TIDMELLA

RNS Number : 0366X

Ecclesiastical Insurance Office PLC

25 August 2015

ECCLESIASTICAL INSURANCE OFFICE PLC

HALF-YEARLY FINANCIAL REPORT FOR THE PERIOD ENDED 30 JUNE 2015

INTERIM MANAGEMENT REPORT

In our annual report and accounts we set out the transformation of performance delivered in 2014, and our intention to build on that success in 2015. Our vision and strategic aims outlined in that report are underpinned by the on-going delivery of our clear and consistent business plans and ambitious Group-wide change programme.

I am pleased to report continued success in the first half of 2015. We have seen strong underwriting performance across all our business units and profit before tax in the first half of the year was GBP35.3m, which exceeded our expectations.

Achieving growth has been challenging as all our markets remain very competitive. In the UK and Ireland another year of benign weather has meant very good underwriting results for property insurers, but has also put rates under pressure. Faced with these market conditions we have maintained our disciplined approach to underwriting and, combined with the final stages of reshaping our portfolio during 2014, this has meant that gross written premium (GWP) fell GBP10.5m to GBP153.9m at the half-year. Our underwriting profit was GBP14.3m (H1 2014: GBP3.8m), with a combined operating ratio (COR) of 85.8% (H1 2014: 96.7%).

Strong half-year results mean we are able to pay a further substantial charitable grant to our owner, Allchurches Trust. A grant of GBP15m will be paid in early September which will take our total charitable giving since the start of 2014 to GBP40.3m, well on track to reach our key strategic goal of donating GBP50m to charity over the three years to the end of 2016.

Most trusted specialist insurer

UK and Ireland

The actions we took during 2013 and 2014 to address losses in our liability business have delivered the anticipated step change in performance; half-year underwriting profits for liability are higher than anticipated. Performance of the property portfolio has also exceeded expectations, largely due to the very benign weather. Our UK and Ireland business delivered an overall underwriting profit of GBP13.8m and a COR of 81.9% (H1 2014: GBP3.9m profit, COR 95.7%).

The completion of our exit from the non-charity care segment and finalisation of other actions taken to improve profitability in our liability business mean premiums are below this time last year. GWP was GBP115.0m in the six months to 30 June 2015 (H1 2014: GBP124.7m).

Australia

Our business in Australia has continued to deliver improved performance, returning to an underwriting profit for the first time since the catastrophe events of 2010 and 2011. The Australian portfolio achieved an underwriting profit of GBP0.1m and a COR of 98.3% (H1 2014: GBP0.6m loss, COR 106.6%).

Canada

The start of the year was challenging with severe weather events, and one of the coldest Canadian winters on record, significantly affecting property business. Despite this, our Canadian business has continued to deliver stable underwriting performance reporting a half-year underwriting profit of GBP0.5m and a COR of 96.9% (H1 2014: GBP0.6m profit, COR 95.5%). GWP has increased 12% (8% after exchange rate movements) to GBP17.6m as a result of strong premium retention and on-target new business wins.

Investment return

Geopolitical uncertainty and low levels of growth continue to contribute to volatility in equity markets and low bond yields respectively. We continue to maintain an equity portfolio diversified both by geography and market sector to reduce our level of exposure to equity price volatility. Our approach to management of risks resulting from the Group's exposure to financial markets is outlined in note 4 to our latest annual report.

With our conservative bond portfolio and relatively high exposure to equity markets, our investment performance for the first six months has been in line with expectations. The investment return on our general insurance funds was GBP18.1m (H1 2014: GBP11.5m).

Best ethical investment provider

Our investment management division has had an exciting and successful start to the year. A significant milestone was reached in its growth and development with a successful rebrand of the business as EdenTree Investment Management.

Building on a long and successful past, the decision to rebrand was based on a desire to reach a wider audience and to firmly establish EdenTree as the responsible investment choice for advisers and their clients. Supporting the new brand was the launch of a new EdenTree website, digital advertising, use of social media and national outdoor advertising. The team also delivered a new front office IT platform to support investment trading and compliance activities.

Against challenging investment markets, net inflows of GBP42m were 31% ahead of the same period last year and assets under management in our pooled funds increased by 6% in the first six months of the year, with total assets under management reaching GBP2.4bn. EdenTree reported a profit of GBP1.6m (H1 2014: GBP2.1m profit), the decrease from 2014 reflecting the investment we have made in the business in the first half of the year.

Most trusted specialist adviser

SEIB Insurance Brokers had a challenging start to the year but continues to provide a stable flow of income for the Group, returning a profit before tax of GBP1.3m (H1 2014: GBP1.4m).

