurance service expenses
A breakdown of Insurance service expenses is included below:
For the year ended 31 December 2023
Incurred claims and benefits excluding investment components
Insurance acquisition cash flows amortisation
Changes that relate to past service
Losses on onerous contracts and reversal of those losses
Changes that relate to current service
Total insurance service expenses
For the year ended 31 December 2022
Incurred claims and benefits excluding investment components
Insurance acquisition cash flows amortisation
Changes that relate to past service
Losses on onerous contracts and reversal of those losses
Changes that relate to current service
Total insurance service expenses
8 Net insurance financial result
General
business
£000
Life
business
£000
308,069
119,205
(24,547)
155
-
402,882
347,499
109,256
(18,331)
781
-
439,205
Total
£000
308,069
119,205
(24,547)
155
5,702
408,584
347,499
109,256
(18,331)
781
5,267
444,472
2022
£000
(4,865)
59,429
2
54,566
1,147
(7,620)
(231)
(6,704)
-
-
-
-
5,702
5,702
-
-
-
-
5,267
5,267
2023
£000
(20,203)
(5,630)
(897)
(26,730)
6,249
590
351
7,190
Insurance finance income/(expense) from insurance contracts issued
Interest accreted
Effect of changes in interest rates and other financial assumptions
Effect of measuring changes in estimates at current rates and adjusting the CSM at rates on initial recognition
Total
Insurance finance income/(expenses) from reinsurance contracts held
Interest accreted
Effect of changes in interest rates and other financial assumptions
Effect of changes in non-performance risk of reinsurers
Total
Net insurance financial result
(19,540)
47,862
8989 Notes to the financial statements
9 Net investment result
Income from financial assets at fair value through profit or loss
- equity income
- debt income
- structured note income
Income from financial assets calculated using the effective interest rate method
- cash and cash equivalents income
- other income received
Other income/(expense)
- rental income
- exchange movements
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
Movement in expected credit loss allowance
Net investment return/(loss)
Less: discontinued operations
Net investment return/(loss) of continuing operations
*The comparative financial statements have been restated as detailed in note 37.
2023
£000
10,032
14,942
731
2,488
6,879
8,647
(820)
42,899
19,579
(6,651)
35
1,607
57,469
-
57,469
Restated*
2022
£000
6,780
11,074
346
3,502
1,583
8,837
(1,416)
30,706
(72,912)
(21,209)
-
-
(63,415)
(24)
(63,439)
Included within fair value movements on financial instruments at fair value through profit or loss are gains of £4,262,000 (2022: £3,733,000 gains)
in respect of derivative instruments.
9090 Notes to the financial statements
10 Profit for the year
Profit for the year has been arrived at after charging/(crediting)
Net foreign exchange losses
Depreciation of property, plant and equipment
Loss/(profit) on disposal of property, plant and equipment
Amortisation of intangible assets
Decrease in fair value of investment property
Employee benefits expense including termination benefits, net of recharges
11 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
Total auditor's remuneration
2023
£000
820
5,879
2
4,155
6,651
101,834
Restated
2022
£000
1,374
6,261
(9)
3,558
21,209
92,503
2023
£000
2022
£000
2,080
709
414
2,494
156
-
156
2,650
323
1,032
183
87
270
1,302
Amounts disclosed are net of services taxes, where applicable. Audit-related assurance services include Prudential Regulatory Authority (PRA) and
other regulatory audit work.
Audit fees for 2023 include amounts related to the implementation of IFRS 17 Insurance Contracts in the year, the impacts of which are disclosed in
note 37.
In 2023, auditor's remuneration of £nil (2022: £143,000) related to discontinued operations.
9191 Notes to the financial statements
12 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.
956
166
78
1,200
General
business
No.
956
78
1,034
2023
Life
business
No.
2
-
-
2
2023
Life
business
No.
2
-
2
General
business
No.
901
137
79
1,117
General
business
No.
901
79
980
2022
Life
business
No.
1
-
-
1
2022
Life
business
No.
1
-
1
Other
No.
151
-
-
151
Other
No.
118
-
118
Other
No.
131
-
-
131
Other
No.
112
-
112
Average numbers of full-time equivalent employees have been quoted rather than average numbers of employees to give a better reflection of the
split between business areas, as some employees' work is divided between more than one business area.
Wages and salaries
Social security costs
Pension costs - defined contribution plans
Pension costs - defined benefit plans
Other post-employment benefits
Total staff costs
Staff costs recharged to related undertakings of the Group
Capitalised staff costs
2023
2022
Group
£000
100,586
9,038
8,118
533
230
118,505
(17,027)
(37)
101,441
Parent
£000
86,565
9,038
7,021
533
230
103,387
(17,027)
(37)
86,323
Group
£000
90,908
8,562
7,046
695
132
107,343
(14,509)
(502)
92,332
Parent
£000
79,033
8,562
6,134
695
132
94,556
(14,671)
(502)
79,383
The above Group and Parent figures do not include termination benefits of £850,000 (2022: £248,000) of which £457,000 (2022: £77,000) was
recharged to related undertakings of the Group and Parent.
9292 Notes to the financial statements
13 Tax expense/(credit)
(a) Tax charged/(credited) to the statement of profit or loss
Current tax
Deferred tax
- current year
- prior year adjustments
- temporary differences
- prior year adjustments
- Impact of change in deferred tax rate
Total tax expense/(credit)
Less: tax expense of discontinued operations
Total tax expense/(credit) of continuing operations
2023
£000
8,756
(897)
(805)
1,067
(103)
8,018
-
8,018
Restated*
2022
£000
6,770
(293)
(10,710)
(21)
-
(4,254)
(419)
(4,673)
Tax on the Group’s result before tax differs from the United Kingdom standard rate of corporation tax for the reasons set out in the following
reconciliation:
Profit/(loss) before tax
Profit before tax (discontinued operations)
Total pre-tax profit/(loss)
Tax calculated at the UK standard rate of tax of 23.5% (2022: 19%)
Factors affecting charge/(credit) for the year:
Expenses not deductible for tax purposes
Non-taxable income
Overseas taxes in excess of UK headline rate
Impact of change in deferred tax rate
Reduction in deferred tax asset not provided
Adjustments to tax charge in respect of prior periods
Total tax expense/(credit)
Deferred tax has been provided at an average rate of 25% (2022: 24%).
*The comparative financial statements have been restated as detailed in note 37.
(b) Tax charged/(credited) to other comprehensive income
Current tax charged/(credited) on:
Fair value movements on hedge derivatives
Deferred tax charged/(credited) on:
Fair value movements on property
Actuarial movements on retirement benefit plans
Fair value movements on hedge derivatives
Impact of change in deferred tax rate
Total tax charged/(credited) to other comprehensive income
Tax relief on charitable grants of £3,837,000 (2022: £3,800,000) has been taken directly to equity.
2023
£000
44,753
719
45,472
10,695
306
(3,205)
163
(103)
(8)
170
8,018
Restated*
2022
£000
(15,582)
14,115
(1,467)
(279)
805
(4,415)
(46)
(460)
-
141
(4,254)
2023
£000
2022
£000
350
(340)
203
1,200
318
109
2,180
-
(2,543)
(485)
-
(3,368)
9393 Notes to the financial statements
14 Appropriations
Amounts paid directly from equity in the period:
Dividends
Ordinary share dividend
Non-Cumulative Irredeemable Preference share dividend (8.625 pence per share)
Charitable grants
Gross charitable grants to the ultimate parent company, Benefact Trust Limited
Tax relief
Net appropriation for the year
2023
£000
5,223
9,181
2022
£000
-
9,181
13,000
(3,837)
9,163
20,000
(3,800)
16,200
15 Disposal of subsidiaries and discontinued operations
On 3 January 2023 the Company approved a dividend in specie and distributed its entire holdings in EdenTree Investment Management Limited
and Ecclesiastical Financial Advisory Services Limited to the Group's immediate parent company, Benefact Group plc. The results of these
subsidiaries are reported in the prior year as discontinued operations and the associated assets and liabilities are presented as held for
distribution in the prior year statement of financial position.
On 30 December 2022 the Group disposed of South Essex Insurance Holdings Limited and its wholly owned subsidiary, SEIB Insurance Brokers
Limited, to a related party. The related party was an associate of the Company's immediate parent company, Benefact Group plc. The results of
the disposed subsidiaries are reported in the prior year as discontinued operations.
Discontinued operations includes both the subsidiaries sold in the current and prior year and the assets held for distribution at the prior year
balance sheet date.
(a) Disposal of subsidiaries
Consideration received or receivable
Carrying amount of net assets sold
Gain on disposal before and after tax
2023
£000
5,223
(4,504)
719
2022
£000
45,197
(30,904)
14,293
The gain on disposal has been presented within net profit attributable to discontinued operations in the consolidated statement of profit or loss.
The carrying amounts of assets and liabilities as at the date of disposal were:
Goodwill and other intangible assets
Property, plant and equipment
Other assets
Cash and cash equivalents
Total assets
Lease obligations
Provisions for other liabilities
Current tax liabilities
Deferred income
Other liabilities
Total liabilities
Net assets
2023
£000
-
-
9,822
5,177
14,999
-
-
-
(261)
(10,234)
(10,495)
4,504
2022
£000
22,707
1,666
7,466
8,842
40,681
(1,215)
(263)
(1,010)
(512)
(6,777)
(9,777)
30,904
9494 Notes to the financial statements
15 Disposal of subsidiaries and discontinued operations (continued)
(b) Assets and liabilities of disposal group classified as held for distribution
The following assets and liabilities were classified as held for distribution in relation to the discontinued operation at 31 December:
Other assets
Cash and cash equivalents
Total assets of disposal groups held for distribution
Deferred income
Other liabilities
Total liabilities of disposal groups held for distribution
(c) Financial performance of discontinued operations
Revenue
Expenses
Finance costs
Loss before tax of discontinued operations
Tax expense
Loss after tax of discontinued operations
Gain on disposal of subsidiaries after tax
Profit from discontinued operations
(d) Cash flow information for discontinued operations
Net cash outflow from operating activities
Net cash outflow from investing activities
Net cash outflow from financing activities
Net decrease in cash generated by discontinued operations
2023
£000
-
-
-
-
-
-
2023
£000
-
-
-
-
-
-
719
719
2023
£000
-
(5,177)
-
(5,177)
2022
£000
9,822
5,177
14,999
261
10,234
10,495
2022
£000
23,695
(23,801)
(72)
(178)
(419)
(597)
14,293
13,696
2022
£000
(397)
(8,987)
(239)
(9,623)
Net cash outflow from investing activities includes an outflow of £5,177,000 from the disposal of EdenTree Investment Management Limited and
Ecclesiastical Financial Advisory Services Limited (2022: outflow of £8,842,000 from the disposal of South Essex Insurance Holdings Limited.)
9595 Notes to the financial statements
16 Goodwill and other intangible assets
Group
Cost
At 1 January 2023
Additions
Disposals
Transfers
Exchange differences
At 31 December 2023
Accumulated impairment losses and amortisation
At 1 January 2023
Amortisation charge for the year
Impairment loss for the year
Disposals
Transfers
Exchange differences
At 31 December 2023
Net book value at 31 December 2023
Cost
At 1 January 2022 (as reported)
Additions
Disposals
Exchange differences
At 31 December 2022
Accumulated impairment losses and amortisation
At 1 January 2022 (as reported)
Amortisation charge for the year
Impairment losses for the year
Disposals
Exchange differences
At 31 December 2022
Net book value at 31 December 2022
Goodwill
£000
Computer
software
£000
Other
intangible
assets
£000
2,097
-
-
-
-
2,097
-
-
-
-
-
-
-
2,097
24,697
-
(22,600)
-
2,097
406
-
-
(406)
-
-
2,097
49,490
1,245
(434)
(1,234)
(169)
48,898
21,385
4,107
1,428
(434)
(1,234)
(120)
25,132
23,766
45,335
3,900
-
255
49,490
17,931
3,304
-
-
150
21,385
28,105
196
-
-
-
(5)
191
143
48
-
-
-
(3)
188
3
5,975
-
(5,789)
10
196
5,158
254
-
(5,276)
7
143
53
Total
£000
51,783
1,245
(434)
(1,234)
(174)
51,186
21,528
4,155
1,428
(434)
(1,234)
(123)
25,320
25,866
76,007
3,900
(28,389)
265
51,783
23,495
3,558
-
(5,682)
157
21,528
30,255
During the prior year the Group disposed of its interest in South Essex Insurance Holdings Limited resulting in the disposal of goodwill of
£22,195,000 and intangible assets of £512,000. See note 15 for further information.
