TIDMELLA

RNS Number : 7904S

Ecclesiastical Insurance Office PLC

18 March 2021

Ecclesiastical Insurance Office plc announces results for the year ended 31 December 2020

Ecclesiastical Insurance Office plc ("Ecclesiastical"), the specialist financial services group, today announces its full year 2020 results. A copy of the results will be available on the Company's website at www.ecclesiastical.com

Group overview

-- During an unprecedented year, the Group remained committed to its purpose of contributing to the greater good. In addition to over GBP23m of funds awarded through our parent Allchurches Trust, the Group gave over GBP2.7m to support charities and communities during this difficult time. This included GBP1m through our annual corporate giving programme Movement for Good, and over GBP200,000 to a combination of the industry's Covid--19 Support Fund, The National Emergency Trust and the Disaster Emergency Committee's Coronavirus Crisis Appeal.

-- The Group has now given over GBP99m to charity, and we are about to meet the GBP100m target we set ourselves back in 2016. This means that over the last five years our rolling average donations have exceeded GBP20m per annum.

-- Following a strong financial performance in 2019, we reported a loss before tax of GBP15.7m (2019: profit before tax GBP73.3m) principally due to Covid-19's impact on financial markets.

-- Gross Written Premiums (GWP) grew 11% to GBP437m (2019: GBP394m), supported by strong retention and rate increases as well as new business wins.

-- Underwriting profit of GBP12.1m (2019: GBP20.0m) after GBP18.7m for Covid-19 related claims where there is confirmed cover, demonstrating continued progress in our underlying performance.

-- We have prioritised the health and wellbeing of our people, successfully adapting to new ways of working and providing a seamless service to our customers.

-- Continued external recognition of the Group as a trusted and specialist financial services organisation. This included being named as the UK's most trusted home insurer for the 12th time by independent ratings agency Fairer Finance, and our Canadian team was once again awarded Top Employer for Young People.

-- With a new brand, new offices and new systems, and a hardening market, we are well placed to grow in all our specialisms, particularly heritage, charity, education, real estate and private clients. At a time when others are pulling back, Ecclesiastical is very much open for business.

Mark Hews, Group Chief Executive Officer of Ecclesiastical, said:

"2020 was a uniquely challenging year for all of us. While we entered the year in a position of strength, the Covid-19 pandemic had a significant impact on the global economy and our financial performance suffered like many businesses. Despite this, we remained true to our purpose of contributing to the greater good and have continued to give to church, charities and communities most in need.

"We remain financially resilient despite the headline loss before tax of GBP15.7m (2019: profit before tax GBP73.3m), which was principally due to investment losses experienced in the first half of 2020. Given our financial strength, we hold a sizeable equity portfolio and accept that this can lead to short-term volatility in our reported results. We have since seen steady gains and we continue to take a long-term view with our investment strategy.

"Despite the challenging environment, our underlying performance continued to be robust. Gross Written Premiums (GWP) grew 11% to GBP437m (2019: GBP394m), supported by strong retention as well as new business wins, and we reported a solid underwriting profit of GBP12.1m (2019: GBP20.0m) after GBP18.7m for Covid-19 related claims where there is confirmed cover.

"The real measure of our performance in 2020, however, has been how we responded to support our customers, brokers, people and communities. I am immensely proud of the way our colleagues showed great courage and resilience to continue to deliver for our customers. All our colleagues quickly and successfully moved to remote working and we adapted our plans to enable our response to the pandemic, showing flexibility and agility across our businesses. Throughout the pandemic, we have made the health, safety and wellbeing of our employees a key priority.

"I also recognise that this has been a challenging time for many of our customers. Many businesses, charities, schools, nurseries and churches have suffered financially due to the impact of successive lockdowns. We introduced a series of measures to support our customers and partners during this difficult period. These included paying claims quickly where cover was in place, offering enhanced cover, free of charge, to many of our customers, and providing credit support to customers in financial difficulty. We also introduced online information hubs, as well as pandemic-related risk management advice.

"Some customers have been disappointed that their policy has not provided business interruption (BI) cover during the pandemic. We were always clear that our BI policies were never intended to cover pandemics and we welcomed the certainty and clarity provided by the outcome of the Financial Conduct Authority test case in our favour.

"Recognising the impact Covid-19 has had on communities, we continued our programme of giving during this difficult time. This includes GBP1m through our annual corporate giving programme Movement for Good awards and a further GBP120,000 through our 12 days of giving campaign. We also gave over GBP200,000 to a combination of the industry's Covid-19 Support Fund, The National Emergency Trust and the Disaster Emergency Committee's Coronavirus Crisis Appeal. The Group has now given over GBP99m to charity, and we are about to meet the GBP100m target we set ourselves back in 2016. This means that over the last five years our rolling average donations have exceeded GBP20m per annum.

"As we move into 2021, we are entering an exciting phase in our history. While many businesses retreat in the face of the coronavirus pandemic, we see the opportunity to refocus and re-energise our business based on our core strengths - our charitable purpose, our outstanding people and our passion to do the right thing. We recently unveiled a new visual identity for the Ecclesiastical Insurance brand. It represents everything that our audiences know and love about our organisation - our expertise, our ethics, and our unique purpose - but articulated with greater energy than before. It reflects an Ecclesiastical that not only does good, but is unified, dynamic and innovative. Alongside the investment in our new visual identity, I'm delighted that our new head office in Gloucestershire is now fully operational and ready to welcome employees with new flexible ways of working once lockdown restrictions are lifted. We are also continuing to invest in new systems to improve our efficiency and improve the customer experience.

"Despite the challenging environment, we remain in a strong capital position with S&P and AM Best reaffirming our strong credit ratings. As we head into 2021 we recognise the challenges in the economic environment but are energised by the clarity of our charitable purpose and are optimistic about the opportunities ahead.

"On behalf of all our charitable beneficiaries, I would like to thank all those who continue to support the Group's work, enabling it to give to so many worthy causes at a time when the need has never been greater. Together, we are supporting charities, communities and improving lives."

ECCLESIASTICAL INSURANCE OFFICE PLC

ANNUAL FINANCIAL REPORT FOR THE YEARED 31 DECEMBER 2020

The Company has now approved its annual report and accounts for 2020.

This Annual Financial Report announcement contains the information required to comply with the Disclosure and Transparency Rules, and extracts of the Strategic Report and Directors' Report forming part of the full financial statements.

The financial information set out below does not constitute the Company's statutory accounts for the year ended 31 December 2020. The annual report and accounts will be available on or before 1 April 2021 on the Company's website at www.ecclesiastical.com. Copies of the audited financial statements are also available from the registered office at Benefact House, 2000 Pioneer Avenue, Gloucester Business Park, Brockworth, Gloucester GL3 4AW.

A copy of the Company's statutory accounts for the year ended 31 December 2020 will be submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk

Chairman's Statement

Throughout this period, I've been overwhelmed by the efforts of all our colleagues at Ecclesiastical to continue to deliver what matters most to our customers. I have heard inspiring stories from around the Group of how colleagues have overcome their own personal challenges to support our customers and help those in society who need it most. True character emerges in adversity and our teams pulled together during this difficult time to keep us on course and stay true to our vision and purpose.

Achievements

The year had many highlights, but I am especially proud that we kept our impressive customer satisfaction rankings, continued to win independent awards and maintained our strong credit ratings in the most trying of circumstances. A heart-felt thanks to all.

While I recognise it was a difficult and uncertain period for our customers, I welcome the clarity and certainty brought by the courts' rulings in the FCA High Court Case. I know that we also remain determined to do the right thing by handling claims with empathy and sensitivity following the publication of the IICSA report into the Anglican Church.

A resilient set of results

Despite the difficulties of the Covid-19 pandemic and the Group reporting a loss of GBP15.7m (2019: profit before tax GBP73.3m), our businesses generally performed well and we remain financially strong. Our underwriting performance was resilient and gross written premiums grew, thanks to a number of new business wins. What makes Ecclesiastical unique in the financial services world is our charitable ownership. It's a business model suited to our times and means we're not driven by the short-term pursuit of profit. Instead, we take a long-term view, focused on sustainable growth, enabling us to weather the difficult times. I'm delighted that, despite the challenges of the past 12 months, we've been able to donate over GBP2.7m to good causes through our own direct giving such as the Movement for Good awards. This is in addition to over GBP23m of funds awarded though our parent Allchurches Trust.

Looking ahead

This is an exciting year for Ecclesiastical. We enter a new chapter in our strategy with a new visual identity. Representing a modern and confident Ecclesiastical, the new brand focuses on our core strengths of being trusted, specialist and committed to customer service.

The benefits of our long-term investment programme continue to be realised. Our new purpose-built office in Gloucestershire opened its doors in February, providing a modern and inspiring environment for our colleagues. It's a great achievement, particularly considering the challenges of the past 12 months, and I'm looking forward to visiting when restrictions are eased.

This year will also see the start of the rollout of our new strategic General Insurance (GI) system for the UK and Ireland, which will provide customers and brokers with a better, faster experience. At a time when our competitors are battening down the hatches, we are well-placed to thrive and achieve our purpose of contributing to the greater good of society.

Board activity

On a personal level, my second year leading the Group as Chairman could not have been more different to my first. While I was fortunate enough at the start of the year to spend time with colleagues developing the new GI operating system, many of my plans to engage with the business were curtailed due to the pandemic and I have missed the personal engagement of being with colleagues. As a Board, we had to adapt to new ways of working and since March last year, we have been meeting virtually in our role of reviewing and overseeing the Group's activities.

I was pleased to welcome two new Board members in 2020. Neil Maidment joined in January, bringing a wealth of industry experience, and Sir Stephen Lamport followed him in March, bringing vast experience from his time in Westminster and serving in the Royal Household. Their diversity of skills and experience strengthen our Board considerably. We were sad to bid farewell to Dean Christine Wilson, who served the Board admirably for 11 years.

The future

At a time when the reputation of the insurance industry is under scrutiny, it's more important than ever that Ecclesiastical is and is seen to be doing the right things for its various stakeholders. I believe that, provided we continue to fulfil our purpose and live our values, we are well-placed to stand out amongst our competitors and enhance our already considerable achievements.

Chief Executive's Report

We are driven by the pursuit of excellence, which we achieve through our unrivalled knowledge of our specialist markets and a commitment to customer service.

Throughout our long history, we have been unwavering in our focus and determination to serve our customers and support those in society who need us most. This time last year, as I wrote the Chief Executive's report for the 2019 annual report, the impact of Covid-19 was just beginning to be felt across the globe. None of us could have predicted just how much of an impact it would have on our lives. Businesses closed, financial markets collapsed and at times that most basic of human needs, social contact, all but ceased. The global Covid-19 pandemic has affected every aspect of our lives - economically, politically and socially- and has changed the way we live and work forever.

Extraordinary times require an extraordinary response and our businesses responded to this most unprecedented challenge in the best way possible. Together, we rose above the challenges to dream even bigger, and perform even better. Through it all, we never lost sight of our purpose, our strategy and our ambition to drive and grow our business in order to make an even bigger contribution to the greater good of the communities in which we live and work.

Continuing to build a Movement for Good

Thanks to the incredible support of our customers, brokers, business partners, employees and all our supporters, we have now given over GBP99m to charity, and are about to meet the GBP100m target we set ourselves back in 2017. This means that over the last five years our rolling average donations have exceeded GBP20m per annum something of which all our supporters can be proud.

Indeed in 2020, in addition to over GBP23m of funds awarded through our parent Allchurches Trust, the Group gave over GBP2.7m to support charities and communities during this difficult time, including:

-- GBP1m through our annual corporate giving programme Movement for Good awards which saw 500 charities receive GBP1,000 grants and 10 charities receive longer- term funding of GBP50,000 - and a further GBP120,000 through our 12 days of giving campaign

-- Over GBP200,000 to a combination of the industry's Covid-19 Support Fund, The National Emergency Trust and the Disaster Emergency Committee's Coronavirus Crisis Appeal

-- Over GBP250,000 via local charitable programmes such as our "Community Impact Grants" in Canada and our "Community Education Programme" in Australia

We launched Fundraising Hubs to support Church and Charities raise much needed financial support, and undertook a programme to encourage "Acts of Kindness" across the group for those in need. These acts, mostly unsung, range from providing meals to the homeless or those in isolation, through to the establishment of a Hygiene Bank by our Ansvar office in Eastbourne, and for which Ansvar have been recognised as "Pro-Bono Company of the Year".

It's very humbling to think we've been able to support so many good causes during such a challenging period. For many frontline charities, their work has never been more vital, and they are often helping the most vulnerable members of society. I'm proud that we've been able to make a difference to so many lives.

Our charitable purpose drives us to help those most in need and we have now increased our aspirations and are focused to exceed our original GBP100m charitable giving target by September 2021. We invite others to join us in this goal. By working together, and with these charities, we can help to build a movement for good.

Delivering for our customers

I am immensely proud of the way our colleagues showed great courage and resilience to continue to deliver for our customers. All our colleagues quickly and successfully moved to remote working and we adapted our plans to enable our response to the pandemic, showing flexibility and agility across our businesses. This was all achieved while colleagues faced many personal challenges of their own. The Board and I are immensely grateful for the hard work and sacrifice of our colleagues who went above and beyond to ensure customer service was enhanced, and our charitable purpose maintained. Throughout the pandemic, we have made the health, safety and wellbeing of our employees a key priority. We invested in new systems to enable different ways of working, and provided home working and mental health and wellbeing support. We decided not to take financial benefit from the Government's furlough scheme.