Our team of fully independent advisers, Ecclesiastical Financial Advisory Services (EFAS), continue to review and refine their offering to the Anglican clergy. Following the successful sale of its small mortgage portfolio at the start of the year, the business reported a small half-year loss of GBP0.2m (H1 2014: GBPnil).

Life business

Ecclesiastical Life Limited reported a profit before tax of GBP0.2m at the half year (H1 2014: GBP0.4m) following the decision in 2013 to cease writing new funeral plan business. This is in line with our expectations that modest profits will emerge as the existing book runs off.

Related party transactions

Related party transactions and changes to them since the last annual report are disclosed in note 8 to the condensed set of financial statements. The latest annual report is available from the registered office and at

www.ecclesiastical.com/general/investorrelations/reportandaccounts.

Principal risks and uncertainties

The principal risks and uncertainties that could have a material impact on the Group's performance, such that actual results differ from expected and historical results, are detailed in note 1 to the condensed set of financial statements. The principal risks and uncertainties that were disclosed in the Risk Management section of the Strategic Report and notes 3 and 4 to our latest annual report still apply.

Going concern

The Group has considerable financial resources: financial investments of GBP868.6m, 97% of which are liquid (H1 2014: financial investments of GBP912.2m, 97% liquid); cash and cash equivalents of GBP98.2m and no borrowings (H1 2014: cash and cash equivalents of GBP89.8m and no borrowings); and a regulatory enhanced capital cover of 3.2 (H1 2014: 2.6). As a consequence, the Directors have a reasonable expectation that the Group is well-placed to manage its business risks successfully and continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the half-yearly financial report.

There have been no material subsequent events to disclose in this report.

Outlook

We have had a successful start to the year and are very pleased with the continuing consistent financial performance across all our business units.

We operate in a challenging commercial environment, and we expect the current tough conditions to continue for all our businesses into 2016. We will continue to balance our desire for moderate, profitable growth over the coming years with the need to manage our exposure to risk, particularly when we believe prices are at unrealistic levels. We have plenty of room for profitable growth in our chosen specialist niches where we can demonstrate our expertise and deliver superior customer service, but we will not write business at any price and jeopardise our future success or sustainability.

We have a clear strategy and the resources, skills and desire to deliver it. I remain confident that we can continue to make a real difference to the lives of people in the markets and communities in which we operate.

I thank our employees, our customers and our business partners for their ongoing loyalty and support as we continue towards our goal of giving GBP50m to charity over three years, working together for the greater good.

Mark Hews

Group Chief Executive

RESPONSIBILITY STATEMENT

We confirm that to the best of our knowledge:

(a) the condensed set of financial statements has been prepared in accordance with IAS 34, 'Interim Financial Reporting' and gives a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation as a whole;

(b) the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

(c) the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

The Board of Directors is as per the latest audited annual financial statements.

By order of the Board,

   Mark Hews                                                                        Will Samuel 
   Group Chief Executive                                                      Chairman 

25 August 2015

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS

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For the 6 months to 30 June 2015

 
                                                                                  30.06.15    30.06.14    31.12.14 
                                                                                  6 months    6 months   12 months 
                                                                                    GBP000      GBP000      GBP000 
 Revenue 
 Gross written premiums                                                            153,924     164,473     328,797 
 Outward reinsurance premiums                                                     (56,065)    (74,765)   (135,132) 
 Net change in provision for unearned premium                                        2,824      26,964      31,178 
                                                                                ----------  ----------  ---------- 
 Net earned premiums                                                               100,683     116,672     224,843 
                                                                                ----------  ----------  ---------- 
 
 Fee and commission income                                                          29,828      28,565      62,258 
 Net investment return                                                              21,642      16,844      46,197 
                                                                                ----------  ----------  ---------- 
 Total revenue                                                                     152,153     162,081     333,298 
                                                                                ----------  ----------  ---------- 
 
 Expenses 
 Claims and change in insurance liabilities                                       (63,394)   (110,072)   (197,170) 
 Reinsurance recoveries                                                             17,208      40,577      62,306 
 Fees, commissions and other acquisition costs                                    (31,844)    (35,860)    (70,813) 
 Other operating and administrative expenses                                      (38,777)    (38,236)    (79,381) 
                                                                                ----------  ----------  ---------- 
 Total operating expenses                                                        (116,807)   (143,591)   (285,058) 
                                                                                ----------  ----------  ---------- 
 
 Operating profit                                                                   35,346      18,490      48,240 
 Finance costs                                                                        (57)        (48)        (86) 
                                                                                ----------  ----------  ---------- 
 Profit before tax                                                                  35,289      18,442      48,154 
 Tax expense                                                                       (6,150)     (3,252)     (7,837) 
                                                                                ----------  ----------  ---------- 
 Profit for the financial period attributable to equity holders of the Parent       29,139      15,190      40,317 
                                                                                ----------  ----------  ---------- 
 