9696 Notes to the financial statements
16 Goodwill and other intangible assets (continued)
Other intangible assets consist of acquired brand, customer and distribution relationships, which have an overall remaining useful life of less than
one year on a weighted average basis (2022: three years).
Parent
Cost
At 1 January (as reported)
Additions
Disposals
Exchange differences
At 31 December
Accumulated impairment losses and
amortisation
At 1 January (as reported)
Amortisation charge for the year
Impairment loss for the year
Disposals
Exchange differences
At 31 December
Net book value at 31 December
2023
Other
intangible
assets
£000
Computer
software
£000
47,527
1,245
(434)
(169)
48,169
19,426
4,107
1,428
(434)
(120)
24,407
23,762
195
-
-
(5)
190
138
48
-
-
(3)
183
7
2022
Other
intangible
assets
£000
Computer
software
£000
43,372
3,900
-
255
47,527
15,972
3,304
-
-
150
19,426
28,101
185
-
-
10
195
84
47
-
-
7
138
57
Total
£000
47,722
1,245
(434)
(174)
48,359
19,564
4,155
1,428
(434)
(123)
24,590
23,769
Total
£000
43,557
3,900
-
265
47,722
16,056
3,351
-
-
157
19,564
28,158
9797 Notes to the financial statements
17 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 12.
Defined benefit pension plans
The Group's defined benefit plan is operated by the Parent in the UK. 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. The scheme closed to future accrual on 30 June 2019. Active members in employment at this date retained certain
enhanced benefits after the plan closed to future accrual, including benefits in relation to death in service and ill health retirement. They also retain
the link to final salary whilst they remain employed by the Parent. From 1 July 2019, active members in employment joined one of the Group’s
defined contribution plans. The scheme previously had two discrete sections: the EIO Section and the Ansvar Section. With effect from 1 January
2021, the two discrete sections of the scheme have been combined.
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 2019. The triennial valuation at 31 December 2022 is in progress and is expected to be
completed by the regulatory deadline of 31 March 2024. No contribution is expected to be paid by the Group in 2024.
Actuarial valuations were reviewed and updated by an actuary at 31 December 2023 for IAS 19 purposes. The surplus in the scheme attributable to
the former EIO Section has been assessed against the economic benefit available to the Parent as a reduction in future contributions in accordance
with IFRIC 14. This has resulted in the recognisable surplus being restricted by £50.3m. The Parent has an unconditional right to a refund of the
surplus attributable to the former Ansvar Section of the Fund, which has been recognised in full in accordance with IFRIC 14.
In the current year, actuarial losses arising from changes in financial assumptions of £8.0m (2022: gains of £153.2m) have been recognised in the
statement of other comprehensive income. This includes a £9.0m loss arising from a 0.27% decrease in the discount rate, partially offset by a
£0.9m gain due to inflation linked pension increases. In the prior year, £148.6m of the actuarial gains arising from changes in financial assumptions
resulted from a 2.87% increase in the discount rate.
The experience loss on the defined benefit obligation of £2.3m (2022: £11.8m) resulted from updating for actual member experience and from
actual inflation exceeding the inflation assumptions. In the prior year, the experience loss was the result of actual inflation exceeding the inflation
assumptions. A review and update to certain demographic assumptions resulted in an actuarial gain of £5.5m (2022: £3.4m) being recognised in the
current year.
The defined benefit 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 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 defined benefit 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 defined benefit 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; and
9898 Notes to the financial statements
17 Retirement benefit schemes (continued)
- 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 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 comprising equities, listed infrastructure 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 equity price risk, falls in
bond yields and rising inflation.
A liability-driven investment (LDI) allocation is maintained as a risk management tool to preserve some future protection for the Fund against falling
yields and rising inflation, designed to hedge 75% 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 suppressed, but not
eliminated, volatility in the funding position.
The Trustees regularly monitor investment performance and strategy to ensure the structure adopted continues to meet their objectives and to
highlight opportunities to reduce investment risk and volatility where practical and affordable. Their aim is to achieve a long-term funding target in
line with guidance from the Pensions Regulator. The Trustees intend that this long-term target will be reached through investment performance
only and without requiring further contributions from the employer. During 2023, the Trustees have maintained their strategy to incrementally
reduce the Fund’s exposure to market volatility and better protect the funding position including some modest property disposals in the year.
The Trustees adopt a Responsible and Sustainable Investment Policy in relation to the Fund’s equities. This includes an 'absence of harm' exclusion
policy, as well as an aspiration to reduce the portfolio’s carbon intensity over time.
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 surplus in the statement of financial position
Movements in the net defined benefit pension scheme asset 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
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
Effect of interest on asset ceiling
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 on liabilities
Gains from changes in demographic assumptions
(Losses)/gains from changes in financial assumptions
Change in asset ceiling
Total included in other comprehensive income
2023
£000
2022
£000
(235,583)
305,644
70,061
(50,273)
19,788
(229,343)
301,773
72,430
(57,092)
15,338
15,338
(533)
4,983
19,788
(257)
(809)
(10,721)
14,144
(167)
(2,723)
(533)
219
(2,290)
5,489
(7,977)
9,542
4,983
28,304
(695)
(12,271)
15,338
(573)
(654)
(7,064)
7,928
-
(332)
(695)
(117,766)
(11,806)
3,368
153,225
(39,292)
(12,271)
9999 Notes to the financial statements
17 Retirement benefit schemes (continued)
The following is the analysis of the defined benefit pension balances:
Group and Parent
Pension surplus
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)
*Single-equivalent rates are disclosed for the current year.
Mortality rate
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 other¹
Equity instruments
UK quoted
Overseas quoted
Liability driven investments - unquoted
Debt instruments
UK public sector quoted - fixed interest
UK non-public sector quoted - fixed interest
UK quoted - index-linked
Derivative financial instruments - unquoted
Property
2023
£000
19,788
2022
£000
15,338
%
4.50
3.14
2.65
3.90
3.30
3.01
2.07
22.2
23.7
23.0
24.7
£000
12,887
41,541
49,307
90,848
54,095
9,768
79,699
20,559
110,026
%
4.77
3.31
2.80
4.15
3.40
3.05
2.10
22.8
24.1
23.5
25.3
£000
36,779
44,797
42,200
86,997
46,988
-
68,372
21,241
89,613
(144)
(588)
37,932
305,644
41,984
301,773
¹ Includes accrued income, prepayments and other debtors and creditors.
The actual return on plan assets was a gain of £14,363,000 (2022: a loss of £109,838,000).
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.
100100 Notes to the financial statements
17 Retirement benefit schemes (continued)
The movements in the fair value of plan assets and the present value of the defined benefit obligation over the year are as follows:
Re-presented*
2022
£000
2023
£000
Plan assets
At 1 January
Interest income
Actual return on plan assets, excluding interest income
Pension benefits paid and payable
Administration cost
At 31 December
Defined benefit obligation
At 1 January
Current service cost
Past service cost
Interest cost
Pension benefits paid and payable
Experience losses on liabilities
Gains from changes in demographic assumptions
Losses/(gains) from changes in financial assumptions
At 31 December
Asset ceiling
At 1 January
Effect of interest on the asset ceiling
Change in asset ceiling
At 31 December
301,773
14,144
219
(9,683)
(809)
305,644
229,343
257
167
10,721
(9,683)
2,290
(5,489)
7,977
235,583
57,092
2,723
(9,542)
50,273
* Prior year comparatives have been re-presented to reflect the current year disclosures for presentation of administration costs.
History of plan assets and liabilities
Present value of defined benefit obligations
Fair value of plan assets
Restrictions on asset recognised
Surplus/(deficit)
2023
£000
(235,583)
305,644
70,061
(50,273)
19,788
2022
£000
(229,343)
301,773
72,430
(57,092)
15,338
2021
£000
(377,113)
422,885
45,772
(17,468)
28,304
2020
£000
(403,709)
394,356
(9,353)
-
(9,353)
422,885
7,928
(117,766)
(10,620)
(654)
301,773
377,113
573
-
7,064
(10,620)
11,806
(3,368)
(153,225)
229,343
17,468
332
39,292
57,092
2019
£000
(371,179)
379,684
8,505
-
8,505
The weighted average duration of the defined benefit obligation at the end of the reporting period is 15.2 years (2022: 15.9 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
2023
£000
(15,923)
17,857
10,456
(10,302)
1,193
(1,128)
6,608
(6,617)
2022
£000
(16,133)
18,176
12,552
(12,101)
2,285
(2,136)
7,215
(7,479)
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.
101101 Notes to the financial statements
17 Retirement benefit schemes (continued)
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; and
- 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
2023
£000
4,801
4,960
230
(120)
(269)
4,801
230
230
2022
£000
4,960
7,058
132
(2,100)
(130)
4,960
132
132
The weighted average duration of the net obligations at the end of the reporting period is 10.0 years (2022: 10.5 years).
The main actuarial assumptions for the plan are a long-term increase in medical costs of 7.14% (2022: 7.31%) and a discount rate of 4.50% (2022:
4.77%). An actuarial loss of £172,000 has been recognised in the current year due to the decrease in the discount rate. This has been offset by an
actuarial gain of £183,000 arising from changes in mortality assumptions, and a £109,000 gain due to changes in inflation. In the prior year, an
actuarial gain of £2,012,000 was recognised as a result of an increase in the discount rate. 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
2023
£000
(286)
315
595
(506)
360
(336)
2022
£000
(239)
260
497
(433)
372
(340)
102102 Notes to the financial statements
18 Property, plant and equipment
Group
Cost or valuation
At 1 January 2023
Additions
Disposals
Revaluation
Exchange differences
At 31 December 2023
Depreciation
At 1 January 2023
Charge for the year
Disposals
Exchange differences
At 31 December 2023
Net book value at 31 December 2023
Cost or valuation
At 1 January 2022 (as reported)
Additions
Disposals
Exchange differences
At 31 December 2022
Depreciation
At 1 January 2022 (as reported)
Charge for the year
Disposals
Exchange differences
At 31 December 2022
Net book value at 31 December 2022
Land and
buildings
£000
Motor
vehicles
£000
Furniture,
fittings and
equipment
£000
Computer
equipment
£000
Right-of-
use asset
£000
1,465
-
-
885
-
2,350
-
-
-
-
-
2,350
1,465
-
-
-
1,465
-
-
-
-
-
1,465
17
-
-
-
-
17
15
-
-
-
15
2
112
45
(140)
-
17
74
19
(78)
-
15
2
14,397
1,780
(237)
-
(89)
15,851
6,736
1,251
(226)
(42)
7,719
8,132
15,336
123
(1,212)
150
14,397
6,532
1,220
(1,075)
59
6,736
7,661
11,091
577
(12)
-
(55)
11,601
7,843
1,623
(9)
(43)
9,414
2,187
8,622
3,067
(654)
56
11,091
6,444
1,829
(473)
43
7,843
3,248
27,063
5,933
(706)
-
(150)
32,140
8,034
3,005
(348)
(63)
10,628
21,512
30,194
771
(4,188)
286
27,063
7,434
3,193
(2,712)
119
8,034
19,029
Total
£000
54,033
8,290
(955)
885
(294)
61,959
22,628
5,879
(583)
(148)
27,776
34,183
55,729
4,006
(6,194)
492
54,033
20,484
6,261
(4,338)
221
22,628
31,405
103103 Notes to the financial statements
18 Property, plant and equipment (continued)
Parent
Cost or valuation
At 1 January 2023
Additions
Disposals
Revaluation
Exchange differences
At 31 December 2023
Depreciation
At 1 January 2023
Charge for the year
Disposals
Exchange differences
At 31 December 2023
Net book value at 31 December 2023
Cost or valuation
At 1 January 2022 (as reported)
Additions
Disposals
Exchange differences
At 31 December 2022
Depreciation
At 1 January 2022 (as reported)
Charge for the year
Disposals
Exchange differences
At 31 December 2022
Net book value at 31 December 2022
Land and
buildings
£000
Motor
vehicles
£000
Furniture,
fittings and
equipment
£000
Computer
equipment
£000
Right of
use asset
£000
1,465
-
-
885
-
2,350
-
-
-
-
-
2,350
1,465
-
-
-
1,465
-
-
-
-
-
1,465
14
-
-
-
-
14
14
-
-
-
14
-
14
-
-
-
14
14
-
-
-
14
-
14,375
888
(223)
-
(91)
14,949
6,714
1,233
(223)
(41)
7,683
7,266
14,841
95
(710)
149
14,375
6,192
1,174
(710)
58
6,714
7,661
10,380
443
(12)
-
(20)
10,791
7,300
1,537
(9)
(15)
8,813
1,978
7,511
2,840
-
29
10,380
5,635
1,644
-
21
7,300
3,080
26,390
3,941
(197)
-
(120)
30,014
7,690
2,518
(125)
(45)
10,038
19,976
26,314
506
(624)
194
26,390
5,533
2,555
(452)
54
7,690
18,700
Total
£000
52,624
5,272
(432)
885
(231)
58,118
21,718
5,288
(357)
(101)
26,548
31,570
50,145
3,441
(1,334)
372
52,624
17,374
5,373
(1,162)
133
21,718
30,906
Included within land and buildings is a property held for sale at 31 December 2023 with a value of £1,750,000.