I also recognise that this has been a challenging time for many of our customers. Many businesses, charities, schools, nurseries and churches have suffered financially due to the impact of successive lockdowns. We introduced a series of measures to support our customers and partners during this difficult period. These included paying claims quickly where cover was in place, offering enhanced cover, free of charge, to many of our customers, and providing credit support to customers in financial difficulty. We also introduced online information hubs, as well as pandemic-related risk management advice.

The insurance industry came under intense scrutiny as a result of the test case on Business Interruption (BI) insurance brought by the Financial Conduct Authority. We were always clear that our BI policies were never intended to cover pandemics and we welcomed the certainty and clarity provided by the High Court's judgment in our favour. Nevertheless, the case has damaged trust in the insurance industry and I believe we now need to work together to restore trust in insurance.

Despite all the challenges of the pandemic, I am pleased to report that 98% of surveyed customers were satisfied with how we handled their claim last year, with 92% being very and extremely satisfied, which is consistent with previous years.

In last year's report, I talked about the importance of managing claims for physical and sexual abuse and we remain committed to improving the claims experience in these sensitive cases. To this end, we welcomed the publication of the Independent Inquiry into Child Sexual Abuse (IICSA) report on the Anglican Church investigation and the insights it gives into the best possible ways to better safeguard children and how to improve the treatment of victims and survivors when disclosing abuse.

The experience of bringing an insurance claim can be traumatic for victims and survivors within the adversarial civil justice system in which we operate. We always aim to handle claims with empathy and sensitivity, as embodied in our Guiding Principles. We thank the Inquiry for its work, and we will continue to review our processes as part of our commitment to continual improvement.

Financial performance

2020 was a challenging year for all businesses due to the significant impact of Covid-19 and our results were affected by the falls in investment markets. While this affected our reported overall financial performance, resulting in a loss of GBP15.7m (2019: profit before tax GBP73.3m), our underlying businesses performed well and we remain financially resilient as we move into 2021.

Underwriting results have been resilient at GBP12.1m (2019: GBP20.0m) after GBP18.7m for Covid-19 related claims where cover is confirmed. We delivered Gross Written Premium (GWP) growth of 11% to GBP437m (2019: GBP394m) supported by strong retention and new business. Despite the challenges faced by all businesses in 2020, our commitment to long term profitable growth has endured and our diverse portfolio of companies has continued to support this. Our long-term view of risk means we have a strong capital position that can withstand short-term volatility and I'm delighted that our excellent A and A- credit ratings by AM Best and S&P were both maintained throughout 2020.

Our strategy for the future

As we move into 2021, we are entering an exciting phase in our history. After making significant progress in recent years to become the most trusted and ethical specialist financial services group, we are now investing in the next stage of our journey. While many businesses retreat in the face of the coronavirus pandemic, we see the opportunity to refocus and re- energise our business based on our core strengths - our charitable purpose, our outstanding people and our passion to do the right thing.

I'm excited to be able to showcase the new Ecclesiastical Insurance brand in this year's Annual Report & Accounts. The new visual identity represents the organisation that we are today shaped by tradition, while looking to the future. The star carries many meanings but for me it represents our pursuit of excellence, the ethics and standards that we strive for and the guiding light we aspire to be.

Through the launch of our new visual identity, we will be reinforcing everything that our audiences know and love about our organisation - our expertise, our ethics, and our unique purpose - but articulated with greater energy than before. It reflects an Ecclesiastical that not only does good, but is unified, dynamic and innovative. It's a new era for our business and, to support us, we adapted the strategy in 2020 that will take us through this challenging period and enable us to take advantage of the hardening market conditions.

Alongside the investment in our new visual identity, I'm delighted that our new head office in Gloucestershire is now fully operational and ready to welcome employees with new flexible ways of working once lockdown restrictions are lifted. The premises are truly impressive and provide a modern and spacious working environment for our employees.

In addition to investing in our people and brand, we have also continued to invest in new systems and technology, helping our businesses to innovate with purpose and increase our agility and efficiency. We have recently implemented new systems for our broking, investment management and overseas insurance businesses. This year, we'll start to deliver a new strategic General Insurance system for the UK and Ireland which, once live, will help us to provide our customers and brokers with an enhanced experience and more efficient processes and capacity.

This investment in our business, together with our great people and financial strength, provides us with the foundation for a bright future.

Working together for the greater good

With our GBP100m charitable target within our near term grasp, our adapted strategy, new brand, new systems, new head office and the new ways of working developed this year, we enter 2021 energised and inspired to work together for our customers and society.

The challenges we have overcome, the progress made and speed with which we have done it would not be possible were it not for the dedication of our specialist teams worldwide. As such the Board and I say "Thank you" to our exceptional colleagues who, no matter where they might be, or whatever their circumstances, will always put doing what is right for our customers and our charitable purpose at the centre of everything they do.

To those who are reading about Ecclesiastical for the first time, I invite you to join us, whether as a colleague, customer or business partner, and experience for yourself how it is possible to do business differently. There is no doubt that, together, we are creating something very special a movement for good that touches and transforms lives in our homes, in our communities, in this country and abroad.

Together, by understanding what matters, we are better able to help our customers. Together, we are better able to increase giving to our beneficiaries. And together, in the words of Captain Sir Tom Moore, we will ensure that for more people "Tomorrow will be a good day".

Financial Performance Report

We entered 2020 from a position of strength, but as the global economy slowed from the impacts of the pandemic, our financial performance suffered in line with the rest of the economy. The real measure of our performance in 2020 however has been how we responded to support our customers, brokers, people and communities.

Following a strong financial performance in 2019, reported loss before tax of GBP15.7m (2019: profit before tax GBP73.3m) was principally due to investment losses experienced in the first half of the year, offset by steady gains later in the year. The Group's underwriting businesses reported profit of GBP12.1m (2019: GBP20.0m) after GBP18.7m for Covid-19 related claims where there is confirmed cover, demonstrating continued progress in our underlying performance. To ensure the Group delivers sustainable profitable growth, we have continued to make strategic investments in technology, property and our people and this is reflected both in our capital expenditure and other costs.

We continue to be a trusted partner to our customers and brokers, and this is reflected in our strong retention and satisfaction levels, which have supported our growth in gross written premiums (GWP) of more than 10%. Despite the unprecedented challenges of 2020, we have continued to invest in the future of our business, including development of our new insurance underwriting platform and our new head office.

Our business is managed with a long-term view of risk and as a result, we have a strong capital position that can withstand short-term volatility and our strong credit ratings with S&P and AM Best were both reaffirmed during the second quarter of 2020. Our Solvency II regulatory capital position remains above regulatory requirements and risk appetite and was further supported with the issuance of EUR30m subordinated debt in February 2021, as the Group seeks to take advantage of profitable growth opportunities.

General insurance

The Group's underwriting businesses have proven resilient in 2020, reporting a Combined Operating Ratio (COR) of 95.1% (2019: 91.1%). Underlying underwriting performance has been resilient, despite the impact of adverse weather events in Australia and Canada and the impacts of anticipated lower prior year releases and reserves strengthening. Our strategy has continued to deliver moderate GWP growth by maintaining our strong underwriting discipline and focussing on profit over growth. GWP grew 11% to GBP437m (2019: GBP394m), supported by retention and rate increases as well as new business towards the later part of the year.

United Kingdom and Ireland

In the UK and Ireland, financial year underwriting profits decreased to GBP12.3m (2019: GBP20.4m) giving a COR of 92.5% (2019: 86.8%) and GWP grew by 7.6% to GBP276.6m (2019: GBP257.1m). This represents another strong performance with positive results on both the property and liability accounts. As expected, the level of prior year releases during 2020 was significantly lower than in 2019. The run-off of unprofitable business exited in 2012 and 2013, combined with our prudent approach to reserving have positively impacted the overall result over the last four years. We would expect to continue to see a modest level of prior year releases, but with a greater contribution coming from our current year underwriting performance.

Both property and casualty accounts generated net underwriting profits on a current year basis, despite the impacts of Covid-19 and a significant church fire. Current year loss ratios are in line with expectations, reflecting favourable underlying claims performance and fewer weather events. We have also seen the benefit of rate increases in a number of portfolios.

Trading conditions remained competitive and we expect this to continue in a number of areas. The education sector was particularly competitive, although we observed some market hardening in property, specifically for larger property exposures. We have continued to achieve high levels of retention and carried positive rate change where needed, whilst continuing to have very strong customer satisfaction and Net Promotor Scores across the UK and Ireland. Market hardening in some property lines and a strong operational response to keep trading through Covid-19 has also enabled us to bring on good levels of new business at the required rate, and our Real Estate, Heritage and Art & Private Client business delivered particularly strong growth during 2020. GWP in respect of our Faith business remained in line with prior year reflecting a good result in challenging market conditions.

We expect the market to continue to harden in some parts of the property portfolio as competitors correct portfolios, and also in some parts of the casualty sector. Education is likely to remain a key competitive area as the UK Government's risk protection arrangement (RPA) attracts local authority maintained schools in addition to academies. This has left the independent schools sector at increased competition from all education insurers.

Our strategy over the medium term is to deliver moderate GWP growth, while maintaining our strong underwriting discipline, as our philosophy is to seek only profitable growth. We will continue to deepen our specialist capabilities through investment in technology and innovation together with the propositions and excellent service that our customers value.

Ansvar Australia

Our Australian business reported an underwriting loss of AUD$1.2m resulting in a COR of 102.2% (2019: AUD$6.0m loss, COR of 114.1%). GWP grew by 18.5% in local currency to AUD$149.9m (2019: AUD$126.5m) with strong new business growth, retention and rate increases. Action has been taken to exit from unprofitable business and the current year performance of the ongoing business has shown improvement over 2019. The property account was adversely impacted by early 2020 weather events and Covid-19 related claims and the liability account was strengthened for physical and sexual abuse (PSA) reserves to reflect higher claims reported in 2020.

Canada

Our Canadian business continued its track record of delivering premium growth, reporting a 20.2% increase at CAD$131.5m (2019: CAD$109.5m) supported by strong retention, growth in new business and rate increases.

Canada reported an underwriting profit of CAD$7.4m resulting in a COR of 91.2% (2019: CAD$3.4m profit, COR of 95.1%). Despite the impact from Covid-19 and two weather events, the property book performed well, driven by fewer large losses and a favourable development on prior year claims. The liability account also performed well delivering an underwriting profit despite some adverse development on prior year claims.

Investments

With the conclusion of a Brexit deal and the US election, the year ended with far less uncertainty and volatility compared to that experienced from March 2020 as markets reacted to the measures taken by Governments to tackle Covid-19. The Group's net investment loss of GBP4.2m as compared to the 2019 net investment profit of GBP74.4m can be largely attributed to performance of UK equities. The Group's fund nevertheless produced a total return ahead of its asset benchmark over the year.

The lower than expected return on investments of GBP20.9m reflects market conditions and reactions to the pandemic during 2020 (2019: GBP26.2m). The impact from Covid-19 was also reflected in fair value losses on financial instruments of GBP13.6m which contrasted with gains of GBP56.0m in 2019. Whilst 2020 ended with less uncertainty, as for all businesses, there remains economic uncertainty which could impact the performance of our investments. However we remain confident in our long-term value investment philosophy, and are relatively defensively positioned.

Within our UK equity portfolio, small and mid-cap bias proved beneficial as the FTSE Small-Cap and FTSE 250 indices outperformed the FTSE All-Share.

Our directly-held sterling bond portfolio underperformed the FTSE Gilts benchmark by 5.4%, as the longer dated index outperformed on falling yields and our portfolio has a higher proportion of short dated bonds.

The downward movement in bond yields led to a decrease in the discount rate applied to long-tail general insurance liabilities. The change in discount rate on those liabilities resulted in a GBP10.9m loss recognised within net investment return (2019: GBP9.9m loss).

Investment Management

The Group's investment management business, EdenTree, incurred a loss before tax for the year of GBP1.0m (2019: loss before tax GBP0.3m) as it continued to invest in infrastructure. The Covid-19 pandemic resulted in a challenging year, limiting the assets clients had available to invest, in particular charities. Against this backdrop, EdenTree were pleased to report GBP58m of net new money for the year having reached a historic high of GBP204m in 2019.

Global equity markets dipped significantly in March and April due to the pandemic, the recovery accelerating towards the back end of the year with some markets approaching opening levels. Assets under management were GBP3.1bn (2019: GBP3.1bn) and GBP2.3bn (2019: GBP2.3bn) excluding assets managed for the Group.

Net income at GBP12.4m was slightly down (2019: GBP12.6m). This is due to the combination of lower fees earned on assets, a trend which has been seen across the industry in recent years, and market turbulence over the course of the year

Long-term insurance

Our life insurance business, which is currently closed to new business, reported a profit before tax of GBP0.5m for the year (2019: GBP0.3m). Assets and liabilities are well matched, and the small profit is in line with our expectations for this business.

Broking and advisory

Overall, broking and advisory had modest growth in income and profit, reporting a profit before tax of GBP2.4m (2019: GBP2.1m). This area of our business includes our insurance broker, South Essex Insurance Brokers (SEIB) and our financial advisory business, Ecclesiastical Financial Advisory Services (EFAS). SEIB reported an increase in profit before tax to GBP2.8m (2019: GBP2.6m) and during the year, extended its own range of specialisms with the acquisition of WRS Insurance Brokers, recognised as specialists in charity, church and care and community groups. EFAS reported a loss of GBP0.3m in the year (2019: GBP0.4m loss).

In addition to these broking and advisory businesses our immediate parent company, Ecclesiastical Insurance Group holds interests in the specialist broker groups Lycetts and Lloyd & Whyte and a prepaid funeral plan business, Ecclesiastical Planning Services. Whilst the results of these are not included within the Ecclesiastical Insurance Office plc Group, they are managed together as part of Ecclesiastical's wider broking and advisory group of businesses. The broker businesses were profitable in 2020 but the prepaid funeral plan business was loss making as a result of the adverse impacts caused by lockdown measures in the UK.