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the 6 months to 30 June 2015

 
                                                                            30.06.15   30.06.14    31.12.14 
                                                                            6 months   6 months   12 months 
                                                                              GBP000     GBP000      GBP000 
 
 Profit for the period                                                        29,139     15,190      40,317 
                                                                           ---------  ---------  ---------- 
 
 Other comprehensive income 
 Items that will not be reclassified to profit or loss: 
 Fair value gains on property                                                      -          -          30 
 Actuarial losses on retirement benefit plans                               (11,239)   (10,226)    (13,184) 
 Attributable tax                                                              2,264      2,045       2,647 
                                                                           ---------  ---------  ---------- 
                                                                             (8,975)    (8,181)    (10,507) 
 Items that may be reclassified subsequently to profit or loss: 
 (Losses)/gains on currency translation differences                          (5,059)         60     (1,697) 
                                                                           ---------  ---------  ---------- 
 Net other comprehensive income                                             (14,034)    (8,121)    (12,204) 
                                                                           ---------  ---------  ---------- 
 Total comprehensive income attributable to equity holders of the Parent      15,105      7,069      28,113 
                                                                           ---------  ---------  ---------- 
 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the 6 months to 30 June 2015

 
                            Share     Share   Equalisation   Revaluation   Translation   Retained 
                          capital   premium        reserve       reserve       reserve   earnings      Total 
                           GBP000    GBP000         GBP000        GBP000        GBP000     GBP000     GBP000 
 2015 
 At 1 January             120,477     4,632         25,299           541        12,643    331,041    494,633 
 Profit for the period          -         -              -             -             -     29,139     29,139 
 Other net expense              -         -              -             -       (5,059)    (8,975)   (14,034) 
                        ---------  --------  -------------  ------------  ------------  ---------  --------- 
 Total comprehensive 
  income                        -         -              -             -       (5,059)     20,164     15,105 
 Dividends                      -         -              -             -             -    (4,591)    (4,591) 
 Reserve transfers              -         -          (349)          (97)             -        446          - 
                        ---------  --------  -------------  ------------  ------------  ---------  --------- 
 At 30 June               120,477     4,632         24,950           444         7,584    347,060    505,147 
                        ---------  --------  -------------  ------------  ------------  ---------  --------- 
 
 2014 
 At 1 January             120,477     4,632         25,837           700        14,340    328,157    494,143 
 Profit for the period          -         -              -             -             -     15,190     15,190 
 Other net 
  income/(expense)              -         -              -             -            60    (8,181)    (8,121) 
                        ---------  --------  -------------  ------------  ------------  ---------  --------- 
 Total comprehensive 
  income                        -         -              -             -            60      7,009      7,069 
 Dividends                      -         -              -             -             -    (4,591)    (4,591) 
 Gross charitable 
  grant                         -         -              -             -             -    (8,500)    (8,500) 
 Tax relief on 
  charitable grant              -         -              -             -             -      1,827      1,827 
 Reserve transfers              -         -          (396)         (136)             -        532          - 
                        ---------  --------  -------------  ------------  ------------  ---------  --------- 
 At 30 June               120,477     4,632         25,441           564        14,400    324,434    489,948 
 
 2014 
 At 1 January             120,477     4,632         25,837           700        14,340    328,157    494,143 
 Profit for the year            -         -              -             -             -     40,317     40,317 
 Other net 
  income/(expense)              -         -              -            40       (1,697)   (10,547)   (12,204) 
                        ---------  --------  -------------  ------------  ------------  ---------  --------- 
 Total comprehensive 
  income                        -         -              -            40       (1,697)     29,770     28,113 
 Dividends                      -         -              -             -             -    (9,181)    (9,181) 
 Gross charitable 
  grant                         -         -              -             -             -   (23,500)   (23,500) 
 Tax relief on 
  charitable grant              -         -              -             -             -      5,053      5,053 
 Group tax relief in 
  excess of standard 
  rate                          -         -              -             -             -          5          5 
 Reserve transfers              -         -          (538)         (199)             -        737          - 
                        ---------  --------  -------------  ------------  ------------  ---------  --------- 
 At 31 December           120,477     4,632         25,299           541        12,643    331,041    494,633 
 
 
 The equalisation reserve is not distributable and must be kept in compliance with the insurance 
  companies' reserves regulations. The revaluation reserve represents cumulative net fair value 
  gains on owner-occupied property. The translation reserve arises on consolidation of the Group's 
  foreign operations. 
 