All properties of the Group and Parent, other than those held for sale, were last revalued at 31 December 2023. Valuations were carried out by
Cluttons LLP, an independent professional firm of chartered surveyors who have recent experience in the location and type of properties.
Valuations were carried out using standard industry methodology to determine a fair value. All properties are classified as level 3 assets.
Movements in fair 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 fair 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 of the Group on a historical cost basis is £1,464,000 (2022: £1,464,000). The value of land and buildings of the
Parent on a historical cost basis is £1,464,000 (2022: £1,464,000).
Depreciation expense has been charged in other operating and administrative expenses.
104104 Notes to the financial statements
19 Investment property
Fair value at 1 January
Disposals
Fair value losses recognised in profit or loss
Fair value at 31 December
2023
2022
Group
£000
140,846
(3,382)
(6,651)
130,813
Parent
£000
140,846
(3,382)
(6,651)
130,813
Group
£000
163,355
(1,300)
(21,209)
140,846
Parent
£000
162,822
(767)
(21,209)
140,846
The Group’s investment properties were last revalued at 31 December 2023 by Cluttons LLP, an independent professional firm of chartered
surveyors who have recent experience in the location and type of properties. Valuations were carried out using standard industry methodology to
determine a fair 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 £8,647,000 (2022: £8,837,000) and is included in net investment return.
20 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
Structured notes
Derivative financial instruments
- options
- forwards
Loans and receivables
Other loans
Parent investments in subsidiary undertakings
Shares in subsidiary undertakings
Total financial investments
Current
Non-current
2023
Group
£000
Parent
£000
Re-presented*
2022
Group
£000
Parent
£000
250,106
76,898
202,251
316,672
-
94,970
-
824
941,721
237,033
76,898
83,163
217,942
-
-
-
824
615,860
234,035
85,726
159,659
334,322
-
56,138
100
655
870,635
222,043
85,580
101,738
183,700
-
-
100
655
593,816
34
34
114
114
-
42,707
-
42,707
941,755
658,601
476,559
465,196
337,748
320,853
870,749
420,626
450,123
636,637
322,007
314,630
* Prior year comparatives have been re-presented to reflect the current year disclosures for composition of OEICs and debt securities. OEICs
previously included in equity securities but relating to bond OEICs and debt securities previously included in government bonds but relating to
listed debt have been re-presented to better reflect the nature of the assets and requirements of IFRS 7.
All investments in subsidiary undertakings are unlisted.
The Group’s exposure to interest rate risk is detailed in note 4(c).
105105 Notes to the financial statements
21 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 £4,860,000 (2022:
loss of £4,514,000) in respect of these 'hedge' derivatives has been recognised in the hedging reserve within shareholders' equity, as disclosed in
note 25. The Group has formally assessed and documented the effectiveness of derivatives that qualify for hedge accounting in accordance with
IFRS 9, Financial Instruments .
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
-
120,115
54,584
52,960
227,659
2023
Fair value
asset
£000
Fair value
liability
£000
Contract/
notional
amount
£000
100
93,712
-
-
1,155
1,225
2,380
55,742
48,442
197,996
2022
Fair value
asset
£000
Fair value
liability
£000
100
-
-
655
755
-
2,475
759
-
3,234
-
824
-
-
824
All 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 of the Australian dollar foreign exchange contract
which 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 20) and derivative fair value liabilities are recognised within other
liabilities (note 29).
106106 Notes to the financial statements
22 Other assets
Accrued interest and rent
Other prepayments and accrued income
Amounts owed by related parties
Other debtors
Current
Non-current
2023
Restated*
2022
Group
£000
3,957
9,174
145,441
6,532
165,104
24,670
140,434
Parent
£000
2,696
6,603
147,330
4,002
160,631
17,498
143,133
Group
£000
4,122
8,248
125,644
10,335
148,349
24,865
123,484
Parent
£000
3,007
5,190
131,368
1,757
141,322
9,143
132,179
*The comparative financial statements have been restated as detailed in note 37.
Included within amounts owed by related parties of the Group and Parent is a loan of £135,108,000 (2022: £121,008,000) due from Benefact Group
plc. The expected credit loss provision held on this loan is £270,000. Included within amounts owed by related parties of the Parent is £5,955,000
(2022: £11,110,000) pledged as collateral in respect of an insurance liability.
Included within other debtors of the Group and Parent is a letter of credit for £2,000,000 (2022: £2,000,000).
Included within other debtors of the Group is £978,000 (2022: £1,699,000) classified as contract assets in accordance with IFRS 15.
23 Cash and cash equivalents
Cash at bank and in hand
Short-term bank deposits
2023
2022
Group
£000
62,900
49,182
112,082
Parent
£000
46,811
36,625
83,436
Group
£000
58,175
46,489
104,664
Parent
£000
35,020
31,549
66,569
Included within short-term bank deposits of the Group and Parent are cash deposits of £3,810,000 (2022: £8,810,000) pledged as collateral by
way of cash margins on open derivative contracts to cover derivative liabilities. Included within cash at bank and in hand of the Group and Parent
are amounts of £911,000 (2022: £866,000) held in accordance with the third country branch requirements of the European Union.
Included within Group cash at bank and in hand are amounts of £12,557,000 (2022: £15,109,000) pledged as collateral by way of cash calls from
reinsurers.
107107 Notes to the financial statements
24 Share capital
Ordinary shares of 4p each
8.625% Non-Cumulative Irredeemable Preference shares of £1 each
The number of shares in issue are as follows:
Ordinary shares of 4p each
At 1 January and 31 December
8.625% Non-Cumulative Irredeemable Preference shares of £1 each
At 1 January and 31 December
Issued, allotted and
fully paid
2023
£000
14,027
106,450
120,477
2022
£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.
108108 Notes to the financial statements
25 Translation and hedging reserve
Group
At 1 January 2023
Losses on currency translation differences
Gains on net investment hedges
Attributable tax
At 31 December 2023
At 1 January 2022
Gains on currency translation differences
Losses on net investment hedges
Attributable tax
At 31 December 2022 (as restated*)
Parent
At 1 January 2023
Losses on currency translation differences
Gains on net investment hedges
Attributable tax
At 31 December 2023
At 1 January 2022
Gains on currency translation differences
Losses on net investment hedges
Attributable tax
At 31 December 2022 (as restated*)
Translation
reserve
£000
Hedging
reserve
£000
18,838
(4,024)
-
-
14,814
13,196
5,642
-
-
18,838
9,618
(912)
-
-
8,706
6,969
2,649
-
-
9,618
718
-
4,860
(688)
4,890
4,407
-
(4,514)
825
718
(1,386)
-
1,353
(338)
(371)
67
-
(1,938)
485
(1,386)
Total
£000
19,556
(4,024)
4,860
(688)
19,704
17,603
5,642
(4,514)
825
19,556
8,232
(912)
1,353
(338)
8,335
7,036
2,649
(1,938)
485
8,232
*The comparative financial statements have been restated as detailed in note 37.
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.
109109 Notes to the financial statements
26 Insurance liabilities and reinsurance assets
Gross
General insurance contract liabilities for incurred claims
General insurance contract liabilities for remaining coverage
Life insurance contract liabilities for remaining coverage
Total gross insurance contract liabilities
Recoverable from reinsurers
General reinsurance contract assets for incurred claims
General reinsurance contract assets for remaining coverage
Total reinsurers’ share of insurance liabilities
Net
General insurance contract liabilities for incurred claims
General insurance contract liabilities for remaining coverage
Life insurance contract liabilities for remaining coverage
Total net insurance liabilities
Gross insurance liabilities
Current
Non-current
Reinsurance assets
Current
Non-current
*The comparative financial statements have been restated as detailed in note 37.
2023
Restated*
2022
Group
£000
634,819
90,994
56,029
781,842
179,928
40,180
220,108
454,891
50,814
56,029
561,734
Parent
£000
494,445
75,388
-
569,833
134,118
20,652
154,770
360,327
54,736
-
415,063
Group
£000
636,638
93,645
59,263
789,546
202,474
37,650
240,124
434,164
55,995
59,263
549,422
Parent
£000
465,508
73,239
-
538,747
122,977
23,446
146,423
342,531
49,793
-
392,324
312,171
469,671
239,679
330,154
411,687
377,859
302,994
235,753
127,365
92,743
81,218
73,552
161,411
78,713
101,941
44,482
110110
Notes to the financial statements
26 Insurance liabilities and reinsurance assets (continued)
Insurance contract liabilities
General
liabilities
for
incurred
claims
£000
Life
liabilities
for
remaining
coverage
£000
General
liabilities
for
remaining
coverage
£000
Reinsurance
contract assets
General
assets
for
remaining
coverage
£000
General
assets
for
incurred
claims
£000
Total
£000
89,713
604,297
75,718
(39,633)
(163,133)
566,962
Group
At 1 January 2022
Insurance revenue
Incurred claims and other insurance service expenses
Changes that relate to current service
Changes that relate to past service
Losses on onerous contracts and reversal of those losses
Insurance acquisition cash flows amortisation
Insurance service expenses
(528,583)
-
(6,311)
-
-
-
781
109,256
110,037
347,499
-
(18,331)
-
-
329,168
-
5,267
-
-
-
5,267
-
-
-
-
-
-
-
-
130,675
-
-
-
-
-
-
-
-
-
(534,894)
347,499
5,267
(18,331)
781
109,256
444,472
(90,422)
130,675
6,800
-
(117,492)
5,606
(110,692)
5,606
(814)
136,661
-
(111,886)
(814)
24,775
(54,566)
6,704
(47,862)
Insurance service result before reinsurance contracts held
(418,546)
329,168
(1,044)
Allocation of reinsurance premiums
Recoveries of incurred claims and other insurance service
expenses
Changes that relate to past service
Recoveries of losses on onerous contracts and reversal of
those losses
Net expense/(income) from reinsurance contracts
Finance income from insurance contracts issued
Finance expense from reinsurance contracts held
Net insurance financial result
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(44,370)
-
(44,370)
(10,196)
-
(10,196)
-
-
-
-
6,704
6,704
Total amounts recognised in statement of profit or loss
(418,546)
284,798
(11,240)
136,661
(105,182)
(113,509)
Exchange differences
2,129
14,185
-
(1,043)
(4,497)
10,774
Premiums received
Insurance acquisition cash flows
Claims and other directly attributable expenses paid
Premiums paid
Amounts received
Total cash flows
537,656
(117,307)
-
-
-
420,349
-
-
(266,642)
-
-
(266,642)
-
-
(5,215)
-
-
(5,215)
-
-
-
(133,635)
-
(133,635)
-
-
-
-
70,338
70,338
537,656
(117,307)
(271,857)
(133,635)
70,338
85,195
At 31 December 2022
93,645
636,638
59,263
(37,650)
(202,474)
549,422
111111 Notes to the financial statements
26 Insurance liabilities and reinsurance assets (continued)
Group
Insurance contract liabilities
General
liabilities
for
incurred
claims
£000
Life
liabilities
for
remaining
coverage
£000
General
liabilities
for
remaining
coverage
£000
Reinsurance
contract assets
General
assets
for
remaining
coverage
£000
General
assets
for
incurred
claims
£000
At 31 December 2022
Adjustment on initial application of IFRS 9
At 1 January 2023
93,645
(505)
93,140
636,638
-
636,638
59,263
-
59,263
(37,650)
-
(37,650)
(202,474)
-
(202,474)
Insurance revenue
(579,975)
-
(6,509)
Incurred claims and other insurance service expenses
Changes that relate to current service
Changes that relate to past service
Losses on onerous contracts and reversal of those losses
Insurance acquisition cash flows amortisation
Insurance service expenses
-
-
-
155
119,205
119,360
308,069
-
(24,547)
-
-
283,522
-
5,702
-
-
-
5,702
Insurance service result before reinsurance contracts held
(460,615)
283,522
(807)
Allocation of reinsurance premiums
Recoveries of incurred claims and other insurance service
expenses
Changes that relate to past service
Recoveries of losses on onerous contracts and reversal of
those losses
Net expense/(income) from reinsurance contracts
Finance expense from insurance contracts issued
Finance income from reinsurance contracts held
Net insurance financial result
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
24,102
-
24,102
2,628
-
2,628
Total
£000
549,422
(505)
548,917
(586,484)
308,069
5,702
(24,547)
155
119,205
408,584
(177,900)
148,094
-
-
-
-
-
-
-
-
148,094
-
-
-
-
-
-
-
-
-
5,013
-
(77,048)
31,024
(72,035)
31,024
91
153,198
-
(46,024)
-
-
-
-
(7,190)
(7,190)
91
107,174
26,730
(7,190)
19,540
Total amounts recognised in statement of profit or loss
(460,615)
307,624
1,821
153,198
(53,214)
(51,186)
Exchange differences
(1,661)
(13,309)
-
929
5,220
(8,821)
Premiums received
Insurance acquisition cash flows
Claims and other directly attributable expenses paid