Outlook

Whilst the conclusion of Brexit and the US election towards the end of 2020 provided some market stability, we are still living with Covid-19 and the economic consequences are expected to continue. However, the Group's long-term view to managing and investing in the business has underpinned its financial resilience and strong capital position and we are well positioned for the future.

We remain focussed on our vision to be the most trusted and ethical financial services group, and whilst we can look forward with more hope, we will do so whilst continuing to exercise caution where we operate around uncertainty and market disruption. We will continue to focus on delivering sustainable profit growth and evolve our business for the greater good of society and to make a positive impact on people's lives.

Directors' Report

Principal activities

The Group operates principally as a provider of general insurance in addition to offering a range of financial services, with offices in the UK, Ireland, Canada, and Australia

Ownership

At the date of this report, the entire issued Ordinary share capital of the Company and 3.16% of the issued 8.625% Non-Cumulative Irredeemable Preference Shares of GBP1 each ('Preference shares') were owned by Ecclesiastical Insurance Group plc. In turn, the entire issued Ordinary share capital of Ecclesiastical Insurance Group plc was owned by Allchurches Trust Limited, the ultimate parent of the Group.

Dividends

Dividends paid on the Preference shares were GBP9,181,000 (2019: GBP9,181,000).

The directors do not recommend a final dividend on the Ordinary shares (2019: GBPnil), and no interim dividends were paid in respect of either the current or prior year.

Charitable and political donations

Charitable donations made in the year amounted to GBP2.7 million (2019: GBP32.5million).

It is the Company's policy not to make political donations. No political donations were made in the year (2019: GBPnil).

Principal risks and uncertainties

The directors have carried out a robust assessment of the principal risks facing the Group including those that threaten its business model, future performance, solvency and liquidity. The principal risks and uncertainties, together with the financial risk management objectives and policies of the Group are included in the Risk Management section of this announcement.

Going concern

The Group has considerable financial resources: financial investments of GBP820.8m, 92% of which are liquid (2019: financial investments of GBP857.9m, 91% liquid) and cash and cash equivalents of GBP104.4m (2019:GBP74.8m). Liquid financial investments consist of listed equities and open-ended investment companies, government bonds and listed debt. In February 2021, the Company raised Euro 30 million of Tier 2 capital with the issue of 20-year subordinated bonds, callable after year 10. The Group also has a strong risk management framework and solvency position, is well placed to withstand significant market disruption and has proved resilient to stress testing. Due to the level of uncertainty created by the global Covid-19 pandemic, the Group has considered its capital position, liquidity and the impact on performance. The Group and its businesses have strong levels of cash and other liquid resources and has no concerns over the ability to meet its cash commitments over the three year planning horizon. The Group and its businesses expect to continue to meet regulatory requirements.

Covid-19 has impacted how the businesses operate, with a significant proportion of employees working effectively in a remote environment. They have continued to support our customers, work with our key suppliers and perform other functions of the Group. Whilst making some of these changes to the way the Group and its businesses operate caused some level of disruption, the businesses is equipped to deliver services in this way and can continue to do so over a prolonged period. 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.

Risk Management

Introduction

Strong governance is fundamental to what we do and drives the ongoing embedding of our enterprise-wide risk management framework. This provides the tools, guidance, policies, standards and defined responsibilities to enable us to achieve our strategy and objectives and ensure that individual and aggregated risks to our objectives are identified and managed on a consistent basis.

The risk management framework is integrated into the culture of the Group and is owned by the Board. Responsibility for facilitation of the implementation and oversight is delegated via the Group Chief Executive to the Group Risk Function, led by the Group Chief Risk and Compliance Officer.

The risk management process demands accountability and is embedded in performance measurement and reward, thus promoting clear ownership for risk and operational efficiency at all levels. On an annual basis, the Group Risk Committee (GRC), on behalf of the Board, carries out a formal review of the key strategic risks for the Group with input from the Group Management Board (GMB) and the Strategic Business Units (SBUs). The GRC allocates responsibility for each of the risks to individual members of the Group's executive management team. Formal monitoring of the key strategic risks is undertaken quarterly including progress of risk management actions and is overseen by executive risk committees.

Ecclesiastical has clearly defined the accountabilities, roles and responsibilities of all key stakeholders in implementing and maintaining its Risk Management Framework. These are defined, documented and implemented through the terms of reference of board sub committees, management and executive forums, position descriptions and functional charters.

The Group's Risk Management Framework is part of a wider Internal Control Framework. Systems of internal control are designed to manage rather than eliminate the risk of failure to achieve business objectives, and provide reasonable, but not absolute assurance as to the prevention and detection of financial misstatements, errors, fraud or violation of law or regulations.

Key to the successful operation of the internal control framework is the deployment of a strong Three Lines of Defence Model whereby:

-- 1st Line (Business Management) is responsible for strategy execution, performance and identification and management of risks and application of appropriate controls;

-- 2nd Line (Reporting, Oversight and Guidance) is responsible for assisting the Board in formulating risk appetite establishing minimum standards, developing appropriate risk management tools, providing oversight and challenge of risk profiles and risk management activities within each of the business units and providing risk reporting to executive management and the Board.

-- 3rd Line (Assurance) provides independent and objective assurance of the effectiveness of the Group's systems of internal control. This activity principally comprises the Internal Audit function which is subject to oversight and challenge by the Group Audit Committee.

We seek to develop and improve our risk management framework and strategy on an ongoing basis to ensure it continues to support the delivery of our strategy and objectives.

The Group risk appetite defines the level of risk-taking that the Board considers to be appropriate for the Group as we pursue our business objectives. It is defined in line with the different categories of risk that the Group faces, and provides the backdrop against which the business plan is developed and validated. This ensures that the risk profile resulting from the business plan is in line with the risk-taking expectations of the Board. Compliance with the risk appetite is formally monitored every quarter and reported to the GRC at each meeting.

The risk appetite is formally reviewed annually with approval and sign-off by the Board and there are ongoing assessments to ensure its continued appropriateness for the business.

The Own Risk and Solvency Assessment (ORSA) process is carried out at least once a year and is a key part of the business management and governance structure. This integrates the risk management, business planning and capital management activities and ensures that risk, capital and solvency considerations are built into the development and monitoring of the Group's business strategy and plans and all key decision making.

The Group has regulatory approval for the use of an Internal Model to determine our regulatory capital requirement. In addition, the Internal Model's capability to quantify material risks and assess the impacts on capital requirements across a range of scenarios allows us to gain a deeper insight into the relationship between risk and capital management.

The Internal Model is used extensively to inform key business decisions across the Group, including setting business strategies and objectives, producing risk profiles and capital requirements for different scenarios, informing risk taking guidelines, informing and defining the Group risk appetite and Investment Strategy, determining risk mitigation mechanisms and responses to regulatory capital requirements.

Risk environment

The risk environment is monitored on an ongoing basis and key areas of concern are escalated to the Group Risk Committee.

The Covid-19 pandemic has had a wide- ranging impact on the Group and the environment in which we operate. The management of various risks arising from the evolving position has been co-ordinated by the GMB. As well as significant operational implications there were impacts on the insurance policies written by Group companies and on the Group's investment assets.

A Crisis Management Team (CMT) was convened as the Group's Business Continuity Plans were triggered, and this remained in place throughout the year to oversee the ongoing management of operational elements. The primary focus of the CMT was oversight of the effective transition to remote working, with particular emphasis on people and technology. This event provided the Group an opportunity to test its operational resilience in practice and overall the required activity was completed successfully over a relatively short time period.

Responses to other specific risk-types were delegated to existing bodies within the risk framework, with focused management groups set up where considered appropriate.

The UK based general insurance business was one of the eight insurers involved in a Test Case brought by the Financial Conduct Authority to seek clarity on the eligibility of business interruption claims linked to Covid-19. The judgement confirmed that losses arising from the Covid-19 pandemic were not covered by our BI policies considered in the case. This high profile case had potential reputational implications for the whole insurance industry. However, there are a small number of policies that do provide cover and appropriate provisions are in place.

Substantial falls in equity markets during the first quarter of 2020, as the pandemic took hold globally, adversely affected the value of our investment assets. We monitored markets closely and used derivatives to provide protection against the risk of further falls, though overall we maintained our existing investment approach and made no material changes to our asset mix.

Markets at least partially recovered later in the year and we continue to hold a diversified portfolio of assets including equities which we believe remain a good prospect for long-term returns. Consequently, we continue to take a relatively high level of market risk, which is well understood and closely managed.

Uncertainty around the eventual outcome of Brexit negotiations continued during 2020. The main risk identified for the Group as a result of Brexit was the loss of our ability to carry out business in the Republic of Ireland using the freedom to provide services previously afforded by the United Kingdom's membership of the EU. To mitigate this risk the Ireland branch has been granted authorisation by the Central Bank of Ireland to operate as a Third Country Branch ensuring continuity of operations for our customers.

The profitable management of our insurance businesses on a portfolio basis in hardening markets continues to be a key area of focus for the Group; ensuring that the business written and retained is profitable and sustainable. Competitor activity is an ever-present risk across all our business operations and chosen niches and 2020 was no exception. Our strategy remains to achieve controlled and profitable growth within our defined specialist niches. During 2020 there have been improvements in rate strength and we have maintained our strong underwriting discipline and risk appetite.

The potential for adverse development of long-tail liability claims, particularly in respect of PSA claims, remains a key risk that we continue to actively manage. The Independent Inquiry into Child Sexual Abuse in the UK is progressing and we participated in one of the investigations that delivered its report in 2020. Further investigations as part of the Inquiry are underway and we continue to monitor these and also developments in the other territories in which we operate, to determine the potential impacts on such claims.

The Covid-19 pandemic was the trigger for a high volume of regulatory guidance issued in all territories during 2020. Consequently, some other elements of regulatory change have been delayed, though we expect the pace of change to increase again as we move forward. Management of change in the regulatory environment continues to be a focus to ensure that we operate within relevant legal, regulatory and consumer protection requirements and guidelines and that our people maintain the highest standards of conduct with continued commitment to placing customers at the centre of everything we do.

Cyber risk remains a constantly evolving threat due to the threat of zero day attack. We hold customer data and therefore any event involving a significant loss of such data could result in harm to the data subjects, significant operational disruption and an impact on our service to customers as well as sizeable regulatory fines and reputational damage. The increased societal focus on data security and appropriateness of use, through regulations such as GDPR, results in increased scrutiny and prominence. Threat actors view the disruption arising from the move to a remote working environment as an exploitable opportunity and there has been a general increase in social engineering and phishing attacks across the financial sector. Employee awareness and vigilance is therefore highly important at this time and the Group operates an ongoing programme of training and awareness exercises.

The Group aims to be the most trusted, specialist insurer and therefore maintaining a positive reputation is critical. Our reputation could potentially be damaged as a result of a range of factors including poor business practices and behaviours. High standards of conduct are a core part of the Group's brand, values and culture and there is an ongoing focus on ensuring this is maintained.

Climate change presents increasing levels of risk to our businesses and our customers. Whilst the greatest impacts of these risks are expected to materialise in the medium to long-term, it is important that we take actions to mitigate and manage these risks now. Our exposures to climate change risk include transition risk, primarily related to our investment portfolio, and physical risk which additionally affects the insurance risks that we cover.

Principal risks

Insurance risk

The risk that arises from the fluctuation in the timing, frequency and severity of insured events relative to the expectations of the firm at the time of underwriting.