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

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At 30 June 2015

 
                                                 30.06.15     30.06.14     31.12.14 
                                                   GBP000       GBP000       GBP000 
 Assets 
 Goodwill and other intangible assets              29,351       29,126       28,998 
 Deferred acquisition costs                        27,074       29,665       31,117 
 Deferred tax assets                                1,199        2,398        1,295 
 Pension assets                                     9,572       23,466       21,068 
 Property, plant and equipment                      7,139        6,559        6,405 
 Investment property                               83,013       60,779       69,775 
 Financial investments                            868,595      912,216      886,186 
 Reinsurers' share of contract liabilities        141,523      157,952      157,465 
 Current tax recoverable                                -           12            - 
 Other assets                                     137,468      137,101      119,394 
 Cash and cash equivalents                         98,210       89,772      107,526 
 Current assets classified as held for sale             -            -        6,204 
 Total assets                                   1,403,144    1,449,046    1,435,433 
                                              -----------  -----------  ----------- 
 
 Equity 
 Share capital                                    120,477      120,477      120,477 
 Share premium account                              4,632        4,632        4,632 
 Retained earnings and other reserves             380,038      364,839      369,524 
                                              -----------  -----------  ----------- 
 Total shareholders' equity                       505,147      489,948      494,633 
                                              -----------  -----------  ----------- 
 
 Liabilities 
 Insurance contract liabilities                   773,024      835,822      820,328 
 Finance lease obligations                          1,360        1,410        1,259 
 Provisions for other liabilities                   1,826        4,928        3,588 
 Pension liabilities                                  282            -          250 
 Retirement benefit obligations                    12,697       12,729       12,547 
 Deferred tax liabilities                          35,310       37,297       36,014 
 Current tax liabilities                            6,174        4,264        5,767 
 Deferred income                                   15,394       16,909       16,432 
 Other liabilities                                 51,930       45,739       44,615 
                                              -----------  -----------  ----------- 
 Total liabilities                                897,997      959,098      940,800 
                                              -----------  -----------  ----------- 
 
 Total shareholders' equity and liabilities     1,403,144    1,449,046    1,435,433 
                                              -----------  -----------  ----------- 
 

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the 6 months to 30 June 2015

 
                                                                                   30.06.15   30.06.14    31.12.14 
                                                                                   6 months   6 months   12 months 
                                                                                     GBP000     GBP000      GBP000 
 
 Profit before tax                                                                   35,289     18,442      48,154 
 Adjustments for: 
 Depreciation of property, plant and equipment                                          825        871       1,638 
 Revaluation of property, plant and equipment                                          (25)          -           - 
 Loss/(profit) on disposal of property, plant and equipment                             223      (113)        (32) 
 Amortisation of intangible assets                                                      563        886       1,751 
 Loss on disposal of intangible assets                                                    -          -          19 
 Net fair value (gains)/losses on financial instruments and investment property     (5,704)        689     (8,918) 
 Dividend and interest income                                                      (13,330)   (16,897)    (34,709) 
 Finance costs                                                                           57         48          86 
 
 Changes in operating assets and liabilities: 
 Net decrease in insurance contract liabilities                                    (33,719)   (11,576)    (21,413) 
 Net decrease/(increase) in reinsurers' share of contract liabilities                12,288   (25,272)    (26,814) 
 Net decrease in deferred acquisition costs                                           3,279      4,972       3,327 
 Net (increase)/decrease in other assets                                           (17,780)   (13,045)       3,792 
 Net increase in operating liabilities                                                7,444      9,781       8,814 
 Net decrease in other liabilities                                                  (1,718)    (1,575)     (3,498) 
                                                                                  ---------  ---------  ---------- 
 Cash used by operations                                                           (12,308)   (32,789)    (27,803) 
 
 Dividends received                                                                   3,654      3,706       8,624 
 Interest received                                                                   11,446     13,284      26,889 
 Interest paid                                                                         (57)       (48)        (86) 
 Tax (paid)/recovered                                                               (4,129)        641       1,127 
                                                                                  ---------  ---------  ---------- 
 Net cash (used by)/from operating activities                                       (1,394)   (15,206)       8,751 
                                                                                  ---------  ---------  ---------- 
 
 Cash flows from investing activities 
 Purchases of property, plant and equipment                                         (1,534)      (592)     (1,369) 
 Proceeds from the sale of property, plant and equipment                                  6        562         677 
 Purchases of intangible assets                                                     (1,087)      (772)     (1,548) 
 Acquisition of business                                                                  -    (5,000)     (5,000) 
 Disposal of business                                                                 5,260          -           - 
 Purchases of financial instruments and investment property                        (58,675)   (80,448)   (152,899) 
 Sale of financial instruments and investment property                               56,377     97,241     185,401 
 Net cash from investing activities                                                     347     10,991      25,262 
                                                                                  ---------  ---------  ---------- 
 