Premiums paid
Amounts received
Total cash flows
596,793
(136,663)
-
-
-
460,130
-
-
(296,134)
-
-
(296,134)
-
-
(5,055)
-
-
(5,055)
-
-
-
(156,657)
-
(156,657)
-
-
-
-
70,540
70,540
596,793
(136,663)
(301,189)
(156,657)
70,540
72,824
At 31 December 2023
90,994
634,819
56,029
(40,180)
(179,928)
561,734
112112 Notes to the financial statements
26 Insurance liabilities and reinsurance assets (continued)
Parent
At 1 January 2022
Insurance revenue
Incurred claims and other insurance service expenses
Changes that relate to past service
Losses on onerous contracts and reversal of those losses
Insurance acquisition cash flows amortisation
Insurance service expenses
Insurance
contract liabilities
General
liabilities
for
remaining
coverage
£000
General
liabilities
for
incurred
claims
£000
Reinsurance
contract assets
General
assets
for
remaining
coverage
£000
General
assets
for
incurred
claims
£000
Total
£000
67,547
461,734
(26,909)
(105,025)
397,347
(432,582)
-
-
-
(262)
89,634
89,372
253,916
(8,742)
-
-
245,174
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(432,582)
253,916
(8,742)
(262)
89,634
334,546
(98,036)
85,898
(43,682)
(2,985)
124
39,355
(31,801)
2,612
(29,189)
Insurance service result before reinsurance contracts held
(343,210)
245,174
Allocation of reinsurance premiums
Recoveries of incurred claims and other insurance service expenses
Changes that relate to past service
Recoveries of losses on onerous contracts and reversal of those losses
Net expense/(income) from reinsurance contracts
Finance income from insurance contracts issued
Finance expense from reinsurance contracts held
Net insurance financial result
-
-
-
-
-
-
-
-
-
-
-
-
-
(31,801)
-
(31,801)
85,898
5,904
-
124
91,926
-
-
-
-
(49,586)
(2,985)
-
(52,571)
-
2,612
2,612
Total amounts recognised in statement of profit or loss
(343,210)
213,373
91,926
(49,959)
(87,870)
Exchange differences
Premiums received
Insurance acquisition cash flows
Claims and other directly attributable expenses paid
Premiums paid
Amounts received
Total cash flows
At 31 December 2022
1,076
6,903
(399)
(1,475)
6,105
439,549
(91,723)
-
-
-
347,826
-
-
(216,502)
-
-
(216,502)
-
-
-
(88,064)
-
(88,064)
-
-
-
-
33,482
33,482
439,549
(91,723)
(216,502)
(88,064)
33,482
76,742
73,239
465,508
(23,446)
(122,977)
392,324
113113 Notes to the financial statements
26 Insurance liabilities and reinsurance assets (continued)
Parent
At 31 December 2022
Adjustment on initial application of IFRS 9
At 1 January 2023
Insurance revenue
Incurred claims and other insurance service expenses
Changes that relate to past service
Losses on onerous contracts and reversal of those losses
Insurance acquisition cash flows amortisation
Insurance service expenses
Reinsurance
contract assets
Insurance
contract liabilities
General
liabilities
for
remaining
coverage
£000
General
liabilities
for
incurred
claims
£000
General
assets
for
remaining
coverage
£000
73,239
(505)
72,734
465,508
-
465,508
(23,446)
-
(23,446)
(487,431)
-
-
-
(89)
97,215
97,126
261,609
(11,126)
-
-
250,483
General
assets
for
incurred
claims
£000
(122,977)
-
(122,977)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
£000
392,324
(505)
391,819
(487,431)
261,609
(11,126)
(89)
97,215
347,609
(139,822)
104,627
(43,281)
7,234
42
68,622
16,427
(3,991)
12,436
Insurance service result before reinsurance contracts held
(390,305)
250,483
Allocation of reinsurance premiums
Recoveries of incurred claims and other insurance service expenses
Changes that relate to past service
Recoveries of losses on onerous contracts and reversal of those losses
Net expense/(income) from reinsurance contracts
Finance expense from insurance contracts issued
Finance income from reinsurance contracts held
Net insurance financial result
-
-
-
-
-
-
-
-
-
-
-
-
-
16,427
-
16,427
104,627
5,615
-
42
110,284
-
-
-
-
(48,896)
7,234
-
(41,662)
-
(3,991)
(3,991)
Total amounts recognised in statement of profit or loss
(390,305)
266,910
110,284
(45,653)
(58,764)
Exchange differences
(651)
(4,612)
225
1,136
(3,902)
Premiums received
Insurance acquisition cash flows
Claims and other directly attributable expenses paid
Premiums paid
Amounts received
Total cash flows
497,490
(103,880)
-
-
-
393,610
-
-
(233,361)
-
-
(233,361)
-
-
-
(107,715)
-
(107,715)
-
-
-
-
33,376
33,376
497,490
(103,880)
(233,361)
(107,715)
33,376
85,910
At 31 December 2023
75,388
494,445
(20,652)
(134,118)
415,063
114114 Notes to the financial statements
26 Insurance liabilities and reinsurance assets (continued)
(a) General business insurance contracts
(i) Reconciliation of the liability for remaining coverage
Insurance contracts issued
Group
At 1 January 2022
Insurance revenue
Losses on onerous contracts and reversal of those losses
Insurance acquisition cash flows amortisation
Insurance service expenses
Total amounts recognised in statement of profit or loss
Exchange differences
Premiums received
Insurance acquisition cash flows
Total cash flows
At 31 December 2022
Adjustment on initial application of IFRS 9
At 1 January 2023
Insurance revenue
Losses on onerous contracts and reversal of those losses
Insurance acquisition cash flows amortisation
Insurance service expenses
Total amounts recognised in statement of profit or loss
Exchange differences
Premiums received
Insurance acquisition cash flows
Total cash flows
At 31 December 2023
Reconciliation of insurance acquisition cash flows asset
Group
At 1 January
Cash flows recognised as an asset during the year
Amounts derecognised on initial recognition of groups of insurance contracts
Exchange differences
At 31 December
PAA
Excluding
loss
component
£000
Loss
component
£000
GMM
Liability for
remaining
coverage
£000
87,181
1,782
(528,558)
-
109,256
109,256
(419,302)
2,050
537,656
(117,307)
420,349
90,278
(505)
89,773
(579,975)
-
119,205
119,205
(460,770)
-
806
-
806
806
79
-
-
-
2,667
-
2,667
-
155
-
155
155
(1,531)
(130)
596,793
(136,663)
460,130
-
-
-
750
(25)
(25)
-
(25)
(50)
-
-
-
-
700
-
700
-
-
-
-
-
-
-
-
-
Total
£000
89,713
(528,583)
781
109,256
110,037
(418,546)
2,129
537,656
(117,307)
420,349
93,645
(505)
93,140
(579,975)
155
119,205
119,360
(460,615)
(1,661)
596,793
(136,663)
460,130
87,602
2,692
700
90,994
2023
£000
56,435
35,372
(24,927)
(963)
65,917
2022
£000
50,194
28,833
(23,753)
1,161
56,435
115115 Notes to the financial statements
26 Insurance liabilities and reinsurance assets (continued)
Parent
At 1 January 2022
Insurance revenue
Losses on onerous contracts and reversal of those losses
Insurance acquisition cash flows amortisation
Insurance service expenses
Total amounts recognised in statement of profit or loss
Exchange differences
Premiums received
Insurance acquisition cash flows
Total cash flows
At 31 December 2022
Adjustment on initial application of IFRS 9
At 1 January 2023
Insurance revenue
Losses on onerous contracts and reversal of those losses
Insurance acquisition cash flows amortisation
Insurance service expenses
Total amounts recognised in statement of profit or loss
Exchange differences
Premiums received
Insurance acquisition cash flows
Total cash flows
At 31 December 2023
Reconciliation of insurance acquisition cash flows asset
Parent
At 1 January
Cash flows recognised as an asset during the year
Amounts derecognised on initial recognition of groups of insurance contracts
Exchange differences
At 31 December
PAA
Excluding
loss
component
£000
Loss
component
£000
GMM
Liability for
remaining
coverage
£000
66,471
(432,557)
-
89,634
89,634
(342,923)
1,076
439,549
(91,723)
347,826
72,450
(505)
71,945
(487,431)
-
97,215
97,215
(390,216)
(651)
497,490
(103,880)
393,610
74,688
326
-
(237)
-
(237)
(237)
-
-
-
-
89
-
89
-
(89)
-
(89)
(89)
-
-
-
-
-
Total
£000
67,547
(432,582)
(262)
89,634
89,372
(343,210)
1,076
439,549
(91,723)
347,826
73,239
(505)
72,734
(487,431)
(89)
97,215
97,126
(390,305)
(651)
497,490
(103,880)
393,610
750
(25)
(25)
-
(25)
(50)
-
-
-
-
700
-
700
-
-
-
-
-
-
-
-
-
700
75,388
2023
£000
45,858
22,517
(16,117)
(438)
51,820
2022
£000
41,156
20,847
(16,846)
701
45,858
116116 Notes to the financial statements
26 Insurance liabilities and reinsurance assets (continued)
(ii) Reconciliation of the liability for incurred claims
Insurance contracts issued
Group
At 1 January 2022
Incurred claims and other insurance service expenses
Changes that relate to past service
Insurance service expenses
Insurance service result before reinsurance contracts held
Finance income from insurance contracts issued
Net insurance financial result
Total amounts recognised in statement of profit or loss
Exchange differences
Claims and other directly attributable expenses paid
Total cash flows
At 31 December 2022
Incurred claims and other insurance service expenses
Changes that relate to past service
Insurance service expenses
Insurance service result before reinsurance contracts held
Finance expense from insurance contracts issued
Net insurance financial result
Total amounts recognised in statement of profit or loss
Exchange differences
Claims and other directly attributable expenses paid
Total cash flows
At 31 December 2023
Estimates of
present value
of future
cash flows
£000
Risk
adjustment
for non-
financial risk
£000
Total
£000
496,941
107,356
604,297
329,841
21,054
350,895
350,895
(44,370)
(44,370)
17,658
(39,385)
(21,727)
347,499
(18,331)
329,168
(21,727)
329,168
-
-
(44,370)
(44,370)
306,525
(21,727)
284,798
11,681
2,504
14,185
(266,642)
(266,642)
-
-
(266,642)
(266,642)
548,505
88,133
636,638
293,641
(3,659)
289,982
289,982
24,102
24,102
14,542
(20,888)
(6,346)
308,183
(24,547)
283,636
(6,346)
283,636
-
-
24,102
24,102
314,084
(6,346)
307,738
(11,362)
(1,947)
(13,309)
(296,248)
(296,248)
-
-
(296,248)
(296,248)
554,979
79,840
634,819
117117 Notes to the financial statements
26 Insurance liabilities and reinsurance assets (continued)
Parent
At 1 January 2022
Incurred claims and other insurance service expenses
Changes that relate to past service
Insurance service expenses
Insurance service result before reinsurance contracts held
Finance income from insurance contracts issued
Net insurance financial result
Total amounts recognised in statement of profit or loss
Exchange differences
Claims and other directly attributable expenses paid
Total cash flows
At 31 December 2022
Incurred claims and other insurance service expenses
Changes that relate to past service
Insurance service expenses
Insurance service result before reinsurance contracts held
Finance expense from insurance contracts issued
Net insurance financial result
Estimates of
present value
of future
cash flows
£000
Risk
adjustment
for non-
financial risk
£000
380,753
242,574
22,803
265,377
265,377
(31,801)
(31,801)
80,981
11,342
(31,545)
(20,203)
(20,203)
-
-
Total
£000
461,734
253,916
(8,742)
245,174
245,174
(31,801)
(31,801)
233,576
(20,203)
213,373
5,716
1,187
6,903
(216,502)
(216,502)
403,543
250,501
1,916
252,417
252,417
16,427
16,427
-
-
(216,502)
(216,502)
61,965
465,508
11,108
(13,042)
(1,934)
261,609
(11,126)
250,483
(1,934)
250,483
-
-
16,427
16,427
Total amounts recognised in statement of profit or loss
268,844
(1,934)
266,910
Exchange differences
Claims and other directly attributable expenses paid
Total cash flows
At 31 December 2023
(3,997)
(233,361)
(233,361)
(615)
(4,612)
-
-
(233,361)
(233,361)
435,029
59,416
494,445
118118 Notes to the financial statements
26 Insurance liabilities and reinsurance assets (continued)
(iii) Reconciliation of the asset for remaining coverage
Reinsurance contracts held
Group
At 1 January 2022
Allocation of reinsurance premiums
Recoveries of incurred claims and other insurance service expenses
Recoveries of losses on onerous contracts and reversal of those losses
Net (expense)/income from reinsurance contracts
Total amounts recognised in statement of profit or loss
Exchange differences
Premiums paid
Total cash flows
At 31 December 2022
Allocation of reinsurance premiums
Recoveries of incurred claims and other insurance service expenses
Recoveries of losses on onerous contracts and reversal of those losses
Net expense from reinsurance contracts
Total amounts recognised in statement of profit or loss
Exchange differences
Premiums paid
Total cash flows
At 31 December 2023
Excluding
loss
recovery
component
£000
Loss
recovery
component
£000
Total
£000
38,157
(130,675)
(6,800)
-
(137,475)
(137,475)
972
133,635
133,635
35,289
(148,094)
(5,013)
-
(153,107)
(153,107)
(812)
156,657
156,657
38,027
1,476
39,633
-
-
814
814
814
71
-
-
2,361
-
-
(91)
(91)
(91)
(117)
-
-
2,153
(130,675)
(6,800)
814
(136,661)
(136,661)
1,043
133,635
133,635
37,650
(148,094)
(5,013)
(91)
(153,198)
(153,198)
(929)
156,657
156,657
40,180
119119 Notes to the financial statements
26 Insurance liabilities and reinsurance assets (continued)
Parent
At 1 January 2022
Allocation of reinsurance premiums
Recoveries of incurred claims and other insurance service expenses
Recoveries of losses on onerous contracts and reversal of those losses
Net expense from reinsurance contracts
Total amounts recognised in statement of profit or loss