 
 Risk detail               Key mitigants                                                       Change from last year 
                                                                                                There have not been 
  Underwriting risk               *    A robust pricing process is in place                     material changes to 
  The risk of failure to                                                                        this risk during the 
  price insurance                                                                               year. 
  products adequately             *    The Underwriting Licencing process has been refreshed 
  and failure to 
  establish appropriate 
  underwriting                    *    A documented underwriting strategy and risk appetite 
  disciplines. The                     is in place together with standards and guidance and 
  premium charged must                 monitored by SBUs 
  be appropriate for the 
  nature of the cover 
  provided and the risk           *    This is supported by formally documented authority 
  presented to the                     levels for all underwriters which must be adhered to. 
  Group. Disciplined                   Local checking procedures ensure compliance 
  underwriting is vital 
  to ensure 
  that only business              *    Monitoring of rate strength compared with technical 
  within the Company's                 rate is undertaken on a regular basis within SBUs 
  risk appetite and 
  desired niches is 
  written.                        *    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 
                          ------------------------------------------------------------------  ------------------------ 
 
  Reserving risk                  *    Claims development and reserving levels are closely      This risk is not 
  Reserving risk is the                monitored by the Group Reserving team                    considered to have 
  risk of actual claims                                                                         changed materially 
  payments exceeding the                                                                        during the year. 
  amounts we are holding          *    For statutory and financial reporting purposes,          Whilst the majority 
  in reserves. This                    prudential margins are added to a best estimate          of our policies have 
  arises primarily from                outcome to allow for uncertainties                       been found not to 
  our long-tail                                                                                 respond to Covid-19 
  liability business.                                                                           claims we have made 
  Failure to interpret            *    Claims reserves are reviewed and signed-off by the       appropriate 
  emerging experience or               Board acting on the advice and recommendations of the    provision where cover 
  fully understand the                 Group Chief Actuary following review by the Reserving    is in place. 
  risks written could                  Committee.                                               A rise in numbers of 
  result in the Group                                                                           Physical and Sexual 
  holding                                                                                       Abuse claims in the 
  insufficient reserves           *    An independent review is also conducted by the           Australian business 
  to meet our                          Actuarial Function Director with reporting to the        over the 
  obligations.                         Board.                                                   past year has led to 
                                                                                                an increase in 
                                                                                                reserves. 
                          ------------------------------------------------------------------  ------------------------ 
 
  Catastrophe risk                *    Modelling is undertaken to understand the risk 
  The risk of large                    profile and inform the purchase of reinsurance           There have been no 
  scale extreme events                                                                          material changes to 
  giving rise to                                                                                this risk. We continue 
  significant insured             *    There is a comprehensive reinsurance programme in        to monitor our 
  losses. Through                      place to protect against extreme events. All             aggregations 
  our general insurance                placements are reviewed and approved by the Group        and exposures to such 
  business we are                      Reinsurance Board                                        events and ensure 
  exposed to significant                                                                        careful management 
  natural catastrophes                                                                          utilising appropriate 
  in the territories              *    Exposure monitoring is undertaken on a regular basis     protections. 
  in which we do 
  business. 
                                  *    A Catastrophe Risk Management Group provides 
                                       oversight and sign off of reinsurance modelling 
 
 
                                  *    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 
                          ------------------------------------------------------------------  ------------------------ 
                                                                                               The level of this risk 
  Reinsurance risk                                                                             has remained broadly 
  The risk of failing to          *    We take a long-term view of reinsurance relationships   similar since last 
  access and manage                    to deliver sustainable capacity                         year. Reinsurance 
  reinsurance capacity                                                                         markets experienced 
  at a reasonable price.                                                                       significant challenges 
  Reinsurance                     *    A well-diversified panel of reinsurers is maintained    during 2020 due to the 
  is a central component               for each element of the programme                       impact of Covid-19 
  of our business model,                                                                       claims. This resulted 
  enabling us to insure                                                                        in 
  a portfolio of large            *    A Group Reinsurance Board approves all strategic        tightening of criteria 
  risks                                reinsurance decisions                                   and capacity in certain 
  in proportion to our                                                                         areas. We continue to 
  capital base.                                                                                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

 
 Risk detail       Key mitigants                                                       Change from last year 
 
  Market and              *    An investment strategy is in place which is reviewed 
  investment                   at least annually and signed off by the Finance and       Overall the market risk profile has not materially 
  risk                         Investment Committee (F&I). This includes                 changed and we remain invested for the 
  The risk of                  consideration of the Group's liabilities and capital      long term. Markets experienced significant volatility 
  adverse                      requirements                                              during 2020 and, whilst values had largely 
  movements in                                                                           recovered by the year-end, there remains uncertainty 
  net asset                                                                              around the future economic outlook and 
  values arising          *    A Market and Investment Risk Committee is in place        global socio-political developments, which we continue to 
  from a change                and provides oversight and challenge of these risks       monitor. 
  in interest                  and the agreed actions. There is a formalised 
  rates,                       escalation process to GMB and F&I in place 
  equity and 
  property 
  prices, credit          *    There are risk appetite metrics in place which are 
  spreads and                  agreed by the Board and include limits on Asset / 
  foreign                      Liability Matching and the management of investment 
  exchange                     assets 
  rates. This 
  principally 
  arises                  *    Derivative instruments are used to hedge elements of 
  from                         market risk, notably equity and currency. Their use 
  investments                  is monitored to ensure effective management of risk 
  held by the 
  Group. We 
  actively take           *    There is tracking of risk metrics to provide early 
  such risks to                warning indicators of changes in the market 
  seek enhanced                environment 
  returns on 
  these 
  investments. 
  The Group's            Further information on this risk is given in the Financial 
  balance sheet          Risk and Capital Management note 
  is also                to this announcement 
  exposed to 
  market risk 
  within the 
  defined 
  benefit 
  pension 
  fund. 
                  ------------------------------------------------------------------  ------------------------------------------------------------ 
 
  Credit risk 
  The risk that           *    Strict ratings criteria are in place for the 
  a                            reinsurers that we contract with and a Reinsurance        The economic impact of Covid-19 on both reinsurers and 
  counterparty,                Security Committee approves all of our reinsurance        our policyholders has increased the 
  for example a                partners                                                  inherent likelihood of this risk, though we have seen no 
  reinsurer,                                                                             evidence of this crystallising. 
  fails to 
  perform its             *    Group Reinsurance monitors the market to identify 
  financial                    changes in the credit standing of reinsurers 
  obligations 
  to the company 
  or does not             *    There are risk appetite limits in place in respect of 
  perform them                 reinsurance counterparties which are agreed by the 
  in a timely                  Board 
  manner 
  resulting in a 
  loss for the            *    Strong credit control processes are in place to 
  Group.                       manage broker and policyholder exposures 
  The principal 
  exposure to 
  credit risk            Further information on this risk is given in the Financial 
  arises from            Risk and Capital Management note 
  reinsurance,           to this announcement. 
  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. 
                  ------------------------------------------------------------------  ------------------------------------------------------------ 
 
  Liquidity risk          *    We hold a high proportion of our assets in readily 
  The risk that                realisable investments to ensure we could respond to 
  the Group,                   such a scenario                                           There have been no material changes to this risk since 
  although                                                                               last year. 
  solvent, 
  either does             *    We maintain cash balances that are spread over 
  not have                     several banks 
  sufficient 
  financial 
  resources               *    We have arrangements within our reinsurance contracts 
  available to                 for reinsurers to pay recoverables on claims in 
  enable it to                 advance of the claim settlement 
  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          *    Catastrophe risk is managed through reinsurance 
  The financial                models                                                   A programme of work continues to fully analyse the impact 
  risks arising                                                                         on the Group and to develop appropriate 
  through                                                                               risk management responses. 
  climate                 *    We consider flood risk and other weather-related risk     *    The Group has effected changes to its investment 
  change. The                  factors in insurance risk selection                            policy to: exclude investment in companies that are 
  key impacts                                                                                 wholly or mainly involved in fossil fuel exploration 
  for the                                                                                     and production and thermal coal. 
  Company are             *    There is an ESG overlay on the Investment Strategy 
  physical 
  risks (event                                                                           *    monitor the overall carbon profile and intensity of 
  driven or                                                                                   companies and, through its Fund Manager, engage with 
  longer term                                                                                 the highest emitters, and urge the setting of 
  shifts), the                                                                                science- based targets aligned with the Paris 
  transition                                                                                  Agreement. 
  risks of 
  moving towards 
  a lower                                                                                *    seek opportunities to invest in areas that are 
  carbon economy                                                                              leading the transition to a low carbon economy, wher 
  and liability                                                                         e 
  risks                                                                                       these also meet robust investment criteria. 
  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               Key mitigants                                                       Change from last year 
                                                                                               Programmes remain 
  Systems risk                    *    A defined IT Strategy is in place                       underway to modernise 
  The risk of                                                                                  our IT systems and 
  inadequate, ageing or                                                                        better enable our 
  unsupported systems             *    Systems monitoring is in place together with regular    business. The 
  and infrastructure and               systems and data backups                                scale and complexity of 
  system failure                                                                               this programme results 
  preventing processing                                                                        in heightened change 
  efficiency. Systems             *    A strategic systems programme is underway to deliver    risk during the 
  are critical to enable               improved systems, processes and data                    development 
  us to provide                                                                                and implementation 
  excellent service                                                                            period. 
  to our customers.               *    Business recovery plans are in place for all critical 
                                       systems and are tested according to risk appetite 
                          ------------------------------------------------------------------  ------------------------ 
                                 A number of security measures are deployed to ensure           Cyber risk remains a 
  Cyber risk                     protected system access                                        constantly evolving 
  The risk of criminal            *    Security reviews and assessments are performed on an     threat and has 
  or unauthorised use of               ongoing basis                                            inherently increased 
  electronic                                                                                    during the year 
  information, either                                                                           as malicious threat 
  belonging to the                *    There is ongoing maintenance and monitoring of our       actors seek to exploit 
  Group or its                         systems and infrastructure in order to prevent and       Covid-19 related 
  stakeholders e.g.                    detect cyber security attacks                            business disruption 
  customers, employees                                                                          including 
  etc. Cyber security                                                                           the move to remote 
  threats from malicious          *    There is an ongoing Information Security training and    working. 
  parties continue to                  awareness programme                                      Employee awareness and 
  increase in both                                                                              vigilance is therefore 
  number and                                                                                    highly important at 
  sophistication across                                                                         this time and is being 
  all industries.                                                                               proactively 
                                                                                                managed. 
                          ------------------------------------------------------------------  ------------------------ 
                                                                                                The level of this risk 
  Change risk                     *    We have a clearly articulated Group Strategic            has not materially 
  The risk of failing to               Programme, identifying areas of priority across the      changed. There 
  manage the change                    Group                                                    continues to be a 
  needed to transform                                                                           significant volume 
  the business.                                                                                 of change within the 
  A number of strategic           *    We ensure that there is adequate resourcing for          business which is 
  initiatives are                      change projects using internal and external skills       monitored closely. 
  underway under three                 where appropriate                                        Appropriate 
  themes, Support and                                                                           strengthening of 
  protect, Innovate                                                                             expertise 
  and grow and Transform          *    A Change Board and change governance processes are in    has been undertaken to 
  and thrive. These                    place and operate on an ongoing basis                    reflect this volume of 
  include a                                                                                     change. 
  transformation of our 
  core system and key             *    The GMB undertakes close monitoring and oversight of 
  processes, which will                the delivery of the strategic initiatives and key 
  deliver significant                  Group change programmes 
  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 
  Operational resilience          *    A recovery and resilience framework is in place           Resilience has been 
  The risk that the                    aligned to the delivery of customer services              successfully tested 
  Group does not                                                                                 during the year 
  prevent, respond to,                                                                           through the move to a 
  recover and learn from          *    Recovery exercises including IT systems are regularly     remote working 
  operational                          performed across the company with actions identified      environment. This is 
  disruptions.                         addressed within an agreed timescale                      currently an area of 
  The Group provides a                                                                           focus, with a 
  wide range of services                                                                         programme of activity 
  to a diverse customer           *    All suppliers are subject to ongoing due diligence        planned throughout 
  base and has a                                                                                 2021 that will add 
  reputation                                                                                     value to the business 
  for delivering                  *    There is ongoing maintenance and monitoring of our        and improve customer 
  excellent service.                   systems and infrastructure in order to prevent and        service, 
  Therefore, we seek to                detect issues                                             as well as ensure 
  minimise the potential                                                                         compliance with 
  for any such                                                                                   enhanced regulatory 
  disruption that would                                                                          expectations. 
  impact on the service 
  provided to our 
  customers. 
                          ------------------------------------------------------------------  ------------------------ 
                                                                                                Enhancements have been 
  Data management and             *    A Group Data Governance and Management Committee is      made to the 
  governance                           in place                                                 governance, 
  The risk that the                                                                             management, use and 
  confidentiality,                                                                              control of data. It 
  integrity and/or                *    Group Data Governance and Group Data Management and      continues 
  availability of data                 Information Security Policies are in place               to be monitored and 
  held across the Group                                                                         managed within the 
  is compromised, or                                                                            context of major 
  data is misused. The            *    A Group Data Optimisation Programme is in place which    change programmes. 
  Group holds                          is responsible for ensuring the delivery of the data 
  significant amounts of               strategy and all aspects relating to the governance, 
  customer and financial               management, use and control of the Group's data in 
  data and there could                 line with regulatory requirements 
  be significant 
  implications if this 
  is compromised or is 
  found to be 
  inaccurate. 
                          ------------------------------------------------------------------  ------------------------ 
 

Regulatory and conduct risk

The risk of regulatory sanction, operational disruption or reputational damage from non-compliance with legal and regulatory requirements or the risk that Ecclesiastical's behaviour may result in poor outcomes for the customer.

 
 Risk detail               Key mitigants                                                      Change from last year 
                                 We undertake close monitoring of regulatory developments      There continues to be a 
  Regulatory risk                and use dedicated project teams supported                     significant volume of 
  The risk of regulatory         by in-house and external legal experts to ensure              regulatory change. We 
  sanction, operational          appropriate actions to achieve compliance                     remain focused on the 
  disruption or                   *    An ongoing compliance monitoring programme is in        management of 
  reputational damage                  place across all our SBUs                               regulatory change and 
  from noncompliance                                                                           therefore the overall 
  with legal and                                                                               risk level is 
  regulatory                      *    Regular reporting to the Board of regulatory            unchanged. 
  requirements. We                     compliance issues and key developments is undertaken 
  operate in a highly 
  regulated environment 
  which 
  is experiencing a 
  period of significant 
  change. 
                          -----------------------------------------------------------------  ------------------------- 
                                                                                               The probability of such 
  Conduct risk                                                                                 risks crystallising 
  The risk of unfair               *    There is ongoing staff training to ensure that         increased due to 
  outcomes arising from                 customer outcomes are fully considered in all          distraction and changes 
  the Group's conduct in                business decisions                                     in working 
  the relationship with                                                                        practices due to the 
  customers,                                                                                   Covid-19 pandemic. 
  or in performing our             *    Customer charters have been implemented in all SBUs    However, we remained 
  duties and obligations                                                                       committed to placing 
  to our customers. We                                                                         customers 
  place customers at the           *    Conduct Risk Reporting to relevant governing bodies    are the centre of our 
  centre                                is undertaken on a regular basis                       practices and decision 
  of the business,                                                                             making. Overall the 
  aiming to treat them                                                                         level of this risk is 
  fairly and ethically,            *    Customer and conduct measures are used to assess       unchanged 
  while safeguarding the                remuneration                                           from last year. 
  interests 
  of all other key 
  stakeholders. 
                          -----------------------------------------------------------------  ------------------------- 
 

Reputation risk

The risk that our actions lead to reputational damage in the eyes of customers, brokers, or other key stakeholders.