 Cash flows from financing activities 
 Payment of finance lease liabilities                                                 (163)      (195)       (359) 
 Payment of group tax relief in excess of standard rate                                   -          -        (15) 
 Dividends paid to Company's shareholders                                           (4,591)    (4,591)     (9,181) 
 Donations paid to ultimate parent undertaking                                            -    (8,500)    (23,500) 
 Net cash used by financing activities                                              (4,754)   (13,286)    (33,055) 
                                                                                  ---------  ---------  ---------- 
 
 Net (decrease)/increase in cash and cash equivalents                               (5,801)   (17,501)         958 
 Cash and cash equivalents at the beginning of the period                           107,526    107,241     107,241 
 Exchange (losses)/gains on cash and cash equivalents                               (3,515)         32       (673) 
                                                                                  ---------  ---------  ---------- 
 Cash and cash equivalents at the end of the period                                  98,210     89,772     107,526 
                                                                                  ---------  ---------  ---------- 
 

NOTES TO THE HALF-YEARLY FINANCIAL REPORT FOR THE PERIOD ENDED 30 JUNE 2015

1. General information

The information for the year ended 31 December 2014 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor reported on those accounts: its report was unqualified, did not draw attention to any matters by way of emphasis without qualifying the report, and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

The half-yearly financial report was approved by the Board on 25 August 2015. The Group results for the six-month periods to 30 June 2015 and 30 June 2014 are unaudited, but have been reviewed by Deloitte LLP whose review report is at the end of this report.

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The principal risks and uncertainties of the Group are in respect of insurance risk and financial risk. 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. The Group's underwriting strategy is designed to ensure that the underwritten risks are well diversified in terms of type and amount of risk and geographical spread. In all operations pricing controls are in place, underpinned by sound statistical analysis, market expertise and appropriate external consultant advice. Gross and net underwriting exposure is protected through the use of a comprehensive programme of reinsurance using both proportional and non-proportional reinsurance, and is supported by proactive claims handling and customer education on risk management. The overall reinsurance structure is regularly reviewed and modelled to ensure that it remains optimum to our needs. The optimum reinsurance structure can best be described as the one that provides us with sustainable, long-term capacity to support our specialist business strategy. This combines effective balance sheet protection with, over time, the required underwriting result and return on capital.

The most important components of financial risk are interest rate risk, credit risk, currency risk and equity price risk. The Group is exposed to equity price risk because of financial investments held by the Group and 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, from time to time, through the use of derivative contracts which would limit losses in the event of a fall in equity markets. These principal risks and uncertainties, together with details of the financial risk management objectives and policies of the Group, are disclosed in the latest annual report.

The Group derives insurance premiums from a range of geographical locations and classes of business. Depending on the location and class of the risk, there may be a seasonal pattern to the incidence of claims. However, given the mix of business that the Group writes, overall the half-yearly results are not subject to any significant impact arising from the seasonality or cyclicality of operations.

The Group has considerable financial resources and, as a consequence, the Directors have a reasonable expectation that the Group is well placed to manage its business risks successfully and continue in operational existence for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the half-yearly financial report.

2. Accounting policies

Ecclesiastical Insurance Office plc (hereafter referred to as the "Company"), a public limited company incorporated and domiciled in England, together with its subsidiaries (collectively the "Group") operates principally as a provider of general insurance and in addition offers a range of financial services, with offices in the UK and Ireland, Australia and Canada.

The annual financial statements are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34, Interim Financial Reporting.

The same accounting policies and methods of computation are followed in the condensed set of financial statements as applied in the Group's latest audited annual financial statements.

There have been no newly issued Standards or changes to existing Standards during the interim period which significantly impact on the condensed set of financial statements.

3. Segment information

The Group segments its business activities on the basis of differences in the products and services offered and, for general insurance, the underwriting territory. Expenses relating to Group management activities are included within 'Corporate costs'. This reflects the management and internal Group reporting structure. Group activities that are not reportable operating segments on the basis of size are included within an 'Other activities' category. Changes have been made to segments during 2015 as follows:

- The United Kingdom and Ireland segments have been combined on the basis of their similar economic characteristics, products and customer base

- Corporate costs which were previously included in 'Central operations' have been identified as a discrete segment and the definition of corporate costs has been widened during the period

   -     The 'Central operations' segment has been renamed 'Other insurance operations' 

The prior period has been restated to the revised basis.

The activities of each operating segment are described below.

 
 - General business 
     United Kingdom and Ireland 
     The Group's principal general insurance business operation is in the UK, where it operates 
      under the Ecclesiastical and Ansvar brands. The Group also operates an Ecclesiastical branch 
      in the Republic of Ireland underwriting general business across the whole of Ireland. 
 