Exchange differences
Premiums paid
Total cash flows
At 31 December 2022
Allocation of reinsurance premiums
Recoveries of incurred claims and other insurance service expenses
Recoveries of losses on onerous contracts and reversal of those losses
Net expense from reinsurance contracts
Total amounts recognised in statement of profit or loss
Exchange differences
Premiums paid
Total cash flows
At 31 December 2023
Excluding
loss
recovery
component
£000
Loss
recovery
component
£000
26,743
(85,898)
(5,904)
-
(91,802)
(91,802)
399
88,064
88,064
23,404
(104,627)
(5,615)
-
(110,242)
(110,242)
(225)
107,715
107,715
20,652
166
-
-
(124)
(124)
(124)
-
-
-
42
-
-
(42)
(42)
(42)
-
-
-
-
Total
£000
26,909
(85,898)
(5,904)
(124)
(91,926)
(91,926)
399
88,064
88,064
23,446
(104,627)
(5,615)
(42)
(110,284)
(110,284)
(225)
107,715
107,715
20,652
120120 Notes to the financial statements
26 Insurance liabilities and reinsurance assets (continued)
(iv) Reconciliation of the asset for incurred claims
Reinsurance contracts held
Group
At 1 January 2022
Recoveries of incurred claims and other insurance service expenses
Changes that relate to past service
Net income/(expense) from reinsurance contracts
Finance expense from reinsurance contracts held
Net insurance financial result
Total amounts recognised in statement of profit or loss
Exchange differences
Amounts received
Total cash flows
At 31 December 2022
Recoveries of incurred claims and other insurance service expenses
Changes that relate to past service
Net income/(expense) from reinsurance contracts
Finance income from reinsurance contracts held
Net insurance financial result
Total amounts recognised in statement of profit or loss
Exchange differences
Amounts received
Total cash flows
At 31 December 2023
Estimates of
present value
of future
cash flows
£000
Risk
adjustment
for non-
financial risk
£000
Total
£000
163,133
117,492
(5,606)
111,886
(6,704)
(6,704)
27,904
8,921
(12,010)
(3,089)
-
-
(3,089)
105,182
939
-
-
25,754
5,427
(11,749)
(6,322)
-
-
(6,322)
(835)
-
-
4,497
(70,338)
(70,338)
202,474
77,048
(31,024)
46,024
7,190
7,190
53,214
(5,220)
(70,540)
(70,540)
135,229
108,571
6,404
114,975
(6,704)
(6,704)
108,271
3,558
(70,338)
(70,338)
176,720
71,621
(19,275)
52,346
7,190
7,190
59,536
(4,385)
(70,540)
(70,540)
161,331
18,597
179,928
121121 Notes to the financial statements
26 Insurance liabilities and reinsurance assets (continued)
Parent
At 1 January 2022
Recoveries of incurred claims and other insurance service expenses
Changes that relate to past service
Net income/(expense) from reinsurance contracts
Finance expense from reinsurance contracts held
Net insurance financial result
Total amounts recognised in statement of profit or loss
Exchange differences
Amounts received
Total cash flows
At 31 December 2022
Recoveries of incurred claims and other insurance service expenses
Changes that relate to past service
Net income/(expense) from reinsurance contracts
Finance income from reinsurance contracts held
Net insurance financial result
Total amounts recognised in statement of profit or loss
Exchange differences
Amounts received
Total cash flows
At 31 December 2023
Estimates of
present value
of future
cash flows
£000
Risk
adjustment
for non-
financial risk
£000
Total
£000
105,025
49,586
2,985
52,571
(2,612)
(2,612)
49,959
1,475
(33,482)
(33,482)
122,977
48,896
(7,234)
41,662
3,991
3,991
45,653
(1,136)
(33,376)
(33,376)
15,901
4,358
(7,392)
(3,034)
-
-
(3,034)
337
-
-
13,204
3,602
(4,992)
(1,390)
-
-
(1,390)
(189)
-
-
11,625
134,118
89,124
45,228
10,377
55,605
(2,612)
(2,612)
52,993
1,138
(33,482)
(33,482)
109,773
45,294
(2,242)
43,052
3,991
3,991
47,043
(947)
(33,376)
(33,376)
122,493
(v) 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.
122122 Notes to the financial statements
26 Insurance liabilities and reinsurance assets (continued)
(vi) Risk Adjustment for non-financial risk
The Risk Adjustment for non-financial risk is the compensation the Group requires for bearing the uncertainty about the amount and timing of the
cash flows that arise from non-financial risk as it fulfils insurance contracts. Uncertainty is assessed using actuarial methods to quantify the
variability in undiscounted net outcomes on an ultimate horizon.
The Group’s risk appetite is to hold claims reserves, including a net Risk Adjustment, equating to at least a 75% probability of sufficiency. 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.
Overall, it is estimated that the booked net Risk Adjustment provides for a confidence level of approximately 90% (2022: 90%), which is established
by comparing the uplift for the booked net Risk Adjustment to the uncertainty distribution. Percentile estimates for loss distributions are highly
uncertain as they contain a large number of judgements on possible future outcomes. This means that the percentile may see some fluctuation
year on year due to inherent volatility.
(vii) Calculation of provisions for latent claims
The Group adopts commonly used industry methods including those based on claims frequency and severity and benchmarking.
(viii) Discounting
General insurance outstanding claims provisions have been discounted by applying currency and term specific discount rates in the following
territories:
Geographical territory
UK and Ireland
Canada
Australia
Discount rate
2023
4.0% to 5.3%
3.5% to 4.7%
3.9%
Restated*
2022
3.6% to 5.4%
4.5% to 5.2%
3.8%
Mean term of
liabilities (years)
2023
7.5
4.3
3.6
Restated*
2022
7.5
4.3
3.9
*The comparative financial statements have been restated as detailed in note 37.
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 the illiquidity of the liabilities. At the year end the undiscounted gross outstanding claims liability was £738,352,000
for the Group (2022 restated: £734,839,000), and £580,205,000 for the Parent (2022 restated: £547,182,000).
The impact of discount rate changes on the outstanding claims liability is presented within the net insurance financial result (note 8).
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).
(ix) Assumptions
The Group follows a process of reviewing its reserves for outstanding claims on a regular basis. This involves an appraisal of each reserving class
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 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.
(x) Changes in assumptions
There are no significant changes in approach but we continue to evolve estimates in light of underlying experience.
123123 Notes to the financial statements
26 Insurance liabilities and reinsurance assets (continued)
(xi) Sensitivity of results
The sensitivity of profit before tax to reasonably possible final settlement assumptions used to calculate the general insurance liabilities is shown
in the following table. No account has been taken of any correlation between the assumptions.
Deterioration in loss ratio
Improvement in loss ratio
Increase in net liability for incurred claims excluding risk adjustment
Decrease in net liability for incurred claims excluding risk adjustment
Increase in risk adjustment*
Decrease in risk adjustment*
* Calculated on undiscounted present value of future cash flows
Change in
variable
Potential increase/
(decrease) in the result
2023
2022
Gross
Net
Gross
Net
+1%
-1%
+10%
-10%
+1%
-1%
(5,791)
5,791
(55,498)
55,498
(6,590)
6,590
(3,301)
3,301
(39,365)
39,365
(4,842)
4,842
(5,280)
5,280
(54,851)
54,851
(6,531)
6,531
(3,040)
3,040
(37,179)
37,179
(4,642)
4,642
At 31 December 2023, it is estimated that a fall of 1% in the discount rates used would increase the Group's net outstanding claims liabilities and
decrease profit before tax and equity by £14,314,000 (2022 restated: £16,444,000).
124124 Notes to the financial statements
26 Insurance liabilities and reinsurance assets (continued)
(xii) 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 net claims cost for these classes across all territories.
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
Current estimate of
ultimate claims
Cumulative payments to
2014
£000
59,633
47,690
47,428
41,494
35,164
33,233
33,309
34,245
35,233
34,173
2015
£000
42,739
40,397
37,740
32,297
28,506
27,418
30,544
30,296
29,231
2016
£000
47,402
41,631
37,740
36,337
35,217
32,993
33,896
34,297
2017
£000
45,920
41,706
37,797
34,818
36,431
36,550
38,618
2018
£000
44,053
37,456
32,867
31,647
32,884
31,722
2019
£000
44,230
39,842
37,243
39,164
39,248
2020
£000
45,459
37,509
36,193
37,579
2021
£000
47,289
47,102
45,079
2022
£000
47,599
45,575
2023
£000
52,252
Total
£000
34,173
29,231
34,297
38,618
31,722
39,248
37,579
45,079
45,575
52,252
387,774
(22,255)
6,976
(24,486)
9,811
(28,362)
5,811
date
Outstanding liability
Effect of discounting
Present value
Discounted liability in respect of earlier years
Total discounted net liability for liability classes
Total discounted gross liability for non-liability classes and all expenses
Total discounted net liability included in insurance liabilities in the statement of financial position
(25,187)
13,431
(19,729)
19,519
(17,612)
14,110
(13,594)
23,985
(8,214)
36,865
(4,468)
41,107
(1,553)
50,699
(165,460)
222,314
(53,593)
168,721
108,849
277,570
177,321
454,891
Total
£000
2014
£000
50,025
38,944
38,215
34,393
30,252
28,825
28,865
29,268
29,855
29,536
2015
£000
33,122
31,041
29,494
26,981
23,229
22,806
25,061
24,614
24,222
2016
£000
35,882
30,906
28,199
27,493
26,894
24,782
25,440
25,928
2017
£000
33,134
30,965
28,854
26,774
27,279
26,596
29,261
2018
£000
31,981
27,208
23,787
22,651
21,947
21,269
2019
£000
32,688
29,509
27,615
27,572
27,853
2020
£000
33,502
26,536
24,261
24,634
2021
£000
33,792
32,436
27,999
2022
£000
35,458
33,776
2023
£000
39,988
Parent
At end of year
One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Current estimate of
ultimate claims
Cumulative payments to
29,536
24,222
25,928
29,261
21,269
27,853
24,634
27,999
33,776
39,988
284,466
(25,381)
4,155
(18,896)
7,032
(19,050)
5,172
date
Outstanding liability
Effect of discounting
Present value
Discounted liability in respect of earlier years
Total discounted net liability for liability classes
Total discounted gross liability for non-liability classes and all expenses
Total discounted net liability included in insurance liabilities in the statement of financial position
(13,593)
14,260
(18,679)
10,582
(12,169)
9,100
(9,129)
15,505
(4,353)
23,646
(2,774)
31,002
(824)
39,164
(124,848)
159,618
(38,918)
120,700
75,636
196,336
163,991
360,327
125 Notes to the financial statements
26 Insurance liabilities and reinsurance assets (continued)
(b) Life business insurance contracts
(i) Reconciliation of the liability for remaining coverage
Insurance contracts issued
At 1 January 2022
Changes that relate to current service
CSM recognised in profit or loss for the services provided
Change in the risk adjustment for non-financial risk for the risk expired
Experience adjustments
Changes that relate to future service
Changes in estimates that adjust the CSM
Changes in estimates that result in onerous contract losses or reversal of
Contracts initially recognised in the period
Insurance service result
Finance income from insurance contracts issued
Net insurance financial result
Total amounts recognised in statement of profit or loss
Claims and other directly attributable expenses paid
Total cash flows
At 31 December 2022
Changes that relate to current service
CSM recognised in profit or loss for the services provided
Experience adjustments
Changes that relate to future service
Changes in estimates that adjust the CSM
Changes in estimates that result in onerous contract losses or reversal of
Contracts initially recognised in the period
Insurance service result
Finance expense from insurance contracts issued
Net insurance financial result
Total amounts recognised in statement of profit or loss
Claims and other directly attributable expenses paid
Total cash flows
At 31 December 2023
Estimates of
present value
of future
cash flows
£000
Risk
adjustment
for non-
financial risk
£000
Contractual
service
margin
£000
68,675
1,618
5,425
Total
£000
75,718
(542)
1,101
(1,603)
(1,044)
-
-
-
-
(1,044)
(10,196)
(10,196)
(11,240)
(5,215)
(5,215)
(542)
-
-
(542)
844
-
-
844
302
23
23
325
-
-
5,750
59,263
(717)
-
(717)
1,720
-
-
1,720
1,003
47
47
1,050
-
-
(717)
(90)
(807)
-
-
-
-
-
(807)
2,628
2,628
1,821
(5,055)
(5,055)
6,800
56,029
-
-
(1,603)
(1,603)
380
-
-
380
(1,223)
(10,219)
(10,219)
(11,442)
(3,991)
(3,991)
53,242
-
(90)
(90)
(1,700)
-
-
(1,700)
(1,790)
2,581
2,581
791
(5,035)
(5,035)
48,998
-
1,101
-
1,101
(1,224)
-
-
(1,224)
(123)
-
-
(123)
(1,224)
(1,224)
271
-
-
-
(20)
-
-
(20)
(20)
-
-
(20)
(20)
(20)
231
126126 Notes to the financial statements
26 Insurance liabilities and reinsurance assets (continued)
(ii) 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. Where prudent, an allowance is made for future
mortality improvements based on trends identified in population data. For both 2023 and 2022 the base tables used were ELF16F and ELT16M with
a 1% improvement applied each year.