 
 Risk detail                Key mitigants                                                     Change from last year 
                                                                                              Maintaining a positive 
  Brand and reputation             *    There is ongoing training of core customer facing     reputation is critical 
  risk                                  staff to ensure high skill levels in handling         to the Group's vision of 
  The Group aims to be                  sensitive claims                                      being the most trusted 
  the most trusted                                                                            and ethical specialist 
  specialist insurer and                                                                      financial services 
  as a consequence this            *    We adopt a values led approach to ensure              group. 
  brings                                customer-centric outcomes                             Risks to our brand and 
  with it high                                                                                reputation are 
  expectations from all                                                                       inherently high in an 
  of our stakeholders, be          *    There is a dedicated Marketing and PR function        increasingly 
  they consumers,                       responsible for the implementation of the marketing   interconnected 
  regulators or the                     and communication strategy                            environment, 
  wider industry.                                                                             with the risks of 
  Whilst we aim to                                                                            external threats such as 
  consistently meet and            *    Ongoing monitoring of various media is in place to    cyber security attacks, 
  where possible exceed                 ensure appropriate responses                          and viral campaigns 
  these expectations,                                                                         through 
  increasing                                                                                  social media always 
  consumer awareness and                                                                      present. 
  increased regulatory                                                                        The external environment 
  scrutiny across the                                                                         in 2020 resulted in a 
  sector exposes the                                                                          high inherent 
  Group to                                                                                    probability of 
  an increased risk of                                                                        reputational issues 
  reputational damage                                                                         across all financial 
  should we fail to meet                                                                      services companies. We 
  them, for example as a                                                                      continued to focus on 
  consequence                                                                                 serving our customers 
  of poor business                                                                            and 
  practices and                                                                               ensuring fair treatment 
  behaviours.                                                                                 and clear communication. 
                           ----------------------------------------------------------------  ------------------------- 
 

Directors' Responsibility Statement

The following statement is extracted from page the Directors' report of the 2020 Annual Report & Accounts, and is repeated here for the purposes of the Disclosure and Transparency Rules. The statement relates solely to the Company's 2020 Annual Report & Accounts and is not connected to the extracted information set out in this announcement. The names and functions of the directors making the responsibility statement are set out in the Governance section of the full Annual Report & Accounts.

The directors confirm to the best of their knowledge:

-- The financial statements, which have been prepared in accordance with IAS in conformity with the requirements of the Companies Act 2006 and IFRS adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union, give a true and fair view of the assets, liabilities, financial position and loss of the Group.

-- The Strategic Report within the 2020 Annual Report & Accounts includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

-- The Annual Report and financial statements, taken as a whole, are fair, balanced and understandable, and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

For the year ended 31 December 2020

 
 
 
                                                                                        2020        2019 
                                                                                      GBP000      GBP000 
  Revenue 
  Gross written premiums                                                             437,299     393,952 
  Outward reinsurance premiums                                                     (173,074)   (152,886) 
  Net change in provision for unearned premiums                                     (16,562)    (15,080) 
  Net earned premiums                                                                247,663     225,986 
                                                                                  ----------  ---------- 
 
  Fee and commission income                                                           69,582      71,240 
  Other operating income                                                               2,126         544 
  Net investment return                                                              (4,298)      74,438 
  Total revenue                                                                      315,073     372,208 
                                                                                  ----------  ---------- 
 
 
  Expenses 
  Claims and change in insurance liabilities                                       (222,794)   (157,808) 
  Reinsurance recoveries                                                              94,581      52,800 
  Fees, commissions and other acquisition costs                                     (85,444)    (72,740) 
  Other operating and administrative expenses                                      (116,393)   (120,577) 
  Total operating expenses                                                         (330,050)   (298,325) 
                                                                                  ----------  ---------- 
 
 
  Operating (loss)/profit                                                           (14,977)      73,883 
  Finance costs                                                                        (769)       (620) 
                                                                                  ----------  ---------- 
  (Loss)/profit before tax                                                          (15,746)      73,263 
  Tax credit/(expense)                                                                   526    (11,450) 
                                                                                  ----------  ---------- 
  (Loss)/profit for the year (attributable to equity holders of the Parent)         (15,220)      61,813 
                                                                                  ----------  ---------- 
 
 
 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2020

 
 
 
                                                                                          2020      2019 
                                                                                        GBP000    GBP000 
 
  (Loss)/profit for the year                                                          (15,220)    61,813 
                                                                                     ---------  -------- 
 
  Other comprehensive income 
  Items that will not be reclassified to profit or loss: 
  Fair value losses on property                                                           (15)         - 
  Actuarial losses on retirement benefit plans                                        (17,318)   (7,049) 
  Attributable tax                                                                       3,521     1,198 
                                                                                     ---------  -------- 
                                                                                      (13,812)   (5,851) 
  Items that may be reclassified subsequently to profit or loss: 
  Gains/(losses) on currency translation differences                                     1,980   (1,368) 
  (Losses)/gains on net investment hedges                                              (2,339)       640 
  Attributable tax                                                                         265      (19) 
                                                                                     ---------  -------- 
                                                                                          (94)     (747) 
 
  Net other comprehensive expense                                                     (13,906)   (6,598) 
                                                                                     ---------  -------- 
 
  Total comprehensive (loss)/income attributable to equity holders of the Parent      (29,126)    55,215 
                                                                                     ---------  -------- 
 
 
 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2020

 
 
                                                                       Translation 
                                                                       and hedging 
                                     Share     Share     Revaluation                   Retained 
                                   capital   premium         reserve       reserve     earnings      Total 
                                    GBP000    GBP000          GBP000        GBP000       GBP000     GBP000 
 
  At 1 January 2020                120,477     4,632             565        18,324      463,537    607,535 
  Loss for the year                      -         -               -             -     (15,220)   (15,220) 
  Other net income/(expense)             -         -              34          (94)     (13,846)   (13,906) 
                                 ---------  --------  --------------  ------------  -----------  --------- 
  Total comprehensive 
   income/(expense)                      -         -              34          (94)     (29,066)   (29,126) 
  Dividends                              -         -               -             -      (9,181)    (9,181) 
  At 31 December 2020              120,477     4,632             599        18,230      425,290    569,228 
                                 ---------  --------  --------------  ------------  -----------  --------- 
 
  At 1 January 2019                120,477     4,632             565        19,071      441,259    586,004 
  Profit for the year                    -         -               -             -       61,813     61,813 
  Other net expense                      -         -               -         (747)      (5,851)    (6,598) 
                                 ---------  --------  --------------  ------------  -----------  --------- 
  Total comprehensive 
   (expense)/income                      -         -               -         (747)       55,962     55,215 
  Dividends                              -         -               -             -      (9,181)    (9,181) 
  Gross charitable grant                 -         -               -             -     (30,000)   (30,000) 
  Tax relief on charitable 
   grant                                 -         -               -             -        5,497      5,497 
  At 31 December 2019              120,477     4,632             565        18,324      463,537    607,535 
                                 ---------  --------  --------------  ------------  -----------  --------- 
 
 
 

The revaluation reserve represents cumulative net fair value gains on owner-occupied property. Further details of the translation and hedging reserve are included in the notes to this announcement.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 31 December 2020

 
 
                                                           2020         2019 
                                                         GBP000       GBP000 
  Assets 
  Goodwill and other intangible assets                   54,353       38,651 
  Deferred acquisition costs                             41,989       38,199 
  Deferred tax assets                                     1,078        2,203 
  Pension assets                                          1,053        8,505 
  Property, plant and equipment                          38,316       20,322 
  Investment property                                   142,142      148,146 
  Financial investments                                 820,777      857,913 
  Reinsurers' share of contract liabilities             208,677      159,556 
  Current tax recoverable                                 7,986        4,211 
  Other assets                                          216,570      178,358 
  Cash and cash equivalents                             104,429       74,775 
  Total assets                                        1,637,370    1,530,839 
                                                    -----------  ----------- 
 
  Equity 
  Share capital                                         120,477      120,477 
  Share premium account                                   4,632        4,632 
  Retained earnings and other reserves                  444,119      482,426 
  Total shareholders' equity                            569,228      607,535 
                                                    -----------  ----------- 
 
  Liabilities 
  Insurance contract liabilities                        868,649      763,977 
  Lease obligations                                      25,450       12,923 
  Provisions for other liabilities                        6,499        4,867 
  Pension liabilities                                    10,406            - 
  Retirement benefit obligations                          6,530        5,998 
  Deferred tax liabilities                               29,846       35,649 
  Current tax liabilities                                 1,293          123 
  Deferred income                                        25,908       22,815 
  Other liabilities                                      93,561       76,952 
  Total liabilities                                   1,068,142      923,304 
                                                    -----------  ----------- 
 
  Total shareholders' equity and liabilities          1,637,370    1,530,839 
                                                    -----------  ----------- 
 
 
 

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2020

 
 
 
                                                                                        2020        2019 
                                                                                      GBP000      GBP000 
 
  (Loss)/profit before tax                                                          (15,746)      73,263 
  Adjustments for: 
  Depreciation of property, plant and equipment                                        5,486       5,081 
  Revaluation of property, plant and equipment                                          (10)           - 
  Loss on disposal of property, plant and equipment                                      172         171 
  Amortisation and impairment of intangible assets                                     1,468       1,016 
  Net fair value losses/(gains) on financial instruments and investment 
   property                                                                           18,602    (52,091) 
  Dividend and interest income                                                      (21,814)    (26,218) 
  Finance costs                                                                          769         620 
  Adjustment for pension funding                                                       1,003         815 
 
  Changes in operating assets and liabilities: 
  Net increase in insurance contract liabilities                                      94,180      49,537 
  Net increase in reinsurers' share of contract liabilities                         (45,101)    (21,265) 
  Net increase in deferred acquisition costs                                         (3,352)     (4,553) 
  Net increase in other assets                                                      (35,369)    (25,272) 
  Net increase in operating liabilities                                               16,642      11,153 
  Net increase in other liabilities                                                    1,298         784 
                                                                                  ----------  ---------- 
  Cash generated by operations                                                        18,228      13,041 
 
  Purchases of financial instruments and investment property                       (121,754)   (156,760) 
  Sale of financial instruments and investment property                              151,531     148,308 
  Dividends received                                                                   6,255       9,605 
  Interest received                                                                   14,519      16,293 
  Tax paid                                                                           (2,756)     (8,296) 
  Net cash from operating activities                                                  66,023      22,191 
                                                                                  ----------  ---------- 
 
  Cash flows from investing activities 
  Purchases of property, plant and equipment                                         (6,028)     (4,394) 
  Proceeds from the sale of property, plant and equipment                                  1           - 
  Purchases of intangible assets                                                    (15,602)     (9,613) 
  Acquisition of business, net of cash acquired                                        (822)        (40) 
  Net cash used by investing activities                                             (22,451)    (14,047) 
                                                                                  ----------  ---------- 
 
  Cash flows from financing activities 
  Interest paid                                                                        (769)       (620) 
  Payment of lease liabilities                                                       (5,090)     (2,787) 
  Dividends paid to Company's shareholders                                           (9,181)     (9,181) 
  Charitable grant paid to ultimate parent undertaking                                     -    (30,000) 
  Net cash used by financing activities                                             (15,040)    (42,588) 
                                                                                  ----------  ---------- 
 
  Net increase/(decrease) in cash and cash equivalents                                28,532    (34,444) 
  Cash and cash equivalents at beginning of year                                      74,775     109,417 
  Exchange gains/(losses) on cash and cash equivalents                                 1,122       (198) 
  Cash and cash equivalents at end of year                                           104,429      74,775 
                                                                                  ----------  ---------- 
 
 
 

NOTES TO THIS ANNUAL FINANCIAL REPORT ANNOUNCEMENT OF RESULTS

for the year ended 31 December 2020

Accounting policies

The Company has prepared this announcement of its consolidated results using the same accounting policies and methods of computation as the full financial statements for the year ended 31 December 2020 as prepared in accordance with IFRS applicable at 31 December 2020 issued by the International Accounting Standards Board (IASB) in conformity with the requirements of the Companies Act 2006 and pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union (EU).

A number of amendments and improvements to accounting standards have been issued by the International Accounting Standards Board (IASB) with an effective date of on or after 1 January 2020, and are therefore applicable for the 31 December 2020 financial statements. None had a significant impact on the Group.

IFRS 9, Financial Instruments, is effective for periods beginning on or after 1 January 2018. However the Group has taken the option available to insurers to defer the application of IFRS 9 as permitted by IFRS 4, Insurance Contracts. The Group qualifies for the temporary exemption, which is available until annual periods beginning on or after 1 January 2023, since at 31 December 2015 greater than 90% of its liabilities were within the scope of IFRS 4. There has been no significant change to the Group's operations since 31 December 2015 and as a result, the Group continues to apply IAS 39, Financial Instruments.

General Information

Whilst the financial information included in this announcement has been prepared in accordance with the recognition and measurement criteria of IFRS, this announcement does not itself contain sufficient information to comply with IFRS. Full financial statements that comply with IFRS were approved by the Board of Directors on 18 March 2021.

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2020 or 2019, but is derived from those accounts. Statutory accounts for 2019 have been delivered to the Registrar of Companies and those for 2020 will be delivered following the Company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under sections 498(2) and 498(3) of the Companies Act 2006.

This announcement was approved at a meeting of the Board of Directors held on 18 March 2021.