     Australia 
     The Group has a wholly-owned subsidiary in Australia underwriting general insurance business 
      under the Ansvar brand. 
 
     Canada 
     The Group operates a general insurance Ecclesiastical branch in Canada. 
 
     Other insurance operations 
     This includes the Group's internal reinsurance function, corporate underwriting costs, adverse 
      development cover sold to ACS (NZ) Limited and operations that are in run-off or not reportable 
      due to their immateriality. 
 
 - Investment management 
     The Group provides investment management services both internally and to third parties through 
      EdenTree Investment Management Limited. 
 
 - Broking and Advisory 
     The Group provides insurance broking through South Essex Insurance Brokers Limited and financial 
      advisory services through Ecclesiastical Financial Advisory Services Limited. 
 
 - Life business 
     Ecclesiastical Life Limited provides long-term insurance policies to support funeral planning 
      products. It is closed to new business. 
 
 - Corporate costs 
      This includes costs associated with Group management activities. 
 
 - Other activities 
     This includes costs relating to acquisition of businesses. 
 
 Inter-segment and inter-territory transfers or transactions are entered into under normal 
 commercial terms and conditions that would also be available to unrelated third parties. 
 

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.

Group revenues are not materially concentrated on any single external customer.

 
                                                                             (restated) 
                                         6 months ended                    6 months ended 
                                            30.06.15                          30.06.14 
                                    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     114,956           -    114,956    124,666           -    124,666 
   Australia                       19,744           -     19,744     21,124           -     21,124 
   Canada                          17,634           -     17,634     16,300           -     16,300 
   Other insurance operations       1,524           -      1,524      2,283           -      2,283 
                                ---------  ----------  ---------  ---------  ----------  --------- 
 Total                            153,858           -    153,858    164,373           -    164,373 
 
 Life business                         66           -         66        100           -        100 
 Investment management                  -       5,837      5,837          -       6,256      6,256 
 Broking and Advisory                   -       4,847      4,847          -       4,926      4,926 
                                ---------  ----------  ---------  ---------  ----------  --------- 
 Group revenue                    153,924      10,684    164,608    164,473      11,182    175,655 
                                ---------  ----------  ---------  ---------  ----------  --------- 
 
                                                                             (restated) 
                                                                           12 months ended 
                                                                              31.12.14 
                                                                      Gross        Non- 
                                                                    written   insurance 
                                                                   premiums    services      Total 
                                                                     GBP000      GBP000     GBP000 
 General business 
   United Kingdom and Ireland                                       245,528           -    245,528 

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   Australia                                                         40,083           -     40,083 
   Canada                                                            39,365           -     39,365 
   Other insurance operations                                         3,654           -      3,654 
                                                                  ---------  ----------  --------- 
 Total                                                              328,630           -    328,630 
 
 Life business                                                          167           -        167 
 Investment management                                                    -      12,045     12,045 
 Broking and Advisory                                                     -       9,865      9,865 
                                                                  ---------  ----------  --------- 
 Group revenue                                                      328,797      21,910    350,707 
                                                                  ---------  ----------  --------- 
 

Segment result

General business segment results comprise the insurance underwriting profit or loss, investment activities and other expenses of each underwriting territory. The Group uses the industry standard net combined operating ratio (COR) as a measure of underwriting efficiency. The COR expresses the total of net claims costs, commission and underwriting expenses as a percentage of net earned premiums.

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

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

 
 6 months ended                   Combined 
 30 June 2015                    operating   Insurance   Investments     Other     Total 
                                     ratio      GBP000        GBP000    GBP000    GBP000 
 General business 
   United Kingdom and Ireland        81.9%      13,801        16,151       (2)    29,950 
   Australia                         98.3%         139         1,164      (49)     1,254 
   Canada                            96.9%         464           827         -     1,291 
   Other insurance operations                     (85)             -         -      (85) 
                                            ----------  ------------  --------  -------- 
                                     85.8%      14,319        18,142      (51)    32,410 
 
 Life business                                     181         2,170       (2)     2,349 
 Investment management                               -         1,596         -     1,596 
 Broking and Advisory                                -             -     1,085     1,085 
 Corporate costs                                     -             -   (2,151)   (2,151) 
                                            ----------  ------------  --------  -------- 
 Profit before tax                              14,500        21,908   (1,119)    35,289 
                                            ----------  ------------  --------  -------- 
 
 
 6 months ended                   Combined 
 30 June 2014 (restated)         operating   Insurance   Investments     Other     Total 
                                     ratio      GBP000        GBP000    GBP000    GBP000 
 General business 
   United Kingdom and Ireland        95.7%       3,921         6,784      (47)    10,658 
   Australia                        106.6%       (592)         3,824         -     3,232 
   Canada                            95.5%         627           895         -     1,522 
   Other insurance operations                    (145)             -         -     (145) 
                                            ----------  ------------  --------  -------- 
                                     96.7%       3,811        11,503      (47)    15,267 
 