Discounting
The nominal discount rate curve is calculated on a bottom up basis. The risk free curve is based on the UK government bond yield curve. A liquidity
premium based on the return on a notional index of fixed interest assets, including gilts and corporate bonds, is added to the risk free curve. The
liquidity premium is adjusted for credit risk and differences in liquidity between the notional assets and the liabilities.
Non-Profit Life Business
*The comparative financial statements have been restated as detailed in note 37.
2023
Restated*
2022
3.2% to 5.1%
2.8% to 4.8%
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 in-force business is £14.27 per annum (2022: £17.94 per annum).
Expense and benefit inflation curves are set with reference to GBP inflation swaps of various terms, and using linear interpolation between
available swap terms.
Tax
It has been assumed that current tax legislation and rates enacted at 1 January 2024 will continue to apply. All in-force business is classed as
protection business and is expected to be taxed on a profits basis.
(iii) 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 £0.4m (2022: £15.0m decrease).
The assumed future expenses of running the business have been revised based on expenses that are expected to be incurred by the company. The
effect on insurance liabilities of the changes to renewal expense assumptions (described above) was a £0.5m decrease (2022: £0.3m decrease).
(iv) 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 mortality
Improvement in 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
*The comparative financial statements have been restated as detailed in note 37.
Change in
variable
Potential increase/
(decrease) in the result
2023
£000
(820)
960
(340)
360
20
(20)
50
(40)
Restated*
2022
£000
(890)
1,040
(260)
230
30
(30)
80
(60)
+10%
-10%
+1% pa
-1% pa
+10%
-10%
+1% pa
-1% pa
127127 Notes to the financial statements
26 Insurance liabilities and reinsurance assets (continued)
(v) Maturity analysis
The table below shows the maturity profile of the CSM release.
At 31 December 2023
CSM release after accretion
At 31 December 2022 (restated*)
CSM release after accretion
Within
1 year
£000
Between
1 and 5 years
£000
After
5 years
£000
Total
£000
591
1,947
4,263
6,801
475
1,614
3,662
5,751
*The comparative financial statements have been restated as detailed in note 37.
27 Provisions for other liabilities and contingent liabilities
Group
At 1 January 2023
Additional provisions
Used during year
Exchange differences
At 31 December 2023
Current
Non-current
Parent
At 1 January 2023
Additional provisions
Used during year
Not utilised
Exchange differences
At 31 December 2023
Current
Non-current
Regulatory
and legal
provisions
£000
Other
provisions
£000
2,420
3,615
(3,637)
-
2,398
2,398
-
2,420
3,615
(3,637)
-
-
2,398
2,398
-
3,541
578
(183)
(4)
3,932
1,933
1,999
3,450
513
(183)
-
(1)
3,779
1,866
1,913
Total
£000
5,961
4,193
(3,820)
(4)
6,330
4,331
1,999
5,870
4,128
(3,820)
-
(1)
6,177
4,264
1,913
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.
Dilapidations provisions
The provision for other costs relates to costs in respect of dilapidations. Dilapidations provisions are based on the Group's best estimate of future
expense required to restoring a leased property to its original state on completion of the lease.
128128 Notes to the financial statements
28 Deferred tax
An analysis and reconciliation of the movement of the key components of the net deferred tax liability during the current and prior reporting period is
as follows:
Group
At 1 January 2022 (as restated*)
(Credited)/charged to profit or loss
Credited to other comprehensive income
Exchange differences
At 31 December 2022 (as restated*)
(Credited)/charged to profit or loss
(Credited)/charged to profit or loss
- Impact of change in deferred tax rate
Charged to other comprehensive income
Charged to other comprehensive income
- Impact of change in deferred tax rate
Exchange differences
At 31 December 2023
Parent
At 1 January 2022 (as restated*)
(Credited)/charged to profit or loss
Credited to other comprehensive income
Exchange differences
At 31 December 2022 (as restated*)
(Credited)/charged to profit or loss
Credited to profit or loss
- Impact of change in deferred tax rate
Charged to other comprehensive income
Charged to other comprehensive income
- Impact of change in deferred tax rate
Exchange differences
At 31 December 2023
Unrealised
gains on
investments
£000
44,169
(12,081)
-
(23)
32,065
Net
retirement
benefit
assets
£000
5,309
(174)
(2,543)
-
2,592
(638)
(116)
(119)
-
-
115
31,423
42,300
(8,072)
-
-
34,228
(7)
1,200
75
-
3,744
5,312
(174)
(2,543)
-
2,595
(2,164)
(116)
(140)
-
-
-
31,924
(7)
1,200
75
-
3,747
IFRS 17
transition
adjustment
£000
Other
differences
£000
589
(1,658)
-
-
(1,069)
22
-
-
-
(21)
(1,068)
966
(1,151)
-
-
(185)
171
-
-
-
14
-
(8,900)
3,150
(485)
(264)
(6,499)
994
23
535
20
183
(4,744)
(879)
406
(485)
9
(949)
1,184
(19)
535
20
-
771
Total
£000
41,167
(10,763)
(3,028)
(287)
27,089
262
(103)
1,735
95
277
29,355
47,699
(8,991)
(3,028)
9
35,689
(925)
(166)
1,735
95
14
36,442
*The comparative financial statements have been restated as detailed in note 37.
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
2023
2022
Group
£000
37,838
(8,483)
29,355
Parent
£000
36,671
(229)
36,442
Group
£000
37,027
(9,938)
27,089
Parent
£000
36,209
(520)
35,689
Included in the above are unused tax losses of £10,114,000 (2022: £10,565,000) arising from life business, which are available for offset against
future tax profits and can be carried forward indefinitely.
129129 Notes to the financial statements
29 Other liabilities
Derivative liabilities
Other creditors
Amounts owed to related parties
Accruals
Current
Non-current
2023
Restated*
2022
Group
£000
2,380
27,644
1,485
25,770
57,279
56,723
556
Parent
£000
2,380
16,343
1,460
22,737
42,920
42,920
-
Group
£000
3,234
17,783
251
26,077
47,345
46,733
612
Parent
£000
3,234
14,578
235
22,758
40,805
40,805
-
*The comparative financial statements have been restated as detailed in note 37.
Derivative liabilities are in respect of equity futures contracts and are detailed in note 21.
30 Subordinated liabilities
Group and Parent
6.3144% EUR 30m subordinated debt
2023
£000
25,853
25,853
2022
£000
25,818
25,818
Subordinated debt consists of a privately-placed issue of 20-year subordinated bonds, maturing in February 2041 and callable after February
2031. The Group's subordinated debt ranks below its senior debt and ahead of its preference shares and ordinary share capital.
Subordinated debt is stated at amortised cost.
31 Investment contract liabilities
Group
Investment contract liabilities
2023
£000
95,886
95,886
2022
£000
58,479
58,479
Investment contract liabilities represents amounts due to policyholders and, if applicable, the cost of the minimum repayment guarantee.
Investment contract liabilities are repayable on demand or at short notice and therefore classified as current. These liabilities are matched with
highly liquid investments.
130130 Notes to the financial statements
32 Leases
Group as a lessee
The Group has lease contracts for various items of property, motor vehicles and other equipment used in its operations. Leases of property
generally have terms of up to 15 years, while motor vehicles and other equipment generally have lease terms between 2 and 6 years. Lease terms
are negotiated on an individual basis and contain different terms and conditions, but do not impose any covenants other than security interests. The
Group's obligations under its leases are secured by the lessor's title to the leased assets, and leased assets may not be used as security for
borrowing purposes.
Set out below are the carrying amounts of right-of-use assets recognised and the movements during the period.
Group
At 1 January 2023
Additions
Disposals
Depreciation expense
Exchange differences
At 31 December 2023
At 1 January 2022
Additions
Disposals
Depreciation expense
Exchange differences
At 31 December 2022
Parent
At 1 January 2023
Additions
Disposals
Depreciation expense
Exchange differences
At 31 December 2023
At 1 January 2022
Additions
Disposals
Depreciation expense
Exchange differences
At 31 December 2022
Set out below are the carrying amounts of lease obligations:
Current
Non-current
Land and
buildings
£000
Motor
vehicles
£000
Other
equipment
£000
17,944
5,787
(284)
(2,731)
(86)
20,630
21,588
359
(1,286)
(2,879)
162
17,944
973
143
(74)
(199)
-
843
1,010
330
(172)
(196)
1
973
112
3
-
(75)
(1)
39
162
82
(18)
(118)
4
112
Land and
buildings
£000
Motor
vehicles
£000
Other
equipment
£000
17,623
3,795
-
(2,250)
(74)
19,094
19,669
96
-
(2,278)
136
17,623
965
143
(72)
(194)
-
842
987
330
(172)
(180)
-
965
112
3
-
(74)
(1)
40
125
80
-
(97)
4
112
2023
2022
Group
£000
4,833
16,854
21,687
Parent
£000
4,833
14,718
19,551
Group
£000
2,446
16,616
19,062
Total
£000
19,029
5,933
(358)
(3,005)
(87)
21,512
22,760
771
(1,476)
(3,193)
167
19,029
Total
£000
18,700
3,941
(72)
(2,518)
(75)
19,976
20,781
506
(172)
(2,555)
140
18,700
Parent
£000
2,438
16,274
18,712
131131 Notes to the financial statements
32 Leases (continued)
Group profit for the year has been arrived at after charging the following amounts in respect of lease contracts:
Depreciation expense of right-of-use assets
Interest expense on lease liabilities
Expenses relating to short-term leases
Expenses relating to low value leases
2023
£000
3,005
745
4
4
3,758
2022
£000
3,193
884
16
-
4,093
The Group had total cash outflows for leases, including interest paid, of £3,881,000 (2022: £3,991,000). The Parent had total cash outflows for
leases, including interest paid, of £3,680,000 (2022: £3,399,000). The future cash outflows relating to leases that have not yet commenced are
disclosed in note 33.