Ecclesiastical Insurance Office plc is a subsidiary of Ecclesiastical Insurance Group plc which is an investment holding company whose ordinary shares are not listed.

The ordinary shares of Ecclesiastical Insurance Office plc are not listed.

Copies of the audited financial statements are available from the registered office at Benefact House, 2000 Pioneer Avenue, Gloucester Business Park, Brockworth, Gloucester, GL3 4AW.

The following information is included in this announcement in compliance with the Disclosure and Transparency Rules and has been extracted from the full financial statements for 2020.

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 this announcement. The risk under any one insurance contract is the possibility that the insured event occurs and the uncertainty of the amount and timing of the resulting claim. Factors such as the business and product mix, the external environment including market competition and reinsurance capacity all may vary from year to year, along with the actual frequency, severity and ultimate cost of claims and benefits. This subjects the Group to underwriting and pricing risk (the risk of failing to ensure disciplined risk selection and to obtain the appropriate premium), claims reserving risk (the risk of actual claims payments exceeding the amount we are holding in reserves) and reinsurance risk (the risk of failing to access and manage reinsurance capacity at a reasonable price).

(a) Risk mitigation

Statistics demonstrate that the larger and more diversified the portfolio of insurance contracts, the smaller the relative variability in the expected outcome will be. The Group's underwriting strategy is designed to ensure that the underwritten risks are well diversified in terms of type and amount of risk and geographical spread. In all operations pricing controls are in place, underpinned by sound statistical analysis, market expertise and appropriate external consultant advice. Gross and net underwriting exposure is protected through the use of a comprehensive programme of reinsurance using both proportional and non-proportional reinsurance, supported by proactive claims handling. The overall reinsurance structure is regularly reviewed and modelled to ensure that it remains optimum to the Group's needs. The optimum reinsurance structure provides the Group with sustainable, long-term capacity to support its specialist business strategy, with effective balance sheet and profit and loss protection at a reasonable cost.

Catastrophe protection is purchased following an extensive annual modelling exercise of gross and net (of proportional reinsurance) exposures. In conjunction with reinsurance brokers the Group utilises the full range of proprietary catastrophe models and continues to develop bespoke modelling options that better reflect the specialist nature of the portfolio. Reinsurance is purchased in line with the Group's risk appetite.

(b) Concentrations of risk

The core business of the Group is general insurance, with the principal classes of business written being property and liability. The miscellaneous financial loss class of business covers personal accident, fidelity guarantee and loss of money, income and licence. The other class of business includes cover of legal expenses and also a small portfolio of motor policies, but this has been in run-off in the United Kingdom since November 2012. The Group's whole-of-life insurance policies support funeral planning products.

The table below summarises written premiums for the financial year, before and after reinsurance, by territory and by class of business:

 
 
 2020                                     General insurance                 Life insurance 
                           ----------------------------------------------  --------------- 
                                                   Miscellaneous 
                                                       financial 
                            Property   Liability            loss    Other          Funeral      Total 
                                                                                     plans 
                              GBP000      GBP000          GBP000   GBP000           GBP000     GBP000 
 Territory 
 United Kingdom    Gross     203,921      57,634          16,273    3,328               12    281,168 
 and Ireland       Net       107,458      55,095           9,080      716               12    172,361 
 Australia         Gross      48,665      29,279           1,332      902                -     80,178 
  Net                          7,299      24,840           1,283      171                -     33,593 
 Canada            Gross      51,920      24,033               -        -                -     75,953 
  Net                         35,846      22,425               -        -                -     58,271 
 Total             Gross     304,506     110,946          17,605    4,230               12    437,299 
                           ---------  ----------  --------------  -------  ---------------  --------- 
  Net                        150,603     102,360          10,363      887               12    264,225 
                           ---------  ----------  --------------  -------  ---------------  --------- 
 
 
 
 
 
 2019                                     General insurance                 Life insurance 
                           ----------------------------------------------  --------------- 
                                                   Miscellaneous 
                                                       financial 
                            Property   Liability            loss    Other          Funeral      Total 
                                                                                     plans 
                              GBP000      GBP000          GBP000   GBP000           GBP000     GBP000 
 Territory 
 United Kingdom    Gross     185,567      56,323          15,534    3,227             (13)    260,638 
 and Ireland       Net       100,233      53,773           9,147      622             (13)    163,762 
 Australia         Gross      42,331      24,412           1,245      869                -     68,857 
  Net                          5,083      21,053           1,198      170                -     27,504 
 Canada            Gross      44,079      20,378               -        -                -     64,457 
  Net                         30,902      18,898               -        -                -     49,800 
 Total             Gross     271,977     101,113          16,779    4,096             (13)    393,952 
                           ---------  ----------  --------------  -------  ---------------  --------- 
  Net                        136,218      93,724          10,345      792             (13)    241,066 
                           ---------  ----------  --------------  -------  ---------------  --------- 
 
   (c)   General insurance risks 

Property classes

Property cover mainly compensates the policyholder for damage suffered to their property or for the value of property lost. Property insurance may also include cover for pecuniary loss through the inability to use damaged insured commercial properties.

For property insurance contracts, there can be variability in the nature, number and size of claims made in each period.

The nature of claims may include fire, business interruption, weather damage, escape of water, explosion (after fire), riot and malicious damage, subsidence, accidental damage, 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 spreading fire events.

Claims payment, on average, occurs within a year of the event that gives rise to the claim. However, there is variability around this average with larger claims typically taking longer to settle and business interruption claims taking much longer depending on the length of the indemnity period involved.

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 28 to the full financial statements presents the development of the estimate of ultimate claim cost for public and employers' liability claims occurring in a given year. This gives an indication of the accuracy of the estimation technique for incurred claims.

(d) Life insurance risks

The Group provides whole-of-life insurance policies to support funeral planning products, for most of which the future benefits are linked to inflation and backed by index-linked assets. Although assets are well matched to liabilities, there is a risk that returns on assets held to back liabilities are insufficient to meet future claims payments, particularly if the timing of claims is different from that assumed. This is not one of the Group's principal risks and new policies are no longer being written in the life fund, with only minimal premiums now being received each year.

Uncertainty in the estimation of the timing of future claims arises from the unpredictability of long-term changes in overall levels of mortality. The Group bases these estimates on standard industry and national mortality tables and its own experience. The most significant factors that could alter the expected mortality rates profile are epidemics, widespread changes in lifestyle and continued improvement in medical science and social conditions. The primary risk on these contracts is the level of future investment returns on the assets backing the liabilities over the life of the policyholders. The interest rate and inflation risk within this has been largely mitigated by holding index-linked assets of a similar term to the expected liabilities profile. The main residual risk is the spread risk attached to corporate bonds held to match the liabilities. The 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. The small mortality risk is retained by the Group.

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 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. Despite the conclusion of Brexit and the US election at the end of 2020 and Covid-19 vaccine programmes, uncertainty remains in relation to the economic risks to which the Group is exposed, including equity price volatility, movements in exchange rates and long-term UK growth prospects. The Group's management and measurement of financial risks is informed by either stochastic modelling or stress testing techniques.

(a) Categories of financial instruments

(i) Categories applying IAS 39

 
 
                                Financial assets                              Financial liabilities 
               --------------------------------------------------   ----------------------------------------- 
                                                                                                                      Other 
                                 Held                       Hedge         Held                          Hedge        assets 
                Designated        for     Loans and     accounted          for        Financial     accounted           and 
                   at fair    trading   receivables   derivatives      trading     liabilities*   derivatives   liabilities       Total 
                     value 
                    GBP000     GBP000        GBP000        GBP000       GBP000           GBP000        GBP000        GBP000      GBP000 
 
 At 31 
 December 
 2020 
 Financial 
  investments      817,551      2,079           746           401            -                -             -             -     820,777 
 Other assets            -          -       211,475             -            -                -             -         5,095     216,570 
 Cash and 
  cash 
  equivalents            -          -       104,429             -            -                -             -             -     104,429 
 Lease 
  obligations            -          -             -             -            -         (25,450)             -             -    (25,450) 
 Other 
  liabilities            -          -             -             -            -         (80,224)       (1,244)      (12,093)    (93,561) 
 Net other               -          -             -             -            -                -             -     (453,537)   (453,537) 
                                                     ------------   ---------- 
 Total             817,551      2,079       316,650           401            -        (105,674)       (1,244)     (460,535)     569,228 
               -----------  ---------  ------------  ------------   ----------  ---------------  ------------  ------------  ---------- 
 
 At 31 
 December 
 2019 
 Financial 
  investments      848,573      3,061         5,770           509            -                -             -             -     857,913 
 Other assets            -          -       173,996             -            -                -             -         4,362     178,358 
 Cash and 
  cash 
  equivalents            -          -        74,775             -            -                -             -             -      74,775 
 Lease 
  obligations            -          -             -             -            -         (12,923)             -             -    (12,923) 
 Other 
  liabilities            -          -             -             -            -         (65,634)             -      (11,318)    (76,952) 
 Net other               -          -             -             -            -                -             -     (413,636)   (413,636) 
                                                     ------------   ---------- 
 Total             848,573      3,061       254,541           509            -         (78,557)             -     (420,592)     607,535 
               -----------  ---------  ------------  ------------   ----------  ---------------  ------------  ------------  ---------- 
 
 
 
 

*Financial liabilities are held at amortised cost.

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.

(ii) Categories of financial assets applying IFRS 9

As disclosed in the accounting policies, the Group has chosen to defer application of IFRS 9 and classifies and measures financial instruments using IAS 39. To facilitate comparison with entities applying IFRS 9, the table below sets out the Group's financial assets at the balance sheet date, split between those which have contractual cash flows that are solely payments of principal and interest on the principal outstanding (SPPI), other than those which are held for trading or whose performance is evaluated on a fair value basis, and all other financial assets.

 
                                           2020                                            2019 
                       SPPI financial        Other   Total financial   SPPI financial        Other   Total financial 
                               assets    financial            assets           assets    financial            assets 
                                            assets                                          assets 
                               GBP000       GBP000            GBP000           GBP000       GBP000            GBP000 
 
 Financial 
  investments                     746      820,031           820,777            5,770      852,143           857,913 
 Cash and cash 
  equivalents                 104,429            -           104,429           74,775            -            74,775 
 Other financial 
  assets                      211,475            -           211,475          173,996            -           173,996 
 Total fair value             316,650      820,031         1,136,681          254,541      852,143         1,106,684 
                      ---------------  -----------  ----------------  ---------------  -----------  ---------------- 
 

There has been a GBP62,109,000 increase (2019: GBP13,925,000 decrease) in the fair value of SPPI financial assets of the Group, and a GBP32,112,000 decrease (2019: GBP63,099,000 increase) in the fair value of other financial assets of the Group during the reporting period.

(b) Fair value hierarchy

The fair value measurement basis used to value those financial assets and financial liabilities held at fair value is categorised into a fair value hierarchy as follows:

Level 1: fair values measured using quoted bid prices (unadjusted) in active markets for identical assets or liabilities. This category includes listed equities in active markets, listed debt securities in active markets and exchange-traded derivatives.

Level 2: fair values measured using inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes listed debt or equity securities in a market that is not active and derivatives that are not exchange-traded.

Level 3: fair values measured using inputs for the asset or liability that are not based on observable market data (unobservable inputs). This category includes unlisted debt and equities, including investments in venture capital, and suspended securities. Where a look-through valuation approach is applied, underlying net asset values are sourced from the investee, translated into the Group's functional currency and adjusted to reflect illiquidity where appropriate, with the fair values disclosed being directly sensitive to this input.

There have been no transfers between investment categories in the current year.

 
 Analysis of fair value measurement bases                   Fair value measurement 
                                                                    at the 
                                                             end of the reporting 
                                                                period based on 
                                                        ----------------------------- 
                                                            Level    Level      Level      Total 
                                                                1        2          3 
                                                           GBP000   GBP000     GBP000     GBP000 
 At 31 December 2020 
 Financial assets at fair value through 
  profit or loss 
 Financial investments 
   Equity securities                                      262,014      185     59,687    321,886 
   Debt securities                                        493,601    1,512        552    495,665 
   Derivatives                                                  -    2,079          -      2,079 
   Hedged accounted derivatives                                 -      401          -        401 
 Total financial assets at fair value                     755,615    4,177     60,239    820,031 
 
 At 31 December 2019 
 Financial assets at fair value through 
  profit or loss 
 Financial investments 
   Equity securities                                      289,165      190     66,703    356,058 
   Debt securities                                        490,911    1,200        404    492,515 
   Derivatives                                                  -    3,061          -      3,061 
   Hedged accounted derivatives                                 -      509          -        509 
                                                        ---------  -------  ---------  --------- 
 Total financial assets at fair value                     780,076    4,960     67,107    852,143 
                                                        ---------  -------  ---------  --------- 
 
 

The derivative liabilities of the Group are measured at fair value through other comprehensive income. Derivative liabilities are categorised as level 2.

Fair value measurements based on level 3

Fair value measurements in level 3 consist of financial assets, analysed as follows:

 
                                                           Financial assets at fair 
                                                                     value 
                                                            through profit and loss 
                                                      ---------------------------------- 
                                                           Equity         Debt 
                                                       securities   securities     Total 
                                                           GBP000       GBP000    GBP000 
 At 31 December 2020 
 Opening balance                                           66,703          404    67,107 
 Total (losses)/gains recognised in profit or 
  loss                                                    (7,015)          147   (6,868) 
 Closing balance                                           59,688          551    60,239 
                                                      -----------  -----------  -------- 
 Total (losses)/gains for the period included 
  in profit or loss for assets 
 held at the end of the reporting period                  (7,015)          147   (6,868) 
                                                      -----------  -----------  -------- 
 
 At 31 December 2019 
 Opening balance                                           44,773          261    45,034 
 Total gains recognised in profit or loss                   7,538          143     7,681 
 Purchases                                                 14,392            -    14,392 
 Closing balance                                           66,703          404    67,107 
                                                      -----------  -----------  -------- 
 Total gains for the period included in profit 
 or loss for assets 
 held at the end of the reporting period                    7,539          143     7,682 
                                                      -----------  -----------  -------- 
 
 

All the above gains or losses included in profit or loss for the period 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.