 Life business                                     407           494       (2)       899 
 Investment management                               -         2,118         -     2,118 
 Broking and Advisory                                -             -     1,403     1,403 
 Corporate costs                                     -             -     (948)     (948) 
 Other activities                                    -             -     (297)     (297) 
                                            ----------  ------------  --------  -------- 
 Profit before tax                               4,218        14,115       109    18,442 
                                            ----------  ------------  --------  -------- 
 
 12 months ended                  Combined 
 31 December 2014 (restated)     operating   Insurance   Investments     Other     Total 
                                     ratio      GBP000        GBP000    GBP000    GBP000 
 General business 
   United Kingdom and Ireland        94.0%      10,359        23,648        70    34,077 
   Australia                        106.2%     (1,129)         7,619     (139)     6,351 
   Canada                            94.2%       1,662         1,598         -     3,260 
   Other insurance operations                    (172)             -         -     (172) 
                                            ----------  ------------  --------  -------- 
                                     95.2%      10,720        32,865      (69)    43,516 
 
 Life business                                   (178)         1,522       (4)     1,340 
 Investment management                               -         3,164         -     3,164 
 Broking and Advisory                                -             -     2,071     2,071 
 Corporate costs                                     -             -   (1,521)   (1,521) 
 Other activities                                    -             -     (416)     (416) 
                                            ----------  ------------  --------  -------- 
 Profit before tax                              10,542        37,551        61    48,154 
                                            ----------  ------------  --------  -------- 
 

4. Changes in estimates

The estimation of the ultimate liability arising from claims made under general insurance business contracts is a critical accounting estimate. There are various sources of uncertainty as to how much the Group will ultimately pay with respect to such contracts. There is uncertainty as to the total number of claims made on each class of business, the amounts that such claims will be settled for and the timing of any payments. During the six month period, changes to claims reserve estimates made in prior years as a result of reserve development resulted in a release of GBP7m (H1 2014: GBP17m).

5. Tax

Income tax for the six month period is calculated at rates representing the best estimate of the average annual effective income tax rate expected for the full year, applied to the pre-tax result of the six month period.

6. Dividends

Dividends paid on the 8.625% Non-Cumulative Irredeemable Preference shares amounted to GBP4.6m (H1 2014: GBP4.6m).

7. Retirement benefit schemes

On 30 June 2015, Ecclesiastical gave formal notice to the Trustees of the Ecclesiastical Insurance Office plc Pension & Life Assurance Scheme to wind-up the defined benefit pension scheme. The wind-up formally commenced on 1 July and is expected to complete by the end of the year. At 31 December 2014, the scheme had a surplus of GBP0.6m which was derecognised in the statement of financial position due to uncertainty over its recoverability. It is the intention of the Trustee to distribute some or all of the surplus to Ecclesiastical Insurance Office plc on wind-up.

8. Related party transactions

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

Charitable grants to the ultimate parent company are disclosed in the condensed consolidated statement of changes in equity.

There have been no other changes to related party transactions in the period which require disclosure.

9. Holding company

The ultimate holding company is Allchurches Trust Limited, a company limited by guarantee and a registered charity.

10. Financial instruments' fair value disclosures

IAS 34 requires that interim financial statements include certain of the disclosures about the fair value of financial instruments set out in IFRS 13, Fair Value Measurement and IFRS 7, Financial Instruments Disclosures.

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 prices (unadjusted) in active markets for identical assets or liabilities. This category includes listed equities in active markets, listed debt securities in active markets and exchange-traded derivatives.

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

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

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

 
                                             Fair value measurement 
                                                      at the 
                                              end of the reporting 
                                                 period based on 
                                          ---------------------------- 
                                              Level    Level     Level      Total 
                                                  1        2         3 
 30 June 2015                                GBP000   GBP000    GBP000     GBP000 
 Financial assets at fair value through 
  profit or loss 
 Financial investments 
   Equity securities                        282,147      208    20,417    302,772 
   Debt securities                          559,355    4,462       238    564,055 
   Derivatives                                    -    1,751         -      1,751 
                                            841,502    6,421    20,655    868,578 
                                          ---------  -------  --------  --------- 
 
 30 June 2014 
 Financial assets at fair value through 
  profit or loss 
 Financial investments 
   Equity securities                        269,114      201    20,927    290,242 
   Debt securities                          610,184    4,165       207    614,556 
                                          ---------  -------  --------  --------- 
                                            879,298    4,366    21,134    904,798 
                                          ---------  -------  --------  --------- 
 