The Group has several lease contracts that include extension and termination options. These options are negotiated by management to provide
flexibility in managing the leased-asset portfolio and align with the Group's business needs. Management exercises significant judgement in
determining whether these extension and termination options are reasonably certain to be exercised, as disclosed in note 2.
Group as a lessor
The Group has entered into operating leases on its investment property portfolio. These leases have terms of up to 50 years. All leases include a
clause to enable upward revision of the rental charge on an annual basis according to prevailing market conditions. The lessee is also required to
provide a residual value guarantee on the properties. Rental income on these properties recognised by the Group during the year is disclosed in
note 19.
Future minimum rentals receivable under non-cancellable operating leases as at 31 December are as follows:
Year 1
Year 2
Year 3
Year 4
Year 5
After 5 years
Total undiscounted cashflows
2023
2022
Group
£000
8,245
6,973
5,584
5,005
3,941
13,397
43,145
Parent
£000
8,245
6,973
5,584
5,005
3,941
13,397
43,145
Group
£000
8,110
7,734
6,532
5,244
4,748
16,554
48,922
Parent
£000
8,110
7,734
6,532
5,244
4,748
16,554
48,922
132132 Notes to the financial statements
33 Commitments
At the year end, the Group had capital commitments of £2,358,000 (2022: £76,000) relating to development costs.
The Group has lease contracts for right-of-use assets that had not commenced at 31 December 2023. These leases will commence in 2024. Leases for other
equipment have a term of 4 years with expected cash outflow of £28,000 per annum.
34 Related undertakings
Ultimate parent company and controlling party
The Company is a wholly-owned subsidiary of Benefact Group plc. Its ultimate parent and controlling company is Benefact Trust Limited. Both companies
are incorporated in England and Wales and copies of their financial statements are available from the registered office as shown in the Directors and
Company Information section of this Annual Report and Accounts. The parent companies of the smallest and largest groups for which group financial
statements are drawn up are Ecclesiastical Insurance Office plc and Benefact Trust Limited, respectively.
Related undertakings
The Company's interest in related undertakings at 31 December 2023 is as follows:
Company
Subsidiary undertakings
Incorporated in the United Kingdom
Company
Registration
Number
Share
Capital
2023
Holding of shares by
Company
Group
2022
Holding of shares by
Company
Group
Activity
Ecclesiastical Financial Advisory Services Limited
Ecclesiastical Group Healthcare Trustees Limited
1
Ecclesiastical Life Limited
EdenTree Investment Management Limited
E.I.O. Trustees Limited
1 6
1 4
1 3 6
1 3
Incorporated in Australia
2
Ansvar Insurance Limited
Ansvar Insurance Services Pty Limited
Ansvar Risk Management Services Pty Limited
2 5
2
2046087
10988127
0243111
2519319
0941199
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
007216506 Ordinary
162612286
Ordinary
623695054 Ordinary
-
100%
100%
-
100%
100%
-
-
-
-
-
-
-
-
100%
100%
100%
100%
100%
100%
100%
100%
-
-
-
-
-
-
-
Independent financial advisory
Trustee company
Life insurance
Investment management
Trustee company
-
100%
100%
Insurance
Dormant company
Risk management services
1
2
3
4
5
6
Registered office: Benefact House, 2000 Pioneer Avenue, Gloucester Business Park, Brockworth, Gloucester, GL3 4AW, United Kingdom
Registered office: Level 5, 1 Southbank Boulevard, Melbourne, VIC 3006, Australia
Exempt from audit under s479 of the Companies Act 2006
Exempt from audit under s480 of the Companies Act 2006
Exempt from audit
On 3 January 2023, the shares of EdenTree Investment Management Limited and Ecclesiastical Financial Advisory Services Limited were distributed to the Group's
immediate parent company, Benefact Group plc and then to EdenTree Holdings Limited and Benefact Broking & Advisory Holdings Limited respectively.
133133 Notes to the financial statements
35 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.
Benefact Group plc is the Group and Parent's immediate parent company. Other related parties, of both Group and Parent, include subsidiary
undertakings of Benefact Group plc, the ultimate parent undertaking and the Group's pension plans.
2023
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
2022
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
Benefact
Group plc
£000
Subsidiaries
£000
7,175
14,500
142,085
-
7,175
14,500
142,085
-
1,749
55,300
121,670
-
1,749
55,300
121,670
-
-
-
-
-
12,113
12,766
2,052
-
-
-
-
-
26,341
16,310
6,129
234
Other
related
parties
£000
56,970
14,877
4,117
135,094
23,537
7,791
4,117
688
64,916
11,342
4,385
101,661
9,259
3,177
3,563
-
* Included within amounts owed by related parties of the Group and Parent is a loan of £135.1m (2022: £121.0m) due from Benefact Group plc.
On 3 January 2023 two wholly-owned subsidiaries of Ecclesiastical Insurance Office plc, EdenTree Investment Management Limited and
Ecclesiastical Financial Advisory Services Limited, were transferred to direct ownership of the Benefact Group for £5.2m, recognising a gain after
tax of £0.7m, as detailed in note 15.
Amounts owed by other related parties to the Group and Parent in the prior year include £1.2m due from an associate for the Benefact Group,
relating to the disposal of SEIB.
During the year, the Company received premiums, commission and reinsurance recoveries via a related party insurance agency amounting to
£325,000 (2022: £11,000) and paid reinsurance protection, commission and claims amounting to £811,000 (2022: £16,000).
Trading, investment and other expenditure, including recharges, and amounts paid in the current year includes loans totalling £14.1m (2022:
£54.9m), general business claims of £12.4m (2022: £7.7m) and acquisition of shares totalling £nil (2022: £13.0m).
Trading, investment and other income, including recharges, and amounts received in the current year includes general business premiums totalling
£5.2m (2022: £4.9m) and deposits received for life business totalling £30.2m (2022: £35.0m).
Amounts owed to related parties by the Group and by the Parent include insurance liabilities which are included in note 26. Amounts owed to
related parties by the Group also includes investment contract liabilities which are included in note 31.
134134 Notes to the financial statements
35 Related party transactions (continued)
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 total aggregate remuneration of the directors of the Company in respect of qualifying services during 2023 was £2,832,000 (2022:
£2,838,000). After inclusion of amounts receivable under long-term incentive schemes and pension benefits, the total aggregate emoluments of
the directors was £3,722,000 (2022: £3,496,000).
The key management personnel is defined as the Group Management Board (Ecclesiastical's leadership team), Executive and Non-executive
directors. The remuneration is shown below.
Key management personnel
Wages and salaries
Social security costs
Pension costs - defined contribution plans
Fees and benefits for non-executive directors
2023
2022
Group
£000
6,126
677
340
648
7,791
Parent
£000
6,126
677
340
648
7,791
Group
£000
5,411
750
308
625
7,094
Parent
£000
5,411
750
308
625
7,094
Charitable grants paid to the Group's ultimate Parent undertaking are disclosed in note 14. Contributions paid to and amounts received from the
Group's defined benefits schemes are disclosed in note 17.
135135 Notes to the financial statements
36 Reconciliation of Alternative Performance Measures
The Group uses alternative performance measures (APMs) in addition to the figures which are prepared in accordance with IFRS. The financial
measures in our key financial performance data include gross written premiums and the combined operating ratio (COR). These measures are
commonly used in the industries we operate in and we believe they provide useful information and enhance the understanding of our results.
Users of the accounts should be aware that similarly titled APM reported by other companies may be calculated differently. For that reason, the
comparability of APM across companies might be limited.
The tables below provide a reconciliation of the gross written premiums, net written premiums and the combined operating ratio to their most
directly reconcilable line items in the financial statements.
Group
General insurance
Gross written premiums
Change in the gross unearned premium provision
Insurance revenue
Net written premiums
Outward reinsurance premiums written
Change in the gross unearned premium provision
Insurance revenue
Insurance revenue
Insurance service expenses
Insurance service result before reinsurance contracts held
Net expense from reinsurance contracts
Insurance service result
Net insurance financial result
Net investment result
Other operating expenses
Other finance costs
Profit/(loss) before tax
Reconciliation to net earned premiums
Insurance revenue
Outward reinsurance premiums earned
Net earned premiums
Combined operating ratio = ( [3] - [2] ) / [3]
[1]
[1]
[1]
[2]
[1]
[3]
2023
£000
615,007
(35,861)
579,146
351,340
263,667
(35,861)
579,146
2023
Inv'mnt
return
Corporate
costs
Other
income and
charges
Total
Insurance
Life
£000
6,509
(5,702)
807
-
807
(2,628)
4,274
(1,213)
-
1,240
£000
£000
£000
£000
832
12,801
13,633
-
13,633
(16,912)
53,195
(3,780)
-
46,136
-
-
-
-
-
-
-
(24,079)
-
(24,079)
(3) 586,484
3 (408,584)
-
177,900
(107,174)
-
70,726
-
(19,540)
-
57,469
-
(60,751)
87
(3,151)
(3,151)
44,753
(3,064)
General
£000
579,146
(415,686)
163,460
(107,174)
56,286
-
-
(31,766)
-
24,520
579,146
(249,091)
330,055
92.6%
The underwriting profit of the Group is defined as the profit/(loss) before tax of the general insurance business.
The Group uses the industry standard net combined operating ratio as a measure of underwriting efficiency. The COR expresses the total of net
claims costs, commission and underwriting expenses as a percentage of net earned premiums. It is calculated as ( [3] - [2] ) / [3].
136136 Notes to the financial statements
36 Reconciliation of Alternative Performance Measures (continued)
Group
General insurance
Gross written premiums
Change in the gross unearned premium provision
General Measurement Model insurance revenue
Insurance revenue
Net written premiums
Outward reinsurance premiums written
Change in the gross unearned premium provision
General Measurement Model insurance revenue
Insurance revenue
Insurance revenue
Insurance service expenses
Insurance service result before reinsurance contracts held
Net expense from reinsurance contracts
Insurance service result
Net insurance financial result
Net investment result
Other operating expenses
Other finance costs
Profit/(loss) before tax
Reconciliation to net earned premiums
Insurance revenue
Outward reinsurance premiums earned
General Measurement Model insurance revenue
Net earned premiums
Combined operating ratio = ( [3] - [2] ) / [3]
[1]
[1]
[1]
[2]
[1]
[3]
2022
£000
558,544
(30,619)
25
527,950
320,475
238,069
(30,619)
25
527,950
Restated*
2022
Insurance
Other
Inv'mnt Corporate income and
charges
costs
return
Total
Life
£000
6,311
(5,267)
1,044
-
1,044
10,196
(10,737)
(454)
-
49
£000
£000
£000
£000
642
(1,693)
(1,051)
-
(1,051)
37,666
(52,702)
(3,080)
-
(19,167)
-
-
-
-
-
-
-
(25,743)
-
(25,743)
(9)
226
217
-
217
-
-
-
(2,456)
(2,239)
534,894
(444,472)
90,422
(24,775)
65,647
47,862
(63,439)
(63,196)
(2,456)
(15,582)
General
£000
527,950
(437,738)
90,212
(24,775)
65,437
-
-
(33,919)
-
31,518
527,950
(223,955)
(25)
303,970
89.6%
*The comparatives have been restated as a result of adoption to IFRS 17 Insurance Contracts , as detailed in note 37.
137137 Notes to the financial statements
37 Prior year restatement
IFRS 17 Insurance Contracts
IFRS 17 Insurance Contracts replaces IFRS 4 Insurance Contracts . The Group adopted IFRS 17 from 1 January 2023 and has restated 2022
comparatives. The transitional provisions within IFRS 17 have been applied. The effect of changes to accounting policies as a result of adopting IFRS
17 are set out below.
(i) Transition
For general insurance (non-life) business in scope of the PAA the Group and Parent have used the fully retrospective approach (FRA). On 1 January
2022, the transition date to IFRS 17, the Group identified, recognised and measured each group of non-life insurance contracts as if IFRS 17 had
always applied, derecognised any existing balances that would not exist had IFRS 17 always applied and recognised any resulting net difference in
equity.
For the Group’s life business, the Group has applied judgement when determining whether the FRA is practicable and whether reasonable and
supportable information exists. The Group concluded the FRA was impracticable primarily due to the lack of certain data and certain assumptions
and calculations would not be possible without the use of hindsight. Therefore, the Group has applied the fair value approach (FVA).
Where the Group has applied the FVA, fair value has been determined in accordance with IFRS 13 Fair Value Measurement , except for applying the
provisions of paragraph 47 of IFRS 13 relating to demand features. The methodology used by the Group to calculate the fair value was based on
market consistent embedded value principles. The existing 31/12/2021 Solvency II technical provision calculations were leveraged to calculate the
fair value at transition to IFRS 17. The assumptions used in the 31/12/2021 best estimate liabilities were concluded to be appropriate for use by a
typical market participant in assessing fair value.