Unlisted equity securities (level 3)

These financial assets are valued using observable net asset data, adjusted for unobservable inputs including comparable price-to-book ratios based on similar listed companies, and management's consideration of constituents as to what exit price might be obtainable.

The valuation is sensitive to the level of underlying net assets, the Euro exchange rate, the price-to-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 +/-GBP7m (2019: +/-GBP7m).

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.

(c) Interest rate risk

The Group's exposure to interest rate risk arises primarily from movements on financial investments that are measured at fair value and have fixed interest rates, which represent a significant proportion of the Group's assets, and from those insurance liabilities for which discounting is applied at a market interest rate. The Group's investment strategy is set in order to control the impact of interest rate risk on anticipated cash flows and asset and liability values. The fair value of the Group's investment portfolio of fixed income securities reduces as market interest rates rise as does the present value of discounted insurance liabilities, and vice versa.

Interest rate risk concentration is reduced by adopting asset-liability duration matching principles where appropriate. Excluding assets held to back the life business, the average duration of the Group's fixed income portfolio is three years (2019: 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 28(a)(iv) to the full financial statements.

For the Group's life business, consisting of policies to support funeral planning products, benefits payable to policyholders are independent of the returns generated by interest-bearing assets. Therefore, the interest rate risk on the invested assets supporting these liabilities is borne by the Group. This risk is mitigated by purchasing fixed interest investments with durations that match the profile of the liabilities. For funeral plan policies, benefits are linked to the Retail Prices Index (RPI). Assets backing these liabilities are also linked to the RPI, and include index-linked gilts and corporate bonds. For practical purposes it is not possible to exactly match the durations due to the uncertain profile of liabilities (e.g. mortality risk) and the availability of suitable assets, therefore some interest rate risk will persist. The Group monitors its exposure by comparing projected cash flows for these assets and liabilities and making appropriate adjustments to its investment portfolio.

The table below summarises the maturities of life business assets and liabilities that are exposed to interest rate risk.

 
                                         Maturity 
                               ---------------------------- 
                                 Within   Between     After 
                                 1 year     1 & 5   5 years      Total 
 Group life business                        years 
                                 GBP000    GBP000    GBP000     GBP000 
 At 31 December 2020 
 Assets 
 Debt securities                  6,083    30,161    61,665     97,909 
 Cash and cash equivalents        4,692         -         -      4,692 
                                 10,775    30,161    61,665    102,601 
                               --------  --------  --------  --------- 
 Liabilities (discounted) 
 Life business provision          5,103    18,045    53,709     76,857 
 
 At 31 December 2019 
 Assets 
 Debt securities                  6,066    28,732    65,093     99,891 
 Cash and cash equivalents        2,584         -         -      2,584 
                                  8,650    28,732    65,093    102,475 
                               --------  --------  --------  --------- 
 Liabilities (discounted) 
 Life business provision          5,517    19,223    54,472     79,212 
 
 

Group financial investments with variable interest rates, including cash and cash equivalents, and insurance instalment receivables are subject to cash flow interest rate risk. This risk is not significant to the Group.

(d) Credit risk

The Group has exposure to credit risk, which is the risk of non-payment of their obligations by counterparties and financial markets borrowers. Areas where the Group is exposed to credit risk are:

-- counterparty default on loans and debt securities;

-- 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).

 
                                                  SPPI                                    Non-SPPI 
                   -----------------------------------------------------------------  ---------------- 
                               Cash and   Reinsurance   Other financial 
                      cash equivalents*       debtors            assets   Total SPPI   Debt securities 
                                 GBP000        GBP000            GBP000       GBP000            GBP000 
 At 31 December 
  2020 
 AAA                                  -             -                 -            -           128,037 
 AA                              36,319         1,986                 -       38,305           130,285 
 A                               16,753         8,564                 -       25,317           125,745 
 BBB                             51,351             3                 -       51,354            94,101 
 Below BBB                            -             -                 -            -             8,997 
 Not rated                            6           452           201,216      201,674             8,500 
                                                                         -----------  ---------------- 
                                104,429        11,005           201,216      316,650           495,665 
                   --------------------  ------------  ----------------  -----------  ---------------- 
 
 
 
 At 31 December 
  2019 
 AAA                      -         -          -          -    113,359 
 AA                  19,760     1,286          -     21,046    138,341 
 A                   17,269     8,856          -     26,125    132,419 
 BBB                 42,713         3          -     42,716     89,563 
 Below BBB                -         -          -          -      9,537 
 Not rated                7     1,032    163,615    164,654      9,296 
                                                  ---------  --------- 
                     79,749    11,177    163,615    254,541    492,515 
                   --------  --------  ---------  ---------  --------- 
 

*Cash includes amounts held on deposit classified within financial investments and disclosed in note 22 to the full financial statements. Cash balances which are not rated relate to cash amounts in hand.

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 less than 1% of this category in the current and prior year.

The Group's exposure to counterparty default on debt securities is spread across a variety of geographical and economic territories, as follows:

 
                    2020       2019 
                  GBP000     GBP000 
 
  UK             276,914    301,225 
  Australia      108,792     84,726 
  Canada          89,661     86,293 
  Europe          20,298     20,271 
  Total          495,665    492,515 
               ---------  --------- 
 

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.

(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 is exposed is as follows:

 
                    2020                   2019 
                  GBP000                 GBP000 
                       - 
           UK    262,414          UK    289,566 
       Europe     59,287      Europe     66,302 
    Hong Kong        185   Hong Kong        190 
        Total    321,886       Total    356,058 
               ---------              --------- 
 

(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 the derivative financial instruments note to this announcement. 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.

 
              2020              2019 
            GBP000            GBP000 
 
   Aus $    57,291    Euro    65,305 
   Can $    39,621   Aus $    41,912 
    Euro    23,932   Can $    33,722 
   USD $     2,045   USD $     2,028 
   HKD $       171   HKD $       176 
 

The figures in the table above, for the current and prior years, do not include currency risk that the Group is exposed to on a 'look through' basis in respect of collective investment schemes denominated in sterling. The Group enters into derivatives to hedge currency exposure, including exposures on a 'look through' basis. The open derivatives held by the Group at the year end to hedge currency exposure are detailed in the derivative financial instruments note to this announcement.

(g) Liquidity risk

Liquidity risk is the risk that funds may not be available to pay obligations when due. The Group is exposed to daily calls on its available cash resources mainly from claims arising from insurance contracts. An estimate of the timing of the net cash outflows resulting from insurance contracts is provided in note 28 to the full financial statements. 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 to the full financial statements, and other liabilities for which a maturity analysis is included in note 31 to the full financial statements.

(h) Market risk sensitivity analysis

The sensitivity of profit and other equity reserves to movements on market risk variables (comprising interest rate, currency and equity price risk), each considered in isolation and before the mitigating effect of derivatives, is shown in the table below. This table does not include the impact of variables on retirement benefit schemes. Financial risk sensitivities for retirement benefit schemes are disclosed separately in note 19 to the full financial statements.

 
 Group                                     Potential increase / (decrease) in    Potential increase / (decrease) in 
                                                         profit                         other equity reserves 
 
                              Change in 
 Variable                      variable               2020                2019               2020               2019 
                                                    GBP000              GBP000             GBP000             GBP000 
 
 Interest rate risk   -100 basis points           (11,896)             (6,724)               (70)               (25) 
                      +100 basis points              6,153               4,133               (44)                 37 
 Currency risk                     -10%              2,833               6,330              9,715              7,628 
                                   +10%            (2,318)             (5,179)            (7,948)            (6,241) 
 Equity price risk               +/-10%             26,073              28,841                  -                  - 
 

The following assumptions have been made in preparing the above sensitivity analysis:

-- the value of fixed income investments will vary inversely with changes in interest rates, and all territories experience the same interest rate movement;

-- currency gains and losses will arise from a change in the value of sterling against all other currencies moving in parallel;

-- equity prices will move by the same percentage across all territories; and

-- change in profit is stated net of tax at the standard rate applicable in each of the Group's territories.

(i) Capital management

The Group's primary objectives when managing capital are to:

-- comply with the regulators' capital requirements of the markets in which the Group operates; and

-- safeguard the Group's ability to continue to meet stakeholders' expectations in accordance with its corporate mission, vision and values.

The Group is subject to insurance solvency regulations in all the territories in which it issues insurance and investment contracts, and capital is managed and evaluated on the basis of both regulatory and economic capital.

In the UK, the Group and its UK regulated entities are required to comply with rules issued by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).

Capital is assessed at both individual regulated entity and group level. The PRA expects a firm, at all times, to hold Solvency II Own Funds in excess of its calculated Solvency Capital Requirement (SCR). Group solvency is assessed at the level of Ecclesiastical Insurance Office plc (EIO)'s parent, Ecclesiastical lnsurance Group plc (EIG). Consequently, there is no directly comparable solvency measure for EIO group. Both quarterly and annual quantitative returns are submitted to the PRA, in addition to an annual narrative report, the Solvency and Financial Condition Report (SFCR) which is also published on the company's website. A further report, the Regular Supervisory Report (RSR) is periodically submitted to the PRA.

The current year figures in the table below are unaudited and based on the latest information provided to management.

EIO's Solvency II Own Funds will be subject to a separate independent audit, as part of the Group's process for Solvency II reporting to the PRA. EIO's SCR is not subject to audit as it is calculated using an internal model which has been approved for use by the PRA. ELL's figures are not subject to an independent audit due to the company falling below the threshold calculation detailed in the PRA policy statement PS25/18 (Solvency II: External audit of the public disclosure requirement). The Group's regulated entities, EIO and ELL, expect to meet the deadline for submission to the PRA of 8 April 2021 and their respective SFCRs will be made available on the Group's website shortly thereafter. EIG is also expected to meet its deadline for submission to the PRA of 20 May 2021, with its SFCR also being made available on the Group's website shortly after.

 
                                                                  2020                              2019 
                                                               (unaudited)                      (unaudited)* 
                                                     Ecclesiastical                    Ecclesiastical 
                                                          Insurance                         Insurance 
                                                         Office plc   Ecclesiastical       Office plc   Ecclesiastical 
                                                             Parent     Life Limited           Parent     Life Limited 
                                                             GBP000           GBP000           GBP000           GBP000 
 
 Solvency II Own Funds                                      518,562           49,259          570,110           49,120 
 Solvency Capital Requirement                             (262,723)         (15,394)        (264,251)         (15,976) 
 Own Funds in excess of Solvency Capital 
  Requirement                                               255,839           33,865          305,859           33,144 
                                                    ---------------  ---------------  ---------------  --------------- 
 
 Solvency II Capital Cover                                     197%             320%             216%             307% 
 

*Unaudited with the exception of EIO Parent's Solvency II Own Funds.

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.

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 loss of GBP2,339,000 (2019: gain of GBP640,000) in respect of these 'hedge' derivatives has been recognised in the hedging reserve within shareholders' equity, as disclosed in the Translation and Hedging Reserve note to this announcement. The Group has formally assessed and documented the effectiveness of derivatives that qualify for hedge accounting in accordance with IAS 39, Financial Instruments: Recognition and Measurement.

 
                                                2020                             2019 
                                 Contract/                             Contract/ 
                                  notional   Fair value   Fair value    notional   Fair value 
                                    amount        asset    liability      amount        asset 
                                    GBP000       GBP000       GBP000      GBP000       GBP000 
 Non-hedge derivatives 
 Equity/Index contracts 
 Options                            40,597        1,407            -      58,588        1,562 
 
 Foreign exchange contracts 
 Forwards (Euro)                    96,000          672            -     116,603        1,499 
 
 Hedge derivatives 
 Foreign exchange contracts 
 Forwards (Australian dollar)       75,000            -        1,244      45,411          250 
 Forwards (Canadian dollar)         52,000          401            -      30,456          259 
                                   263,597        2,480        1,244     251,058        3,570 
                                ----------  -----------  -----------  ----------  ----------- 
 

Included with Equity/Index contracts are options with a contract/notional value of GBPnil (2019: GBP17,997,000), and fair value asset of GBPnil (2019: GBP734,000), which expire in greater than one year. All other derivatives in the current and prior period expire within one year.

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 and derivative fair value liabilities are recognised within other liabilities.

Translation and hedging reserve

 
                                                              Translation   Hedging 
                                                                  reserve   reserve     Total 
                                                                   GBP000    GBP000    GBP000 
 
 At 1 January 2020                                                 13,572     4,752    18,324 
 Gains on currency translation differences                          1,980         -     1,980 
 Losses on net investment hedges                                        -   (2,339)   (2,339) 
 Attributable tax                                                       -       265       265 
 At 31 December 2020                                               15,552     2,678    18,230 
                                                             ------------  --------  -------- 
 
 At 1 January 2019                                                 14,940     4,131    19,071 
 Losses on currency translation differences                       (1,368)         -   (1,368) 
 Gains on net investment hedges                                         -       640       640 
 Attributable tax                                                       -      (19)      (19) 
 At 31 December 2019                                               13,572     4,752    18,324 
                                                             ------------  --------  -------- 
 
 
 

The translation reserve arises on consolidation of the Group'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.