 31 December 2014 
 Financial assets at fair value through 
  profit or loss 
 Financial investments 
   Equity securities                        269,347      209    20,349    289,905 
   Debt securities                          591,542    4,485       238    596,265 
                                            860,889    4,694    20,587    886,170 
                                          ---------  -------  --------  --------- 
 

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

 
                                                                             Financial assets at fair 
                                                                                       value 
                                                                              through profit or loss 
                                                                       ------------------------------------ 
                                                                            Equity         Debt 
                                                                        securities   securities       Total 
                                                                            GBP000       GBP000      GBP000 
 30 June 2015 
 Opening balance                                                            20,349          238      20,587 
 Total gains recognised in profit or loss                                       68            -          68 
 Closing balance                                                            20,417          238      20,655 
                                                                       -----------  -----------  ---------- 
 Total gains for the period included in profit 
  or loss for assets held at the end of the reporting 
  period                                                                        68            -          68 
 
 30 June 2014 
 Opening balance                                                            19,390          317      19,707 
 Total gains/(losses) recognised in profit or 
  loss                                                                       1,537        (110)       1,427 
 Closing balance                                                            20,927          207      21,134 
                                                                       -----------  -----------  ---------- 
 Total gains/(losses) for the period included 
  in profit or loss for assets held at the end 
  of the reporting period                                                    1,537        (110)       1,427 
 
 31 December 2014 
 Opening balance                                                            19,390          317      19,707 
 Total gains/(losses) recognised in profit or 
  loss                                                                         959         (79)         880 
 Closing balance                                                            20,349          238      20,587 
                                                                       -----------  -----------  ---------- 
 Total gains/(losses) for the period included 
  in profit or loss for assets held at the end 
  of the reporting period                                                      959         (79)         880 
                                                                       -----------  -----------  ---------- 
 
 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. Where material, these valuations are reviewed by the Group Audit Committee.

Non exchange-traded derivative contracts (Level 2)

The Group's derivative contracts are not traded in active markets. Foreign currency forward contracts are valued using observable forward exchange rates and interest rates corresponding to the maturity of the contract. Over-the-counter equity or index options and futures are valued by reference to observable index prices.

Unlisted equity securities (Level 3)

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

The valuation is most sensitive to the level of underlying net assets, the euro exchange rate, the price-to-book ratio chosen, together with an illiquidity margin and credit rating adjustment applied to the valuation to account for the risks associated with holding the asset. If the price-to-book ratio and illiquidity discount applied changed by +/- 10% the value of unlisted equity securities could move by +/- GBP3m.

The increase in value during the period is the result of an increase in underlying net assets, partially offset by the movement in the euro exchange rate, with the other inputs remaining unchanged from the year end.

Unlisted debt (Level 3)

Unlisted debt is valued using an adjusted net asset method whereby management uses a look-through approach to the underlying assets supporting the loan, discounted using observable market interest rates of similar loans with similar risk, and allowing for unobservable future transaction costs. Where material, these valuations are reviewed by the Group Audit Committee.

The valuation is most sensitive to the level of underlying net assets but it is also sensitive to the interest rate used for discounting and the projected date of disposal of the asset, with the exit costs sensitive to an expected return on capital of any purchaser and estimated transaction costs. Reasonably likely changes in unobservable inputs used in the valuation would not have a significant impact on shareholders' equity or the net result.

There has been no change in the value of unlisted debt during the period.

11. Disposal of business

Ecclesiastical Financial Advisory Services Limited, which is included in the Broking and Advisory segment, ceased to offer new mortgages following a strategic review in 2007, although it continued to administer the existing book. Management decided to dispose of the mortgage book in order to more clearly focus their attention on the core business operations. During the prior year, the company entered into an agreement to transfer its legacy mortgage business to Holmesdale Building Society. The transfer was completed on 1 February 2015.

 
                                                    GBP000 
 The net assets at the date of disposal were: 
 
 Financial investments                               6,084 
 
 Consideration and costs of sale: 
 
 Cash received                                     (5,260) 
 Contingent consideration arrangement                (824) 
 Sale costs and related net expenses                    19 
 Loss on disposal                                       19 
                                                  -------- 
 

The net cash inflow arising on disposal was GBP5,260,000.

The deferred consideration will be settled over the next seven years and is dependent on the development of the mortgage book.

12. Non-adjusting events after the reporting period

A change in the UK standard rate of corporation tax was announced in the Budget on 8 July 2015. It is expected that the rate will reduce from 20% to 19% in 2017 and to 18% in 2020. These changes have yet to be substantively enacted.

INDEPENDENT REVIEW REPORT TO ECCLESIASTICAL INSURANCE OFFICE PLC

Introduction

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