As such this fair value calculation is sensitive to the targeted level of the capital requirement coverage assumed and level of diversification allowed
for in the capital requirement calculation. Another material assumption was the cost of capital rate assumed in the cost of the capital element of the
fair value calculation. These assumptions were all set to be consistent with an average market participant’s expectations.
On transition to IFRS 17 on 1 January 2022, the Group's equity was positively impacted by £5.2m after tax, primarily due to changes that apply
IFRS 17 principles to reserving for general insurance liabilities and the application of revised expense allocation models, offset by the establishment
of a contractual service margin (CSM) in the life business. The Parent's equity was positively impacted by £6.3m after tax. IFRS 17 also results in
presentation changes as described below.
The following shows the impact of IFRS 17 on the Group’s and Parent's consolidated balance sheet on transition:
138138 Notes to the financial statements
37 Prior year restatement (continued)
Assets
Goodwill and other intangible assets
Deferred acquisition costs
Deferred tax assets
Pension surplus
Property, plant and equipment
Investment property
Financial investments
Reinsurers' share of contract liabilities
Current tax recoverable
Other assets
Cash and cash equivalents
Assets classified as held for distribution
Total assets
Equity
Share capital
Share premium account
Retained earnings and other reserves
Total shareholders' equity
Liabilities
Insurance contract liabilities
Investment contract liabilities
Lease obligations
Provisions for other liabilities
Retirement benefit obligations
Deferred tax liabilities
Current tax liabilities
Deferred income
Subordinated liabilities
Other liabilities
Liabilities classified as held for distribution
Total liabilities
Total shareholders' equity and liabilities
As reported
31 December
2022
£000
30,255
52,526
8,565
15,338
31,405
140,846
870,749
306,962
4,212
310,788
104,664
14,999
1,891,309
120,477
4,632
490,484
615,593
979,300
58,479
19,062
5,961
4,960
36,723
308
33,167
25,818
101,443
10,495
1,275,716
Group
Impact of
IFRS 17
£000
-
(52,526)
1,373
-
-
-
-
(66,838)
-
(162,439)
-
-
(280,430)
-
-
(3,715)
(3,715)
(189,754)
-
-
-
-
304
-
(33,167)
-
(54,098)
-
(276,715)
As restated
31 December
2022
£000
30,255
-
9,938
15,338
31,405
140,846
870,749
240,124
4,212
148,349
104,664
14,999
1,610,879
120,477
4,632
486,769
611,878
789,546
58,479
19,062
5,961
4,960
37,027
308
-
25,818
47,345
10,495
999,001
1,891,309
(280,430)
1,610,879
139139 Notes to the financial statements
37 Prior year restatement (continued)
Assets
Goodwill and other intangible assets
Deferred acquisition costs
Deferred tax assets
Pension surplus
Property, plant and equipment
Investment property
Financial investments
Reinsurers' share of contract liabilities
Current tax recoverable
Other assets
Cash and cash equivalents
Assets classified as held for distribution
Total assets
Equity
Share capital
Share premium account
Retained earnings and other reserves
Total shareholders' equity
Liabilities
Insurance contract liabilities
Investment contract liabilities
Lease obligations
Provisions for other liabilities
Retirement benefit obligations
Deferred tax liabilities
Current tax liabilities
Deferred income
Subordinated liabilities
Other liabilities
Liabilities classified as held for distribution
Total liabilities
Total shareholders' equity and liabilities
Group
As reported
1 January
2022
£000
Held for
distribution
reclassification
£000
52,512
46,027
8,480
28,304
35,245
163,355
883,770
253,436
5
240,910
114,036
-
1,826,080
120,477
4,632
509,852
634,961
939,069
15,519
22,738
6,373
7,058
48,965
1,232
28,385
24,433
97,347
-
1,191,119
(22,914)
-
-
-
(1,768)
-
-
-
-
(18,501)
(19,300)
62,483
-
-
-
-
-
-
-
(1,298)
(230)
-
93
(413)
-
-
(20,232)
22,080
-
Impact of
IFRS 17
£000
-
(46,027)
377
-
-
-
-
(50,669)
-
(132,621)
-
-
(228,940)
-
-
5,186
5,186
(169,342)
-
-
-
-
966
-
(28,385)
-
(37,365)
-
(234,126)
As restated
1 January
2022
£000
29,598
-
8,857
28,304
33,477
163,355
883,770
202,767
5
89,788
94,736
62,483
1,597,140
120,477
4,632
515,038
640,147
769,727
15,519
21,440
6,143
7,058
50,024
819
-
24,433
39,750
22,080
956,993
1,826,080
-
(228,940)
1,597,140
140140 Notes to the financial statements
37 Prior year restatement (continued)
Assets
Goodwill and other intangible assets
Deferred acquisition costs
Deferred tax assets
Pension surplus
Property, plant and equipment
Investment property
Financial investments
Reinsurers' share of contract liabilities
Current tax recoverable
Other assets
Cash and cash equivalents
Assets classified as held for distribution
Total assets
Equity
Share capital
Share premium account
Retained earnings and other reserves
Total shareholders' equity
Liabilities
Insurance contract liabilities
Lease obligations
Provisions for other liabilities
Retirement benefit obligations
Deferred tax liabilities
Current tax liabilities
Deferred income
Subordinated liabilities
Other liabilities
Liabilities classified as held for distribution
Total liabilities
Total shareholders' equity and liabilities
As reported
31 December
2022
£000
Parent
Impact of
IFRS 17
£000
As restated
31 December
2022
£000
28,158
42,130
31
15,338
30,906
140,846
636,637
201,246
4,212
269,017
66,569
3,722
1,438,812
120,477
4,632
418,868
543,977
696,024
18,712
5,870
4,960
35,905
228
26,929
25,818
80,389
-
894,835
-
(42,130)
489
-
-
-
-
(54,823)
-
(127,695)
-
-
(224,159)
-
-
(673)
(673)
(157,277)
-
-
-
304
-
(26,929)
-
(39,584)
-
(223,486)
28,158
-
520
15,338
30,906
140,846
636,637
146,423
4,212
141,322
66,569
3,722
1,214,653
120,477
4,632
418,195
543,304
538,747
18,712
5,870
4,960
36,209
228
-
25,818
40,805
-
671,349
1,438,812
(224,159)
1,214,653
141141 Notes to the financial statements
37 Prior year restatement (continued)
Assets
Goodwill and other intangible assets
Deferred acquisition costs
Pension surplus
Property, plant and equipment
Investment property
Financial investments
Reinsurers' share of contract liabilities
Current tax recoverable
Other assets
Cash and cash equivalents
Assets classified as held for distribution
Total assets
Equity
Share capital
Share premium account
Retained earnings and other reserves
Total shareholders' equity
Liabilities
Insurance contract liabilities
Investment contract liabilities
Lease obligations
Provisions for other liabilities
Retirement benefit obligations
Deferred tax liabilities
Current tax liabilities
Deferred income
Subordinated liabilities
Other liabilities
Total liabilities
Total shareholders' equity and liabilities
Parent
As reported
1 January
2022
£000
Held for
distribution
reclassification
£000
Impact of
IFRS 17
£000
As restated
1 January
2022
£000
27,501
36,740
28,304
32,771
162,822
707,106
170,909
5
194,808
48,437
-
1,409,403
120,477
4,632
427,393
552,502
669,375
-
20,806
6,068
7,058
46,733
819
21,951
24,433
59,658
856,901
1,409,403
-
-
-
-
-
(28,612)
-
-
-
-
28,612
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(36,740)
-
-
-
-
(38,974)
-
(104,340)
-
-
(180,054)
-
-
6,340
6,340
(140,094)
-
-
-
-
966
-
(21,951)
-
(25,315)
(186,394)
27,501
-
28,304
32,771
162,822
678,494
131,935
5
90,468
48,437
28,612
1,229,349
120,477
4,632
433,733
558,842
529,281
-
20,806
6,068
7,058
47,699
819
-
24,433
34,343
670,507
(180,054)
1,229,349
142142 Notes to the financial statements
37 Prior year restatement (continued)
(ii) Changes to classification and measurement
The adoption of IFRS 17 did not change the classification of the Group and Parent’s insurance contracts. However, IFRS 17 establishes specific
principles for the recognition and measurement of insurance and reinsurance contracts. IFRS 17 introduces a GMM that bases the measurement of
a group of contracts on the present value of future cash flows with a risk adjustment for non-financial risk and a CSM representing unearned profit
recognised in profit or loss over the period insurance service is provided (the coverage period). Entities have the option to use a simplified
measurement model, the PAA, for short-duration contracts; this model is applicable to all the Group’s general insurance and reinsurance contracts
except in limited circumstances where the GMM is required.
IFRS 17 accounting under the PAA is similar to IFRS 4, but differs as follows:
- The identification of groups of onerous contracts is done at a more granular level than liability adequacy tests performed under IFRS 4. Under
IFRS 17, the loss component of onerous contracts measured based on projected profitability is recognised immediately in profit or loss,
potentially resulting in earlier recognition compared to IFRS 4.
-
The liability for incurred claims includes an explicit risk adjustment. The Group’s approach to IFRS 4 risk margins reflected reserving risk appetite
considering the inherent uncertainty in the net discounted claim liabilities estimates, whereas the IFRS 17 risk adjustment more explicitly requires
consideration of the compensation required for bearing the uncertainty that arises from non-financial risk. As with risk margins, the risk
adjustment includes any benefit of diversification considered by the entity.
(iii) Changes to presentation and disclosure
IFRS 17 provides specific guidance for the presentation and disclosures of insurance and reinsurance contracts. Groups of insurance contracts
issued that are either asset or liabilities, and groups of reinsurance contracts held that are either assets or liabilities are presented separately in the
statement of financial position. The presentation of insurance revenue and expenses within the consolidated statement of profit of loss is based on
the concepts of insurance services being provided during the period.
Consolidated statements of profit or loss
Changes introduced by IFRS 17 require separate presentation of insurance revenue, insurance service expenses and net insurance financial result.
Gross written premiums, outward reinsurance premiums, net change in provision for unearned premium, net earned premiums, claims and change
in insurance liabilities and reinsurance recoveries are no longer disclosed.
Consolidated statement of financial position
IFRS 17 introduces changes to the statement of financial position. Previous line items insurance contract liabilities, deferred acquisition costs and
insurance debtors and creditors included within other assets and liabilities are now presented together within insurance contract liabilities.
Previously reported reinsurers’ share of contract liabilities and reinsurance debtors and creditors within other assets and liabilities are presented
together within reinsurance contract assets.
IFRS 9 Financial instruments
The Group and Parent adopted IFRS 9 Financial instruments on 1 January 2023. The comparative information was not restated and continues to be
reported under IAS 39 Financial instruments. The reclassifications and adjustments arising from the new expected credit loss provisions are
therefore not reflected in the restated balance sheet as at 31 December 2022, but are recognised in the opening balance sheet on 1 January 2023.
The net impact to retained earnings as a result of the adoption of IFRS 9 at 1 January 2023 was a reduction of £1.4m on amortised cost loans and
receivables resulting from the replacement of credit loss provisions measured under IAS 39 to expected credit loss provisions in accordance with
the IFRS 9 credit loss model.
143143 Notes to the financial statements
37 Prior year restatement (continued)
The following table summarises the classification and measurement impacts of IFRS 9 on transition:
Measurement category
Financial assets
Original (IAS 39)
New (IFRS 9)
Equity securities
Debt securities
Structured notes
1
Derivatives
Other loans
Other assets
Cash and cash equivalents
FVTPL
FVTPL
FVTPL
Hedge accounted derivatives
FVTPL
Loans and receivables
Loans and receivables
Loans and receivables
FVTPL
FVTPL
FVTPL
FVOCI
FVTPL
Amortised cost
Amortised cost
Amortised cost
As previously
reported (IAS 39)
£000
354,023
459,719
56,138
655
100
114
140,246
104,664
Carrying amount
Impact of
2
IFRS 9
£000
-
-
-
-
-
-
(1,395)
-
IFRS 9
£000
354,023
459,719
56,138
655
100
114
138,851
104,664
1
Derivatives accounted for as a hedge of a net investment in a foreign operation (net investment hedge) were, and continue to be measured at
FVOCI. Derivatives not accounted for as a net investment hedge or acquired principally for the purpose of selling in the near term are measured at
FVTPL.
2
The impact on adoption of IFRS 9 is from the application of the Group’s IFRS 9 expected credit loss model accounting policy. The reclassifications
of the financial instruments on adoption of IFRS 9 did not result in any changes to measurements. No changes have arisen from the more
principles-based hedge accounting requirements.
144144