 
 Segment information 
 (a) Operating segments 
 The Group segments its business activities on the basis of differences in the products and 
 services offered and, for general insurance, the underwriting territory. Expenses relating 
 to Group management activities are included within 'Corporate costs'. This reflects the management 
 and internal Group reporting structure. 
 The activities of each operating segment are described below. 
 - General business 
     United Kingdom and Ireland 
     The Group's principal general insurance business operation is in the UK, where it operates 
      under the Ecclesiastical and Ansvar brands. The Group also operates an Ecclesiastical branch 
      in the Republic of Ireland underwriting general business across the whole of Ireland. 
 
     Australia 
     The Group has a wholly-owned subsidiary in Australia underwriting general insurance business 
      under the Ansvar brand. 
 
     Canada 
     The Group operates a general insurance Ecclesiastical branch in Canada. 
 
     Other insurance operations 
     This includes the Group's internal reinsurance function, adverse development cover and operations 
      that are in run-off or not reportable due to their immateriality. 
 
 - Investment management 
     The Group provides investment management services both internally and to third parties through 
      EdenTree Investment Management Limited. 
 
 - Broking and Advisory 
     The Group provides insurance broking through SEIB Insurance Brokers Limited, financial advisory 
      services through Ecclesiastical Financial Advisory Services Limited and risk advisory services 
      through Ansvar Risk Management Services Pty Limited which operates in Australia. 
 
 - Life business 
     Ecclesiastical Life Limited provides long-term insurance policies to support funeral planning 
      products. It is closed to new business. 
 
 - Corporate costs 
     This includes costs associated with Group management activities. 
 
 
 

Inter-segment and inter-territory transfers or transactions are entered into under normal commercial terms and conditions that would also be available to unrelated third parties.

The accounting policies of the operating segments are the same as the Group's accounting policies described in note 1 to the full financial statements, with the exception of the investment management and broking and advisory segments. These segments do not qualify for the temporary exemption from IFRS 9 available to insurers and as a result have adopted IFRS 9. Consequently, their accounting policies for financial instruments may differ, but all other accounting policies are the same as the Group.

Segment revenue

The Group uses gross written premiums as the measure for turnover of the general and life insurance business segments. Turnover of the non-insurance segments comprises fees and commissions earned in relation to services provided by the Group to third parties. Segment revenues do not include net investment return or general business fee and commission income, which are reported within revenue in the consolidated statement of profit or loss.

Revenue is attributed to the geographical region in which the customer is based.

 
                                              2020                              2019 
                                    Gross        Non-                 Gross        Non- 
                                  written   insurance               written   insurance 
                                 premiums    services      Total   premiums    services      Total 
                                   GBP000      GBP000     GBP000     GBP000      GBP000     GBP000 
 General business 
   United Kingdom and Ireland     276,618           -    276,618    257,135           -    257,135 
   Australia                       80,178           -     80,178     68,857           -     68,857 
   Canada                          75,953           -     75,953     64,457           -     64,457 
   Other insurance operations       4,538           -      4,538      3,516           -      3,516 
 Total                            437,287           -    437,287    393,965           -    393,965 
 Life business                         12           -         12       (13)           -       (13) 
 Investment management                  -      12,382     12,382          -      12,795     12,795 
 Broking and Advisory                   -       9,458      9,458          -       9,078      9,078 
 Group revenue                    437,299      21,840    459,139    393,952      21,873    415,825 
                                ---------  ----------  ---------  ---------  ----------  --------- 
 
 Group revenues are not materially concentrated on any single external customer. 
 

Segment result

General business segment results comprise the insurance underwriting profit or loss, investment activities and other expenses of each underwriting territory. The Group uses the industry standard net combined operating ratio (COR) as a measure of underwriting efficiency. The COR expresses the total of net claims costs, commission and underwriting expenses as a percentage of net earned premiums. Further details on the underwriting profit or loss and COR, which are alternative performance measures that are not defined under IFRS, are detailed in the Reconciliation of Alternative Performance Measures note to this announcement.

The life business segment result comprises the profit or loss on insurance contracts (including return on assets backing liabilities in the long-term fund), shareholder investment return and other expenses.

All other segment results consist of the profit or loss before tax measured in accordance with IFRS.

 
 2020                             Combined 
                                 operating   Insurance   Investments      Other      Total 
                                     ratio      GBP000        GBP000     GBP000     GBP000 
 General business 
   United Kingdom and Ireland        92.5%      12,254      (12,123)      (479)      (348) 
   Australia                        102.2%       (620)         1,678       (31)      1,027 
   Canada                            91.2%       4,521         3,003      (176)      7,348 
   Other insurance operations                  (4,103)             -          -    (4,103) 
                                     95.1%      12,052       (7,442)      (686)      3,924 
 Life business                                     468            29          -        497 
 Investment management                               -             -    (1,031)    (1,031) 
 Broking and Advisory                                -             -      2,397      2,397 
 Corporate costs                                     -             -   (21,533)   (21,533) 
 Profit/(loss) before tax                       12,520       (7,413)   (20,853)   (15,746) 
                                            ----------  ------------  ---------  --------- 
 
 
 2019                             Combined 
                                 operating   Insurance   Investments      Other      Total 
                                     ratio      GBP000        GBP000     GBP000     GBP000 
 General business 
   United Kingdom and Ireland        86.8%      20,412        59,433      (292)     79,553 
   Australia                        114.1%     (3,246)         1,815       (65)    (1,496) 
   Canada                            95.1%       2,218         1,805      (174)      3,849 
   Other insurance operations                      634             -          -        634 
                                     91.1%      20,018        63,053      (531)     82,540 
 Life business                                     335         6,486          -      6,821 
 Investment management                               -             -      (310)      (310) 
 Broking and Advisory                                -             -      2,062      2,062 
 Corporate costs                                     -             -   (17,850)   (17,850) 
 Profit/(loss) before tax                       20,353        69,539   (16,629)     73,263 
                                            ----------  ------------  ---------  --------- 
 

(b) Geographical information

Gross written premiums from external customers and non-current assets, as attributed to individual countries in which the Group operates, are as follows:

 
                                        2020                     2019 
                                  Gross                    Gross 
                                written   Non-current    written   Non-current 
                               premiums        assets   premiums        assets 
                                 GBP000        GBP000     GBP000        GBP000 
 
 United Kingdom and Ireland     281,168       276,236    260,638       235,859 
 Australia                       80,178         6,114     68,857         4,348 
 Canada                          75,953         6,946     64,457         8,272 
                                437,299       289,296    393,952       248,479 
                              ---------  ------------  ---------  ------------ 
 
 

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.

Reconciliation of Alternative Performance Measures

The Group uses alternative performance measures (APM) in addition to the figures which are prepared in accordance with IFRS. The financial measures included in our key performance indicators: regulatory capital, combined operating ratio (COR), net expense ratio (NER) and net inflows are APM. These measures are commonly used in the industries the Group operates in and are considered to provide useful information and enhance the understanding of the results.

Users of the accounts should be aware that similarly titled APM reported by other companies may be calculated differently. For that reason, the comparability of APM across companies might be limited.

In line with the European Securities and Markets Authority guidelines, we provide a reconciliation of the COR and NER to its most directly reconcilable line item in the financial statements. Regulatory capital and net inflows to funds managed by Ecclesiastical Insurance Office plc's subsidiary, EdenTree Investment Management Limited, do not have an IFRS equivalent. Net inflows are the difference between the funds invested (gross inflows) less funds withdrawn (redemptions) during the year by third parties in a range of funds EdenTree Investment Management Limited offers. Regulatory capital is covered in more detail in section (i) of the Financial Risk and Capital Management note to this announcement.

 
 
 
                                                                       2020 
                                                                              Broking 
                                                        Inv'mnt    Inv'mnt        and      Corporate 
                                       Insurance         return       mngt   Advisory          costs       Total 
                                  ------------------- 
                                     General     Life 
                                      GBP000   GBP000    GBP000     GBP000     GBP000         GBP000      GBP000 
 Revenue 
 Gross written premiums              437,287       12         -          -          -              -     437,299 
 Outward reinsurance 
  premiums                         (173,074)        -         -          -          -              -   (173,074) 
 Net change in provision 
  for unearned premiums             (16,562)        -         -          -          -              -    (16,562) 
 Net earned premiums         [1]     247,651       12         -          -          -              -     247,663 
                                  ----------  -------  --------  ---------  ---------  -------------  ---------- 
 
 Fee and commission 
  income                     [2]      47,742        -         -     12,382      9,458              -      69,582 
 Other operating income                2,126        -         -          -          -              -       2,126 
 Net investment return                     -    (484)   (4,600)       (25)        811              -     (4,298) 
 Total revenue                       297,519    (472)   (4,600)     12,357     10,269              -     315,073 
                                  ----------  -------  --------  ---------  ---------  -------------  ---------- 
 
 
 Expenses 
 Claims and change in 
  insurance liabilities            (224,127)    1,333         -          -          -              -   (222,794) 
 Reinsurance recoveries               94,581        -         -          -          -              -      94,581 
 Fees, commissions and 
  other acquisition costs    [3]    (84,852)     (13)         -      (939)        360              -    (85,444) 
 Other operating and 
  administrative expenses    [4]    (71,069)    (380)   (2,813)   (12,449)    (8,149)   [5] (21,533)   (116,393) 
 Total operating expenses          (285,467)      940   (2,813)   (13,388)    (7,789)       (21,533)   (330,050) 
                                  ----------  -------  --------  ---------  ---------  -------------  ---------- 
 
 
 Operating profit            [6]      12,052      468   (7,413)    (1,031)      2,480       (21,533)    (14,977) 
 Finance costs                         (686)        -         -          -       (83)              -       (769) 
 Profit before tax                    11,366      468   (7,413)    (1,031)      2,397       (21,533)    (15,746) 
                                  ----------  -------  --------  ---------  ---------  -------------  ---------- 
 
 
 Underwriting profit         [6]      12,052 
 
 Combined operating ratio              95.1% 
 
 Net expenses ( = 
  [2]+[3]+[4]+[5] )          [7]   (129,712) 
 
 Net expense ratio                       52% 
 

The underwriting profit of the Group is defined as the operating profit of the general insurance business.

The Group uses the industry standard net COR as a measure of underwriting efficiency. The COR expresses the total of net claims costs, commission and underwriting expenses as a percentage of net earned premiums. It is calculated as ( [1] - [6] ) / [1] ).

The NER expresses total underwriting and corporate expenses as a proportion of net earned premiums. It is calculated as - [7] / [1].

 
 
 
                                                                               2019 
                                                                                       Broking 
                                                                 Inv'mnt    Inv'mnt        and   Corporate 
                                                Insurance         return       mngt   Advisory       costs       Total 
                                           ------------------- 
                                              General     Life 
                                               GBP000   GBP000    GBP000     GBP000     GBP000      GBP000      GBP000 
 Revenue 
 Gross written premiums                       393,965     (13)         -          -          -           -     393,952 
 Outward reinsurance premiums               (152,886)        -         -          -          -           -   (152,886) 
 Net change in provision for 
  unearned premiums                          (15,080)        -         -          -          -           -    (15,080) 
                                                                                                ---------- 
 Net earned premiums                  [1]     225,999     (13)         -          -          -           -     225,986 
                                           ----------  -------  --------  ---------  ---------  ----------  ---------- 
 
 Fee and commission income            [2]      49,368        -         -     12,795      9,077           -      71,240 
 Other operating income                           544        -         -          -          -           -         544 
 Net investment return                              -      989    72,596         19        834           -      74,438 
                                           ----------  -------  --------  ---------  ---------  ----------  ---------- 
 Total revenue                                275,911      976    72,596     12,814      9,911           -     372,208 
                                           ----------  -------  --------  ---------  ---------  ----------  ---------- 
                                                             -         -                     - 
 
 Expenses 
 Claims and change in insurance 
  liabilities                               (157,481)    (327)         -          -          -           -   (157,808) 
 Reinsurance recoveries                        52,800        -         -          -          -           -      52,800 
 Fees, commissions and other 
  acquisition costs                   [3]    (72,383)     (14)         -      (819)        476           -    (72,740) 
 Other operating and                                                                                   [5] 
  administrative expenses             [4]    (78,829)    (300)   (3,057)   (12,305)    (8,236)    (17,850)   (120,577) 
                                                                                                ---------- 
 Total operating expenses                   (255,893)    (641)   (3,057)   (13,124)    (7,760)    (17,850)   (298,325) 
                                           ----------  -------  --------  ---------  ---------  ----------  ---------- 
 
 
 Operating profit                     [6]      20,018      335    69,539      (310)      2,151    (17,850)      73,883 
 Finance costs                                  (531)        -         -          -       (89)           -       (620) 
 Profit before tax                             19,487      335    69,539      (310)      2,062    (17,850)      73,263 
                                           ----------  -------  --------  ---------  ---------  ----------  ---------- 
 
 
 Underwriting profit                  [6]      20,018 
 
 Combined operating ratio                       91.1% 
 
 Net expenses ( = [2]+[3]+[4]+[5] 
  )                                   [7]   (119,694) 
 
 Net expense ratio                                53% 
 
 

Related party transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation.

Charitable grants paid to the ultimate parent undertaking are disclosed in note 15 to the full financial statements.

Full disclosure of related party transactions is included in note 35 to the full financial statements.

Events after the balance sheet date

In February 2021 the Company raised EUR 30m in nominal amount of Tier 2 Capital by way of a privately-placed issue of 20-year subordinated bonds, callable after year 10. The rate of interest until the call date is fixed at 6.3144%.

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March 19, 2021 03:00 ET (07:00 GMT)

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